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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 19, 1999
REGISTRATION NO. 333-72889
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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MULTI-LINK TELECOMMUNICATIONS, INC.
(Name of small business issuer in its charter)
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COLORADO 7389 84-1334687
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
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811 LINCOLN STREET, SUITE 500 NIGEL V. ALEXANDER
DENVER, COLORADO 80203 811 LINCOLN STREET, SUITE 500
(303) 831-1977 DENVER, COLORADO 80203
(Address and telephone number of (303) 831-1977
principal executive offices and (Name, address and telephone number of
address of principal place of agent for service)
business)
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With Copies to:
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THOMAS S. SMITH, ESQ. ROBERT W. WALTER, ESQ.
KEVIN J. KANOUFF, ESQ. BERLINER ZISSER WALTER & GALLEGOS,
SMITH MCCULLOUGH, P.C. P.C.
4643 SOUTH ULSTER STREET, SUITE 900 1700 LINCOLN STREET, SUITE 4700
DENVER, COLORADO 80237 DENVER, COLORADO 80203
(303) 221-6000 (303) 830-1700
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
following the date on which the Registration Statement becomes effective.
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. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE REGISTRATION FEE(1)
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Units Consisting of.............................. 1,380,000 Units $6.00 $8,280,000 $2,302.00
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(a) One Share of Common Stock.................. 1,380,000 Shares
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(b) One Warrant................................ 1,380,000 Warrants
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Representative's Option for the Purchase of
Units(3)....................................... 1 Warrant $100.00 $100 $1.00
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Units Underlying Representative's Option for the
Purchase of Units Consisting of (2)(4)......... 120,000 Units $7.20 $864,000 $241.00
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(a) One Share of Common Stock.................. 120,000 Shares
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(b) One Warrant................................ 120,000 Warrants
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Common Stock(2)(5)............................... 750,000 Shares $9.00 $6,750,000 $1,877.00
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Total............................................ $15,894,100 $4,421.00
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(1) Estimated pursuant to Rule 457(o) under the Securities Act of 1933 solely
for the purpose of calculating the registration fee.
(2) In accordance with Rule 416 under the Securities Act of 1933, a presently
indeterminable number of shares of common stock are registered hereunder
which may be issued in the event provisions preventing dilution become
operative, as provided in the warrants and in the representative's option
for the purchase of units. No additional registration fee has been paid for
these shares of common stock.
(3) To be issued to the representative of the underwriters.
(4) Issuable upon exercise of the representative's option for the purchase of
units.
(5) Issuable upon exercise of the warrants, including the warrants contained in
the units underlying the representative's option for the purchase of units.
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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[The following text appears in a two page gate fold with graphic art and
pictures]
Multi-Link Telecommunications, Inc.
Providing Advanced Messaging Services
Solving These Problems
I have voice mailboxes for my office, mobile phone,
pager and at home. I really wish all my messages
could be left in the same mailbox so I have only
one place to check for all messages.
People trying to reach me have to try so many
different numbers...the office, mobile phone,
pager, or my home.
It would be so much easier if they only had to call
one number to reach me, no matter where I was. It
would be even better if I could screen those calls
to find out which were important and which were
not.
Let's see. I have voice messages, faxes and e-mail.
People leave these messages in different ways and I
have to retrieve them from different devices.
What a wonderful world it would be if all these
types of messages could be stored in the same place
and I could retrieve them from a telephone or
computer, no matter where I was.
KEEPING YOU IN TOUCH
Multi-Link maintains a web site on the World Wide Web at www.multilinkcom.com.
The information on Multi-Link's web site is not a part of this prospectus.
Going Beyond Traditional
Voice Mail and Voice
Messaging
Voice Mail................. A single mailbox for all calls to the office
All calls to the office that are not answered are
transferred to a single mailbox.
Voice Messaging............ A directory and personal mailbox for each employee
Callers may reach personal mailboxes through an
automated directory, by calling mailboxes directly,
and by receptionist transfers.
Consolidated Messaging..... Only one mailbox to check for messages
No matter where a caller tries to reach you, home,
office, mobile,... if you can't take the call, they
are transferred to the same mailbox.
One Number Service......... Callers only ever need to dial one number to speak
to you
Callers who reach your mailbox can leave a message
or use the Constant Touch service to locate you.
When activated, the service dials all your chosen
devices and tells you who is calling. You decide
whether to connect with them, return them to voice
mail, or disconnect immediately.
Unified Messaging.......... Voice, fax, and e-mail messages are stored in the
same mailbox
Voice, fax, and e-mail messages are stored in the
same mailbox. You can retrieve these messages from
a telephone, personal computer or fax machine.
E-mail integration available in late 1999.
Multi-Link Telecommunications -- Providing Advanced Messaging Services
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THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES NOR DOES IT SEEK TO BUY
THESE SECURITIES IN ANY JURISDICTIONS WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED APRIL 19, 1999
1,200,000 UNITS
MULTI-LINK TELECOMMUNICATIONS, INC.
"KEEPING YOU IN TOUCH"
[MULTI-LINK LOGO]
1,200,000 SHARES OF COMMON STOCK
AND 1,200,000 WARRANTS
This is an initial public offering of units of Multi-Link
Telecommunications, Inc. The public offering price is $6.00 per unit.
Multi-Link will list the common stock and warrants on The Nasdaq SmallCap
Market under the symbols "MLNK" and "MLNKW."
THESE ARE SPECULATIVE SECURITIES AND INVESTORS WILL EXPERIENCE SIGNIFICANT
DILUTION. INVESTING IN THE UNITS INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
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PER UNIT TOTAL
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Public offering price....................................... $6.00 $7,200,000
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Underwriting discounts...................................... $0.60 $ 720,000
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Proceeds to Multi-Link...................................... $5.40 $6,480,000
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The underwriters have a 45-day option to purchase an additional 180,000
units from Multi-Link.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SCHNEIDER SECURITIES, INC.
PROSPECTUS DATED , 1999
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PROSPECTUS SUMMARY
MULTI-LINK
Multi-Link provides integrated voice and fax messaging services for small
and medium sized businesses. These services enable businesses to improve the
handling of incoming calls and can be used with an automated attendant service
to replace receptionists. Multi-Link's voice messaging services can produce
improved efficiency and cost savings for the subscriber by offering
comprehensive voice messaging solutions. Multi-Link's integrated messaging
system:
- provides personal mailboxes that can be linked to office, mobile and home
telephones, eliminating the need to check multiple mailboxes and
providing cost savings through the termination of multiple mailbox
charges;
- provides immediate notification to a subscriber's mobile phone or digital
pager that the subscriber has new messages;
- automatically transfers important calls to the subscriber's office,
mobile telephone, pager and home phones to eliminate the need for callers
to try other numbers in an attempt to reach the subscriber; and
- will soon offer, using a portion of the proceeds from this offering, a
unified messaging service which will enable the subscriber to receive
voice, fax and Internet based e-mail messages in one mailbox.
Multi-Link's target customers are small and medium sized businesses that
choose to subscribe to a messaging service rather than invest in their own
equipment. Multi-Link currently provides its voice messaging services to
approximately 5,000 businesses with approximately 16,000 individual users.
Management estimates that the revenues of the North American voice
messaging services industry were approximately $2.67 billion in 1997 and that
the industry is highly fragmented with approximately 4,200 small businesses
across North America providing voice messaging services. Multi-Link intends to
use a portion of the proceeds from this offering to acquire voice messaging
companies. Multi-Link believes that some of the 4,200 small businesses will be
receptive to acquisition proposals because Multi-Link could:
- offer an opportunity to realize a combination of liquidity and upside
potential through stock ownership;
- provide access to the capital necessary to acquire leading technologies;
and
- alleviate competitive pressures through access to greater marketing
resources and cost savings through centralized administration.
Multi-Link intends to provide its technology, capital and marketing resources to
each acquired business.
The principal components of Multi-Link's business strategy are to:
- increase its base of subscribers through sales by its growing network of
independent sales agents;
- provide an increasingly broad range of telecommunications services to its
customers, including Internet based e-mail and other Internet related
messaging services;
- acquire voice messaging companies in various geographic locations; and
- increase the number of independent sales agents selling its services.
Multi-Link's principal executive offices are 811 Lincoln Street, Suite 500,
Denver, Colorado 80203. Multi-Link's telephone number is (303) 831.1977 and its
facsimile number is (303) 831.1988.
1
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THE OFFERING
Securities offered......... 1,200,000 units, each unit consisting of one share
of common stock and one warrant.
Warrant attributes......... Two warrants are exercisable to purchase one share
of common stock for an exercise price of $9.00 per
share during the three years ending
, 2002, subject to Multi-Link's
redemption rights.
Shares of common stock to
be outstanding after the
offering................. 2,891,542 shares.
Unless the context otherwise requires, use of the term "Multi-Link" in this
prospectus includes Multi-Link's 97.5% owned subsidiary, Multi-Link
Communications, Inc.
All share figures in this prospectus have been adjusted to reflect a 3 for
5 reverse split of Multi-Link's common stock that was effective on February 2,
1999. Unless otherwise stated, all information in this prospectus assumes no
exercise of the over-allotment option by the underwriters.
2
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes the financial data of Multi-Link's business.
The consolidated balance sheet data includes a column entitled "As Adjusted"
that reflects the sale of 1,200,000 units at an offering price of $6.00 per
unit, net of estimated offering costs totaling $1,194,000. You should refer to
the consolidated financial statements included elsewhere in this prospectus for
a more complete description of the financial condition of Multi-Link.
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THREE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31,
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1997 1998 1997 1998
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CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) DATA:
Net revenues................................. $1,154,161 $1,859,276 $ 413,046 $ 512,714
Cost of services and products................ 348,413 371,391 92,933 95,994
Gross margin................................. 805,748 1,487,885 320,113 416,720
Total operating expenses..................... 1,606,997 1,019,984 326,550 229,060
Income (loss) from operations................ (801,249) 467,901 (6,437) 187,660
Interest income (expense).................... (437,198) (635,518) (137,656) (103,134)
Net income (loss) and comprehensive profit
(loss)..................................... (1,238,447) (167,617) (144,093) 84,526
Net income (loss) per share of common
stock -- basic and diluted................. $ (0.89) $ (0.11) $ (0.10) $ 0.05
Weighted average common stock outstanding
-- basic................................... 1,392,568 1,496,905 1,490,698 1,632,325
-- diluted................................. 1,392,568 1,496,905 1,490,698 1,750,020
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DECEMBER 31, 1998
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SEPTEMBER 30, 1998 ACTUAL AS ADJUSTED
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CONSOLIDATED BALANCE SHEET DATA:
Cash............................................... $ 555,852 $ 188,574 $3,994,574
Working capital (deficit).......................... (455,362) (45,406) 3,786,693
Total assets....................................... 1,746,715 1,677,817 5,733,817
Long-term liabilities.............................. 2,469,872 2,415,291 491,390
Total stockholders' equity (deficit)............... (1,838,655) (1,373,949) 4,632,051
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THREE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31,
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1997 1998 1997 1998
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CONSOLIDATED STATEMENT OF CASH FLOWS AND OTHER
DATA:
Cash flow used in operating activities......... $(966,790) $(109,431) $(115,029) $(190,363)
Cash flow used in investing activities......... (38,446) (265,834) -- (303,756)
Cash flow provided by financing activities..... 999,539 914,137 117,517 126,841
EBITDA (loss).................................. (734,306) 590,088 15,181 236,749
</TABLE>
The row entitled "EBITDA" reflects net income or loss plus depreciation,
amortization and interest expense, income taxes and other non-cash charges.
EBITDA is a measure used by analysts and investors as an indicator of operating
cash flow because it excludes the impact of movements in working capital items,
non-cash charges and financing costs. However, EBITDA is not a measure of
financial performance under generally accepted accounting principles and should
not be considered a substitute for other financial measures of performance.
3
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RISK FACTORS
Some of the statements contained in this prospectus under "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" are forward-looking. They
include statements that involve risks and uncertainties that might adversely
affect Multi-Link's operating results in the future in a material way. Such
risks and uncertainties include:
- the availability and cost of future acquisitions;
- the effects of regional economic and market conditions on Multi-Link's
employee salaries and benefits and its ability to secure and keep
customers;
- increases in marketing and sales costs;
- intensity of competition for customers;
- costs of technologies; and
- availability of financing.
Most of these risks are beyond Multi-Link's control. Actual results may differ
materially from those suggested by the forward-looking statements for various
reasons, including those discussed below.
You should carefully consider the following factors and other information
in this prospectus before deciding to invest in the units.
MULTI-LINK HAS BEEN OPERATING ITS BUSINESS ONLY SINCE FEBRUARY 1996
Multi-Link began voice messaging operations by completing an acquisition of
a voice messaging business in February 1996. Accordingly, Multi-Link has a
limited operating history upon which you may evaluate it. This limited operating
history makes predicting Multi-Link's future operating results difficult.
MULTI-LINK HAS AN ACCUMULATED DEFICIT, HAS ONLY RECENTLY ACHIEVED PROFITABILITY
AND ITS LONG-TERM SUCCESS IS NOT ASSURED
Multi-Link generated net income of $85,000 in the three months ended
December 31, 1998. Multi-Link incurred net losses of approximately $1.2 million
in fiscal 1997 and approximately $168,000 in fiscal 1998. In addition,
Multi-Link has an accumulated stockholders' deficit of $1.4 million. Although
Multi-Link's revenues have grown in recent periods, they may not continue to
grow or even continue at their current level. Multi-Link's expenses may increase
in future periods due to:
- goodwill and other amortized charges resulting from future acquisitions,
including acquisitions of subscriber accounts and subscriber lists;
- planned equipment purchases; and
- increases in sales and marketing activities.
If any of these expenses are not accompanied by increased revenues, Multi-Link's
business, financial condition and operating results will be materially adversely
affected.
MULTI-LINK CURRENTLY RELIES HEAVILY ON ONE INDEPENDENT SALES AGENCY
Approximately 86% of Multi-Link's sales are obtained through one
independent sales agency, Telcom Sales Associates, Inc., or "Telcom." The loss
of Telcom would adversely affect Multi-Link's future subscriber and revenue
growth in its current market. Multi-Link's agreement with Telcom is terminable
by either party upon 30 days notice and without cause. Such termination would
materially adversely affect Multi-Link's business, financial condition and
operating results.
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MULTI-LINK EXPECTS TO CONTINUE TO RELY ON INDEPENDENT SALES AGENTS TO MARKET ITS
SERVICES IN THE FUTURE
Multi-Link anticipates continuing to use independent sales agents to market
its services. The use of third parties to market its services may expose
Multi-Link to risks such as:
- increase in commissions or other compensation charged by independent
sales agents;
- inability to exercise control over the sales and marketing activities of
the independent sales agents; and
- termination of agreements with independent sales agencies on short
notice.
Multi-Link may be forced to adopt new and more costly methods of marketing
its services if the use of independent sales agents is ineffective.
MULTI-LINK FACES INTENSE COMPETITION FROM LARGER VOICE MESSAGING AND RELATED
SERVICE PROVIDERS
Multi-Link competes primarily with US West, a baby bell, and expects to
compete with other national, regional and local telecommunications companies as
it expands. Most of Multi-Link's competitors have greater name recognition and
greater financial, marketing and other resources than Multi-Link. This may place
Multi-Link at a disadvantage in responding to its competitors' pricing
strategies, technological advances, advertising campaigns and other initiatives.
If Multi-Link is unable to compete successfully against its competitors, its
business, financial condition and operating results will be adversely affected.
MULTI-LINK MAY LOSE CUSTOMERS AND REVENUES IF ITS VOICE MESSAGING EQUIPMENT
FAILS
Multi-Link depends on the efficient and uninterrupted operation of its
voice messaging equipment, referred to as voice messaging platforms, to deliver
service to its customers. Any sustained service interruption for customers could
materially adversely affect its business, financial condition and operating
results. For instance, Multi-Link's facility was struck by lightning in 1998,
causing damage to the platforms and a temporary disruption in Multi-Link's
services. While the platforms were soon after repaired and have since operated
normally, this event resulted in a loss of subscribers and a decrease in
revenues. Similar service interruptions could result from natural disasters as
well as power loss, telecommunications failure and similar events. Multi-Link's
insurance may not provide sufficient coverage for these events and its operating
results could suffer if losses exceed Multi-Link's coverage.
THE VOICE MESSAGING AND RELATED SERVICES MARKET IS CHARACTERIZED BY RAPID
TECHNOLOGICAL CHANGE
Multi-Link's success depends on its ability to remain competitive in cost
and services provided. There can be no assurance that Multi-Link can acquire
superior technologies as needed. If Multi-Link is unable to successfully respond
to technological developments or acquire technologies in a cost effective way,
Multi-Link's business, financial condition and operating results will be
materially adversely affected. To be successful, Multi-Link must:
- continually improve its services on a cost-effective basis;
- develop and offer new features and services to meet customer needs; and
- adopt Internet based messaging and other advanced technologies that
achieve widespread acceptance.
Multi-Link's success will depend in part on Multi-Link's ability to
purchase or license leading technologies necessary to remain competitive.
Licensing these technologies may require Multi-Link to pay royalties,
maintenance and other fees that reduce operating margins.
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MULTI-LINK DEPENDS ON US WEST TO PROVIDE INTERCONNECTION TO THE PUBLIC TELEPHONE
NETWORK
Multi-Link relies on US West for interconnection to the public telephone
network. The inability of US West to provide Multi-Link with interconnection
would materially adversely affect Multi-Link's business, financial condition and
operating results. In this event, Multi-Link would have to establish a new
connection to the public telephone network, possibly resulting in interrupted
service. Multi-Link could lose subscribers if such a disruption occurred.
RESTRICTIONS IMPOSED BY MULTI-LINK'S CURRENT LOAN AGREEMENT
The agreement between Multi-Link and its primary lender contains
restrictions on changes in Multi-Link's capitalization that are based on
comparisons between cash flow and liabilities. A violation of these restrictions
could accelerate Multi-Link's repayment obligation. Multi-Link must obtain the
prior written consent of its lender to:
- incur additional debt;
- make capital expenditures exceeding certain limits; and
- pay dividends.
Multi-Link may not have sufficient resources to repay the loan if it is
accelerated. Nonpayment of the loan allows the lender to foreclose on
Multi-Link's assets and would materially adversely affect Multi-Link's business.
DEPENDENCE ON MULTI-LINK'S KEY PERSONNEL
Multi-Link believes that its ability to successfully implement its business
strategy and to operate profitably depends on Nigel V. Alexander and Shawn B.
Stickle, both directors and officers, continuing to render their services to
Multi-Link. If Mr. Alexander or Mr. Stickle become unable or unwilling to
continue in their present positions, Multi-Link's growth, business and financial
results could be materially adversely affected. Multi-Link has a three year
employment agreement with Mr. Stickle and a three year consulting agreement with
Mr. Alexander's company, Octagon Strategies, Inc. Multi-Link currently does not
have "key man" life insurance on either officer. Multi-Link intends to obtain
key man life insurance policies in the face amounts of $1,000,000 each on both
Mr. Alexander and Mr. Stickle within 90 days after this offering.
MULTI-LINK'S EXPANSION WILL REQUIRE ADDITIONAL EMPLOYEES AND TECHNICAL PERSONNEL
Within the next 12 months, Multi-Link plans to expand its employee base to
manage its anticipated growth. Competition for personnel, particularly for
employees with technical expertise, is intense. Multi-Link's business, financial
condition and operating results will be materially adversely affected if it
cannot hire and retain suitable personnel.
MULTI-LINK'S BUSINESS MAY BE ADVERSELY AFFECTED BY THE APPLICATION OF FUTURE
COMMUNICATIONS INDUSTRY REGULATIONS
Multi-Link is not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally. Multi-Link's
suppliers are subject to varying degrees of federal, state and local regulation,
including by the Federal Communications Commission. The FCC has adopted
regulations that, among other things, set installation and equipment standards
for communications systems. Future regulations applicable to Multi-Link's
suppliers could be adopted by the FCC or other regulatory bodies. If these
regulations are adopted and adversely impact Multi-Link's suppliers, its
business, financial condition and operating results may be materially adversely
affected.
Multi-Link anticipates offering Internet based messaging services in the
future. There are currently few laws or regulations specifically addressing the
Internet. Due to the increasing use and growth of the
6
<PAGE> 10
Internet, it is possible that such regulations may be adopted. This could
require Multi-Link to make significant expenditures or to modify any Internet
based services it then provides. Security breaches in Multi-Link's proposed
Internet service that result in unauthorized access to confidential information
could damage Multi-Link's reputation and expose it to a risk of loss or
liability. Multi-Link may be required to make significant investments to protect
against or remedy security breaches that may occur.
EFFECTIVELY MANAGING MULTI-LINK'S GROWTH MAY BE DIFFICULT
Multi-Link has grown and expects to continue to grow rapidly by acquiring
voice messaging companies and adding new services and subscribers. This growth
is likely to place a significant strain on Multi-Link's resources and systems.
To manage its growth, Multi-Link must continue to implement effective systems
and hire additional employees. Multi-Link cannot assure you that its management
will be able to effectively or successfully manage its growth. Failure to manage
this growth could have a material adverse effect on Multi-Link's business,
financial position and operating results.
MULTI-LINK'S ACQUISITIONS MAY BE UNSUCCESSFUL DUE TO AN INABILITY TO RETAIN
CUSTOMERS, A FAILURE TO INTEGRATE THE ACQUISITION OR A FAILURE TO MEET FINANCIAL
OBJECTIVES
Multi-Link's acquisition strategy is subject to the following risks:
- Multi-Link may be unsuccessful in retaining the customer base of specific
acquisitions;
- Multi-Link may be unable to successfully integrate services and personnel
of any acquisition into its operations; and
- acquisitions could result in charges to its earnings for the excess of
the purchase price over book value, commonly known as amortization of
goodwill, or other expenses that adversely affect its operating results.
THE FINANCE CHARGES ASSOCIATED WITH ANTICIPATED ADDITIONAL EQUIPMENT PURCHASES
MAY ADVERSELY AFFECT MULTI-LINK'S PROFITABILITY
Multi-Link expects to purchase additional voice messaging platforms and
accompanying software licenses. If financing for these purchases is not
available at an acceptable cost, Multi-Link's financial condition may be
materially adversely affected. This may reduce Multi-Link's future
profitability, if any.
MULTI-LINK'S SUPPLIERS MAY NOT BE YEAR 2000 COMPLIANT
Multi-Link relies on certain suppliers to provide its voice messaging
service. A regional or national failure in the telephone network or power grid
would prevent Multi-Link from servicing its customers and generating revenues.
Such failure would materially adversely affect Multi-Link's business, financial
condition and operating results. Multi-Link has no contingency plan for
occurrence of these events.
YOU MAY BE UNABLE TO EXERCISE MULTI-LINK'S WARRANTS IF MULTI-LINK REDEEMS THE
WARRANTS OR IS UNABLE TO QUALIFY ITS SECURITIES UNDER APPLICABLE SECURITIES LAWS
You will own one warrant for each unit purchased. You may purchase one
share of common stock through the exercise of two warrants on payment of the
$9.00 exercise price. You may only exercise your warrants if a registration
statement relating to the common stock underlying the warrants is then in effect
and Multi-Link has complied with applicable state securities laws. There is a
risk that Multi-Link may be unsuccessful in maintaining a current registration
statement covering the common stock underlying the warrants. Multi-Link may not
be able to obtain the financial statements necessary to maintain a current
registration statement covering the common stock underlying the warrants. As a
result, you may be unable to exercise the warrants for this or other reasons.
Your warrants may also be redeemed by Multi-Link under certain circumstances.
Your warrants may be exercised during the notice period prior to the date of
redemption. If you do not exercise your warrants prior to the redemption date,
you will only be entitled to receive the redemption price of $0.05 per warrant.
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ANTI-TAKEOVER PROVISIONS AND THE RIGHT TO ISSUE PREFERRED STOCK COULD MAKE A
THIRD PARTY ACQUISITION OF MULTI-LINK DIFFICULT
Anti-takeover provisions in Multi-Link's charter documents and under
applicable law could make it more difficult for a third party to acquire control
of it, even if such change in control would be beneficial to stockholders.
Multi-Link's restated articles of incorporation provide that its board of
directors may issue preferred stock without stockholder approval. In addition,
Multi-Link's bylaws provide for a classified board, with each board member
serving staggered terms. The issuance of preferred stock and the existence of a
classified board could make it more difficult for a third-party to acquire
Multi-Link.
MULTI-LINK'S SECURITIES' PRICES ARE LIKELY TO BE HIGHLY VOLATILE
The market prices of Multi-Link's common stock and warrants are likely to
be highly volatile. Multi-Link cannot assure you that its securities will trade
at the same levels of other telecommunications related stocks in general, or
that Multi-Link's common stock and warrants will sustain the initial offering
price of the units. Factors that could cause such volatility may include:
- actual or anticipated variations in Multi-Link's quarterly operating
results;
- announcements of technological innovations in the telecommunications and
voice messaging industry;
- development of new sales channels or new products or services by
Multi-Link;
- changes in financial estimates by securities analysts;
- conditions or trends in the telecommunications or voice messaging
industry;
- changes in the market valuations of other telecommunications or voice
messaging companies;
- announcements by Multi-Link or its competitors of significant
acquisitions;
- capital commitments by Multi-Link;
- additions or departures of Multi-Link's key personnel; and
- sales of common stock by Multi-Link's current stockholders.
Many of these factors are beyond Multi-Link's control. These factors may
materially adversely affect the market price of Multi-Link's common stock and
warrants, regardless of Multi-Link's operating performance.
MULTI-LINK HAS BROAD DISCRETION TO USE THE OFFERING PROCEEDS
Multi-Link has not designated any specific use for some of the net proceeds
of this offering and, in certain circumstances, may alter the use of the net
proceeds of this offering. Management will have significant discretion in
applying the net proceeds of this offering. You will not have the opportunity to
evaluate the economic, financial or other information on which Multi-Link bases
its decisions on how to use these proceeds.
8
<PAGE> 12
ADDITIONAL INFORMATION
Multi-Link has filed with the SEC a registration statement under the
Securities Act of 1933 with respect to the securities offered. This prospectus,
filed as part of the registration statement, does not contain certain
information contained in the registration statement required by the rules and
regulations of the SEC. For further information, please see the registration
statement and its exhibits, which may be inspected without charge at the
principal office of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the material contained in the registration statement and its exhibits
may be obtained from the SEC upon payment of applicable copying charges.
Statements contained in this prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance you should
refer to the copy of such contract or other document filed as an exhibit to the
registration statement.
On completion of this offering, Multi-Link will be subject to the reporting
and other informational requirements of the Securities Exchange Act of 1934 and
will file reports and other information with the SEC. Such reports, proxy
statements and other information, once filed by Multi-Link, can be inspected and
copied at the public reference facilities maintained by the SEC and at the SEC's
regional offices at Northwest Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, New York, New York
10048. Information on the operations of the Public Reference Room may be
obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site
on the Internet that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the SEC. The
address of such site is http://www.sec.gov.
Multi-Link intends to furnish annual reports to stockholders containing
audited financial statements and will also make available quarterly reports and
such other periodic reports as it may determine to be appropriate or as may be
required by law.
9
<PAGE> 13
USE OF PROCEEDS
The net proceeds from the sale of the units are estimated to be
approximately $6,006,000 ($6,945,600 if the underwriters' over-allotment option
is fully exercised). Multi-Link intends to allocate the net proceeds as follows:
<TABLE>
<CAPTION>
USE PROCEEDS PERCENT
- --- ---------- -------
<S> <C> <C>
Repayment of a revolving loan from Westburg Media Capital,
LP........................................................ $2,140,000 35.63%
Payment of sales commissions to independent agents.......... 1,000,000 16.65
Purchase of unified internet messaging equipment............ 250,000 4.17
Acquiring voice messaging businesses subject to the criteria
below..................................................... 2,000,000 33.30
Working capital............................................. 616,000 10.25
========== ======
Total....................................................... $6,006,000 100.00%
</TABLE>
The revolving loan from Westburg Media Capital, L.P. to be repaid was used
by Multi-Link for working capital and to repay other indebtedness, is evidenced
by two promissory notes that bear interest at a rate of prime rate plus three
percent and, after it is repaid, will continue to be available to be drawn on by
Multi-Link. The use of proceeds from this offering to repay debt will benefit
two officers and directors that provided personal guarantees to a lender. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Management -- Certain Transactions" for more detailed
descriptions of this loan and the personal guarantees.
Voice Messaging businesses that Multi-Link will consider acquiring will
likely:
- be established in a larger, urban North American market;
- service a critical mass of business subscribers;
- use older and easily replaceable or upgradeable voice messaging
equipment;
- be owned by an individual interested in continuing some management
responsibilities and receiving stock as partial consideration for the
purchase; and
- have facilities that can support expansion.
Multi-Link has no present commitments, agreements or understandings with respect
to any such acquisitions.
Working capital will be used to pay such items as the payment of rent,
office expenses, equipment, equipment repairs, salaries and Multi-Link's other
day-to-day costs of doing business. If the over-allotment option is exercised by
the underwriters or if warrants are exercised, Multi-Link will allocate the
additional proceeds to acquisitions and working capital.
The foregoing represents Multi-Link's best estimate of the uses of the net
proceeds to be received in this offering, based on current planning and business
conditions. However, Multi-Link reserves the right to change such uses when and
if market conditions or unexpected changes in operating conditions or results of
operations occur. The amounts actually expended for each use may vary
significantly depending upon a number of factors including, but not limited to,
future acquisitions and the amount of cash generated by Multi-Link's operations.
Multi-Link believes that its existing capital resources and the net proceeds of
this offering will be sufficient to maintain its current and planned operations
for a period of at least 12 months from the date of this prospectus. Net
proceeds not immediately required for the purposes described above will be
invested principally in investment grade, interest-bearing securities.
10
<PAGE> 14
DIVIDEND POLICY
Multi-Link has never declared or paid any dividends or distributions on its
common stock. The amount of cash dividends that Multi-Link may pay without the
consent of its primary lender is limited by Multi-Link's loan agreement.
Multi-Link anticipates that for the foreseeable future all earnings will be
retained for use in Multi-Link's business and no cash dividends will be paid to
stockholders. Any payment of cash dividends in the future on the common stock
will be dependent upon Multi-Link's financial condition, results of operations,
current and anticipated cash requirements, plans for expansion, restrictions, if
any, under debt obligations, as well as other factors that the board of
directors deems relevant.
DILUTION
As of December 31, 1998, Multi-Link had a net tangible book value (deficit)
of $(1,771,853) or $(1.05) per share of common stock. After giving effect to the
sale of the 1,200,000 units offered in this prospectus at an offering price of
$6.00 per unit, the pro forma net tangible book value of Multi-Link as of
December 31, 1998, would have been $4,274,967 or $1.48 per share of common
stock. This amount represents an immediate increase in pro forma net tangible
book value of $2.53 per share of common stock to the existing holders of common
stock and an immediate dilution of $4.52 per share of common stock to new
investors. For purposes of dilution, all of the offering price of a unit has
been attributed to the common stock and none of the offering price has been
attributed to the warrants. "Dilution" is determined by subtracting pro forma
net tangible book value per share of common stock after the offering from the
offering price per share of common stock, as illustrated by the following table:
<TABLE>
<S> <C> <C>
Public offering price per share of common stock............. $6.00
Net tangible book value (deficit) per share of common stock
as of December 31, 1998................................... $(1.05)
Increase in pro forma net tangible book value per share of
common stock attributable to new investors................ 2.53
------
Pro forma net tangible book value per share of common stock
after the offering........................................ 1.48
-----
Dilution per share of common stock to new investors......... $4.52
=====
Dilution per share of common stock to new investors as a
percentage................................................ 75%
=====
</TABLE>
The following table sets forth as of December 31, 1998, the number of
shares of common stock acquired, the total cash consideration paid and the
average cash price per share of common stock paid to Multi-Link by Multi-Link's
existing stockholders and by new investors (assuming the sale of 1,200,000 units
at $6.00 per unit, before deduction of underwriting discounts and other
estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED CASH CONSIDERATION
------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 1,691,542 58.50% $ 955,000 11.71% $0.56
New investors........................... 1,200,000 41.50 7,200,000 88.29 6.00
--------- ------ ---------- ------
Total......................... 2,891,542 100.00% $8,155,000 100.00%
========= ====== ========== ======
</TABLE>
The foregoing information assumes no exercise of the warrants included in
the units, no exercise of currently outstanding options and warrants and no
exercise of the representative's option for the purchase of units. See
"Management -- Stock Option Plan," "Description of Securities" and
"Underwriting" for more in depth descriptions of these options and warrants. To
the extent that currently outstanding options or warrants are exercised at
prices below $6.00 per share, there will be further dilution to new investors.
11
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of Multi-Link as of
December 31, 1998, and as adjusted for the sale of the 1,200,000 units offered
at an offering price of $6.00 per unit (after deducting underwriting discounts
and estimated offering expenses) and excludes:
- 468,500 shares of common stock issuable on exercise of outstanding
options and warrants;
- 600,000 shares of common stock issuable on exercise of the warrants
included in the units; and
- 120,000 units issuable on exercise of the representative's option.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Long term debt (net of current portion)..................... $ 2,415,291 $ 491,390
=========== ===========
Stockholders' equity:
Preferred stock, par value $.01 per share; 5,000,000
shares authorized; no shares issued or outstanding, as
adjusted............................................... $ 0 $ 0
Common stock, no par value; 20,000,000 shares authorized;
1,691,542 shares issued and outstanding, 2,891,542
shares issued and outstanding, as adjusted............. 822,771 6,828,771
Accumulated deficit....................................... (2,196,720) (2,196,720)
----------- -----------
Total stockholders' equity (deficit)........................ $(1,373,949) $ 4,632,051
=========== ===========
</TABLE>
12
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
The data for the three months ended December 31, 1998 include, in the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of Multi-Link's financial
position at those dates and results of operations for those periods. The results
of operations for the three months ended December 31, 1998 are not necessarily
indicative of the results to be expected for the full year or future periods.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31,
------------------------ -----------------------
1997 1998 1997 1998
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) DATA:
Net revenues................................ $ 1,154,161 $1,859,276 $ 413,046 $ 512,714
Cost of services and products............... 348,413 371,391 92,933 95,994
Gross margin................................ 805,748 1,487,885 320,113 416,720
Total operating expenses.................... 1,606,997 1,019,984 326,550 229,060
Income (loss) from operations............... (801,249) 467,901 (6,437) 187,660
Interest income (expense)................... (437,198) (635,518) (137,656) (103,134)
Net income (loss) and comprehensive profit
(loss).................................... (1,238,447) (167,617) (144,093) 84,526
Net income (loss) per share of common
stock -- basic and diluted................ (0.89) (0.11) (0.10) 0.05
Weighted average common stock
outstanding -- basic...................... 1,392,568 1,496,905 1,490,698 1,632,325
-- diluted................... 1,392,568 1,496,905 1,490,698 1,750,020
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------
SEPTEMBER 30, 1998 ACTUAL AS ADJUSTED
------------------ ----------- -----------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash............................................... $ 555,852 $ 188,574 $3,944,574
Working capital (deficit).......................... (455,362) (45,406) 3,786,693
Total assets....................................... 1,746,715 1,677,817 5,733,817
Long-term liabilities.............................. 2,469,872 2,415,291 491,390
Total stockholders' equity (deficit)............... (1,838,655) (1,373,949) 4,632,051
</TABLE>
The "As Adjusted" column in the foregoing table reflects the sale of
1,200,000 units at an offering price of $6.00 per unit net of estimated offering
costs totaling $1,194,000.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
------------------------- ---------------------
1997 1998 1997 1998
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF CASH FLOWS AND OTHER DATA:
Cash flow used in operating activities......... $(966,790) $(109,431) $(115,029) $(190,363)
Cash flow used in investing activities......... (38,446) (265,834) -- (303,756)
Cash flow provided by financing activities..... 999,539 914,137 117,517 126,841
EBITDA (loss).................................. (734,306) 590,088 15,181 236,749
</TABLE>
The row entitled "EBITDA" reflects net income or loss plus depreciation,
amortization and interest expense, income taxes and other non-cash charges.
EBITDA is a measure used by analysts and investors as an indicator of operating
cash flow because it excludes the impact of movements in working capital items,
non-cash charges and financing costs. However, EBITDA is not a measure of
financial performance under generally accepted accounting principles and should
not be considered a substitute for other financial measures of performance.
13
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto and the other financial
information included elsewhere in this prospectus. This discussion contains
forward-looking statements that involve risks and uncertainties. Multi-Link's
actual results could differ materially from those anticipated in these forward
looking statements as a result of any number of factors, including those set
forth under "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
Multi-Link provides integrated voice and fax messaging services for small
and medium sized businesses to improve the handling of incoming calls.
Multi-Link's automated attendant services can be used to replace receptionists
and can produce improved efficiency and cost savings for the subscriber.
Multi-Link's revenues are primarily derived from receiving fixed monthly
service fees, installation and set-up charges and sales of ancillary
telecommunications services such as paging. Multi-Link recognizes revenues as it
delivers services. Annual prepayments by subscribers are recognized over the
period covered by the prepayment on a straight-line basis.
Multi-Link's primary costs of delivering its voice messaging services to
its subscribers are its voice messaging platforms, maintenance costs and the
interconnection costs to the US West network. Most of Multi-Link's general and
administrative expenses are incurred in the processing and servicing of new
subscriber accounts.
From inception through December 31, 1997, Multi-Link sold voice messaging
services to businesses through an in-house sales force. All salaries and
commissions associated with Multi-Link's in-house sales force were expensed as
incurred. On December 31, 1997, the in-house sales operations were closed and
Multi-Link began selling through independent sales agents. All commissions paid
to independent agents for procuring subscribers are capitalized and amortized.
Multi-Link's policy is to amortize subscriber account acquisition costs over the
estimated economic life of subscriber accounts or 36 months, whichever is less.
To determine the economic life of subscriber accounts, Multi-Link analyzes the
net reduction in the total amount billed to its existing subscribers each month.
The calculation includes service reductions and service increases to existing
subscribers but excludes new subscriber contracts or subscriber lists purchased
during the period. This enables Multi-Link to project the average subscriber
life across the total existing subscriber base. During fiscal 1998 Multi-Link
experienced an average attrition rate of 1.21% per month, indicating a projected
life of the subscriber portfolio of 83 months. Multi-Link currently amortizes
subscriber account acquisition costs over 36 months.
From inception through September 1998, Multi-Link financed its net losses
through factoring of customer contracts and working capital loans provided by CS
Capital at implied interest rates of up to 52% per annum. In September 1998,
Multi-Link refinanced most of its indebtedness to CS Capital with a five-year
term loan from Westburg Media Capital. The new loan has an interest rate of 3%
per annum over the prime rate. As a result, Multi-Link should experience
significantly lower interest expense in fiscal 1999 than in prior years.
Multi-Link plans to continue to increase its revenues by increasing the
number of independent sales agents that offer Multi-Link's voice messaging
services, by increasing the range of telecommunications services offered by
Multi-Link to its subscribers and by acquiring companies involved in the voice
messaging industry. After completing any such acquisition, Multi-Link plans to
convert the operations of the acquired company to conform to the business model
currently used by Multi-Link, where economically feasible.
14
<PAGE> 18
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net revenues of certain items in Multi-Link's consolidated
statements of operations and comprehensive income (loss). The results of
operations data for the quarter ended December 31, 1998 are not necessarily
indicative of the results to be expected for the full year or future periods.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED QUARTER ENDED QUARTER ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1998 1997 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues............................. 100.0% 100.0% 100.0% 100.0%
Cost of services and products............ 30.2 20.0 22.5 18.7
------ ----- ----- -----
Gross margin............................. 69.8 80.0 77.5 81.3
Sales and advertising expense............ 60.0 8.4 27.8 2.0
General and administrative expense....... 73.4 39.9 46.1 33.2
Depreciation expense..................... 5.4 4.3 4.9 4.2
Amortization expense..................... 0.4 2.2 0.3 5.3
Total operating expenses................. 139.2 54.8 79.1 44.7
------ ----- ----- -----
Income (loss) from operations............ (69.4) 25.2 (1.6) 36.6
Interest income (expense)................ (37.9) (34.2) (33.3) (20.1)
------ ----- ----- -----
Net income (loss) and comprehensive
income (loss).......................... (107.3) (9.0) (34.9) 16.5
====== ===== ===== =====
EBITDA................................... (63.6)% 31.7% 3.7% 46.2%
====== ===== ===== =====
</TABLE>
QUARTER ENDED DECEMBER 31, 1998 COMPARED TO QUARTER ENDED DECEMBER 31,
1997.
Net Revenues. Net revenues for the quarter ended December 31, 1998 were
$513,000 compared to $413,000 for the quarter ended December 31, 1997, an
increase of approximately 24%. This increase reflects the steady net growth in
Multi-Link's base of customers. The messaging services offered by Multi-Link and
the prices charged for such services have not changed since inception. As a
result, the increase in net revenues reflects only the net growth in
Multi-Link's base of customers. Management believes that its base of customers
will continue to grow in the future because management believes it will continue
to have both price and service advantages over its principal competitors.
Cost of Services and Products. Cost of services and products for the
quarter ended December 31, 1998 was $96,000 compared to $93,000 for the quarter
ended December 31, 1997, an increase of 3%. The relative stability of cost of
services and products in relation to the 24% growth in revenues resulted from
operating a network with excess capacity in 1997 and which required only minimal
additional expenditures to provide service for a greater number of customers in
1998.
Gross Profit Margin. Gross profit margin for the quarter ended December 31,
1998 was $417,000 compared to $320,000 for the quarter ended December 31, 1997,
an increase of 30%. The gross profit margin as a percentage of net revenues
increased from 78% to 81%. This increase in gross profit margin resulted from
achieving higher revenues from the same network capacity resulting in more
efficient utilization of fixed asset infrastructure. Management believes that
its current gross profit margins are sustainable because it believes that
Multi-Link will not encounter intense price competition for messaging services
in the near future, it has no present intention of lowering prices and most of
Multi-Link's costs of providing services are not subject to price increases.
Most of Multi-Link's costs of providing services are not subject to price
increases because they relate to charges for interconnection to the US West
telephone network, which are governed by a ten year fixed price agreement.
Sales and Advertising Expenses. Sales and advertising expenses for the
quarter ended December 31, 1998 were $10,000 compared to $115,000 for the
quarter ended December 31, 1997, a decrease of 91%. 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.
15
<PAGE> 19
General and Administrative Expenses. General and administrative expenses
for the quarter ended December 31, 1998 were $170,000 compared to $190,000 for
the quarter ended December 31, 1997, a decrease of 11%. This decrease was due
primarily to lower professional fees.
Depreciation. Depreciation expense increased to $22,000 for the quarter
ended December 31, 1998 from $20,000 for the quarter ended December 31, 1997.
This increase was due to an increase in fixed assets.
Amortization. Amortization of subscriber accounts and goodwill was $27,000
for the quarter ended December 31, 1998 compared to $1,000 for the same period
in 1997. Amortization expense associated with subscriber accounts was first
incurred in 1998 after Multi-Link commenced procuring subscriber accounts
through the base of independent sales agencies as previously described.
Income (Loss) from Operations. The income from operations was $188,000 for
the quarter ended December 31, 1998 compared to a loss from operations of
$(6,000) for the quarter ended December 31, 1997, due to the factors discussed
above.
Interest Income (Expense). Multi-Link's interest income (expense) decreased
to $(103,000) for the quarter ended December 31, 1998 from $(138,000) for the
quarter ended December 31, 1997, a decrease of 25%. Although Multi-Link's total
indebtedness in 1998 was higher than in 1997, 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. See
"Management -- Certain Transactions."
Net Income (Loss) and Comprehensive Income (Loss). Multi-Link realized net
income of $85,000 for the quarter ended December 31, 1998 compared to a net loss
of $(144,000) for the quarter ended December 31, 1997 due to the factors
outlined above. The net loss and comprehensive loss were the same for the
quarters presented. Multi-Link's net income for the quarter ended December 31,
1998 does not reflect an income tax provision because of the utilization of net
operating loss carryforwards.
YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO YEAR ENDED SEPTEMBER 30, 1997.
Net Revenues. Revenues for the year ended September 30, 1998 were
$1,859,000, compared to $1,154,000 for the year ended September 30, 1997, an
increase of 61%. This increase reflects the steady net growth in Multi-Link's
base of customers. The messaging services offered by Multi-Link and the prices
charged for such services have not changed since inception. As a result, the
increase in net revenues reflects only the net growth in Multi-Link's base of
customers. Management believes that its base of customers will continue to grow
in the future because management believes it will continue to have both price
and service advantages over its principal competitors.
Cost of Services and Products. Cost of services and products for the year
ended September 30, 1998 was $371,000, compared to $348,000 for the year ended
September 30, 1997, an increase of 7%. The relative stability of cost of
services and products in relation to the 61% growth in revenues resulted from
operating a network with excess capacity in 1997 which required only minimal
additional expenditures to provide service for a greater number of customers in
1998.
Gross Profit Margin. Gross profit margin for the year ended September 30,
1998 was $1,488,000 compared to $806,000 for the year ended September 30, 1997,
an increase of 85%. The gross profit margin as a percentage of net revenues
increased from 70% to 80%. The increase in gross profit margin resulted from
achieving higher revenues from the same network capacity resulting in more
efficient utilization of fixed asset infrastructure.
Sales and Advertising Expense. Sales and advertising expenses for the year
ended September 30, 1998 were $155,000 compared to $692,000 for the year ended
September 30, 1997, a decrease of 78%. 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.
16
<PAGE> 20
General and Administrative Expenses. General and administrative expenses
for year ended September 30, 1998 were $743,000 compared to $848,000 for the
year ended September 30, 1997. This decrease of 12% was due to a reduction in
personnel expenses during 1998.
Depreciation of Equipment. Depreciation expense in the year ended September
30, 1998 was $81,000 compared to $62,000 for the year ended September 30, 1997.
This increase of 31% was due to increased fixed assets.
Amortization. Amortization of subscriber accounts and goodwill was $42,000
for the year ended September 30, 1998 compared to $5,000 for the year ended
September 30, 1997. Amortization expense associated with subscriber accounts was
first incurred in 1998 after Multi-Link commenced procuring subscriber accounts
through the base of independent sales agents as previously described.
Income (Loss) from Operations. The income from operations was $468,000 for
the year ended September 30, 1998 compared to an operating loss of $(801,000)
for the year ended September 30, 1997, due to the factors discussed above.
Interest Income (Expense). Interest income (expense) for the year ended
September 30, 1998 was $(636,000), compared to $(437,000) for the year ended
September 30, 1997, an increase of 46%. The increase is attributable to an
increase in outstanding borrowings.
Net Income (Loss) and Comprehensive Income (Loss). Multi-Link incurred a
net loss of $(168,000) for the year ended September 30, 1998, compared to a net
loss of $(1,238,000) for the year ended December 31, 1997, a decrease of 86% due
to the factors outlined above. The net loss and comprehensive loss were the same
for fiscal 1998 and 1997.
LIQUIDITY AND CAPITAL RESOURCES
General
Multi-Link has historically had two primary needs for cash: investment in
the equipment necessary to deliver its voice messaging services and the
financing of start-up losses until revenues exceed expenses.
Equipment Financing
Multi-Link paid for its voice messaging equipment with long term financing
provided by Associates Capital Corporation of Illinois. All loans were arranged
on Multi-Link's behalf by Glenayre Electronics, the manufacturer of the
equipment. The loans are repayable monthly over a five-year term with interest
at the rate of 12.7% per annum and are guaranteed by two of Multi-Link's
directors and officers. Currently, monthly payments on the voice messaging
platforms are approximately $18,000. Multi-Link was current on all loan
obligations as of December 31, 1998.
Financing of Operations
From inception through September 1998, Multi-Link financed its operations
from equity contributions, loans from several stockholders, deferred executive
compensation and consulting fees, a factoring facility and several working
capital loans.
In September 1998, Multi-Link obtained a $2.1 million, five-year senior
term loan facility from Westburg Media Capital LP or "Westburg." Multi-Link used
the proceeds of this facility to repay all of the working capital loans,
deferred executive compensation and all of the indebtedness to CS Capital. The
loan from Westburg bears interest at the rate of 3% per annum over prime rate
and is guaranteed by two of Multi-Link's directors and officers. The loan is
collateralized by 960,000 shares of common stock pledged by certain stockholders
and substantially all of the assets of Multi-Link. The loan requires monthly
payments of interest only (currently $17,500 per month) until October 2001, when
regular repayments of $26,900 per month, including interest, commence on the
basis of a ten-year amortization schedule. All outstanding balances are
repayable on October 31, 2003. Under the terms of the loan, Multi-Link's ratio
of debt to annualized cash flow may not exceed 3 to 1 and Multi-Link's ratio of
annualized
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cash flow to interest, principal repayments and taxes may not be less than 1.25
to 1. Additionally, the loan has certain other restrictions including limits on
total indebtedness and lease obligations, limits on capital expenditures and
restrictions on the payment of dividends.
As of December 31, 1998, Multi-Link was current on its obligations to all
lenders and in compliance with all debt covenants.
Cash Flow Information
For the three months ended December 31, 1997 and 1998 net cash used in
operations was approximately $(115,000) and $(190,000), respectively. Net cash
used in investing activities during the three months ended December 31, 1998,
was $304,000, up from $0 for the prior period. Expenditures for fixed assets and
intangibles increased $99,000 during the three months ended December 31, 1998
from $0 for the prior period. Additionally, Multi-Link advanced approximately
$204,000 to Telcom Sales Associates, Inc. during the three months ended December
31, 1998 that was paid back in February 1999. During the three months ended
December 31, 1997 and 1998, cash from financing activities included borrowings
of $561,000 and $229,000, respectively, before note payable payments of $444,000
and $494,000 for the same respective periods. Additionally, net cash from
financing activities included net proceeds of $397,000 from the sale of common
stock during the three months ended December 1998.
For the year ended September 30, 1997 and 1998, net cash used in operations
was approximately $(967,000) and $(109,000), respectively. Net cash used in
investing activities in the year ended September 30, 1998 for the purchase of
fixed assets and intangibles was $(266,000) compared to $(38,000) in the prior
year. During the year ended September 30, 1997 and 1998, cash from financing
activities included borrowings of $1,379,000 and $2,871,000, respectively,
before note payable payments of $380,000 and $1,795,000 for the same respective
periods.
Future Liquidity Considerations
As of December 31, 1998, Multi-Link had a cash balance of $189,000. Upon
completion of this offering Multi-Link will receive minimum net proceeds of
approximately $6,006,000. Approximately $2,140,000 of the proceeds will be used
to repay the indebtedness owed to Westburg. Approximately $1,000,000 of the
proceeds will be used to pay sales agent commissions on expected new business
over the next 12 months. Approximately $250,000 of the proceeds will be used for
the purchase of unified internet messaging equipment. Approximately $2,000,000
of the proceeds will be used to acquire voice messaging businesses. Multi-Link
may pay for such acquisitions by using a portion of the net proceeds of this
offering and by issuing debt and/or equity securities of Multi-Link. Multi-Link
has no present commitments, agreement or understandings with respect to any
acquisitions. Approximately $616,000 of the proceeds will be used for working
capital. Multi-Link intends to use any balance of the proceeds for the
acquisition of voice messaging companies and working capital.
Multi-Link plans to purchase approximately $500,000 worth of additional
voice messaging equipment in the next 12 months. As Multi-Link expands to new
geographic markets, it will purchase this additional voice messaging equipment.
It is Multi-Link's intention to seek five year debt financing for all equipment
purchases. Although there are no assurances, management believes that such
financing will be available on terms no less favorable than Multi-Link has
obtained in the past.
Management anticipates that the net proceeds from this offering, together
with internally generated funds from operations and the $2.1 million Westburg
revolving term loan, will be sufficient to meet Multi-Link's presently projected
cash and working capital requirements for the next 12 months. Pending use of the
proceeds, Multi-Link intends to invest the net proceeds of the offering in
investment grade, interest-bearing securities. See "Use of Proceeds" for a more
detailed discussion of Multi-Link's expected use of proceeds.
In order to raise additional working capital, Multi-Link could make a
limited number of offers and sales of its securities to qualified investors in
transactions that are exempt from registration under the
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securities laws. Such purchasers may acquire Multi-Link's securities on terms
more favorable than offered in this prospectus. The price may not relate to any
ascertainable criterion of value, including the prevailing market price.
Multi-Link may make sales of its securities at a lower price than that of the
units.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information," which is effective for financial statements
with fiscal years beginning after December 15, 1997. Statement No. 131 requires
that public business enterprises report certain information about operating
segments in complete sets of financial statements of the enterprise and in
condensed financial statements of interim periods issued to stockholders.
Statement No. 131 also requires that public business enterprises report certain
information about their products and services, the geographic areas in which
they operate and their major customers.
In February 1998, the Board issued Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," which revises
employers' disclosures about pension and other postretirement benefit plans.
Statement No. 132 does not change the measurement or recognition of those plans,
but requires additional information on changes in benefit obligations and fair
values of plan assets and eliminates certain disclosures previously required by
Statement Nos. 87, 88 and 106. Statement No. 132 is effective for financial
statements with fiscal years beginning after December 15, 1997.
During June 1998, the Board issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities." Statement No. 133 establishes
new standards by which derivative financial instruments must be recognized in an
entity's financial statements. Besides requiring derivatives to be included on
balance sheets at fair value, Statement No. 133 generally requires that gains
and losses from later changes in a derivative's fair value be recognized
currently in earnings. Statement No. 133 also unifies qualifying criteria for
hedges involving all kinds of derivatives, requiring that a company document,
designate and assess the effectiveness of its hedges. Statement No. 133 is
required to be adopted by Multi-Link in 2000.
Multi-Link has not determined what additional disclosures, if any, may be
required by the provisions of Statement Nos. 131, 132, and 133 but does not
expect adoption of these statements to have a material effect on its results of
operations or consolidated financial position.
EFFECTS OF INFLATION
Although Multi-Link cannot accurately anticipate the effect of inflation on
its operations, Multi-Link 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.
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YEAR 2000 ISSUE
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.
Year 2000 compliance issues are of particular importance to Multi-Link
since its operations rely heavily upon computer systems, software applications
and other electronics containing date-sensitive embedded technology. Some of
these technologies were internally developed and others are standard, purchased
systems which may or may not have been customized for Multi-Link's particular
application. Multi-Link also relies heavily upon various vendors and suppliers
that are themselves very reliant on computer systems, software applications and
other electronics containing date sensitive embedded technology. These vendors
and suppliers include:
- Glenayre Electronics, the manufacturer and supplier of Multi-Link's voice
mail operating platforms;
- Telemessaging Services, Inc., the supplier of Multi-Link's billing
software; and
- US West, the local telephone line carrier with which Multi-Link has
interconnection agreements.
Internal Systems. Multi-Link has completed internal assessment and testing
of its date sensitive computer systems and has determined that its internal
billing, customer service and support systems are compatible with the year 2000.
Glenayre Electronics. Glenayre Electronics has advised Multi-Link that the
voice messaging platforms used by Multi-Link are year 2000 compatible.
Telemessaging Services. Telemessaging Services, the supplier of
Multi-Link's billing software, has certified that its software is Year 2000
compliant.
US West and Other Infrastructure Providers. Multi-Link 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. US West has publicly announced that its local telephone network
is Year 2000 compliant. Multi-Link is not aware of any central infrastructure
provider that has indicated that it expects to be adversely affected by the Year
2000 problem. However, Multi-Link has not obtained assurances from such
providers as to whether or not they will be adversely affected by the Year 2000
issue.
Acquisitions. Multi-Link plans to use a portion of the proceeds of this
offering to acquire companies involved in the voice messaging business.
Multi-Link intends to address the Year 2000 issue in detail with all such
companies prior to acquisition. Management believes that there are many older
voice messaging systems that are not Year 2000 compliant, and that the Year 2000
issue may cause some companies to view Multi-Link's acquisition proposals
favorably. Multi-Link cannot quantify the risks and expenses that may be
incurred through acquisitions of companies that are not Year 2000 compliant.
Costs. Multi-Link 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 Multi-Link will not
identify other Year 2000 issues that may require expenditures in the future.
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<PAGE> 24
BUSINESS
SUMMARY
Multi-Link provides integrated voice and fax messaging services for small
and medium sized businesses. These services enable businesses to improve the
handling of incoming calls and can be used with an automated attendant service
to replace receptionists. Multi-Link's voice messaging services can produce
improved efficiency and cost savings for the subscriber by offering
comprehensive voice messaging solutions. Multi-Link's integrated messaging
system:
- provides personal mailboxes that can be linked to office, mobile and home
telephones, eliminating the need to check multiple mailboxes and
providing cost savings through the termination of multiple mailbox
charges;
- provides immediate notification to a subscriber's mobile phone or digital
pager that the subscriber has new messages;
- automatically transfers important calls to the subscriber's office,
mobile telephone, pager and home phones to eliminate the need for callers
to try other numbers in an attempt to reach the subscriber; and
- will soon offer a unified messaging service which will enable the
subscriber to receive voice, fax and Internet e-mail messages in one
mailbox.
THE VOICE MESSAGING INDUSTRY
Management estimates that revenues realized in 1997 by North American voice
messaging providers were approximately $2.67 billion, with $570 million of the
total revenues realized by approximately 4,200 independent voice messaging
providers scattered throughout North America. Management also estimates that the
remaining $2.1 billion in revenues were realized by:
- the local telephone companies, or the "baby bells" in the amount of $1.25
billion;
- wireless providers in the amount of $396 million; and
- other providers in the amount of $454 million.
Management also believes that the voice messaging market was growing at a
10% annual rate and was experiencing structural changes brought about by new
technology and changes in consumer preferences. Management believes that these
changes will increase the rate of growth of the overall market, and create an
opportunity for voice messaging providers such as Multi-Link to capture
increased market share.
Development of the Business Voice Messaging Industry. In the 1970's, the
local telephone companies in the United States introduced a new service called
voice messaging or voice mail. The service uses automated "call-forwarding"
features programmed on the telephone line to transfer incoming calls to a
central voice mail platform when the line is in use or when nobody answers.
Voice mail service is almost always provided on a local basis since subscribers
are reluctant to incur long distance charges to receive and recover voice mail
messages.
The basic concept of voice mail has changed little since its introduction
two decades ago. Voice mail systems have become more sophisticated and more
reliable and now offer more features than they did when they were first
introduced. However, their basic operational method of using call forwarding
features to route incoming calls to the central system is the same. In almost
all cases, the voice mail service is provided as an additional option by the
provider of the telephone line or mobile phone and is a secondary function which
is only used if the person sought is unavailable.
Market acceptance of voice mail has changed since its inception, when
management believes it was disliked by many users. Management believes that
voice mail has now gained popular acceptance and most users in the business
community prefer to leave voice mail messages rather than written messages.
Despite
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<PAGE> 25
this, the overall market penetration of voice mail remains low and management
believes there is opportunity for growth in this market.
Currently, users often have several voice mailboxes: one for business
attached to their business phone lines, one for home use attached to their home
phone line and one attached to their mobile phone. After 20 years of providing
the same basic function, voice mail service is changing as new technology is
developed to streamline personal communications practices.
Although the local telephone companies are in the best position to sell
voice mail service to their customers, there is no technological barrier that
prevents companies from acquiring a central voice mail platform and offering
voice messaging services. The local telephone companies are motivated to provide
multiple voice mailboxes to each subscriber, thus increasing per subscriber
revenues.
OVERVIEW OF MULTI-LINK'S CURRENT AND PROPOSED SERVICES
While reading this section, please open the schematic diagram on the inside
front cover of this prospectus for an illustrated representation of these
service concepts.
When Multi-Link launched its voice messaging service in May 1996, it did so
in anticipation of the significant technological changes now taking place in the
industry. Management believes that broad market adoption of the new services and
communications practices described below will only be achieved over time. As a
result, Multi-Link will continue to offer traditional voice messaging services
while implementing the new services described below.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
SERVICE TYPE AVAILABLE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Single Box Voice Mail Service for Business and Home Yes
- ---------------------------------------------------------------------------------------------
Multiple Box Business Voice Messaging Networks Yes
- ---------------------------------------------------------------------------------------------
Automated Attendant Call Routing Service Yes
- ---------------------------------------------------------------------------------------------
Consolidated Messaging Service Yes
- ---------------------------------------------------------------------------------------------
One Number Service Yes
- ---------------------------------------------------------------------------------------------
Calling Card Functionality/Call Origination Capability Yes
- ---------------------------------------------------------------------------------------------
Voice/Fax: Yes
Unified Messaging Service for Voice, Fax and Internet based Internet e-mail:
e-mail Last quarter of 1999
- ---------------------------------------------------------------------------------------------
Voice Activated Commands Last quarter of 1999
- ---------------------------------------------------------------------------------------------
Adtracker Service Yes
- ---------------------------------------------------------------------------------------------
</TABLE>
Single Box Voice Mail for Business and Home. Multi-Link provides single
voice mailboxes to residences and small businesses for telephone answering.
Using automated call forwarding features programmed on the phone lines, incoming
calls are transferred to a single mailbox when the line is busy or when nobody
answers. The standard mailbox provided by Multi-Link has many useful features
that currently are not available from the baby bells or are provided by the baby
bells as additional cost options. These features include: multiple greetings
which play according to a time schedule, the option for a caller to press the
zero key to be transferred to another number and the option to have new messages
notified to a pager or a mobile telephone.
Multiple Box Business Voice Messaging Networks. Multi-Link provides
comprehensive voice messaging networks for businesses that employ up to 50
people. Every network is designed individually to meet each specific customer's
needs. There are several ways callers can access the voice messaging system:
- using automated call-forwarding features programmed on the phone lines,
incoming calls are transferred to a general company mailbox when the line
is busy or when nobody answers. Callers
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then have the option to leave a message or to reach the mailbox of a
specific individual through a directory;
- incoming calls during normal business hours can be answered by a person
and then transferred to an individual voice mailbox if the person sought
is not available; and
- callers who wish to leave a personal message can dial the voicemail box
directly without speaking with the receptionist.
Each mailbox within the overall network can be individually programmed to send
notification of new messages to a wide variety of pagers and mobile telephones,
to forward callers to different numbers when the zero key is pressed and to take
advantage of the consolidated messaging and one number services described below.
Automated Attendant Call Routing Service. Multi-Link offers automated call
routing services. Multi-Link's system answers all incoming calls for a business
and acts as the receptionist for the business. By pressing keys in response to a
series of progressive menus, callers reach the person or department they
require. The service provides fully automated call handling and often allows
businesses to reduce or eliminate the cost of receptionist personnel. Management
believes that the service is particularly valuable to businesses with multiple
locations in the same local calling area since all those businesses can now be
linked through one central access telephone number.
Consolidated Messaging Service. Multi-Link offers a consolidated messaging
service. A subscriber buys a voice mailbox from Multi-Link. Call forwarding is
then established from all of the subscriber's phone lines -- home, business and
mobile -- to the same voice mailbox. In this way, all voice messages are
channeled automatically into one voice mailbox. This saves time, is more
efficient and often saves money -- one mailbox instead of three.
One Number Service. Multi-Link offers one number service which Multi-Link
calls "Constant Touch Service." Callers who reach a subscriber mailbox are given
two options in the greeting. If immediate contact with the subscriber is not
required, they are instructed to leave a voice message for later attention by
the subscriber. However, if they need to speak to the subscriber, they are
instructed to press keys to activate the subscriber's Constant Touch Service.
Upon activation, the service requires the caller to state the caller's name for
recordation in the voice mailbox. The messaging system immediately dials several
numbers simultaneously to try to reach the subscriber. Typically the system will
dial a mobile phone number, a pager number, a home telephone number and an
office direct line. If the subscriber is reached, the messaging system plays the
name of the caller on hold and awaits instructions. Then, by selecting the
appropriate key, the subscriber may elect to connect immediately with the
caller, to reject the call but request that the caller leave a message, or to
terminate the call without offering the opportunity to leave a message. By using
Constant Touch Service, the subscriber makes it very simple for callers to reach
the subscriber, yet maintains complete control over who reaches the subscriber.
If the subscriber is not reached, the messaging system will wait up to two
minutes and then advise the caller that the subscriber could not be reached and
request the caller to leave a message.
Over the next few years, management expects this "one number" technology
will revolutionize the way business people communicate. It will no longer be
necessary to guess where the person called may be at any given time. The work of
finding the subscriber will be undertaken by the messaging system. In time, as
communications practices change, management believes subscribers will give out
their voice mail number as the primary contact number and all callers will leave
messages or use the one number technology. The use of the messaging system as a
primary contact point will eliminate the interruption of non-urgent calls and
should increase productivity.
Calling Card Functionality/Call Origination Capability. The voice messaging
system can act as a communications hub for subscribers who travel extensively.
Subscribers access their messaging system from anywhere in the United States by
using a dedicated "800" number. After listening to their messages, they may
elect to obtain a dial tone and make a call from within the voice mailbox. When
they terminate
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each call, they are returned to the mailbox and may continue listening to other
messages or make further calls. Management believes that this service is less
expensive and more convenient than most calling cards. Multi-Link's messaging
systems offer this service capability now, although Multi-Link has not yet begun
marketing this product on a commercial basis. Multi-Link expects to begin
marketing this service in the last quarter of fiscal 1999.
Unified Messaging Service for Voice, Fax and Internet Based
e-mail. Management believes that unified messaging is the best publicized of the
new technologies which are expected to change the messaging industry over the
next few years. Unified messaging is the term used to describe a messaging
service that can store voice messages, fax messages and Internet e-mail messages
in one mailbox. The service should also allow retrieval of any type of message
over a telephone, fax machine or personal computer, no matter what the original
form of the message might have been.
Unified messaging technology is still in the early stages of development
and, although some equipment has been deployed commercially, management believes
that revenues from unified messaging services are still very small. Management
expects that unified messaging services will be particularly popular among
traveling executives. Multi-Link currently provides unified voice and fax
messaging service. Multi-Link plans to offer a unified messaging service which
will include integration with Internet based e-mail service in the last quarter
of fiscal 1999.
Voice Activated Commands. At the present time, almost all voice-messaging
systems respond to tones created by key presses on the Dial Tone Modulated
Frequency or DTMF keypad. The exclusive use of the DTMF keypad has significant
disadvantages to the mobile user who may often wish to use the messaging system
when driving or performing other complex tasks. The use of speech recognition
technology will allow subscribers to simply speak commands to the messaging
system rather than using key presses. In addition to the benefits to mobile
users, the use of speech recognition will facilitate faster navigation through
complex menus and offer more intuitive access to less frequently used functions
of the messaging system. Management believes that speech recognition technology
is one of the most exciting developments in the messaging industry. Multi-Link
expects to market speech recognition technology in the last quarter of fiscal
1999.
"Adtracker" Advertising Analysis Tool. With each Adtracker service package,
the customer is provided with a block of five local telephone numbers. All
direct response advertising is directed to one of these numbers and not to the
advertiser's main office telephone number. When callers dial the number in
response to the advertising, the call passes momentarily through Multi-Link's
system and is transferred to the advertiser's main office telephone number and
handled by the advertiser in the normal way. The transit of the call through
Multi-Link's switch generates a call detail record that is printed through
Multi-Link's billing system in the form of a monthly call log. The log gives
time and date information for every call received through the system. By
comparing the call logs to the advertising, the advertiser can identify patterns
in the responses and determine how best to deploy advertising dollars in the
future.
DISTRIBUTION METHODS
Multi-Link engages approximately 20 independent commissioned sales agents
or agencies to procure subscribers for voice messaging services. Multi-Link's
sales agents include retail telecommunications stores, vendors of telephone
system hardware, vendors of long distance services and other telecommunications
related businesses. After the successful completion of the offering, Multi-Link
plans to engage approximately 10 additional independent commissioned sales
agents or agencies, bringing the total number of independent commissioned sales
agents or agencies to 30.
During the three months ended December 31, 1998, Multi-Link procured
approximately 86% of its new customer subscriptions from Telcom Sales
Associates, an independent sales agency specializing in the sale of a broad
range of telecommunications services to small and medium sized businesses.
Telcom is owned by a former employee of Multi-Link.
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Multi-Link's management believes that the introduction of unified messaging
in 1999 will open up new distribution channels allowing Multi-Link to forge
distribution alliances with Internet service providers and other companies
involved in the provision of Internet based e-mail services. Multi-Link's
management plans to provide Internet based e-mail services and other Internet
related services in calendar 1999. Multi-Link plans to use similar distribution
methods in connection with expanding its acquisitions described in "-- Industry
Consolidation and Geographic Expansion Strategy."
CUSTOMER BASE
Multi-Link's customer base consists predominantly of small and medium sized
businesses that have between one and 50 employees. This customer base includes
diverse businesses. Multi-Link's customer base includes approximately 5,000
business customers that have approximately 16,000 users. Multi-Link's average
business customer pays approximately $30 per month. Multi-Link currently
provides services in the Denver metropolitan area.
TECHNOLOGY
Equipment. Multi-Link's voice messaging systems are manufactured by
Glenayre. Each Glenayre system has capacity for approximately 12,000
subscribers. Currently, Multi-Link has two Glenayre Electronics systems. As a
result, Multi-Link could provide service to an additional 8,000 subscribers
before additional equipment is required. The Glenayre Electronics systems are
reliable, easy to maintain and have historically experienced minimal downtime.
Multi-Link finances its Glenayre Electronics system purchases through term loans
and makes no expenditures on research and development of any kind. Multi-Link
employs technicians who provide support for the Glenayre Electronics systems. In
addition, Glenayre Electronics provides technical support via a direct modem
link when necessary and provides periodic free software upgrades to insure that
Multi-Link continues to offer updated services. Multi-Link has no written
agreements with Glenayre Electronics. Glenayre Electronics has advised
Multi-Link that Glenayre Electronics expects to offer a fully functional unified
messaging upgrade in the second quarter of 1999 that will enable Multi-Link to
offer unified messaging services to its customers in the last quarter of 1999.
Interconnection with Public Switched Networks. Voice messaging systems are
linked to the public switched telephone network using digital two-way direct
inward dial trunks with call transfer capability. These interconnection services
are provided by US West under a ten year agreement which includes a price cap
that expires in 2008. Following the deregulation of the telecommunications
industry in 1996, Multi-Link now has several possible providers of
interconnection facilities and may benefit from price competition over the next
few years.
COMPETITION
Management estimates that the baby bells have the largest share of the
North American voice messaging services market. The baby bells are considerably
larger and better financed than Multi-Link and have extensive marketing
experience. Management believes that approximately $570 million of the North
American voice messaging market is shared by approximately 4,200 voice messaging
service providers including Multi-Link.
COMPETITIVE STRATEGY
Multi-Link obtains most of its business customers by offering voice
messaging services which the management of Multi-Link believes compare favorably
with those provided by the baby bells in the following ways:
- Multi-Link has consolidated messaging service, one number service and
other applications and features which are not currently offered by the
baby bells;
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- Multi-Link's independent sales agents conduct a comprehensive analysis of
every prospective customer's needs and custom design a Multi-Link voice
messaging service to meet those specific needs. Generally, the baby bells
do not offer this type of analysis in the voice messaging market;
- Management believes that Multi-Link's voice messaging service includes
more standard features than its largest current competitor;
- Multi-Link sends out customer trainers to teach new subscribers how to
best use its messaging services. The baby bells offer only telephone
based support;
- Multi-Link maintains a well-trained customer service staff who specialize
in providing messaging services. By comparison, the baby bells' customer
service staff generally deal with a wide range of telephone line issues
and, therefore, might not be as knowledgeable as Multi-Link's specialist
voice messaging group;
- Multi-Link provides help in reorganizing service configurations, adding
staff members to, or deleting staff members from, a network or simply
understanding the best way to use the voice messaging services; and
- Multi-Link charges up to 48% less than its largest competitor for what
management believes is overall a superior voice messaging service.
Management believes that the technological changes taking place in the
voice messaging industry will enable messaging service providers like Multi-Link
to capture a part of the baby bells' market share of the voice messaging
industry. The new services described above require the provider of the messaging
services to maintain complex messaging networks which interact with a broad
range of other telecommunications services supplied by a wide range of service
providers. Management believes that the provision and maintenance of the new
services involves a level of complexity that is unattractive to the baby bells
and that they may be unwilling to compete aggressively in this service category.
INDUSTRY CONSOLIDATION AND GEOGRAPHIC EXPANSION STRATEGY
Management believes that most of the 4,200 independent voice mail providers
offer only basic voice messaging services that are similar to, and in
competition with, the baby bells. Management believes that the opportunity
exists to acquire several voice mail providers in major urban markets in North
America. Multi-Link intends to use a portion of the proceeds raised from this
offering to acquire some of these voice messaging companies. Multi-Link will
provide technology, capital and marketing expertise to each business acquired.
In addition to the benefits derived from Multi-Link's technological, capital and
marketing expertise, management believes that savings can be achieved as a
result of the centralization of purchasing, accounting, administration,
marketing, telemarketing and other core functions of these voice mail providers.
FACILITIES
Multi-Link's corporate office and principal operating facility is presently
located at 811 Lincoln Street, Suite 500, Denver, Colorado. Multi-Link occupies
approximately 4,100 square feet of office space that is leased on a
month-to-month basis. This lease terminates effective April 30, 1999.
On March 29, 1999, Multi-Link signed a new lease for space located at 4704
Harlan Street, Suite 420, Lakeside, Colorado. This three-year lease provides for
Multi-Link to occupy approximately 3,067 square feet on May 1, 1999 at a monthly
rent of $4,344.91. Multi-Link expects to incur a substantial one time charge
related to moving its operations.
Upon the successful completion of this offering, Multi-Link will lease an
additional 2,992 square feet for a total of 6,059 square feet, and the lease
term will be extended to 78 months. After an initial six month rent-free period,
Multi-Link will pay $8,457.35 per month for the next 24 months, $8,709.81 per
month for the next 12 months, and $8,962.27 per month for the remaining 36
months of the lease.
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EMPLOYEES
As of January 30, 1999, Multi-Link employed 13 people, all of whom were
employed on a full time basis. There are no union or collective bargaining
agreements between Multi-Link and its employees and employee relations are
considered by management to be excellent.
LEGAL PROCEEDINGS
Multi-Link currently is not a party to any legal proceedings of any kind.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and officers of Multi-Link are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Nigel V. Alexander................... 37 Director, Chief Executive Officer, Secretary
and Treasurer
Shawn B. Stickle..................... 33 Director, President and Chief Operating Officer
Keith R. Holder...................... 54 Director
R. Brad Stillahn..................... 45 Director
David J. Cutler...................... 43 Chief Financial Officer
</TABLE>
The directors are elected for a three-year term, with approximately
one-third of the board of directors standing for election each year. Each
director holds office until the expiration of the director's term, until the
director's successor has been duly elected and qualified or until the earlier of
their resignation, removal or death. All of Multi-Link's officers devote
full-time to Multi-Link's business and affairs.
Nigel V. Alexander -- Chief Executive Officer, Secretary and Treasurer. Mr.
Alexander co-founded Multi-Link in 1996. Mr. Alexander has served since that
time as a Managing Director and now as the Chief Executive Officer of Multi-Link
with responsibility for financing and strategic planning. Since January of 1996,
Mr. Alexander has been the sole owner of Octagon Strategies, Inc., a consultant
to Multi-Link. From September 1994 until founding Multi-Link, Mr. Alexander
conducted research into the telecommunications industry to identify the business
opportunity now being pursued by Multi-Link. From April 1991 to September 1994,
Mr. Alexander was an executive officer of SnowRunner, Inc. a public company
involved in the distribution of winter sports products that later changed its
name to The Sled Dogs Company. Mr. Alexander is an Associate of the British
Chartered Institute of Bankers. He has over 15 years experience in merchant
banking, mergers and acquisitions and corporate finance, including ten years as
a merchant banker in London, England and Geneva, Switzerland with Henry
Ansbacher & Co. and the Paribas Group.
Shawn B. Stickle -- President and Chief Operating Officer. Mr. Stickle
co-founded Multi-Link in 1996. Mr. Stickle has served since that time as a
Managing Director and now as the President and Chief Operating Officer of
Multi-Link with direct responsibility for all of Multi-Link's operations. From
February 1995 until January 1996, Mr. Stickle was employed as Executive Vice
President of Voice Services, Inc. From 1987 to December 1994, Mr. Stickle was
Sales and Marketing Manager for T.A. Pelsue Company, a manufacturer of
telecommunications products. Mr. Stickle holds a bachelor's degree from the
University of Colorado in marketing and is a certified ISO 9000 Quality
Assurance Advisor.
Keith R. Holder -- Director. Mr. Holder became a director of Multi-Link in
February 1999. Since January 1998, Mr. Holder has been the Chief Executive
Officer of Recovery Specialists Inc., a regional environmental company. From
March 1990 to January 1998, Mr. Holder was the founder, Chief Executive Officer
and Director of Triumph Fuels Corporation, a gasoline refining, distribution and
retailing company. Mr. Holder received his Bachelor of Science degree in Geology
from the University of London in 1969.
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<PAGE> 31
R. Brad Stillahn -- Director. Mr. Stillahn became a director of Multi-Link
in February 1999. Since January 1991, Mr. Stillahn has been the owner, Chairman
and Chief Executive Officer of West Tape & Label, Inc., a national custom label
printer. From 1987 to 1991, Mr. Stillahn was the Director of Corporate Marketing
for Menasha Corporation, a diversified holding company. Mr. Stillahn received
his Masters of Business Administration from Washington University in 1976 and in
1974 received a Bachelor of Arts degree in Economics from the University of
Missouri.
David J. Cutler -- Chief Financial Officer. Mr. Cutler joined Multi-Link in
March 1998 and has served as its Chief Financial Officer since that time. From
March 1993 until joining Multi-Link, Mr. Cutler was a self employed consultant
providing accounting and financial advice to small and medium sized companies in
the United Kingdom and the United States. Mr. Cutler has more than 20 years
experience in international finance, accounting and business administration. He
held senior positions with multi-national companies such as Reuters Group Plc
and the Schlumberger Ltd. and has served as a director for two British
previously publicly quoted companies -- Charterhall Plc and Reliant Group Plc.
Mr. Cutler has a masters degree from St. Catherine College in Cambridge, England
and qualified as a British Chartered Accountant and as an Associate of the
Institute of Taxation with Arthur Andersen & Co. in London. He was subsequently
admitted as a Fellow of the UK Institute of Chartered Accountants. In early
1998, he passed the CPA examination in the United States.
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors maintains a compensation committee and an audit
committee. The compensation committee is composed of Keith R. Holder and R. Brad
Stillahn, both non-employee directors. The audit committee is composed of Keith
R. Holder and R. Brad Stillahn. The primary function of the compensation
committee is to review and make recommendations to the board of directors with
respect to the compensation, including bonuses, of Multi-Link's officers and to
administer the grants under Multi-Link's stock option plan. The functions of the
audit committee are to review the scope of the audit procedures employed by
Multi-Link's independent auditors, to review with the independent auditors
Multi-Link's accounting practices and policies and recommend to whom reports
should be submitted within Multi-Link, to review with the independent auditors
their final audit reports, to review with Multi-Link's internal and independent
auditors Multi-Link's overall accounting and financial controls, to be available
to the independent auditors during the year for consultation, to approve the
audit fee charged by the independent auditors, to report to the board of
directors with respect to such matters and to recommend the selection of the
independent auditors.
COMPENSATION OF DIRECTORS
As compensation for serving as directors of Multi-Link, Multi-Link pays
Keith R. Holder and R. Brad Stillahn $250 for each meeting of the board of
directors they attend in person or by telephone. In addition, on the date of
this prospectus, Keith R. Holder and R. Brad Stillahn each received five year
options to purchase 10,000 shares of Multi-Link's common stock at $6.00 per
share. The options vest over a three year period commencing one year from the
date of this prospectus. Directors are reimbursed for expenses incurred by them
in attending meetings of the board of directors or its committees.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by Multi-Link for
services rendered during the fiscal years ended September 30, 1998, 1997 and
1996 to Nigel V. Alexander and Shawn B. Stickle. No executive officer of
Multi-Link earned or was paid compensation of more than $100,000 for the year
ended September 30, 1998.
On January 1, 1999, Nigel V. Alexander became the Chief Executive Officer
of Multi-Link and Shawn B. Stickle became the President and Chief Operating
Officer of Multi-Link in place of each being a Managing Director of Multi-Link.
Multi-Link pays consulting fees to Octagon Strategies, Inc. for consulting
services rendered by Nigel V. Alexander to Multi-Link. "Octagon" is a company
wholly-owned
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<PAGE> 32
by Nigel V. Alexander. All amounts reflected in the salary column in the
following table paid to Mr. Alexander are consulting fees paid to Octagon for
Mr. Alexander's benefit.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
FISCAL ANNUAL COMPENSATION
YEAR ENDED -------------------
NAME AND PRINCIPAL POSITION SEPTEMBER 30, SALARY BONUS
- --------------------------- ------------- -------- --------
<S> <C> <C> <C>
Nigel V. Alexander................................... 1998 $40,000 --
Managing Director 1997 $39,960 --
Secretary and Treasurer 1996 $34,042 --
Shawn B. Stickle..................................... 1998 $36,000 --
Managing Director 1997 $36,000 --
1996 $29,000 --
</TABLE>
Effective January 1, 1999, Multi-Link entered into a three-year consulting
agreement with Octagon and a three-year employment agreement with Shawn B.
Stickle pursuant to which Multi-Link pays Octagon and Mr. Stickle an annual
consulting fee and an annual salary of $53,333 and $48,000, respectively. Any
future increases in compensation under the agreements will be determined by the
compensation committee of the board of directors. The consulting agreement and
the employment agreement require that Messrs. Alexander and Stickle devote their
full business time to Multi-Link, may only be terminated by Multi-Link for
"cause" (as defined in the agreements) and may be terminated with or without
cause by Octagon or Mr. Stickle. If the agreements are terminated by Multi-Link
without cause, Octagon and Mr. Stickle are entitled to receive lump sum payments
equal to the greater of the compensation payable pursuant to the agreements for
the remaining terms thereof or one year's annual payments. The consulting
agreement and employment agreement also contain confidentiality and noncompete
provisions.
LIFE INSURANCE POLICIES
Multi-Link intends to obtain key man life insurance policies in the face
amounts of $1,000,000 each on both Nigel V. Alexander and Shawn B. Stickle
following the closing of the offering. The proceeds of these policies will be
payable to Multi-Link.
STOCK OPTION PLAN
Multi-Link adopted its stock option plan in 1997 pursuant to which an
aggregate of 300,000 shares of common stock are currently reserved for issuance.
The stock option plan provides for the granting of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code and non-qualified
stock options, reload options and stock appreciation rights. Non-qualified stock
options may be granted to employees, directors and consultants of Multi-Link,
while incentive stock options may be granted only to employees. The stock option
plan is currently administered by the compensation committee of the board of
directors, which determines the terms and conditions of the options granted
under the stock option plan, including the exercise price, the number of shares
subject to a particular option and the exercisability thereof.
The exercise price of all incentive stock options granted under the stock
option plan must be at least equal to the fair market value of Multi-Link's
common stock on the date of grant and must be 110% of fair market value when
granted to a 10% or more stockholder. The exercise price of all non-qualified
stock options granted under the stock option plan may be less than the fair
market value of the common stock on the date of grant. However, non-qualified
options will not be granted at an exercise price of less than 100% of the fair
market value of Multi-Link's common stock. The term of all options granted under
the stock option plan may not exceed ten years, except the term of incentive
stock options granted to a 10% or more stockholder may not exceed five years.
The stock option plan may be amended or terminated by the
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<PAGE> 33
board of directors, but no such action may impair the rights of a participant
under a previously granted option.
The stock option plan provides the board of directors or the compensation
committee with the discretion to determine when options granted under the stock
option plan shall become exercisable and the vesting period of such options.
The following table provides information with respect to the stock options
that are currently outstanding:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE EXPIRATION
GRANT DATE UNDERLYING OPTIONS PRICE DATE
---------- ------------------ -------- ----------
<S> <C> <C> <C>
January 15, 1997........................ 72,000 $0.02 January 14, 2007
January 15, 1997........................ 7,410 $0.17 January 14, 2007
June 30, 1997........................... 16,605 $0.42 June 29, 2007
December 30, 1997....................... 23,580 $2.45 December 29, 2007
June 30, 1998........................... 35,070 $4.17 June 29, 2008
December 31, 1998....................... 10,335 $6.00 December 30, 2008
-------
165,000
</TABLE>
No options to purchase shares of common stock have been granted by
Multi-Link to Nigel V. Alexander, Shawn B. Stickle or Octagon, and none of such
persons owned any options to purchase common stock on September 30, 1998.
Multi-Link expects to issue options to purchase 10,000 shares of common stock
each to the two non-management directors upon the successful completion of the
offering.
No reload options or stock appreciation rights have been granted pursuant
to the stock option plan.
Multi-Link has no other bonus, profit sharing, pension, retirement, stock
purchase, deferred compensation, or other incentive plan.
CERTAIN TRANSACTIONS
All of the following related party transactions were made on terms no less
favorable to Multi-Link than those available from unaffiliated parties. In
addition, all future related party transactions will be made on terms no less
favorable to Multi-Link than those available from unaffiliated parties and such
related party transactions will be approved by a majority of the independent,
disinterested members of Multi-Link's board of directors.
In January 1996, Octagon and Shawn B. Stickle each purchased 600,000 shares
of common stock from Multi-Link for $0.0083 per share. In March 1997, Octagon
sold 450,000 shares of common stock to the Blackhawk Trust and 150,000 shares of
common stock to Nigel V. Alexander, for $0.017 per share.
In January 1996, Octagon loaned Multi-Link $41,000. Such loan was
unsecured, had an interest rate of 10% per annum and was repaid in September
1998. The proceeds from this loan were used to fund working capital. This loan
has been repaid in full.
In April 1996, CS Capital provided Multi-Link with a factoring facility of
$500,000. Multi-Link issued 61,200 shares of common stock to CS Capital at the
time the facility was obtained. The factoring facility was secured by all of the
assets of Multi-Link, was guaranteed by Nigel V. Alexander and Shawn B. Stickle
and had an implied interest rate of 52% per annum, exclusive of value
attributable to common stock or warrants issued to CS Capital. The proceeds from
this factoring facility were used to fund working capital. This factoring
facility has been repaid in full.
In January 1997, Multi-Link issued 68,118 shares of common stock to CS
Capital in connection with a $250,000 loan that CS Capital made to Multi-Link.
The loan was secured by all of the assets of Multi-Link, was guaranteed by Nigel
V. Alexander and Shawn B. Stickle and had an interest rate of 40% per
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<PAGE> 34
annum, exclusive of value attributable to common stock issued. The proceeds from
this loan were used to fund working capital. This loan has been repaid in full.
In January 1997, Multi-Link issued 13,320 shares of common stock to Ronald
Stickle, the father of Shawn B. Stickle, in connection with a $25,000 loan that
Ronald Stickle made to Multi-Link in June 1996. Such loan was unsecured, had an
interest rate of 35% per annum, exclusive of value attributable to common stock
issued and was repaid in September 1998. The proceeds from this loan were used
to fund working capital. This loan has been repaid in full.
In January 1997, Multi-Link issued 26,640 shares of common stock to Harbour
Settlement in connection with a $60,000 loan that Harbour Settlement made to
Multi-Link in May 1996. Such loan was unsecured, had an interest rate of 15% per
annum, exclusive of value attributable to common stock issued and was guaranteed
by Nigel V. Alexander and Shawn B. Stickle. The loan was repaid in September
1998. Harbour Settlement is a trust established for the benefit of the children
of Keith R. Holder, a director of Multi-Link. The proceeds from this loan were
used to fund working capital. This loan has been repaid in full.
In June 1997, Multi-Link issued 28,610 shares of common stock to CS Capital
in connection with a $300,000 loan that CS Capital made to Multi-Link. The loan
was secured by Multi-Link's assets, was guaranteed by Nigel V. Alexander and
Shawn B. Stickle and had an interest rate of 30% per annum, exclusive of value
attributable to common stock issued. The proceeds from this loan were used to
fund working capital. This loan has been repaid in full.
In January 1998, CS Capital loaned Multi-Link $700,000. The loan was
secured by all of the assets of Multi-Link, was guaranteed by Nigel V. Alexander
and Shawn B. Stickle and had an interest rate of 30% per annum. The proceeds
from this loan were used to fund working capital. This loan has been repaid in
full.
In January 1998, Multi-Link converted $20,000 of debt owed to Robert and
Lynne Williams (Robert Williams was a former director of Multi-Link) into 7,454
shares of common stock.
In May 1998, all of the outstanding balances on Multi-Link's loans, the
factoring facility and the loans that CS Capital had made to Multi-Link were
consolidated into a $1,698,000 term loan that was secured by the assets of
Multi-Link, was guaranteed by Nigel V. Alexander and Shawn B. Stickle, had an
interest rate of 25% per annum and was payable in fixed payments of principal
and interest through June 30, 2001. This loan has been repaid in full.
In September 1998, Westburg loaned Multi-Link $2,100,000 to repay debt and
deferred executive compensation, and to fund working capital. The loan has a
five-year term and bears interest at a current rate of 10.75% per annum as of
December 31, 1998. The loan is payable interest only until September 25, 2001,
and thereafter the outstanding principal balance and accrued interest will be
payable monthly and amortized over ten years. The outstanding principal balance
and all accrued interest thereon will be payable in full on October 31, 2003.
The loan is collateralized by all of the assets of Multi-Link and is guaranteed
personally by Nigel V. Alexander and Shawn B. Stickle. In connection with the
loan, Multi-Link issued Westburg a warrant (valued at $73,446) to purchase
150,000 shares of common stock of Multi-Link at an exercise price of $4.17 per
share. In addition, Nigel V. Alexander and Shawn B. Stickle have pledged 480,000
shares each of Multi-Link's common stock owned by them as collateral for the
loan. Westburg has agreed to release such shares from pledge upon the closing of
this offering. In April 1999, Multi-Link renegotiated the terms of its loan with
Westburg to convert all but $10,000 of the loan into a revolving loan.
Multi-Link has agreed that it will not repay the remaining $10,000 on the loan
and, as a result, will be unable to trigger expiration of Westburg's warrant. In
addition, Multi-Link has agreed to pay a two percent commitment fee on all
undrawn balances and granted certain registration rights for the common stock
underlying the warrant. This loan is due on October 31, 2003. While Multi-Link
plans to pay the indebtedness due on this loan with the proceeds of this
offering, Multi-Link is permitted to and may make further draws on this loan. In
April 1999, Westburg loaned Multi-Link an additional $50,000.
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<PAGE> 35
In September 1998, Multi-Link paid CS Capital $900,000 on the term loan and
CS Capital converted $300,000 of the term loan into 72,000 shares of
Multi-Link's common stock and warrants to purchase 36,000 shares of Multi-Link's
common stock originally at an exercise price of $8.33 per share and in February
1999, reduced the exercise price to $4.17 per share. The warrants are
exercisable from November 17, 1999 through May 17, 2001. The conversion price
paid by CS Capital for the shares of common stock and warrants was the same
price that was paid by nonaffiliated persons to Multi-Link in a private offering
that was being conducted by Multi-Link at that time. Multi-Link paid CS Capital
an additional $328,000 on the loan and $48,000 of accrued interest in November
1998. In March of 1999, Multi-Link paid the remaining amounts due under this
loan.
In September 1998, Octagon Strategies, Inc. agreed to loan Multi-Link
$100,000. Approximately $43,923 had been borrowed pursuant to this loan. The
loan was unsecured, had an interest rate of 10% and was due on demand. The
proceeds from this loan were used to fund working capital. This loan has been
repaid in full.
In September 1998, Shawn B. Stickle loaned $77,244 to Multi-Link. The loan
was unsecured, had an interest rate of 10% and was due on demand. The proceeds
from this loan were used to fund working capital. This loan has been repaid in
full.
In January 1999, Nigel V. Alexander purchased 431,250 shares of common
stock from The Blackhawk Trust for $6.00 per share. Mr. Alexander gave The
Blackhawk Trust a promissory note secured by the 431,250 shares in payment of
the purchase price. The promissory note bears interest at a rate of 6% per annum
and is payable on the earlier of January 31, 2009 or the sale of the 431,250
shares by Mr. Alexander.
On February 1, 1999, Multi-Link reduced the exercise price of the warrants
issued to CS Capital from $8.33 to $4.17 per share at the same time Multi-Link
reduced the exercise price of outstanding warrants held by other persons
unaffiliated with Multi-Link who had acquired warrants from Multi-Link at
approximately the same time CS Capital acquired its warrants. As a result of the
3-for-5 reverse split of Multi-Link's outstanding common stock on February 2,
1999, the exercise price of the warrants held by CS Capital and such other
persons was increased to a post-split price of $4.17 per share.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Pursuant to the provisions of the Colorado Business Corporation Act,
Multi-Link has adopted provisions in its restated articles of incorporation
which provide that its directors shall not be personally liable for monetary
damages to Multi-Link or its stockholders for a breach of fiduciary duty as a
director, except for liability as a result of:
- a breach of the director's duty of loyalty to Multi-Link or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law;
- voting for or assenting to a distribution, which, after giving effect to
the distribution, would result in (a) Multi-Link not being able to pay
its debts as they become due, or (b) Multi-Link's total assets being less
than the sum of its total liabilities plus amounts needed to satisfy
preferential rights upon dissolution of Multi-Link, but only if it is
established that the director did not perform his duties in good faith,
with the care of an ordinary prudent person in a like position under
similar circumstances, and in a manner the director believed to be in the
best interest of Multi-Link, provided that the personal liability of a
director in this circumstance is limited to the amount of the
distribution which exceeds that which could have been distributed without
violation of this paragraph; or
- any transaction from which the director directly or indirectly derives an
improper personal benefit.
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<PAGE> 36
Multi-Link's restated articles of incorporation state that Multi-Link shall
indemnify, to the maximum extent permitted by law, any person who is or was a
director or officer of Multi-Link, and may indemnify any other person, against
any claim, liability or expense arising against or incurred by such person made
party to a proceeding because the person is or was a director, officer, agent,
fiduciary, or employee of Multi-Link or because the person is or was serving
another entity as a director, officer, partner, trustee, employee, fiduciary or
agent at Multi-Link's request. The restated articles of incorporation also
permit Multi-Link to purchase and maintain insurance providing such
indemnification, advance expenses to persons indemnified by Multi-Link, and
provide indemnification to any person by general or specific action of the board
of directors under the bylaws of Multi-Link, by contract or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and control persons of
Multi-Link pursuant to the foregoing provisions, or otherwise, Multi-Link has
been advised that in the opinion of the SEC, such indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
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<PAGE> 37
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of Multi-Link's common stock, as of the date of this prospectus, and
as adjusted to reflect the sale of the units offered by this prospectus, by:
- each person who is known by Multi-Link to own beneficially more than 5%
of Multi-Link's outstanding common stock,
- each of Multi-Link's named executive officers and directors, and
- all executive officers and directors as a group.
Shares of common stock not outstanding but deemed beneficially owned by
virtue of the right of an individual to acquire the shares of common stock
within 60 days are treated as outstanding only when determining the amount and
percentage of common stock owned by such individual. Except as noted below the
table, each person has sole voting and investment power with respect to the
shares of common stock shown. Unless otherwise shown, the address of each person
is 811 Lincoln Street, Suite 500, Denver, Colorado 80203.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY
OWNED PRIOR TO THE
OFFERING
-------------------- PERCENTAGE OWNED
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT AFTER THE OFFERING
- ------------------------------------ --------- ------- ------------------
<S> <C> <C> <C>
Nigel V. Alexander....................................... 581,250 34.4% 20.1%
Shawn B. Stickle......................................... 581,250 34.4% 20.1%
Keith R. Holder.......................................... 26,640 1.6% 0.9%
107 Country Club Park Drive
Grand Junction, Colorado 81503
R. Brad Stillahn......................................... 0% 0% 0%
3845 Forest
Denver, Colorado 80207
All officers and directors as a group (5 persons)........ 1,204,140 70.6% 41.4%
CS Capital Corp.......................................... 229,928 13.6% 8.0%
8301 E. Prentice Ave, #200
Englewood, Colorado 80111
Greg Curtiss...................................... 229,928 13.6% 8.0%
8301 E. Prentice Ave., #200
Englewood, Colorado 80111
Westburg Media Capital LP................................ 150,000 8.1% 4.9%
200 First Avenue West, Suite 400
Seattle, Washington 98119
David Westburg.................................... 150,000 8.1% 4.9%
200 First Avenue West, Suite 400
Seattle, Washington 98119
John Weller....................................... 150,000 8.1% 4.9%
200 First Avenue West, Suite 400
Seattle, Washington 98119
John Hanson....................................... 150,000 8.1% 4.9%
200 First Avenue West, Suite 400
Seattle, Washington 98119
</TABLE>
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<PAGE> 38
In the foregoing table the common stock beneficially owned by:
- Keith R. Holder, represents shares beneficially owned by Harbour
Settlement, a Jersey Channel Islands Trust established for the benefit of
Mr. Holder's children;
- all of the executive officers and directors as a group, includes 15,000
shares of common stock underlying presently exercisable options but does
not include 35,000 shares underlying options that are not exercisable for
the next 60 days;
- CS Capital Corp, does not include 36,000 shares of common stock
underlying options that are not exercisable for the next 60 days;
- Greg Curtiss represents common stock beneficially owned by CS Capital
Corp., a corporation in which Mr. Curtiss is the only controlling person
and the only principal stockholder.
- Westburg Media Capital LP, represents 150,000 shares of common stock
underlying presently exercisable warrants;
- David Westburg represents 150,000 shares of common stock underlying
presently exercisable warrants beneficially owned by Westburg Media
Capital LP, in which Mr. Westburg is the President and a 37.5% owner;
- John Weller represents 150,000 shares of common stock underlying
presently exercisable warrants beneficially owned by Westburg Media
Capital LP, in which Mr. Weller is the Chief Financial Officer and a
37.5% owner; and
- John Hanson represents 150,000 shares of common stock underlying
presently exercisable warrants beneficially owned by Westburg Media
Capital LP, in which Mr. Hanson is a director and a 25% owner.
ESCROW SHARES
The underwriters' representative, or "representative," has required Nigel
V. Alexander and Shawn B. Stickle to each deposit 100,000 shares of common stock
of Multi-Link owned by such stockholders in an escrow account pursuant to an
escrow agreement with American Securities Transfer & Trust, Inc. The common
stock deposited in the escrow account will be subject to release to the
stockholders on the earlier to occur of:
- Multi-Link achieving basic net income of at least $0.75 per share and the
common stock having a bid price of at least $15.00 per share for the year
ended and as of September 31, 2000;
- Multi-Link achieving basic net income of at least $1.25 per share and a
bid price of at least $25.00 per share for the year ended and as of
September 30, 2001;
- property exchange, or sale of all or substantially all of the assets or
stock of Multi-Link if any such transaction is approved by the holders of
a majority of the outstanding shares of common stock (excluding the
shares in escrow); or
- seven years after the date of this prospectus.
For purposes of determining the release from escrow, net income will
include the effects of any extraordinary items and will be based on basic net
income per share and on the audited financial statements of Multi-Link for the
respective periods. The shares of common stock held in escrow are not
transferable or assignable, although they may be voted by the stockholders. The
earnings levels and per share prices set forth above were determined by
negotiation between Multi-Link and the representative and should not be
construed to imply or predict any future earnings by Multi-Link or the market
price of the common stock.
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<PAGE> 39
DESCRIPTION OF SECURITIES
The following summary description of Multi-Link's securities is not
complete and is qualified in its entirety by reference to Multi-Link's restated
articles of incorporation and bylaws.
The authorized capital stock of Multi-Link consists of 20,000,000 shares of
no par value common stock and 5,000,000 shares of $0.01 par value preferred
stock, which Multi-Link may issue in one or more series as determined by the
board of directors. There currently are 1,691,542 shares of common stock issued
and outstanding that are held of record by 32 shareholders.
UNITS
Each unit being offered in this prospectus consists of one share of common
stock and one warrant. The common stock and warrants are separately
transferable.
COMMON STOCK
Each holder of record of common stock is entitled to one vote for each
share held on all matters properly submitted to the stockholders for their vote.
Cumulative voting in the election of directors is not authorized by the restated
articles of incorporation.
Holders of outstanding shares of common stock are entitled to those
dividends declared by the board of directors out of legally available funds and,
in the event of liquidation, dissolution or winding up of the affairs of
Multi-Link, holders are entitled to receive, pro rata, the net assets of
Multi-Link available to the stockholders. Holders of outstanding common stock
have no preemptive, conversion or redemption rights. All of the issued and
outstanding shares of common stock are, and all unissued shares of common stock,
when offered and sold will be, duly authorized, validly issued, fully paid and
nonassessable. To the extent that additional shares of common stock may be
issued in the future, the relative interests of the then existing stockholders
may be diluted.
There is currently no trading market for the common stock or warrants of
Multi-Link, and there can be no assurance that a trading market will develop in
the future. Further, the outstanding shares of common stock are restricted
securities as that term is defined in Rule 144 under the Securities Act of 1933
and cannot be resold without registration under the Securities Act of 1933 or an
exemption from registration.
PREFERRED STOCK
Multi-Link's board of directors is authorized to issue from time to time,
without stockholder authorization, in one or more designated series, any or all
of the authorized but unissued shares of preferred stock with such dividend,
redemption, conversion, and exchange provisions as may be provided by the board
of directors with regard to such particular series. Any series of preferred
stock may possess voting, dividend, liquidation, and redemption rights superior
to those of the common stock. The rights of the holders of common stock will be
subject to and may be adversely affected by the rights of the holders of any
preferred stock that may be issued in the future. Issuance of a new series of
preferred stock could make it more difficult for a third party to acquire, or
discourage a third party from acquiring, the outstanding shares of common stock
of Multi-Link and make removal of the board of directors more difficult. No
shares of preferred stock are currently issued and outstanding, and Multi-Link
has no present plans to issue any shares of preferred stock.
Multi-Link will not offer preferred stock to promoters, except on the same
terms as it is offered to all other existing shareholders or to new
shareholders. Any issuances of preferred stock must be approved by a majority of
Multi-Link's independent, disinterested directors who have access, at
Multi-Link's expense, to Multi-Link's external legal counsel.
36
<PAGE> 40
WARRANTS
Two warrants will entitle the holder to purchase one share of common stock
at an exercise price of $9.00 for a period of 36 months from the date hereof
subject to Multi-Link's redemption rights described below. The warrants will be
issued pursuant to the terms of a warrant agreement between Multi-Link and the
"warrant agent," American Securities Transfer & Trust, Incorporated. Multi-Link
has authorized and reserved for issuance the shares of common stock issuable on
exercise of the warrants. The warrants are exercisable to purchase a total of
600,000 shares of common stock of Multi-Link unless the underwriter's
over-allotment option relating to the warrants is exercised, in which case the
warrants are exercisable to purchase a total of 690,000 shares of common stock.
The warrant exercise price and the number of shares of common stock
purchasable upon exercise of the warrants are subject to adjustment in the event
of, among other events, a stock dividend on, or a subdivision, recapitalization
or reorganization of, the common stock, or the merger or consolidation of
Multi-Link with or into another corporation or business entity.
Commencing one year from the date of this prospectus and until the
expiration of the warrants, Multi-Link, may redeem outstanding warrants, in
whole but not in part, upon not less than 30 days' notice, at a price of $0.05
per warrant, provided that the closing bid price of the common stock equals or
exceeds 125% of the warrant exercise price ($9.00 per share) for 20 consecutive
trading days. The redemption notice must be provided not more than five business
days after conclusion of the 20 consecutive trading days in which the closing
bid price of the common stock equals or exceeds 125% of the warrant exercise
price per share. In the event Multi-Link exercises its right to redeem the
warrants, the warrants will be exercisable until the close of business on the
date fixed for redemption in such notice. If any warrant called for redemption
is not exercised by such time, it will cease to be exercisable and the holder
thereof will be entitled only to the redemption price.
Multi-Link must have on file a current registration statement with the SEC
pertaining to the common stock underlying the warrants in order for a holder to
exercise the warrants or in order for the warrants to be redeemed by Multi-Link.
The shares of common stock underlying the warrants must also be registered or
qualified for sale under the securities laws of the states in which the warrant
holders reside. Multi-Link intends to use its best efforts to keep the
registration statement incorporating this prospectus current, but there can be
no assurance that such registration statement (or any other registration
statement filed by Multi-Link covering shares of common stock underlying the
warrants) can be kept current. In the event the registration statement covering
the underlying common stock is not kept current, or if the common stock
underlying the warrants is not registered or qualified for sale in the state in
which a warrant holder resides, the warrants may be deprived of any value.
Multi-Link is not required to issue any fractional shares of common stock
upon the exercise of warrants or upon the occurrence of adjustments pursuant to
anti-dilution provisions. Multi-Link will pay to holders of fractional interests
an amount equal to the cash value of such fractional interests based upon the
then-current market price of a share of common stock.
The warrants may be exercised upon surrender of the certificate
representing such warrants on or prior to the expiration date (or earlier
redemption date) of such warrants at the offices of the warrant agent with the
form of "Election to Purchase" on the reverse side of the warrant certificate
completed and executed as indicated, accompanied by payment of the full exercise
price by check payable to the order of Multi-Link for the number of warrants
being exercised. Shares of common stock issued upon exercise of warrants for
which payment has been received in accordance with the terms of the warrants
will be fully paid and nonassessable.
The warrants do not confer upon the warrantholder any voting or other
rights of a shareholder of Multi-Link. Upon notice to the warrantholders,
Multi-Link has the right to reduce the exercise price or extend the expiration
date of the warrants. Although this right is intended to benefit warrantholders,
to the extent Multi-Link exercises this right when the warrants would otherwise
be exercisable at a price higher
37
<PAGE> 41
than the prevailing market price of the common stock, the likelihood of
exercise, and the resultant increase in the number of shares outstanding, may
impede or make more costly a change in control of Multi-Link.
ANTI-TAKEOVER PROVISIONS
Multi-Link's restated articles of incorporation and bylaws contain
provisions that may make it more difficult for a third party to acquire, or may
discourage acquisition bids for, Multi-Link. The board of directors of
Multi-Link is authorized, without action of its stockholders, to issue
authorized but unissued common stock and preferred stock. The existence of
undesignated preferred stock and authorized but unissued common stock enables
Multi-Link to discourage or to make it more difficult to obtain control of
Multi-Link by means of a merger, tender offer, proxy contest or otherwise. The
restated articles of incorporation and bylaws provide further that:
- directors must be elected for three-year terms, with approximately
one-third of the board of directors standing for election each year;
- to alter or repeal the staggered board provision or other measures in the
restated articles of incorporation and bylaws, the affirmative vote of
the holders of not less than two-thirds of the votes entitled to be cast
by the holders of all stock entitled to vote in the election of directors
is required;
- the unanimous vote of the board of directors or the affirmative vote of
the holders of not less than two-thirds of the votes entitled to be cast
by the holders of all stock entitled to vote in the election of directors
is required to change the size of the board of directors; and
- directors may only be removed for cause by holders of not less than
two-thirds of the common stock.
TRANSFER AGENT, WARRANT AGENT AND REGISTRAR
Multi-Link has retained American Securities Transfer & Trust, Incorporated
to serve as the transfer agent and registrar for the common stock and warrant
agent for the warrants.
SHARES ELIGIBLE FOR FUTURE SALE
On completion of this offering, Multi-Link will have 2,891,542 shares of
common stock outstanding, assuming no warrants are exercised. If the
underwriters' over-allotment option is exercised in full, 3,071,542 shares of
common stock will be outstanding. Of these shares, the 1,200,000 shares of
common stock sold in this offering and any shares sold by Multi-Link upon
exercise of the underwriters' over-allotment option will be freely transferable
by persons other than "affiliates" of Multi-Link as that term is defined under
the Securities Act of 1933 without restriction or further registration.
The remaining 1,691,542 outstanding shares of common stock are "restricted
securities" within the meaning of Rule 144 under the Securities Act of 1933 and
may not be sold in the absence of registration unless an exemption from
registration is available, including the exemption contained in Rule 144. All of
such shares become eligible for sale under Rule 144 commencing 90 days after the
date of this prospectus through November 1999. Pursuant to the terms of the
underwriting agreement, the representative has required that the shares of
common stock owned by officers, directors and the current shareholders may not
be sold until at least 12 months from the date of this prospectus without its
prior written consent. Of the shares owned by Nigel V. Alexander and Shawn B.
Stickle, 200,000 shares are subject to an escrow arrangement and may, under
certain circumstances, be released as late as seven years after the date of this
prospectus. In the absence of agreements with the representative, the
outstanding restricted common stock could be sold in accordance with Rule 144 as
described above. See "Underwriting" for a more in depth description of the
underwriting agreement.
In general, under Rule 144 as currently in effect, a shareholder who has
beneficially owned shares of common stock for at least one year is entitled to
sell, within any three-month period, a number of "restricted" shares that does
not exceed the greater of 1% of the then outstanding shares of common stock
38
<PAGE> 42
or the average weekly trading volume during the four calendar weeks preceding
such sale. Sales under Rule 144 are also subject to certain manner of sale
limitations, notice requirements and the availability of current public
information about Multi-Link. Rule 144(k) provides that a shareholder who is not
deemed to be an "affiliate" and who has beneficially owned shares of common
stock for at least two years is entitled to sell such shares at any time under
Rule 144(k) without regard to the limitations described above.
In addition to the shares of common stock that are currently outstanding, a
total of 300,000 shares of common stock have been reserved for issuance upon
exercise of options granted under the stock option plan, under which options to
acquire 165,000 shares of common stock at exercise prices of between $0.017 and
$4.17 per share have been granted and are exercisable at various times through
2008 and options to purchase an additional 20,000 shares of Multi-Link's common
stock at $6.00 per share have been granted and are exercisable until 2009.
Ninety days after the date of this prospectus, Multi-Link plans to file a
registration statement on Form S-8 to register the shares of common stock that
have been reserved for issuance upon exercise of options granted under the stock
option plan. Once registered, the shares of common stock issued upon exercise of
such options will be freely tradable without restriction under the Securities
Act 1933 except for shares held by an "affiliate" of Multi-Link, which shares
will remain subject to certain restrictions. In addition, the representative has
required all holders of options to agree not to sell, transfer, hypothecate or
convey any shares of common stock issued upon exercise of stock options for a
period of 13 months after the date hereof, except as specified below. Multi-Link
may permit the sale from time to time of common stock issued upon exercise of
stock options by persons who are not directors or officers of Multi-Link;
provided that such sales shall not exceed an aggregate of 30,000 shares of
common stock during the 13 month period after this offering. All sales of common
stock issued upon exercise of stock options within the 13 month period must be
made through the representative.
Multi-Link also has outstanding warrants to purchase 133,500 shares of
common stock that are not exercisable until November 17, 1999. These warrants
are exercisable at a price of $5.00 per share as to 15,000 shares and at a price
of $4.17 per share as to 118,500 shares. Multi-Link has agreed to register these
shares of common stock for public resale.
Multi-Link also has outstanding warrants to purchase 150,000 shares of
common stock at a price of $4.17 per share. Multi-Link has agreed to register
these shares of common stock for public resale.
Multi-Link is unable to estimate the number of shares that may be sold in
the future by the existing holders of shares of Multi-Link's common stock or
holders of options or warrants that are outstanding or the effect, if any, that
sales of shares of common stock by such persons will have on the market price of
the common stock prevailing from time to time. Sales of substantial amounts of
common stock by such persons could adversely affect the then prevailing market
prices.
39
<PAGE> 43
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, for which Schneider Securities, Inc. is acting as the
underwriters' representative, or "representative," have agreed to purchase from
Multi-Link the number of units set forth opposite their names, and will purchase
the units at the price to public less underwriting discount set forth on the
cover page of this prospectus:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF UNITS
----------- ---------
<S> <C>
Schneider Securities, Inc...................................
---------
Total............................................. 1,200,000
=========
</TABLE>
The underwriting agreement provides that the underwriters' obligations are
subject to conditions precedent and that the underwriters are committed to
purchase all units offered hereby (other than those covered by the
over-allotment option described below) if the underwriters purchase any such
securities.
The representative has advised Multi-Link that the underwriters propose to
offer the units offered hereby directly to the public at the price to public set
forth on the cover page of this prospectus, and that they may allow to certain
dealers which are members of the National Association of Securities Dealers,
Inc., concessions not in excess of $ . After the initial public
distribution of the units is completed, the price of the shares of common stock
and warrants may change as a result of market conditions. No change in such
terms will change the amount of proceeds to be received by Multi-Link as set
forth on the cover page of this prospectus. The representative has further
advised Multi-Link that the underwriters do not intend to confirm sales to any
accounts over which any of them exercises discretionary authority.
Multi-Link has agreed to pay the representative a nonaccountable expense
allowance of 3% of the aggregate public offering price of the units offered,
including units sold on exercise of the over-allotment option, of which $45,000
has been previously paid to the representative. Multi-Link has also agreed to
pay all expenses in connection with qualifying the units offered hereby for sale
under the laws of such states as the representative may designate.
Multi-Link has granted the underwriters an option, exercisable for 45 days
after the date of this prospectus, to purchase up to 180,000 additional units at
the same price as the initial units offered. The underwriters may purchase the
units solely to cover over-allotments, if any, in connection with the sale of
the units offered hereby. If the over-allotment option is exercised in full, the
total public offering price, underwriting discounts and gross proceeds to
Multi-Link will be $8,280,000, $828,000 and $7,452,000, respectively.
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934. Over-allotment involves syndicate
sales in excess of the offering size, which create a syndicate short position
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the securities in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the underwriters to reclaim a selling concession from a
syndicate member when the securities originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock or warrants to be higher
than they would otherwise be in the absence of such transactions.
40
<PAGE> 44
Neither Multi-Link nor the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock or warrants. In
addition, neither Multi-Link nor any of the underwriters makes any
representation that the underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
Multi-Link's officers, directors and shareholders owning 1% or more of the
outstanding common stock (including derivative securities of Multi-Link), have
agreed not to offer, sell or otherwise dispose of any shares of common stock or
derivative securities of Multi-Link for a period of 13 months after the date of
this prospectus without the prior written consent of the representative. All
officers, directors and holders of 5% or more of the common stock of Multi-Link
have further agreed not to offer, sell or otherwise dispose of any capital stock
or derivative securities of Multi-Link through a "Regulation S" transaction for
a minimum period of five years from the date of this prospectus without the
prior written consent of the representative. Each of the shareholders of
Multi-Link who owns less than 1% of the outstanding shares of common stock of
Multi-Link has also agreed not to offer, sell or otherwise dispose of any shares
of common stock for a period of 12 months after the date of this prospectus
without the prior written consent of the representative. Collectively, these
periods in which the common stock or derivative securities of Multi-Link cannot
be offered, sold or otherwise disposed of, are referred to in this prospectus as
the "lock-up period." The representative has no present intention to waive or
shorten the lock-up period.
Multi-Link will sell to the representative on completion of the offering,
for a total purchase price of $100, the representative's option for the purchase
of units entitling the representative or its assigns to purchase one unit for
each 10 units sold to the public (excluding the units sold in the over-allotment
option). The representative's option will be exercisable commencing one year
from the date of this prospectus and will expire five years from such date. Two
of the warrants included in the units underlying the representative's option
will be exercisable to purchase one share of common stock at an exercise price
of $9.00 per share during the three year term of the warrants. The
representative's option will contain certain anti-dilution provisions and
provide for the cashless exercise of the representative's option utilizing
securities of Multi-Link (which may include the implicit value of the
representative's option or warrants being surrendered). The exercise price of
the representative's option to purchase units is 120% of the public offering
price or $7.20 per unit.
Multi-Link will set aside and at all times have available a sufficient
number of securities to be issued upon exercise of the representative's option.
The representative's option and underlying securities will be restricted from
sale, transfer, assignment or hypothecation for a period of one year after the
date of this prospectus, except to officers of the representative,
co-underwriters, selling group members and their officers, employees or
partners. Thereafter, the representative's option and underlying units will be
transferable provided such transfer is in accordance with the provisions of the
Securities Act of 1933. Subject to certain limitations and exclusions,
Multi-Link has agreed, at the request of representative, to register the common
stock included in the units and underlying the warrants included in the units
issuable upon exercise of the representative's option.
Upon any solicited exercise of the warrants after one year from the date of
this prospectus, Multi-Link will pay the representative a fee of 5% of the
aggregate exercise price for warrant exercises if:
- the market price of the common stock on the date the warrant is exercised
is greater than the then exercise price of the warrant;
- the exercise of the warrant was solicited by a member of the National
Association of Securities Dealers, Inc. as designated in writing on the
warrant certificate subscription form (provided that any request for
exercise will be presumed to be unsolicited unless the customer states in
writing that the transaction was solicited and designates the
broker-dealer to receive compensation);
- the warrant is not held in a discretionary account;
- disclosure of compensation arrangements was made both at the time of the
offering and at the time of exercise of the warrant; and
41
<PAGE> 45
- the solicitation of exercise of the warrant was not in violation of
Regulation M promulgated under the Securities Exchange Act of 1934.
A portion of the 5% fee may be reallowed by the representative to participating
broker-dealers.
Regulation M prohibits the representative from engaging in any market
making activities with regard to Multi-Link's securities during the period
commencing as of the date on which the representative becomes a participant in
the solicitation of the exercise of warrants until the termination of such
solicitation activity. As a result, the representative may be unable to make a
market in Multi-Link's securities during certain periods while the warrants are
exercisable.
Multi-Link and the representative have entered into a non-exclusive
agreement which provides that, if the representative arranges for the purchase
or sale of substantially all of the assets of Multi-Link, or for a merger,
consolidation or acquisition accepted by Multi-Link during the five-year period
commencing on the date of this prospectus, the representative will receive a fee
based on a sliding scale ranging from 5% of the first $1 million of
consideration and decreasing to 3% of consideration in excess of $2 million.
Multi-Link and the representative have entered into an agreement which
provides that for a period of three years from the date of this prospectus, all
public sales of Multi-Link's securities by officers, directors and shareholders
of Multi-Link at the time of this prospectus shall be effected through or with
the representative on an exclusive basis, provided that the representative
offers the best price reasonably available. In addition, for a period of three
years commencing two years from the date of this prospectus, in the case of
private transactions in Multi-Link's common stock, such selling security holders
specified above shall offer the representative the exclusive opportunity to
purchase or sell the common stock on terms at least as favorable as the selling
security holder can obtain elsewhere.
For a period of five years after the date hereof, the representative has
the right to have an observer attend meetings of Multi-Link's board of directors
and receive the same compensation (excluding grants of options) and expenses
paid to Multi-Link's directors.
Prior to this offering, there has not been a public market for Multi-Link's
securities. The public offering price of the units and the exercise price of the
warrants has been determined by arms-length negotiation between Multi-Link and
the representative. There is no direct relation between the offering price of
the units and the assets, book value or net worth of Multi-Link. Among the
factors considered by Multi-Link and the representative in pricing the units and
in determining the exercise price of the warrants were the results of
operations, the current financial condition and future prospects of Multi-Link,
the experience of management, the amount of ownership to be retained by present
stockholders, the general condition of the economy and the securities markets
and the demand for securities of companies considered comparable to Multi-Link.
In connection with this offering, Multi-Link and the underwriters have
agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act of 1933 and if such indemnification is
unavailable or insufficient, Multi-Link and the underwriters have agreed to
damage contribution arrangements based upon relative benefits received from this
offering and relative fault resulting in such damage.
42
<PAGE> 46
LEGAL MATTERS
The validity of the common stock and warrants offered in this prospectus
will be passed upon by Smith McCullough, P.C. Certain legal matters will be
passed upon for the representative by Berliner Zisser Walter & Gallegos, P.C.
EXPERTS
The consolidated balance sheet of Multi-Link as of September 30, 1998 and
the consolidated statements of operations and comprehensive income (loss),
stockholders' equity and cash flows for the year ended September 30, 1998
included in this prospectus have been included herein in reliance on the report
of HEIN + ASSOCIATES LLP, independent certified public accountants, given on the
authority of that firm as experts in auditing and accounting.
The consolidated statements of operations and comprehensive income (loss),
stockholder's equity and cash flows for the year ended September 30, 1997 and
for the period from January 22, 1996 to September 30, 1996 included in this
prospectus have been included herein in reliance on the report of James E.
Scheifley & Associates, PC, independent certified public accountants, given on
the authority of that firm as experts in auditing and accounting.
With respect to the unaudited interim consolidated financial information
for the three months ended December 31, 1997 and 1998, the independent certified
public accountants have not audited such consolidated financial information and
have not expressed an opinion or any other form of assurance with respect to
such consolidated financial information.
On December 16, 1998, Multi-Link engaged HEIN & ASSOCIATES LLP as
Multi-Link's principal independent accountant in place of James E. Scheifley &
Associates, PC. On December 16, 1998, Multi-Link requested and received the
resignation of James E. Scheifley & Associates, PC. There were no disagreements
between Multi-Link and James E. Scheifley & Associates, PC on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to the satisfaction of James E.
Scheifley & Associates, PC, would have caused James E. Scheifley & Associates,
PC to make reference in its reports to the subject matter of such disagreements.
The opinion of James E. Scheifley & Associates, PC on Multi-Link's consolidated
financial statements for the fiscal year ended September 30, 1997, and for the
period from January 22, 1996 to September 30, 1996 contained no adverse opinion
or disclaimer of opinion, nor was such opinion qualified as to uncertainty,
audit scope or accounting principles. The decision to change accountants was
approved by Multi-Link's board of directors.
43
<PAGE> 47
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Reports............................... F-2
Consolidated Balance Sheets -- September 30, 1998 and
December 31, 1998 (Unaudited)............................. F-4
Consolidated Statements of Operations and Comprehensive
Income (Loss) -- For the Period from Inception (January
22, 1996) to September 30, 1996, for the Years Ended
September 30, 1997 and 1998, and for the Three Months
Ended December 31, 1997 and 1998 (Unaudited).............. F-5
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) -- For the Period from Inception (January 22,
1996) to September 30, 1996, for the Years Ended September
30, 1997 and 1998, and for the Three Months Ended December
31, 1998 (Unaudited)...................................... F-6
Consolidated Statements of Cash Flows - For the Period from
Inception (January 22, 1996) to September 30, 1996, for
the Years Ended September 30, 1997 and 1998, and for the
Three Months Ended December 31, 1997 and 1998
(Unaudited)............................................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 48
INDEPENDENT AUDITOR'S REPORT
Shareholders and Board of Directors
Multi-Link Telecommunications, Inc. and Subsidiary
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Multi-Link
Telecommunications, Inc. and subsidiary as of September 30, 1998 and the related
consolidated statements of operations and comprehensive income (loss), changes
in stockholders' equity (deficit), and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Multi-Link Telecommunications, Inc. and subsidiary as of September 30, 1998 and
of the results of their operations and their cash flows for the year then ended,
in conformity with generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Denver, Colorado
January 21, 1999, except for Note 4 for which the
date is February 10, 1999
F-2
<PAGE> 49
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Multi-Link Holdings, Inc. and Subsidiary
We have audited the consolidated balance sheet of Multi-Link Holdings, Inc.
and Subsidiary as of September 30, 1997 and 1996 and the accompanying related
consolidated statements of operations and comprehensive loss, stockholders'
equity, and cash flows for the year ended September 30, 1997 and the period from
inception (January 22, 1996) to September 30, 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 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 in above present fairly,
in all material respects, the financial position of Multi-Link Holdings, Inc.
and Subsidiary as of September 30, 1997, and of the results of its operations
and comprehensive loss and cash flows for the year ended September 30, 1997 and
the period ended September 30, 1996, in conformity with generally accepted
accounting principles.
James E. Scheifley & Associates, PC
Certified Public Accountants
Englewood, Colorado
February 13, 1998
F-3
<PAGE> 50
MULTI-LINK TELECOMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 555,852 $ 188,574
Accounts receivable -- trade, net of allowance for
doubtful accounts of $46,563 and $43,438 (unaudited),
respectively........................................... 104,284 198,042
Note receivable........................................... -- 204,453
----------- -----------
Total current assets.............................. 660,136 591,069
Property and Equipment, net................................. 683,966 688,844
Other Assets:
Deferred financing and offering costs..................... 161,369 111,324
Intangible assets, less amortization of $349,160 and
$376,555 (unaudited), respectively..................... 241,244 286,580
----------- -----------
Total Assets...................................... $ 1,746,715 $ 1,677,817
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable.......................................... $ 153,432 $ 33,123
Accrued expenses.......................................... 199,639 95,108
Deferred revenue.......................................... 161,431 148,876
Notes payable -- related parties, current portion......... 421,167 179,916
Notes payable and current portion of long-term debt....... 179,829 179,452
----------- -----------
Total current liabilities......................... 1,115,498 636,475
Notes Payable -- Related Parties, Less Current Portion...... 247,807 113,570
Long-Term Debt, Less Current Portion........................ 2,222,065 2,301,721
Commitments (Note 7)
Stockholders' Deficit:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; none issued................................ -- --
Common stock, no par value; 20,000,000 shares authorized,
1,570,152 and 1,691,542 (unaudited) shares issued and
outstanding, respectively.............................. 442,591 822,771
Accumulated deficit....................................... (2,281,246) (2,196,720)
----------- -----------
Total stockholders' deficit....................... (1,838,655) (1,373,949)
----------- -----------
Total Liabilities and Stockholders' Deficit....... $ 1,746,715 $ 1,677,817
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 51
MULTI-LINK TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JANUARY 22, 1996) FOR THE YEARS ENDED FOR THE THREE MONTHS ENDED
TO SEPTEMBER 30, DECEMBER 31,
SEPTEMBER 30, ------------------------ ---------------------------
1996 1997 1998 1997 1998
------------------ ----------- ---------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Revenues............... $ 221,824 $ 1,154,161 $1,859,276 $ 413,046 $ 512,714
Cost of Services and
Products................. 82,572 348,413 371,391 92,933 95,994
---------- ----------- ---------- ---------- ----------
Gross Margin............... 139,252 805,748 1,487,885 320,113 416,720
Operating Expenses:
Sales and advertising.... 306,979 692,247 155,270 114,547 10,017
General and
administrative........ 313,957 847,807 742,527 190,385 169,954
Depreciation............. 30,263 61,943 80,513 20,368 21,694
Amortization............. 2,916 5,000 41,674 1,250 27,395
Impairment of goodwill... 299,570 -- -- -- --
---------- ----------- ---------- ---------- ----------
Total operating
expenses....... 953,685 1,606,997 1,019,984 326,550 229,060
---------- ----------- ---------- ---------- ----------
Income (Loss) from
Operations............... (814,433) (801,249) 467,901 (6,437) 187,660
Interest Income
(Expense), net........ (60,749) (437,198) (635,518) (137,656) (103,134)
---------- ----------- ---------- ---------- ----------
Net Income (Loss) and
Comprehensive Income
(Loss)................... $ (875,182) $(1,238,447) $ (167,617) $ (144,093) $ 84,526
========== =========== ========== ========== ==========
Net Income (Loss) Per
Common Share:
Basic.................... $ (.71) $ (.89) $ (.11) $ (.10) $ .05
========== =========== ========== ========== ==========
Diluted.................. $ (.71) $ (.89) $ (.11) $ (.10) $ .05
========== =========== ========== ========== ==========
Weighted Average Common
Shares Outstanding:
Basic.................... 1,229,640 1,392,568 1,496,905 1,490,698 1,632,325
========== =========== ========== ========== ==========
Diluted.................. 1,229,640 1,392,568 1,496,905 1,490,698 1,750,020
========== =========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 52
MULTI-LINK TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (JANUARY 22, 1996) TO SEPTEMBER 30, 1996,
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1998, AND
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Balances, January 22, 1996................... -- $ -- $ -- $ --
Common stock for cash...................... 1,200,000 10,000 -- 10,000
Common stock issued for services........... 61,200 1,020 -- 1,020
Net loss................................... -- -- (875,182) (875,182)
--------- -------- ----------- -----------
Balances, September 30, 1996................. 1,261,200 11,020 (875,182) (864,162)
Common stock issued for services........... 92,810 14,191 -- 14,191
Common stock issued for loans.............. 136,688 23,940 23,940
Net loss................................... -- -- (1,238,447) (1,238,447)
--------- -------- ----------- -----------
Balances, September 30, 1997................. 1,490,698 49,151 (2,113,629) (2,064,478)
Warrants issued for loans.................. -- 73,440 -- 73,440
Common stock issued in exchange for debt... 79,454 320,000 -- 320,000
Net loss................................... -- -- (167,617) (167,617)
--------- -------- ----------- -----------
Balances, September 30, 1998................. 1,570,152 442,591 (2,281,246) (1,838,655)
Common stock issued for private placement
(unaudited)............................. 141,600 350,901 -- 350,901
Common stock issued in exchange for debt
(unaudited)............................. 8,400 35,000 -- 35,000
Shares repurchased (unaudited)............. (28,610) (5,721) -- (5,721)
Net income (unaudited)..................... -- -- 84,526 84,526
--------- -------- ----------- -----------
Balances, December 31, 1998 (Unaudited)...... 1,691,542 $822,771 $(2,196,720) $(1,373,949)
========= ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 53
MULTI-LINK TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION FOR THE THREE
(JANUARY 22, FOR THE YEARS ENDED MONTHS ENDED
1996) TO SEPTEMBER 30, DECEMBER 31,
SEPTEMBER 30, ------------------------- -----------------------
1996 1997 1998 1997 1998
------------- ----------- ----------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss).................................. $(875,182) $(1,238,447) $ (167,617) $(144,093) $ 84,526
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization.................... 33,179 66,943 122,187 21,618 49,089
Impairment of goodwill........................... 299,570 -- -- -- --
Amortization of debt discount and issuance
costs.......................................... -- -- -- -- 7,175
Common stock issued for services and loans....... 1,020 38,131 -- -- --
Bad debt expense................................. 8,929 64,038 95,299 23,850 25,514
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable............................ (30,680) (186,647) (49,190) (2,771) (103,093)
Deferred factoring costs and other
prepayments................................. (52,709) (54,871) 107,492 18,948 (16,179)
Increase (decrease) in:
Accounts payable............................... 157,519 305,494 (63,449) 17,107 (120,309)
Accrued expenses............................... 55,209 49,128 (214,471) (41,453) (104,531)
Deferred revenue............................... 36,177 (40,559) 60,318 (8,235) (12,555)
--------- ----------- ----------- --------- ---------
Net cash used in operating activities............ (366,968) (966,790) (109,431) (115,029) (190,363)
Cash Flows From Investing Activities:
Purchase of subscriber accounts.................... -- -- (265,834) -- (72,731)
Sale (purchase) of fixed assets.................... 800 (38,446) -- -- (26,572)
Advance of note receivable......................... -- -- -- -- (204,453)
--------- ----------- ----------- --------- ---------
Net cash provided by (used in) investing
activities..................................... 800 (38,446) (265,834) -- (303,756)
Cash Flows From Financing Activities:
Debt issue costs................................... -- -- (70,154) -- --
Offering costs..................................... -- -- (91,215) -- (192,557)
Payment of related party notes payable............. (14,472) (364,035) (1,546,938) (383,567) (448,594)
Advances under related party notes payable......... 325,817 1,342,913 1,673,641 555,253 79,283
Advances under notes payable....................... 80,000 36,241 1,197,215 5,971 150,000
Payment of notes payable........................... (12,500) (15,580) (248,412) (60,140) (45,570)
Repurchase of outstanding shares................... -- -- -- -- (5,721)
Proceeds from issuance of common stock............. 10,000 -- -- -- 590,000
--------- ----------- ----------- --------- ---------
Net cash provided by financing activities........ 388,845 999,539 914,137 117,517 126,841
Increase (Decrease) in Cash and Cash Equivalents..... 22,677 (5,697) 538,872 2,488 (367,278)
Cash and Cash Equivalents, at beginning of period.... -- 22,677 16,980 16,980 555,852
--------- ----------- ----------- --------- ---------
Cash and Cash Equivalents, at end of period.......... $ 22,677 $ 16,980 $ 555,852 $ 19,468 $ 188,574
========= =========== =========== ========= =========
Supplemental Schedule of Cash Flow Information:
Cash paid for interest............................... $ 73,508 $ 298,331 $ 652,199 $ 59,381 $ 125,041
========= =========== =========== ========= =========
Cash paid for taxes.................................. $ -- $ -- $ -- $ -- $ --
========= =========== =========== ========= =========
Equipment acquired through capital leases............ $ 17,465 $ 14,295 $ -- $ -- $ --
========= =========== =========== ========= =========
Equipment acquired through debt...................... $ 281,050 $ 475,444 $ 23,016 $ -- $ --
========= =========== =========== ========= =========
Conversion of notes payable to equity................ $ -- $ -- $ 320,000 $ -- $ 35,000
========= =========== =========== ========= =========
Fair value of warrants granted for loans............. $ -- $ -- $ 73,440 $ -- $ --
========= =========== =========== ========= =========
Liabilities assumed in business combination accounted
for as a purchase.................................. $ 315,485 $ -- $ -- $ -- $ --
========= =========== =========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 54
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 IS UNAUDITED)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations -- Multi-Link Telecommunications, Inc.
(Telecommunications) was incorporated in the state of Colorado in January 1996
under the name Multi-Link Holdings, Inc. Multi-Link Holdings, Inc. was renamed
Multi-Link Telecommunications, Inc. in May 1998. On February 15, 1996,
Telecommunications acquired 97.5% of the issued common stock of Voice Services,
Inc., a Colorado corporation. Voice Services Inc. was renamed Multi-Link
Communications, Inc. (Communications) in April 1996. In May 1996, Communications
purchased a Glenayre Modular Voice Processor and launched a new range of custom
designed voice and fax messaging products targeted at business users in the
Denver and Boulder local calling areas.
Principles of Consolidation -- The consolidated financial statements
include the accounts of Telecommunications and its 97.5% owned subsidiary,
Communications (collectively the "Company"). All significant intercompany
transactions and accounts have been eliminated. As a result of the stockholders'
deficiency in Communications, the minority interest currently has no book value.
Cash and Cash Equivalents -- Cash and cash equivalents consist of cash and
highly liquid debt instruments with original maturities of less than three
months.
Property and Equipment -- Property and equipment acquired on the purchase
of Communications have been stated at fair value. Otherwise, property and
equipment are stated at cost. Depreciation of property and equipment is
calculated using the straight -- line method over the estimated useful lives of
the assets. The estimated useful lives are as follows:
<TABLE>
<S> <C> <C>
Computer equipment -- 3 years
Motor vehicles -- 3 years
Plant and equipment -- 3 years
Voice messaging
equipment -- 15 years
</TABLE>
Intangible Assets -- Direct and incremental external costs associated with
the acquisition of subscriber accounts are capitalized. The Company's personnel
and related support costs incurred in support of acquiring and transitioning
subscriber accounts are expensed as incurred. Costs related to the sales and
marketing for subscriber accounts internally generated are expensed as incurred.
Through December 1997, all subscriber accounts were internally generated and,
accordingly, sales and marketing costs were expensed as incurred. Beginning
January 1998, the Company acquired its subscriber accounts primarily through
independent, third-party sales organizations and, accordingly, these direct and
incremental costs have been capitalized.
The costs of capitalized subscriber accounts acquired are amortized on a
straight-line basis over the lesser of 3 years or the estimated economic life of
the subscriber account.
Goodwill represents the excess of the purchase price over the value of net
assets/liabilities acquired in business acquisitions accounted for as a
purchase. Goodwill is amortized over 5 years on a straight-line basis.
Deferred Financing, Discount on Long-Term Debt, and Offering Costs -- Costs
incurred with respect to the Company's factoring facility have been capitalized
and are amortized over the twelve month term of a customer contract using the
straight line method, which approximates the interest rate method.
Costs incurred with respect to the Company's debt financing have been
capitalized and are amortized over the respective lives of associated debt using
the straight-line method, which approximates the interest rate method.
F-8
<PAGE> 55
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 IS UNAUDITED)
Fair value of warrants issued with respect to the Company's debt financing
is treated as a discount to the respective debt and amortized over the term of
the loan.
Deferred offering costs, totaling $91,714 at September 30, 1998, were
offset against the proceeds of a private offering completed during the three
months ended December 31, 1998. As of December 31, 1998, the Company has
incurred $40,820 of deferred offering costs relating to a proposed public
offering (see Note 10). These costs will be offset against the offering proceeds
if it is successfully completed or otherwise will be expensed.
Impairment of Long-Lived and Intangible Assets -- In the event that facts
and circumstances indicate that the cost of long-lived and intangible assets may
be impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows associated
with the asset would be compared to the asset's carrying amount to determine if
a write-down to market value or discounted cash flow value is required.
Concentration of Credit Risk and Significant Vendors -- Concentration of
credit risk is limited to trade accounts receivable and notes receivable. The
nature of the Company's business is such that no single customer represents more
than 2% of net accounts receivable. The Company does not require collateral or
other security to support customer's receivables but conducts periodic reviews
of customer payment practices to minimize collection risk on trade accounts
receivable. Allowances are maintained for potential credit losses and such
losses have been within management's expectations.
At December 31, 1998, the note receivable was from one corporation, totaled
$204,453, and was uncollateralized. The note was repaid in full during February
1999.
The Company currently uses services provided by US West for interconnection
to the public telephone network. There are other local telephone companies which
could provide the Company with a similar interconnection. However, in the event
that US West was to experience difficulties in providing the Company with
interconnection in its present configuration, it could materially adversely
affect the Company's business in the short-term. An appropriate time period
would be required to enable the Company to establish a new interconnection to
the public telephone network.
During the year ended September 30, 1998, the Company began using
independent agents to obtain new subscriber accounts. One agent accounted for
approximately 45% of the Company's new revenue growth during the fiscal year
1998 which represents a cumulative monthly revenue of approximately $37,000.
Financial Instruments -- The estimated fair values for financial
instruments are determined at discrete points in time based on relevant market
information. These estimates involve uncertainties and cannot be determined with
precision. The carrying amounts of note receivable, accounts receivable,
accounts payable, and accrued liabilities approximate fair value because of the
short-term maturities of these instruments. The fair value of notes payable
approximates their carrying value as generally their interest rates reflect the
Company's current effective annual borrowing rate.
Income Taxes -- The Company currently accounts for income taxes under the
liability method, which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
tax assets and liabilities are determined based on the difference between the
financial statements and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
F-9
<PAGE> 56
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 IS UNAUDITED)
Deferred Revenue and Revenue Recognition -- Revenues are recognized at the
time services are performed or products are delivered, net of refunds. Deferred
revenues primarily represent customer prepayments which are recognized as income
when earned.
Comprehensive Income (Loss) -- Comprehensive income is defined as all
changes in stockholders' equity (deficit), exclusive of transactions with
owners, such as capital investments. Comprehensive income includes net income or
loss, changes in certain assets and liabilities that are reported directly in
equity such as translation adjustments on investments in foreign subsidiaries,
and certain changes in minimum pension liabilities. The Company's comprehensive
income (loss) was equal to its net income (loss) for all periods presented in
these financial statements.
Income (Loss) Per Share -- The income (loss) per share is presented in
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 128, Earnings Per Share. SFAS No. 128 replaced the presentation of
primary and fully diluted earnings (loss) per share (EPS) with a presentation of
basic EPS and diluted EPS. Basic EPS is calculated by dividing the income or
loss available to common stockholders by the weighted average number of common
stock outstanding for 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. Basic and diluted EPS were the same
for fiscal 1996, 1997, and 1998 as the Company had losses from operations and,
therefore, the effect of all additional potential common stock was antidilutive.
During the three months ended December 31, 1998, included in diluted EPS are
common equivalent shares outstanding totaling 117,695, determined using the
treasury stock method consisting of stock options and warrants.
Stock-Based Compensation -- In fiscal 1997, the Company adopted SFAS No.
123, Accounting for Stock-Based Compensation. SFAS No. 123 encourages, but does
not require, companies to recognize compensation expense for grants of stock,
stock options, and other equity instruments to employees based on fair value.
Companies that do not adopt the fair value accounting rules must disclose the
impact of adopting the new method in the notes to the financial statements.
Transactions in equity instruments with non-employees for goods or services must
be accounted for on the fair value method. The Company has elected not to adopt
the fair value accounting prescribed by SFAS No. 123 for employees, and is
subject only to the disclosure requirements prescribed by SFAS No. 123.
Use of Estimates -- The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in
these financial statements and accompanying notes. Actual results could differ
from those estimates.
Recently Issued Accounting Pronouncements -- SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, was issued in June 1998. This
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for the Company's financial statements for the year ended September
30, 2001 and the adoption of this standard is not expected to have a material
effect on the Company's financial statements.
SFAS No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits, was issued in February 1998. This statement revises the
disclosure requirement for pensions and other postretirement benefits. This
statement is effective for the Company's financial statements for the year ended
September 30, 1999 and the adoption of this standard is not expected to have a
material effect on the Company's financial statements.
F-10
<PAGE> 57
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 IS UNAUDITED)
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, was issued in June 1997. This statement establishes standards for
the way public business enterprises report information about operating segments.
It also establishes standards for related disclosure about products and
services, geographical areas and major customers. This statement is effective
for the Company's financial statements for the year ended September 30, 1999 and
the adoption of this standard is not expected to have a material effect on the
Company's financial statements.
Unaudited Information -- The consolidated balance sheet as of December 31,
1998 and the consolidated statements of operations for the three-month period
ended December 31, 1997 and 1998 were taken from the Company's books and records
without audit. However, in the opinion of management, such information includes
all adjustments (consisting only of normal recurring accruals) which are
necessary to properly reflect the consolidated financial position of the Company
as of December 31, 1998 and the results of operations for the three months ended
December 31, 1997 and 1998.
Reclassifications -- Certain reclassifications have been made so that the
financial statements for the period from inception (January 22, 1996) to
September 30, 1996 and the year ended September 30, 1997 conform to the
presentation adopted in fiscal 1998. The reclassifications had no effect on net
income (loss).
2. ACQUISITION:
On February 15, 1996, Telecommunications acquired 97.5% of the common stock
of Communications for $140,000. The Company used the purchase method to account
for this acquisition. The results of Communications have been included in
Telecommunications' consolidated statements of operation from the date of
acquisition. The excess of the total acquisition costs and related fees over the
fair market value of the net liabilities acquired totaling $324,570 has been
recorded as goodwill which, is being amortized over a five-year period on a
straight-line basis. Effective September 30, 1996, the Company recognized an
impairment of goodwill totaling $299,570, as a result of management's
re-evaluation of the acquired technology, customer base and anticipated future
cash flows.
3. PROPERTY AND EQUIPMENT:
Property and equipment comprise the following as of September 30, 1998:
<TABLE>
<S> <C>
Computer equipment.......................................... $ 79,980
Motor vehicles.............................................. 17,426
Plant and equipment......................................... 2,905
Voice messaging equipment................................... 756,374
---------
856,685
Accumulated depreciation.................................... (172,719)
---------
$ 683,966
=========
</TABLE>
4. NOTE RECEIVABLE:
In November 1998, Communications entered into a $250,000 line-of-credit
agreement with one of the Company's independent agents. As of December 31, 1998,
the amount drawn on the line-of-credit was $204,453. During February 1999, all
outstanding principal and accrued interest was paid and the line-of-credit was
terminated.
F-11
<PAGE> 58
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 IS UNAUDITED)
5. INTANGIBLE ASSETS:
Intangible assets comprise the following as of September 30, 1998:
<TABLE>
<S> <C>
Goodwill.................................................... $ 324,570
Subscriber accounts......................................... 265,834
---------
590,404
Amortization................................................ (349,160)
---------
$ 241,244
=========
</TABLE>
6. NOTES PAYABLE AND LONG-TERM DEBT:
Notes payable and long-term debt consist of the following as of September
30, 1998:
Related Parties:
<TABLE>
<S> <C>
Note payable to a stockholder (previously the Company's
factor) with interest at 15% until September 30, 1999,
then increasing to 25%. Repayment of principal is required
from net proceeds of all subsequent debt and equity
financing until the balance is repaid in full. Interest is
payable monthly and principal payments of $25,000 begin
October 30, 1999 and continue until the balance is repaid
in full. This note is collateralized by all the assets of
the Company with the personal guarantees of certain
officers/directors/stockholders and is subordinated to the
Westburg Loan (see other notes payable). During the three
months ended December 31, 1998, the Company made $374,237
of principal and interest payments from the private
placement which occurred in November 1998. The Company
also issued warrants for the purchase of 36,000 shares of
common stock to the lender as consideration for converting
part of the loan to equity (see Note 8)................... $ 547,807
Notes payable to an entity owned by a stockholder/director
of the Company with 10% interest, payable on demand. This
note is unsecured......................................... 43,923
Notes payable to a stockholder/director of the Company, with
10% interest, payable on demand. This note is unsecured... 77,244
---------
668,974
Less current portion........................................ (421,167)
---------
$ 247,807
=========
</TABLE>
Total interest expense to these related parties for the period from
inception (January 22, 1996) to September 30, 1996, for the years ended
September 30, 1997 and 1998 and for the three months ended December 31, 1997 and
1998 was $17,844, $255,446, $376,344, $101,159, and $17,008, respectively.
F-12
<PAGE> 59
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 IS UNAUDITED)
Other:
<TABLE>
<S> <C> <C>
Communications has entered into various loan agreements to purchase
motor vehicles, computer and voice messaging equipment The loans require
varying monthly payments and mature through June 2003. Interest is
charged at rates between 12.5% and 13.9%. The loans are collateralized
by the underlying assets and are personally guaranteed by certain
officers/directors/stockholders of the Company
........................................................................ $ 621,308
Note payable to a commercial lender (the Westburg Loan) with interest
charged at 3% above prime (11.25% as of September 30, 1998) monthly
payments of interest only through September 1999 after which date
monthly principal and interest payments are to be made on the basis of
a 10-year amortization with all unpaid principal and accrued interest
due October 2003. Certain officers/directors/ stockholders have
pledged 960,000 shares of their common stock as collateral for the
loan. Additionally, this note is collateralized by all the assets of
the Company and guaranteed by certain officers/directors/stockholders
of the Company. The Westburg Loan is a $2,100,000 term credit facility
of which $1,800,000 and $1,950,000 have been drawn as of September 30,
1998 and December 31, 1998, respectively. Under the terms of the
Westburg Loan, the Company is required to maintain certain financial
ratios and has certain other restrictions including limits on total
indebtedness, payment of dividends, and capital expenditures. As of
September 30, 1998, the Company was not in compliance with the debt
ratio covenant and received a waiver from Westburg. The Company was in
compliance with all debt covenants as of December 31, 1998. The
Company also issued warrants for the purchase of 150,000 shares of
common stock with a fair value of $73,440 to the lender as
consideration for the loan. The estimated fair value of the warrants
is treated as a discount on the long-term debt and is being amortized
over the 5-year term of the loan.
Face value...................................... $1,800,000
Unamortized discount............................ (73,440)
----------
1,726,560
Note payable to a private individual with interest charged at 15% which
was unsecured and which was due to mature June 30, 1999. The principal
balance was converted to equity in November 1998...................... 35,849
Other................................................................... 18,177
----------
2,401,894
Less current portion.................................................... (179,829)
----------
$2,222,065
==========
</TABLE>
F-13
<PAGE> 60
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 IS UNAUDITED)
Principal payments on the above obligations at September 30, 1998, net of
the discount on the Westburg Loan, are due as follows:
<TABLE>
<CAPTION>
RELATED
PARTIES OTHER
-------- ----------
<S> <C> <C>
1999........................................................ $421,167 $ 179,829
2000........................................................ 247,807 248,460
2001........................................................ -- 273,756
2002........................................................ -- 233,977
2003........................................................ -- 153,376
Thereafter.................................................. -- 1,312,496
-------- ----------
$668,974 $2,401,894
======== ==========
</TABLE>
7. COMMITMENTS:
The Company leases certain equipment under lease agreements classified as
operating leases. Minimum future equipment rental payments are as follows:
<TABLE>
<S> <C>
1999...................................................... $ 8,575
2000...................................................... 7,664
2001...................................................... 6,535
2002...................................................... 4,635
2003...................................................... 1,545
-------
$28,954
=======
</TABLE>
The Company leases its office facility for monthly payments of $2,200 and
intends to vacate this facility and lease a new facility in 1999.
Rent expense for the period from inception (January 22, 1996) to September
30, 1996, for the years ended September 30, 1997 and 1998 and for the three
months ended December 31, 1997 and 1998 was $12,655, $18,150, $20,712, $5,134,
and $6,501, respectively.
8. STOCKHOLDERS' EQUITY:
Preferred Stock -- The Company has the authority to issue 5,000,000 shares
of preferred stock. The Board of Directors has the authority to issue such
preferred stock in series and determine the rights and preferences of the
shares.
Common Stock -- During 1997, the Company declared a 200 for 1 stock split.
The Company also declared a 3 for 5 reverse stock split effective in February
1999. Accordingly, all amounts for common stock reflected in the financial
statements and accompanying notes reflect the effect of these splits.
Warrants -- During fiscal 1998, the Company issued warrants for the
purchase of 36,000 shares of common stock to an entity in consideration for
converting part of its debt with the Company into 72,000 shares of common stock.
These warrants expire May 2000 and as of December 31, 1998, were exercisable at
$8.33 per share. Effective February 1999, these warrants were repriced at $4.17
per share.
During the year ended September 30, 1998, the Company issued a warrant for
the purchase of 150,000 shares of common stock to the lender in consideration
for advancing the Westburg Loan (see Note 6). The expiration date of the
warrants will be earlier of (i) the date all amounts are repaid under the
Westburg loan, (ii) the date of the sale of the Company or substantially all of
its assets, or (iii) the
F-14
<PAGE> 61
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 IS UNAUDITED)
effective date of a registration statement filed under the Securities Act in
connection with a $5,000,000 or greater firm commitment underwriting for common
stock of the Company. These warrants are exercisable at $4.17 per share.
In connection with the private placement and debt conversion in November
1998, the Company issued warrants to purchase 75,000 shares of common shares
which, as of December 31, 1998, were exercisable at $8.33 per share. Effective
February 1999, these warrants were repriced at $4.17 per share. The warrants
expire in May 2000 and are redeemable under certain circumstances by the
Company.
In November 1998, the placement agent of the private placement was issued
warrants to purchase 15,000 and 7,500 shares of common stock at $5 and $4.17 per
share, respectively. The warrants are exercisable under the same terms as the
warrants issued in the private placement. The placement agent options are
exercisable after November 1999 and expire in November 2003.
Stock Options -- In 1997, the Company adopted a stock option plan (the
"Plan") that authorizes the issuance of up to 300,000 shares of common stock.
Pursuant to the Plan, the Company may grant "incentive stock options" (intended
to qualify under Section 422 of the Internal Revenue Code of 1986, as amended)
or "nonqualified stock options."
Incentive and nonqualified stock options shall be granted at fair market
value, to be determined by the Board of Directors, at the date of grant (except
for holders of more than 10% of common stock, in which case the exercise price
must be at least 110% of the fair market value at the date of grant for
incentive stock options). The term of the options shall not exceed ten years and
the vesting date is determined by the Board of Directors. As of September 30,
1998, the Company had granted options under the Plan to purchase 164,295 shares,
of which no options have been exercised and 9,630 have been forfeited or
canceled.
The following is a table of activity under the Plan:
<TABLE>
<CAPTION>
1997 1998
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of year................. -- $ -- 101,355 $ .105
Granted:
Employees and others...................... -- -- 25,200 2.450
Employees and others...................... -- -- 35,490 4.167
Employees................................. 72,000 .017 -- --
Employees................................. 13,110 .167 -- --
Employees................................. 18,495 .417 -- --
Forfeited/Canceled........................... (2,250) .220 (7,380) .943
------- ----- ------- ------
Outstanding, end of year....................... 101,355 $.105 154,665 $1.384
======= ===== ======= ======
</TABLE>
For all options granted during fiscal 1997 and 1998, the weighted average
market price of the Company's common stock on the grant date was approximately
equal to the weighted average exercise price. Because the shares are not
registered and publicly traded, for the purpose of pricing the grants, the fair
market value of the Company's common stock is determined by the Company's
management and the Board of Directors.
F-15
<PAGE> 62
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 IS UNAUDITED)
The weighted average contractual life for all options as of September 30,
1998 was approximately 9 years, with the exercise prices ranging from $.017 to
$4.167. At September 30, 1998, options for 12,015 shares were exercisable and
options for the remaining shares become exercisable pro rata through fiscal
2000. If not previously exercised, options outstanding at September 30, 1998,
will expire as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
FISCAL YEAR OF SHARES PRICE
- ----------- --------- --------
<S> <C> <C>
2007...................................................... 72,000 $ .017
2007...................................................... 7,410 .167
2007...................................................... 16,605 .417
2008...................................................... 23,580 2.450
2008...................................................... 35,070 4.166
------- ------
154,665 $1.384
======= ======
</TABLE>
On December 31, 1998, the Company issued a total of 10,335 options at an
exercise price of $6.00 per share to employees of the Company and others.
The Company will issue options for the purchase of 20,000 shares of common
stock at an exercise price of $6.00 per share to two independent directors of
the Company if the public offering is successful (see Note 10).
Pro Forma Stock-Based Compensation Disclosures -- The Company applies APB
Opinion 25 and related interpretations in accounting for its stock options which
are granted to employees. Accordingly, no compensation cost has been recognized
for grants of options to employees since the exercise prices were not less than
the fair value of the Company's common stock on the grant dates. Had
compensation cost been determined based on the fair value at the grant dates for
awards under the Plan consistent with the method of FAS 123, the Company's net
income and earnings per share would have been reduced to the pro forma amount
indicated below.
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
------------------------
1997 1998
----------- ---------
<S> <C> <C>
Net loss applicable to common shareholders:
As reported.............................................. $(1,238,447) $(167,617)
Pro forma................................................ (1,239,410) (184,033)
Net loss per common share, basic and diluted:
As reported.............................................. $ (.89) $ (.11)
Pro forma................................................ (.89) (.12)
</TABLE>
For purposes of this disclosure, the weighted average fair value of the
options granted was $.033 and $1.117 in fiscal 1997 and 1998, respectively. The
fair value of each employee option granted in fiscal year
F-16
<PAGE> 63
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 IS UNAUDITED)
1997 and 1998, was estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
-------------
1997 1998
---- -----
<S> <C> <C>
Expected volatility......................................... 0% 0%
Risk-Free interest rate..................................... 6.5% 5.6%
Expected dividends.......................................... -- --
Expected terms (in years)................................... 4 4
</TABLE>
9. INCOME TAXES:
The Company's actual effective tax rate differs from U.S. Federal corporate
income tax rate of 34% as follows:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JANUARY 22, 1996) YEARS ENDED
TO SEPTEMBER 30,
SEPTEMBER 30, -------------
1996 1997 1998
------------------ ----- -----
<S> <C> <C> <C>
Statutory rate....................................... (34.0)% (34.0)% (34.0)%
State income taxes, net of Federal income tax
benefit............................................ (3.3)% (3.3)% (3.3)%
Increase (reduction) in valuation allowance related
to of net operating loss carryforwards and change
in temporary differences........................... 37.3% 37.3% 37.3%
----- ----- -----
-0-% -0-% -0-%
===== ===== =====
</TABLE>
The components of the net deferred tax asset recognized as of September 30
are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Long-term deferred tax assets (liabilities):
Net operating loss carryforwards................... $300,000 $740,000 $756,000
Goodwill........................................... 107,000 99,000 96,000
Capitalized subscriber accounts.................... -- -- (86,000)
Other.............................................. -- -- (45,000)
Valuation allowance................................ (407,000) (839,000) (721,000)
-------- -------- --------
Net long-term deferred tax asset........... $ -- $ -- $ --
======== ======== ========
</TABLE>
The Company currently has a net operating loss carryforward for Federal tax
purposes of approximately $2,025,000, which, unless utilized, expires from 2011
through 2018. Certain of the loss carryforwards will be subject to restrictions
upon completion of the public offering (see Note 10).
10. INITIAL PUBLIC OFFERING:
Letter of Intent for a Public Offering -- The Company is preparing for a
public offering consisting of 1,200,000 units to provide gross proceeds to the
Company of approximately $7,200,000. The Company anticipates that the offering
price will be $6.00 per unit. Each unit will consist of one share of common
stock and one common stock purchase warrant. Two warrants will allow the holder
to purchase one share of common stock at an exercise price of 150% of the
offering price for a period of three years after the
F-17
<PAGE> 64
date of the offering. The warrants are redeemable by the Company at $.05 per
warrant upon 30 days notice if the market price of the common stock for 20
consecutive trading days within the 30-day period preceding the date the notice
is given equals or exceeds 125% of the exercise price. The representative of the
underwriters has a 45-day option (over-allotment option) to purchase up to
180,000 units at the offering price. The Company will also sell to the
representative of the underwriters at the close of the public offering warrants,
at a total purchase price of $100, to purchase 120,000 units. The underwriters
warrants will be exercisable for four years beginning one year after the
effective date of the registration statement at 120% of the offering price. The
letter of intent is subject to change and cancellation by either party.
F-18
<PAGE> 65
------------------------------------------------------
------------------------------------------------------
MULTI-LINK HAS NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE
ANY INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL
OR BUY ANY UNITS IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN
THIS PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 4
Additional Information............... 9
Use of Proceeds...................... 10
Dividend Policy...................... 11
Dilution............................. 11
Capitalization....................... 12
Selected Consolidated Financial
Data............................... 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 14
Business............................. 21
Management........................... 27
Principal Stockholders............... 34
Description of Securities............ 36
Shares Eligible for Future Sale...... 38
Underwriting......................... 40
Legal Matters........................ 43
Experts.............................. 43
Index to Financial Statements........ F-1
</TABLE>
UNTIL , ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
MULTI-LINK
TELECOMMUNICATIONS, INC.
"KEEPING YOU IN TOUCH"
[MULTI-LINK LOGO]
1,200,000 Units
--------------------
PROSPECTUS
--------------------
SCHNEIDER SECURITIES, INC.
, 1999
------------------------------------------------------
------------------------------------------------------
<PAGE> 66
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 7-109-102 of the Colorado Business Corporation Act permits a
Colorado corporation to indemnify any director against liability if such person
acted in good faith and, in the case of conduct in an official capacity with the
corporation, that the director's conduct was in the corporation's best interests
and, in all other cases, that the director's conduct was at least not opposed to
the best interests of the corporation or, with regard to criminal proceedings,
the director had no reasonable cause to believe the director's conduct was
unlawful.
Section 7-109-102 of the Colorado Business Corporation Act provides that,
unless limited by its articles of incorporation, a Colorado corporation shall
indemnify a person who was wholly successful, on the merits or otherwise, in the
defense of any proceeding to which the person was a party because the person is
or was a director, against reasonable expenses incurred by him or her in
connection with the proceeding.
Article V.A. of Multi-Link's Restated Articles of Incorporation, filed as
Exhibit 3.1, hereto, provides that Multi-Link shall indemnify, to the maximum
extent permitted by law, any person who is or was a director or officer of
Multi-Link, and may indemnify any other person, against any claim, liability or
expense arising against or incurred by such person made party to a proceeding
because he is or was serving another entity as a director, officer, partner,
trustee, employee, fiduciary or agent at Multi-Link's request. Multi-Link shall
further have the authority, to the maximum extent permitted by law, to purchase
and maintain insurance providing such indemnification, advance expenses to
persons indemnified by Multi-Link, and provide indemnification to any person by
general or specific action of the board of directors, the bylaws of Multi-Link,
contract or otherwise.
Article V.B. of Multi-Link's Restated Articles of Incorporation, filed as
Exhibit 3.1, hereto, provides that no director of Multi-Link shall have any
personal liability to Multi-Link or its shareholders for monetary damages for
breach of his fiduciary duty as a director, except that this provision shall not
eliminate or limit the personal liability of a director to Multi-Link or to its
shareholders for monetary damages for: (i) any breach of the director's duty of
loyalty to Multi-Link or to its shareholders; (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) voting for or assenting to a distribution which, after giving effect to
the distribution, would result in (a) Multi-Link not being able to pay its debts
as they become due, or (b) Multi-Link's total assets being less than the sum of
its total liabilities plus amounts needed to satisfy preferential rights upon
dissolution of Multi-Link, but only if it is established that the director did
not perform his duties in good faith, with the care of an ordinary prudent
person in a like position under similar circumstances, and in a manner he
believed to be in the best interests of Multi-Link, provided that the personal
liability of a director in this circumstance shall be limited to the amount of
the distribution which exceeds what could have been distributed without
violation of this paragraph; or (iv) any transaction from which the director
directly or indirectly derives an improper personal benefit. Article V.B. also
provides that if the Colorado Business Corporation Act is amended or superseded
and such amendment or superseding statute eliminates or limits further, or
allows Multi-Link to eliminate or limit further, the liability of a director,
then in addition to the elimination and limitation of liability provided by the
preceding sentence, the liability of each director shall be eliminated or
limited to the fullest extent permitted by the Colorado Business Corporation
Act, as so amended, or such superseding statute. Nothing contained in Article
V.B. is to be construed to deprive any director of his right to all defenses
ordinarily available to a director nor will anything herein be construed to
deprive any director of any right he may have for contribution from any other
director or other person.
Section 8(b) of the form of underwriting agreement filed as Exhibit 1.1
hereto provides that the underwriter agrees to indemnify and hold harmless
Multi-Link, each director of Multi-Link, each officer of Multi-Link who has
signed the registration statement, each other person, if any, who controls
Multi-Link within the meaning of Section 15 of the Securities Act of 1933 or
Section 20(a) of the Securities
II-1
<PAGE> 67
Exchange Act of 1934 with respect to statements or omissions, if any, made in
any preliminary prospectus, the registration statement or the prospectus, or any
amendment or supplement thereto, or in any application, in reliance upon and in
conformity with written information furnished to Multi-Link with respect to the
underwriters, by or on behalf of the underwriters expressly for inclusion in any
such document. Section 8(c) provides for contribution in circumstances where the
indemnity provisions are unavailable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses payable by us in connection with the issuance and distribution of
the securities being registered hereby are as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 4,421
NASD Filing Fee............................................. $ 2,090
Nasdaq SmallCap Market Filing Fee........................... $ 10,000
Accounting Fees and Expenses................................ $ 50,000*
Legal Fees and Expenses..................................... $ 80,000*
Blue Sky Fees and Expenses.................................. $ 20,000*
Representative's Non-Accountable Expense Allowance.......... $216,000*
Printing, Freight and Engraving............................. $ 80,000*
Miscellaneous............................................... $ 11,489*
--------
Total............................................. $474,000*
========
</TABLE>
- ---------------
* Estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following is information as to all securities of Multi-Link sold by
Multi-Link within the past three years which were not registered under the
Securities Act of 1933, as amended ("1933 Act").
(a) In January 1996, Multi-Link issued 600,000 shares of its common stock
to each of Octagon Strategies, Inc. and Shawn B. Stickle for $0.0083 per share.
Multi-Link issued the shares in reliance upon the exemption from registration
provided by Section 4(2) of the 1933 Act. Such persons represented to Multi-Link
that they acquired the shares for their own account and not with a view to
distribution and that they had available to them all material information
concerning Multi-Link. The certificates evidencing the shares bear a restrictive
legend under the 1933 Act. No underwriter was involved in the transaction.
(b) In May 1996, Multi-Link issued 61,200 shares of its common stock to CS
Capital Corp. as an equity addition to a $500,000 factoring facility. Multi-Link
issued the shares in reliance upon the exemption from registration provided by
Section 4(2) of the 1933 Act. Such company represented to Multi-Link that it
acquired the shares for its own account and not with a view to distribution and
that it had available to it all material information concerning Multi-Link. The
certificates evidencing the shares bear a restrictive legend under the 1933 Act.
No underwriter was involved in the transaction.
(c) In January 1997, Multi-Link issued 61,200 shares of its common stock to
Telemessaging Services, Inc. for consulting services. Multi-Link issued the
shares in reliance upon the exemption from registration provided by Section 4(2)
of the 1933 Act. Such company represented to Multi-Link that it acquired the
shares for its own account and not with a view to distribution and that it had
available to it all material information concerning Multi-Link. The certificates
evidencing the shares bear a restrictive legend under the 1933 Act. No
underwriter was involved in the transaction.
(d) In January 1997, Multi-Link issued 26,640 shares of its common stock to
Harbour Settlement as an equity addition to a $60,000 loan. Multi-Link issued
the shares in reliance upon the exemption from registration provided by Section
4(2) of the 1933 Act. Such company represented to Multi-Link that it acquired
the shares for its own account and not with a view to distribution and that it
had available to it
II-2
<PAGE> 68
all material information concerning Multi-Link. The certificates evidencing the
shares bear a restrictive legend under the 1933 Act. No underwriter was involved
in the transaction.
(e) In January 1997, Multi-Link issued 13,320 shares of its common stock to
Ron Stickle as an equity addition to a $25,000 loan. Multi-Link issued the
shares in reliance upon the exemption from registration provided by Section 4(2)
of the 1933 Act. Such person represented to Multi-Link that he acquired the
shares for his own account and not with a view to distribution and that he had
available to him all material information concerning Multi-Link. The
certificates evidencing the shares bear a restrictive legend under the 1933 Act.
No underwriter was involved in the transaction.
(f) In January 1997, Multi-Link issued 68,118 shares of its common stock to
CS Capital Corp. as an equity addition to a $250,000 loan. Multi-Link issued the
shares in reliance upon the exemption from registration provided by Section 4(2)
of the 1933 Act. Such company represented to Multi-Link that it acquired the
shares for its own account and not with a view to distribution and that it had
available to it all material information concerning Multi-Link. The certificates
evidencing the shares bear a restrictive legend under the 1933 Act. No
underwriter was involved in the transaction.
(g) In June 1997, Multi-Link issued 28,610 shares of its common stock to CS
Capital Corp. as an equity addition to a $300,000 loan. Multi-Link issued the
shares in reliance upon the exemption from registration provided by Section 4(2)
of the 1933 Act. Such company represented to Multi-Link that it acquired the
shares for its own account and not with a view to distribution and that it had
available to it all material information concerning Multi-Link. The certificates
evidencing the shares bear a restrictive legend under the 1933 Act. No
underwriter was involved in the transaction.
(h) In July 1997, Multi-Link issued 3,000 shares of its common stock to
David E. Peri for consulting services. Multi-Link issued the shares in reliance
upon the exemption from registration provided by Section 4(2) of the 1933 Act.
Such person represented to Multi-Link that he acquired the shares for his own
account and not with a view to distribution and that he had available to him all
material information concerning Multi-Link. The certificates evidencing the
shares bear a restrictive legend under the 1933 Act. No underwriter was involved
in the transaction.
(i) In July 1997, Multi-Link issued 28,610 shares of its common stock to
Corporate Finance Group, Inc. for corporate finance and other consulting
services. Multi-Link issued the shares in reliance upon the exemption from
registration provided by Section 4(2) of the 1933 Act. Such company represented
to Multi-Link that it acquired the shares for its own account and not with a
view to distribution and that it had available to it all material information
concerning Multi-Link. The certificates evidencing the shares bear a restrictive
legend under the 1933 Act. No underwriter was involved in the transaction. The
28,610 shares of common stock were repurchased by Multi-Link in November 1998.
(j) In January 1998, Multi-Link issued 7,454 shares of its common stock to
Robert and Lynne Williams on conversion of a $20,000 loan. Multi-Link issued the
shares in reliance upon the exemption from registration provided by Section 4(2)
of the 1933 Act. Such persons represented to Multi-Link that they acquired the
shares for their own account and not with a view to distribution and that they
had available to them all material information concerning Multi-Link. The
certificates evidencing the shares bear a restrictive legend under the 1933 Act.
No underwriter was involved in the transaction.
(k) In September 1998, Multi-Link issued warrants to purchase 150,000 of
its common stock at an exercise price of $4.17 per share to Westburg Media
Capital LLP in connection with a $2,100,000 term credit facility furnished by
Westburg to Multi-Link. The expiration date of the warrants is the earlier of
(i) the date all amounts are repaid under the Westburg loan, (ii) the date of
the sale of Multi-Link or substantially all of its assets, (iii) the effective
date of a registration statement filed under the 1933 Act in connection with a
firm commitment underwriting for common stock of Multi-Link seeking to raise
gross proceeds of at least $5,000,000 at a price of not less than $5.00 per
share or (iv) October 21, 2003. Multi-Link issued the warrants in reliance upon
the exemption from registration provided by Section 4(2) of the 1933 Act.
Westburg had available to it all material information concerning Multi-Link. The
certificate
II-3
<PAGE> 69
evidencing the warrants bears a restrictive legend under the 1933 Act. No
underwriter was involved in the transaction.
(l) Between May and November 1998, Multi-Link sold 150,000 shares of its
Common Stock and warrants to purchase 75,000 shares of its common stock at an
exercise price of $4.17 per share to various investors pursuant to a private
placement for an aggregate of $625,000. The warrants are exercisable from
November 17, 1999 through May 17, 2001. Multi-Link issued the shares and
warrants in reliance upon the exemption from registration provided by Rule 506
promulgated under Regulation D of the 1933 Act. Such persons represented to
Multi-Link that they acquired the shares for their own account and not with a
view to distribution and that they had available to them all material
information concerning Multi-Link. The certificates evidencing the shares bear a
restrictive legend under the 1933 Act. The selling agent was Spencer Edwards,
Inc. which received (together with the participating dealers) commissions and
expense reimbursements of $93,750 and warrants to purchase 15,000 shares of
common stock at an exercise price of $5.00 per share and warrants to purchase
7,500 shares of common stock at an exercise price of $4.17 per share.
(m) In September 1998, Multi-Link issued 72,000 shares of its common stock
and warrants to purchase 36,000 shares of its common stock at an exercise price
of $4.17 per share to CS Capital Corp. for conversion of a $300,000 loan. The
warrants are exercisable from November 17, 1999 through May 17, 2001. Multi-Link
issued the shares and warrants in reliance upon the exemption from registration
provided by Section 4(2) of the 1933 Act. Such company represented to Multi-Link
that it acquired the shares for its own account and not with a view to
distribution and that it had available to it all material information concerning
Multi-Link. The certificates evidencing the shares bear a restrictive legend
under the 1933 Act. No underwriter was involved in the transaction.
(n) Since January 15, 1997, Multi-Link has issued several ten year options
to its employees and others to purchase an aggregate of 165,000 shares of
Multi-Link's common stock at exercise prices ranging from $0.017 per share to
$6.00 per share. Multi-Link issued the options in reliance on the exemption from
registration under Rule 701 of the 1933 Act. Such persons represented to
Multi-Link that they acquired the option for their own account and not with a
view to distribution and that they had available to them all material
information concerning Multi-Link. The certificates evidencing the options bear
a restrictive legend under the 1933 Act. No underwriter was involved in the
transaction.
ITEM 27. EXHIBITS.
The following is a list of all exhibits filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION AND METHOD OF FILING
----------- --------------------------------
<C> <S>
1.1 -- Form of Underwriting Agreement.
1.2 -- Form of Selected Dealers Agreement.
3.1 -- Restated Articles of Incorporation filed on May 18,
1998.*
3.2 -- Amendments to Restated Articles of Incorporation filed on
February 2, 1999.*
3.3 -- Bylaws as amended through January 1, 1999.*
4.1 -- Borrowing Agreement dated September 25, 1998, between
Westburg Media Capital LP, the Registrant, Multi-Link
Telecommunications, Inc., Nigel V. Alexander, Shawn B.
Stickle and The Blackhawk Trust.*
4.2 -- Form of Commercial Installment Contract between the
Registrant and Associates Commercial Corporation.*
4.3 -- Form of Security Agreement between the Registrant and
Associates Commercial Corporation.*
4.4 -- Form of Warrant Agreement between the Registrant and
American Securities Transfer & Trust, Inc.
4.5 -- Form of Escrow Agreement.*
4.6 -- Forms of Lock-Up Agreements.*
4.7 -- Form of Representative's Option for the Purchase of
Units.
</TABLE>
II-4
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION AND METHOD OF FILING
----------- --------------------------------
<C> <S>
4.8 -- Form of Warrant Exercise Fee Agreement between Schneider
Securities, Inc., American Securities Transfer & Trust,
Inc. and the Registrant.
4.9 -- Amendment to Borrowing Agreement dated April 15, 1999
between Westburg Media Capital L.P., the Registrant and
Multi-Link Communications, Inc.
4.10 -- Registration Rights Agreement dated April 15, 1999
between Westburg Media Capital L.P. and the Registrant.
5.1 -- Opinion of Smith McCullough, P.C. on legality.
10.1 -- Stock Option Plan.*
10.2 -- First Amendment to Stock Option Plan.*
10.3 -- Agreement dated January 1, 1999, between the Registrant
and Telecom Sales Associates, Inc. as amended on February
3, 1999.*
10.4 -- Form of Customer Agreement.*
10.5 -- US West Communications Digital Switched Service Rate
Stability Plan Agreements.*
10.6 -- Consulting Agreement between the Registrant and Octagon
Strategies, Inc.*
10.7 -- Employment Agreement between the Registrant and Shawn B.
Stickle.*
10.8 -- Lease Agreement dated March 29, 1999 between the
Registrant and Lakeside Holdings, L.L.C., as amended.
10.9 -- Promissory Note dated September 30, 1998 from Registrant
to Octagon Strategies, Inc.
10.10 -- Promissory Note dated September 30, 1998 from Registrant
to Shawn B. Stickle.
10.11 -- Promissory Note dated April 14, 1999 from Registrant to
Westburg Media Capital, L.P.
16 -- Letter from James E. Scheifley & Associates, PC
confirming the circumstances pursuant to which James E.
Scheifley & Associates, PC resigned as Registrant's
principal independent accountants.*
21 -- Subsidiaries of the Registrant.*
23.1 -- Consent of HEIN + ASSOCIATES LLP.
23.2 -- Consent of James E. Scheifley & Associates, PC.
23.3 -- Consent of Smith McCullough, P.C. (included in Exhibit
5.1).
27 -- Financial Data Schedule.*
</TABLE>
- ---------------
* Previously filed as a part of this registration statement.
ITEM 28. UNDERTAKINGS.
The undersigned small business issuer will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
II-5
<PAGE> 71
The small business issuer will provide to the underwriter at the closing
specified in the underwriting agreement, certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange SEC such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer 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.
The undersigned small business issuer will:
(1) For determining any liability under the Securities Act, 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 small business issuer under Rule 424(b)(1), or (4) or
497(h) under the Securities Act as part of this registration statement as of the
time the SEC declared it effective.
(2) For determining any liability under the Securities Act, 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 that offering of the securities at that time as the initial bona fide
offering of those securities.
II-6
<PAGE> 72
SIGNATURES
In accordance with 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 of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City and County
of Denver, State of Colorado on April 19, 1999.
MULTI-LINK TELECOMMUNICATIONS, INC.
/s/ NIGEL V. ALEXANDER
--------------------------------------
Nigel V. Alexander,
Chief Executive Officer and Principal
Executive Officer
/s/ SHAWN B. STICKLE
--------------------------------------
Shawn B. Stickle,
President and Chief Operating Officer
/s/ DAVID J. CUTLER
--------------------------------------
David J. Cutler,
Chief Financial Officer and Principal
Accounting Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ SHAWN B. STICKLE Director April 19, 1999
- -----------------------------------------------------
Shawn B. Stickle
/s/ NIGEL V. ALEXANDER Director April 19, 1999
- -----------------------------------------------------
Nigel V. Alexander
/s/ KEITH R. HOLDER Director April 19, 1999
- -----------------------------------------------------
Keith R. Holder
/s/ R. BRAD STILLAHN Director April 19, 1999
- -----------------------------------------------------
R. Brad Stillahn
</TABLE>
II-7
<PAGE> 73
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION AND METHOD OF FILING
----------- --------------------------------
<C> <S>
1.1 -- Form of Underwriting Agreement.
1.2 -- Form of Selected Dealers Agreement.
3.1 -- Restated Articles of Incorporation filed on May 18,
1998.*
3.2 -- Amendments to Restated Articles of Incorporation filed on
February 2, 1999.*
3.3 -- Bylaws as amended through January 1, 1999.*
4.1 -- Borrowing Agreement dated September 25, 1998, between
Westburg Media Capital LP, the Registrant, Multi-Link
Telecommunications, Inc., Nigel V. Alexander, Shawn B.
Stickle and The Blackhawk Trust.*
4.2 -- Form of Commercial Installment Contract between the
Registrant and Associates Commercial Corporation.*
4.3 -- Form of Security Agreement between the Registrant and
Associates Commercial Corporation.*
4.4 -- Form of Warrant Agreement between the Registrant and
American Securities Transfer & Trust, Inc.
4.5 -- Form of Escrow Agreement.*
4.6 -- Forms of Lock-Up Agreements.*
4.7 -- Form of Representative's Option for the Purchase of
Units.
4.8 -- Form of Warrant Exercise Fee Agreement between Schneider
Securities, Inc., American Securities Transfer & Trust,
Inc. and the Registrant.
4.9 -- Amendment to Borrowing Agreement dated April 15, 1999
between Westburg Media Capital L.P., the Registrant and
Multi-Link Communications, Inc.
4.10 -- Registration Rights Agreement dated April 15, 1999
between Westburg Media Capital L.P. and the Registrant.
5.1 -- Opinion of Smith McCullough, P.C. on legality.
10.1 -- Stock Option Plan.*
10.2 -- First Amendment to Stock Option Plan.*
10.3 -- Agreement dated January 1, 1999, between the Registrant
and Telecom Sales Associates, Inc. as amended on February
3, 1999.*
10.4 -- Form of Customer Agreement.*
10.5 -- US West Communications Digital Switched Service Rate
Stability Plan Agreements.*
10.6 -- Consulting Agreement between the Registrant and Octagon
Strategies, Inc.*
10.7 -- Employment Agreement between the Registrant and Shawn B.
Stickle.*
10.8 -- Lease Agreement dated March 29, 1999 between the
Registrant and Lakeside Holdings, L.L.C., as amended.
10.9 -- Promissory Note dated September 30, 1998 from Registrant
to Octagon Strategies, Inc.
10.10 -- Promissory Note dated September 30, 1998 from Registrant
to Shawn B. Stickle.
10.11 -- Promissory Note dated April 14, 1999 from Registrant to
Westburg Media Capital, L.P.
16 -- Letter from James E. Scheifley & Associates, PC
confirming the circumstances pursuant to which James E.
Scheifley & Associates, PC resigned as Registrant's
principal independent accountants.*
21 -- Subsidiaries of the Registrant.*
23.1 -- Consent of HEIN + ASSOCIATES LLP.
23.2 -- Consent of James E. Scheifley & Associates, PC.
23.3 -- Consent of Smith McCullough, P.C. (included in Exhibit
5.1).
27 -- Financial Data Schedule.*
</TABLE>
- ---------------
* Previously filed as a part of this registration statement.
<PAGE> 1
EXHIBIT 1.1
1,200,000 UNITS
CONSISTING OF
1,200,000 SHARES OF COMMON STOCK
AND
1,200,000 WARRANTS
MULTI-LINK TELECOMMUNICATIONS, INC.
UNDERWRITING AGREEMENT
________, 1999
Schneider Securities, Inc.
1120 Lincoln Street
Suite 900
Denver, Colorado 80203
Dear Sirs:
Multi-Link Telecommunications, Inc., a Colorado corporation (the
"Company") hereby confirms its agreement with you (who are sometimes
hereinafter referred to as the "Representative") and with the other members of
the underwriting group (the "Underwriters") named on Schedule 1 hereto as
follows:
1. Introductory. Subject to the terms and conditions contained herein,
the Company proposes to issue and sell to the Underwriters 1,200,000 Units (the
"Units"), comprised of 1,200,000 shares of common stock (the "Common Stock")
and 1,200,000 redeemable warrants (the "Warrants"). The Common Stock and
Warrants shall be immediately separately transferable and the Units shall not
be listed for trading on the Nasdaq SmallCap Market. For the purpose of this
Agreement, references hereinafter to Common Stock and Warrants shall be deemed
to include, where appropriate, the Units. In addition, solely for the purpose
of covering over-allotments, the Company grants to the Representative the
option to purchase up to an additional 180,000 Units (the "Additional
Securities"), which option to purchase shall be exercisable, in whole or in
part, from time to time during the forty-five (45) day period commencing on the
date on which the Registration Statement (as hereinafter defined) is initially
declared effective (the "Effective Date") by the Securities and Exchange
Commission (the "Commission"). Unless otherwise noted, the Common Stock,
together with the additional 180,000 shares of Common Stock issuable on
exercise of the over-allotment option, is referred to hereinafter as the
"Common Stock" and the Warrants and the 180,000 Warrants issuable on exercise
of the over-allotment option are referred to hereinafter as the "Warrants".
Two Warrants will entitle the holder to purchase one share of Common
Stock (a "Warrant Share") at a price of $9.00 during the thirty-six (36) month
exercise period of the Warrants, subject to the Company's right
<PAGE> 2
of redemption. The Warrants may be redeemed by the Company commencing one year
from the Effective Date of the Registration Statement upon at least 30 days
prior written notice, in whole but not in part, at a price of $.05 per Warrant
provided the closing bid price for the Company's Common Stock is at least 125%
of the exercise price of the Warrant during each day of the twenty (20) trading
day period ending five days preceding the date of the written notice. During
the one year period commencing on the Effective Date, the Company shall not
lower the exercise price of the Warrants without the Representative's prior
consent, which will not be unreasonably withheld. The terms and provisions of
the Warrants shall be governed by a warrant agreement between the Company and
its transfer agent (the "Warrant Agreement"), which Warrant Agreement will
contain, among other provisions, anti-dilution protection for warrant holders
on terms acceptable to the Representative. The Common Stock, Warrants and
Additional Securities are more fully described in the Prospectus referred to
below. All references to the Company below shall be deemed to include, where
appropriate, the Company's subsidiaries, if any.
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters that:
a. The Company has filed with the Commission a registration
statement, and may have filed one or more amendments thereto, on Form
SB-2 (Registration No. 333-72889), including in such registration
statement and each such amendment a facing sheet, the information
called for by Part I, audited consolidated financial statements for
the past two fiscal years or such other period as may be appropriate,
the information called for by Part II, the undertakings to deliver
certificates, file reports and file post-effective amendments, the
required signatures, consents of experts, exhibits, a related
preliminary prospectus (a "Preliminary Prospectus") and any other
information or documents which are required for the registration of
the Units, Common Stock and Warrants, the Warrant Shares, the purchase
options referred to in Section 2(n) (the "Representative's Options"),
and the securities referred to in Section 2(n) underlying the
Representative's Options (the "Representative's Option Securities"),
under the Securities Act of 1933, as amended (the "Act"). As used in
this Agreement, the term "Registration Statement" means such
registration statement, including incorporated documents, all exhibits
and consolidated financial statements and schedules thereto, as
amended, when it becomes effective, and shall include the information
with respect to the Units, the Common Stock, the Warrants, the Warrant
Shares, the Representative's Options, and the Representative's Option
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A
of the General Rules and Regulations promulgated under the Act (the
"Regulations"), which information is deemed to be included therein
when it becomes effective as provided by Rule 430A; the term
"Preliminary Prospectus" means each prospectus included in the
Registration Statement, or any amendments thereto, before it becomes
effective under the Act and any prospectus filed by the Company with
the consent of the Representative pursuant to Rule 424(a) of the
Regulations; and the term
-2-
<PAGE> 3
"Prospectus" means the final prospectus included as part of the
Registration Statement, except that if the prospectus relating to the
securities covered by the Registration Statement in the form first
filed on behalf of the Company with the Commission pursuant to Rule
424(b) of the Regulations shall differ from such final prospectus, the
term "Prospectus" shall mean the prospectus as filed pursuant to Rule
424(b) from and after the date on which it shall have first been used.
b. When the Registration Statement becomes effective, and at
all times subsequent thereto, to and including the Closing Date (as
defined in Section 3) and each Additional Closing Date (as defined in
Section 3), and during such longer period as the Prospectus may be
required to be delivered in connection with sales by the
Representative or any dealer, and during such longer period until any
post-effective amendment thereto shall become effective, the
Registration Statement (and any post-effective amendment thereto) and
the Prospectus (as amended or as supplemented if the Company shall
have filed with the Commission any amendment or supplement to the
Registration Statement or the Prospectus) will contain all statements
which are required to be stated therein in accordance with the Act and
the Regulations, will comply with the Act and the Regulations, and
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 not misleading, and no event will have
occurred which should have been set forth in an amendment or
supplement to the Registration Statement or the Prospectus which has
not then been set forth in such an amendment or supplement; and no
Preliminary Prospectus, as of the date filed with the Commission,
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 not misleading; except that no representation
or warranty is made in this Section 2(b) with respect to statements or
omissions 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 Preliminary Prospectus, the
Registration Statement, or the Prospectus, or any amendment or
supplement thereto.
c. Neither the Commission nor the "blue sky" or securities
authority of any jurisdiction have issued an order (a "Stop Order")
suspending the effectiveness of the Registration Statement, preventing
or suspending the use of any Preliminary Prospectus, the Prospectus,
the Registration Statement, or any amendment or supplement thereto,
refusing to permit the effectiveness of the Registration Statement, or
suspending the registration or qualification of the Units, the Common
Stock, the Warrants, the Warrant Shares, the Representative's Options,
or the Representative's Option Securities, nor has any of such
authorities instituted or threatened to institute any proceedings with
respect to a Stop Order.
d. Any contract, agreement, instrument, lease, or license
required to be described in the Registration Statement or the
Prospectus has been properly described therein. Any contract,
agreement, instrument, lease, or license required to be filed as an
exhibit to the Registration Statement has been filed
-3-
<PAGE> 4
with the Commission as an exhibit to or has been incorporated as an
exhibit by reference into the Registration Statement.
e. The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of
Colorado, with full power and authority, and all necessary consents,
authorizations, approvals, orders, licenses, certificates, and permits
of and from, and declarations and filings with, all federal, state,
local, and other governmental authorities and all courts and other
tribunals, to own, lease, license, and use its properties and assets
and to carry on the business in the manner described in the
Prospectus. The Company is duly qualified to do business and is in
good standing in every jurisdiction in which its ownership, leasing,
licensing, or use of property and assets or the conduct of its
business makes such qualifications necessary. The Company has no
subsidiaries except as disclosed in the Prospectus.
f. The authorized capital stock of the Company consists of
20,000,000 shares of Common Stock, of which 1,691,542 shares of Common
Stock are issued and outstanding, 165,000 shares of Common Stock are
reserved for issuance upon the exercise of currently outstanding
options, 135,000 shares of Common Stock are reserved for issuance upon
the exercise of the remaining options authorized under the Company's
option plan and 283,500 shares of Common Stock are reserved for
issuance upon the exercise of outstanding warrants; and 5,000,000
shares of Preferred Stock, none of which are issued or outstanding. Of
the outstanding shares of Common Stock, 200,000 shares are subject to
a custody agreement, release under which will occur upon the earlier
of (i) the Company achieving designated financial performance criteria
as set forth in the custody agreement, or (ii) ________, 2006 (seven
years from the date of the Prospectus), all as more fully set forth in
a custody agreement (the "Custody Agreement") by and among Shawn B.
Stickle, Nigel V. Alexander, American Securities Transfer & Trust,
Inc., the Company and the Representative. Each outstanding share of
Common Stock is validly authorized, validly issued, fully paid, and
nonassessable, without any personal liability attaching to the
ownership thereof, and has not been issued and is not owned or held in
violation of any preemptive rights of stockholders. There is no
commitment, plan, or arrangement to issue, and no outstanding option,
warrant, or other right calling for the issuance of, any share of
capital stock of the Company or any security or other instrument which
by its terms is convertible into, exercisable for, or exchangeable for
capital stock of the Company, except as set forth above, and as may be
properly described in the Prospectus.
g. The consolidated financial statements of the Company
included in the Registration Statement and the Prospectus fairly
present with respect to the Company the consolidated financial
position, the results of operations, and the other information
purported to be shown therein at the respective dates and for the
respective periods to which they apply. Such consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles, except to
-4-
<PAGE> 5
the extent that certain footnote disclosures regarding any stub period
may have been omitted in accordance with the applicable rules of the
Commission under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), consistently applied throughout the periods involved,
are correct and complete, and are in accordance with the books and
records of the Company. The accountants whose reports on the audited
consolidated financial statements are filed with the Commission as a
part of the Registration Statement are, and during the periods covered
by their reports included in the Registration Statement and the
Prospectus were, independent certified public accountants with respect
to the Company within the meaning of the Act and the Regulations. No
other financial statements are required by Form SB-2 or otherwise to
be included in the Registration Statement or the Prospectus. There has
at no time been a material adverse change in the consolidated
financial condition, results of operations, business, properties,
assets, liabilities, or future prospects of the Company from the
latest information set forth in the Registration Statement or the
Prospectus, except as may be properly described in the Prospectus.
h. There is no litigation, arbitration, claim, governmental
or other proceeding (formal or informal), or investigation pending,
or, to the knowledge of the Company, threatened, or in prospect with
respect to the Company or any of its operations, businesses,
properties, or assets, except as may be properly described in the
Prospectus or such as individually or in the aggregate do not now have
and will not in the future have a material adverse effect upon the
operations, business, properties, or assets of the Company. The
Company is not in violation of, or in default with respect to, any
law, rule, regulation, order, judgment, or decree except as may be
properly described in the Prospectus or such as in the aggregate do
not now have and will not in the future have a material adverse effect
upon the operations, business, properties, or assets of the Company;
nor is the Company required to take any action in order to avoid any
such violation or default.
i. The Company has good and marketable title in fee simple
absolute to all real properties and good title to all other properties
and assets which the Prospectus indicates are owned by it, free and
clear of all liens, security interests, pledges, charges,
encumbrances, and mortgages except as may be properly described in the
Prospectus or such as in the aggregate do not now have and will not in
the future have a material adverse effect upon the operations,
business, properties, or assets of the Company. No real property
owned, leased, licensed, or used by the Company lies in an area which
is, or to the knowledge of the Company will be, subject to zoning,
use, or building code restrictions which would prohibit, and no state
of facts relating to the actions or inaction of another person or
entity or his or its ownership, leasing, licensing, or use of any real
or personal property exists or will exist which would prevent, the
continued effective ownership, leasing, licensing, or use of such real
property in the business of the Company as presently conducted or as
the Prospectus indicates it contemplates conducting, except as may be
properly described in the Prospectus or such as in the aggregate do
not now have and will not
-5-
<PAGE> 6
in the future have a material adverse effect upon the operations,
business, properties, or assets of the Company.
j. Neither the Company nor any other party is now or is
expected by the Company to be in violation or breach of, or in default
with respect to complying with, any material provision of any
contract, agreement, instrument, lease, license, arrangement, or
understanding which is material to the Company, and each such
contract, agreement, instrument, lease, license, arrangement, and
understanding is in full force and is the legal, valid, and binding
obligation of the parties thereto and is enforceable as to them in
accordance with its terms. The Company enjoys peaceful and undisturbed
possession under all leases and licenses under which it is operating.
The Company is not a party to or bound by any contract, agreement,
instrument, lease, license, arrangement, or understanding, or subject
to any charter or other restriction, which has had or may in the
future have a material adverse effect on the financial condition,
results of operations, business, properties, assets, liabilities, or
future prospects of the Company. The Company is not in violation or
breach of, or in default with respect to, any term of its Articles of
Incorporation (or other charter document) or by-laws.
k. All patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, franchises,
technology, know-how and other intangible properties and assets (all
of the foregoing being herein called "Intangibles") that the Company
owns or has pending, or under which it is licensed, are in good
standing and uncontested. Except as otherwise disclosed in the
Registration Statement, the Intangibles are owned by the Company, free
and clear of all liens, security interests, pledges, and encumbrances.
The Company has filed an application with the United States Patent and
Trademark Office to register "Multi-Link" as a registered servicemark
used by the Company to identify its services. There is no right under
any Intangible necessary to the business of the Company as presently
conducted or as the Prospectus indicates it contemplates conducting
(except as may be so designated in the Prospectus). The Company has
not infringed, is not infringing, and has not received notice of
infringement with respect to asserted Intangibles of others. To the
knowledge of the Company, there is no infringement by others of
Intangibles of the Company. To the knowledge of the Company, there is
no Intangible of others which has had or may in the future have a
materially adverse effect on the financial condition, results of
operations, business, properties, assets, liabilities, or future
prospects of the Company.
l. Neither the Company nor any director, officer, agent,
employee, or other person associated with or acting on behalf of the
Company has, directly or indirectly: used any corporate funds for
unlawful contributions, gifts, entertainment, or other unlawful
expenses relating to political activity; made any unlawful payment to
foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns from corporate funds; violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended
by the International Anti-Bribery Act of 1998; or made any
-6-
<PAGE> 7
bribe, rebate, payoff, influence payment, kickback, or other unlawful
payment. The Company has not accepted any material advertising
allowances or marketing allowances from suppliers to the Company and,
to the extent any advertising allowance has been accepted, the Company
has provided proper documentation to the supplier with respect to
advertising as to which the advertising allowance has been granted.
m. The Company has all requisite power and authority to
execute and deliver, and to perform thereunder each of this Agreement,
the Warrants, the Representative's Options, the Warrant Exercise Fee
Agreement described in Section 5(ff) (the "Warrant Exercise Fee
Agreement") and the Custody Agreement. All necessary corporate
proceedings of the Company have been duly taken to authorize the
execution and delivery, and performance thereunder by the Company of
this Agreement, the Warrants, the Representative's Options, the
Warrant Exercise Fee Agreement and the Custody Agreement. This
Agreement has been duly authorized, executed, and delivered by the
Company, is a legal, valid, and binding obligation of the Company, and
is enforceable as to the Company in accordance with its terms. Each of
the Warrants, the Representative's Options, the Warrant Exercise Fee
Agreement and the Custody Agreement has been duly authorized by the
Company and, when executed and delivered by the Company, will each be
a legal, valid, and binding obligation of the Company, and will be
enforceable against the Company in accordance with its respective
terms. No consent, authorization, approval, order, license,
certificate, or permit of or from, or declaration or filing with, any
federal, state, local, or other governmental authority or any court or
other tribunal is required by the Company for the execution and
delivery, or performance thereunder by the Company of this Agreement,
the Warrants or the Representative's Options except filings under the
Act which have been or will be made before the Closing Date and such
consents consisting only of consents under "blue sky" or securities
laws which are required in connection with the transactions
contemplated by this Agreement and which have been obtained at or
prior to the date of this Agreement. No consent of any party to any
contract, agreement, instrument, lease, license, arrangement, or
understanding to which the Company is a party, or to which any of its
properties or assets are subject, is required for the execution or
delivery, or performance thereunder of this Agreement, the Warrants,
the Representative's Options, the Warrant Exercise Fee Agreement or
the Custody Agreement; and the execution and delivery, and performance
thereunder of this Agreement, the Warrants, the Representative's
Options, the Warrant Exercise Fee Agreement and the Custody Agreement
will not violate, result in a breach of, conflict with, or (with or
without the giving of notice or the passage of time or both) entitle
any party to terminate or call a default under any such contract,
agreement, instrument, lease, license, arrangement, or understanding,
or violate or result in a breach of any term of the Articles of
Incorporation or by-laws of the Company, or violate, result in a
breach of, or conflict with any law, rule, regulation, order,
judgment, or decree binding on the Company or to which any of its
operations, businesses, properties, or assets are subject.
-7-
<PAGE> 8
n. The Common Stock, the Warrants, the Warrant Shares, the
Representative's Options and the Representative's Option Securities
are validly authorized and reserved for issuance. The Common Stock,
when issued and delivered in accordance with this Agreement, the
Warrant Shares, when issued and delivered upon exercise of the
Warrants, the Representative's Option Securities, when issued and
delivered upon exercise of the Representative's Options and the
Representative's Option Shares issuable on exercise of warrants
included in the Representative's Option Securities, upon payment of
the exercise price therefor, will be validly issued, fully paid, and
nonassessable, without any personal liability attaching to the
ownership thereof, and will not be issued in violation of any
preemptive rights of stockholders, and the Underwriters will receive
good title to the Common Stock and the Warrants purchased, the
Representative will receive good title to the Representative's Options
purchased and any purchaser of the Warrant Shares or Representative's
Option Securities will receive good title thereto, all such title free
and clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements, and voting trusts.
o. The Units, the Common Stock, the Warrants, the Warrant
Shares, the Representative's Options and the Representative's Option
Securities conform to all statements relating thereto contained in the
Registration Statement and the Prospectus.
p. Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, and except
as may otherwise be properly described in the Prospectus, the Company
has not (i) issued any securities or incurred any liability or
obligation, primary or contingent, for borrowed money, (ii) entered
into any transaction not in the ordinary course of business, or (iii)
declared or paid any dividend on its capital stock.
q. Neither the Company nor any of its officers, directors, or
affiliates (as defined in the Regulations), has taken or will take,
directly or indirectly, prior to the termination of the distribution
of securities contemplated by this Agreement, any action designed to
stabilize or manipulate the price of any security of the Company, or
which has caused or resulted in, or which might in the future
reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company, to
facilitate the sale or resale of the Units, Common Stock and Warrants.
r. The Company has not incurred any liability for a fee,
commission, or other compensation on account of the employment of a
broker or finder in connection with the transactions contemplated by
this Agreement.
s. The Company has obtained from each officer, director and
person or entity that beneficially owns 1% or more of the Company's
capital stock or derivative securities convertible into shares of the
Company's capital stock his, her or its enforceable written agreement
that for a period of 13 months from the Effective Date, he, she or it
will not, without the Representative's prior written consent, offer,
pledge, sell, contract to sell, grant any option for the sale of,
enter into any swap or other
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<PAGE> 9
arrangement that transfers all or a portion of the economic
consequences associated with the ownership of the Company's capital
stock, or otherwise dispose of, directly or indirectly, any shares of
capital stock or any security or other instrument which by its terms
is convertible into, exercisable for, or exchangeable for shares of
Common Stock (except that, subject to compliance with applicable
securities laws, any such officer, director or stockholder may
transfer his or her stock in a nonpublic transaction that is exempt
from the registration requirements of the Act, provided that any such
transferee shall agree, as a condition to such transfer, to be bound
by the restrictions set forth in this Agreement and further provided
that the transferor, except in the case of the transferor's death,
shall continue to be deemed the beneficial owner of such shares in
accordance with Regulation 13d-(3) of the Exchange Act). The Company
has obtained from each person or entity that beneficially owns less
than 1% of the Company's capital stock or derivative securities
convertible into shares of the Company's capital stock his, her or its
enforceable written agreement that for a period of 12 months from the
Effective Date, he, she or it will not, without the Representative's
prior written consent, offer, pledge, sell, contract to sell, grant
any option for the sale of, enter into any swap or other arrangement
that transfers all or a portion of the economic consequences
associated with the ownership of the Company's capital stock, or
otherwise dispose of, directly or indirectly, any shares of capital
stock or any security or other instrument which by its terms is
convertible into, exercisable for, or exchangeable for shares of
Common Stock (except that, subject to compliance with applicable
securities laws, any such officer, director or stockholder may
transfer his or her stock in a nonpublic transaction that is exempt
from the registration requirements of the Act, provided that any such
transferee shall agree, as a condition to such transfer, to be bound
by the restrictions set forth in this Agreement and further provided
that the transferor, except in the case of the transferor's death,
shall continue to be deemed the beneficial owner of such shares in
accordance with Regulation 13d-(3) of the Exchange Act). For a period
of three (3) years, commencing 12 or 13 months from the Effective
Date, as the case may be, all public sales of the Company's securities
by officers, directors and stockholders of the Company shall be
effected through or with the Representative on an exclusive basis,
provided that the Representative offers the best price reasonably
available to the selling stockholders. In addition, for a period of
three years commencing 12 or 13 months, as the case may be, from the
Effective Date in the case of private transactions in the Company's
Common Stock, each such selling security holder specified above shall
offer the Representative the exclusive opportunity to purchase or sell
the securities on terms at least as favorable as the selling security
holder can obtain elsewhere. If the Representative fails to accept in
writing any such proposal for sale by the selling security holders
within three (3) business days after receipt of a notice containing
such proposal, then the Representative shall have no claim or right
with respect to any such sales contained in such notice. If,
thereafter, such proposal is modified in any material respect, the
selling security holders shall adopt the same procedure as with
respect to the original proposal. An appropriate legend shall be
marked on
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<PAGE> 10
the face of the certificates representing all of such securities
restricting transfers which are not in compliance with this section.
Public or private sales of Common Stock by such persons shall not
include gifts, intra-family transfers or transfers for estate planning
purposes, which shall be exempt from the foregoing provisions. The
Company, on behalf of itself, and all officers, directors and holders
of five percent or more of the Common Stock of the Company, have
provided the Representative their enforceable written agreements not
to sell, transfer, or hypothecate capital stock or derivative
securities of the Company through a "Regulation S" transaction for a
minimum period of five years from the Effective Date without the prior
written consent of the Representative, and the Company has provided
the Representative with the Company's enforceable written agreement
not to sell capital stock or derivative securities of the Company
through a "Regulation D" transaction for a minimum period of 24 months
from the Effective Date.
t. Except as otherwise provided in the Registration
Statement, no person or entity has the right to require registration
of shares of Common Stock or other securities of the Company because
of the filing or effectiveness of the Registration Statement.
u. The Company is eligible to use Form SB-2 for registration
of the Units, the Common Stock, the Warrants, the Warrant Shares, the
Representative's Options and the Representative's Option Securities.
v. No unregistered securities of the Company, of an affiliate
of the Company or of a predecessor of the Company have been sold
within three years prior to the date hereof, except as described in
the Registration Statement.
w. Except as set forth in the Registration Statement, there
is and at the Closing Date there will be no action, suit or proceeding
before any court, arbitration tribunal or governmental agency,
authority or body pending or, to the knowledge of the Company,
threatened which might result in judgments against the Company not
adequately covered by insurance or which collectively might result in
any material adverse change in the condition (financial or otherwise),
the business or the prospects of the Company or would materially
affect the properties or assets of the Company.
x. The Company has filed all federal and state tax returns
which are required to be filed by it and has paid all taxes shown on
such returns and all assessments received by it to the extent such
taxes have become due. All taxes with respect to which the Company is
obligated have been paid or adequate accruals have been set up to
cover any such unpaid taxes.
y. Except as set forth in the Registration Statement:
i. The Company has obtained all permits, licenses
and other authorizations which are required under the
Environmental Laws for the ownership, use and operation of
each location operated or leased by the Company (the
"Property"), all such permits, licenses and authorizations,
if any, obtained are in effect, no appeal nor any other
action is pending to revoke
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<PAGE> 11
any such permit, license or authorization, and the Company is
in full compliance with all terms and conditions of all such
permits, licenses and authorizations, if any, obtained by the
Company.
ii. To the best knowledge of the Company's executive
officers, the Company and the Property are in compliance with
all Environmental Laws including, without limitation, all
restrictions, conditions, standards, limitations,
prohibitions, requirements, obligations, schedules and
timetables contained in the Environmental Laws or contained
in any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered,
promulgated or approved thereunder.
iii. The Company has not, and to the best knowledge
of the Company's executive officers, no other person has,
released, placed, stored, buried or dumped any Hazardous
Substances, Oils, Pollutants or Contaminants or any other
wastes produced by, or resulting from, any business,
commercial, or industrial activities, operations, or
processes, on, beneath, or adjacent to the Property or any
property formerly owned, operated or leased by the Company
except for inventories of such substances to be used, and
wastes generated therefrom, in the ordinary course of
business of the Company (which inventories and wastes, if
any, were and are stored or disposed of in accordance with
applicable laws and regulations and in a manner such that
there has been no release of any such substances into the
environment).
iv. Except as provided to the Representative, there
exists no written or tangible report, synopsis or summary of
any asbestos, toxic waste or Hazardous Substances, Oils,
Pollutants or Contaminants investigation made with respect to
all or any portion of the assets of the Company (whether or
not prepared by experts and whether or not in the possession
of the executive officers of the Company).
v. Definitions: As used herein:
(1) Environmental Laws means all federal,
state and local laws, regulations, rules and
ordinances relating to pollution or protection of
the environment, including, without limitation, laws
relating to Releases or threatened Releases of
Hazardous Substances, Oils, Pollutants or
Contaminants into the indoor or outdoor environment
(including, without limitation, ambient air, surface
water, groundwater, land, surface and subsurface
strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage,
Release, transport or handling of Hazardous
Substances, Oils, Pollutants or Contaminants.
(2) Hazardous Substances, Oils, Pollutants
or Contaminants means all substances defined as such
in the National Oil and Hazardous Substances
Pollutant Contingency Plan, 40 C.F.R. Section 300.6,
or defined as such under any Environmental Law.
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<PAGE> 12
(3) Release means any release, spill,
emission, discharge, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environmental
(including, without limitation, ambient air, surface
water, groundwater, and surface or subsurface
strata) or into or out of any property, including
the movement of Hazardous Substances, Oils,
Pollutants or Contaminants through or in the air,
soil, surface water, groundwater or any property.
All of the above representations and warranties shall survive the
performance or termination of this Agreement.
3. Purchase, Sale, and Delivery of the Units. On the basis of the
representations, warranties, covenants, and agreements of the Company herein
contained, but subject to the terms and conditions herein set forth, the
Company agrees to sell to the Underwriters, severally and not jointly, and the
Underwriters, severally and not jointly, agree to purchase from the Company the
number of Units set forth opposite the Underwriters' names in Schedule 1
hereto.
The purchase price per Unit to be paid by the Underwriters shall be
$5.40. The initial public offering price of the Units shall be $6.00.
Payment for the Units by the Underwriters shall be made by certified
or official bank check in clearing house funds, payable to the order of the
Company at the offices of Schneider Securities, Inc., 1120 Lincoln Street,
Suite 900, Denver, Colorado 80203, or at such other place in Denver, Colorado
as the Representative shall determine and advise the Company by at least two
full days' notice in writing, upon delivery of the Units to the Representative.
Such delivery and payment shall be made at 10:00 a.m., Mountain Time, on the
third business day following the time of the initial public offering, as
defined in Section 10(a) hereof, unless the Commission declares the
Registration Statement effective after 4:30 p.m. Eastern time, in which event
delivery and payment shall be made on the fourth (4th) business day following
the time of the initial public offering. The time and date of such delivery and
payment are herein called the "Closing Date."
In addition, the Company hereby grants to the Representative the
option to purchase all or a portion of the Additional Securities as may be
necessary to cover over-allotments, at the same purchase price per Additional
Security as the price per Unit provided for in this Section 3. This option may
be exercised by the Representative on the basis of the representations,
warranties, covenants, and agreements of the Company herein contained, but
subject to the terms and conditions herein set forth, at any time and from time
to time on or before the 45th day following the Effective Date of the
Registration Statement, by written notice by the Representative to the Company.
Such notice shall set forth the aggregate number of Additional Securities as to
which the option is being exercised, and the time and date, as determined by
the Representative, when such Additional Securities are to be delivered (such
time and date are herein called an "Additional Closing Date"); provided,
however, that no Additional Closing Date shall be earlier than the Closing Date
nor earlier than the third business day after the date on which the notice of
the exercise of the option shall have been given nor later than the eighth
business
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<PAGE> 13
day after the date on which such notice shall have been given; and further
provided, that not more than two Additional Closings shall be noticed and held
following purchase of Additional Securities by the Representative.
Payment for the Additional Securities shall be made by certified or
official bank check in clearing house funds payable to the order of the Company
at the offices of Schneider Securities, Inc., 1120 Lincoln Street, Suite 900,
Denver, Colorado, or at such other place in Denver, Colorado as you shall
determine and advise the Company by at least two full days' notice in writing,
upon delivery of certificates representing the Additional Securities to you.
Certificates for the Common Stock and Warrants and any Additional
Securities purchased shall be registered in such name or names and in such
authorized denominations as you may request in writing at least two full
business days prior to the Closing Date or Additional Closing Date, as
applicable. The Company shall permit you to examine and package such
certificates for delivery at least one full business day prior to any such
closing with respect thereto.
If for any reason one or more Underwriters shall fail or refuse
(otherwise than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 10 hereof) to purchase and pay for
the number of Units agreed to be purchased by such Underwriter, the Company
shall immediately give notice thereof to the Representative, and the
non-defaulting Underwriters shall have the right within 24 hours after the
receipt by the Representative of such notice, to purchase or procure one or
more other Underwriters to purchase, in such proportions as may be agreed upon
among the Representative and such purchasing Underwriter or Underwriters and
upon the terms herein set forth, the Units which such defaulting Underwriter or
Underwriters agreed to purchase. If the non-defaulting Underwriters fail so to
make such arrangements with respect to all such Units, the number of Units
which each non-defaulting Underwriter is otherwise obligated to purchase under
the Agreement shall be automatically increased pro rata to absorb the remaining
Units which the defaulting Underwriter or Underwriters agreed to purchase;
provided, however, that the non-defaulting Underwriters shall not be obligated
to purchase the Units which the defaulting Underwriter or Underwriters agreed
to purchase in excess of 10% of the total number of Units which such
non-defaulting Underwriter agreed to purchase hereunder, and provided further
that the non-defaulting Underwriters shall not be obligated to purchase any
Units which the defaulting Underwriter or Underwriters agreed to purchase if
such additional purchase would cause the Underwriter to be in violation of the
net capital rule of the Commission or other applicable law. If the total number
of Units which the defaulting Underwriter or Underwriters agreed to purchase
shall not be purchased or absorbed in accordance with the two preceding
sentences, the Company shall have the right, within 24 hours next succeeding
the 24-hour period above referred to, to make arrangements with other
underwriters or purchasers satisfactory to the Representative for the purchase
of such Units on the terms herein set forth. In any such case, either the
Representative or the Company shall have the right to postpone the Closing for
not more than seven business days after the date originally fixed as the
Closing in order that any necessary changes in the Registration Statement, the
Prospectus or any other documents or arrangements may be made. If neither the
non-
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<PAGE> 14
defaulting Underwriters nor the Company shall make arrangements within the
24-hour periods stated above for the purchase of all the Units which the
defaulting Underwriter or Underwriters agreed to purchase hereunder, this
Agreement shall be terminated without further act or deed and without any
liability on the part of the Company to any non-defaulting Underwriter, except
the Company shall be liable for actual expenses incurred by the Representative
as provided in Section 10 hereof, and without any liability on the part of any
non-defaulting Underwriter to the Company.
Nothing contained herein shall relieve any defaulting Underwriter of
its liability, if any, to the Company or to the remaining Underwriters for
damages occasioned by its default hereunder.
4. Offering. The Underwriters are to make a public offering of the
Units as soon, on or after the effective date of the Registration Statement, as
the Representative deems it advisable so to do. The Units are to be initially
offered to the public at the initial public offering price as provided for in
Section 3 (such price being herein called the "public offering price"). After
the initial public offering, you may from time to time increase or decrease the
prices of the Units, Common Stock and/or Warrants, in your sole discretion, by
reason of changes in general market conditions or otherwise.
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<PAGE> 15
5. Covenants of the Company. The Company covenants that it will:
a. Use its best efforts to cause the Registration Statement
to become effective as promptly as possible. If the Registration
Statement has become or becomes effective with a form of Prospectus
omitting certain information pursuant to Rule 430A of the Regulations,
or filing of the Prospectus is otherwise required under Rule 424(b),
the Company will file the Prospectus, properly completed, pursuant to
Rule 424(b) within the time period prescribed and will provide
evidence satisfactory to you of such timely filing.
b. Notify you immediately, and confirm such notice in
writing, (i) when the Registration Statement and any post-effective
amendment thereto become effective, (ii) of the receipt of any
comments from the Commission or the "blue sky" or securities authority
of any jurisdiction regarding the Registration Statement, any
post-effective amendment thereto, the Prospectus, or any amendment or
supplement thereto, and (iii) of the receipt of any notification with
respect to a Stop Order or the initiation or threatening of any
proceeding with respect to a Stop Order. The Company will use its best
efforts to prevent the issuance of any Stop Order and, if any Stop
Order is issued, to obtain the lifting thereof as promptly as
possible.
c. During the time when a prospectus relating to the Units,
Common Stock and Warrants or the Additional Securities is required to
be delivered hereunder or under the Act or the Regulations, comply so
far as it is able with all requirements imposed upon it by the Act, as
now existing and as hereafter amended, and by the Regulations, as from
time to time in force, so far as necessary to permit the continuance
of sales of or dealings in the Common Stock and Warrants and
Additional Securities in accordance with the provisions hereof and the
Prospectus. If, at any time when a prospectus relating to the Units,
Common Stock and Warrants or Additional Securities is required to be
delivered hereunder or under the Act or the Regulations, any event
shall have occurred as a result of which, in the reasonable opinion of
counsel for the Company or counsel for the Representative, the
Registration Statement or the Prospectus, as then amended or
supplemented, contains any 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 not misleading, or if, in the
opinion of either of such counsel, it is necessary at any time to
amend or supplement the Registration Statement or the Prospectus to
comply with the Act or the Regulations, the Company will immediately
notify you and promptly prepare and file with the Commission an
appropriate amendment or supplement (in form and substance
satisfactory to you) which will correct such statement or omission or
which will effect such compliance and will use its best efforts to
have any such amendment declared effective as soon as possible.
d. Deliver without charge to you such number of copies of
each Preliminary Prospectus as you may reasonably request and, as soon
as the Registration Statement or any amendment thereto becomes
effective or a supplement is filed, deliver without charge to you two
signed copies of the
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<PAGE> 16
Registration Statement or such amendment thereto, as the case may be,
including exhibits, and two copies of any supplement thereto, and
deliver without charge to you such number of copies of the Prospectus,
the Registration Statement, and amendments and supplements thereto, if
any, without exhibits, as you may reasonably request for the purposes
contemplated by the Act.
e. Endeavor in good faith, in cooperation with you, at or
prior to the time the Registration Statement becomes effective, to
qualify the Units, Common Stock and Warrants and Additional Securities
for offering and sale under the "blue sky" or securities laws of such
jurisdictions as you may designate; provided, however, that no such
qualification shall be required in any jurisdiction where, as a result
thereof, the Company would be subject to service of general process or
to taxation as a foreign corporation doing business in such
jurisdiction to which it is not then subject. In each jurisdiction
where such qualification shall be effected, the Company will, unless
you agree in writing 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 be required by the laws of such jurisdiction.
f. Make generally available (within the meaning of Section
11(a) of the Act and the Regulations) to its security holders as soon
as practicable, but not later than fifteen (15) months after the date
of the Prospectus, an earnings statement (which need not be certified
by independent certified public accountants unless required by the Act
or the Regulations, but which shall satisfy the provisions of Section
11(a) of the Act and the Regulations) covering a period of at least 12
months beginning after the effective date of the Registration
Statement.
g. For a period of 13 months after the date of the
Prospectus, not, without your prior written consent, offer, issue,
sell, contract to sell, grant any option for the sale of, or otherwise
dispose of, directly or indirectly, any shares of Common Stock (or any
security or other instrument which by its terms is convertible into,
exercisable for, or exchangeable for shares of Common Stock) except as
provided in Section 3 and except for (i) the issuance of Warrant
Shares issuable upon the exercise of Warrants or issuance of Common
Stock underlying options and warrants outstanding on the date hereof
which are properly described in the Prospectus, (ii) the issuance of
the Representative's Option Securities, or (iii) the grant of options
pursuant to the Company's existing stock option plan, or (iv) the
issuance of capital stock in connection with any acquisitions
undertaken by the Company.
h. For a period of five years after the Effective Date of the
registration statement, furnish you, without charge, the following:
i. Within 105 days after the end of each fiscal
year, three copies of consolidated financial statements
certified by independent certified public accountants,
including a balance sheet, statement of operations, and
statement of cash flows of the Company and its then existing
subsidiaries, with supporting schedules, prepared in
accordance with generally accepted accounting principles, at
the end of such fiscal year and for the 12 months then ended;
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<PAGE> 17
ii. As soon as practicable after they have been sent
to stockholders of the Company or filed with the Commission,
three copies of each annual and interim financial and other
report or communication sent by the Company to its
stockholders or filed with the Commission;
iii. As soon as practicable, two copies of every
press release and every material news item and article in
respect of the Company or its affairs which was released by
the Company;
iv. Notice of any regular quarterly or special
meeting of the Company's Board of Directors concurrently with
the sending of such notice to the Company's directors; and
v. Such additional documents and information with
respect to the Company and its affairs and the affairs of any
of its subsidiaries as you may from time to time reasonably
request.
i. Designate an Audit Committee and a Compensation Committee,
the members of which shall be subject to your reasonable approval,
which will generally supervise the financial affairs of the Company
and review executive compensation, respectively.
j. Furnish to you as early as practicable prior to the
Closing Date and any Additional Closing Date, as the case may be, but
not less than two full business days prior thereto, a copy of the
latest available unaudited interim consolidated financial statements
of the Company which have been read by the Company's independent
certified public accountants, as stated in their letters to be
furnished pursuant to Section 7(e).
k. File no amendment or supplement to the Registration
Statement or Prospectus at any time, whether before or after the
Effective Date of the Registration Statement, unless such filing shall
comply with the Act and the Regulations and unless you shall
previously have been advised of such filing and furnished with a copy
thereof, and you and counsel for the Representative shall have
approved such filing in writing within a reasonable time of receipt
thereof.
l. Comply with all periodic reporting and proxy solicitation
requirements which may from time to time be applicable to the Company
as a result of the Company's registration under the Exchange Act on a
registration statement on Form 8-A .
m. Comply with all provisions of all undertakings contained
in the Registration Statement.
n. Prior to the Closing Date or any Additional Closing Date,
as the case may be, issue no press release or other communication,
directly or indirectly, and hold no press conference and grant no
interviews with respect to the Company, the financial condition,
results of operations, business, properties, assets, or liabilities of
the Company, or this offering, without your prior written consent.
o. Appoint American Securities Transfer & Trust, Inc. as its
transfer agent.
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<PAGE> 18
p. On or prior to the Closing Date, sell to the
Representative for a total purchase price of $100, Representative's
Options entitling the Representative or its assigns to purchase
120,000 Units at a price equal to 120% of the public offering price of
the Units, with the terms of the Representative's Options, including
exercise period, anti-dilution provisions, exercise price, exercise
provisions, transferability, and registration rights, to be in the
form filed as an exhibit to the Registration Statement.
q. Until expiration of the Representative's Options, keep
reserved sufficient Units, Common Stock and Warrants for issuance upon
exercise of the Representative's Options, and shares of Common Stock
for issuance upon exercise of the warrants contained in the
Representative's Options.
r. If the Representative, any employee of the Representative
or any company controlled by or under control with the Representative
acts as the introducing broker or finder during the five year period
commencing on the Effective Date with regard to (i) the sale of all or
substantially all of the assets and properties of the Company, (ii)
the merger or consolidation of the Company (other than a merger or
consolidation effected for the purpose of changing the Company's
domicile) or (iii) the acquisition by the Company of the assets or
stock of another business entity, which agreement or understanding is
thereafter consummated during such five-year period or within one year
of expiration of such five-year period, pay to the Representative or
such person(s) as the Representative may designate an amount equal to
5% of the first $1,000,000 or portion thereof in value or
consideration received or paid by the Company, 4% of the second
$1,000,000 or portion thereof in value or consideration received or
paid by the Company and 3% of such value or consideration received by
the Company in excess of the first $2,000,000 of such value or
consideration received or paid by the Company. The fee payable to the
Representative will be in the same form of consideration as that paid
by or to the Company, as the case may be, in any such transaction. It
is understood that the designation of the Representative to act as a
finder is not exclusive and that the Representative shall not be
entitled to the foregoing amounts unless it participates in the
introduction.
s. Within three months of the Closing Date, engage a
financial public relations firm to assist the Company in preparing
regular announcements and disseminating such information to the
financial community, such engagement to extend for a period of at
least one year from the date of retention of such firm.
t. Adopt procedures for the application of the net proceeds
it receives from the sale of the Units and apply the net proceeds from
the sale of the Units substantially in the manner set forth in the
Registration Statement, which does not contemplate repayment of debt
to officers, directors, stockholders or affiliates of the Company
(except to CS Capital, Inc.), unless any deviation from such
application is in accordance with the Registration Statement and
occurs only after approval by the Board of Directors of the Company
and then only after the Board of Directors has obtained the written
opinion of recognized legal counsel experienced in federal and state
securities laws as to the propriety of any such deviation.
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<PAGE> 19
u. Within the time period which the Prospectus is required to
be delivered under the Act, comply, at its own expense, with all
requirements imposed upon it by the Act, as now or hereafter amended,
by the Rules and Regulations, as from time to time may be enforced,
and by any order of the Commission, so far as necessary to permit the
continuance of sales or dealing in the Units, Common Stock and
Warrants.
v. At the Closing, deliver to the Representative true and
correct copies of the Articles of Incorporation of the Company and all
amendments thereto, all such copies to be certified by the Secretary
of the Company; true and correct copies of the by-laws of the Company
and of the minutes of all meetings of the directors and stockholders
of the Company held prior to the Closing which in any way relate to
the subject matter of this Agreement or the Registration Statement.
w. Use all reasonable efforts to comply or cause to be
complied with the conditions precedent to the several obligations of
the Underwriters in Section 7 hereof.
x. File with the Commission all required information
concerning use of proceeds of the Public Offering in Forms 10-QSB and
10-KSB in accordance with the provisions of the Exchange Act and to
provide a copy of such reports to the Representative and its counsel.
y. Supply to the Representative and the Representative's
counsel at the Company's cost, two bound volumes each containing
material documents relating to the offering of the Units within a
reasonable time after the Closing, not to exceed 90 days.
z. As soon as possible prior to the Effective Date, and as a
condition of the Underwriter's obligations hereunder, (i) if requested
by the Representative, have the Company listed on an accelerated
basis, and to maintain such listing for not less than ten years from
the Closing Date, in Standard & Poor's Standard Corporation Records;
and (ii) have the Common Stock and Warrants quoted on The Nasdaq
SmallCap Market_ as of the Effective Date, on the Closing Date, on the
Additional Closing Date and thereafter for at least ten years provided
the Company is in compliance with The Nasdaq SmallCap Market_
maintenance requirements.
aa. At such time as the Company qualifies for listing on the
Nasdaq National Market, take all steps necessary to have the Company's
Common Stock and Warrants, to the extent eligible, listed on the
Nasdaq National Market.
bb. Continue, for a period of at least five years following
the Effective Date of the Registration Statement, to appoint such
auditors as are reasonably acceptable to the Representative, which
auditors shall (i) prepare consolidated financial statements in
accordance with Regulation S-B or, if applicable, Regulation S-X under
the General Rules and Regulations of the Act and (ii) examine (but not
audit) the Company's consolidated financial statements for each of the
first three (3) fiscal quarters prior to the announcement of quarterly
financial information, the filing of the Company's 10-QSB quarterly
report and the mailing of quarterly financial information to security
holders.
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<PAGE> 20
cc. Within 90 days of the Effective Date of the Registration
Statement, obtain "key man" life insurance policies in the amount of
$1,000,000 each on the life of Nigel V. Alexander and on the life of
Shawn B. Stickle, with the Company designated as the beneficiary of
such policy, and pay the annual premiums thereon for a period of not
less than five years from the Effective Date of the Registration
Statement.
dd. Cause its transfer agent to furnish the Representative a
duplicate copy of the daily transfer sheets prepared by the transfer
agent during the six-month period commencing on the Effective Date of
the Registration Statement and instruct the transfer agent to timely
provide, upon the request of the Representative, duplicate copies of
such transfer sheets and/or a duplicate copy of a list of
stockholders, all at the Company's expense, for a period of 4 1/2
years after such six-month period.
ee. Refrain from filing a Form S-8 registration statement for
a period of 90 days from the Effective Date of the Registration
Statement without the Representative's prior written consent. If the
Company files a registration statement on Form S-8 at any time
thereafter through and until 13 months from the Effective Date, the
Company shall obtain an agreement from each holder of options to
acquire Common Stock of the Company on the Effective Date to not to
sell, transfer, hypothecate or convey any such shares of Common Stock
underlying the optionholder's option for the period through 13 months
from the Effective Date without the prior written consent of the
Company. After the registration statement on Form S-8 is declared
effective, the Company may permit the sale from time to time of Common
Stock issued on exercise of options by stockholders who are not
officers or directors, subject to the Company's agreement that such
sales shall not exceed an aggregate of 30,000 shares of Common Stock
of the Company during the period of 13 months from the Effective Date.
Any such sales of Common Stock issued upon exercise of stock options
within such 13 month period shall be made through the Representative.
The Company will obtain from each holder of options to acquire Common
Stock of the Company such person's written enforceable agreement not
to sell shares of Common Stock pursuant to the exemption afforded by
Rule 701 under the 1933 Act for a minimum period of 13 months from the
Effective Date without the prior written consent of the
Representative.
ff. On the Closing Date, enter into a Warrant Exercise Fee
Agreement with the Representative whereby the Company will agree to
pay the Representative a fee of 5% of the aggregate exercise price of
each Warrant exercised commencing one year after the Effective Date,
of which a portion may be allowed by the Representative to the dealer
who solicited the exercise (which may also be the Representative),
subject to applicable NASD guidelines.
gg. Afford the Representative the right, but not the
obligation, commencing on the Effective Date and surviving for a
period of five years, to designate an observer to attend meetings of
the Board of Directors. The designee, if any, and the Representative
will receive notice of each meeting of the Board of Directors in
accordance with Colorado law, of which no less than four meetings will
be held
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in person or by video conference each year. Any such designee will
receive reimbursement for all reasonable costs and expenses incurred
in attending meetings of the Board of Directors, including but not
limited to, food, lodging and transportation, together with such other
fee or compensation as is paid by the Company to other members of the
Board of Directors. Moreover, to the extent permitted by law, the
Representative and its designee shall be indemnified for the actions
of such designee as an observer to the Board of Directors and in the
event the Company maintains a liability insurance policy affording
coverage for the acts of its officers and/or directors, to the extent
permitted under such policy, each of the Representative and its
designee shall be an insured under such policy.
hh. Refrain from granting any options or warrants to any
member of the Board of Directors appointed by Spencer Edwards, Inc. or
make any cash or other payment to such member of the Board of
Directors for such person's service on the Board of Directors unless
the Company shall have secured the prior written approval of the
Representative and the Representative shall have confirmed with the
NASD that the payment of any such compensation shall not cause any
reduction in the allowable compensation to the Representative in
connection with any past, present or future transactions involving the
Company.
6. Payment of Expenses. The Company hereby agrees to pay all expenses
(subject to the last sentence of this Section 6) in connection with the
offering, including but not limited to (a) the preparation, printing, filing,
distribution, and mailing of the Registration Statement and the Prospectus,
including NASD, SEC,
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<PAGE> 22
Nasdaq filing and/or application fees, and the printing, filing, distribution,
and mailing of this Agreement, any Agreement Among Underwriters, Selected
Dealers Agreement, preliminary and final Blue Sky Memorandums, material to be
circulated to the Underwriters by you and other incidental or related
documents, including the cost of all copies thereof and of the Preliminary
Prospectuses and of the Prospectus, and any amendments or supplements thereto,
supplied to the Representative in quantities as herein above stated, (b) the
issuance, sale, transfer, and delivery of the Common Stock and Warrants, the
Additional Securities, the Warrant Shares, the Representative's Options and the
Representative's Option Securities, including, without limitation, any original
issue, transfer or other taxes payable thereon and the costs of preparation,
printing and delivery of certificates representing such securities, as
applicable, (c) the qualification of the Units, Common Stock and Warrants,
Additional Securities, Representative's Options, Representative's Option
Securities, and Warrant Shares under state or foreign "blue sky" or securities
laws, which qualification shall be undertaken by counsel to the Representative
at the Company's expense, (d) the fees and disbursements of counsel for the
Company and the accountants for the Company, (e) the listing of the Common
Stock and Warrants on The Nasdaq SmallCap Market, and (f) the Representative's
non-accountable expense allowance equal to 3% of the aggregate gross proceeds
from the sale of the Units and the Additional Securities. Prior to or
immediately following the Closing Date, the Company shall bear the costs of
tombstone announcements not to exceed $3,000, if requested to do so by the
Representative. The Company and the Representative shall pay their own expenses
incurred in connection with any road shows.
The Company has previously remitted to the Representative the sum of
$45,000, which sum has been credited as a partial payment in advance of the
non-accountable expense allowance provided for in Section 6(f) above.
7. Conditions of Underwriters' Obligations. The Underwriters'
obligation to purchase and pay for the Units and the Additional Securities, as
provided herein, shall be subject to the continuing accuracy of the
representations and warranties of the Company contained herein and in each
certificate and document contemplated under this Agreement to be delivered to
you, as of the date hereof and as of the Closing Date (or the Additional
Closing Date, as the case may be), to the performance by the Company of its
obligations hereunder, and to the following conditions:
a. The Registration Statement shall have become effective not
later than 5:00 p.m., Mountain time, on the date of this Agreement or
such later date and time as shall be consented to in writing by you.
b. At the Closing Date and any Additional Closing Date, you
shall have received the favorable opinion of Smith McCullough, P.C.,
counsel for the Company, dated the date of delivery, addressed to you,
and in form and scope satisfactory to your counsel, 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 Colorado, with full power and authority, and counsel
has
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<PAGE> 23
no knowledge that the Company does not have all necessary
consents, authorizations, approvals, orders, certificates,
and permits of and from, and declarations and filings with,
all federal, state, local, and other governmental authorities
and all courts and other tribunals, to own, lease, license,
and use its properties and assets and to conduct its business
in the manner described in the Prospectus. The Company is
duly qualified to do business and is in good standing in
every jurisdiction in which its ownership, leasing,
licensing, or use of property and assets or the conduct of
its business makes such qualification necessary;
ii. The authorized capital stock of the Company as
of the date of this Agreement consisted of 20,000,000 shares
of Common Stock, of which 1,691,542 shares of Common Stock
are issued and outstanding, 448,500 shares of Common Stock
are reserved for issuance upon the exercise of outstanding
options and warrants and 135,000 shares of Common Stock are
reserved for issuance upon the exercise of the remaining
options authorized under the Company's option plan; and
5,000,000 shares of Preferred Stock, none of which are issued
and outstanding; and there have been no changes in the
authorized and outstanding capital stock of the Company since
the date of this Agreement, except as contemplated by the
Registration Statement and the Prospectus. Each outstanding
share of capital stock is validly authorized, validly issued,
fully paid, and nonassessable, with no personal liability
attaching to the ownership thereof, has not been issued and
is not owned or held in violation of any preemptive right of
stockholders. There is no commitment, plan, or arrangement to
issue, and no outstanding option, warrant, or other right
calling for the issuance of, any share of capital stock of
the Company or any security or other instrument which by its
terms is convertible into, exercisable for, or exchangeable
for capital stock of the Company, except as set forth above,
and except as is properly described in the Prospectus. There
is outstanding no security or other instrument which by its
terms is convertible into or exchangeable for capital stock
of the Company, except as described in the Prospectus;
iii. To the knowledge of counsel, there is no
litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation pending,
threatened, or in prospect (or any basis therefor) with
respect to the Company or any of its respective operations,
businesses, properties, or assets, except as may be properly
described in the Prospectus or such as individually or in the
aggregate do not now have and will not in the future have a
material adverse effect upon the operations, business,
properties, or assets of the Company. To the knowledge of
counsel, the Company is not in violation of, or in default
with respect to, any law, rule, regulation, order, judgment,
or decree, except as may be properly described in the
Prospectus or such as in the aggregate have been disclosed to
the Representative and do not now have and will not in the
future have a material adverse effect
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<PAGE> 24
upon the operations, business, properties, or assets of the
Company; nor is the Company required to take any action in
order to avoid any such violation or default;
iv. Based upon the certificates received from the
Company's officers, neither the Company nor any other party
is now or is expected by the Company to be in violation or
breach of, or in default with respect to, complying with any
material provision of any contract, agreement, instrument,
lease, license, arrangement, or understanding which is
material to the Company;
v. The Company is not in violation or breach of, or
in default with respect to, any term of its Articles of
Incorporation or by-laws;
vi. The Company has all requisite power and
authority to execute and deliver and to perform thereunder
this Agreement, the Warrants, the Representative's Options,
the Warrant Exercise Fee Agreement and the Custody Agreement.
All necessary corporate proceedings of the Company have been
taken to authorize the execution and delivery and performance
thereunder by the Company of this Agreement, the Warrants,
the Representative's Options, the Warrant Exercise Fee
Agreement and the Custody Agreement. Each of this Agreement,
the Warrants, the Representative's Options, the Warrant
Exercise Fee Agreement and the Custody Agreement have been
duly authorized, executed and delivered by the Company, and
is a legal, valid, and binding obligation of the Company, and
(subject to applicable bankruptcy, insolvency, and other laws
affecting the enforceability of creditors' rights generally)
enforceable as to the Company in accordance with its
respective terms. No consent, authorization, approval, order,
license, certificate, or permit of or from, or declaration or
filing with, any federal, state, local, or other governmental
authority or any court or other tribunal is required by the
Company for the execution or delivery, or performance
thereunder by the Company of this Agreement, the Warrants,
the Representative's Options, the Warrant Exercise Fee
Agreement and the Custody Agreement (except filings under the
Act which have been made prior to the Closing Date and
consents consisting only of consents under "blue sky" or
securities laws which are required in connection with the
transactions contemplated by this Agreement, and which
counsel has been advised by counsel to the underwriters have
been obtained on or prior to the date the Registration
Statement becomes effective under the Act). No consent of any
party to any contract, agreement, instrument, lease, license,
arrangement, or understanding to which the Company is a
party, or to which any of its properties or assets are
subject, is required for the execution or delivery, or
performance thereunder of this Agreement, the Warrants, the
Representative's Options, the Warrant Exercise Fee Agreement
or the Custody Agreement; and the execution and delivery and
performance thereunder of this Agreement, the Warrants, the
Representative's Options, the Warrant Exercise Fee Agreement
and the Custody Agreement will
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<PAGE> 25
not violate, result in a breach of, conflict with, or (with
or without the giving of notice or the passage of time or
both) entitle any party to terminate or call a default under
any such contract, agreement, instrument, lease, license,
arrangement, or understanding, or violate or result in a
breach of any term of the Articles of Incorporation or
by-laws of the Company, or violate, result in a breach of, or
conflict with any law, rule, regulation, order, judgment, or
decree binding on the Company or to which any of its
operations, businesses, properties, or assets are subject;
vii. The shares of Common Stock are, the shares of
Common Stock issuable on exercise of the Warrants will be
upon exercise of the Warrants, the shares of Common Stock
underlying the Representative's Options will be upon exercise
of the Representative's Options, and the Representative's
Option Shares will be upon exercise of the Warrants
underlying the Representative's Options, validly authorized,
validly issued, fully paid, and nonassessable and will not
have been issued in violation of any preemptive rights of
stockholders, and the Underwriters have received good title
to the Units and Additional Securities purchased by them from
the Company, free and clear of all liens, security interests,
pledges, charges, encumbrances, stockholders' agreements, and
voting trusts; upon payment for the Warrant Shares and the
Representative's Option Securities, the holders thereof will
receive good title to such securities, free and clear of all
liens, security interests, pledges, charges, encumbrances,
stockholders' agreement and voting trusts. The Units, the
Common Stock, the Warrants, the Warrant Shares, the
Representative's Options and the Representative's Option
Securities conform in all material respects to all statements
relating thereto contained in the Registration Statement or
the Prospectus;
viii. The Warrant Shares have been duly and validly
reserved for issuance pursuant to the terms of the Warrant
Agreement between the Company and its transfer agent, and the
Representative's Option Securities have been duly and validly
reserved for issuance pursuant to the terms of the
Representative's Options or the Warrant Agreement, as the
case may be;
ix. All contracts, agreements, instruments, leases,
and licenses known to counsel that are required to be
described in the Registration Statement or the Prospectus
have been properly described therein. All contracts,
agreements, instruments, leases, or licenses known to counsel
required to be filed as an exhibit to the Registration
Statement have been filed with the Commission as an exhibit
to or have been incorporated as an exhibit by reference into
the Registration Statement;
x. Insofar as statements in the Prospectus purport
to summarize the status of litigation or the provisions of
laws, rules, regulations, orders, judgments, decrees,
contracts, agreements, instruments, leases, or licenses, such
statements have been prepared or reviewed
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<PAGE> 26
by such counsel and accurately reflect the status of such
litigation and provisions purported to be summarized and are
correct in all material respects;
xi. Except as provided in the Registration
Statement, no person or entity has the right to require
registration of shares of Common Stock or other securities of
the Company because of the filing or effectiveness of the
Registration Statement;
xii. The Registration Statement has become effective
under the Act. No Stop Order has been issued and no
proceedings for that purpose have been instituted or
threatened;
xiii. The Registration Statement and the Prospectus,
and any amendment or supplement thereto, comply as to form in
all material respects with the requirements of the Act and
the Regulations;
xiv. Such counsel has no reason to believe that
either the Registration Statement or the Prospectus, or any
amendment or supplement thereto, contains any untrue
statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading (except that no opinion
need be expressed as to the consolidated financial statements
and other financial data and schedules which are or should be
contained therein);
xv. Counsel has no knowledge of any event which has
occurred since the Effective Date which should have been set
forth in an amendment or supplement to the Registration
Statement or the Prospectus that has not been set forth in
such an amendment or supplement;
xvi. The Company is not currently offering any
securities for sale except as described in the Registration
Statement;
xvii. Such counsel has no knowledge of any
promoters, affiliates, parents or subsidiaries of the Company
except as are described in the Registration Statement;
xviii. Counsel has no knowledge that the Company
does not own or possess, free and clear of all liens or
encumbrances and rights thereto or therein by third parties,
the requisite licenses or other rights to use all trademarks,
copyrights, service marks, service names, trade names and
licenses necessary to conduct its business (including without
limitation, any such licenses or rights described in the
Registration Statement as being owned or possessed by the
Company or any subsidiary) (all of which are collectively
referred to herein as the "Intellectual Property"); counsel
has no knowledge of any actual or, to the knowledge of
counsel, pending, or threatened claim, proceeding or action
by any person pertaining to or which challenges the exclusive
rights of the Company with respect to any of the Company's
Intellectual Property; based on a review of all the Company's
products, proposed products and Intellectual Property,
counsel has no knowledge that such products, proposed
products or Intellectual Property
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<PAGE> 27
infringe on any trademarks, copyrights, service marks,
service names, trade names or valid patents or patents
pending held by third parties known to the Company and such
counsel;
xix. The Company is not a party to any agreement
giving rise to any obligation by the Company or any
subsidiary to pay any third-party royalties or fees of any
kind whatsoever with respect to any technology developed,
employed, used or licensed by the Company or any subsidiary,
other than is disclosed in the Prospectus; and
xx. The Common Stock and Warrants are eligible for
quotation on The Nasdaq SmallCap Market.
Such opinion shall be governed by, and shall be interpreted
in accordance with, the Legal Opinion Accord (the "Accord") of the ABA
Section of Business Law (1991) and shall be subject to the
qualifications, exceptions, definitions, limitations on coverage and
other limitations set forth therein and in such opinion.
Qualifications in such opinion as to knowledge or the absence of
knowledge shall be based upon and limited to the "Actual Knowledge"
(as defined in the Accord) of the "Primary Lawyer Group" (as
identified in such opinion). In rendering such opinion, such legal
counsel shall be entitled to rely upon Public Authority Documents and
upon information provided by client officials in written Certificates
provided that copies of such Public Authority Documents and
Certificates are attached as exhibits to the written opinion of legal
counsel. The term "Public Authority Documents" shall have the meaning
ascribed to it in the Legal Opinion Accord of the ABA Section of
Business Law (1991).
c. On or prior to the Closing Date and any Additional Closing
Date, as the case may be, you shall have been furnished such
information, documents, certificates, and opinions as you may
reasonably require for the purpose of enabling you to review the
matters referred to in Sections 7(b) and (c), and in order to evidence
the accuracy, completeness, or satisfaction of any of the
representations, warranties, covenants, agreements, or conditions
herein contained, or as you may reasonably request.
d. At the Closing Date and any Additional Closing Date, as
the case may be, you shall have received a certificate of the chief
executive officer and of the chief financial officer of the Company,
dated the Closing Date or such Additional Closing Date, as the case
may be, to the effect that the conditions set forth in Section 7(a)
have been satisfied, that as of the date of this Agreement and as of
the Closing Date or such Additional Closing Date, as the case may be,
the representations and warranties of the Company contained herein
were and are accurate, and that as of the Closing Date or such
Additional Closing Date, as the case may be, the obligations to be
performed by the Company hereunder on or prior thereto have been fully
performed.
e. At the time this Agreement is executed and at the Closing
Date and any Additional Closing Date, as the case may be, you shall
have received letters from HEIN + ASSOCIATES, LLP and James E.
Scheifley & Associates, Inc., Certified Public Accountants, addressed
to you and dated the date
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<PAGE> 28
of delivery but covering a period within three business days of such
date, in form and substance satisfactory to you.
f. All proceedings taken in connection with the issuance,
sale, transfer, and delivery of the Units and the Additional
Securities shall be satisfactory in form and substance to you and to
counsel for the Representative, and you shall have received a
favorable opinion from counsel to the Company, dated as of the Closing
Date or the Additional Closing Date, as the case may be, with respect
to such of the matters set forth under Sections 7(b) and 7(c),
respectively, and with respect to such other related matters, as you
may reasonably request.
g. The NASD, upon review of the terms of the public offering
of the Units and the Additional Securities, shall not have objected to
your participation in such offering.
h. The Company shall have received notice that the Common
Stock and Warrants will be quoted on The Nasdaq SmallCap Market_ as of
the Effective Date.
Any certificate or other document signed by any officer of the Company
and delivered to you or to counsel for the Representative shall be deemed a
representation and warranty by such officer individually and by the Company
hereunder to the Representative as to the statements made therein. If any
condition to your obligations hereunder to be fulfilled prior to or at the
Closing Date or any Additional Closing Date, as the case may be, is not so
fulfilled, you may terminate this Agreement or, if you so elect, in writing
waive any such conditions which have not been fulfilled or extend the time for
their fulfillment.
8. Indemnification and Contribution.
a. Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless the Underwriters, 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 the Prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, 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 Units and Additional Securities 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
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<PAGE> 29
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 Preliminary
Prospectus, the Registration Statement, or the Prospectus, or any
amendment or supplement thereto, 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 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 Units or the Additional
Securities, any Preliminary Prospectus, the Registration Statement, or
the Prospectus, or any amendment or supplement thereto, or any
application.
b. The Underwriters agree to indemnify and hold harmless the
Company, the Company's counsel, 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 Preliminary Prospectus, the
Registration Statement, or the Prospectus (as from time
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<PAGE> 30
to time amended and supplemented), or any amendment or supplement
thereto, 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 Preliminary Prospectus,
the Registration Statement, or the Prospectus, or any amendment or
supplement thereto, 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 Units and
Additional Securities sold hereunder and the initial public offering
price per Unit set forth on the cover page of the Prospectus. For all
purposes of this Agreement, the amounts of the selling concession and
reallowance set forth in the Prospectus, the information under
"Underwriting" 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 Preliminary Prospectus, the Registration Statement, or the
Prospectus (as from time to time amended or supplemented), or any
amendment or supplement thereto, 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 Preliminary Prospectus, the
Registration Statement, or the Prospectus, or any amendment or
supplement thereto, 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 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 Units and Additional Securities
(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
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aggregate exceeds the total public offering price of the Units and
Additional Securities purchased 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 Registration
Statement, 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.
9. Representations and Agreements to Survive Delivery. All
representations, warranties, covenants, and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants, and
agreements at the Closing Date and any Additional Closing Date, and such
representations, warranties, covenants, and agreements of the Underwriters and
the Company, including the indemnity and contribution agreements contained in
Section 8, shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of the Representative, the Underwriters
or any indemnified person, or by or on behalf of the Company or any person or
entity which is entitled to be indemnified under Section 8(b), and shall
survive termination of this Agreement or the delivery of the Units and the
Additional Securities to the Underwriters for a period equal to the statute of
limitations for claims related hereto, but not to exceed an aggregate of five
years from the date hereof. In addition, the provisions of Sections 5(a), 6, 8,
9, 10, and 12 shall survive termination of this Agreement, whether such
termination occurs before or after the Closing Date or any Additional Closing
Date.
10. Effective Date of This Agreement and Termination Thereof.
a. This Agreement shall be executed within 24 hours of the
Effective Date of the Registration Statement and shall become
effective on the Effective Date or at the time of the initial public
offering of the Units, whichever is earlier. The time of the initial
public offering shall mean the time, after the Registration Statement
becomes effective, of the release by the Representative for
publication of the first newspaper advertisement which is subsequently
published relating to the Units or the time, after the Registration
Statement becomes effective, when the Units are first released by the
Representative for offering by dealers by letter or telegram,
whichever shall first occur. The Representative or the Company may
prevent this Agreement from becoming effective without liability of
any party to any other party, except as noted below in this Section
10, by giving the notice indicated in Section 10(c) before the time
this Agreement becomes effective.
-31-
<PAGE> 32
b. The Representative shall have the right to terminate this
Agreement at any time prior to the Closing Date or any Additional
Closing Date, as the case may be, by giving notice to the Company if
there shall have been a general suspension of, or a general limitation
on prices for, trading in securities on the New York Stock Exchange or
the American Stock Exchange or in the over-the-counter market; or if
there shall have been an outbreak of major hostilities or other
national or international calamity; or if a banking moratorium has
been declared by a state or federal authority; or if a moratorium in
foreign exchange trading by major international banks or persons has
been declared; or if there shall have been a material interruption in
the mail service or other means of communication within the United
States; or if the Company shall have sustained a material or
substantial loss 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 the Representative's
opinion, make it inadvisable to proceed with the offering, sale, or
delivery of the Units or the Additional Securities, as the case may
be; or if there shall have been such material and adverse change in
the market for securities in general so as to make it inadvisable to
proceed with the offering, sale, and delivery of the Units or the
Additional Securities, as the case may be, on the terms contemplated
by the Prospectus due to the impaired investment quality of the Units
or the Additional Securities; or if the Dow Jones Industrial Average
shall have fallen by 15% or more from its closing price on the day
immediately preceding the date that the Registration Statement is
declared effective by the Commission.
c. If the Representative elects to prevent this Agreement
from becoming effective as provided in this Section 10, or to
terminate this Agreement, it shall notify the Company promptly by
telephone, telex, or telegram, confirmed by letter. If, as so
provided, the Company elects to prevent this Agreement from becoming
effective, the Company shall notify the Representative promptly by
telephone, telex, or telegram, confirmed by letter.
d. Anything in this Agreement to the contrary notwithstanding
other than Section 10(e), if this Agreement shall not become effective
by reason of an election pursuant to this Section 10 or if this
Agreement shall terminate or shall otherwise not be carried out prior
to May 31, 1999 because (i) of any reason solely within the control of
the Company or its stockholders and not due to the breach of any
representation, warranty or covenant or bad faith of the
Representative, (ii) the Company unilaterally withdraws the proposed
Public Offering from the Representative in favor of another
underwriter, (iii) the Company does not permit the Registration
Statement to become effective, (iv) of any material discrepancy in any
representation by the Company and/or its officers, directors,
stockholders, agents, advisers or representatives, made in writing,
including but not limited to the Registration Statement, to the
Representative, (v) the Company is, directly and/or indirectly,
negotiating with other persons or entities of whatsoever nature
relating to a possible Public Offering of its securities, or (vi) of
any failure on the part of the Company to perform any covenant or
agreement or satisfy any condition of this Agreement
-32-
<PAGE> 33
by it to be performed or satisfied, then, in any of such events, the
Company shall be obligated to reimburse the Representative for its
out-of-pocket expenses on an accountable basis. Should the
Representative be required to account for "out-of-pocket" expenses,
any expense incurred by the Representative shall be deemed to be
reasonable and unobjectionable upon a reasonable showing by the
Representative that such expenses were incurred, directly or
indirectly, in connection with the proposed transaction and/or
relationship of the parties hereto, as described herein. In no event
will the Representative be entitled to reimbursement of accountable
expenses exceeding $45,000, inclusive of the $45,000 advanced against
the non-accountable expense allowance. The Representative will return
to the Company any portion of the $45,000 payment previously received
that is not used in the payment of accountable expenses if the Public
Offering is not completed.
e. Notwithstanding any election hereunder or any termination
of this Agreement, and whether or not this Agreement is otherwise
carried out, the provisions of Sections 5(a), 6, 8, 9, and 10 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.
11. Notices. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to the
Representative, shall be mailed, delivered, or sent by facsimile transmission
and confirmed by original letter, to Schneider Securities, Inc., 1120 Lincoln
Street, Suite 900, Denver, Colorado 80203, Attention: Keith Koch, with a copy
to Robert W. Walter, Esq., Berliner Zisser Walter & Gallegos, P.C., 1700
Lincoln Street, Suite 4700, Denver, Colorado 80203; or if sent to the Company
shall be mailed, delivered, or telexed or telegraphed and confirmed by letter,
to Multi-Link Telecommunications, Inc., 811 Lincoln Street, 5th Floor, Denver,
Colorado 80203, Attention: Nigel V. Alexander and Shawn B. Stickle, with a copy
to Thomas S. Smith, Esq. , Smith McCullough, P.C., 4643 South Ulster Street,
Suite 900, Denver, Colorado 80237. All notices hereunder shall be effective
upon receipt by the party to which it is addressed.
12. Parties. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the Underwriters, the Company, and the persons and
entities referred to in Section 8 who are entitled to indemnification or
contribution, and their respective successors, legal representatives, and
assigns (which shall not include any buyer, as such, of the Units, Common Stock
and Warrants or the Additional Securities) 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.
13. Construction. This Agreement shall be construed in accordance with
the laws of the State of Colorado, without giving effect to conflict of laws.
Time is of the essence in this Agreement. The parties acknowledge that this
Agreement was initially prepared by the Representative, and that all parties
have read and negotiated the language used in this Agreement. The parties agree
that, because all parties participated in negotiating and drafting this
Agreement, no rule of construction shall apply to this Agreement which
construes ambiguous language in favor of or against any party by reason of that
party's role in drafting this Agreement.
-33-
<PAGE> 34
If the foregoing correctly sets forth the understanding between us,
please so indicate in the space provided below for that purpose, whereupon this
letter shall constitute a binding agreement between us.
Very truly yours,
MULTI-LINK TELECOMMUNICATIONS, INC.
By:
-----------------------------------------
Nigel V. Alexander, Chief Executive Officer
By:
-----------------------------------------
Shawn B. Stickle, President and Chief
Operating Officer
Accepted as of the date first above written.
Denver, Colorado
SCHNEIDER SECURITIES, INC.
for itself and any other Underwriters:
By:
------------------------------------------
Thomas Schneider, Chief Executive Officer
-34-
<PAGE> 35
MULTI-LINK TELECOMMUNICATIONS, INC.
(A COLORADO CORPORATION)
SCHEDULE 1
This Schedule sets forth the name of each Underwriter referred to in
the Underwriting Agreement and the number of Units to be sold by the Company.
<TABLE>
<CAPTION>
NUMBER OF
NAME UNITS
---- -----
<S> <C>
Schneider Securities, Inc.
---------
Total 1,200,000
=========
</TABLE>
<PAGE> 1
EXHIBIT 1.2
SELECTED DEALERS AGREEMENT
PUBLIC OFFERING OF
1,200,000 UNITS
OFFERING PRICE: $6.00 PER UNIT
MULTI-LINK TELECOMMUNICATIONS, INC.
________, 1999
Schneider Securities, Inc., on behalf of itself and other underwriters
(the "Underwriters") for which it is the representative (the "Representative"),
has severally agreed with Multi-Link Telecommunications, Inc., a Colorado
corporation (the "Company"), to purchase 1,200,000 Units (the "Firm Units"),
each Unit consisting of one share of common stock (the "Common Stock") and one
redeemable warrant (the "Warrant") of the Company, and the Representative has
been granted the right to purchase up to an additional 180,000 Units and/or
warrants (the "Additional Securities") at its option for the sole purpose of
covering over-allotments in the sale of the Firm Units (the Firm Units and
Additional Securities being collectively referred to as the "Securities" or a
"Security"). The Underwriters are offering the Securities to the public at an
offering price of $6.00 per Unit. Certain other capitalized terms used herein
are defined in the Underwriting Agreement and are used herein as therein
defined.
The Representative is offering the Securities to certain selected
dealers (the "Selected Dealers"), when, as and if accepted by the
Representative and subject to withdrawal, cancellation or modification of the
offer without notice and further subject to the terms of (i) the Company's
current Prospectus, (ii) the Underwriting Agreement, (iii) this Agreement, and
(iv) the Representative's instructions which may be forwarded to the Selected
Dealer from time to time. A copy of the Underwriting Agreement will be
delivered to you forthwith for inspection or copying or both, upon your request
therefor. This invitation is made by the Representative only if the Securities
may be offered lawfully to dealers in your state.
The further terms and conditions of this invitation are as follows:
1. Acceptance of Orders. Orders received by the Representative from
the Selected Dealer will be accepted only at the price, in the amounts and on
the terms which are set forth in the Company's current Prospectus, subject to
allotment in the Representative's uncontrolled discretion. The Representative
reserves the right to reject any orders, in whole or in part.
<PAGE> 2
2. Selling Concession. As a Selected Dealer, you will be allowed on
all Securities purchased by you, which the Underwriters have not repurchased or
contracted to repurchase prior to termination of this Agreement at or below the
public offering price, a concession of ___% of the full 10% Underwriting
discount, i.e., $___ per Security as shown in the Company's current Prospectus.
No selling concession will be allowed to any domestic broker-dealer who is not
a member of the National Association of Securities Dealers, Inc. (the
"Association"), or to any foreign broker-dealer eligible for membership in the
Association who is not a member of the Association. Payment of such selling
concession to you will be made only as provided in Section 4 hereof. After the
Securities are released for sale to the public, the Representative is
authorized to, and may, change the public offering price and the selling
concession.
3. Reoffer of Securities. Securities purchased by you are to be bona
fide reoffered by you in conformity with this Agreement and the terms of
offering set forth in the Prospectus. You agree that you will not bid for,
purchase, attempt to induce others to purchase, or sell, directly or
indirectly, any Securities except as contemplated by this Agreement and except
as a broker pursuant to unsolicited orders. You confirm that you have complied
and agree that you will at all times comply with the provisions of Regulation M
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
applicable to this offering. In respect of Securities sold by you and
thereafter purchased by the Representative at or below the public offering
price prior to the termination of this Agreement as described hereinafter (or
such longer period as may be necessary to cover any short position with respect
to the offering), you agree at the Representative's option either to repurchase
the Securities at a price equal to the cost thereof to the Representative,
including commissions and transfer taxes on redelivery, or to repay the
Representative such part of your Selected Dealers' concessions on such
Securities as the Representative designates.
4. Payment for Securities. Payment for the Securities purchased by you
is to be made at the net Selected Dealers' price of $_____ per Security, at the
offices of Schneider Securities, Inc., Suite 900, 1120 Lincoln Street, Denver,
Colorado 80203, Attention: Syndicate Department, at such time and on such date
as the Representative may designate, by certified or official bank check,
payable in clearing house funds to the order of the Representative, against
delivery of certificates for the Securities so purchased. If such payment is
not made
-2-
<PAGE> 3
at such time and on such date, you agree to pay the Representative interest on
such funds at the current interest rate. The Representative may in its
discretion deliver the Securities purchased by you through the facilities of
the Depository Trust Company or, if you are not a member, through your ordinary
correspondent who is a member unless you promptly give the Representative
written instructions otherwise.
5. Offering Representations. The Representative has been informed that
a Registration Statement in respect of the Securities is expected to become
effective under the Securities Act of 1933, as amended (the "Act"). You are not
authorized to give any information or to make any representations other than
those contained in the Prospectus or to act as agent for the Company or for the
undersigned when offering the Securities to the public or otherwise.
6. Blue Sky. Neither the Representative nor the Underwriters assume
any responsibility or obligations as to your right to sell the Securities in
any jurisdiction, notwithstanding any information furnished in that connection.
The Selected Dealer shall report in writing to the Representative the number of
Securities which have been sold by it in each state and the number of
transactions made in each such state. This state report shall be submitted to
the Representative as soon as possible after completion of billing, but in any
event not more than three days after the closing.
7. Dealer Undertakings. By accepting this Agreement, the Selected
Dealer in offering and selling the Securities in the Public Offering (i)
acknowledges its understanding of (a) the Conduct Rules (the "Rules") of the
Association and the interpretations of such Rules promulgated by the Board of
Governors of the Association (the "Interpretations") including, but not limited
to the Rule and Interpretation with respect to "Free-Riding and Withholding"
defined therein, (b) Rule 174 of the rules and regulations promulgated under
the Act, (c) Regulation M promulgated under the Exchange Act, (d) Release No.
3907 under the Act, (e) Release No. 4150 under the Act, and (f) Sections 2730,
2740, 2420 and 2750 of the Rules and Interpretations thereunder, and (ii)
represents, warrants, covenants and agrees that it shall comply with all
applicable requirements of the Act and the Exchange Act in addition to the
specific provisions cited in subparagraph (i) above and that it shall not
violate, directly or indirectly, any provision of applicable law in connection
with its participation in the Public Offering of the Securities.
-3-
<PAGE> 4
8. Conditions of Public Offering. All sales shall be subject to
delivery by the Company of certificates evidencing the Securities against
payment therefor.
9. Failure of Order. If an order is rejected or if a payment is
received which proves insufficient or worthless, any compensation paid to the
Selected Dealer shall be returned by (i) restoration by the Representative to
the Selected Dealer of the latter's remittance or (ii) a charge against the
account of the Selected Dealer with the Representative, as the latter may elect
without notice being given of such election.
10. Additional Representations, Covenants and Warranties of Selected
Dealer. By accepting this Agreement, the Selected Dealer represents that it is
registered as a broker-dealer under the Exchange Act; is qualified to act as a
dealer in the states or the jurisdictions in which it shall offer the
Securities; is a member in good standing of the Association; and shall maintain
such registrations, qualifications and membership in full force and effect and
in good standing throughout the term of this Agreement. If the Selected Dealer
is not a member of the Association, it represents that it is a foreign dealer
not registered under the Exchange Act and agrees to make no sales within the
United States, its territories or its possessions or to persons who are
citizens thereof or residents therein, and in making any sales to comply with
the Association's Rules and Interpretations with respect to Free-Riding and
Withholding. Further, the Selected Dealer agrees to comply with all applicable
federal laws including, but not limited to, the Act and Exchange Act and the
rules and regulations of the Commission thereunder; the laws of the states or
other jurisdictions in which Securities may be offered or sold by it; and the
Constitution, Bylaws, and rules of the Association. Further, the Selected
Dealer agrees that it will not offer or sell the Securities in any state or
jurisdiction except those in which the Securities have been qualified or
qualification is not required. The Selected Dealer acknowledges its
understanding that it shall not be entitled to any compensation hereunder for
any period during which it has been suspended or expelled from membership in
the Association.
11. Employees and other Agents of the Selected Dealer. By accepting
this Agreement, the Selected Dealer assumes full responsibility for thorough
and proper training of its employees and other agents and representatives
concerning the selling methods to be used in connection with the Public
Offering of the Securities,
-4-
<PAGE> 5
giving special emphasis to the principles of full and fair disclosure to
prospective investors and the prohibitions against "Free-Riding and
Withholding" as set forth in Section 2110 of the Rules and the Interpretations
thereunder.
12. Indemnification by the Company. The Company has agreed in Section
8 of the Underwriting Agreement to indemnify and hold harmless the
Underwriters, the Representative and each person if any, who controls the
Representative or any 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 Section 8 of the Underwriting Agreement, 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 the
Prospectus (as from time to time amended and supplemented), or any amendment or
supplement thereto, or (B) in any application or other document or
communication (in the Underwriting Agreement collectively called an
"application") in any jurisdiction in order to qualify the Securities 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 the Underwriting Agreement. The
Representative has agreed to give the Company an opportunity and the right to
participate in the defense or preparation of the defense of any action brought
against the Representative, any Underwriter or any controlling person thereof
to enforce any such loss, claim, demand, liability or expense. The agreement of
the Company under this indemnity is conditioned upon notice of any such action
having been promptly given by the indemnified party to the Company. Failure to
notify the Company as provided in the Underwriting Agreement shall not relieve
the Company of its liability which it may have to the Representative, the
Underwriters, or any controlling person thereof other than pursuant to Section
8(a) of the Underwriting Agreement. This agreement is subject in all respects,
especially insofar as the foregoing description of the
-5-
<PAGE> 6
indemnification provisions set forth in the Underwriting Agreement is
concerned, to the terms and provisions of the Underwriting Agreement, a copy of
which will be made available for inspection or copying or both to the Selected
Dealer upon written request to the Representative therefor. The Selected Dealer
acknowledges and confirms that, by signing a counterpart of this Agreement, it
shall be deemed an agent of the Underwriters or a "Representative" for all
purposes of Section 8 of the Underwriting Agreement, as expressly set forth
therein.
13. Indemnification by the Selected Dealer. The Selected Dealer shall
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
indemnity from the Company to the Underwriters in Section 8(a) of the
Underwriting Agreement, but only with respect to statements or omissions, if
any, made in any Preliminary Prospectus, the Registration Statement, or the
Prospectus (as from time to time amended and supplemented), or any amendment or
supplement thereto, or in any application, in reliance upon and in conformity
with information furnished to the Representative or the Company with respect to
the Selected Dealer by or on behalf of the Selected Dealer expressly for
inclusion in any Preliminary Prospectus, the Registration Statement, or the
Prospectus, or any amendment or supplement thereto, or in any application, as
the case may be, or are based upon alleged misrepresentations or omissions to
state material facts in connection with statements made by the Selected Dealer
or the Selected Dealer's employees or other agents to the Company or the
Representative orally or by any other means; provided, however, that the
obligation of the Selected Dealer to provide indemnity hereunder shall be
limited to the amount which represents the product of the number of Firm Units
and Additional Securities sold and the initial public offering price per
Security set forth on the cover page of the Prospectus. If any action shall be
brought against the Company or any other person so indemnified in respect of
which indemnity may be sought against the Selected Dealer pursuant to this
provision, the Selected Dealer shall have the rights and duties given to the
Company in the Underwriting Agreement, 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) of the Underwriting Agreement; and the
Selected Dealer shall reimburse the Company and the Representative for any
legal or other expenses reasonably incurred by them in connection with the
-6-
<PAGE> 7
investigation of or the defense of any such action or claim. The Representative
shall, after receiving the first summons or other legal process disclosing the
nature of the action being brought against it or the Company in any proceeding
with respect to which indemnity may be sought by the Company or the
Representative hereunder, notify promptly the Selected Dealer in writing of the
commencement thereof; and the Selected Dealer shall be entitled to participate
in (and, to the extent the Selected Dealer shall wish, to direct) the defense
thereof at the expense of the Selected Dealer, but such defense shall be
conducted by counsel satisfactory to the Company and the Representative. If the
Selected Dealer shall fail to provide such defense, the Company or the
Representative may defend such action at the cost and expense of the Selected
Dealer. The Selected Dealer's obligation under this Section 13 shall survive
any termination of this Agreement, the Underwriting Agreement and the delivery
of and payment for the Securities under the Underwriting Agreement, and shall
remain in full force and effect regardless of the investigation made by or on
behalf of any Representative within the meaning of Section 15 of the Act.
14. No Authority to Act as Partner or Agent. Nothing herein shall
constitute the Selected Dealers as an association or other separate entity or
partners with or agents of the Representative or with each other, but each
Selected Dealer shall be responsible for its pro rata share of any liability or
expense based upon any claims to the contrary. The Representative shall not be
under any liability for or in respect of the value, validity or form of the
Securities, or the delivery of certificates for the Securities or the
performance by any person of any agreement on its part, or the qualification of
the Securities for sale under the laws of any jurisdiction, or for or in
respect of any matter in connection with this Agreement, except for lack of
good faith and for obligations expressly assumed by the Representative in this
Agreement.
15. Expenses. No expenses incurred in connection with offers and sales
of the Securities under the Public Offering will be chargeable to the Selected
Dealers. A single transfer tax, if any, on the sale of Securities by the
Selected Dealer to its customers will be paid when such Securities are
delivered to the Selected Dealer for delivery to its customers. Notwithstanding
the foregoing, the Selected Dealer shall pay its proportionate share of any
transfer tax or any other tax (other than the single transfer tax described
above) if any such tax shall at any time be assessed against the Representative
and other Selected Dealers.
-7-
<PAGE> 8
16. Notices. All notices, demands or requests required or authorized
hereunder shall be deemed given sufficiently if in writing and sent by
registered or certified mail, return receipt requested and postage prepaid, or
by tested telex, telegram, cable or facsimile to, in the case of the
Representative, the address set forth above directed to the attention of the
President of the Representative, and in the case of the Selected Dealer, to the
address provided below by the Selected Dealer, directed to the attention of the
President.
17. Termination. This Agreement may be terminated by the
Representative with or without cause upon written notice to Selected Dealer to
such effect; and such notice having been given, this Agreement shall terminate
at the time specified therein. Additionally, this Agreement shall terminate
upon the earlier of the termination of the Underwriting Agreement, or at the
close of business thirty days after the Securities are released by the
Representative for sale to the public.
18. General Provisions. This Agreement shall be construed and enforced
in accordance with and governed by the laws of the State of Colorado. This
Agreement embodies the entire agreement and understanding between the
Representative and the Selected Dealer and supersedes all prior agreements and
understandings related to the subject matter hereof, and this Agreement may not
be modified or amended or any term or provision hereof waived or discharged
except in writing signed by the party against whom such amendment,
modification, waiver or discharge is sought to be enforced. All the terms of
this Agreement, whether so expressed or not, shall be binding upon, and shall
inure to the benefit of, the respective successors, legal representatives and
assigns of the parties hereto; provided, however, that none of the parties
hereto can assign this Agreement or any of its rights hereunder without the
prior written consent of the other party hereto, and any such attempted
assignment or transfer without the other party's prior written consent shall be
void and without force or effect. The headings of this Agreement are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
If the foregoing correctly sets forth the terms and conditions of your
agreement to purchase the Securities allotted to you, please indicate your
acceptance thereof by signing and returning to Schneider Securities, Inc. the
-8-
<PAGE> 9
duplicate copy of this Agreement, whereupon this letter and your acceptance
shall become and evidence a binding contract between you and the
Representative.
SCHNEIDER SECURITIES, INC.
By:
----------------------------------
Title:
--------------------------------
-9-
<PAGE> 10
Gentlemen:
The undersigned confirms its agreement to purchase __________ Units of
Multi-Link Telecommunications, Inc., upon the terms and subject to the
conditions of the foregoing Selected Dealers Agreement, and further agrees that
any agreement by it to purchase Additional Securities during the life of such
Agreement will be upon the same terms and subject to the same conditions. The
undersigned acknowledges receipt of the Prospectus relating to the public
offering of the Securities and confirms that in agreeing to purchase such
Securities it has relied on such Prospectus and not on any other statement
whatsoever written or oral.
Firm Name:
---------------------------------------------
(Print or Type name of Firm)
By:
----------------------------------------------------
(Authorized Agent)
- -------------------------------------------------------
(Print or Type Name and Title of Authorized Agent)
Address:
-----------------------------------------------
- -------------------------------------------------------
Telephone No.
------------------------------------------
IRS Employer Identification No.:
-----------------------
Dated: , 1999
-------------------------------------------
-10-
<PAGE> 1
EXHIBIT 4.4
WARRANT AGREEMENT
-------------------------
MULTI-LINK TELECOMMUNICATIONS, INC.
AND
AMERICAN SECURITIES TRANSFER & TRUST, INC.
WARRANT AGENT
_________________, 1999
<PAGE> 2
WARRANT AGREEMENT
THIS AGREEMENT dated as of _______________, 1999, between MULTI-LINK
TELECOMMUNICATIONS, INC., a Colorado corporation (the "Company"), and AMERICAN
SECURITIES TRANSFER & TRUST, INC., a transfer agency located in Denver,
Colorado (the "Warrant Agent").
WHEREAS: The Company is conducting a public offering (the "Public
Offering") of 1,200,000 shares (the "Firm Shares") of Common Stock of the
Company ("Common Stock") and 1,200,000 warrants ("Firm Warrants"), two Warrants
entitling the Registered Owner thereof to purchase one share of Common Stock,
or an aggregate of 600,000 shares of Common Stock of the Company on exercise of
all Firm Warrants; and
The Company also is granting the several underwriters (the
"Underwriters") of the Company's Public Offering pursuant to an underwriting
agreement (the "Underwriting Agreement"), the option to purchase up to an
additional 180,000 shares (the "Over-Allotment Shares") and 180,000 warrants
(the "Over-Allotment Warrants") exercisable to purchase up to an aggregate of
90,000 shares of Common Stock; and
The Company desires to provide for the issuance, registration,
transfer, exchange and exercise of certificates (the "Warrant Certificates")
representing the Firm Warrants and the Over-Allotment Warrants (collectively,
herein, the "Warrants") and for the exercise of the Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrant Certificates and the Warrants, and the respective
rights and obligations thereunder of the Company, the registered holders of the
Warrant Certificates and the Warrant Agent, the parties hereto agree as
follows:
1. DEFINITIONS. As used herein:
(a) "Common Stock" shall mean Common Stock, of the Company,
whether now or hereafter authorized, holders of which have the right
to participate in the distribution of earnings and assets of the
Company without limit as to amount or percentage.
(b) "Corporate Office" shall mean the place of business of
the Warrant Agent (or its successor) located in Denver, Colorado,
which office is presently located at 1825 Lawrence Street, Denver,
Colorado 80202.
(c) "Effective Date" shall mean ___________________, 1999,
the date on which the Company's Registration Statement is declared
effective by the Securities and Exchange Commission.
(d) "Exercise Date" shall mean the date of surrender for
exercise of any Warrant Certificate, provided the exercise form on
the back of the Warrant Certificate or a form substantially similar
thereto has been completed in full by the Registered Owner or a duly
appointed attorney and the Warrant Certificate is accompanied by
payment in full of the Exercise Price.
(e) "Exercise Period" shall mean the period commencing on the
Effective Date and extending to and through the Expiration Date.
(f) "Exercise Price" shall mean a purchase price of $9.00 per
share of Common Stock (150% of the offering price for one Firm
Share); provided, however, that in the event the Company reduces the
Exercise Price in accordance with Section 9(i) hereof, the Exercise
Price shall be as established by the Company in accordance with such
Section.
(g) "Expiration Date" shall mean 5:00 P.M. Mountain Time on
the last day of the 3 year period commencing on the Effective Date,
subject to the terms provided in Section 5 herein for redemption;
<PAGE> 3
provided however, if such date shall be a holiday or a day on which
banks are authorized to close, then Expiration Date shall mean 5:00
p.m., Mountain Time on the next following day which in the State of
Colorado is not a holiday or a day on which banks are authorized to
close. If the Company redeems the Warrants as provided in Section 5 of
this Agreement, the Expiration Date shall be the date fixed for
redemption.
(h) "Firm Warrants" shall mean 1,200,000 Warrants to purchase
600,000 shares of Common Stock, all of which will be purchased by the
several Underwriters from the Company and sold in the Public Offering
in accordance with the Underwriting Agreement.
(i) "Over-Allotment Warrants" shall mean 180,000 Warrants to
purchase 90,000 shares of Common Stock, any or all of which may be
purchased by the Representative for the several Underwriters from the
Company in accordance with the Underwriting Agreement. The
Over-Allotment Warrants shall have identical terms and conditions to
those established for the Firm Warrants, subject to their issuance in
accordance with Section 2 hereof.
(j) "Representative" shall mean Schneider Securities, Inc.,
the representative of the several Underwriters.
(k) "Registered Owner" shall mean the person in whose name
any Warrant Certificate shall be registered on the books maintained by
the Warrant Agent pursuant to Section 6 of this Agreement.
(l) "Registration Statement" shall mean the Company's
Registration Statement on Form SB-2 (S.E.C. File No. 333-72889), as
amended.
(m) "Subsidiary" shall mean any corporation of which shares
having ordinary voting power to elect a majority of the Board of
Directors of such corporation (regardless of whether the shares of any
other class or classes of such corporation shall have or may have
voting power by reason of the happening of any contingency) are at the
time directly or indirectly owned by the Company or one or more
subsidiaries of the Company.
(n) "Warrant" or the "Warrants" shall mean and include up to
1,380,000 Warrants to purchase 690,000 authorized and unissued Shares
of Common Stock of the Company and, unless otherwise noted, shall
include 1,200,000 Firm Warrants and 180,000 Over-Allotment Warrants.
(o) "Warrant Agent" shall mean American Securities Transfer &
Trust, Inc., or its successor, as the transfer agent and registrar of
the Warrants.
(p) "Warrant Shares" shall mean and include up to 690,000
authorized and unissued shares of Common Stock reserved for issuance
on exercise of the Warrants, and unless otherwise noted, shall include
600,000 shares of Common Stock issuable upon exercise of the Firm
Warrants and 90,000 shares of Common Stock issuable upon exercise of
the Over-Allotment Warrants and any additional shares of Common Stock
or other property which may hereafter be issuable or deliverable on
exercise of the Warrants pursuant to Section 9 of this Agreement.
2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES. Each two
Warrants shall initially entitle the Registered Owner of the Warrant
Certificates representing such Warrants to purchase one share of Common Stock
on exercise thereof, subject to modification and adjustment as hereinafter
provided in Section 9. Warrant Certificates representing 1,200,000 Firm
Warrants and evidencing the right to purchase an aggregate of 600,000 shares of
Common Stock of the Company shall be executed by the proper officers of the
Company and delivered to the Warrant Agent for countersignature. Certificates
representing the Firm Warrants to be delivered to the Warrant Agent shall be in
direct relation to the Firm Shares sold in the Company's Public Offering and
shall be attached to certificates representing an equal number of Firm Shares.
The Warrant Certificates representing the Firm Warrants will be issued and
delivered on written order of the Company signed by the proper officers of the
Company. The
2
<PAGE> 4
Warrant Agent shall deliver Warrant Certificates in required whole number
denominations to the persons entitled thereto in connection with any transfer
or exchange permitted under this Agreement.
The Over-Allotment Warrants shall carry identical terms and conditions
to those established for the Firm Warrants and outlined herein. Up to 180,000
Over-Allotment Warrants may be issued and such Over-Allotment Warrants shall
evidence the right of the Registered Owners thereof to purchase an aggregate of
up to 90,000 shares of Common Stock of the Company. Any Warrant Certificates
for Over-Allotment Warrants to be issued will be issued and delivered on
written order of the Company signed by the proper officers of the Company on
exercise of the option to purchase Over-Allotment Warrants by the several
Underwriters in accordance with the Underwriting Agreement. Certificates
representing Over-Allotment Warrants will be initially attached to certificates
representing an equal number of Over-Allotment Shares.
Except as provided in Section 8 hereof, share certificates
representing the Warrant Shares shall be issued only on or after the Exercise
Date on exercise of the Warrants or on transfer or exchange of the Warrant
Shares. The Warrant Agent, if other than the Company's Transfer Agent, shall
arrange with the Transfer Agent for the issuance and registration of all
Warrant Shares.
3. FORM AND EXECUTION OF WARRANT CERTIFICATES. The Warrant
Certificates shall be substantially in the form attached as Exhibit "A" and may
have such letters, numbers or other marks of identification 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. The Warrant Certificates shall be dated as of the date of
issuance, whether on initial issuance, transfer, exchange or in lieu of
mutilated, lost, stolen or destroyed Warrant Certificates.
Each Warrant Certificate for Firm Warrants shall be initially issued
only when attached to a certificate representing an equal number of Firm Shares
of Common Stock as Firm Warrants and shall be separately transferable from the
certificate representing Firm Shares immediately upon issuance. Warrant
Certificates issued for Over-Allotment Warrants shall be issued together with
certificates representing an equal number of shares of Common Stock as
Over-Allotment Warrants.
The Warrant Certificates shall be executed on behalf of the Company by
its duly authorized officers, by manual signatures or by facsimile signatures
printed thereon, and shall have imprinted thereon a facsimile of the Company's
seal. The Warrant Certificates shall be manually countersigned by the Warrant
Agent and shall not be valid for any purpose unless so countersigned. In the
event any officer of the Company who executed the Warrant Certificates shall
cease to be an officer of the Company before the date of issuance of the
Warrant Certificates or before countersignature and delivery by the Warrant
Agent, such Warrant Certificates may be countersigned, issued and delivered by
the Warrant Agent with the same force and effect as though the person who
signed such Warrant Certificates had not ceased to be an officer of the
Company.
4. EXERCISE. The exercise of Warrants in accordance with this
Agreement shall only be permitted during the Exercise Period.
Warrants shall be deemed to have been exercised immediately prior to
the close of business on the Exercise Date. The exercise form shall be executed
by the Registered Owner thereof or the Registered Owner's attorney duly
authorized in writing and shall be delivered together with payment to the
Warrant Agent, in cash or by official bank or certified check, of an amount in
lawful money of the United States of America. Such payment shall be in an
amount equal to the Exercise Price as hereinabove defined.
The person entitled to receive the number of Warrant Shares
deliverable on such exercise shall be treated for all purposes as the
Registered Owner of such Warrant Shares as of the close of business on the
Exercise Date. The Company shall not be obligated to issue any fractional share
interests in Warrant Shares. If Warrants represented by more than one Warrant
Certificate shall be exercised at one time by the same Registered Owner, the
number of full Warrant Shares which shall be issuable on exercise thereof shall
be computed on the basis of the aggregate number of full Warrant Shares
issuable on such exercise.
3
<PAGE> 5
As soon as practicable on or after the Exercise Date and in any event
within 30 days after such date, the Warrant Agent shall cause to be issued and
delivered by the Transfer Agent to the person or persons entitled to receive
the same, a certificate or certificates for the number of Warrant Shares
deliverable on such exercise. No adjustment shall be made in respect of cash
dividends on Warrant Shares deliverable on exercise of any Warrant. The Warrant
Agent shall promptly notify the Company in writing of any exercise and of the
number of Warrant Shares caused to be delivered and shall cause payment of an
amount in cash equal to the Exercise Price to be made promptly to the order of
the Company. The parties contemplate such payments will be made by the Warrant
Agent to the Company on a weekly basis and will consist of collected funds
only. The Warrant Agent shall hold any proceeds collected and not yet paid to
the Company in a Federally-insured escrow account at a commercial bank selected
by agreement of the Company and the Warrant Agent, at all times relevant
hereto. Following a determination by the Warrant Agent that collected funds
have been received, the Warrant Agent shall cause the Transfer Agent to issue
share certificates representing the number of Warrant Shares purchased by the
Registered Owner.
Expenses incurred by the Warrant Agent, including administrative
costs, and the standard fees imposed by the Warrant Agent for the Warrant
Agent's services, shall be paid by the Company and shall be deducted from the
Escrow Account prior to distribution of funds to the Company.
A detailed accounting statement setting forth the number of Warrants
exercised, the number of Warrant Shares issued, the net amount of exercised
funds and all expenses incurred by the Warrant Agent shall be transmitted to
the Company on payment of each exercise amount. Such accounting statement shall
serve as an interim accounting for the Company during the Exercise Period. The
Warrant Agent shall render to the Company, at the completion of the Exercise
Period, a complete accounting setting forth the number of Warrants exercised,
the identity of persons exercising such Warrants, the number of Warrant Shares
issued, the amounts distributed to the Company, and all expenses incurred by
the Warrant Agent.
The Company may be required to deliver a prospectus that satisfies the
requirements of Section 10 of the Securities Act of 1933, as amended (the "1933
Act") with delivery of the Warrant Shares and must have a registration
statement (or a post-effective amendment to an existing registration statement)
effective under the 1933 Act in order for the Company to comply with any such
prospectus delivery requirements. The Company will advise the Warrant Agent of
the status of any such registration statement under the 1933 Act and of the
effectiveness of the Company's registration statement or lapse of
effectiveness.
No issuance of Warrant Shares shall be made unless there is an
effective registration statement under the 1933 Act, and registration or
qualification of the Warrant Shares, or an exemption therefrom, has been
obtained from state or other regulatory authorities in the jurisdiction in
which such Warrant Shares are sold. The Company will provide to the Warrant
Agent written confirmation of all such registration or qualification, or an
exemption therefrom, when requested by the Warrant Agent.
5. REDEMPTION. Commencing one year from the Effective Date, the
Company may, at its option, redeem the Warrants in whole, but not in part, for
a redemption price of $.05 per Warrant, on not less than 30 days' notice to the
Registered Owners. The right to redeem the Warrants may be exercised by the
Company following such one year period and during the Exercise Period only in
the event (i) the closing bid price for Company's shares of Common Stock has
equaled or exceeded $11.25 (125% of the Warrant Exercise Price) for 20
consecutive trading days, (ii) any notice of the call for redemption is given
not more than five (5) business days after the conclusion of the 20 consecutive
trading days referred to in the foregoing (i), (iii) the Company has a
registration statement (or a post-effective amendment to an existing
registration statement) pertaining to the Warrant Shares effective with the
Securities and Exchange Commission, which registration statement would enable a
Registered Owner to exercise the Warrants, and (iv) the expiration of the 30
day notice period is within the Exercise Period. In the event the Company
exercises its right to redeem the Warrants, the Expiration Date will be deemed
to be, and the Warrants will be exercisable until the close of business on, the
date fixed for redemption in such notice. If any Warrant called for redemption
is not exercised by such time, it will cease to be exercisable and the
Registered Owner thereof will be entitled only to the redemption price.
4
<PAGE> 6
6. RESERVATION OF SHARES AND PAYMENT OF TAXES. The Company
covenants that it will at all times reserve and have available from its
authorized shares of Common Stock such number of shares of Common Stock as
shall then be issuable on exercise of all outstanding Warrants. The Company
covenants that all Warrant Shares issuable shall be duly and validly issued,
fully paid and nonassessable, and free from all taxes, liens and charges with
respect to the issue thereof.
The Registered Owner shall pay all documentary, stamp or similar taxes
and other government charges that may be imposed with respect to the issuance
of the Warrants, or the issuance, transfer or delivery of any Warrant Shares on
exercise of the Warrants. In the event the Warrant Shares are to be delivered
in a name other than the name of the Registered Owner of the Warrant
Certificates, no such delivery shall be made unless the person requesting the
same has paid to the Warrant Agent or Transfer Agent the amount of any such
taxes or charges incident thereto.
The Company will supply the Warrant Agent with blank Warrant
Certificates, so as to maintain an inventory satisfactory to the Warrant Agent.
The Company will file with the Warrant Agent a statement setting forth the name
and address of its Transfer Agent for Warrant Shares and of each successor
Transfer Agent, if any.
7. REGISTRATION OF TRANSFER. The Warrant Certificates may be
transferred in whole or in part and may be separately transferred from the
Common Stock share certificate to which such Warrant Certificate is attached
upon initial issuance, if any, at any time during the Exercise Period. Warrant
Certificates to be exchanged shall be surrendered to the Warrant Agent at its
corporate office. The Company shall execute and the Warrant Agent shall
countersign, issue and deliver in exchange therefor, the Warrant Certificate or
Certificates which the holder making the transfer shall be entitled to receive.
The Warrant Agent shall keep transfer books at its corporate office on
which Warrant Certificates and the transfer thereof shall be registered. On due
presentment for registration of transfer of any Warrant Certificate at such
office, the Company shall execute and the Warrant Agent shall issue and deliver
to the transferee or transferees a new Warrant Certificate or Certificates
representing an equal aggregate number of Warrants.
All Warrant Certificates presented for registration of transfer or
exercise shall be duly endorsed or be accompanied by a written instrument or
instruments of transfer in form satisfactory to the Company and the Warrant
Agent.
Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may treat the Registered Owner of any Warrant
Certificate as the absolute owner thereof (notwithstanding any notations of
ownership or writing thereon made by anyone other than the Company or the
Warrant Agent) and the parties hereto shall not be affected by any notice to
the contrary.
8. LOSS OR MUTILATION. On receipt by the Company and the Warrant
Agent of evidence satisfactory as to the ownership of and the loss, theft,
destruction or mutilation of any Warrant Certificate, the Company shall execute
and the Warrant Agent shall countersign and deliver in lieu thereof, a new
Warrant Certificate representing an equal aggregate number of Warrants. In the
case of loss, theft or destruction of any Warrant Certificate, the Registered
Owner requesting issuance of a new Warrant Certificate shall be required to
secure an indemnity bond from an approved surety bonding company in favor of
the Company and Warrant Agent in an amount satisfactory to each of them. In the
event a Warrant Certificate is mutilated, such Certificate shall be surrendered
and cancelled by the Warrant Agent prior to delivery of a new Warrant
Certificate. Applicants for a substitute Warrant Certificate shall also comply
with such other regulations and pay such other reasonable charges as the
Company may prescribe.
9. ADJUSTMENT OF EXERCISE PRICE AND SHARES.
(a) If at any time prior to the expiration of the Warrants by
their terms or by exercise, the Company increases or decreases the
number of its issued and outstanding shares of Common Stock, or
changes in any way the rights and privileges of such shares of Common
Stock, by means of (i) the payment
5
<PAGE> 7
of a share dividend or the making of any other distribution on such
shares of Common Stock payable in its shares of Common Stock, (ii) a
split or subdivision of shares of Common Stock, or (iii) a
consolidation or combination of shares of Common Stock, then the
Exercise Price in effect at the time of such action and the number of
Warrants required to purchase each Warrant Share at that time shall be
proportionately adjusted so that the numbers, rights and privileges
relating to the Warrant Shares then purchasable upon the exercise of
the Warrants shall be increased, decreased or changed in like manner,
for the same aggregate purchase price set forth in the Warrants, as if
the Warrant Shares purchasable upon the exercise of the Warrants
immediately prior to the event had been issued, outstanding, fully
paid and nonassessable at the time of that event. Any dividend paid or
distributed on the shares of Common Stock in shares of any other class
of shares of the Company or securities convertible into shares of
Common Stock shall be treated as a dividend paid in shares of Common
Stock to the extent shares of Common Stock are issuable on the payment
or conversion thereof.
(b) In the event, prior to the expiration of the Warrants by
exercise or by their terms, the Company shall be recapitalized by
reclassifying its outstanding shares of Common Stock into shares with
a different par value, or by changing its outstanding shares of Common
Stock to shares without par value or in the event of any other
material change in the capital structure of the Company or of any
successor corporation by reason of any reclassification,
recapitalization or conveyance, prompt, proportionate, equitable,
lawful and adequate provision shall be made whereby any Registered
Owner of the Warrants shall thereafter have the right to purchase, on
the basis and the terms and conditions specified in this Agreement, in
lieu of the Warrant Shares theretofore purchasable on the exercise of
any Warrant, such securities or assets as may be issued or payable
with respect to or in exchange for the number of Warrant Shares
theretofore purchasable on exercise of the Warrants had such
reclassification, recapitalization or conveyance not taken place; and
in any such event, the rights of any Registered Owner of a Warrant to
any adjustment in the number of Warrant Shares purchasable on exercise
of such Warrant, as set forth above, shall continue and be preserved
in respect of any stock, securities or assets which the Registered
Owner becomes entitled to purchase.
(c) In the event the Company, at any time while the Warrants
shall remain unexpired and unexercised, shall sell all or
substantially all of its property, or dissolves, liquidates or winds
up its affairs, prompt, proportionate, equitable, lawful and adequate
provision shall be made as part of the terms of such sale,
dissolution, liquidation or winding up such that the Registered Owner
of a Warrant may thereafter receive, on exercise thereof, in lieu of
each Warrant Share which the Registered Owner would have been entitled
to receive, the same kind and amount of any stock, securities or
assets as may be issuable, distributable or payable on any such sale,
dissolution, liquidation or winding up with respect to each share of
Common Stock of the Company; provided, however, that in the event of
any such sale, dissolution, liquidation or winding up, the right to
exercise the Warrants shall terminate on a date fixed by the Company,
such date to be not earlier than 5:00 P.M., Mountain Time, on the 30th
day next succeeding the date on which notice of such termination of
the right to exercise the Warrants has been given by mail to the
Registered Owners thereof at such addresses as may appear on the books
of the Company.
(d) In the event prior to the expiration of the Warrants by
exercise or by their terms, the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them to
purchase its shares of Common Stock at a price per share more than 10%
below the then-current market price per share (as defined below) at
the date of taking such record, then, (i) the number of Warrant Shares
purchasable pursuant to the Warrants shall be redetermined as follows:
the number of Warrant Shares purchasable pursuant to a Warrant
immediately prior to such adjustment (taking into account fractional
interests to the nearest 1,000th of a share) shall be multiplied by a
fraction, the numerator of which shall be the number of shares of
Common Stock of the Company outstanding (excluding shares of Common
Stock then owned by the Company) immediately prior to the taking of
such record, plus the number of additional shares offered for
purchase, and the denominator of which shall be the number of shares
of Common Stock of the Company outstanding (excluding shares of Common
Stock owned by the Company) immediately prior to the taking of such
record, plus the number of shares which the aggregate offering price
of the total number of additional shares so offered would purchase at
such current market price; and (ii) the Exercise
6
<PAGE> 8
Price per Warrant Share purchasable pursuant to a Warrant shall be
redetermined as follows: the Exercise Price in effect immediately
prior to the taking of such record shall be multiplied by a fraction,
the numerator of which is the number of Warrant Shares purchasable
immediately prior to the taking of such record, and the denominator of
which is the number of Warrant Shares purchasable immediately after
the taking of such record as determined pursuant to clause (i) above;
provided, however, (i) that any adjustment in the number of shares
issuable as set forth above shall be effective only to the extent
sufficient shares of Common Stock have been registered through a
registration statement effective under the 1933 Act, and (ii) that any
adjustment in the Exercise Price does not cause the Company to receive
proceeds in excess of the amount authorized by any such registration
statement. For the purpose hereof, the current market price per share
at any date shall be determined as follows:
(i) If the Common Stock is listed on the New York
Stock Exchange, the American Stock Exchange or such other
securities exchange designated by the Board of Directors of
the Company, or admitted to unlisted trading privileges on
any such exchange, or if the Common Stock is quoted on a
National Association of Securities Dealers, Inc. system that
reports closing prices, the current market price shall be the
average of the closing prices of the Common Stock as reported
by such exchange or system for 10 consecutive business days
commencing 30 business days prior to the record date;
(ii) If the Common Stock is not so listed or
admitted to unlisted trading privileges or so quoted, the
current market price shall be the average of the last
reported highest bid and the lowest asked prices quoted on
the National Association of Securities Dealers, Inc.
Automated Quotations System or, if not so quoted, then by the
National Quotation Bureau, Inc. for 10 consecutive business
days commencing 30 business days prior to the record date; or
(iii) If the Common Stock is not so listed or
admitted to unlisted trading privileges or so quoted, and bid
and asked prices are not reported, the current market price
shall be determined in such reasonable manner as may be
prescribed by the Board of Directors.
(e) On exercise of the Warrants by the Registered Owners, the
Company shall not be required to deliver fractions of Warrant Shares;
provided, however, that the Company shall make prompt, proportionate,
equitable, lawful and adequate provisions in respect of any such
fraction of one Warrant Share either on the basis of adjustment in the
then applicable Exercise Price or a purchase of the fractional
interest at the price of the Company's shares of Common Stock or such
other reasonable basis as the Company may determine.
(f) In the event, prior to expiration of the Warrants by
exercise or by their terms, the Company shall determine to take a
record of the holders of its shares of Common Stock for the purpose of
determining shareholders entitled to receive any stock dividend,
distribution or other right which will cause any change or adjustment
in the number, amount, price or nature of the shares of Common Stock
or other stock, securities or assets deliverable on exercise of the
Warrants pursuant to the foregoing provisions, the Company shall give
to the Registered Owners of the Warrants at the addresses as may
appear on the books of the Company at least 30 days' prior written
notice to the effect that it intends to take such a record. Such
notice shall specify the date as of which such record is to be taken;
the purpose for which such record is to be taken; and the number,
amount, price and nature of the shares of Common Stock or other stock,
securities or assets which will be deliverable on exercise of the
Warrants after the action for which such record will be taken has been
completed. Without limiting the obligation of the Company to provide
notice to the Registered Owners of the Warrants of any corporate
action hereunder, the failure of the Company to give notice shall not
invalidate such corporate action of the Company.
(g) The Warrants shall not entitle the Registered Owner
thereof to any of the rights of shareholders or to any dividend
declared on the shares of Common Stock unless the Warrant is exercised
and the Warrant Shares purchased prior to the record date fixed by the
Board of Directors of the Company for the determination of holders of
shares of Common Stock entitled to such dividend or other right.
7
<PAGE> 9
(h) On and after ____________, 2000, the Company shall be
empowered, in the sole and unconditional discretion of the Board of
Directors, at any time during the Exercise Period, to reduce the
applicable Exercise Price of the Warrants. Prior to _____________,
2000, the Company may reduce the applicable Exercise Price of the
Warrants only with the prior written consent of the Representative.
Any reduction in the applicable Exercise Price shall be effective upon
written notice to the Warrant Agent, which notice shall be given
pursuant to a duly and validly authorized resolution of the Board of
Directors of the Company. Any such reduction in the Exercise Price
shall not entitle the Registered Owners to issuance of any additional
Common Shares pursuant to the adjustment provisions set forth
elsewhere herein, regardless of whether the reduction in the Exercise
Price was effected either prior to or following exercise of Warrants
by the Registered Owners thereof. A nonexercising Registered Owner
shall have no remedy or rights to receive any additional Warrant
Shares as a result of any reduction in any applicable Exercise Price
pursuant to this subsection.
10. DUTIES, COMPENSATION AND TERMINATION OF WARRANT AGENT. The
Warrant Agent shall act hereunder as agent and in a ministerial capacity for
the Company, and its duties shall be determined solely by the provisions
hereof. The Warrant Agent shall not, by issuing and delivering Warrant
Certificates or by any other act hereunder, be deemed to make any
representations as to the validity, value or authorization of the Warrant
Certificate or the Warrants represented thereby or of the Warrant Shares or
other property delivered on exercise of any Warrant. The Warrant Agent shall
not be under any duty or responsibility to any holder of the Warrant
Certificates to make or cause to be made any adjustment of the Exercise Price
or to determine whether any fact exists which may require any such adjustment.
The Warrant Agent shall not (i) be liable for any recital or statement
of fact contained herein or for any action taken or omitted by it in reliance
on any Warrant Certificate or other document or instrument believed by it in
good faith to be genuine and to have been signed or presented by the proper
party or parties, (ii) be responsible for any failure on the part of the
Company to comply with any of its covenants and obligations contained in this
Agreement or in the Warrant Certificates, or (iii) be liable for any act or
omission in connection with this Agreement except for its own negligence or
willful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed
by an officer of the Company. The Warrant Agent shall not be liable for any
action taken or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand.
The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse the Warrant Agent for its
reasonable expenses. The Company further agrees to indemnify the Warrant Agent
against any and all losses, expenses and liabilities, including judgments,
costs and counsel fees, for any action taken or omitted by the Warrant Agent in
the execution of its duties and powers hereunder, excepting losses, expenses
and liabilities arising as a result of the Warrant Agent's negligence or
willful misconduct.
The Warrant Agent may resign its duties or the Company may terminate
the Warrant Agent and the Warrant Agent shall be discharged from all further
duties and liabilities hereunder (except liabilities arising as a result of the
Warrant Agent's own negligence or willful misconduct) on 30 days' prior written
notice to the other party. Upon notice by the Company to the Warrant Agent, the
Warrant Agent shall cause a copy of such notice of resignation to be mailed to
the Registered Owner of each Warrant Certificate. The expenses the Warrant
Agent incurs in mailing such notice shall be paid by the Company. On such
resignation or termination, the Company shall appoint a new Warrant Agent. If
the Company shall fail to make such appointment within a period of 30 days
after it has been notified in writing of the resignation by the Warrant Agent,
then the Registered Owner of any Warrant Certificate may apply to any court of
competent jurisdiction for the appointment of a new Warrant Agent. Any new
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<PAGE> 10
Warrant Agent, whether appointed by the Company or by such court, shall be a
bank or trust company having a capital and surplus, as shown by its last
published report to its shareholders, of not less than $1,000,000, and having
its principal office in the United States.
After acceptance in writing of an appointment of a new Warrant Agent
is received by the Company, such new Warrant Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named herein as the Warrant Agent, without any further assurance, conveyance,
act or deed; provided, however, if it shall be necessary or expedient to
execute and deliver any further assurance, conveyance, act or deed, the same
shall be done at the expense of the Company and shall be legally and validly
executed. The Company shall file a notice of appointment of a new Warrant Agent
with the resigning Warrant Agent and shall forthwith cause a copy of such
notice to be mailed to the Registered Owner of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new Warrant Agent
may be converted or merged, or any corporation resulting from any consolidation
to which the Warrant Agent or any new Warrant Agent shall be a party, or any
corporation succeeding to the corporate trust business of the Warrant Agent
shall be a successor Warrant Agent under this Agreement, provided that such
corporation is eligible for appointment as a successor to the Warrant Agent.
Any such successor Warrant Agent shall promptly cause notice of its succession
as Warrant Agent to be mailed to the Company and to the Registered Owner of
each Warrant Certificate. No further action shall be required for establishment
and authorization of such successor Warrant Agent.
The Warrant Agent, its officers or directors and it subsidiaries or
affiliates may buy, hold or sell Warrants or other securities of the Company
and otherwise deal with the Company in the same manner and to the same extent
and with like effect as though it were not the Warrant Agent. Nothing herein
shall preclude the Warrant Agent from acting in any other capacity for the
Company.
11. MODIFICATION OF AGREEMENT. The Warrant Agent and the Company
may by supplemental agreement make any changes or corrections in this Agreement
they shall deem appropriate to cure any ambiguity or to correct any defective
or inconsistent provision or mistake or error herein contained. Additionally,
the parties may make any changes or corrections deemed necessary which shall
not adversely affect the interests of the Registered Owners of Warrant
Certificates; provided, however, this Agreement shall not otherwise be
modified, supplemented or altered in any respect except with the consent in
writing of the Registered Owners of Warrant Certificates representing not less
than a majority of the Warrants outstanding. Additionally, no change in the
number or nature of the Warrant Shares purchasable on exercise of a Warrant or
the Exercise Price therefor shall be made without the consent in writing of the
Registered Owner of the Warrant Certificate representing such Warrant, other
than such changes as are specifically prescribed by this Agreement.
12. NOTICES. All notices, demands, elections, opinions or requests
(however characterized or described) required or authorized hereunder shall be
deemed given sufficiently in writing and sent by registered or certified mail,
return receipt requested and postage prepaid, or by tested telex, telegram or
cable to:
in the case of the Company:
Multi-Link Telecommunications, Inc.
-----------------------------------
-----------------------------------
-----------------------------------
and in the case of the Warrant Agent:
American Securities Transfer & Trust, Inc.
1825 Lawrence Street, Suite 444
Denver, Colorado 80202
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<PAGE> 11
with a copy to:
Thomas S. Smith, Esq.
Smith McCullough, P.C.
4643 South Ulster Street, Suite 900
Denver, Colorado 80237
and, if requested by the Company to the Registered Owner of a Warrant
Certificate, at the address of such Registered Owner as set forth on the books
maintained by the Warrant Agent.
13. PERSONS BENEFITING. This Agreement shall be binding upon and
inure to the benefit of the Company, the Warrant Agent and their respective
successors and assigns, and the Registered Owners and beneficial owners from
time to time of the Warrant Certificates. Nothing in this Agreement is intended
or shall be construed to confer on any other person any right, remedy or claim
or to impose on any other person any duty, liability or obligation.
14. FURTHER INSTRUMENTS. The parties shall execute and deliver any
and all such other instruments and shall take any and all such other actions as
may be reasonable or necessary to carry out the intention of this Agreement.
15. SEVERABILITY. If any provision of this Agreement shall be
held, declared or pronounced void, voidable, invalid, unenforceable or
inoperative for any reason by any court of competent jurisdiction, government
authority or otherwise, such holding, declaration or pronouncement shall not
affect adversely any other provision of this Agreement, which shall otherwise
remain in full force and effect and be enforced in accordance with its terms,
and the effect of such holding, declaration or pronouncement shall be limited
to the territory or jurisdiction in which made.
16. WAIVER. All the rights and remedies of either party under this
Agreement are cumulative and not exclusive of any other rights and remedies as
provided by law. No delay or failure on the part of either party in the
exercise of any right or remedy arising from a breach of this Agreement shall
operate as a waiver of any subsequent right or remedy arising from a subsequent
breach of this Agreement. The consent of any party where required hereunder to
any act or occurrence shall not be deemed to be a consent to any other action
or occurrence.
17. GENERAL PROVISIONS. This Agreement shall be construed and
enforced in accordance with, and governed by, the laws of the State of
Colorado. Except as otherwise expressly stated herein, time is of the essence
in performing hereunder. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, and this Agreement may
not be modified or amended or any term or provision hereof waived or discharged
except in writing signed by the party against whom such amendment,
modification, waiver or discharge is sought to be enforced. The headings of
this Agreement are for convenience of reference only and shall not limit or
otherwise affect the meaning thereof. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above mentioned.
THE COMPANY:
MULTI-LINK TELECOMMUNICATIONS, INC.
(CORPORATE SEAL)
By:
----------------------------------
Nigel Alexander, Managing Director
ATTEST:
- --------------------------------
- -------------------------------,
THE WARRANT AGENT:
AMERICAN SECURITIES TRANSFER & TRUST,
INC.
By:
----------------------------------
Title:
----------------------------------
ATTEST:
- --------------------------------
- ---------------------, Secretary
11
<PAGE> 1
EXHIBIT 4.7
THE REPRESENTATIVE'S OPTIONS REPRESENTED BY THIS CERTIFICATE AND THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF (THE "SECURITIES") HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO A
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION AND WITH THE SECURITIES ADMINISTRATORS OF CERTAIN STATES
UNDER THE SECURITIES ("BLUE SKY") LAWS OF SUCH STATES. HOWEVER,
NEITHER THE REPRESENTATIVE'S OPTIONS NOR SUCH SECURITIES MAY BE SOLD,
TRANSFERRED, PLEDGED, OR HYPOTHECATED EXCEPT PURSUANT TO (i) A
POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION STATEMENT, (ii) A
SEPARATE REGISTRATION STATEMENT UNDER SUCH ACT, OR (iii) AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT AND UNDER THE APPLICABLE BLUE SKY
LAWS.
THIS REPRESENTATIVE'S OPTION MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED
EXCEPT AS OTHERWISE PROVIDED HEREIN AND THE HOLDER OF THIS
REPRESENTATIVE'S OPTION, BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL
NOT SELL, TRANSFER OR ASSIGN THIS REPRESENTATIVE'S OPTION EXCEPT AS
OTHERWISE PROVIDED HEREIN.
MULTI-LINK TELECOMMUNICATIONS, INC.
Representative's Option for the Purchase of Units
No. UWW-001 1,200,000 Representative's Options
THIS CERTIFIES that, for receipt in hand of $100 and other value
received,, SCHNEIDER SECURITIES, INC. (the "Holder"), is entitled to subscribe
for and purchase from MULTI-LINK TELECOMMUNICATIONS, INC., a Colorado
corporation (the "Company"), upon the terms and conditions set forth herein, at
any time, or from time to time, after __________, 2000 (12 months from the
Effective Date, as defined below) and before 5:00 p.m. Mountain time on _____,
2004 (the "Exercise Period"), 120,000 Units (a "Unit" or the "Units") of the
Company at an exercise price of $_____ per Representative's Option or 120% of
the offering price (the "Purchase Price") of Units sold by the Company in the
Public Offering (hereinafter defined). Each Unit shall be identical to the Units
sold in the public offering to be underwritten by the Holder (the "Public
Offering") and shall consist of one share of Common Stock ("Common Stock") and
one warrant ("Warrant"). Two Warrants shall be exercisable to purchase one share
of Common Stock (a "Warrant Share") at a price of $9.00 (150% of the exercise
price of the Units sold in the Public Offering; the "Exercise Price") until
______, 2002, which is three years from the date on which the Company's
Registration Statement on Form SB-2, Registration No. 333-72889 (the
"Registration Statement") was declared effective by the Securities and Exchange
Commission (the "Effective Date"). The terms and provisions of the Warrants,
except with respect to redemption, shall be governed by a warrant agreement
between the Company and its transfer agent (the "Warrant Agreement").
The term the "Holder" as used herein shall include any transferee to
whom this Representative's Option has been transferred in accordance with the
above. As used herein the term
<PAGE> 2
"this Representative's Option" shall mean and include this Representative's
Option and any Representative's Option or Representative's Options hereafter
issued as a consequence of the exercise or transfer of this Representative's
Option in whole or in part, and the term "Common Stock" shall mean and include
the Company's Common Stock with ordinary voting power, which class at the date
hereof is publicly traded.
1. This Representative's Option may not be sold, transferred,
assigned, pledged or hypothecated until _______, 2000 (12 months from the
Effective Date of the Registration Statement) except that it may be
transferred, in whole or in part, (i) to one or more officers, employees or
partners of the Holder (or the officers, employees or partners of any such
partner); (ii) to a member of the underwriting syndicate and/or its officers,
employees or partners; or (iii) by operation of law. Notwithstanding any
language to the contrary elsewhere herein, in the event of transfer of this
Representative's Warrant, the transferee agrees that he, she or it will, upon
receipt hereof, exercise this Representative's Warrant not more than 72 hours
after completion of such transfer. After ____, 2000, this Representative's
Option may be sold, transferred, assigned or hypothecated in accordance with
applicable law.
2. a. This Representative's Option may be exercised during the
Exercise Period as to the whole or any lesser number of Units, by the
surrender of this Representative's Option (with the election attached
hereto duly executed) to the Company at its office at 811 Lincoln
Street, Fifth Floor, Denver, Colorado 80203, or such other place as is
designated in writing by the Company, together with a certified or
bank cashier's check payable to the order of the Company in an amount
equal to the Purchase Price.
b. Upon written request of the Holder, and in lieu of payment for
the Units by check in accordance with paragraph 2(a) hereof, the
Holder may exercise this Representative's Option (or any portion
thereof) for and receive the number of Units equal to a fraction, the
numerator of which equals: (i) the amount by which the combined
average closing bid price of the Common Stock and the Warrants (or the
closing bid price of the Units if quoted as such) for the ten (10)
trading days preceding the date of exercise (the "Current Market
Price" as further defined below) exceeds the Purchase Price per Unit
multiplied by, (ii) the number of Units to be purchased; the
denominator of which equals the Current Market Price. Following
exercise of this Representative's Option, and at anytime thereafter
through and until expiration of the Warrants, the Holder may exercise
the Warrants underlying this Representative's Option
2
<PAGE> 3
by tendering a notice of exercise, together with a certified or bank
cashier's check payable to the order of the Company, in an amount
equal to the Exercise Price multiplied by the number of Warrant Shares
as to which such exercise relates.
c. Upon written request of the Holder, and in lieu of payment of
the Exercise Price of the Warrants by check in accordance with
paragraph 2(b) hereof, the Holder may exercise the Warrants (or any
portion thereof) for and receive the number of Warrants equal to a
fraction, the numerator of which equals (i) the amount by which the
Current Market Price of the Common Stock for the ten (10) trading days
preceding the date of exercise exceeds the Exercise Price per Warrant,
multiplied by (ii) the number of Warrant Shares to be purchased; the
denominator of which equals the Current Market Price.
d. For the purposes of any computation under this Representative's
Option, the "Current Market Price" at any date shall be the closing
price of the Common Stock and/or Warrants, as the case may be, on the
business day next preceding the event requiring an adjustment or
calculation hereunder. If the principal trading market for such
securities is an exchange, the closing price shall be the reported
last sale price on such exchange on such day provided if trading of
such Common Stock and/or Warrants, as the case may be, is listed on
any consolidated tape, the closing price shall be the reported last
sale price set forth on such consolidated tape. If the principal
trading market for such securities is the over-the-counter market, the
closing price shall be the last reported sale price on such date as
set forth by The Nasdaq Stock Market, Inc., or, if the security is not
quoted on such market, the average closing bid and asked prices as set
forth in the National Quotation Bureau pink sheets or the Electronic
Bulletin Board System for such day. Notwithstanding the foregoing, if
there is no reported last sale price or average closing bid and asked
prices, as the case may be, on a date prior to the event requiring an
adjustment or calculation hereunder, then the Current Market Price
shall be determined as of the latest date prior to such day for which
such last sale price or average closing bid and asked price is
available.
3. Upon each exercise of this Representative's Option, the Holder
shall be deemed to be the holder of record of the Common Stock and Warrants
comprising the Units issuable upon such exercise, notwithstanding that the
transfer books of the Company shall then be closed or certificates representing
such Warrants shall not then have been actually delivered to the Holder. As
soon as practicable after each such exercise of this Representative's Option,
the Company shall issue and
3
<PAGE> 4
deliver to the Holder a certificate or certificates for the Common Stock and
Warrants issuable upon such exercise, registered in the name of the Holder or
its designee. If this Representative's Option should be exercised in part only,
the Company shall, upon surrender of this Representative's Option for
cancellation, execute and deliver a new Representative's Option evidencing the
right of the Holder to purchase the balance of the Units (or portions thereof)
subject to purchase hereunder.
4. Any options issued upon the transfer or exercise in part of this
Representative's Option (together with this Representative's Option, the
"Representative's Options") shall be numbered and shall be registered in a
Representative's Option Register as they are issued. The Company shall be
entitled to treat the registered holder of any Representative's Option on the
Representative's Option Register as the owner in fact thereof for all purposes
and shall not be bound to recognize any equitable or other claim to or interest
in such Representative's Option on the part of any other person. The
Representative's Options shall be transferable only on the books of the Company
upon delivery thereof duly endorsed by the Holder or by his duly authorized
attorney or representative, or accompanied by proper evidence of succession,
assignment or authority to transfer. In all cases of transfer by an attorney,
executor, administrator, guardian or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Representative's
Option or Representative's Options to the person entitled thereto. The
Representative's Options may be exchanged, at the option of the Holder thereof,
for another Representative's Option, or other Representative's Options of
different denominations, of like tenor and representing in the aggregate the
right to purchase a like number of Units (or portions thereof) upon surrender
to the Company or its duly authorized agent. Notwithstanding the foregoing, the
Company shall have no obligation to cause Representative's Options to be
transferred on its books to any person if, in the opinion of counsel to the
Company, such transfer does not comply with the provisions of the Securities
Act of 1933, as amended (the "Act"), or applicable state blue sky laws and the
rules and regulations thereunder.
5. The Company shall at all times reserve and keep available out of
its authorized and unissued Common Stock, solely for the purpose of providing
for the exercise of this Representative's Option and the Common Stock and
Warrants comprising the Units purchasable upon exercise of this
Representative's Option, such number of shares of Common Stock as shall, from
time to time, be sufficient therefor. The Company covenants that all shares of
Common Stock issuable upon exercise
4
<PAGE> 5
of this Representative's Option and the Warrants underlying this
Representative's Option shall be validly issued, fully paid, nonassessable, and
free of preemptive rights.
6. a. In case the Company shall sell or issue hereafter either its
Common Stock or any rights, options, warrants or obligations or securities
containing the right to subscribe for or purchase any Common Stock ("Options")
or exchangeable for or convertible into Common Stock ("Convertible
Securities"), at a price per share, as determined pursuant to paragraph (b) of
this section, less than the Purchase Price then in effect on the date of such
sale or issuance, then the number of Units thereafter purchasable upon exercise
of this Representative's Option shall be determined by multiplying the number
of Units theretofore purchasable upon exercise of this Representative's Option
by a fraction, (i) the numerator of which shall be the number of shares of
Common Stock outstanding on the date of issuance of such Common Stock, Options
or Convertible Securities and (ii) the denominator of which shall be the number
of shares of Common Stock outstanding on the date prior to the date of issuance
of such Common Stock or Convertible Securities plus the number of shares of
Common Stock which the aggregate consideration received by the Company upon
such issuance would purchase on such date at the Purchase Price then in effect.
b. The following provisions, in addition to other provisions of
this section shall be applicable in determining any adjustment under
(a) above:
i. In case of the issuance or sale of Common Stock part or all
of which shall be for cash, the cash consideration received by the
Company therefor shall be deemed to be the amount of cash proceeds
of such sale of shares less 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, plus the amounts, if
any, determined as provided in (b)(ii) below.
ii. In case of the issuance or sale of Common Stock wholly or
partly for a consideration other than cash, the amount of the
consideration other than cash received by the Company for such
Common Stock shall be deemed to be the fair value of such
consideration as determined by a resolution adopted by the Board of
Directors of the Company acting in good faith, less any
compensation paid or incurred by the Company for any underwriting
of, or otherwise in connection with such issuance, provided,
however, the amount of such consideration other than cash shall in
no event
5
<PAGE> 6
exceed the cost thereof as recorded on the books of the Company. In
case of the issuance or sale of Common Stock (otherwise than upon
conversion or exchange) together with other stock or securities or
other assets of the Company for a consideration which is received
for both such Common Stock and other securities or assets, the
Board of Directors of the Company acting in good faith shall
determine what part of the consideration so received is to be
deemed to be the consideration for the issuance of such Common
Stock, less any compensation paid or incurred by the Company for
any underwriting of, or otherwise in connection with such issuance,
provided, however, the amount of such consideration other than cash
shall in no event exceed the cost thereof as recorded on the books
of the Company. In case at any time the Company shall declare a
dividend or make any other distribution upon any stock of the
Company payable in Common Stock then such Common Stock issuable in
payment of such dividend or distribution shall be deemed to have
been issued or sold without consideration.
iii. The price per share of any Common Stock sold or issued by
the Company (other than pursuant to Options or Convertible
Securities) shall be equal to a price calculated by dividing (A)
the amount of the consideration received by the Company, as
determined pursuant to (b)(i) and (b)(ii) above, upon such sale or
issuance by (B) the number of shares of Common Stock sold or
issued.
iv. In case the Company shall at any time after the date hereof
issue any Options or Convertible Securities, the following
provisions shall apply in making any adjustment:
(A) The price per share for which Common Stock is issuable
upon the exercise of the Options or upon conversion or exchange
of the Convertible Securities shall be determined by (1)
dividing the total amount, if any, received or receivable by the
Company as consideration for the issuance of such Options or
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon
exercise of such Options or the conversion or exchange of such
Convertible Securities, by (2) the aggregate maximum number of
shares of Common Stock issuable upon the
6
<PAGE> 7
exercise of such Options or upon the conversion or exchange of
such Convertible Securities.
(B) In determining the price per share for which Common
Stock is issuable upon exercise of the Options or conversion or
exchange of the Convertible Securities as set forth above and in
computing any adjustment pursuant to (a) above: the aggregate
maximum number of shares of Common Stock issuable upon the
exercise of such Convertible Securities shall be considered to
be outstanding at the time such Options or Convertible
Securities were issued and to have been issued for such price
per share as determined pursuant to (b)(iv)(A), and the
consideration for the issuance of such Options or Convertible
Securities and the amount of additional consideration payable to
the Company upon exercise of such Options or upon the conversion
or exchange of such Convertible Securities shall be determined
in the same manner as the consideration received upon the
issuance or sale of Common Stock as provided in paragraphs
(b)(i) and (b)(ii).
(C) On the expiration of such Options or the termination of
any right to convert or exchange any Convertible Securities, the
number of Units subject to this Representative's Option shall
forthwith be readjusted to such number of Units as would have
been obtained had the adjustments made upon the issuance of such
Options or Convertible Securities been made upon the basis of
the delivery of only the number of shares of Common Stock
actually delivered upon the exercise of such Options or upon
conversion or exchange of such Convertible Securities.
(D) If the minimum purchase price per share of Common Stock
provided for in any Option, or the rate at which any Convertible
Securities are convertible into or exchangeable for Common
Stock, shall change or a different purchase price or rate shall
become effective at any time or from time to time (other than
pursuant to any anti-dilution provisions of such Options or
Convertible Securities) then upon such change becoming
effective, the number of Units subject to this Representative's
Option shall forthwith be increased or decreased to such number
of Units as would have been obtained had the
7
<PAGE> 8
adjustments made upon the granting or issuance of such Options
or Convertible Securities been made upon the basis of (1) the
issuance of the number of shares of Common Stock theretofore
actually delivered upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities, and the
total consideration received therefor, and (2) the granting or
issuance at the time of such change of any such Options or
Convertible Securities then still outstanding for the
consideration, if any, received by the Company therefor and to
be received on the basis of such changed price or rate of
exchange or conversion.
v. Except as otherwise specifically provided herein, the date of
issuance or sale of Common Stock shall be deemed to be the date the
Company is legally obligated to issue such Common Stock or the date
the Company is legally obligated to issue any Option or Convertible
Security. If the Company shall take a record date for the purpose
of determining holders of Common Stock entitled to (A) receive a
dividend or other distribution payable in Common Stock or in
Options or Convertible Securities or (B) subscribe for or purchase
Common Stock, Options or Convertible Securities, such record date
shall be deemed to be the date of issue or sale of the Common
Stock, Options or Convertible Securities.
vi. The number of shares of Common Stock outstanding at any
given time shall not include treasury shares but the disposition of
any such treasury shares shall be considered an issue or sale of
Common Stock for the purposes of this section.
vii. Anything hereinabove to the contrary notwithstanding, no
adjustment shall be made pursuant to (a) above to the Purchase
Price or to the number of Units purchasable upon:
(A) The issuance or sale by the Company of any Units, Common
Stock or Warrants pursuant to the Public Offering, the exercise
of any Warrants, the issuance or sale by the Company of any
Units, Common Stock or Warrants pursuant to the Representative's
Option, the issuance or sale of Units, Common Stock or Warrants
on exercise of a separate Representative's Option to purchase
Warrants, any securities offered in a public offering
underwritten by Schneider Securities, Inc., any shares, Options
or Convertible Securities issued
8
<PAGE> 9
and outstanding at the effective date of such public offering,
any shares issuable pursuant to the Company's stock option plan
currently in effect, provided the total number of shares
issuable pursuant to such plan does not exceed 300,000 shares.
(B) The issuance or sale by the Company of any Common Stock
pursuant to any Options or Convertible Securities issued and
outstanding prior to the date of Effective Date of the
Registration Statement.
(C) The issuance or sale of Common Stock pursuant to the
exercise of Options or conversion or exchange of Convertible
Securities hereinafter issued for which an adjustment has been
made (or was not required to be made) pursuant to the provisions
hereof.
(D) The increase in the number of shares of Common Stock
subject to any Option or Convertible Security referred to in
subsections (A), (B) or (C) hereof pursuant to the provisions of
such Option or Convertible Securities designed to protect
against dilution.
c. If the Company shall at any time subdivide its outstanding
Common Stock by recapitalization, reclassification or split-up
thereof, the number of Units subject to this Representative's Option
immediately prior to such subdivision shall be proportionately
increased, and if the Company shall at any time combine the
outstanding Common Stock by recapitalization, reclassification or
combination thereof, the number of Units subject to this
Representative's Option immediately prior to such combination shall be
proportionately decreased. Any corresponding adjustment to the
Purchase Price shall become effective at the close of business on the
record date for such subdivision or combination.
d. If the Company after the date hereof shall distribute to the
holders of its Common Stock any securities or other assets (other than
a distribution of Common Stock or a cash distribution made as a
dividend payable out of earnings or out of any earned surplus legally
available for dividends under the laws of the jurisdiction of
incorporation of the Company), the Board of Directors shall be
required to make such equitable adjustment in the Purchase Price in
effect immediately prior to the record date of such distribution as
may be necessary to preserve the rights substantially proportionate to
those enjoyed hereunder by the Holder immediately prior to such
distribution. Any such adjustment made in good faith by the
9
<PAGE> 10
Board of Directors shall be final and binding upon the Holder and
shall become effective as of the record date for such distribution.
e. No adjustment in the number of Units subject to this
Representative's Option shall be required unless such adjustment would
require an increase or decrease in such number of Units of at least 1%
of the then adjusted number of Units issuable upon exercise of this
Representative's Option, provided, however, that any adjustments which
by reason of the foregoing are not required at the time to be made
shall be carried forward and taken into account and included in
determining the amount of any subsequent adjustment; and provided
further, however, that in case the Company shall at any time subdivide
or combine the outstanding Common Stock or issue any additional Common
Stock as a dividend, said percentage shall forthwith be
proportionately increased in the case of a combination or decreased in
the case of a subdivision or dividend of Common Stock so as to
appropriately reflect the same. If the Company shall make a record of
the holders of its Common Stock for the purpose of entitling them to
receive any dividend or distribution and legally abandon its plan to
pay or deliver such dividend or distribution then no adjustment in the
number of Units subject to this Representative's Option shall be
required by reason of the making of such record.
f. Whenever the number of Units purchasable upon the exercise of
this Representative's Option is adjusted as provided herein, the
Purchase Price shall be adjusted (to the nearest one tenth of a cent)
by respectively multiplying such Purchase Price immediately prior to
such adjustment by a fraction, the numerator of which shall be the
number of Units purchasable upon the exercise of this Representative's
Option immediately prior to such adjustment, and the denominator of
which shall be the number of Units purchasable immediately thereafter.
g. In case of any reclassification of the outstanding Common Stock
(other than a change covered by (c) hereof or which solely affects the
par value of such Common Stock) or in the case of any merger or
consolidation of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification or
capital reorganization of the outstanding Common Stock), or in the
case of any sale or conveyance to another corporation of the property
of the Company as an entirety or substantially as an entirety in
connection with which
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<PAGE> 11
the Company is dissolved, the Holder of this Representative's Option
shall have the right thereafter (until the expiration of the right of
exercise of this Representative's Option) to receive upon the exercise
hereof, for the same aggregate Purchase Price payable hereunder
immediately prior to such event, the kind and amount of shares of
stock or other securities or property receivable upon such
reclassification, capital reorganization, merger or consolidation, or
upon the dissolution following any sale or other transfer, by a holder
of the number of Units obtainable upon the exercise of this
Representative's Option immediately prior to such event; and if any
reclassification also results in a change in Common Stock covered by
(c) above, then such adjustment shall be made pursuant to both this
paragraph (g) and paragraph (c). The provisions of this paragraph (g)
shall similarly apply to successive re-classifications, or capital
reorganizations, mergers or consolidations, sales or other transfers.
If the Company after the date hereof shall issue or agree to issue
Common Stock, Options or Convertible Securities, other than as
described herein and other than excluded herein, and such issuance or
agreement would in the opinion of the Board of Directors of the
Company materially affect the rights of the Holders of the
Representative's Option, the Purchase Price and the number of Units
purchasable upon exercise of the Representative's Option shall be
adjusted in such matter, if any, and at such time as the Board of
Directors of the Company, in good faith, may determine to be equitable
in the circumstances. The minutes or unanimous consent approving such
action shall set forth the Board of Director's determination as to
whether an adjustment is warranted and the manner of such adjustment.
In the absence of such determination, any Holder may request in
writing that the Board of Directors make such determination. Any such
determination made in good faith by the Board of Directors shall be
final and binding upon the Holders. If the Board fails, however, to
make such determination within sixty (60) days after such request,
such failure shall be deemed a determination that an adjustment is
required.
h. i. Upon occurrence of each event requiring an adjustment of the
Purchase Price and of the number of Units purchasable upon exercise
of this Representative's Option in accordance with, and as required
by, the terms hereof, the Company shall forthwith employ a firm of
certified public accountants (who may be the regular accountants
for the Company) who shall compute the adjusted Purchase Price and
the adjusted number of Units
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<PAGE> 12
purchasable at such adjusted Purchase Price by reason of such event
in accordance herewith. The Company shall give to each Holder of
the Representative's Options a copy of such computation which shall
be conclusive and shall be binding upon such Holders unless
contested by Holders by written notice to the Company within thirty
(30) days after receipt thereof.
ii. In case the Company after the date hereof shall propose (A)
to pay any dividend payable in stock to the holders of its Common
Stock or to make any other distribution (other than cash dividends)
to the holders of its Common Stock or to grant rights to subscribe
to or purchase any additional shares of any class or any other
rights or options, (B) to effect any reclassification involving
merely the subdivision or combination of outstanding Common Stock,
or (C) any capital reorganization or any consolidation or merger,
or any sale, transfer or other disposition of its property, assets
and business substantially as an entirety, or the liquidation,
dissolution or winding up of the Company, then in each such case,
the Company shall obtain the computation described above and if an
adjustment to the Purchase Price is required, the Company shall
notify the Holders of the Representative's Options of such proposed
action, which shall specify the record date for any such action or
if no record date is established with respect thereto, the date on
which such action shall occur or commence, or the date of
participation therein by the holders of Common Stock if any such
date is to be fixed, and shall also set forth such facts with
respect thereto as shall be reasonably necessary to indicate the
effect of such action on the Purchase Price and the number, or
kind, or class of shares or other securities or property obtainable
upon exercise of this Representative's Option after giving effect
to any adjustment which will be required as a result of such
action. Such notice shall be given at least twenty (20) days prior
to the record date for determining holders of the Common Stock for
purposes of any such action, and in the case of any action for
which a record date is not established then such notice shall be
mailed at least twenty (20) days prior to the taking of such
proposed action.
12
<PAGE> 13
iii. Failure to file any certificate or notice or to give
any notice, or any defect in any certificate or notice, shall not
effect the legality or validity of the adjustment in the Purchase
Price or in the number, or kind, or class of shares or other
securities or property obtainable upon exercise of the
Representative's Options or of any transaction giving rise
thereto.
i. The Company shall not be required to issue fractional Units upon
any exercise of the Representative's Options. As to any final fraction
of a Unit which the Holder of a Representative's Option would
otherwise be entitled to purchase upon such exercise, the Company
shall pay a cash adjustment in respect of such final fraction in an
amount equal to the same fraction of the combined market price of such
share of Common Stock and Warrant on the business day preceding the
day of exercise. The Holder of a Representative's Option, by his
acceptance of a Representative's Option, expressly waives any right to
receive any fractional Units.
j. Regardless of any adjustments pursuant to this section in the
Purchase Price or in the number, or kind, or class of shares or other
securities or other property obtainable upon exercise of a
Representative's Option, a Representative's Option may continue to
express the Purchase Price and the number of Units obtainable upon
exercise at the same price and number of Units as are stated herein.
k. The number of Units, the Purchase Price and all other terms and
provisions of the Company's agreement with the Holder of this
Representative's Option shall be determined exclusively pursuant to
the provisions hereof.
l. The above provisions of this section 6 shall similarly apply to
successive transactions which require adjustments.
m. Notwithstanding any other language to the contrary herein, (i)
the anti-dilution terms of this Representative's Option will not be
enforced so as to provide the Holder the right to receive, or for the
accrual of, cash dividends prior to the exercise of this
Representative's Option, and (ii) the anti-dilution terms of this
Representative's Option will not be enforced in such a manner as to
provide the Holder with disproportionate rights, privileges and
economic benefits not provided to purchasers of the Units in the
Public Offering.
7. The rights and privileges of the Warrants issuable on exercise of
this Representative's Option shall be as provided in the warrant certificate
(the "Warrant Certificate") to be delivered to the
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<PAGE> 14
Holder on exercise of this Representative's Option. All anti-dilution and other
rights shall be as provided for in the Warrant Certificate and as set forth in
the warrant agreement by and between the Company and the Warrant Agent for the
Company (the "Warrant Agreement"). The provisions of the Warrant Agreement
relating to anti-dilution rights and any other rights and privileges granted to
holders of publicly traded Warrants are incorporated by reference herein as if
more fully set forth herein. Notwithstanding any other language to the contrary
herein or in the Warrant Agreement by and between the Company and the Warrant
Agent, in the event, prior to the exercise of this Warrant, Holders of
publicly-traded Warrants shall be entitled to the benefit of any anti-dilution
provisions of the Warrant Agreement or the Warrant Certificate then, in such
event, the Warrants issuable upon exercise of this Representative's Option
shall be adjusted in accordance with the provisions of the anti-dilution
provisions of the Warrant Certificate and the Warrant Agreement in a manner
identical to the adjustments made pursuant to the anti-dilution provisions and
other rights and privileges applicable to publicly-traded warrants. Any such
adjustment may be made at or immediately prior to the date of exercise hereof.
Notwithstanding any other language to the contrary herein, (i) the
anti-dilution terms of this Representative's Option will not be enforced so as
to provide the Holder the right to receive, or for the accrual of, cash
dividends prior to the exercise of this Representative's Option, and (ii) the
anti-dilution terms of this Representative's Option will not be enforced in
such a manner as to provide the Holder with disproportionate rights, privileges
and economic benefits not provided to purchasers of Warrants in the Public
Offering.
8. The issuance of any Units or other securities upon the exercise of
this Representative's Option or any Warrant Shares upon the exercise of the
Warrants, and the delivery of certificates or other instruments representing
such securities, or other securities, shall be made without charge to the
Holder for any tax or other charge in respect of such issuance. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of any certificate in a name
other than that of the Holder and the Company shall not be required to issue or
deliver any such certificate unless and until the person or persons requesting
the issue thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has
been paid.
9. a. If, at any time after ______, 1999 (the Effective Date of the
Registration Statement), and ending _______, 2006 (seven years after
the Effective Date of the Registration Statement), the Company shall
file a registration statement (other than on Form S-4, Form S-8,
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<PAGE> 15
or any successor form) with the Securities and Exchange Commission
(the "Commission") while Units are available for purchase upon
exercise of this Representative's Option or while any Common Stock,
Warrants or Units (collectively, the "Representative's Securities")
are outstanding, the Company shall, on two occasions only, give the
Holder and all the then holders of such Representative's Options and
Representative's Securities at least 30 days prior written notice of
the filing of such registration statement. If requested by the Holder
or by any such holder in writing within 20 days after receipt of any
such notice, the Company shall, at the Company's sole expense (other
than the fees and disbursements of counsel for the Holder or such
holder and the underwriting discounts and non-accountable expenses, if
any, payable in respect of the securities sold by the Holder or any
such holder), register or qualify the Common Stock included in the
Representative's Securities and underlying the Warrants that are
included in the Representative's Securities of the Holder or any such
holders who shall have made such request concurrently with the
registration of such other securities, all to the extent requisite to
permit the public offering and sale of such securities, and will use
its best efforts through its officers, directors, auditors and counsel
to cause such registration statement to become effective as promptly
as practicable. The Common Stock to be registered is hereinafter
referred to as "Registrable Securities." Notwithstanding the
foregoing, if the managing underwriter of any such offering shall
advise the Company in writing that, in its opinion, the distribution
of all or a portion of the Registrable Securities requested to be
included in the registration concurrently with the securities being
registered by the Company would materially adversely affect the
distribution of such securities by the Company for its own account,
then the Holder or any such holder who shall have requested
registration of his or its Registrable Securities shall delay the
offering and sale of such Registrable Securities (or the portions
thereof so designated by such managing underwriter) for such period,
not to exceed 90 days, as the managing underwriter shall request,
provided that no such delay shall be required as to any Registrable
Securities if any securities of the Company are included in such
registration statement for the account of any person other than the
Company and the Holder unless the securities included in such
registration statement for such other person shall have been reduced
pro rata to the reduction of the Registrable Securities which were
requested to be included in such registration.
15
<PAGE> 16
b. If at any time after ________, 1999 (the Effective Date of the
Registration Statement), and before _________, 2004 (five years after
the Effective Date of the Registration Statement), the Company shall
receive a written request from holders of Representative's Securities
who, in the aggregate, own (or upon exercise of all Representative's
Options will own) a majority of the total number of Units issuable
upon exercise of the Representative's Options, the Company shall, as
promptly as practicable, prepare and file with the Commission a
registration statement sufficient to permit the public offering and
sale of the Registrable Securities, and will use its best efforts
through its officers, directors, auditors and counsel to cause such
registration statement to become effective as promptly as practicable;
provided, however, that the Company shall only be obligated to file
and obtain effectiveness of one such registration statement for which
all expenses incurred in connection with such registration (other than
the fees and disbursements of counsel for the Holder or such holders
and underwriting discounts and non-accountable expenses, if any,
payable in respect of the Registrable Securities sold by the Holder or
any such holder) shall be borne by the Company. In addition to the one
demand registration provided for herein above, the holders of the
Registrable Securities who, in the aggregate, own (or upon exercise of
all Representative's Options will own) a majority of the total number
of Units issued or issuable upon exercise of the Representative's
Options may request that the Company prepare and file a registration
statement to permit the public offering and sale of the Registrable
Securities on two additional occasions only, but the costs of
preparation and filing of such additional registration statements
shall be at the then holders' cost and expense unless the Company
elects to register additional shares of Common Stock, in which case
the cost and expense of such registration statements will be prorated
between the Company and the holders of the Registrable Securities
according to the aggregate sales price of the securities being issued.
c. In the event of a registration pursuant to the provisions of
this paragraph 9, the Company shall use its best efforts to cause the
Registrable Securities so registered to be registered or qualified for
sale under the securities or blue sky laws of such jurisdictions as
the Holder or such holders may reasonably request; provided, however,
that the Company shall not be required to qualify to do business in
any state by reason of this paragraph 9(c) in which it is not
otherwise required to qualify to do business and provided further,
that the Company
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<PAGE> 17
has no obligation to qualify the Registrable Securities where such
qualification would cause any unreasonable delay or expenditure by the
Company.
d. The Company shall keep effective any registration or
qualification contemplated by this paragraph 9 and shall from time to
time amend or supplement each applicable registration statement,
preliminary prospectus, final prospectus, application, document and
communication for such period of time as shall be required to permit
the Holder or such holders to complete the offer and sale of the
Registrable Securities covered thereby. The Company shall in no event
be required to keep any such registration or qualification in effect
for a period in excess of nine months from the date on which the
Holder and such holders are first free to sell such Registrable
Securities; provided, however, that if the Company is required to keep
any such registration or qualification in effect with respect to
securities other than the Registrable Securities beyond such period,
the Company shall keep such registration or qualification in effect as
it relates to the Registrable Securities for so long as such
registration or qualification remains or is required to remain in
effect in respect of such other securities.
e. In the event of a registration pursuant to the provisions of
this paragraph 9, the Company shall furnish to the Holder and to each
such holder such reasonable number of copies of the registration
statement and of each amendment and supplement thereto (in each case,
including all exhibits), such reasonable number of copies of each
prospectus contained in such registration statement and each
supplement or amendment thereto (including each preliminary
prospectus), all of which shall conform to the requirements of the Act
and the rules and regulations thereunder, and such other documents as
the Holder or such holders may reasonably request in order to
facilitate the disposition of the Registrable Securities included in
such registration.
f. In the event of a registration pursuant to the provisions of
this paragraph 9, the Company shall furnish the Holder and each holder
of any Registrable Securities so registered with an opinion of its
counsel to the effect that (i) the registration statement has become
effective under the Act and no order suspending the effectiveness of
the registration statement, preventing or suspending the use of the
registration statement, any preliminary prospectus, any final
prospectus, or any amendment or supplement thereto has been issued,
nor to such counsel's actual knowledge has the Securities and Exchange
Commission or any securities or blue sky authority of any jurisdiction
instituted or threatened to institute any proceedings with
17
<PAGE> 18
respect to such an order and (ii) the registration statement and each
prospectus forming a part thereof (including each preliminary
prospectus), and any amendment or supplement thereto, complies as to
form with the Act and the rules and regulations thereunder. Such
counsel shall also provide a Blue Sky Memorandum setting forth the
jurisdictions in which the Registrable Securities have been registered
or qualified for sale pursuant to the provisions of paragraph 9(c).
g. The Company agrees that until all the Registrable Securities
have been sold under a registration statement or pursuant to Rule 144
under the Act, it shall keep current in filing all reports, statements
and other materials required to be filed with the Commission to permit
holders of the Registrable Securities to sell such securities under
Rule 144.
h. The Holder and any holders who propose to register their
Registrable Securities under the Act shall execute and deliver to the
Company a selling stockholder questionnaire on a form to be provided
by the Company.
i. In addition to the rights above provided, the Company will
cooperate with the then holders of the Representative's Options and
underlying Registrable Securities in preparing and signing a
registration statement, on two occasions only in addition to the
registration statements discussed above, required in order to sell or
transfer the Registrable Securities and will supply all information
required therefor, but such additional registration statements shall
be at the then Holders' cost and expense unless the Company elects to
register additional shares of the Company's Common Stock in which case
the cost and expense of such registration statements will be prorated
between the Company and the Holders of the Representative's Options
and Registrable Securities according to the aggregate sales prices of
the securities being sold.
10. a. Subject to the conditions set forth below, the Company agrees
to indemnify and hold harmless the Holder, any holder of any of the
Registrable Securities, their officers, directors, partners,
employees, agents and counsel, and each person, if any, who controls
any such person within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), from and against any and all loss, liability, charge,
claim, damage and expense whatsoever (which shall include, for all
purposes of this Section 10, 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
18
<PAGE> 19
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 registration
statement, preliminary prospectus or final prospectus (as from time to
time amended and supplemented), or any amendment or supplement
thereto, or (B) in any application or other document or communication
(in this Section 10 collectively called an "application") 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 register or qualify any of the Registrable Securities under
the securities or blue sky 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, unless such statement or
omission was made in reliance upon and in conformity with written
information furnished to the Company with respect to the Holder or any
holder of any of the Registrable Securities by or on behalf of such
person expressly for inclusion in any registration statement,
preliminary prospectus, or final prospectus, or any amendment or
supplement thereto, or in any application, as the case may be, or (ii)
any breach of any representation, warranty, covenant or agreement of
the Company contained in this Representative's Option. The foregoing
agreement to indemnify shall be in addition to any liability the
Company may otherwise have, including liabilities arising under this
Representative's Option.
If any action is brought against the Holder or any holder of any of
the Registrable Securities or any of its officers, directors,
partners, employees, agents or counsel, or any controlling persons of
such person (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
otherwise have to Holder or any holder of any of the Registrable
Securities) and the Company shall promptly assume the defense of such
action, including the employment of counsel (reasonably 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 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
19
<PAGE> 20
employed counsel reasonably 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 and the Company shall not have
the right to direct the defense of such action on behalf of the
indemnified party or parties. 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.
b. The Holder and each holder agrees to indemnify and hold harmless
the Company, each director of the Company, each officer of the Company
who shall have signed any registration statement covering the
Registrable Securities held by the Holder and each holder 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 Holder
and each holder in paragraph 10(a), but only with respect to
statements or omissions, if any, made in any registration statement,
preliminary prospectus, or final prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto, or
in any application, in reliance upon and in conformity with written
information furnished to the Company with respect to the Holder and
each holder by or on behalf of the Holder and each holder expressly
for inclusion in any such registration statement, preliminary
prospectus, or final prospectus, or any amendment or supplement
thereto, 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 such registration statement, preliminary
prospectus, or final prospectus, or any amendment or supplement
thereto, or in any application, and in respect of which indemnity may
be sought against the Holder and each holder pursuant to this
paragraph 10(b), the Holder and each holder 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 paragraph 10(a).
c. To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to
paragraph 10(a) or 10(b) (subject to the limitations
20
<PAGE> 21
thereof) but it is found in a final judicial determination, not
subject to further appeal, that such indemnification may not be
enforced in such case, even though this Agreement expressly provides
for indemnification in such case, or (ii) any indemnified or
indemnifying party seeks contribution under the Act, the Exchange Act
or otherwise because the indemnification provided for in this Section
10 is for any reason held to be unenforceable by the Company and the
Holder and any holder, then the Company (including for this purpose
any contribution made by or on behalf of any director of the Company,
any officer of the Company who signed any such registration statement
and any controlling person of the Company), as one entity, and the
Holder and any holder of any of the Registrable Securities included in
such registration in the aggregate (including for this purpose any
contribution by or on behalf of the Holder or any holder), as a second
entity, shall contribute to the losses, liabilities, claims, damages
and expenses whatsoever to which any of them may be subject, on the
basis of relevant equitable considerations such as the relative fault
of the Company and the Holder or any such holder in connection with
the facts which resulted in such losses, liabilities, claims, damages
and expenses. The relative fault, in the case of an untrue statement,
alleged untrue statement, omission or alleged omission, shall be
determined by, among other things, whether such statement, alleged
statement, omission or alleged omission relates to information
supplied by the Company, by the Holder or by any holder of Registrable
Securities included in such registration, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement, alleged statement, omission or alleged
omission. The Company and the Holder agree that it would be unjust and
inequitable if the respective obligations of the Company and the
Holder for contribution were determined by pro rata or per capita
allocation of the aggregate losses, liabilities, claims, damages and
expenses (even if the Holder and the other indemnified parties were
treated as one entity for such purpose) or by any other method of
allocation that does not reflect the equitable considerations referred
to in this paragraph 10(c). 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 is not guilty of
such fraudulent misrepresentation. For purposes of this paragraph
10(c), each person, if any, who controls the Holder or any holder of
any of the Registrable Securities within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act and each officer,
director, partner, employee, agent and counsel of each such person,
shall have the same rights to contribution as such person and each
person, if any, who controls the Company within the
21
<PAGE> 22
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act,
each officer of the Company who shall have signed any such
registration statement, and each director of the Company shall have
the same rights to contribution as the Company, subject in each case
to the provisions of this paragraph 10(c). Anything in this paragraph
10(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 paragraph 10(c) is intended
to supersede any right to contribution under the Act, the Exchange Act
or otherwise.
11. The securities issued upon exercise of the Representative's
Options shall be subject to a stop transfer order and the certificate or
certificates evidencing any such securities shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF (THE "SECURITIES")
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, PURSUANT TO A REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION AND WITH THE SECURITIES
ADMINISTRATORS OF CERTAIN STATES UNDER THE SECURITIES ("BLUE
SKY") LAWS OF SUCH STATES. HOWEVER, NEITHER THE
REPRESENTATIVE'S OPTIONS NOR SUCH SECURITIES MAY BE SOLD,
TRANSFERRED, PLEDGED, OR HYPOTHECATED EXCEPT PURSUANT TO (i)
A POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION STATEMENT,
(ii) A SEPARATE REGISTRATION STATEMENT UNDER SUCH ACT, OR
(iii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND UNDER
THE APPLICABLE BLUE SKY LAWS.
12. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Representative's Option (and upon
surrender of any Representative's Option if mutilated), and upon reimbursement
of the Company's reasonable incidental expenses, the Company shall execute and
deliver to the Holder thereof a new Representative's Option of like date, tenor
and denomination.
13. The Holder of any Representative's Option shall not have, solely
on account of such status, any rights of a stockholder of the Company, either
at law or in equity, or to any notice of meetings of stockholders or of any
other proceedings of the Company, except as provided in this Representative's
Option.
22
<PAGE> 23
14. This Representative's Option shall be construed in accordance with
the laws of the State of Colorado, without giving effect to conflict of laws.
Dated: _____________, 1999
MULTI-LINK TELECOMMUNICATIONS, INC.
By:
--------------------------------------
Nigel V. Alexander,
Chief Executive Officer
By:
--------------------------------------
Shawn B. Stickle,
President and Chief Operating Officer
[SEAL]
23
<PAGE> 24
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Representative's Option.)
FOR VALUE RECEIVED, ___________________________________ hereby sells,
assigns and transfers unto ________________________ Representative's Option to
purchase __________ Units of Multi-Link Telecommunications, Inc. (the
"Company"), together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint ____________________________ attorney
to transfer such Representative's Option on the books of the Company, with full
power of substitution.
Dated:
Signature:
Signature Guaranteed:
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Representative's Option in every particular,
without alteration or enlargement or any change whatsoever. Signature(s) must
be guaranteed by an eligible guarantor institution which is a participant in a
Securities Transfer Association recognized program.
24
<PAGE> 25
ELECTION TO EXERCISE
(To be executed by the holder if such holder desires to
exercise the attached Representative's Option)
The undersigned hereby exercises his or its rights to subscribe for
__________ Units covered by the within Representative's Option (each as defined
in the within Representative's Option) and tenders payment herewith in the
amount of $__________ in accordance with the terms thereof, and requests that
certificates for such Units be issued in the name of, and delivered to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print Name, Address and Social Security or
Tax Identification Number)
and, if such number of Units (or portions thereof) shall not be all the Units
covered by the within Representative's Option, that a new Representative's
Option for the balance of the Representative's Option (or portions thereof)
covered by the within Representative's Option be registered in the name of, and
delivered to, the undersigned at the address stated below.
Name:
---------------------------------------------------------------------------
(Print)
Address:
------------------------------------------------------------------------
(Signature)
Dated: Signature Guaranteed:
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Representative's Option in every particular,
without alteration or enlargement or any change whatsoever. Signature(s) must
be guaranteed by an eligible guarantor institution which is a participant in a
Securities Transfer Association recognized program.
25
<PAGE> 1
EXHIBIT 4.8
WARRANT EXERCISE FEE AGREEMENT
AGREEMENT dated as of the ______ day of _____________, 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 1,2000,000 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 , 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 , 1999 and expire at 5:00 p.m. Colorado time on , 2002
(the "Expiration Date"), subject to redemption rights commencing on or after ,
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 , 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;
(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:
<PAGE> 2
(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
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
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<PAGE> 3
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 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
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<PAGE> 4
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 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:
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<PAGE> 5
<TABLE>
<S> <C>
if to the Company: Shawn B. Stickle, President and Chief Operating Officer
Nigel V. Alexander, Chief Executive Officer
Multi-Link Telecommunications, Inc.
811 Lincoln Street
Fifth Floor
Denver, Colorado 80203
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
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
</TABLE>
-5-
<PAGE> 6
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.
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.
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<PAGE> 7
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:
--------------------------------------------
Nigel V. Alexander,
Chief Executive Officer
By:
--------------------------------------------
Shawn B. Stickle,
President and Chief Executive Officer
SCHNEIDER SECURITIES, INC.
By:
--------------------------------------------
Thomas Schneider, President
AMERICAN SECURITIES TRANSFER & TRUST, INC.
By:
--------------------------------------------
Gregory Tubbs, Senior Vice President
<PAGE> 8
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 ,
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:
--------------------------------
<PAGE> 1
EXHIBIT 4.9
AMENDMENT TO BORROWING AGREEMENT
This Amendment to Borrowing Agreement (the "Amendment") is made as of
April 15, 1999, among: Westburg Media Capital L.P., a Washington limited
partnership ("Lender"); Multi-Link Telecommunications, Inc. ("MLTC"), a Colorado
corporation; Multi-Link Communications, Inc. ("MLC"), a Colorado corporation and
a wholly-owned subsidiary of MLTC; and the Guarantors named herein. MLTC and MLC
are oftentimes hereinafter referred to, jointly and severally, as "Borrower."
RECITALS:
A. Lender has made a loan (the "Loan") to Borrower secured by: a lien
and security interest in all of the assets of Borrower; by the joint and several
personal guaranties of Nigel V. Alexander ("Alexander") and Shawn B. Stickle
("Stickle"); by the pledge of 480,000 shares of common stock of MLTC owned
beneficially or of record by Alexander; by the pledge of 480,000 shares of
common stock of MLTC owned beneficially or of record by Stickle; and by the
pledge of 1,950,000 shares of the capital stock of MLC owned beneficially or of
record by MLTC. As additional consideration for the Loan, MLTC also granted
Lender warrants to purchase shares of common stock of MLTC. The proceeds of the
Loan were used by Borrower to refinance existing indebtedness, to pay
transaction costs incurred in connection with the loan, and as working capital.
B. The Loan is evidenced by a Borrowing Agreement among Lender,
Borrower, Alexander and Stickle dated September 25, 1998, and by certain other
documents and instruments defined in the Borrowing Agreement as the Loan
Documents, including a promissory note dated September 25, 1998, which note was
superseded and replaced by a new promissory note dated April 14, 1999.
C. MLTC has filed a registration statement on Form SB-2 dated February
24, 1999 (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission") pursuant to Section 5 of the Securities Act of
1933, as amended (the "Securities Act"), in connection with a proposed
underwritten public offering of 1,200,000 units of MLTC (each unit consisting of
one share of common stock of MLTC and one common stock purchase warrant) through
Schneider Securities, Inc.
D. Borrower has advised Lender that it intends to repay certain of the
amounts then due Lender under the Loan Documents promptly following the date the
Registration Statement is declared effective by the Commission and the proceeds
of the public offering contemplated by the Registration Statement have been
received. Further, Borrower has asked Lender to amend the terms of the Loan
(such amendment to become effective only if the Registration Statement is
declared effective and the amounts Borrower intends to pay Lender upon such
effective date are paid) to enable Borrower to borrow and re-borrow, from
time-to-time, up to $2,100,000 in principal amount of the Loan, and to extend
the period during which Borrower would be obligated to pay Lender interest only
on the Loan. In consideration of such amendment, Borrower has agreed to grant
Lender, unconditionally, certain registration rights under the Securities Act
with respect to the shares of common stock of MLTC underlying Lender's warrants.
E. In order to facilitate the public offering pursuant to the
Registration Statement, Borrower has also asked Lender to cancel the amended
pledge agreement given by Alexander and Stickle in February 1999 (the "Amended
Pledge Agreement"), leaving in place the pledge agreement dated September 25,
1998 given by MLTC (hereinafter referred to as the "MLTC Pledge Agreement")
covering all of the issued and outstanding shares of capital stock of MLC owned
beneficially and of record by MLTC.
F. Lender is willing to amend the terms of the Loan and cancel the
Amended Pledge Agreement on the terms and subject to the conditions set forth in
this Amendment.
AGREEMENT:
In consideration of the mutual covenants contained in this Agreement,
Borrower and Lender agree to amend
AMENDMENT TO BORROWING AGREEMENT - 1
<PAGE> 2
the Borrowing Agreement and the other Loan Documents as follows:
1. DEFINITIONS. Capitalized terms previously defined in the Borrowing
Agreement or other of the Loan Documents shall have the meanings ascribed to
them in such Loan Documents, unless such definitions are amended by this
Amendment. Other capitalized terms used in this Amendment are defined below and
elsewhere in this Amendment.
1.1 Amended Guaranty shall mean the amended guaranty in the
form annexed to this Amendment evidencing the Guarantors' joint and
several personal guaranties of the payment and performance of
Borrower's obligations under the Loan Documents.
1.2 Amended Note shall mean the amended promissory note in the
form annexed to this Amendment evidencing amounts borrowed by Borrower under the
Loan, and establishing the terms by which such borrowing shall be repaid. The
term Amended Note also includes any further amendments to, or renewals or
replacements of, such promissory note.
1.3 Effective Date shall mean the date the Registration
Statement is declared effective by the Commission under the Securities Act.
1.4 Loan Documents shall mean the following: the Borrowing
Agreement, as amended by this Amendment; the Amended Note; the Security
Agreement; the Financing Statements; the MLTC Pledge Agreement; the
Amended Guaranty; the Warrant; the Subordination Agreement; the
Registration Rights Agreement; and any further or additional amendments
or supplements to such documents and instruments.
1.5 Registration Rights Agreement shall mean the registration
rights agreement in the form annexed to this Amendment granting Lender
certain piggyback and demand registration rights with respect to the
shares of common stock of MLTC underlying Lender's warrants.
2. THE LOAN. On the Effective Date and the receipt by MLTC of the
proceeds of the public offering contemplated by the Registration Statement, and
subject to the execution and delivery by Borrower and Lender of this Amendment
and the other Loan Documents contemplated by this Amendment, Borrower shall pay
Lender the sum of $2,090,000, representing all but $10,000 of the principal and
accrued but unpaid interest due Lender under the Note, and Lender shall make
available to Borrower for borrowing the principal amount of $2,100,000. Borrower
shall borrow from and repay such amount to Lender, with interest, as is more
fully set forth in the Amended Note. The Amended Note shall supersede and
replace the Note dated September 25, 1998 given by Borrower, which earlier note
shall be tendered to Borrower for cancellation as of the Effective Date.
3. LOAN DOCUMENTS. The Loan will be evidenced, guaranteed and secured
by the Loan Documents, and any other documents which Lender may require. Apart
from the Borrowing Agreement, which is amended by this Amendment, the Note,
which is superseded and replaced by the Amended Note, the Guaranty, which is
superseded and replaced by the Amended Guaranty, and the Amended Pledge
Agreement, which shall be canceled, leaving the MLTC Pledge Agreement as the
only extant pledge agreement, all of the representations, warranties, covenants,
conditions and obligations of Borrower and Guarantors evidenced by the Loan
Documents, specifically including the obligations evidenced by the Security
Agreement and the MLTC Pledge Agreement, shall continue in full force and
effect. None of such other Loan Documents shall be construed or interpreted as
having been amended, modified, superseded or replaced in any way, except as
provided in this Amendment.
4. REPRESENTATIONS AND WARRANTIES. MLTC, MLC, each Guarantor and each
Pledgor jointly and severally represent and warrant to and for the benefit of
Lender as follows:
4.1 Organization and Standing. MLTC and MLC are each
corporations duly organized,
AMENDMENT TO BORROWING AGREEMENT - 2
<PAGE> 3
validly existing and in good standing in the State of Colorado, and each are
duly qualified to transact business as foreign corporations in such other
jurisdictions, if any, where such qualification is necessary.
4.2 Certificates and Articles of Incorporation and Bylaws.
MLTC and MLC have made available to Lender or its counsel true, correct and
complete copies of their respective certificates and articles of incorporation,
their bylaws and any other constating documents or agreements affecting the
rights of their respective shareholders, each as amended or restated to date.
4.3 Power and Authorization. MLTC and MLC have all requisite
power to execute and deliver this Borrowing Agreement and the other Loan
Documents to which each is a party, and to carry out and perform their
respective obligations under this Borrowing Agreement and the Loan Documents.
All action on the part of MLTC and MLC, their respective directors, and, if
necessary, their respective shareholders, for the authorization, execution,
delivery and performance of this Borrowing Agreement and the Loan Documents has
been taken or will be taken prior to closing, and will not be in conflict with,
result in a breach of or constitute a default under any agreement to which
either corporation or any Guarantor is subject. This Borrowing Agreement and the
other Loan Documents, when executed and delivered by Borrower and Guarantors,
will constitute valid and legally binding obligations of the parties thereto in
accordance with their terms, except to the extent their enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or other laws
affecting the enforcement of creditors' rights generally or by general
principles of equity. Alexander and Stickle are executive officers of MLTC and
MLC, and have the full right and authority to execute this Borrowing Agreement
and the other Loan Documents on behalf of such entities. Each Guarantor and
Pledgor named in this Borrowing Agreement and the other Loan Documents has the
full right and authority to execute this Borrowing Agreement and the other Loan
Documents to which each is a party, and to perform his or her obligations as a
guarantor and pledgor thereunder.
4.4 Capitalization. The authorized capital of MLTC consists of
20,000,000 shares of common stock, no par value, and 5,000,000 shares of
preferred stock, $.01 par value, of which 1,691,542 shares of common stock are
issued and outstanding; of these, 960,000 shares of common stock, constituting
approximately 57% of MLTC's issued and outstanding shares of common stock, are
owned beneficially or of record by Alexander and Stickle. There are no options,
warrants, conversion privileges or other rights presently outstanding to
purchase or otherwise acquire any authorized but unissued shares of capital
stock of MLTC other than the following: the warrants issued to Lender evidenced
by the Warrant Certificate; the warrant issued to CS Capital on November 17,
1998; the warrants designated as the Series A Warrants, 82,500 of which are
issued and outstanding; the warrants designated as the Series B Warrants, 15,000
of which are issued and outstanding; and options granted pursuant to the
Multi-Link Telecommunications, Inc. Stock Option Plan, which authorizes the
issuance of up to 300,000 shares of common stock of MLTC, The authorized capital
of MLC consists of 1,000,000 shares of capital stock, of which 2,000 shares are
issued and outstanding; of these, 1,950 shares, constituting 97.5% of MLC's
issued and outstanding shares, are owned beneficially or of record by MLTC.
There are no options, warrants, conversion privileges or other rights presently
outstanding to purchase or otherwise acquire any authorized but unissued shares
of capital stock of MLC.
4.5 All Approvals and Consents Obtained. The execution,
delivery and performance of the Loan Documents by Borrower and each Guarantor
and Pledgor has been approved or consented to by all persons or entities whose
approval or consent is required. Lender's exercise of any remedies available to
it under the Loan Documents does not require the approval or consent of any
person.
4.6 No Untrue Statements of Material Fact. All information in
the Loan Documents or in connection with such documents given to Lender by
Borrower and each Guarantor and Pledgor, specifically including financial
information concerning Borrower, was true, complete and correct when given and
will be true, complete and correct at closing. No such information contains any
untrue statement of a material fact or omits a material fact necessary to make
such information not misleading.
AMENDMENT TO BORROWING AGREEMENT - 3
<PAGE> 4
4.7 Business Operated in Conformance with Laws. Borrower's
business has been operated in material conformance with all applicable laws and
regulations. Borrower has obtained all permits, licenses and authorizations
needed to operate its business. Borrower has not received any opinion or
memorandum or legal advice from any legal counsel to the effect that there is
any liability or disadvantage relating to its business that may be material to
Borrower.
4.8 Environmental Compliance. To the best knowledge of
Borrower, no part of the real property owned or leased by Borrower (all of which
is hereinafter referred to as the "Property") is (i) targeted for clean-up or
remediation of Hazardous Substances (which are hereinafter defined) or (ii)
otherwise not in compliance with applicable Environmental Laws (which are also
hereinafter defined). To the best knowledge of Borrower, there are no Hazardous
Substances on, in or under the Property or any part thereof which are in
violation of applicable Environmental Laws, and there are no underground storage
tanks on or under the Property. To the best knowledge of Borrower, each prior
owner or lessor of the Property has owned and operated the Property in
compliance with all applicable Environmental Laws. The term "Hazardous
Substance" means any substance or material defined or designated as hazardous or
toxic (or by any similar term) under any Environmental Law, including petroleum
products and friable asbestos. The term "Environmental Law" means federal, state
or local law, ordinance, rule or regulation relating to pollution or protection
of the environment or actual or threatened releases, discharges or emissions
into the environment.
4.9 Title to Assets. Borrower has good and clear record and
marketable title to its properties and title or valid and subsisting interests
in its other assets. Except as otherwise previously disclosed to Lender in
writing on Schedule 6.9 to the Borrowing Agreement, such assets are free and
clear of liens, encumbrances and adverse claims. The personal property of
Borrower comprise all of the property that has been used by Borrower for the
operation of its business, and is in good operating condition and repair,
subject only to ordinary normal wear and tear.
5. PRE-CLOSING REQUIREMENTS. Prior to and as a condition precedent to
the closing of the Loan pursuant to this Amendment, each of the conditions set
forth below must be met to Lender's satisfaction. In addition, Borrower must
meet to Lender's satisfaction all other conditions to the closing of the Loan as
may have been specified in writing by Lender to Borrower pursuant to a loan
commitment, term sheet, exhibit letter or other written instrument. The term
"closing" used in this Amendment shall mean the date this Amendment, the Amended
Note, the Amended Guaranty and the Registration Rights Agreement have been
executed and delivered by the parties thereto, and all other conditions to the
disbursement of the additional proceeds evidenced by the Amended Note are
satisfied.
5.1 Loan Documents. All of the Loan Documents shall have been executed
and delivered to Lender by Borrower, Guarantors and such other persons or
entities as Lender may require; any other Loan Documents to be recorded or filed
shall have been duly recorded and filed in the appropriate offices.
5.2 Registration Statement Declared Effective and Public Offering
Completed. The Registration Statement shall have been declared effective by the
Commission, the securities included in such Registration Statement shall have
been sold, and the proceeds thereof, net of underwriting discounts and
commissions, shall have been remitted to MLTC.
5.3 Reduction of Indebtedness. Borrower shall pay Lender $2,090,000,
representing all but $10,000 of the principal and accrued but unpaid interest
due Lender under the Note.
5.4 UCC Searches. Lender shall have conducted such additional uniform
commercial code searches of Borrower and Guarantors as Lender may require, and
such searches shall show no filings related to or which could relate
AMENDMENT TO BORROWING AGREEMENT - 4
<PAGE> 5
to the collateral for the Loan, other than filings made pursuant to the Loan
Documents or otherwise approved by Lender.
5.5 Financial Condition. Lender shall be satisfied that the financial
condition and credit of Borrower, and all information relating to Borrower's
business, is as represented to Lender, without any material change.
5.6 Permits and Licenses. Borrower shall continue to hold all permits
and licenses necessary to the operation of its business.
5.7 Litigation. There shall be no litigation pending against Borrower
or any Guarantor which, in Lender's opinion, could or does affect Borrower's
ability to operate its business, or Borrower's or any Guarantor's ability to
otherwise perform all of the terms and provisions of this Amendment and the
other Loan Documents.
5.8 Delivery of Amended Pledge Agreement and Stock Certificates.
Alexander and Stickle shall have delivered to Lender a fully executed copy of
the Amended Pledge Agreement and certificates for the shares of common stock of
MLTC, duly endorsed in blank or accompanied by stock powers endorsed in blank.
5.9 Other Conditions. All other provisions of this Amendment or any
other Loan Document to be complied with prior to the closing and disbursement of
the additional proceeds evidenced by the Amended Note shall have been complied
with, and all of the representations and warranties of Borrower and each
Guarantor in this Amendment and the other Loan Documents shall be true and
correct in all material respects.If Lender disburses Loan funds without
requiring Borrower or any Guarantor to satisfy each of the foregoing conditions,
Borrower's obligation to meet the unsatisfied conditions shall not be deemed
waived (unless specifically waived in writing by Lender) and Lender may require
compliance with each of such conditions before further Loan disbursements are
made.
6. CLOSING. The closing of the Loan shall occur as of, and be evidence
by, the completion of the following events:
6.1 Execution of Loan Documents. The respective parties thereto shall
have signed (and, where appropriate, acknowledged) and delivered to Lender this
Amendment to Borrowing Agreement and the other Loan Documents each is required
to sign.
6.2. Insurance. If not previously delivered, Borrower shall deliver to
Lender a certificate or certificates evidencing the insurance coverage specified
in Section 8.3 of the Borrowing Agreement.
AMENDMENT TO BORROWING AGREEMENT - 5
<PAGE> 6
[The balance of this page has been left blank intentionally.]
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LEND MONEY, EXTEND
CREDIT OR FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
IN WITNESS WHEREOF, the parties have executed this Borrowing Agreement
the day and year first above written.
LENDER:
Westburg Media Capital L.P., a Washington limited partnership, acting by and
through its general partner, Westburg Media Capital, Inc.
/s/
- -------------------------------------------------------------
Its duly authorized officer
BORROWER:
Multi-Link Telecommunications, Inc., a Colorado corporation
/s/
- -------------------------------------------------------------
its duly authorized officer
Multi-Link Communications, Inc., a Colorado corporation
/s/
- -------------------------------------------------------------
its duly authorized officer
GUARANTORS:
/s/ Nigel V. Alexander
- -------------------------------------------------------------
Nigel V. Alexander
/s/ Shawn B. Stickle
- -------------------------------------------------------------
Shawn B. Stickle
AMENDMENT TO BORROWING AGREEMENT - 6
<PAGE> 1
EXHIBIT 4.10
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of the 15th day of April 1999, by and between Multi-Link
Telecommunications, Inc., a Colorado corporation (hereinafter the "Company"),
and Westburg Media Capital L.P., a Washington limited partnership (hereinafter
"Westburg Media"), acting by and through its general partner, Westburg Media
Capital, Inc., a Washington corporation.
RECITALS:
A. The Company, its wholly-owned subsidiary, Multi-Link Communications,
Inc, a Colorado corporation (hereinafter "Subsidiary"), Westburg Media and
others have entered into a borrowing agreement dated September 25, 1998 (the
"Borrowing Agreement"), pursuant to which Westburg Media had made a secured loan
to the Company and Subsidiary.
B. Pursuant to the Borrowing Agreement, and as additional consideration
for the loan, the Company has granted Westburg Media warrants to purchase up to
250,000 shares of common stock of Company, no par value (the "Common Stock"), at
the purchase price per share of $2.50 at any time or from time to time prior to
5:00 p.m., Denver, Colorado time, on the Expiry Date (as defined in the Warrant
Certificate), all subject to the terms, conditions and adjustments set forth in
a certificate of warrant of even date with the Borrowing Agreement (the "Warrant
Certificate").
C. The Company has agreed to grant Westburg Media certain registration
rights under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the shares of Common Stock evidenced by the Warrant Certificate.
NOW THEREFORE, in consideration of the premises hereto and the
covenants and agreements herein contained, the Company hereby covenants and
agrees with Westburg Media as follows:
1. CERTAIN DEFINITIONS. Certain of the capitalized terms used in this
Agreement have the meanings set forth above. Other terms have the meanings set
forth below:
"Commission" means the Securities and Exchange Commission.
"February 1999 Registration Statement" means that certain registration
statement on Form SB-2 filed by the Company with the Commission on February 24,
1999 pursuant to the Securities Act in connection with the public offering of
1,200,000 units (each unit consisting of one share of Common Stock and one
Common Stock purchase warrant) of the Company's securities. February 1999
Registration Statement shall not include any post-effective amendment to such
registration statement, if a purpose of such post-effective amendment is to
increase the number of shares of Common Stock or other securities of the Company
included in such registration statement.
"Registrable Securities" means all or any portion of the shares of
Common Stock issuable to Westburg Media pursuant to the Warrant Certificate and
any other securities issued by the Company with respect to such Common Stock (by
means of stock splits, stock dividends, reclassification, recapitalizations,
mergers, consolidations or similar events).
"Registration Expenses" means the following expenses incident to the
filing of a Registration Statement: all Commission and National Association of
Securities Dealers, Inc. registration and filing fees and expenses, fees and
expenses of compliance with securities or blue sky laws, the fees and expenses
incurred by the Company in connection with any listing of the Registrable
Securities to be registered, printing fees and reasonable legal and accounting
fees and disbursements of the Company.
REGISTRATION RIGHTS AGREEMENT - 1
<PAGE> 2
"Registration Statement" means a registration statement filed by the
Company with the Commission pursuant to the Securities Act in connection with
the public offering of any equity securities of the Company for its own account
or for the account of others; provided, however, that Registration Statement
does not include the February 1999 Registration Statement, or a registration
statement on Form S-8 or any successor to such form.
"Required Registration Period" shall mean the period commencing upon
the expiration of that certain lock-up agreement among the Company, Westburg
Media and Schneider Securities, Inc. executed in contemplation of the offering
to be made pursuant to the February 1999 Registration Statement, and ending
December 31, 2003; provided, however, that if the period for repaying all
amounts due under the Borrowing Agreement (and the other loan documents referred
to in such Borrowing Agreement) is extended to a date subsequent to October 31,
2003, then the Required Registration Period shall be extended for a period of
sixty (60) days beyond the date amounts due under the Borrowing Agreement are to
be repaid.
"Rule 415" means Rule 415 promulgated under the 1933 Act or any
successor rule.
2. PIGGYBACK REGISTRATION. If at any time during the Required
Registration Period the Company should prepare and file a Registration Statement
under the Securities Act, then, unless objected to by the managing
underwriter(s) listed in such Registration Statement, the Company shall include
in such Registration Statement such number of Registrable Securities (which in
no event shall be less than 50% of the Registrable Securities then owned by
Westburg Media) as Westburg Media may request. The Company shall provide
Westburg Media with timely written notice of any Registration Statement prepared
pursuant to this Section 2 at least twenty (20) business days prior to the
anticipated filing date of such Registration Statement with the Commission, in
order that Westburg Media may determine whether any Registrable Securities are
to be included.
3. REQUIRED REGISTRATION. At any time during the Required Registration
Period, Westburg Media may request the Company to effect the registration of all
of the Registrable Securities held by it. The Company, upon receipt of such
notice, shall file a Registration Statement within ninety (90) days. If
requested by Westburg Media, such Registration Statement shall be a "shelf"
Registration Statement filed pursuant to Rule 415. The right of Westburg Media
to request registration pursuant to this Section 3 may be effected by Westburg
Media only once during the Required Registration Period, and shall not be
effected at all if, prior to the expiration of the Required Registration Period,
more than eighty percent (80%) of the Registrable Securities have been sold or
otherwise disposed of by Westburg Media.
4. SHORT-FORM REGISTRATION. Provided Westburg Media has first requested
registration pursuant to Section 2 of this Agreement, at any time within two
years from and after the expiration of the Required Registration Period, it may
request the Company to effect the registration of all of the remaining
Registrable Securities held by such requesting Holders pursuant to a
Registration Statement on Form S-2 or Form S-3, or any successors to such forms,
provided the Company is then eligible to use either of such Registration
Statement forms. The Company, upon receipt of such notice, shall file a
Registration Statement on either of such forms within ninety (90) days. If
requested by the Holders, such Registration Statement shall be a "shelf"
Registration Statement filed pursuant to Rule 415. The right of Westburg Media
to request registration pursuant to this Section 4 may be effected by it only
once, and may not be effected if the Registrable Securities have been registered
pursuant to Section 3 hereof.
5. REGISTRATION PROCEDURES. If and whenever the Company is requested by
Westburg Media to register any Registrable Securities pursuant to Section 2,
Section 3 or Section 4 hereof, the Company shall use its best efforts to effect
such registration as soon as practicable, and in connection therewith, the
Company shall:
(a) prepare and file with the Commission a Registration
Statement with respect to such Registrable Securities on the
appropriate form and within the time period required by Section 2,
Section 3 or Section 4 hereof, and use its best efforts to cause such
Registration Statement to become effective as soon as practicable
following the date of filing thereof;
REGISTRATION RIGHTS AGREEMENT - 2
<PAGE> 3
(b) prepare and file with the Commission any amendments to the
Registration Statement or supplements to the prospectus included
therein, and such other filings, as may be necessary to maintain the
effectiveness of the Registration Statement for (i) a period of not
less than 90 days (or such shorter period as may be necessary to
complete the distribution of the Registrable Securities in accordance
with the intended method of distribution) or (ii) for a period of six
months following the date of effectiveness thereof in the case of a
shelf Registration Statement under Rule 415; and
(c) Use its best efforts to register or qualify the
Registrable Securities under the securities or blue sky laws of each
jurisdiction which the Holders reasonably (after consultation with the
Company) shall designate.
6. REGISTRATION EXPENSES.
(a) In connection with any registration pursuant to Section 2
or Section 3 hereof, the Company shall bear all of the Registration Expenses
incident to the registration of the Registrable Securities, and in connection
with any registration pursuant to Section 4 hereof, the Company and the Holders
shall bear all of the Registration Expenses incident to the registration of the
Registrable Securities equally. All other Registration Expenses (including, by
way of example only, Registration Expenses incident to the registration of any
securities for the account of the Company or any selling shareholder(s) other
than Westburg Media) shall be borne by the Company and such other selling
shareholder(s).
(b) In connection with any registration pursuant to Section 2,
Section 3 or Section 4 hereof, Westburg Media shall be responsible for
all underwriting commissions, fees or similar costs in respect of the
offer or sale of Registerable Securities.
7. INDEMNIFICATION. In connection with any Registration Statement filed
hereunder and in which Registrable Securities are included, any liabilities
arising as a result of information contained in such Registration Statement or
any related prospectus being false or misleading will be subject to the
following provisions as to indemnification:
(a) The Company agrees to indemnify Westburg Media within the
meaning of the Securities Act against any losses, claims, damages or liabilities
to which it may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
any preliminary prospectus, the prospectus or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they are
made, not misleading; and will reimburse Westburg Media for any legal or other
expenses reasonably incurred by Westburg Media in connection with investigating
or defending any such loss, claim, damage, liability, action or proceeding;
provided, however, that the Company will not be liable in any such case 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 the Registration Statement, the preliminary prospectus, the
prospectus or such amendment or supplement, in reliance upon and in conformity
with written information furnished to the Company by or through Westburg Media
specifically for use in the preparation thereof. This indemnity will be in
addition to any liability which the Company may otherwise have.
(b) Westburg Media will indemnify and hold harmless the
Company, each of its directors, each of its officers who have singed the
Registration Statement, and each person, if any, who controls the Company,
within the meaning of the Securities Act or otherwise, insofar a such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, any preliminary
prospectus, the prospectus or any
REGISTRATION RIGHTS AGREEMENT - 3
<PAGE> 4
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, in the light of the
circumstances under which they are made, not misleading; and will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer or controlling person in connection with investigating or defending any
such loss, claim, damage, liability, action or proceeding; provided, however,
that Westburg Media will be liable, 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 the Registration Statement, preliminary prospectus,
the prospectus or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or through
Westburg Media specifically for use in the preparation thereof. This indemnity
will be in addition to any liability which Westburg Media may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Agreement of notice of the commencement of any action or proceeding, such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party hereunder, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Agreement. In case any such action or proceeding is brought against
any indemnified party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein, and, to
the extent that it may wish, 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 so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party hereunder for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. An indemnifying party shall not be liable for any
settlement of any action or claim affected without its written consent thereto.
8. NOTICE. Any notice required or permitted hereunder to be given shall
be given by personal delivery, prepaid registered mail or facsimile
communication, if to the Company, to Multi-Link Telecommunications, Inc. 811
Lincoln Street, Denver, Colorado 80203, Attention: Mr. Nigel V. Alexander, and
if to Westburg Media, to Westburg Media Capital L.P., P.O. Box 28951, Spokane,
Washington 99228, Attention: Mr. John Weller, or at such other addresses as the
parties may designate in writing from time to time.
Any notice, direction or other instrument aforesaid if delivered shall
be deemed to have been given or made on the date on which it was delivered; if
mailed, shall be deemed to have been given or made on the fifth business day
following the date on which it was mailed; and if sent by facsimile, shall be
deemed to have been given or made on the next business day following the date on
which it was sent, Saturdays, Sundays and statutory holidays excepted. Either
party hereto may change its address for service from time to time by written
notice given in accordance with the foregoing. Notice by mail shall not be
effective during any postal strike or slowdown.
9. ASSIGNMENT. This Agreement may be assigned in whole or in part by
Westburg Media without the consent of the Company. This Agreement may not be
assigned by the Company without the prior written consent of Westburg Media.
10. GOVERNING LAW AND VENUE. This Agreement will be construed and the
rights, duties, and obligations of the parties will be determined in accordance
with the laws of the State of Washington and the federal laws of the United
States of America. If any action or other proceeding shall be brought in
connection with this Agreement, the venue of such action may, in the discretion
of Westburg Media, be in Spokane County, Washington. The Company hereby consents
to the exclusive personal jurisdiction of the Superior Court of Spokane County
and the United States District Court for the Eastern District of Washington.
11. HEADINGS. Headings used in this Agreement have been included for
convenience and ease of reference only, and will not influence the construction
or interpretation of any provision of this Agreement.
REGISTRATION RIGHTS AGREEMENT - 4
<PAGE> 5
12. WAIVER. No right or obligation under this Agreement will be deemed
to have been waived unless evidenced by a writing signed by the party against
whom the waiver is asserted, or by the party's duly authorized representative.
Any waiver will be effective only with respect to the specific instance
involved, and will not impair or limit the right of the waiving party to insist
upon strict performance or the right or obligation in any other instance, in any
other respect, or at any other time. No failure on the part of Westburg Media to
exercise, and no delay in exercising any right or obligation under this
Agreement shall operate as a waiver thereof.
13. COUNTERPART EXECUTION. This Agreement may be signed in counterparts
and by telefacsimile (to be followed by original signatures), and the
counterparts combined shall constitute a binding agreement among all parties.
14. SEVERABILITY. The parties intend that this Agreement be enforced to
the greatest extent permitted by applicable law. Therefore, if any provision of
this Agreement, on its face or as applied to any person or circumstance, is or
becomes unenforceable to any extent, the remainder of this Agreement and the
application of that provision to other persons, circumstances, or extent, will
not be impaired.
15. REFERENCES. Except as otherwise specifically indicated, all
references to numbered or lettered sections or subsections refer to sections or
subsections of this Agreement, and all references to this Agreement include any
subsequent amendments to this Agreement.
16. ATTORNEYS' FEES. If any litigation or other dispute resolution
proceeding is commenced between parties to this Agreement to enforce or
determine the rights or responsibilities of the parties, the prevailing party or
parties in the proceeding will be entitled to receive, in addition to any other
relief granted, its reasonable attorneys' fees, expenses and costs. Such fees,
expenses and costs shall include all statutory costs and disbursements, all
costs associated with discovery depositions and expert witness fees, and all
out-of-pocket costs incurred by the prevailing party in the prosecution or
defense of the action. For purposes of this section, the phrase "litigation or
other dispute resolution" shall be deemed to include any proceeding commenced in
any court of general or limited jurisdiction, any arbitration or mediation, any
proceeding commenced in the bankruptcy courts of the United States, and any
appeal from any of the foregoing.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed and delivered as of the day and year first above written.
COMPANY: Multi-Link Telecommunications, Inc.,
a Colorado corporation
By: /s/ Nigel V. Alexander
------------------------------------------
Nigel V. Alexander,
its duly authorized officer
WESTBURG MEDIA: Westburg Media Capital L.P.,
a Washington limited partnership
By: Westburg Media Capital, Inc., a Washington
corporation, its general partner
By: /s/ John Weller
------------------------------------------
John Weller,
its duly authorized officer
REGISTRATION RIGHTS AGREEMENT - 5
<PAGE> 1
EXHIBIT 5.1
April 15, 1999
Multi-Link Telecommunications, Inc.
811 Lincoln Street, Suite 500
Denver, Colorado 80203
Gentlemen:
You have requested our opinion as to certain matters arising under the
Colorado Business Corporation Act which relate to the issuance of the shares of
$0.01 par value common stock ("Common Stock") and common stock purchase warrants
("Warrants") which are described on the cover page of Registration Statement No.
333-72889 as filed with the United States Securities and Exchange Commission.
We have reviewed the Restated Articles of Incorporation, as amended, of
the Company, the minutes of the board of directors and of the shareholders of
the Company and such other documents that we considered necessary in order to
render this opinion. As a result of our review, we are of the opinion that the
shares of Common Stock and Warrants are validly authorized, and assuming the
shares of Common Stock and Warrants are paid for as described in such
Registration Statement, when issued, the shares of Common Stock and Warrants
will be validly issued, fully paid and nonassessable under the Colorado Business
Corporation Act.
This opinion is limited to applicability of the Colorado Business
Corporation Act and Colorado common law to the issuance of the shares of Common
Stock and Warrants. This opinion does not cover or in any way relate to the
applicability of, or compliance by the Company with, any other law, including
any federal or state securities laws, the statutory or common law of any other
state or any other federal law which may apply to transactions including the
sale of a security.
We consent to you describing this firm as having issued the opinion in
the Prospectus which is a part of the Registration Statement referenced above.
SMITH McCULLOUGH, P.C.
<PAGE> 1
EXHIBIT 10.8
LEASE
THIS LEASE AGREEMENT (this "Lease") is entered into as of March 29,
1999, among LAKESIDE HOLDINGS, L.L.C., a Delaware limited liability company
("Landlord") and MULTI-LINK TELECOMMUNICATIONS, INC., a Colorado corporation
("Tenant"), and MULTI-LINK COMMUNICATIONS, INC., a Colorado corporation
("Guarantor").
1. LEASE GRANT. Subject to the provisions of Section 30 and Section 31
of the Addendum to this Lease and the remaining terms hereof, Landlord leases to
Tenant, and Tenant leases from Landlord, approximately 3,067 rentable square
feet on the fourth floor, identified as Suite 420 (the "Premises"), and as
depicted in the plan attached as Exhibit A-1 in the office building (the
"Building") located at Lakeside Office Park, 4704 Harlan Street, Lakeside,
Colorado, which Building is depicted on Exhibit B attached hereto, and which
Building is part of the Complex (hereinafter defined) known as Lakeside Plaza
and located on the Real Property more particularly described on Exhibit C
attached hereto and made a part hereof. The term "Complex" includes the Building
and all other buildings located at 4690 and 4704 Harlan Street and 12, 14, and
16 Lakeside Lane, the related land (including the Real Property), driveways,
parking facilities, and similar improvements.
2. TERM. The term of this Lease shall be thirty-six (36) months,
commencing May 1, 1999 (the "Commencement Date"), and expiring at 5:00 p.m.,
thirty-six months thereafter (the "Term", which definition shall include all
renewals of the initial Term). If the Commencement Date is not the first day of
a calendar month, then the Term shall be extended by the number of days between
the Commencement Date and the first day of the next month. If the Premises are
not ready for occupancy by Tenant on the Commencement Date, then (a) Tenant's
obligation to pay Basic Rent and Additional Rent (as defined in Section 3) shall
be waived until Landlord tenders possession of the Premises to Tenant, (b) the
Term shall be extended by the time between the scheduled Commencement Date and
the date on which Landlord tenders possession of the Premises to Tenant, and (c)
Landlord shall not be in default hereunder or be liable for damages therefor.
However, if the Premises are not ready for occupancy by Tenant within 60 days
after the scheduled Commencement Date, Tenant may, in its sole discretion,
terminate this Lease, in which event all sums previously paid by Tenant shall be
returned to Tenant and neither party shall thereafter have any liability
hereunder. Tenant agrees to execute and deliver to Landlord an Estoppel and
Commencement Date Certificate, within ten (10) days of the date the term
commences, certifying as to the actual commencement and termination dates of the
Term and such other matters as may be required by Landlord. Prior to the
Commencement Date and after Landlord has completed certain improvements on the
Premises, specifically the construction of a wall and the installation of
carpet, Tenant shall have access to the Premises, without charge, for the sole
purpose of installing network wiring and telephone wires.
3. RENT.
(a) Basic Rent. "Basic Rent" (herein so called) shall be the
following amounts for the following periods of time:
<TABLE>
<CAPTION>
Time Period Annual Basic Rent Monthly Basic Rent
----------- ----------------- -------------------
<S> <C> <C>
Months 1 - 36: $ 52,139.04 $ 4,344.92
</TABLE>
(b) Payment. Tenant shall timely pay to Landlord Basic Rent
and all additional sums to be paid by Tenant to Landlord under this
Lease (collectively, the "Rent"), without deduction or set off, but
subject to abatement pursuant to the provisions of Section 6(c) of this
Lease, at Landlord's address provided for in this Lease or as otherwise
specified by Landlord. Basic Rent, adjusted as herein provided, shall
be payable monthly in advance, and shall be accompanied by all
applicable state and local sales or use taxes. The first monthly
installment of Basic Rent shall be payable contemporaneously with the
execution of this Lease; thereafter, Basic Rent shall be payable on the
first day of each month beginning on the first day of the second full
calendar month of the Term. The monthly Basic Rent for any partial
month at the beginning of the Term shall equal the product of 1/365 of
the annual Basic Rent in effect during the partial month and the number
of days in the partial month from and after the Commencement Date and
shall be due on the Commencement Date.
(c) Operating Costs.
(1) Tenant shall pay an amount (per each rentable
square foot in the Premises) ("Additional Rent") which is
Tenant's Proportionate Share (defined below) of the amount by
which the Operating Costs incurred with respect to any
calendar year (or partial calendar year) exceed the Operating
Expense Base Amount (defined below). For purposes of this
Lease, "Operating Expense Base Amount" shall mean $4.83 per
rentable square foot per annum. Landlord may collect such
amount in a lump sum, which shall be due within 30 days after
Landlord furnishes to Tenant the Operating Costs and Tax
Statement (defined below). Alternatively, Landlord may make a
good faith estimate of the Additional Rent to be due by Tenant
for any calendar year or part thereof during the Term, and
Tenant shall pay to Landlord, on the Commencement Date and on
the first day of each calendar month thereafter, an amount
equal to the estimated Additional Rent for such calendar year
or part thereof divided by the number of months therein. From
time to time, Landlord may estimate and re-estimate the
Additional Rent to be due by Tenant and deliver a copy of the
estimate or re-estimate to Tenant. Thereafter, the monthly
installments of Additional Rent payable by Tenant shall be
appropriately adjusted in accordance with the estimations so
that, by the end of the calendar year in question, Tenant
shall have paid all of the
<PAGE> 2
Additional Rent as estimated by Landlord. Any amounts paid
based on such an estimate shall be subject to adjustment as
herein provided when actual Operating Costs are available for
each calendar year.
(2) The term "Operating Costs" shall mean all
expenses and disbursements (subject to the limitations set
forth below) that Landlord incurs in connection with the
ownership, operation, and maintenance of the Complex,
determined in accordance with sound accounting principles
consistently applied, including, but not limited to, the
following costs: (A) reasonable wages and salaries of all
employees engaged in the operation, maintenance, and security
of the Complex, (including but not limited to accounting
staff, property management staff, asset management staff,
consulting engineers, secretarial support staff, and parking
lot consultants), including taxes, insurance and benefits
relating thereto; (B) all supplies and materials used in the
operation, maintenance, repair, replacement, and security of
the Complex; (C) costs for improvements made to the Complex
which, although capital in nature, are expected to reduce the
normal operating costs of the Complex, as well as capital
improvements made in order to comply with any law or
regulation hereafter promulgated by any governmental authority
or any new interpretation of any law or regulation hereafter
rendered, as amortized over the useful economic life of such
improvements as determined by Landlord in its reasonable
discretion; (D) cost of all utilities, except the cost of
utilities reimbursable to Landlord by the Complex's tenants
other than pursuant to a provision similar to this Section
3(c); (E) insurance expenses; (F) repairs, replacements, and
general maintenance of the Complex; (G) service or maintenance
contracts with independent contractors for the operation,
maintenance, repair, replacement, or security of the Complex
(including, without limitation, alarm service, window
cleaning, and elevator maintenance); and (H) a five percent
(5%) Management Fee computed on the basis of all Operating
Costs, as otherwise set forth in this Lease.
Operating Costs shall not include costs for (i)
capital improvements made to the Complex, other than capital
improvements described in Section 3(c)(2)(C) and except for
items which are generally considered maintenance and repair
items, such as painting of common areas, replacement of carpet
in elevator lobbies, governmentally required improvements, and
the like; (ii) repair, replacements and general maintenance
paid by proceeds of insurance or by Tenant or other third
parties; (iii) interest, amortization or other payments on
loans to Landlord; (iv) depreciation; (v) leasing commissions;
(vi) legal expenses for services, other than those that
benefit the Complex tenants generally (e.g., tax disputes);
(vii) renovating or otherwise improving space for occupants of
the Complex or vacant space in the Complex; (viii) Taxes
(defined below); (ix) federal income taxes imposed on or
measured by the income of Landlord from the operation of the
Complex; (x) advertising and promotional expenses (except for
two (2) tenant events per year); (xi) costs incurred due to
any fines and/or penalties due to Landlord's violation of any
applicable law, rule, regulation or code; (xii) expenses
incurred in connection with the enforcement of the terms of
any other tenant leases; and (xiii) inheritance, estate, gift,
transfer, succession, franchise and profit taxes, subject to
the provisions of Section 3(c)(3) below.
(3) Tenant shall pay as additional rent for each
calendar year that amount which is Tenant's Proportionate
Share of the amount by which the Taxes incurred with respect
to such calendar year (or partial calendar year) exceed the
Tax Base Amount (defined below). For purposes of this Lease,
"Tax Base Amount" shall mean $1.17 per rentable square foot
per annum. Tenant shall pay its Proportionate Share of Taxes
in the same manner as provided above for Additional Rent with
regard to Operating Costs. "Taxes" shall mean taxes,
assessments, and governmental charges whether federal, state,
county or municipal, and whether they be by taxing districts
or authorities presently taxing or by others, subsequently
created or otherwise, and any other taxes and assessments
attributable to the Complex (or its operation), excluding,
however, penalties and interest thereon and federal and state
taxes on income (if the present method of taxation changes so
that in lieu of the whole or any part of any Taxes, there is
levied on Landlord a capital tax directly on the rents
received therefrom or a franchise tax, assessment, or charge
based, in whole or in part, upon such rents for the Complex,
then all such taxes, assessments, or charges, or the part
thereof so based, shall be deemed to be included within the
term "Taxes" for purposes hereof). Taxes shall include the
costs of consultants retained in an effort to lower taxes and
all costs incurred in disputing any taxes or in seeking to
lower the tax valuation of the Complex.
(4) By August 1 of each calendar year, or as soon
thereafter as practicable, Landlord shall furnish to Tenant a
statement of Operating Costs for the previous year, adjusted
as provided in Section 3(d)(6), and of the Taxes for the
previous year (the "Operating Costs and Tax Statement"). If
the Operating Costs and Tax Statement reveals that Tenant paid
more for Operating Costs than the actual amount for the year
for which such statement was prepared, or more than its actual
share of Taxes for such year, then Landlord shall promptly
credit or reimburse Tenant for such excess; likewise, if
Tenant paid less than Tenant's actual Proportionate Share of
Additional Rent or share of Taxes due, then Tenant shall
promptly pay Landlord such deficiency.
(5) As used herein, Tenant's "Proportionate Share"
shall be 2.356% which is the percentage obtained by dividing
the rentable square feet of area in the Premises, which is
stipulated to be 3,067 rentable square feet by the total
number of square feet of area in the Complex, which is
stipulated to be 130,150 rentable square feet (being 95% of
the rentable area of the office space in the Complex).
With respect to any calendar year or partial
calendar year in which the Complex is not occupied to the
extent of 95% of the rentable area thereof, the Operating
Costs for such period shall, for the purposes hereof, be
increased to the amount which would have been incurred had the
Complex been occupied to the extent of 95% of the rentable
area thereof.
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(6) Tenant will be entitled from time to time to
audit and verify the Operating Costs and the related books and
records of Landlord to assure that the Operating Costs from
time to time reported by Landlord are in keeping with the
provisions of this Section 3(c). In the event of any errors,
the appropriate party will make a correcting payment in full
to the other party within 30 days after the determination and
communication to all parties of the amount of such error. In
the event of any errors on the part of Landlord in excess of
3% of Tenant's actual Operating Costs liability for that
calendar year, Landlord will also reimburse Tenant for all
reasonable costs of the audit and verification reasonably
incurred by Tenant within the 30-day period.
4. DELINQUENT PAYMENT; HANDLING CHARGES. All past due payments (those
outstanding more than ten (10) days) required of Tenant hereunder shall bear
interest from the date due until paid at the rate of eighteen percent (18%) per
annum (the "Interest Rate"); additionally, Landlord may charge Tenant a fee
equal to five percent (5%) of the delinquent payment to reimburse Landlord for
its cost and inconvenience incurred as a consequence of Tenant's delinquency. In
no event, however, shall the charges permitted under this Section 4 or elsewhere
in this Lease, to the extent they are considered to be interest under law,
exceed the maximum lawful rate of interest.
5. SECURITY DEPOSIT. Contemporaneously with the execution and delivery
of this Lease by Tenant, Tenant shall pay Landlord the amount of $3,000.00 (the
"Security Deposit"), which shall be held by Landlord to secure Tenant's
performance of its obligations under this Lease. In the event the Substitute
Premises or Alternative Substitution Premises become the Premises as provided in
Section 30 or Section 31, respectively, of the Addendum, Tenant shall pay
Landlord the amount of $39,286.00 as an addition to the Security Deposit. In the
event the Tenant pays such addition to the Security Deposit and Tenant has not
been in default in the performance of its obligations under this Lease after the
expiration of twelve (12) months after the Substitute Premises Commencement Date
(hereinafter defined in Section 30) or Alternative Substitute Premises
Commencement Date (defined in Section 31), Landlord shall return a portion of
the Security Deposit to the Tenant in the amount of $12,686.02, and shall return
an additional amount of $12,686.02 of the Security Deposit to Tenant within
forty-five (45) days after expiration of the expiration of such twelve (12)
month period. In the event the Tenant pays such addition to the Security Deposit
and Tenant has not been in default in the performance of its obligations under
this Lease after the expiration of twenty-four (24) months after the
Substitution Premises Commencement Date or Alternative Substitute Premises
Commencement Date, Landlord shall return a portion of the Security Deposit to
Tenant in the amount of $12,686.02, and shall return an additional amount of
$12,686.02 of the Security Deposit to Tenant within forty-five (45) days after
the expiration of such twenty-fourth month period. The Security Deposit
(including any addition thereto) is not an advance payment of Rent or a measure
or limit of Landlord's damages upon an Event of Default (defined in Section 16).
Landlord may, from time to time and without prejudice to any other remedy, use
all or a part of the Security Deposit to perform any obligation Tenant fails to
perform hereunder. Following any such application of the Security Deposit,
Tenant shall pay to Landlord on demand the amount so applied in order to restore
the Security Deposit to the amount of the security deposit immediately prior to
such application. Provided that Tenant has performed all of its obligations
hereunder, Landlord shall, within 30 days after the Term ends, return to Tenant
the portion of the Security Deposit which was not applied to satisfy Tenant's
obligations. The Security Deposit shall be held by Landlord in a separate
account maintained by Landlord for security deposits, and no interest shall be
paid thereon. If Landlord transfers its interest in the Premises and the
transferee assumes Landlord's obligations under this Lease, then Landlord may
assign the Security Deposit to the transferee and Landlord thereafter shall have
no further liability for the return of the Security Deposit.
6. LANDLORD'S OBLIGATIONS.
(a) Services. Landlord shall furnish to Tenant (1) water at
those points of supply provided for general use of tenants of the
Complex; (2) heated and refrigerated air conditioning as appropriate,
at such temperatures and in such amounts as are standard for comparable
buildings in the vicinity of the Complex; (3) janitorial service to the
Premises on weekdays, other than holidays, for Complex-standard
installations and such window washing as may from time to time be
reasonably required; (4) elevators for ingress and egress to the floor
on which the Premises are located, in common with other tenants,
provided that Landlord may reasonably limit the number of operating
elevators during non-business hours and holidays; and (5) electrical
current during normal business hours for equipment that does not
require more than 110 volts and whose electrical energy consumption
does not exceed normal office usage. Landlord shall maintain the common
areas of the Complex in reasonably good order and condition, except for
damage caused by a Tenant Party. If Tenant desires any of the services
specified in Section 6(a)(2) at any time other than between 7:00 a.m.
and 6:00 p.m. on weekdays and 8:00 a.m. to 12:00 p.m. on Saturdays
(excluding holidays), then such services shall be supplied to Tenant
upon the written request of Tenant delivered to Landlord before 3:00
p.m. on the business day preceding such extra usage, and Tenant shall
pay to Landlord the cost of such services within ten days after
Landlord has delivered to Tenant an invoice therefor. The costs
incurred by Landlord in providing after-hour HVAC service to Tenant
shall include costs for electricity, water, sewage, water treatment,
labor, metering, filtering, and maintenance reasonably allocated by
Landlord to providing such service. The minimum use of after-hours heat
or air conditioning shall be four (4) hours and the charge therefor,
including all of the above referenced costs, shall initially be $75.00
per hour for the first hour of any consecutive usage, and $50.00 per
hour for subsequent hours of consecutive usage, provided that Landlord
shall have the right, from time to time, to increase such charge as
Landlord's actual expenses incurred in connection with such usage
increase.
(b) Excess Utility Use. Landlord shall not be required to
furnish electrical current for equipment that requires more than 110
volts or other equipment whose electrical energy consumption exceeds
normal office usage. If Tenant's requirements for or consumption of
electricity exceed the electricity to be provided by Landlord as
described in Section 6(a), Landlord shall, at Tenant's expense, make
reasonable efforts to supply such service through the then-existing
feeders and risers serving the Complex and the Premises, and Tenant
shall pay
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to Landlord the cost of such service within ten days after Landlord has
delivered to Tenant an invoice therefor. Landlord may determine the
amount of such additional consumption and potential consumption by any
verifiable method, including installation of a separate meter in the
Premises installed, maintained, and read by Landlord, at Tenant's
expense. Tenant shall not install any electrical equipment unless
approved in advance by Landlord. The use of electricity in the Premises
shall not exceed the lesser of the capacity of existing feeders and
risers to or wiring in the Premises or 2.5 watts per rentable square
foot. Any risers or wiring required to meet Tenant's excess electrical
requirements shall, upon Tenant's written request, be installed by
Landlord, at Tenant's cost, if, in Landlord's judgment, the same are
necessary and shall not cause permanent damage to the Complex or the
Premises, cause or create a dangerous or hazardous condition, entail
excessive or unreasonable alterations, repairs, or expenses, or
interfere with or disturb other tenants of the Complex. If Tenant uses
machines or equipment in the Premises which affect the temperature
otherwise maintained by the air conditioning system or otherwise
overload any utility, Landlord may install supplemental air
conditioning units or other supplemental equipment in the Premises, and
the cost thereof, including the cost of installation, operation, use,
and maintenance, shall be paid by Tenant to Landlord within ten days
after Landlord has delivered to Tenant an invoice therefor. Landlord
shall not be responsible for the failure of the HVAC system to provide
normal comfort if such failure results from occupancy of the Premises
by more than an average of one person for each 200 square feet of floor
area or if Tenant uses heat-producing equipment or equipment the
electrical load of which, when combined with the load of all lighting
fixtures, exceeds 2.5 watts per square foot of floor area in any one
room or area. In addition, if the Premises are used in a manner
exceeding the aforementioned occupancy and electric load criteria or if
such window covering requirement shall not be observed or if
heat-producing or controlled climate equipment is used, Tenant shall
pay to Landlord, promptly upon billing, Landlord's additional costs of
supplying air conditioning resulting from such causes, at such rates as
Landlord shall establish therefore. Tenant agrees at all times to
cooperate fully with Landlord and to abide by all the regulations and
requirements which Landlord may prescribe for the proper functioning
and protection of the HVAC system.
(c) Restoration of Services; Abatement. Landlord shall use
reasonable efforts to restore any service required of it that becomes
unavailable; however, such unavailability shall not render Landlord
liable for any damages caused thereby, be a constructive eviction of
Tenant, constitute a breach of any implied warranty or, entitle Tenant
to any abatement of Tenant's obligations hereunder.
7. IMPROVEMENTS; ALTERATIONS; REPAIRS; MAINTENANCE.
(a) Improvements; Alterations. Improvements to the Premises
shall be installed at Tenant's expense only in accordance with plans
and specifications which have been previously submitted to and approved
in writing by Landlord. Prior to making any improvements, physical
additions or other alterations in or to the Premises, Tenant must
provide stamped architectural and engineering drawings to the Landlord
for review and approval, and shall also pay all costs and expenses to
update any of Landlord's drawings relating to the Complex. No
alterations or physical additions in or to the Premises may be made
without Landlord's prior written consent, which shall not be
unreasonably withheld or delayed; however, Landlord may withhold its
consent to any alteration or addition that would affect the Building's
structure or its HVAC, plumbing, electrical, or mechanical systems.
Tenant shall not paint or install lighting or decorations, signs,
window or door lettering, or advertising media of any type on or about
the Premises without the prior written consent of Landlord, which shall
not be unreasonably withheld or delayed; however, Landlord may withhold
its consent to any such painting or installation which would affect the
appearance of the exterior of the Building or of any common areas of
the Complex. All alterations, additions, or improvements made in or
upon the Premises shall, at Landlord's option, either be removed by
Tenant prior to the end of the Term (and Tenant shall repair all damage
caused thereby), or shall remain on the Premises at the end of the Term
without compensation to Tenant. All alterations, additions, and
improvements shall be constructed, maintained, and used by Tenant, at
its risk and expense, in accordance with all Laws (defined below);
Landlord's approval of the plans and specifications therefor shall not
be a representation by Landlord that such alterations, additions, or
improvements comply with any Law.
(b) Repairs; Maintenance. Tenant shall maintain the Premises
in a clean, safe, and operable condition, and shall not permit or allow
to remain any waste or damage to any portion of the Premises. Tenant
shall repair or replace, subject to Landlord's direction and
supervision, any damage to the Complex caused by a Tenant Party. If
Tenant fails to make such repairs or replacements within 15 days after
the occurrence of such damage, then Landlord may make the same at
Tenant's cost. If any such damage occurs outside of the Premises, then
Landlord may elect to repair such damage at Tenant's expense, rather
than having Tenant repair such damage. The cost of all repair or
replacement work performed by Landlord under this Section 7 shall be
paid by Tenant to Landlord within ten days after Landlord has invoiced
Tenant therefor.
(c) Performance of Work. All work described in this Section 7
shall be performed only by Landlord or by contractors and
subcontractors approved in writing by Landlord. Landlord may charge a
construction management fee of 5% in connection with the performance of
any such work, which fee shall be paid by Tenant. Tenant shall cause
all contractors and subcontractors to procure and maintain insurance
coverage naming Landlord as an additional insured against such risks,
in such amounts, and with such companies as Landlord may reasonably
require. All such work shall be performed in accordance with all Laws
and in a good and workmanlike manner so as not to damage the Premises,
the Complex, or the components thereof.
(d) Mechanic's Liens. Tenant shall not permit any mechanic's
liens to be filed against the Premises or the Complex for any work
performed, materials furnished, or obligation incurred by or at the
request of Tenant. If such a lien is filed, then Tenant shall, within
ten days after Landlord has delivered notice of the filing thereof to
Tenant, either pay the amount of the lien, cause the lien to be
released of record or diligently contest
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such lien and deliver to Landlord a bond or other security reasonably
satisfactory to Landlord. If Tenant fails to timely take either such
action, then Landlord may pay the lien claim, and any amounts so paid,
including expenses and interest, shall be paid by Tenant to Landlord
within ten days after Landlord has invoiced Tenant therefor.
8. USE. Tenant shall continuously occupy and use the Premises only for
general office purposes (the "Permitted Use") and shall comply with all Laws
relating to the use, condition, access to, and occupancy of the Premises. The
Premises shall not be used for any use which is disreputable, creates
extraordinary fire hazards, or results in an increased rate of insurance on the
Complex or its contents, or for the storage of any hazardous materials or
substances. If, because of a Tenant Party's acts, the rate of insurance on the
Complex or its contents increases, then such acts shall be an Event of Default,
Tenant shall pay to Landlord the amount of such increase on demand, and
acceptance of such payment shall not waive any of Landlord's other rights.
Tenant shall conduct its business and control each other Tenant Party so as not
to create any nuisance or unreasonably interfere with other tenants or Landlord
in its management of the Complex.
9. ASSIGNMENT AND SUBLETTING.
(a) Transfers; Consent. Except as is otherwise set forth in
this Section 9, Tenant shall not, without the prior written consent of
Landlord, not to be unreasonably withheld or delayed, (1) assign,
transfer, or encumber this Lease or any estate or interest herein,
whether directly or by operation of law; (2) permit any other entity to
become Tenant hereunder by merger, consolidation, or other
reorganization unless: the survivor of the merger has a net worth of at
least the net worth of the Tenant on July 1, 1999, that Tenant gives
Landlord notice at least ten (10) business days before such event, and
such notice includes reasonable financial information relating to the
surviving entity; (3) if Tenant is an entity other than a corporation
whose stock is publicly traded, permit the transfer of an ownership
interest in Tenant so as to result in a change in the current control
of Tenant; (4) sublet any portion of the Premises; (5) grant any
license, concession, or other right of occupancy of any portion of the
Premises; or (6) permit the use of the Premises by any parties other
than Tenant (any of the events listed in Section 9(a)(1) through
9(a)(6) being a "Transfer"). A sublease to Telecom Sales Associates,
Inc., is hereby approved, but only for so long as the subleased space
does not exceed forty percent (40%) of the total Premises leased to
Tenant. Such approval is conditional upon the performance of each and
every covenant of this Lease. If Tenant requests Landlord's consent to
a Transfer, then Tenant shall provide Landlord with a written
description of all terms and conditions of the proposed Transfer,
copies of the proposed documentation, and the following information
about the proposed transferee: name and address; reasonably
satisfactory information about its business and business history; its
proposed use of the Premises; banking, financial, and other credit
information; and general references sufficient to enable Landlord to
determine the proposed transferee's creditworthiness and character.
Landlord shall not unreasonably withhold its consent to any assignment
or subletting of the Premises, provided that the proposed transferee
(A) is creditworthy; (B) has a good reputation in the business
community; (C) does not engage in business similar to those of other
tenants in the Complex; and (D) is not another occupant of the Complex
or person or entity with whom Landlord is negotiating to lease space in
the Complex; otherwise, Landlord may withhold its consent in its sole
discretion. Concurrently with Tenant's notice of any request for
consent to a Transfer, Tenant shall pay to Landlord a fee equal to the
greater of (i) $500.00, or (ii) all actual expenses incurred by
Landlord in reviewing such request, including without limitation
reasonable attorneys' fees incurred by Landlord in connection with
considering any request for consent to a Transfer. If Landlord consents
to a proposed Transfer, then the proposed transferee shall deliver to
Landlord a written agreement whereby it expressly assumes Tenant's
obligations hereunder; however, any transferee of less than all of the
space in the Premises shall be liable only for obligations under this
Lease that are properly allocable to the space subject to the Transfer
for the period of the Transfer. No Transfer shall release Tenant from
its obligations under this Lease, but rather Tenant and its transferee
shall be jointly and severally liable therefor. Landlord's consent to
any Transfer shall not waive Landlord's rights as to any subsequent
Transfers. If an Event of Default occurs while the Premises or any part
thereof are subject to a Transfer, then Landlord, in addition to its
other remedies, may collect directly from such transferee all rents
becoming due to Tenant and apply such rents against Rent. Tenant
authorizes its transferees to make payments of rent directly to
Landlord upon receipt of notice from Landlord to do so. Tenant shall
pay for the cost of any demising walls or other improvements
necessitated by a proposed subletting or assignment.
(b) Cancellation. Landlord may, within 30 days after
submission of Tenant's written request for Landlord's consent to an
assignment or subletting, cancel this Lease as to the portion of the
Premises proposed to be sublet or assigned as of the date the proposed
Transfer is to be effective. If Landlord cancels this Lease as to any
portion of the Premises, then this Lease shall cease for such portion
of the Premises and Tenant shall pay to Landlord all Rent accrued
through the cancellation date relating to the portion of the Premises
covered by the proposed Transfer. Thereafter, Landlord may lease such
portion of the Premises to the prospective transferee (or to any other
person) without liability to Tenant. Notwithstanding the above to the
contrary, one (1) time during the Term of this Lease, Tenant shall have
the right to withdraw its request for Landlord's consent to an
assignment or subletting by giving Landlord written notice of such
withdrawal within five (5) days of Tenant's receipt of Landlord's
notification of its intent to cancel the Lease. In the event Tenant
exercises its one (1) time right to withdraw its request for Landlord's
consent to assignment or subletting, in such instance Landlord shall
not have the right to cancel the Lease, but Landlord's right to cancel
the Lease upon any future request by Tenant for Landlord's consent to
an assignment or subletting shall not be affected, and Tenant shall
have no rights to withdraw such request.
(c) Additional Compensation. Tenant shall pay to Landlord,
immediately upon receipt thereof, fifty percent (50%) of the excess of
(1) all compensation received by Tenant for a Transfer less the costs
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reasonably incurred by Tenant with unaffiliated third parties in
connection with such Transfer (i.e., brokerage commissions, tenant
finish work, and the like) over (2) the Rent allocable to the portion
of the Premises covered thereby.
10. INSURANCE; WAIVERS; SUBROGATION; INDEMNITY.
(a) Insurance. Tenant shall maintain throughout the Term the
following insurance policies: (1) comprehensive general liability
insurance in amounts of $1,000,000 per occurrence with $1,000,000 in
the aggregate or such other amounts as Landlord may from time to time
reasonably require, insuring Tenant, Landlord, Landlord's agents and
their respective affiliates against all liability for injury to or
death of a person or persons or damage to property arising from the use
and occupancy of the Premises; (2) insurance covering the full value of
Tenant's property and improvements, and other property (including
property of others) in the Premises; (3) contractual liability
insurance sufficient to cover Tenant's indemnity obligations hereunder;
(4) worker's compensation insurance, containing a waiver of subrogation
endorsement acceptable to Landlord; and (5) business interruption
insurance. Tenant's insurance shall provide primary coverage to
Landlord when any policy issued to Landlord provides duplicate or
similar coverage, and in such circumstance Landlord's policy will be
excess over Tenant's policy. Tenant shall furnish to Landlord
certificates of such insurance and such other evidence satisfactory to
Landlord of the maintenance of all insurance coverages required
hereunder, and Tenant shall obtain a written obligation on the part of
each insurance company to notify Landlord at least 30 days before
cancellation or a material change of any such insurance policies. All
such insurance policies shall be in form, and issued by companies,
reasonably satisfactory to Landlord.
(b) Waiver of Negligence; No Subrogation. Landlord and Tenant
each waives any claim it might have against the other for any injury to
or death of any person or persons or damage to or theft, destruction,
loss, or loss of use of any property (a "Loss"), to the extent the same
is insured against under any insurance policy that covers the Complex,
the Premises, Landlord's or Tenant's fixtures, personal property,
leasehold improvements, or business, or, in the case of Tenant's
waiver, is required to be insured against under the terms hereof,
regardless of whether the negligence of the other party caused such
Loss; however, Landlord's waiver shall not include any deductible
amounts on insurance policies carried by Landlord or to any coinsurance
penalty which Landlord may sustain. Each party shall cause its
insurance carrier to endorse all applicable policies waiving the
carrier's rights of recovery under subrogation or otherwise against the
other party.
(c) Tenant's Indemnity. To the extent not prohibited by law,
Landlord, its agents and their respective officers, directors,
partners, agents, servants and employees shall not be liable for, and
it and they are hereby released by Tenant from all liability for, any
damage either to person or property or resulting from the loss of use
thereof or any other loss, or any death, sustained by Tenant or by
other persons claiming through Tenant due to the Complex, surrounding
property or any part thereof or any appurtenances thereof becoming out
of repair, or due to the happening of any accident or event in, on or
about the Complex or surrounding property, or due to any act or neglect
of any tenant or occupant of the Complex or of any other person;
excluding only the gross negligence or willful misconduct of Landlord,
its employees, agents or contractors. This provision shall apply
particularly, but not exclusively, to damage caused by gas,
electricity, snow, frost, steam, sewage, sewer gas or odors, fire,
water or by the bursting or leaking of pipes, faucets, sprinklers,
plumbing fixtures and windows, and shall apply without distinction as
to the person whose act or neglect was responsible for the damage and
whether or not such act or neglect occurred before, at or after the
execution of this Lease, and whether the damage was due to any of the
causes specifically enumerated above or to some other cause of an
entirely different kind. Tenant further agrees that all personal
property of Tenant upon the Premises, or upon loading docks, receiving
and holding areas, or elsewhere in, on or about the Property, shall be
at the risk of Tenant only, and that neither Landlord nor its agents,
nor their partners, directors or officers, shall be liable for any loss
or damage thereto or theft thereof. Without limitation of any other
provisions hereof, Tenant agrees to defend, protect, indemnify and save
harmless Landlord and its agents, and their respective partners,
officers, directors and employees, from and against all liability to
third parties arising out of the acts or omissions of Tenant or any
subtenant or the servants, agents, employees, contractors, suppliers,
workmen and invitees of Tenant or any subtenant. Tenant agrees to
indemnify and save harmless, and upon request, defend, Landlord, its
agents, and their respective partners, directors, officers and
employees (herein called "Indemnitees") against and from any and all
claims by or on behalf of any person, arising out of or related to:
(i) Tenant's use or occupancy of the Premises or the
conduct of its business, or any activity, work, or thing,
permitted or suffered by Tenant, in, on or about the Premises
or the Property;
(ii) any occurrence in, on or about the Premises;
(iii) any breach or default on Tenant's part in the
performance or observance of, or compliance with, any term,
covenant or condition on Tenant's part to be performed
pursuant to the terms of this Lease; or
(iv) any act or negligence of Tenant or any
subtenant, or any of their respective agents, contractors,
servants, employees, invitees or licensees, whether or not the
fault or negligence of Landlord or of any other Indemnitee or
of the agents, contractors, servants, employees, invitees or
licensees of Landlord or any Indemnitee, (whether or not
occurring before or after the execution of this Lease),
contributed thereto or was the cause thereof, and from and
against all costs, counsel fees, expenses, penalties, fines
and liabilities which Landlord or any other Indemnitee may
suffer or incur in connection with any such claim and any
action or proceeding brought with respect thereto. In the
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event that any action or proceeding shall be brought by reason
of any such claim, against any party to be indemnified
hereunder, Tenant covenants that Tenant, upon notice from such
party and at Tenant's expense, shall resist and defend such
action or proceeding by counsel reasonably satisfactory to
such party.
11. SUBORDINATION; ATTORNMENT; NOTICE TO LANDLORD'S MORTGAGEE.
(a) Subordination. This Lease shall be subordinate to any deed
of trust, mortgage, or other security instrument, or any ground lease,
master lease, or primary lease, that now or hereafter covers all or any
part of the Premises (the mortgagee under any such mortgage or the
lessor under any such lease is referred to herein as a "Landlord's
Mortgagee"). The provisions of this paragraph shall be self-operative
and no further instrument of subordination shall be required. However,
in confirmation of such subordination, Tenant shall promptly execute
and deliver to Landlord (or such other party so designated by Landlord)
at Tenant's own cost and expense, within five (5) business days after
request from Landlord an instrument, in recordable form if required,
that Landlord or Landlord's Mortgagee may request evidencing such
subordination. Any Landlord's Mortgagee may elect, at any time,
unilaterally, to make this Lease superior to its mortgage, ground
lease, or other interest in the Premises by so notifying Tenant in
writing.
(b) Attornment. Tenant shall attorn to any party succeeding to
Landlord's interest in the Premises, whether by purchase, foreclosure,
deed in lieu of foreclosure, power of sale, termination of lease, or
otherwise, upon such party's request, and, provided such succeeding
party recognizes Tenant's rights and duties under this Lease, shall
execute such agreements confirming such attornment as such party may
reasonably request.
(c) Notice to Landlord's Mortgagee. Tenant shall not seek to
enforce any remedy it may have for any default on the part of Landlord
without first giving written notice by certified mail, return receipt
requested, specifying the default in reasonable detail, to any
Landlord's Mortgagee whose address has been given to Tenant, and
affording such Landlord's Mortgagee a reasonable opportunity to perform
Landlord's obligations hereunder.
12. RULES AND REGULATIONS. Tenant shall comply with the rules and
regulations of the Complex which are attached hereto as Exhibit D. Landlord may,
from time to time, change such rules and regulations for the safety, care, or
cleanliness of the Complex and related facilities, provided that such changes
are applicable to all tenants of the Complex and will not unreasonably interfere
with Tenant's use of the Premises. Tenant shall be responsible for the
compliance with such rules and regulations by each Tenant Party.
13. CONDEMNATION.
(a) Total Taking. If the entire Complex or Premises are taken
by right of eminent domain or conveyed in lieu thereof (a "Taking"),
this Lease shall terminate as of the date of the Taking.
(b) Partial Taking - Tenant's Rights. If any part of the
Complex becomes subject to a Taking and such Taking will prevent Tenant
from conducting its business in the Premises in a manner reasonably
comparable to that conducted immediately before such Taking for a
period of more than 60 days, then Tenant may terminate this Lease as of
the date of such Taking by giving written notice to Landlord within 30
days after the Taking, and Rent shall be apportioned as of the date of
such Taking. If Tenant does not terminate this Lease, then Rent shall
be abated on a reasonable basis as to that portion of the Premises
rendered untenantable by the Taking.
(c) Partial Taking - Landlord's Rights. If any material
portion, but less than all, of the Complex becomes subject to a Taking,
or if Landlord is required to pay any of the proceeds received for a
Taking to a Landlord's Mortgagee, then Landlord may terminate this
Lease by delivering written notice thereof to Tenant within 30 days
after such Taking, and Rent shall be apportioned as of the date of such
Taking. If Landlord does not so terminate this Lease, then this Lease
will continue, but if any portion of the Premises has been taken, Rent
shall abate as provided in the last sentence of Section 13(b).
(d) Award. If any Taking occurs, then Landlord shall receive
the entire award or other compensation for the land on which the
Complex is situated, the Complex, and other improvements taken, and
Tenant may separately pursue a claim (to the extent it will not reduce
Landlord's award) against the condemnor for the value of Tenant's
personal property which Tenant is entitled to remove under this Lease,
moving costs, loss of business, and other claims it may have.
14. FIRE OR OTHER CASUALTY.
(a) Repair Estimate. If the Premises or the Complex are
damaged by fire or other casualty (a "Casualty"), Landlord shall,
within 60 days after such Casualty, deliver to Tenant a good faith
estimate (the "Damage Notice") of the time needed to repair the damage
caused by such Casualty.
(b) Landlord's and Tenant's Rights. If a material portion of
the Premises or the Complex is damaged by Casualty such that Tenant is
prevented from conducting its business in the Premises in a manner
reasonably comparable to that conducted immediately before such
Casualty and Landlord estimates that the damage caused thereby cannot
be repaired within 180 days after the Casualty, then Tenant may
terminate this Lease by delivering written notice to Landlord of its
election to terminate within 30 days after the Damage Notice has been
delivered to Tenant. If Tenant does not so timely terminate this Lease,
then (subject to Section 14(c))
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Landlord shall repair the Complex or the Premises, as the case may be,
as provided below, and Rent for the portion of the Premises rendered
untenantable by the damage shall be abated on a reasonable basis from
the date of damage until the completion of the repair, unless a Tenant
Party caused such damage, in which case, Tenant shall continue to pay
Rent without abatement.
(c) Landlord's Rights. If a Casualty damages a material
portion of the Complex, and Landlord makes a good faith determination
that restoring the Premises would be uneconomical, or if Landlord is
required to pay any insurance proceeds arising out of the Casualty to a
Landlord's Mortgagee, then Landlord may terminate this Lease by giving
written notice of its election to terminate within 30 days after the
Damage Notice has been delivered to Tenant, and Basic Rent and
Additional Rent shall be abated as of the date of the Casualty.
(d) Repair Obligation. If neither party elects to terminate
this Lease following a Casualty, then Landlord shall, within a
reasonable time after such Casualty, begin to repair the Complex and
the Premises and shall proceed with reasonable diligence to restore the
Complex and Premises to substantially the same condition as they
existed immediately before such Casualty; however, Landlord shall not
be required to repair or replace any of the furniture, equipment,
fixtures, and other improvements which may have been placed by, or at
the request of, Tenant or other occupants in the Complex or the
Premises, and Landlord's obligation to repair or restore the Complex or
Premises shall be limited to the extent of the insurance proceeds
actually received by Landlord for the Casualty in question.
15. PERSONAL PROPERTY TAXES. Tenant shall be liable for all taxes
levied or assessed against personal property, furniture, or fixtures placed by
Tenant in the Premises. If any taxes for which Tenant is liable are levied or
assessed against Landlord or Landlord's property and Landlord elects to pay the
same, or if the assessed value of Landlord's property is increased by inclusion
of such personal property, furniture or fixtures and Landlord elects to pay the
taxes based on such increase, then Tenant shall pay to Landlord, upon demand,
the part of such taxes for which Tenant is primarily liable hereunder; however,
Landlord shall not pay such amount if Tenant notifies Landlord that it will
contest the validity or amount of such taxes before Landlord makes such payment,
and thereafter diligently proceeds with such contest in accordance with law and
if the non-payment thereof does not pose a threat of loss or seizure of the
Complex or interest of Landlord therein or impose any fee or penalty against
Landlord.
16. EVENTS OF DEFAULT. Each of the following occurrences shall be an
"Event of Default":
(a) Tenant's failure to pay Rent or any other monetary
obligation under this Lease within five (5) calendar days of when due;
(b) Tenant (1) abandons or vacates the Premises or any
substantial portion thereof or (2) fails to continuously operate its
business in the Premises for the Permitted Use set forth herein;
(c) Tenant fails to provide any estoppel certificate as called
for in this Lease and such failure shall continue for five (5) business
days after written notice thereof from Landlord to Tenant;
(d) Tenant's failure to perform, comply with, or observe any
other agreement or obligation of Tenant under this Lease and the
continuance of such failure for a period of more than 30 days after
Landlord has delivered to Tenant written notice thereof, provided that
such failure shall not constitute an Event of Default if Tenant
commences actions to cure such default within thirty (30) days of
Tenant's receipt of Landlord's notice and diligently pursues such
actions to cure such default within sixty (60) days of Tenant's receipt
of Landlord's notice; and
(e) The filing of a petition by or against Tenant (the term
"Tenant" shall include, for the purpose of this Section 16(e), any
guarantor of Tenant's obligations hereunder) (1) in any bankruptcy or
other insolvency proceeding; (2) seeking any relief under any state or
federal debtor relief law; (3) for the appointment of a liquidator or
receiver for all or substantially all of Tenant's property or for
Tenant's interest in this Lease; or (4) for the reorganization or
modification of Tenant's capital structure; however, if such a petition
is filed against Tenant, then such filing shall not be an Event of
Default unless Tenant fails to have the proceedings initiated by such
petition dismissed within 90 days after the filing thereof.
17. REMEDIES. Upon any Event of Default, Landlord may, in addition to
all other rights and remedies afforded Landlord hereunder or by law or equity,
take any of the following actions:
(a) Terminate this Lease by giving Tenant written notice
thereof, in which event Tenant shall pay to Landlord the sum of (1) all
Rent accrued hereunder through the date of termination; (2) all amounts
due under Section 18(a); and (3) an amount equal to (A) the total Rent
that Tenant would have been required to pay for the remainder of the
Term discounted to present value at a per annum rate equal to the
"Prime Rate" as published on the date this Lease is terminated by The
Wall Street Journal, Southwest Edition, in its listing of "Money Rates"
minus one percent, minus (B) the then present fair rental value of the
Premises for such period, similarly discounted;
(b) Terminate Tenant's right to possess the Premises without
terminating this Lease by giving written notice thereof to Tenant, in
which event Tenant shall pay to Landlord (1) all Rent and other amounts
accrued hereunder to the date of termination of possession; (2) all
amounts due from time to time under Section 18(a); and (3) all Rent and
other net sums required hereunder to be paid by Tenant during the
remainder of the Term, diminished by any net sums thereafter received
by Landlord through reletting the Premises during such
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period. To the extent required by law, Landlord shall use reasonable
efforts to relet the Premises on such terms and conditions as Landlord
in its sole discretion may determine (including a term different from
the Term, rental concessions, and alterations to, and improvement of,
the Premises); however, Landlord shall not be obligated to relet or
attempt to relet the Premises before leasing other portions of the
Complex. Landlord shall not be liable for, nor shall Tenant's
obligations hereunder be diminished because of, Landlord's failure to
relet the Premises or to collect rent due for such reletting. Tenant
shall not be entitled to the excess of any consideration obtained by
reletting over the Rent due hereunder. Reentry by Landlord in the
Premises shall not affect Tenant's obligations hereunder for the
unexpired Term; rather, Landlord may, from time to time, bring an
action against Tenant to collect amounts due by Tenant, without the
necessity of Landlord's waiting until the expiration of the Term.
Unless Landlord delivers written notice to Tenant expressly stating
that it has elected to terminate this Lease, all actions taken by
Landlord to dispossess or exclude Tenant from the Premises shall be
deemed to be taken under this Section 17(b). If Landlord elects to
proceed under this Section 17(b), it may at any time elect to terminate
this Lease under Section 17(a).
(c) Additionally, unless otherwise required by applicable law,
Landlord may, without notice, enter upon the Premises and alter locks
or other security devices at the Premises to deprive Tenant, its
officers, employees, agents, invitees, licensees and all other
occupants, of access thereto, and Landlord shall not be required to
provide a new key or right of access to Tenant.
18. PAYMENT BY TENANT; NON-WAIVER.
(a) Payment by Tenant. Upon any Event of Default, Tenant shall
pay to Landlord all costs incurred by Landlord (including court costs
and reasonable attorneys' fees and expenses) in (1) obtaining
possession of the Premises; (2) removing and storing Tenant's or any
other occupant's property; (3) repairing, restoring, altering,
remodeling, or otherwise putting the Premises into condition acceptable
to a new tenant; (4) if Tenant is dispossessed of the Premises and this
Lease is not terminated, reletting all or any part of the Premises
(including brokerage commissions, cost of tenant finish work, and other
costs incidental to such reletting); (5) performing Tenant's
obligations which Tenant failed to perform; and (6) enforcing, or
advising Landlord of, its rights, remedies, and recourses arising out
of the Event of Default. To the full extent permitted by law, Landlord
and Tenant agree the federal and state courts of Colorado shall have
exclusive jurisdiction over any matter relating to or arising from this
Lease and the parties' rights and obligations under this Lease.
(b) No Waiver. Landlord's acceptance of Rent following an
Event of Default shall not waive Landlord's rights regarding such Event
of Default. No waiver by Landlord of any violation or breach of any of
the terms contained herein shall waive Landlord's rights regarding any
future violation of such term. Landlord's acceptance of any partial
payment of Rent shall not waive Landlord's rights with regard to the
remaining portion of the Rent that is due, regardless of any
endorsement or other statement on any instrument delivered in payment
of Rent or any writing delivered in connection therewith; accordingly,
Landlord's acceptance of a partial payment of Rent shall not constitute
an accord and satisfaction of the full amount of the Rent that is due.
19. LANDLORD'S LIEN. In addition to the statutory landlord's lien,
Tenant grants to Landlord, to secure performance of Tenant's obligations
hereunder, a security interest in all goods (including equipment and inventory),
fixtures, and other personal property of Tenant situated on the Premises and all
proceeds thereof (the "Collateral"), and the Collateral shall not be removed
from the Premises without the prior written consent of Landlord (other than in
Tenant's ordinary course of business) until all obligations of Tenant have been
fully performed. Upon the occurrence of an Event of Default, Landlord may, in
addition to all other remedies, without notice or demand except as provided
below, exercise the rights afforded to a secured party under the Colorado
Uniform Commercial Code (the "UCC"). To the extent the UCC requires Landlord to
give to Tenant notice of any act or event and such notice cannot be validly
waived before a default occurs, then five-days' prior written notice thereof
shall be reasonable notice of the act or event. Tenant agrees to execute any
financing statement or other instrument necessary to perfect Landlord's security
interest under this Section 19. Landlord may also file a copy of this Lease as a
financing statement to perfect its security interest in the Collateral. Landlord
agrees to subordinate its lien to Tenant's new purchase money financing
requirements, but only in the event that the Tenant is not in default of any
provision or covenant of this Lease.
20. SURRENDER OF PREMISES. No act by Landlord shall be deemed an
acceptance of a surrender of the Premises, and no agreement to accept a
surrender of the Premises shall be valid unless it is in writing and signed by
Landlord. At the expiration or termination of this Lease, Tenant shall deliver
to Landlord the Premises with all improvements located therein in good repair
and condition, broom-clean, reasonable wear and tear (and condemnation and
Casualty damage not caused by Tenant, as to which Sections 13 and 14 shall
control) excepted, and shall deliver to Landlord all keys to the Premises.
Provided that Tenant has performed all of its obligations hereunder, Tenant may
remove all unattached trade fixtures, furniture, and personal property placed in
the Premises by Tenant, and shall remove such alterations, additions,
improvements, trade fixtures, personal property, equipment, wiring, and
furniture as Landlord may request. Tenant shall repair all damage caused by such
removal. All items not so removed shall be deemed to have been abandoned by
Tenant and may be appropriated, sold, stored, destroyed, or otherwise disposed
of by Landlord without notice to Tenant and without any obligation to account
for such items. The provisions of this Section 20 shall survive the end of the
Term.
21. HOLDING OVER. If Tenant fails to vacate the Premises at the end of
the Term, then Tenant shall be a tenant at will and, in addition to all other
damages and remedies to which Landlord may be entitled for such holding over,
Tenant shall pay a daily Basic Rent equal to the 150% of the daily Basic Rent
payable during the last month of the Term for the first thirty (30) days of such
holdover period, and 200% of the daily Basic Rent payable during the last month
of the Term for any further holdover period in excess of thirty (30) days. The
provisions of this Section 21 shall not be
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deemed to limit or constitute a waiver of any other rights or remedies of
Landlord provided herein or at law. If Tenant fails to surrender the Premises
upon the termination or expiration of this Lease, in addition to any other
liabilities to Landlord accruing therefrom, Tenant shall protect, defend,
indemnify and hold Landlord harmless from all loss, costs (including reasonable
attorneys' fees) and liability (including consequential damages) resulting from
such failure, including, without limiting the generality of the foregoing, any
claims made by any succeeding tenant founded upon such failure to surrender, and
any lost profits to Landlord resulting therefrom.
22. CERTAIN RIGHTS RESERVED BY LANDLORD. Provided that the exercise of
such rights does not unreasonably interfere with Tenant's access to and
occupancy of the Premises, Landlord shall have the following rights:
(a) To decorate and to make inspections, repairs, alterations,
additions, changes, or improvements, whether structural or otherwise,
in and about the Complex, or any part thereof; to enter upon the
Premises and, during the continuance of any such work, to temporarily
close doors, entryways, public space, and corridors in the Complex; to
interrupt or temporarily suspend Complex services and facilities; to
change the name of the Complex; and to change the arrangement and
location of entrances or passageways, doors, and doorways, corridors,
elevators, stairs, restrooms, or other public parts of the Complex;
(b) To take such reasonable measures as Landlord deems
advisable for the security of the Complex and its occupants; evacuating
the Complex for cause, suspected cause, or for drill purposes;
temporarily denying access to the Complex; and closing the Complex
after normal business hours and on Sundays and holidays, subject,
however, to Tenant's right to enter when the Complex is closed after
normal business hours under such reasonable regulations as Landlord may
prescribe from time to time; and
(c) To enter the Premises at reasonable hours to show the
Premises to prospective purchasers, lenders, or, during the last six
(6) months of the Term, tenants.
23. SUBSTITUTION SPACE. Landlord may, at Landlord's expense, relocate
Tenant within the Complex to space which is comparable in size, utility and
condition to the Premises provided it is located on the west side of the floor,
on the third floor or above. Such substitution space shall be comparable in
number of offices, and outside window frontage. If Landlord relocates Tenant,
Landlord shall reimburse Tenant for Tenant's reasonable out-of-pocket expenses
for moving Tenant's furniture, equipment, and supplies, including the cost to
move and replace phone and computer lines and cables, from the Premises to the
relocation space and for reprinting of a reasonable quantity of Tenant's
stationery (not to exceed a thirty (30) day supply). Upon such relocation, the
relocation space shall be deemed to be the Premises and the terms of the Lease
shall remain in full force and shall apply to the relocation space.
24. MISCELLANEOUS.
(a) Landlord Transfer. Landlord may transfer any portion of
the Complex and any of its rights under this Lease. If Landlord assigns
its rights under this Lease, then Landlord shall thereby be released
from any further obligations hereunder.
(b) Landlord's Liability. The liability of Landlord to Tenant
for any default by Landlord under the terms of this Lease shall be
limited to Tenant's actual direct, but not consequential, damages
therefor and shall be recoverable only from the interest of Landlord in
the Complex, and Landlord shall not be personally liable for any
deficiency. This Section shall not limit any remedies which Tenant may
have for Landlord's defaults which do not involve the personal
liability of Landlord.
(c) Force Majeure. Other than for Tenant's obligations under
this Lease that can be performed by the payment of money (e.g., payment
of Rent and maintenance of insurance), whenever a period of time is
herein prescribed for action to be taken by either party hereto, such
party shall not be liable or responsible for, and there shall be
excluded from the computation of any such period of time, any delays
due to strikes, riots, acts of God, shortages of labor or materials,
war, governmental laws, regulations, or restrictions, or any other
causes of any kind whatsoever which are beyond the control of such
party.
(d) Brokerage. Neither Landlord nor Tenant has dealt with any
broker or agent in connection with the negotiation or execution of this
Lease, other than CB Richard Ellis, Inc., acting on behalf of Landlord,
and The Clark Group, acting on behalf of Tenant. Tenant and Landlord
shall each indemnify the other against all costs, expenses, attorneys'
fees, and other liability for commissions or other compensation claimed
by any broker or agent claiming the same by, through, or under the
indemnifying party.
(e) Estoppel Certificates. From time to time, but no more than
two (2) times in each twelve (12) month time period, unless additional
certificates are reasonably required, Tenant shall furnish to any party
designated by Landlord, within ten days after Landlord has made a
request therefor, a certificate signed by Tenant confirming and
containing such factual certifications and representations as to this
Lease as Landlord may reasonably request.
(f) Notices. Any notice, request, statement or other writing
pursuant to this Lease shall be deemed to have been given if sent by
registered or certified mail, postage prepaid, return receipt requested
to the party at the address stated below:
To Landlord: Silverbrae Holdings, Inc.
999 - 18th Street, Suite 1000
Denver, Colorado 80202
Attn: Garth R. D. Tait
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or to Tenant at the following address until occupancy of the Premises
and after occupancy of the Premises by Tenant, at the Premises:
Multi-Link Telecommunications, Inc.
811 Lincoln Street
Denver, Colorado 80203
Attn: Nigel Alexander or Shawn Stickle
and such notice shall be deemed to have been received by the Landlord
or Tenant, as the case may be, on the second business day after the
date on which it shall have been so mailed.
(g) Separability. If any clause or provision of this Lease is
illegal, invalid, or unenforceable under present or future laws, then
the remainder of this Lease shall not be affected thereby and in lieu
of such clause or provision, there shall be added as a part of this
Lease a clause or provision as similar in terms to such illegal,
invalid, or unenforceable clause or provision as may be possible and be
legal, valid, and enforceable.
(h) Amendments; and Binding Effect. This Lease may not be
amended except by instrument in writing signed by Landlord and Tenant.
No provision of this Lease shall be deemed to have been waived by
Landlord unless such waiver is in writing signed by Landlord, and no
custom or practice which may evolve between the parties in the
administration of the terms hereof shall waive or diminish the right of
Landlord to insist upon the performance by Tenant in strict accordance
with the terms hereof. The terms and conditions contained in this Lease
shall inure to the benefit of and be binding upon the parties hereto,
and upon their respective successors in interest and legal
representatives, except as otherwise herein expressly provided. This
Lease is for the sole benefit of Landlord and Tenant, and, other than
Landlord's Mortgagee, no third party shall be deemed a third party
beneficiary hereof.
(i) Quiet Enjoyment. Provided Tenant has performed all of its
obligations hereunder, Tenant shall peaceably and quietly hold and
enjoy the Premises for the Term, without hindrance from Landlord or any
party claiming by, through, or under Landlord, but not otherwise,
subject to the terms and conditions of this Lease.
(j) No Merger. There shall be no merger of the leasehold
estate hereby created with the fee estate in the Premises or any part
thereof if the same person acquires or holds, directly or indirectly,
this Lease or any interest in this Lease and the fee estate in the
leasehold Premises or any interest in such fee estate.
(k) No Offer. The submission of this Lease to Tenant shall not
be construed as an offer, and Tenant shall not have any rights under
this Lease unless Landlord executes a copy of this Lease and delivers
it to Tenant.
(l) Entire Agreement. This Lease constitutes the entire
agreement between Landlord and Tenant regarding the subject matter
hereof and supersedes all oral statements and prior writings relating
thereto. Except for those set forth in this Lease, no representations,
warranties, or agreements have been made by Landlord or Tenant to the
other with respect to this Lease or the obligations of Landlord or
Tenant in connection therewith. The normal rule of construction that
any ambiguities be resolved against the drafting party shall not apply
to the interpretation of this Lease or any exhibits or amendments
hereto.
(m) Waiver of Jury Trial. To the maximum extent permitted by
law, Landlord and Tenant each waive right to trial by jury in any
litigation arising out of or with respect to this Lease.
(n) Governing Law. This Lease shall be governed by and
construed in accordance with the laws of the State in which the
Premises are located.
(o) Joint and Several Liability. If Tenant is comprised of
more than one party, each such party shall be jointly and severally
liable for Tenant's obligations under this Lease.
(p) Financial Reports. Up to one (1) time per twelve (12)
month period, or more frequently if required by Landlord's Mortgagee,
within 15 days after Landlord's request, Tenant will furnish Tenant's
most recent audited financial statements (including any notes to them)
to Landlord, or, if no such audited statements have been prepared, such
other financial statements (and notes to them) as may have been
prepared by an independent certified public accountant or, failing
those, Tenant's internally prepared financial statements. Tenant will
discuss its financial statements with Landlord and will give Landlord
access to Tenant's books and records in order to enable Landlord to
verify the financial statements. Landlord will not disclose any aspect
of Tenant's financial statements that Tenant designates to Landlord as
confidential except (1) to Landlord's lenders or prospective purchasers
of the Complex; (2) in litigation between Landlord and Tenant; and/or
(3) if required by court order.
(q) Landlord's Fees. Whenever Tenant requests Landlord to take
any action or give any consent required or permitted under this Lease,
Tenant will reimburse Landlord for Landlord's reasonable costs incurred
in reviewing the proposed action or consent, including without
limitation reasonable attorneys', engineers' or
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architects' fees, within 10 days after Landlord's delivery to Tenant of
a statement of such costs. Tenant will be obligated to make such
reimbursement without regard to whether Landlord consents to any such
proposed action.
(r) General Definitions. The following terms shall have the
following meanings: "Laws" means all federal, state, and local laws,
rules and regulations, all court orders, all governmental directives
and governmental orders, and all restrictive covenants affecting the
Property, and "Law" means any of the foregoing; "Affiliate" means any
person or entity which, directly or indirectly, controls, is controlled
by, or is under common control with the party in question; "Tenant
Party" shall include Tenant, any assignees claiming by, through, or
under Tenant, any subtenants claiming by, through, or under Tenant, and
any agents, contractors, employees, invitees of the foregoing parties;
and "including" means including, without limitation.
(s) Independent Covenants. This Lease shall be construed as
though the covenants herein between Landlord and Tenant are independent
and not dependent and Tenant shall not be entitled to any setoff of the
rent or other amounts owing hereunder against Landlord or to undertake
any of Landlord's obligations if Landlord fails to perform its
obligations set forth herein.
(t) List of Exhibits. All exhibits and attachments attached
hereto are incorporated herein by this reference.
<TABLE>
<S> <C>
Addendum
Exhibit A-1 Outline of Premises under paragraph 1.(a).
Exhibit A-2 Outline of Premises under paragraph 1.(b).
Exhibit B Depiction of Building
Exhibit C Legal Description of Real Property
Exhibit D Complex Rules and Regulations
Exhibit E Parking Agreement
</TABLE>
(u) Americans With Disabilities Act.
(1) Landlord shall, subject to reimbursement as part
of the Complex's Operating Costs in compliance with the
provisions of Section 3(c)(2), be responsible for any
alterations, modifications or improvements to the common areas
which are required under Title III of the Americans With
Disabilities Act ("ADA") arising subsequent to the date
hereof.
(2) Tenant shall, at Tenant's sole cost and expense,
be responsible for any alterations, modifications or
improvements to the Premises, and the acquisition of any
auxiliary aids, required under the ADA, including all
alterations, modifications or improvements required: (1) as a
result of Tenant (or any subtenant, assignee or
concessionaire) being a Public Accommodation (as defined in
the ADA); (2) as a result of the Premises being a Commercial
Facility (as defined in the ADA); (3) as a result of any
leasehold improvements made to the Premises by, or on behalf
of, Tenant or any subtenant, assignee or concessionaire
(whether or not Landlord's consent to such leasehold
improvements was obtained); or (4) as a result of the
employment by Tenant (or any subtenant, assignee or
concessionaire) of any individual with a disability.
(3) With respect to the use restrictions set forth in
this Lease, and the restrictions on assignments and subletting
set forth in this Lease, it is hereby specifically understood
and agreed that Landlord shall have no obligation to consent
to, or permit, a use of the Premises, or an assignment of the
Lease or a sublease of the Premises (collectively herein a
"Use Change") if such Use Change would require the making of
any alterations, modifications or improvements to the Premises
or the Common Areas, or the acquisition of any auxiliary aids,
required under the ADA, unless Tenant performs all such acts
and satisfies Landlord's requirements for financial
responsibility for the costs of such compliance (which may
include, by way of example, posting of a completion bond, or
establishment of an escrow account).
(4) With respect to any work as described in Exhibit
F, Tenant shall be responsible for compliance with the ADA in
the design and layout of the work and Landlord shall have no
responsibility therefor. Landlord hereby represents that it
has not received any notice that any of the common areas of
the Complex is in violation of the provisions of the ADA and
Landlord believes that the common areas of the Complex comply
with the requirements of the ADA in all material respects.
(v) Attorneys' Fees. If any legal action (including, without
limitation, negotiations, civil action, arbitration, mediation, or
administrative proceeding) is necessary as a result of any breach of
this Lease, or is required to enforce or interpret any of the terms,
covenants or conditions of this Lease, the substantially-prevailing
party shall be entitled to receive from the other party all costs and
fees incurred in connection therewith, including, without limitation,
reasonable attorneys' fees, expert witness fees and consulting fees.
25. OTHER PROVISIONS. LANDLORD AND TENANT EXPRESSLY DISCLAIM ANY
IMPLIED WARRANTY THAT THE PREMISES ARE SUITABLE FOR TENANT'S INTENDED COMMERCIAL
PURPOSE, AND TENANT'S OBLIGATION TO PAY RENT HEREUNDER IS NOT DEPENDENT UPON THE
12
<PAGE> 13
CONDITION OF THE PREMISES OR THE PERFORMANCE BY LANDLORD OF ITS OBLIGATIONS
HEREUNDER, AND, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, TENANT SHALL
CONTINUE TO PAY THE RENT, WITHOUT ABATEMENT, SETOFF OR DEDUCTION,
NOTWITHSTANDING ANY BREACH BY LANDLORD OF ITS DUTIES OR OBLIGATIONS HEREUNDER,
WHETHER EXPRESS OR IMPLIED.
26. HAZARDOUS MATERIALS. Tenant shall not store highly flammable
materials or goods, explosives, perishable foodstuffs, contraband, live animals,
materials or goods which emit odors in or upon the Premises. The Tenant
covenants that it shall not store, use or possess nor permit the storage, use or
possession of any Hazardous Substance (hereinafter defined) upon the Premises
other than normal office products in limited quantities. Hazardous Substance for
purposes of this Lease shall mean, without limitation, any flammable explosives,
radon, radioactive materials, asbestos, urea-formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum based products, methane,
hazardous materials, hazardous wastes, hazardous or toxic substances or related
materials, as defined in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended (42 USC Sections 1801 et seq., Sections
6901 et seq.), the Toxic Substances Control Act, as amended (15 USC Sections
2601 et seq.), or any other similar law, rule, regulation or statute concerning
the protection of the environment (collectively "Environment Laws"). Tenant
hereby covenants and agrees, at its sole cost and expense, to indemnify, protect
and defend and save harmless the Landlord and any of its members, managers,
employees and agents from and against any and all damages, losses, liabilities,
obligations, penalties, claims, litigation, demands, defenses, judgments, suits,
actions, proceedings, costs, disbursements and/or expenses (including, without
limitation, attorneys' and experts' fees, expenses and disbursements) of any
kind or nature whatsoever which may at any time be imposed upon, incurred by or
asserted or awarded against the Landlord, its members, managers, agents or
employees relating to, resulting from or arising out of Tenant's failure to
comply with its obligations under the foregoing paragraph or Tenant's violation
of any Environmental Law with respect to its use of the Premises.
Notwithstanding any provision contained in this Lease to the contrary, the
indemnification provisions set forth in this Section 26 shall survive any
expiration or termination of this Lease.
27. TELEPHONE AND TELECOMMUNICATIONS SERVICES.
(a) Tenant acknowledges and agrees that all telephone and
telecommunications services ("Telecommunications Services") desired by
Tenant shall be ordered and utilized at the sole expense of Tenant.
Unless Landlord otherwise requests or consents in writing, all
equipment, apparatus and devices, including without limitation wiring
and cables, for the provision of Telecommunications Services (the
"Telecommunications Equipment") shall be and remain solely in the
Premises. Unless otherwise specifically agreed in writing, Landlord
shall have no responsibility for the maintenance of Tenant's
Telecommunications Equipment, nor for any wiring or other
infrastructure to which Tenant's Telecommunications Equipment may be
connected. Tenant agrees that, to the extent any Telecommunications
Services are interrupted, curtailed or discontinued, Landlord shall
have no obligation or liability with respect thereto and it shall be
the sole obligation of Tenant, at its sole expense, to obtain
substitute service.
(b) Landlord shall have the right, upon such notice as is
practicable in the case of emergencies, and otherwise upon reasonable
prior notice to Tenant, to interrupt or turn off telecommunications
facilities in the event of emergency or as necessary in connection with
repairs to the Complex or installation of telecommunications equipment
for other tenants of the Complex.
(c) Any and all Telecommunications Equipment installed in the
Premises, or elsewhere in the Complex by or on behalf of Tenant,
including wiring and other facilities for the provision of
Telecommunications Services, shall be removed by Tenant upon the
expiration or earlier termination of the Term of this Lease, by Tenant
at its sole expense or, at Landlord's election, by Landlord at Tenant's
sole expense, with the cost thereof to be paid as Additional Rent under
this Lease.
(d) If the Telecommunications Equipment is not removed within
thirty (30) days of the termination or expiration of this Lease, the
Telecommunications Equipment shall conclusively be deemed to have been
abandoned and may be removed, appropriated, sold, stored, destroyed,
otherwise disposed of, or retained and used by Landlord without notice
to Tenant, without obligation to account therefor, and without payment
to Tenant or credit against any amount due from Tenant to Landlord
pursuant to this Lease. Tenant shall pay to Landlord upon demand all
costs of any such removal, disposition and storage of the
Telecommunications Equipment, as well as all costs to repair any damage
to the Complex caused by such removal.
(e) In the event that Tenant wishes at any time to utilize the
services of a telephone or telecommunications provider whose equipment
is not then servicing the Complex (a "New Provider"), no such New
Provider shall be permitted to install its lines or other equipment
within the Complex without first securing the prior written approval of
the Landlord, which approval may be withheld in Landlord's sole and
absolute discretion. Landlord's approval shall not be deemed any kind
of warranty or representation by Landlord, including, without
limitation, any warranty or representation as to the suitability,
competence or financial strength of the New Provider. Without
limitation of Landlord's right to withhold consent in its sole and
absolute discretion, Landlord may refuse to give its approval unless
all of the following conditions are satisfied: (i) Landlord shall incur
no expense whatsoever with respect to any aspect of the New Provider's
provision of its services, including, without limitation, the costs of
installation, materials and services; (ii) prior to commencement of any
work in or about the Complex by the New Provider, the New Provider
shall supply Landlord with such written indemnities, insurance,
financial statements, and such other items as Landlord, in its sole and
absolute discretion, determines to be necessary to protect its
financial interests and the interests of the Complex related
13
<PAGE> 14
to the proposed activities of the New Provider; (iii) the New Provider
agrees in writing to abide by such rules and regulations, building and
other codes, job site rules and such other requirements as are
determined by Landlord, in its sole and absolute discretion, to be
necessary to protect the interests of the Complex, the tenants in the
Complex and Landlord; (iv) Landlord determines, in its sole and
absolute discretion, that there is sufficient space in the Complex for
the placement of all of the New Provider's equipment and materials; (v)
Landlord receives from the New Provider such compensation as is
determined by the Landlord, in its sole and absolute discretion, to
compensate it for space used in the Complex for the storage and
maintenance of the New Provider's equipment, for the fair market value
of the New Provider's access to the Complex, and any costs which may be
expected to be incurred by Landlord; and (vi) all of the foregoing
matters are documented in a written agreement between Landlord and the
New Provider, the form and content of which are satisfactory to
Landlord in its sole and absolute discretion.
(f) Notwithstanding any provision of the preceding subsection
to the contrary, the refusal of Landlord to grant its approval to any
New Provider shall not be deemed a default or breach by Landlord of its
obligations under this Lease, and in no event shall Tenant have the
right to terminate this Lease or claim entitlement to rent abatement
for Landlord's refusal to grant Tenant's request for approval of a New
Provider. The provisions of this Section 27 may be enforced solely by
Tenant and Landlord and are not for the benefit of any other party.
Specifically, but without limitation, no telephone or
telecommunications provider is intended to be, nor shall be deemed, a
third party beneficiary of this Lease.
(g) Tenant shall not utilize any wireless communications
equipment (other than usual and customary cellular telephones),
including antennae and satellite receiver dishes, within the Premises
or the Complex, without Landlord's prior written consent. Such consent
shall be granted only in the sole and absolute discretion of the
Landlord, and shall be conditioned in such a manner, in Landlord's sole
and absolute discretion, so as to protect Landlord's financial interest
and the interest of the Complex, and the other tenants therein.
28. GUARANTY. The Guarantor hereby unconditionally and irrevocably
guarantees Tenant's performance of each and every covenant of this Lease. This
is an absolute and continuing guaranty of payment and performance, and not
solely a guaranty of collection. The Guarantor shall promptly perform or make
payment upon receiving written notice from Landlord of Tenant's failure to
comply with this Lease. If the Guarantor fails to perform or make payment after
notice from Landlord, and if any legal action (including, without limitation,
negotiations, civil action, arbitration, mediation, or administrative
proceeding) is necessary as a result such failure, then Landlord shall be
entitled to receive from the Guarantor all costs and fees incurred in connection
with enforcing this Guaranty, including, without limitation, reasonable
attorneys' fees, expert witness fees and consulting fees. The Guarantor hereby
expressly waives any right to require Landlord to first proceed against Tenant;
have Tenant joined with Guarantor in any suit arising out of this Lease; or
pursue or exhaust any other rights in Landlord's power whatsoever. The Guarantor
hereby waives any defense arising by reason of disability, lack of authority or
power, or other defense of Tenant, and shall remain liable hereon regardless of
whether Tenant is found not liable thereon for any reason including, without
limitation, disability, bankruptcy, insolvency, reorganization, dissolution, or
operation of law. It is expressly agreed that the liability of Guarantor shall
be primary and not secondary. Guarantor recognizes that Landlord is relying upon
this Guaranty and the undertakings of the Guarantor hereunder in executing this
Lease with Tenant, and further recognizes that this Guaranty is a material
inducement to Landlord in executing this Lease. The Guarantor represents and
warrants that it will benefit from Tenant's Lease with Landlord; that Guarantor
has the authority and power to unconditionally Guaranty each and every covenant
of this Lease, and that this Guaranty constitutes valid and binding obligations
of Guarantor, enforceable in accordance with its terms.
Dated as of the date first above written.
LANDLORD:
LAKESIDE HOLDINGS, L.L.C., a Delaware
limited liability company
BY: Silverbrae Holdings, Inc., a
Colorado corporation, Agent
Date: March 29, 1999 By: /s/ Garth R. D. Tait
------------------------- -------------------------------------
Garth R. D. Tait, President
TENANT:
MULTI-LINK TELECOMMUNICATIONS, INC.,
a Colorado corporation
Date: March 29, 1999 By: /s/ Nigel V. Alexander
------------------------- ------------------------------------------
Its: Chief Executive Officer
------------------------------------
GUARANTOR:
MULTI-LINK COMMUNICATIONS, INC.,
a Colorado corporation
Date: March 29, 1999 By: /s/ Nigel V. Alexander
------------------------- ------------------------------------------
Its: Chief Executive Officer
------------------------------------
14
<PAGE> 15
EXHIBIT A-1
[OUTLINE OF PREMISES]
<PAGE> 16
EXHIBIT A-2
[OUTLINE OF PREMISES]
<PAGE> 17
EXHIBIT B
[DEPICTION OF BUILDING]
<PAGE> 18
EXHIBIT C
[LEGAL DESCRIPTION OF REAL PROPERTY]
PARCEL 1:
A PARCEL OF LAND LOCATED IN THE NORTHEAST 1/4 OF SECTION 24, TOWNSHIP 3 SOUTH,
RANGE 69 WEST OF THE 6TH PRINCIPAL MERIDIAN, DESCRIBED AS FOLLOWS:
COMMENCING AT THE NORWEST CORNER OF THE NORTHEAST 1/4 OF SAID SECTION 24; THENCE
SOUTH 00 DEGREES 04 MINUTES 00 SECONDS EAST ALONG THE WEST LINE OF THE NORTHEAST
1/4 OF SAID SECTION 24, A DISTANCE OF 334.77 FEET; THENCE SOUTH 89 DEGREES 59
MINUTES 30 SECONDS EAST, A DISTANCE OF 60.00 FEET TO THE INTERSECTION OF THE
EAST LINE OF HARLAN STREET WITH THE SOUTH LINE OF COLORADO DEPARTMENT OF
TRANSPORTATION RIGHT OF WAY AS DESCRIBED IN BOOK 1875 AT PAGE 135 FROM WHICH THE
NORTHWEST CORNER OF THE NORTHEAST 1/4 OF SAID SECTION 24 BEARS NORTH 10 DEGREES
13 MINUTES 30 SECONDS WEST, A DISTANCE OF 340.10 FEET TO THE TRUE POINT OF
BEGINNING;
THENCE CONTINUING SOUTH 89 DEGREES 59 MINUTES 30 SECONDS EAST ALONG THE SOUTH
LINE OF SAID DESCRIBED PARCEL, A DISTANCE OF 932.50 FEET; THENCE SOUTH 00
DEGREES 00 MINUTES 00 SECONDS WEST, A DISTANCE OF 32.70 FEET; THENCE SOUTH 90
DEGREES 00 MINUTES 00 SECONDS EAST, A DISTANCE OF 50.27 FEET; THENCE SOUTH 00
DEGREES 00 MINUTES 00 SECONDS WEST, A DISTANCE OF 222.44 FEET TO A POINT ON THE
NORTH SHORE OF LAKE RHODA; THENCE SOUTH 63 DEGREES 48 MINUTES 30 SECONDS WEST, A
DISTANCE OF 9.46 FEET; THENCE SOUTH 82 DEGREES 38 MINUTES 00 SECONDS WEST, A
DISTANCE OF 184.00 FEET; THENCE NORTH 82 DEGREES 24 MINUTES 30 SECONDS WEST, A
DISTANCE OF 119.00 FEET; THENCE SOUTH 62 DEGREES 19 MINUTES 00 SECONDS WEST, A
DISTANCE OF 87.00 FEET; THENCE SOUTH 05 DEGREES 53 MINUTES 30 SECONDS WEST, A
DISTANCE OF 74.00 FEET; THENCE SOUTH 23 DEGREES 13 MINUTES 30 SECONDS EAST, A
DISTANCE OF 132.00 FEET; THENCE SOUTH 09 DEGREES 19 MINUTES 30 SECONDS EAST, A
DISTANCE OF 42.00 FEET; THENCE SOUTH 07 DEGREES 22 MINUTES 00 SECONDS WEST, A
DISTANCE OF 154.00 FEET; THENCE SOUTH 46 DEGREES 22 MINUTES 30 SECONDS WEST, A
DISTANCE OF 50.00 FEET; THENCE SOUTH 83 DEGREES 09 MINUTES 00 SECONDS WEST, A
DISTANCE OF 125.00 FEET; THENCE NORTH 00 DEGREES 04 MINUTES 00 SECONDS WEST, A
DISTANCE OF 28.99 FEET; THENCE ALONG THE ARC OF A CURVE TO THE RIGHT HAVING A
RADIUS OF 168.15 FEET, A DISTANCE OF 21.66 FEET (THE CHORD OF WHICH BEARS NORTH
88 DEGREES 06 MINUTES 32 SECONDS WEST 21.64 FEET); THENCE NORTH 84 DEGREES 25
MINUTES 10 SECONDS WEST, A DISTANCE OF 72.00 FEET; THENCE ALONG THE ARC OF A
CURVE TO THE RIGHT (THE CHORD OF WHICH BEARS NORTH 61 DEGREES 28 MINUTES 39
SECONDS WEST 168.55 FEET) HAVING A RADIUS OF 216.21 FEET, A DISTANCE OF 173.14
FEET; THENCE NORTH 38 DEGREES 32 MINUTES 08 SECONDS WEST, A DISTANCE OF 42.11
FEET; THENCE ALONG THE ARC OF A CURVE TO THE LEFT HAVING A RADIUS OF 63.57 FEET,
A DISTANCE OF 48.64 FEET (THE CHORD OF WHICH BEARS NORTH 60 DEGREES 27 MINUTES
23 SECONDS WEST 47.47 FEET), TO A POINT OF COMPOUND CURVE; THENCE ALONG THE ARC
OF A CURVE CONCAVE TO THE LEFT HAVING A RADIUS OF 122.00 FEET, A DISTANCE OF
208.01 FEET (THE CHORD OF WHICH BEARS SOUTH 48 DEGREES 46 MINUTES 41 SECONDS
WEST 183.72 FEET); THENCE SOUTH 89 DEGREES 56 MINUTES 00 SECONDS WEST, A
DISTANCE OF 20.00 FEET TO A POINT ON THE EAST RIGHT-OF-WAY OF HARLAN STREET;
THENCE NORTH 00 DEGREES 04 MINUTES 00 SECONDS WEST, ALONG SAID EAST RIGHT-OF-WAY
LINE, A DISTANCE OF 693.74 FEET TO THE TRUE POINT OF BEGINNING, ALSO KNOWN AS
TRACT B, LAKESIDE OFFICE PARK MINOR SUBDIVISION, FILING NO. 1, COUNTY OF
JEFFERSON, STATE OF COLORADO, CONTAINING 11.890 ACRES, MORE OR LESS.
PARCEL 2:
A PARCEL OF LAND LOCATED IN THE NORTHEAST 1/4 OF SECTION 24, TOWNSHIP 3 SOUTH,
RANGE 69 WEST OF THE 6TH PRINCIPAL MERIDIAN, MORE PARTICULARLY DESCRIBED AS
FOLLOWS:
BEGINNING AT A POINT OF INTERSECTION OF THE SOUTH RIGHT-OF-WAY LINE OF
INTERSTATE HIGHWAY I-70 AND THE EAST RIGHT-OF-WAY OF HARLAN STREET, FROM WHENCE
THE NORTHWEST CORNER OF THE NORTHEAST 1/4 OF SAID SECTION 24 BEARS NORTH 10
DEGREES 13 MINUTES 30 SECONDS WEST A DISTANCE OF 340.10 FEET; THENCE SOUTH 00
DEGREES 04 MINUTES 00 SECONDS EAST 693.74 FEET ALONG THE EAST RIGHT-OF-WAY LINE
OF SAID HARLAN STREET TO THE TRUE POINT OF BEGINNING; THENCE NORTH 89 DEGREES 56
MINUTES 00 SECONDS EAST A DISTANCE OF 20.00 FEET TO A POINT; THENCE ALONG THE
ARC OF A CURVE TO THE RIGHT HAVING A RADIUS OF 122.00 FEET A DISTANCE OF 208.01
FEET (THE CHORD OF WHICH BEARS NORTH 48 DEGREES 46 MINUTES 41 SECONDS EAST
183.72 FEET) TO A POINT OF COMPOUND CURVE; THENCE ALONG THE ARC OF A CURVE TO
THE RIGHT HAVING A RADIUS OF 63.57 FEET A DISTANCE OF 48.64 FEET (THE CHORD OF
WHICH BEARS SOUTH 60 DEGREES 27 MINUTES 23 SECONDS EAST 47.47 FEET) TO A POINT;
THENCE SOUTH 38 DEGREES 32 MINUTES 08 SECONDS
<PAGE> 19
EAST 42.11 FEET TO A POINT; THENCE ALONG THE ARC OF A CURVE TO THE LEFT HAVING A
RADIUS OF 216.21 FEET A DISTANCE OF 173.14 FEET (THE CHORD OF WHICH BEARS SOUTH
61 DEGREES 28 MINUTES 39 SECONDS EAST 168.55 FEET) TO A POINT; THENCE SOUTH 84
DEGREES 25 MINUTES 10 SECONDS EAST A DISTANCE OF 72.00 FEET TO A POINT; THENCE
ALONG THE ARC OF A CURVE TO THE LEFT HAVING A RADIUS OF 168.15 FEET A DISTANCE
OF 21.66 FEET (THE CHORD OF WHICH BEARS SOUTH 88 DEGREES 06 MINUTES 32 SECONDS
EAST 21.64 FEET) TO A POINT; THENCE SOUTH 00 DEGREES 04 MINUTES 00 SECONDS EAST
335.79 FEET TO A POINT; THENCE SOUTH 89 DEGREES 56 MINUTES 00 SECONDS WEST A
DISTANCE OF 467.10 FEET TO A POINT ON THE EAST RIGHT-OF-WAY OF SAID HARLAN
STREET; THENCE NORTH 00 DEGREES 04 MINUTES 00 SECONDS WEST A DISTANCE OF 359.80
FEET ALONG SAID EAST RIGHT-OF-WAY TO THE TRUE POINT OF BEGINNING, ALSO KNOWN AS
TRACT C, LAKESIDE OFFICE PARK MINOR SUBDIVISION, FILING NO. 1, COUNTY OF
JEFFERSON, STATE OF COLORADO, CONTAINING 4.241 ACRES, MORE OR LESS.
PARCEL 3:
A RECIPROCAL EASEMENT FOR INGRESS AND EGRESS AS DESCRIBED IN AGREEMENT FOR
CROSS-EASEMENTS AND CREATION OF COVENANTS AS RECORDED NOVEMBER 2, 1993 UNDER
RECEPTION NO. 93179075, COUNTY OF JEFFERSON, STATE OF COLORADO.
<PAGE> 20
EXHIBIT D
BUILDING RULES AND REGULATIONS
The following rules and regulations shall apply to the Premises, the
Building, the parking garage associated therewith, and the appurtenances
thereto:
1. Sidewalks, doorways, vestibules, halls, stairways, and other similar
areas shall not be obstructed by tenants or used by any tenant for purposes
other than ingress and egress to and from their respective leased premises and
for going from one to another part of the Building.
2. Plumbing, fixtures and appliances shall be used only for the
purposes for which designed, and no sweepings, rubbish, rags or other unsuitable
material shall be thrown or deposited therein. Damage resulting to any such
fixtures or appliances from misuse by a tenant or its agents, employees or
invitees, shall be paid by such tenant.
3. No signs, advertisements or notices shall be painted or affixed on
or to any windows or doors or other part of the Building without the prior
written consent of Landlord. No nails, hooks or screws shall be driven or
inserted in any part of the Building except by Building maintenance personnel.
No curtains or other window treatments shall be placed between the glass and the
Building standard window treatments.
4. Landlord shall provide and maintain an alphabetical directory for
all tenants in the main lobby of the Building. Landlord shall provide Tenant
with two lines on said directory.
5. Landlord shall provide all door locks in each tenant's leased
premises, at the cost of such tenant, and no tenant shall place any additional
door locks in its leased premises without Landlord's prior written consent.
Landlord shall furnish to each tenant a reasonable number of keys to such
tenant's leased premises, at such tenant's cost, and no tenant shall make a
duplicate thereof.
6. Movement in or out of the Building of furniture or office equipment,
or dispatch or receipt by tenants of any bulky material, merchandise or
materials which require use of elevators or stairways, or movement through the
Building entrances or lobby shall be conducted under Landlord's supervision at
such times and in such a manner as Landlord may reasonably require. Each tenant
assumes all risks of and shall be liable for all damage to articles moved and
injury to persons or public engaged or not engaged in such movement, including
equipment, property and personnel of Landlord if damaged or injured as a result
of acts in connection with carrying out this service for such tenant.
7. Landlord may prescribe weight limitations and determine the
locations for safes and other heavy equipment or items, which shall in all cases
be placed in the Building so as to distribute weight in a manner acceptable to
Landlord which may include the use of such supporting devices as Landlord may
require. All damages to the Building caused by the installation or removal of
any property of a tenant, or done by a tenant's property while in the Building,
shall be repaired at the expense of such tenant.
8. Corridor doors, when not in use, shall be kept closed. Nothing shall
be swept or thrown into the corridors, halls, elevator shafts or stairways. No
birds or animals shall be brought into or kept in, on or about any tenant's
leased premises. except for seeing eye dogs to assist with a handicap
individual. No portion of any tenant's leased premises shall at any time be used
or occupied as sleeping or lodging quarters.
9. Tenant shall cooperate with Landlord's employees in keeping its
leased premises neat and clean. Tenants shall not employ any person for the
purpose of such cleaning other than the Building's cleaning and maintenance
personnel.
10. To ensure orderly operation of the Building, no ice, mineral or
other water, towels, newspapers, etc. shall be delivered to any leased area
except by persons approved by Landlord.
11. Tenant shall not make or permit any vibration or improper,
objectionable or unpleasant noises or odors in the Building or otherwise
interfere in any way with other tenants or persons having business with them.
12. No machinery of any kind (other than normal office equipment) shall
be operated by any tenant on its leased area without Landlord's prior written
consent, nor shall any tenant use or keep in the Building any flammable or
explosive fluid or substance.
13. Landlord will not be responsible for lost or stolen personal
property, money or jewelry from tenant's leased premises or public or common
areas regardless of whether such loss occurs when the area is locked against
entry or not.
14. No vending or dispensing machines of any kind may be maintained in
any leased premises without the prior written permission of Landlord.
15. Tenant shall not conduct any activity on or about the Premises or
Building which will draw pickets, demonstrators, or the like.
16. All vehicles are to be currently licensed, in good operating
condition, parked for business purposes having to do with Tenant's business
operated in the Premises, parked within designated parking spaces, one vehicle
to each space. No vehicle shall be parked as a "billboard" vehicle in the
parking lot. Any vehicle parked improperly may be towed away. Tenant, Tenant's
agents, employees, vendors and customers who do not operate or park their
vehicles as required shall subject the vehicle to being towed at the expense of
the owner or driver. Tenant shall indemnify, hold and save harmless Landlord of
any liability arising from the towing or booting of any vehicles belonging to a
Tenant Party.
<PAGE> 21
LEASE AGREEMENT
BETWEEN
LAKESIDE HOLDINGS, L.L.C.,
AS LANDLORD
AND
MULTI-LINK TELECOMMUNICATIONS, INC.,
AS TENANT
DATED: MARCH 29, 1999
<PAGE> 22
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Lease Grant .......................................................................................... 1
2. Term ................................................................................................. 1
3. Rent ................................................................................................. 1
(a) Basic Rent .................................................................................. 1
(b) Payment ..................................................................................... 1
(c) Operating Costs ............................................................................. 2
4. Delinquent Payment; Handling Charges ................................................................. 4
5. Security Deposit ..................................................................................... 4
6. Landlord's Obligations ............................................................................... 4
(a) Services .................................................................................... 4
(b) Excess Utility Use .......................................................................... 5
(c) Restoration of Services; Abatement .......................................................... 5
7. Improvements; Alterations; Repairs; Maintenance ...................................................... 6
(a) Improvements; Alterations ................................................................... 6
(b) Repairs; Maintenance ........................................................................ 6
(c) Performance of Work ......................................................................... 6
(d) Mechanic's Liens ............................................................................ 6
8. Use .................................................................................................. 6
9. Assignment and Subletting ............................................................................ 7
(a) Transfers; Consent .......................................................................... 7
(b) Cancellation ................................................................................ 7
(c) Additional Compensation ..................................................................... 8
10. Insurance; Waivers; Subrogation; Indemnity ........................................................... 8
(a) Insurance ................................................................................... 8
(b) Waiver of Negligence; No Subrogation ........................................................ 8
(c) Tenant's Indemnity .......................................................................... 8
11. Subordination; Attornment; Notice to Landlord's Mortgagee ............................................ 9
(a) Subordination ............................................................................... 9
(b) Attornment .................................................................................. 10
(c) Notice to Landlord's Mortgagee .............................................................. 10
12. Rules and Regulations ................................................................................ 10
13. Condemnation ......................................................................................... 10
(a) Total Taking ................................................................................ 10
(b) Partial Taking - Tenant's Rights ............................................................ 10
(c) Partial Taking - Landlord's Rights .......................................................... 10
(d) Award ....................................................................................... 10
14. Fire or Other Casualty ............................................................................... 10
(a) Repair Estimate.............................................................................. 10
(b) Landlord's and Tenant's Rights .............................................................. 11
(c) Landlord's Rights ........................................................................... 11
(d) Repair Obligation ........................................................................... 11
15. Personal Property Taxes .............................................................................. 11
16. Events of Default .................................................................................... 11
17. Remedies ............................................................................................. 12
18. Payment by Tenant; Non-Waiver ........................................................................ 12
(a) Payment by Tenant............................................................................ 12
(b) No Waiver ................................................................................... 13
19. Landlord's Lien ...................................................................................... 13
20. Surrender of Premises ................................................................................ 13
21. Holding Over ......................................................................................... 13
22. Certain Rights Reserved by Landlord .................................................................. 14
23. Substitution Space ................................................................................... 14
24. Miscellaneous ........................................................................................ 14
(a) Landlord Transfer ........................................................................... 14
</TABLE>
<PAGE> 23
<TABLE>
<S> <C> <C>
(b) Landlord's Liability ........................................................................ 14
(c) Force Majeure ............................................................................... 14
(d) Brokerage ................................................................................... 15
(e) Estoppel Certificates........................................................................ 15
(f) Notices...................................................................................... 15
(g) Separability ................................................................................ 15
(h) Amendments; and Binding Effect .............................................................. 15
(i) Quiet Enjoyment ............................................................................. 15
(j) No Merger ................................................................................... 16
(k) No Offer .................................................................................... 16
(l) Entire Agreement ............................................................................ 16
(m) Waiver of Jury Trial ........................................................................ 16
(n) Governing Law ............................................................................... 16
(o) Joint and Several Liability ................................................................. 16
(p) Financial Reports ........................................................................... 16
(q) Landlord's Fees ............................................................................. 16
(r) General Definitions ......................................................................... 16
(s) Independent Covenants ....................................................................... 16
(t) List of Exhibits ............................................................................ 17
(u) Americans With Disabilities Act ............................................................. 17
(v) Attorneys' Fees.............................................................................. 17
25. Other Provisions ..................................................................................... 18
26. Hazardous Materials................................................................................... 18
27. Telephone and Telecommunications Services............................................................. 18
28. Guaranty ............................................................................................. 20
ADDENDUM
EXHIBIT A-1 Outline of Premises under paragraph 1.(a).
EXHIBIT A-2 Outline of Premises under paragraph 1.(b).
EXHIBIT B Depiction of Building
EXHIBIT C Legal Description of Real Property
EXHIBIT D Complex Rules and Regulations
EXHIBIT E Parking Agreement
</TABLE>
ADDENDUM
THIS ADDENDUM, made as of the 29th day of March, 1999, is among
LAKESIDE HOLDINGS, L.L.C. a Delaware limited liability company, MULTI-LINK
TELECOMMUNICATIONS, INC., a Colorado corporation ("Tenant"), and MULTI-LINK
COMMUNICATIONS, a Colorado corporation ("Guarantor"). Landlord, Tenant and
Guarantor have executed simultaneously with this Addendum that certain Lease
(the "Lease") pertaining to certain space as depicted in Exhibit A-1, in the
building commonly known as Lakeside Plaza Building and located at 4704 Harlan
Street, Denver, Colorado 80212. In the event of any conflict between the
provisions of this Addendum and the provisions of the other portions of the
lease, the provisions of this Addendum shall control. The capitalized terms used
herein and not defined herein shall have the same meanings used in the other
portions of the Lease. Landlord and Tenant hereby agree that the Lease is
amended and supplemented as follows:
29. COMPLETION OF PREMISES. Landlord shall, at its own cost and
expense, in a good and workmanlike manner, cause the Premises to be improved and
completed in accordance with the plans and specifications attached as Exhibit
A-1, which are mutually agreed upon by Landlord and Tenant (such work being
herein called "Landlord's Work"). Landlord reserves the right, however: (i) to
make substitutions of material or components of equivalent grade and quality
when and if any specified material or component shall not be readily or
reasonably available, and (ii) to make changes necessitated by conditions met in
the course of construction, provided that Tenant's approval of any substantial
change shall first be obtained (which approval shall not be unreasonably
withheld or delayed so long as there shall be general conformity with the Final
Layout Plans). Tenant shall by notice to Landlord designate a single individual
who Tenant agrees shall be available to meet and consult with Landlord at the
Premises as Tenant's representative respecting the matters which are subject to
this Section, and who, as between Landlord and Tenant, shall have the power to
legally bind Tenant, in making requests for changes, giving approval of plans or
work, giving directions to Landlord or the like, under this Section; and any
notice or delivery given to such person personally or at his place of business
shall have the same effect as a notice or delivery given to Tenant.
If Landlord shall, for any reason (including, without limitation, fail
to complete the work, if any, required to be done by Landlord under this
Section) or fail to make available to Tenant possession of the Premises on or
before the Commencement Date or any other date, Landlord shall not be subject to
any liability for such failure nor for any failure to timely complete any work.
Under such circumstances, Tenant's obligations to pay Basic Rent and Additional
Rent shall not commence until Landlord makes possession available; and such
failure to make available to Tenant possession of the Premises on or before the
Commencement Date or any other date or to timely complete any work, shall not in
any other way affect the validity or continuance of this Lease, nor the Term or
the obligations of Tenant hereunder. Such deferral of Rent shall be Tenant's
sole and exclusive right and remedy with respect to any such failure. There
shall be no deferral of Rent, however, if any such failure is caused in whole or
part by any act or omission of Tenant, its agents, servants, employees or
contractors, which has the effect of hindering or delaying Landlord's delivery
of possession or the timely
<PAGE> 24
completion of any work to be done by Landlord (hereinafter a "Tenant Delay")
including, without limitation, (a) any delay which is caused by changes
requested by Tenant in the work to be performed by Landlord in readying the
Premises for Tenant's occupancy, (b) any delay, caused by Tenant, in furnishing
materials or procuring labor required to be furnished or procured for the
completion of the Premises, or (c) any delay which is caused by any failure by
Tenant, without regard to any grace period applicable thereto, promptly to
furnish to Landlord any required information, approval or consent or caused by
any good faith reluctance on the part of Landlord to approve any information
required to be submitted by Tenant and approved by Landlord, or (d) any delay
which is caused by the performance of any work or activity in the Premises by
Tenant or any of its employees, agents or contractors. Tenant also shall pay to
Landlord, within 10 days after receipt of demand made from time to time, a sum
equal to any additional cost to Landlord in completing the Premises resulting
from any Tenant Delay.
30. SUBSTITUTE PREMISES.
(a) Initial Public Offering. Tenant shall use its best efforts
to complete an initial public offering ("IPO") of its common stock to
raise not less than $5,000,000.00 of additional capital. Tenant shall
keep Landlord fully apprised of the progress, status and completion of
the IPO and within two business days after the completion of the IPO
Tenant shall provide evidence reasonably satisfactory to the Landlord
of Tenant's receipt of funds generated from the IPO. Provided that
Tenant delivers the IPO Notice to Landlord on or before June 30,1999
evidencing that Tenant has received not less than $5,000,000 of
additional capital, and provided that Tenant has performed all of its
obligations under this Lease, Landlord and Tenant agree that the office
space (the "Substitute Premises") consisting of approximately 6,059
rentable square feet on the fourth floor of the Building as depicted on
the plan attached as Exhibit A-2 shall be substituted for the initial
Premises described in Section 1 above ("Initial Premises") as the
Premises hereunder pursuant to the provisions of this Section 30;
provided, however, that in the event Landlord has entered into an
agreement with a third party (not affiliated with Landlord) for the
lease of any portion of the Substitute Premises (a "Third Party Lease")
the Substitute Premises will not be substituted for the Initial
Premises and Tenant shall have the option to substitute the Alternative
Substitute Premises for the Initial Premises pursuant to the provisions
of Section 31 below.
(b) Completion of Substitute Premises.
(i) Upon the occurrence of all of the conditions set
forth in Section 30(a) for the substitution of the Substitute
Premises for the Initial Premises, Landlord shall, at its own
cost and expense, in a good and workmanlike manner, cause the
Substitute Premises to be improved and completed in accordance
with the plans and specifications attached as Exhibit A-2 (the
"Final Substitute Premises Layout Plans") which have been
mutually agreed upon by Landlord and Tenant (such work being
herein called "Landlord's Substitute Premises Work"). Landlord
reserves the right, however: (i) to make substitutions of
material or components of equivalent grade and quality when
and if any specified material or component shall not be
readily or reasonably available, and (ii) to make changes
necessitated by conditions met in the course of construction,
provided that Tenant's approval of any substantial change
shall first be obtained (which approval shall not be
unreasonably withheld or delayed so long as there shall be
general conformity with the Final Substitute Premises Layout
Plans). Tenant shall by notice to Landlord designate a single
individual who Tenant agrees shall be available to meet and
consult with Landlord at the Substitute Premises as Tenant's
representative respecting the matters which are subject to
this Section, and who, as between Landlord and Tenant, shall
have the power to legally bind Tenant, in making requests for
changes, giving approval of plans or work, giving directions
to Landlord or the like, under this Section; and any notice or
delivery given to such person personally or at his place of
business shall have the same effect as a notice or delivery
given to Tenant.
(ii) If Landlord shall, for any reason (including,
without limitation, fail to complete the work, if any,
required to be done by Landlord under this Section) or fail to
make available to Tenant possession of the Substitute
Premises, Landlord shall not be subject to any liability for
such failure nor for any failure to timely complete any work.
Under such circumstances, Tenant's obligations to pay Basic
Rent and Additional Rent for the Substitute Premises shall not
commence until Landlord makes possession available; and such
failure to make available to Tenant possession of the
Substitute Premises shall not in any other way affect the
validity or continuance of this Lease, nor the Term or the
obligations of Tenant hereunder. Such deferral of Rent
pertaining to the Substitute Premises shall be Tenant's sole
and exclusive right and remedy with respect to any such
failure. There shall be no deferral of Rent pertaining to the
Substitute Premises, however, if any such failure is caused in
whole or part by any act or omission of Tenant, its agents,
servants, employees or contractors, which has the effect of
hindering or delaying Landlord's delivery of possession or the
timely completion of any work to be done by Landlord
(hereinafter a "Tenant Substitute Premises Delay") including,
without limitation, (a) any delay which is caused by changes
requested by Tenant in the work to be performed by Landlord in
readying the Substitute Premises for Tenant's occupancy, (b)
any delay which is caused by any failure by Tenant, without
regard to any grace period applicable thereto, promptly to
furnish to Landlord any required information, approval or
consent or caused by any good faith reluctance on the part of
Landlord to approve any information required to be submitted
by Tenant and approved by Landlord, or (c) any delay which is
caused by the performance of any work or activity in the
Substitute Premises by Tenant or any of its employees, agents
or contractors. Tenant also shall pay to Landlord, within ten
days after receipt of demand made from time to time, a sum
equal to any additional cost to Landlord in completing the
Substitute Premises resulting from any Tenant Substitute
Premises Delay.
(c) Tenant agrees that on or before the ten (10) business days
to occur after the date Landlord notifies the Tenant that the
Substitute Premises are available for Tenant's occupancy, that Tenant
shall
<PAGE> 25
completely vacate the Initial Premises in compliance with the
requirements set forth in Section 30. As of the date the Substitute
Premises are available for Tenant's occupancy (the "Substitute Premises
Commencement Date"), the Substitute Premises shall constitute the
Premises for all purposes under this Lease and subject to the terms and
conditions set forth herein subject to the following exceptions:
(i) Term. The Term of this Lease shall be extended
for a period of seventy-eight (78) months, commencing on the
Substitute Premises Commencement Date, and expiring at 5:00
p.m., on the last day of the seventy-eighth (78th) month
thereafter. If the Substitute Premises Commencement Date does
not occur on the first day of a calendar month, then the Term
shall be extended by the number of days between the Substitute
Premises Commencement Date and the first date of the next
month.
(ii) Rent.
[A] BASIC RENT. The Basic Rent for the
Substitute Premises shall be the following amounts
for the following periods of time commencing on the
Substitute Premises Commencement Date:
<TABLE>
<CAPTION>
Time Period Annual Basic Rent Monthly Basic Rent
----------- ----------------- ------------------
<S> <C> <C>
Months 1- 6: $ 00.00 $ 00.00
Months 7-30: $ 101,488.25 $ 8,457.35
Months 31-42: $ 104,517.72 $ 8,709.81
Months 43-78: $ 107,547.25 $ 8,962.27
</TABLE>
[B] ADDITIONAL RENT. Tenant's Proportionate
Share for determining Tenant's obligation to pay
Additional Rent pursuant to the provisions of Section
3(c) shall, as of the Substitute Commencement Date,
be increased to 4.655%, which is the percentage
obtained by dividing the rentable area of the
Substitute Premises, which is stipulated to be 6,059
rentable square feet by the total number of square
feet of area in the Complex, which is stipulated to
be 130,150 rentable square feet (being 95% of the
rentable area of the office space in the Complex).
(d) Refund of Basic Rent. Within thirty (30) days after the
Substitute Premises Commencement Date, Landlord shall reimburse Tenant
for the amount of any Basic Rent paid by Tenant for the Initial
Premises for that time period occurring after the Substitute Premises
Commencement Date.
31. ALTERNATE SUBSTITUTE PREMISES.
(a) In the event Tenant delivers the IPO Notice pursuant to
the provisions of Section 30 evidencing that Tenant has received not
less than $5,000,000 of additional capital and some portion of the
Substitute Premises is subject to a Third Party Lease, Landlord shall
use reasonable efforts to locate approximately 6,059 contiguous
rentable square feet within the Building. In the event the Landlord is
able to identify such space available for Tenant's use in the Building
on or before July 31, 1999, Landlord shall deliver written notice
("Notice of Availability") to Tenant together with a diagram depicting
the location and dimensions of such space (the "Alternative Substitute
Premises"). Tenant shall have the right ("Right to Substitute"), upon
and subject to all the terms and conditions set forth in this Section
to substitute the Alternative Substitute Premises for the Initial
Premises provided that within five (5) business days after Landlord
gives Tenant the Notice of Availability, Tenant, by written notice to
Landlord ("Notice of Acceptance"), elects to exercise its Right to
Substitute.
(b) Completion of Alternative Substitute Premises. In the
event Tenant exercises its Right to Substitution:
(i) Alternative Substitute Premises Information.
Landlord shall, within five (5) business days after its
receipt of the Notice of Acceptance deliver to Tenant such
plans and other information with respect to the Alternative
Substitute Premises and the Building as Tenant may reasonably
require for the preparation of layout plans for the
Alternative Substitute Premises.
(ii) Tenant's Plans. Tenant shall prepare and, not
later than thirty (30) days after delivery of Notice of
Acceptance, shall deliver to Landlord one mylar and two black
line prints of complete and final architectural working
drawings (which shall be 1/8" scale) and three copies of
specifications, prepared by an architect or space planner
approved by Landlord ("Tenant's Alternative Substitute
Premises Layout Plans") for the construction and finishing of
the Alternative Substitute Premises for Tenant's occupancy.
Tenant's Alternative Substitute Premises Layout Plans shall be
signed and sealed by an architect licensed by and registered
in the State of Colorado, shall conform to all applicable laws
and requirements of public authorities and insurance
underwriters' requirements. Tenant's Alternative Substitute
Premises Layout Plans shall be subject to Landlord's review
and written approval, which approval shall not be unreasonably
withheld, and such plans shall be deemed modified to take
account
27
<PAGE> 26
of any changes reasonably required by Landlord. Tenant's
Alternative Substitute Premises Layout Plans as approved by
Landlord and with the aforesaid modifications, if any, are
herein called the "Final Alternative Substitute Premises
Layout Plans". Concurrently with delivery of Tenant's
Alternative Substitute Premises Layout Plans to Landlord,
Tenant shall by notice to Landlord in writing designate a
single individual who Tenant agrees shall be available to meet
and consult with Landlord at the Alternative Substitute
Premises as Tenant's representative respecting the matters
which are the subject of this Section 31 and who, as between
Landlord and Tenant, shall have the power to legally bind
Tenant, in making requests for changes, giving approval of
plans or work, giving directions to Landlord or the like,
under this Section 31; and any notice or delivery given to
such person personally or at his place of business shall have
the same effect as a notice or delivery given to Tenant.
(iii) Engineering Plans. Landlord shall direct its
engineers to prepare at Landlord's expense and, not later than
15 days after approval by Landlord of the Final Alternative
Substitute Premises Layout Plans, shall deliver to Tenant
mechanical, electrical and fire protection engineering
drawings and specifications ("Alternative Substitute Premises
Engineering Plans"), based on the Final Alternative Substitute
Premises Layout Plans (and such pertinent additional
information as shall have been submitted by Tenant with
Tenant's Alternative Substitute Premises Layout Plans or as
requested by Landlord), as may be required to complete the
Alternative Substitute Premises in accordance with the Final
Alternative Substitute Premises Layout Plans. Within seven
days after submission to Tenant by Landlord of the Alternative
Substitute Premises Engineering Plans, Tenant shall give its
written approval thereof if they are in substantial conformity
with or a direct extension of the Final Alternative Substitute
Premises Layout Plans, otherwise such approval shall not be
unreasonably withheld; however, the Alternative Substitute
Premises Engineering Plans shall be deemed to have been
approved by Tenant unless Tenant shall have notified Landlord
in writing to the contrary within seven days of their receipt
by Tenant, stating in which respects such plans fail to
conform with the Final Alternative Substitute Premises Layout
Plans. The Alternative Substitute Premises Engineering Plans
shall be deemed to have been approved by Tenant if they are
returned by Tenant with specified changes noted and such
changes are made, whether or not approval is thereafter
specifically noted on the Alternative Substitute Premises
Engineering Plans so changed.
(iv) Completion by Landlord. Landlord shall, in a
good and workmanlike manner, cause the Alternative Substitute
Premises to be improved and completed in accordance with the
Alternative Substitute Premises Final Layout Plans and the
Alternative Substitute Premises Engineering Plans (the "Tenant
Alternative Substitute Premises Work") (such plans are
hereinafter together called the "Alternative Substitute
Premises Construction Plans"). Landlord reserves the right
however: (i) to make substitutions of material or components
of equivalent grade and quality when and if any specified
material or component shall not be readily or reasonably
available, and (ii) to make changes necessitated by conditions
met in the course of construction, provided that Tenant's
approval of any substantial change shall first be obtained
(which approval shall not be unreasonably withheld or delayed
so long as there shall be general conformity with the Final
Alternative Substitute Premises Layout Plans). The Tenant
Alternative Substitute Premises Work shall be furnished,
installed and performed by Landlord for an amount (hereinafter
called the "Alternative Substitute Premises Tenant
Improvements Costs") equal to Landlord's out-of-pocket
contract or purchase price or prices to be paid by Landlord to
architects, engineers, material suppliers, subcontractors,
independent contractors and/or other sources for the material,
labor and services applied to the Tenant Alternative
Substitute Premises Work, plus a four percent (4%)
construction management fee payable to Landlord and applicable
sales taxes. Landlord agrees to obtain not less than two (2)
bids for the completion of the Tenant Alternative Substitute
Premises Work from duly licensed general contractors and shall
select, as the general contractor to complete the Tenant
Alternative Substitute Premises Work, the general contractor
who submits the lowest bid or such other general contractor
who submits a bid within two percent (2%) of the lowest bid.
(v) Payment for Tenant Work. Landlord shall provide
an allowance for the Alternative Substitute Premises Tenant
Improvements Costs in the amount of One Hundred Twenty-One
Thousand One Hundred Eighty and No/100 Dollars ($121,180.00)
("Alternative Substitute Premises Improvements Allowance").
Tenant shall pay for all Alternative Substitute Premises
Tenant Improvements Costs exceeding the Alternative Substitute
Premises Improvements Allowance within ten (10) business days
after the first date that the Alternative Substitute Premises
are available for Tenant's occupancy and Landlord has
furnished Tenant with an itemization, in reasonable detail, of
the Alternative Substitute Premises Tenant Improvements Costs;
provided, however, that Landlord may require that, before the
commencement of the Tenant Alternative Substitute Premises
Work that Tenant pay to Landlord twenty-five percent (25%) of
the amount that the estimated Alternative Substitute Premises
Tenant Improvements Costs as reasonably determined by Landlord
exceed the Alternative Substitute Premises Tenant Improvements
Allowance.
(vi) Access; Acceptance of Work. Landlord shall
afford Tenant and its employees and agents access to the
Alternative Substitute Premises at reasonable times prior to
the commencement of the Term and at Tenant's sole risk and
expense, for the purposes of inspecting and verifying
Landlord's performance of the Alternative Substitute Premises
Tenant Work. Tenant shall advise Landlord promptly of any
objection to the performance of such work.
28
<PAGE> 27
(vii) Delivery of Possession. If Landlord shall, for
any reason (including, without limitation, failure to complete
the work, if any, required to be done by Landlord under this
Lease), fail to make available to Tenant possession of the
Alternative Substitute Premises, Landlord shall not be subject
to any liability for such failure. Under such circumstances
Tenant's obligations to pay the Basic Rent and Additional Rent
for the Alternative Substitute Premises shall not commence
until Landlord makes possession available; and such failure to
make available to Tenant possession of the Alternative
Substitute Premises shall not in any other way affect the
validity or continuance of this Lease, or the Term, or the
obligations of Tenant hereunder. Such deferral of Rent shall
be Tenant's sole and exclusive right and remedy with respect
to any such failure. There shall be no deferral of Rent,
however, if any such failure is caused in whole or part by any
act or omission of Tenant, its agents, servants, employees or
contractors, which has the effect of hindering or delaying
Landlord's delivery of possession or the timely completion of
any work to be done by Landlord (hereinafter a "Tenant
Alternative Substitute Premises Delay") including, without
limitation, (a) any delay which is caused by changes in the
work to be performed by Landlord in readying the Alternative
Substitute Premises for Tenant's occupancy, which changes are
requested by Tenant, or (b) to furnish to Landlord any
required plan, information, approval or consent within the
period of time required therefor by the terms of this Lease or
caused by any good faith reluctance on the part of Landlord to
approve any plan or other information required to be submitted
by Tenant and approved by Landlord, or (c) any delay which is
caused by the performance of any work or activity in the
Alternative Substitute Premises by Tenant or any of its
employees, agents or contractors. Tenant also shall pay to
Landlord, within ten days after receipt of demand made from
time to time, a sum equal to any additional cost to Landlord
in completing the Tenant Alternative Substitute Premises Work
resulting from any Tenant Alternative Substitute Premises
Delay.
(c) Tenant agrees that on or before the ten (10) business days
to occur after the date Landlord notifies the Tenant that the
Alternative Substitute Premises are available for Tenant's occupancy,
that Tenant shall completely vacate the Initial Premises in compliance
with the requirements set forth in Section 20. As of the date the
Alternative Substitute Premises are available for Tenant's occupancy
(the "Alternative Substitute Premises Commencement Date"), the
Alternative Substitute Premises shall constitute the Premises for all
purposes under this Lease and subject to the terms and conditions set
forth herein subject to the following exceptions:
(i) Term. The Term of this Lease shall be extended
for a period of seventy-eight (78) months, commencing on the
Alternative Substitute Premises Commencement Date, and
expiring at 5:00 p.m., on the last day of the seventy-eighth
(78th) month thereafter. If the Alternative Substitute
Premises Commencement Date does not occur on the first day of
a calendar month, then the Term shall be extended by the
number of days between the Alternative Substitute Premises
Commencement Date and the first date of the next month.
(ii) Rent.
[A] BASIC RENT. The Basic Rent for the
Alternative Substitute Premises shall be the
following amounts for the following periods of time
commencing on the Alternative Substitute Premises
Commencement Date:
<TABLE>
<CAPTION>
Time Period Annual Basic Rent Monthly Basic Rent
----------- ----------------- ------------------
<S> <C> <C>
Months 1- 6: $ 00.00 $ 00.00
Months 7-30: $ 101,488.25 $ 8,457.35
Months 31-42: $ 104,517.72 $ 8,709.81
Months 43-78: $ 107,547.25 $ 8,962.27
</TABLE>
[B] ADDITIONAL RENT. Tenant's Proportionate
Share for determining Tenant's obligation to pay
Additional Rent pursuant to the provisions of Section
3(c) shall, as of the Alternative Substitute
Commencement Date, be increased to 4.655%, which is
the percentage obtained by dividing the rentable area
of the Alternative Substitute Premises, which is
stipulated to be 6,059 rentable square feet by the
total number of square feet of area in the Complex,
which is stipulated to be 130,150 rentable square
feet (being 95% of the rentable area of the office
space in the Complex).
(d) Refund of Basic Rent. Within thirty (30) days after the
Alternative Substitute Premises Commencement Date, Landlord shall
reimburse Tenant for the amount of any Basic Rent paid by Tenant for
the Initial Premises for that time period occurring after the
Alternative Substitute Premises Commencement Date.
32. TENANT'S OPTION TO TERMINATE LEASE. Provided that neither the
Substitute Premises (pursuant to Section 30) nor the Alternative Substitute
Premises (pursuant to Section 31), are substituted for the Initial Premises and
29
<PAGE> 28
provided that Tenant has not exercised the Right of First Offer (defined in
Section 34) subject to the terms of this Section 32, Tenant shall have the
one-time option ("Termination Option") to terminate this Lease as of 11:59 p.m.
(Denver time) on the last day of either the ninth (9th), tenth (10th), eleventh
(11th) or twelfth (12th) complete calendar month after the occurrence of the
Commencement Date (such date is herein referred to as the "Optional Expiration
Date"), provided that Tenant first shall have delivered to Landlord not less
than sixty (60) days' prior written notice ("Termination Notice") of Tenant's
election to exercise its Termination Option, and provided that Tenant pays
Landlord the Termination Payment (defined below) at the time that Tenant
delivers the Termination Notice, time being of the essence hereunder. For
purposes of this Section 32, the "Termination Payment" shall be in an amount
equal to the sum of (a) $4,344.92 (one month of Basic Rent), plus (b) the
product of (i) .7825 (if terminated as of the end of the ninth month), .7571 (if
terminated as of the end of the tenth month), .7315 (if the Lease is terminated
as of the end of the eleventh month), .7056 (if the Lease is terminated as of
the end of the twelfth month), multiplied by (ii) an amount equal to the sum of
[A] the costs and expenses incurred by Landlord to complete the Initial Premises
for Tenant's occupancy, including, but not limited to, the costs and expenses of
completing all Tenant Work not paid for by Tenant; [B] all commissions and/or
brokerage fees incurred by Landlord in connection with the Lease; [C] legal fees
and expenses incurred by Landlord in connection with the preparation of the
Lease and any exhibits, addenda and amendments thereto; and [D] the fees and
costs incurred by Landlord in the completion of architectural work and
engineering for improvements to the Initial Premises and mechanical systems
serving the Initial Premises. Landlord and Tenant hereby agree that the amount
of additional costs Landlord will incur as a result of such termination by
Tenant is extremely difficult to ascertain and the Termination Payment set forth
above represents a fair and reasonable estimate of such costs. If Tenant shall
not have delivered the Termination Notice and Termination Payment to Landlord on
or before that date which is sixty (60) days prior to the last day of the
twelfth (12th) complete calendar month after the Commencement Date, Tenant shall
no longer have any right to terminate this Lease pursuant to this Section 32. If
Tenant timely delivers the Termination Notice and timely pays the Termination
Payment, this Lease shall expire on the Optional Expiration Date as if such date
were the Termination Date originally specified in this Lease. Notwithstanding
any other provision of this Section 32, any Termination Notice given by Tenant
shall not be effective if Tenant is in default in the performance of any of its
obligations under this Lease at the time the Termination Notice is given or at
any time thereafter through the Optional Expiration Date and in such event this
Lease shall remain in full force and effect for the full Term provided in this
Section 2 hereof.
33. TENANT'S LOAN FOR IMPROVEMENTS. In the event neither the
Substitution Premises (pursuant to Section 30) nor the Alternative Substitute
Premises (pursuant to Section 31) are substituted for the Initial Premises, and
provided Tenant waives its right to exercise the Termination Option, Landlord
agrees at Tenant's request, to loan to Tenant the sum of Ten Thousand and No/100
Dollars ($10,000.00), subject to the following terms and conditions:
(a) Tenant shall use the proceeds from the such loan only for
the payment of costs and expenses incurred by Tenant to complete
improvements to the Initial Premises, and shall furnish to Landlord
prior to the receipt of any proceeds of such loan evidence of Tenant's
incurrence of such costs and expenses;
(b) the loan shall be evidenced by a promissory note (the
"Note") in form and content reasonably required by Landlord providing
for the repayment of the principal balance in equal monthly payments
through the remainder of the initial Term of this Lease with interest
on the unpaid principal balance at the rate of 12% per annum;
(c) Tenant shall exercise its right to obtain the loan by
delivering written notice to Landlord together with evidence of
Tenant's expenditures on or before October 1, 2000 or Tenant shall be
deemed to have waived its right to obtain the loan; and
(d) any failure by Tenant to make any payment required under
the Note shall be deemed an Event of Default under this Lease.
34. RIGHT OF FIRST OFFER.
Upon and subject to all the terms and conditions set forth in this
paragraph, Landlord hereby grants to Tenant a right of first offer (the "Right
of First Offer") covering the balance of the remaining office space located upon
the fourth (4th) floor of the Building (the "Offer Space"). The Right of First
Offer shall be on the following terms and conditions:
(a) If Landlord shall desire to lease all or any portion of
the Offer Space, as evidenced by the initiation of formal negotiations
with or the issuance of a proposal to a third party by or on behalf of
Landlord covering any portion of the Offer Space, or Landlord's
acceptance of a proposal from a third party, Landlord shall first offer
to lease such part of the Offer Space (the "Designated Offer Space") to
Tenant, by giving written notice to Tenant. Such notice shall specify
the date on which the Designated Offer Space is expected to be
available for Tenant's lease (the "Scheduled Designated Offer Space
Commencement Date"). Within five (5) business days after Landlord gives
Tenant such notice, Tenant shall, by written notice to Landlord (the
"Offer Notice"), elect or decline to exercise it Right of First Offer.
If Tenant fails to deliver the Offer Notice to Landlord within such
period of five (5) business days, Tenant shall be deemed to have
declined to exercise its Right of First Offer. If Tenant declines or is
deemed to have declined to exercise its Right of First Offer, Landlord
thereafter shall have the right to lease such Designated Offer Space to
any party upon such terms and conditions and for such period or
successive period of time as Landlord, in its sole discretion, shall
determine. Notwithstanding the foregoing, Tenant shall have no right to
exercise the Right of First Offer (and, at Landlord's option, any
previous exercise of the Right of First Offer shall be null and void)
if at the time Tenant first attempts to exercise the Right of First
Offer, or at any time thereafter until the Designated Offer Space has
been added to the Premises, Tenant is in default under this Lease.
30
<PAGE> 29
(b) In the event Tenant exercises the Right of First Offer,
Tenant shall deliver to Landlord the Tenant's proposed layout plans and
specifications for such Designated Offer Space within ten (10) business
days after delivery of the Offer Notice. Upon the Offer Notice being
given and within such time as Landlord reasonably determines is
necessary to complete such Designated Offer Space for occupancy,
Landlord shall cause such Designated Offer Space to be improved and
completed in a manner consistent with the Tenant's layout plans and
specifications for such Designated Offer Space (the "Designated Offer
Space Improvements"). The "Commencement Date" with respect to the
Designated Offer Space ("Designated Offer Space Commencement Date")
shall be deemed to be that date which is the later of the Scheduled
Designated Offer Space Commencement Date or the first business day
after the substantial completion of the Designated Offer Space
Improvements.
(c) The Designated Offer Space shall be added to the Premises,
for all purposes, as of the Designated Offer Space Commencement Date
for the balance of the Term of this Lease and subject to and upon the
following economic terms and all of the other terms, covenants and
conditions of this Lease, except that:
(i) the annual Basic Rent which shall be at the
prevailing market rates for office space in the Building
comparable to the Premises at the time of the Designated Offer
Space Commencement Date. In no event shall the Base Rent
payable for the Designated Offer Space be less than the Basic
Rent payable under this Lease immediately prior to the
Designated Offer Space Commencement Date.
(ii) Tenant's Proportionate Share shall be increased
to a new percentage, calculated in accordance with the
provisions of the Lease by increasing the rentable area of the
Premises by the number of square feet comprising the rentable
area of such Designated Offer Space. Tenant's obligation to
pay Basic Rent and the Additional Rent calculated pursuant to
the Lease for the Designated Offer Space shall commence on the
Designated Offer Space Commencement Date. Upon addition of the
Designated Offer Space to the Premises, this Lease shall be
deemed modified in the manner set forth above without the
necessity of any further agreement or document; provided,
however, Landlord and Tenant agree to execute, acknowledge and
deliver an instrument evidencing such modification of this
Lease to be prepared by Landlord.
35. RENEWAL OPTION.
Tenant shall have the option to renew ("Renewal Option") the Term of
this Lease for one (1) additional term of five (5) years ("Renewal Term")
commencing upon the expiration of the scheduled Term of this Lease under Section
2 (and as extended pursuant to the terms of either Section 30 or Section 31
hereof), on the condition that Tenant is not in default under this Lease at the
time Tenant gives notice of exercise of its Renewal Option or at the time of
commencement of the Renewal Term. Such renewal shall be on all of the terms,
covenants and conditions of this Lease, except: (i) Tenant shall not have any
right to further renewal beyond such additional five-year term; and (ii) the
annual Basic Rent for the Premises for the renewal term shall be at the
prevailing market rates for office space in the Building comparable to the
Premises at the time the Renewal Term begins. In no event shall the Basic Rent
payable during the Renewal Term be less than the Basic Rent payable under this
Lease immediately prior to the commencement of the Renewal Term. Tenant's
Renewal Option shall be exercised only by Tenant giving Landlord written notice
of Tenant's election to renew not less than nine (9) months prior to the
expiration of the initial Term of this Lease, time being of the essence with
respect to such notice. As of the date the Renewal Term begins, this Lease shall
be deemed modified in the manner set forth above, without the necessity of any
further agreement or document; provided, however, that either party to this
Lease shall, upon request of the other party, execute, acknowledge, and deliver
an instrument evidencing such renewal and modification of this Lease.
All of the terms and provisions of the Lease, as herein amended and
supplemented, are hereby ratified and confirmed, and shall remain in full force
and effect.
31
<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
duly executed as of the day and year first above written.
LANDLORD:
LAKESIDE HOLDINGS, L.L.C., a
Delaware limited liability company
BY: Silverbrae Holdings,
Inc., a Colorado
corporation, Agent
Date: 3/29/99 By: /s/ Garth R. D. Tait
-------------------- ---------------------------------------------
Garth R. D. Tait, President
TENANT:
MULTI-LINK TELECOMMUNICATIONS, INC., a
Colorado corporation
Date: 3/29/99 By: /s/ Nigel V. Alexander
-------------------- ---------------------------------------------
Its: Chief Executive Officer
---------------------------------------------
GUARANTOR:
MULTI-LINK COMMUNICATIONS, INC.,
a Colorado corporation
Date: 3/29/99 By: /s/ Nigel V. Alexander
-------------------- ----------------------------------------------
Its: Chief Executive Officer
--------------------------------------------
32
<PAGE> 1
EXHIBIT 10.9
PROMISSORY NOTE
U.S. $100,000.00 SEPTEMBER 30, 1998
FOR VALUE RECEIVED, the undersigned, MULTI-LINK
COMMUNICATIONS, INC AND/OR MULTI-LINK TELECOMMUNICATIONS, INC. a Colorado
Corporation ("Maker"), hereby promises to pay to the order of Octagon
Strategies, Inc. (hereinafter referred to, together with each subsequent holder
hereof, as "Holder"), at 811, Lincoln Street, Suite 500, Denver, CO 80203 or at
such other address as may be designated from time to time hereafter by any
Holder, the principal sum of One Hundred Thousand, Dollars ($100,000.00), as
hereinafter provided, in lawful money of the United States of America.
1. Payments. Subject to the availability of funds, the loan
will be repaid on demand of Holder. The loan is revolving in nature and Holder
may, from time to time advance funds to Maker for general corporate purposes.
2. Interest. Interest is payable at the rate of 10% per annum.
3. Collateral. None.
4. Events of Default. The entire unpaid principal balance of
this Promissory Note, together with all unpaid interest accrued thereon and all
other sums owing under this Promissory Note shall at the option of Holder become
immediately due and payable without notice or demand upon the occurrence of any
one or more of the following events ("Events of Default"), regardless of the
cause thereof and whether within or beyond the control of Maker:
(a) the failure of Maker to pay any sum when due
under this Promissory Note and such failure shall continue
unremedied for thirty (30) days after such payment is due;
(b) any representation or warranty made herein shall
prove to be false or misleading in any material respect;
(c) any default (other than for the payment of money)
shall occur on the part of Maker in the due observance or
performance of any covenant or other provision of this
Promissory Note, which default has not been cured within
thirty (30) days following notice thereof to Maker;
(d) Maker shall fail to pay principal or interest on
any indebtedness (now or hereafter existing) owed to any
person (other than Holder) beyond any period of grace provided
with respect thereto, or shall default in the performance of
any agreement, term or condition contained in any agreement
under which any such obligation is created, if the effect of
such default is to cause the holder or holders of such
indebtedness to accelerate the maturity thereof;
(e) Maker shall (i) apply for or consent to the
appointment of a receiver, trustee in bankruptcy for benefit
of creditors, or liquidator of any of them or of any of the
property of any of them; (ii) admit in writing their or his
inability to pay their or his debts as they mature or
generally fail to pay such debts as they mature; (iii) make a
general assignment for the benefit of creditors; (iv) be
adjudicated a bankrupt or insolvent; (v) file a voluntary
petition in bankruptcy, or a petition or an answer seeking
reorganization or an arrangement with creditors, or seeking to
take advantage of any bankruptcy or reorganization,
insolvency, readjustment of debt, dissolution or liquidation
law or statute or an answer admitting an act of bankruptcy
alleged in a petition filed against any of them in any
proceeding under such law; or (vi) take any corporate action
for the purpose of affecting any of the foregoing; and
<PAGE> 2
(f) an order, judgment or decree shall be entered
against Maker without its application, approval or consent, or
by any court of competent jurisdiction, approving a petition
seeking reorganization of any of them or appointing a
receiver, trustee or liquidator of Maker or of all or a
substantial part of the assets thereof, if such order,
judgment or decree shall continue unstayed and in effect for a
period of sixty (60) consecutive days from the date of entry
thereof.
5. Waivers and Covenants. Maker and all parties now or
hereafter liable for the payment hereof, primarily or secondarily, directly or
indirectly, and whether as endorser, guarantor, surety, or otherwise, hereby
severally waive presentment, notice of dishonor and protest, and they hereby
agree to any extension of time of payment and partial payments before, at or
after maturity.
6. Remedies; Collection. Holder shall be entitled to pursue
any and all rights and remedies provided by applicable law and/or under the
terms of this Promissory Note, all of which shall be cumulative and exercised
successively or concurrently. Upon the occurrence and during the continuation of
any Event of Default, Holder, at its option, may at any time declare any and all
liabilities of Maker to Holder hereunder immediately due and payable without
demand or notice of any kind. Holder's delay in exercising or failure to
exercise any rights or remedies to which Holder may be entitled if any Event of
Default occurs shall not constitute a waiver of any of Holder's rights or
remedies with respect to that or any subsequent Event of Default, whether of the
same or a different nature, nor shall any single or partial exercise of any
right or remedy by Holder preclude any other or further exercise of that or any
other right or remedy. Upon the occurrence of an Event of Default, Holder shall
be entitled to recover reasonable costs and expenses of collection, including
reasonable attorneys' fees.
7. Governing Law. This Promissory Note shall be governed by
and enforced in accordance with the laws of the State of Colorado. IN WITNESS
WHEREOF, Maker has caused this Promissory Note to be executed by its duly
authorized representative as of the date hereof.
MULTI-LINK COMMUNICATIONS, INC.
A COLORADO CORPORATION.
/s/ SHAWN STICKLE
-------------------------------------------
SHAWN STICKLE
MANAGING DIRECTOR
MULTI-LINK TELECOMMUNICATIONS, INC.
A COLORADO CORPORATION.
/s/ SHAWN STICKLE
-------------------------------------------
SHAWN STICKLE
MANAGING DIRECTOR
<PAGE> 1
EXHIBIT 10.10
PROMISSORY NOTE
U.S. $77,243.52 SEPTEMBER 30, 1998
FOR VALUE RECEIVED, the undersigned, MULTI-LINK COMMUNICATIONS, INC a
Colorado Corporation ("Maker"), hereby promises to pay to the order of Shawn
Stickle (hereinafter referred to, together with each subsequent holder hereof,
as "Holder"), at 811, Lincoln Street, Suite 500, Denver, CO 80203 or at such
other address as may be designated from time to time hereafter by any Holder,
the principal sum of Seventy Seven Thousand, Two Hundred and Forty Three
Dollars and Fifty Two cents ($77,243.52), as hereinafter provided, in lawful
money of the United States of America.
1. Payments. Subject to the availability of funds, the loan will
be repaid on demand of Holder.
2. Interest. Interest is payable at the rate of 10% per annum.
3. Collateral. None.
4. Events of Default. The entire unpaid principal balance of this
Promissory Note, together with all unpaid interest accrued thereon and all
other sums owing under this Promissory Note shall at the option of Holder
become immediately due and payable without notice or demand upon the occurrence
of any one or more of the following events ("Events of Default"), regardless of
the cause thereof and whether within or beyond the control of Maker:
(a) the failure of Maker to pay any sum when due under this
Promissory Note and such failure shall continue unremedied for thirty
(30) days after such payment is due;
(b) any representation or warranty made herein shall prove to
be false or misleading in any material respect;
(c) any default (other than for the payment of money) shall
occur on the part of Maker in the due observance or performance of any
covenant or other provision of this Promissory Note, which default has
not been cured within thirty (30) days following notice thereof to
Maker;
(d) Maker shall fail to pay principal or interest on any
indebtedness (now or hereafter existing) owed to any person (other
than Holder) beyond any period of grace provided with respect thereto,
or shall default in the performance of any agreement, term or
condition contained in any agreement under which any such obligation
is created, if the effect of such default is to cause the holder or
holders of such indebtedness to accelerate the maturity thereof;
(e) Maker shall (i) apply for or consent to the appointment
of a receiver, trustee in bankruptcy for benefit of creditors, or
liquidator of any of them or of any of the property of any of them;
(ii) admit in writing their or his inability to pay their or his debts
as they mature or generally fail to pay such debts as they mature;
(iii) make a general assignment for the benefit of creditors; (iv) be
adjudicated a bankrupt or insolvent; (v) file a voluntary petition in
bankruptcy, or a petition or an answer seeking reorganization or an
arrangement with creditors, or seeking to take advantage of any
bankruptcy or reorganization, insolvency, readjustment of debt,
dissolution or liquidation law or statute or an answer admitting an
act of bankruptcy alleged in a petition filed against any of them in
any proceeding under such law; or (vi) take any corporate action for
the purpose of affecting any of the foregoing; and
<PAGE> 2
(f) an order, judgment or decree shall be entered against
Maker without its application, approval or consent, or by any court of
competent jurisdiction, approving a petition seeking reorganization of
any of them or appointing a receiver, trustee or liquidator of Maker
or of all or a substantial part of the assets thereof, if such order,
judgment or decree shall continue unstayed and in effect for a period
of sixty (60) consecutive days from the date of entry thereof.
5. Waivers and Covenants. Maker and all parties now or hereafter
liable for the payment hereof, primarily or secondarily, directly or
indirectly, and whether as endorser, guarantor, surety, or otherwise, hereby
severally waive presentment, notice of dishonor and protest, and they hereby
agree to any extension of time of payment and partial payments before, at or
after maturity.
6. Remedies; Collection. Holder shall be entitled to pursue any
and all rights and remedies provided by applicable law and/or under the terms
of this Promissory Note, all of which shall be cumulative and exercised
successively or concurrently. Upon the occurrence and during the continuation
of any Event of Default, Holder, at its option, may at any time declare any and
all liabilities of Maker to Holder hereunder immediately due and payable
without demand or notice of any kind. Holder's delay in exercising or failure
to exercise any rights or remedies to which Holder may be entitled if any Event
of Default occurs shall not constitute a waiver of any of Holder's rights or
remedies with respect to that or any subsequent Event of Default, whether of
the same or a different nature, nor shall any single or partial exercise of any
right or remedy by Holder preclude any other or further exercise of that or any
other right or remedy. Upon the occurrence of an Event of Default, Holder shall
be entitled to recover reasonable costs and expenses of collection, including
reasonable attorneys' fees.
7. Governing Law. This Promissory Note shall be governed by and
enforced in accordance with the laws of the State of Colorado.
IN WITNESS WHEREOF, Maker has caused this Promissory Note to be
executed by its duly authorized representative as of the date hereof.
MULTI-LINK COMMUNICATIONS, INC.
A COLORADO CORPORATION.
/S/ NIGEL ALEXANDER
-------------------------------
NIGEL ALEXANDER
MANAGING DIRECTOR
-2-
<PAGE> 1
EXHIBIT 10.11
PROMISSORY NOTE
$2,150,000 April 14, 1999
Spokane, Washington
Multi-Link Telecommunications, Inc., a Colorado corporation and
Multi-Link Communications, Inc., a Colorado corporation and majority owned
subsidiary of Multi-Link Telecommunications, Inc. (hereinafter collectively
referred to as "Maker") jointly and severally promise to pay to Westburg Media
Capital L. P. ("Holder"), the principal sum of $2,150,000, or so much thereof
as shall have been advanced by Holder to Maker and remains unpaid, together
with interest on that amount, upon the agreements, terms and conditions
provided in this Note.
1. DEFINITIONS. Most of the capitalized terms used in this Note are
defined in the Borrowing Agreement or other of the Loan Documents. Other
capitalized terms are defined elsewhere in this Note.
2. ADVANCES. Holder has heretofore advanced Maker the sum of
$2,100,000 under this Note, and Maker hereby acknowledges receipt of the same.
Holder shall advance Maker the additional sum of $50,000 under this Note (from
which it will pay itself a supplemental Loan Fee in the amount of $2,000)
against receipt of a compliance certificate signed by Maker's president and
chief executive officer and each Guarantor, signifying that Maker and each
Guarantor is in full compliance with all of the terms, conditions and covenants
the Borrowing Agreement and the other Loan Documents, and that all of the
representations and warranties of Maker and Guarantors were true and correct
when made and are true and correct as of the date of the advance. Such
additional advance, together with any other amounts payable by Maker under this
Note or under any of the other Loan Documents shall be added to the principal
of this Note, and shall be paid, together with interest thereon, as herein
provided. Holder's obligation to make advances under this Note shall expire at
5:00 p.m., Spokane time, on April 30, 1999.
3. INTEREST. All sums owing on this Note shall bear interest from the
date funds are advanced under this Note until paid, at a rate of interest equal
to the prime rate of interest from time-to-time offered by U. S. Bank of
Washington, N. A. plus three percent, such rate to be adjusted as of the date
any change in such prime rate is announced. As of the date of this Note, such
rate of interest, as hereinabove determined, is ten and three-quarters percent.
Upon the occurrence of an Event of Default and expiration of the applicable
Cure Period, all sums owing on this Note shall bear interest at the rate of
interest otherwise payable on this Note plus four percent (the "Default Rate")
for so long as the Event of Default continues. All computations of interest
shall be based on a 360-day year for the actual number of days elapsed.
4. PAYMENT. Maker shall pay Holder interest only on this Note in
monthly installments on or before the 15th day of each month, commencing with
the payment due in October of 1998 and ending with the payment due in September
of 1999. Thereafter, Maker shall pay Holder an equal amount per month, on or
before the 15th day of each month, based on a ten
NOTE - 1
<PAGE> 2
year amortization of amounts due on this Note, which amount shall be applied
first to interest and secondly to principal; provided, however, that the entire
principal amount of this Note, plus any accrued but unpaid interest, shall be
paid in full on or before October 31, 2003; and provided, further, that if
monthly payments are insufficient to pay interest, then Holder shall have the
right, upon written notice to Maker, to increase monthly payments by an amount
sufficient to pay such interest. All payments shall be made in the lawful
currency of the United States of America. All payments shall be made to Holder
by deduction from Maker's bank account (account number: 0410121059; account
name: Multi-Link Communications, Inc.) maintained at Vectra Bank in Denver,
Colorado (bank routing no. 102003154). By executing this Note, Maker agrees to
execute such other and further authorizations or approvals as Holder or such
bank may require to enable Holder to deduct such payments from Maker's account.
5. ADDITIONS TO PRINCIPAL. All advances made by Holder to Maker,
together with any other amounts payable by Maker under this Note or under any
of the other Loan Documents, shall be added to the principal of this Note, and
shall be paid, together with interest thereon, as herein provided.
6. PREPAYMENT. Maker may prepay any or all amounts owing on this Note
without incurring any additional charge, provided that Maker gives Holder
written notice of the amount to be prepaid at least three (3) days before the
date of prepayment. Notwithstanding any prepayment, Maker shall continue to
make all succeeding installments or other payments as they become due until
this Note is completely paid.
7. SECURITY. The payment of all sums owing on this Note shall be
secured by liens and security interests covering certain assets of Maker, by
the personal guaranties of Nigel V. Alexander and Shawn B. Stickle, by the
pledges by Mr. Alexander and Mr. Stickle of an aggregate of 960,000 shares of
voting capital stock of Multi-Link Telecommunications, Inc. owned beneficially
or of record by them, and by the pledge by Multi-Link Telecommunications, Inc.
of all of the shares of capital stock of Multi-Link Communications, Inc. owned
beneficially or of record by it, all as is more specifically set forth in the
Borrowing Agreement and the other Loan Documents.
8. NOTICE OF EVENT OF DEFAULT; CURE. Upon the occurrence of an Event
of Default, Holder shall give Notice of the Event of Default to Maker, and
Maker shall have the right to cure such Event of Default within the applicable
Cure Period. If Maker fails to cure the Event of Default within the applicable
Cure Period, then Holder may accelerate all amounts owing on this Note. Such
accelerated amounts shall become immediately due and payable. If Holder
accelerates the amounts due under this Note, Holder shall have the right to
pursue any or all of the remedies provided in the Loan Document, including, but
not limited to, the right to bring suit on this Note.
9. REMEDIES. Upon the occurrence of an Event of Default and expiration
of the applicable Cure Period, Holder shall have all rights available to it at
law or in equity, including all
NOTE - 2
<PAGE> 3
rights available to it under the Washington Uniform Commercial Code. Any unpaid
balance outstanding at such time, and any costs or other expenses incurred by
Holder in realizing on this Note, shall bear interest at the Default Rate. All
rights and remedies granted under this Note shall be deemed cumulative and not
exclusive of any other right or remedy available to Holder. Maker waives all
rights to presentment, notice of dishonor and protest of this Note.
10. FEES, COSTS AND EXPENSES IN EVENT OF DEFAULT. Maker agrees to pay
on demand all costs and expenses of Holder in connection with an Event of
Default, including all reasonable attorneys' fees, costs and expenses incurred
by Holder in enforcing any of the provisions of this Note or any other Loan
Document, or in collecting payments due under this Note or any other Loan
Document through litigation or other dispute resolution. Such fees, costs and
other expenses shall include all statutory costs and disbursements, all costs
associated with discovery depositions and expert witness fees, and all
out-of-pocket costs incurred by Holder in the prosecution or defense of the
action. For purposes of this section, the phrase "litigation or other dispute
resolution" shall be deemed to include any proceeding commenced in any court of
general or limited jurisdiction, any arbitration or mediation, any proceeding
commenced in the bankruptcy courts of the United States, and any appeal from
any of the foregoing. The amount of all such fees, costs and expenses shall
bear interest at the Default Rate from the date of demand and shall be secured
by the Loan Documents.
11. TRANSFER; OBLIGATIONS BINDING ON SUCCESSORS. Maker may not
transfer any of its rights, duties or obligations under this Note without the
prior written consent of Holder. This Note, and the duties set forth in this
Note, shall bind Maker and its successors and assigns. All rights and powers
established in this Note shall benefit Holder and its successors and assigns.
12. GOVERNING LAW AND VENUE. This Note will be construed, and the
rights, duties, and obligations of the parties will be determined, in
accordance with the laws of the State of Washington, including the Washington
Uniform Commercial Code, and the federal laws of the United States of America.
If any action or other proceeding shall be brought in connection with this
Note, the venue of such action may, in the discretion of Holder, be in Spokane
County, Washington. Maker hereby consents to the exclusive personal
jurisdiction of the Superior Court of Spokane County and the United States
District Court for the Eastern District of Washington.
13. HEADINGS. Headings used in this Note have been included for
convenience and ease of reference only, and will not in any manner influence
the construction or interpretation of any provision of this Note.
14. WAIVER. No right or obligation under this Note will be deemed to
have been waived unless evidenced by a writing signed by the party against whom
the waiver is asserted, or by its duly authorized representative. Any waiver
will be effective only with respect to the specific instance involved, and will
not impair or limit the right of the waiving party to insist upon strict
performance of the right or obligation on any other instance, in any other
respect, or at any other time. No failure on the part of Holder to exercise,
and no delay in exercising, any right or obligation under this Note shall
operate as a waiver thereof.
NOTE - 3
<PAGE> 4
15. SEVERABILITY. The parties intend that this Note be enforced to the
greatest extent permitted by applicable law. Therefore, if any provision of
this Note, on its face or as applied to any person or circumstances, is or
becomes unenforceable to any extent, the remainder of this Note and the
application of that provision to other persons, circumstances or extent, will
not be impaired.
16. REFERENCES. Except as otherwise specifically indicated, all
references in this Note to numbered or lettered sections or subsections refer
to sections or subsections of this Note. All references to this Note include
any subsequent amendments to this Note.
17. MAXIMUM INTEREST. Notwithstanding any other provisions of this
Note, any interest, fees, or charges payable by reason of the indebtedness
evidenced by this Note shall not exceed the maximum permitted by law.
18. MISCELLANEOUS PROVISIONS. This Note amends and replaces that
certain promissory note dated September 25, 1998 in the principal amount of
$2,100,000 given by Maker to Holder pursuant to the Borrowing Agreement and the
other Loan Documents of even date therewith. By executing this Note, Maker and
each Guarantor and Pledgor hereby reaffirm its or their obligations to Holder
under the Borrowing Agreement and all of the other Loan Documents, specifically
including the Security Agreement, the Guaranties, the Pledge Agreements and the
Performance Fee Agreement.
[The balance of this page has been left blank intentionally.]
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND
CREDIT OR TO FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE
NOT ENFORCEABLE UNDER WASHINGTON LAW.
NOTE - 4
<PAGE> 5
MAKER:
Multi-Link Telecommunications, Inc.,
a Colorado corporation
By: /s/ Nigel V. Alexander
------------------------------------
its duly authorized officer
Multi-Link Communications, Inc.,
a Colorado corporation
By: /s/ Nigel V. Alexander
------------------------------------
its duly authorized officer
By signing in the spaces provided below, Nigel V. Alexander and Shawn B.
Stickle, hereby affirm their obligations to Holder pursuant to the Guaranties
dated September 15, 1998.
/s/ Nigel V. Alexander
- -----------------------------------------------
Nigel V. Alexander
/s/ Shawn B. Stickle
- -----------------------------------------------
Shawn B. Stickle
NOTE - 5
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in the Registration Statement and Prospectus of Multi-Link
Telecommunications, Inc. of our report dated January 21, 1999, except for Note 4
of the financial statements, for which the date is February 10, 1999,
accompanying the consolidated financial statements of Multi-Link
Telecommunications, Inc. contained in such Registration Statement, and to the
use of our name and the statements with respect to us, as appearing under the
heading "Experts" in the Registration Statement.
HEIN + ASSOCIATES LLP
Denver, Colorado
April 13, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Registration Statement and Prospectus of
Multi-Link Telecommunications, Inc. of our report dated February 13, 1998,
relating to the financial statements of Multi-Link Telecommunications, Inc.
(formerly Multi-Link Holdings, Inc.) contained in the Registration Statement,
and to reference our firm under the caption "EXPERTS" in the Registration
Statement.
James E. Scheifley & Associates, P.C.
April 19, 1999
Englewood, Colorado
