UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. __)*
FutureLink Distribution Corp.
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(Name of Issuer)
Common Stock, par value $.01 per share
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(Title of Class of Securities)
361142 10 9
------------------------------------------------
(CUSIP Number)
Bruce Glaser, 830 Third Avenue, Fourth Floor, New York, NY 10022
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
May 7, 1999
-----------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box |_|.
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
(Continued on the following page(s))
Page 1 of 84 Pages
<PAGE>
- ---------------------- --------------------
CUSIP No. 361142 10 9 13D Page 2 of 84 Pages
- ---------------------- --------------------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Commonwealth Associates
13-3467952
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) |_|
(b) |_|
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
|_|
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES --------------------------------------------------------
8 SHARED VOTING POWER
BENEFICIALLY
12,256,348
OWNED BY --------------------------------------------------------
9 SOLE DISPOSITIVE POWER
EACH
REPORTING --------------------------------------------------------
10 SHARED DISPOSITIVE POWER
PERSON WITH
12,256,348
--------------------------------------------------------
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
12,256,348
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
|_|
- --------------------------------------------------------------------------------
13 PERCENTAGE CLASS REPRESENTED BY AMOUNT IN ROW (11)
29.4%
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14 TYPE OF REPORTING PERSON*
PN
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
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CUSIP No. 361142 10 9 13D Page 3 of 84 Pages
- ---------------------- --------------------
- --------------------------------------------------------------------------------
1 Commonwealth Associates Management Corp.
13-3468747
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) |_|
(b) |_|
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
|_|
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES --------------------------------------------------------
8 SHARED VOTING POWER
BENEFICIALLY
12,256,348
OWNED BY --------------------------------------------------------
9 SOLE DISPOSITIVE POWER
EACH
REPORTING --------------------------------------------------------
10 SHARED DISPOSITIVE POWER
PERSON WITH
12,256,348
--------------------------------------------------------
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
12,256,348
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
|_|
- --------------------------------------------------------------------------------
13 PERCENTAGE CLASS REPRESENTED BY AMOUNT IN ROW (11)
29.4%
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14 TYPE OF REPORTING PERSON*
CO
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
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CUSIP No. 361142 10 9 13D Page 4 of 84 Pages
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Michael S. Falk
###-##-####
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) |_|
(b) |_|
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
00
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
|_|
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
4,940,891
SHARES --------------------------------------------------------
8 SHARED VOTING POWER
BENEFICIALLY
12,256,348
OWNED BY --------------------------------------------------------
9 SOLE DISPOSITIVE POWER
EACH
4,940,891
REPORTING --------------------------------------------------------
10 SHARED DISPOSITIVE POWER
PERSON WITH
12,256,348
--------------------------------------------------------
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
17,197,239
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES*
|_|
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13 PERCENTAGE CLASS REPRESENTED BY AMOUNT IN ROW (11)
37.8%
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14 TYPE OF REPORTING PERSON*
IN
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
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CUSIP No. 361142 10 9 13D Page 5 of 84 Pages
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Robert Priddy
###-##-####
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) |_|
(b) |_|
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
00
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
|_|
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
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7 SOLE VOTING POWER
NUMBER OF
3,750,000
SHARES --------------------------------------------------------
8 SHARED VOTING POWER
BENEFICIALLY
12,256,348
OWNED BY --------------------------------------------------------
9 SOLE DISPOSITIVE POWER
EACH
3,750,000
REPORTING --------------------------------------------------------
10 SHARED DISPOSITIVE POWER
PERSON WITH
12,256,348
--------------------------------------------------------
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
16,006,348
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES*
|_|
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13 PERCENTAGE CLASS REPRESENTED BY AMOUNT IN ROW (11)
35.2%
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14 TYPE OF REPORTING PERSON*
IN
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
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CUSIP No. 361142 10 9 13D Page 6 of 84 Pages
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Keith Rosenbloom
###-##-####
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) |_|
(b) |_|
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
00
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
|_|
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
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7 SOLE VOTING POWER
NUMBER OF
1,304,540
SHARES --------------------------------------------------------
8 SHARED VOTING POWER
BENEFICIALLY
12,256,348
OWNED BY --------------------------------------------------------
9 SOLE DISPOSITIVE POWER
EACH
1,304,540
REPORTING --------------------------------------------------------
10 SHARED DISPOSITIVE POWER
PERSON WITH
12,256,348
--------------------------------------------------------
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
13,560,888
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES*
|_|
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13 PERCENTAGE CLASS REPRESENTED BY AMOUNT IN ROW (11)
31.5%
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14 TYPE OF REPORTING PERSON*
IN
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
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CUSIP No. 361142 10 9 13D Page 7 of 84 Pages
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Basil Asciutto
###-##-####
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) |_|
(b) |_|
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
00
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
|_|
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
100,000
SHARES --------------------------------------------------------
8 SHARED VOTING POWER
BENEFICIALLY
12,256,348
OWNED BY --------------------------------------------------------
9 SOLE DISPOSITIVE POWER
EACH
100,000
REPORTING --------------------------------------------------------
10 SHARED DISPOSITIVE POWER
PERSON WITH
12,256,348
--------------------------------------------------------
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
12,356,348
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES*
|_|
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13 PERCENTAGE CLASS REPRESENTED BY AMOUNT IN ROW (11)
29.6%
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14 TYPE OF REPORTING PERSON*
IN
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
Page 8 of 84 Pages
Item 1. Security and Issuer.
This statement relates to the common stock, par value $.01 per share
("Common Stock"), of FutureLink Distribution Corp., a Colorado
corporation (the "Company"). The address of the Company's principal
executive office is 300, 250 6th Avenue, S.W., Calgary, Alberta, Canada
T2P3H7.
The shares of Common Stock that are the subject of this statement either
are issuable (i) upon exercise of seven-year warrants (the "Agent's
Warrants") issued as placement agent compensation which have an exercise
price of $.25 per share, (ii) upon conversion of convertible promissory
notes issued by the Company in a private placement completed in May 1999
(the "Notes"), at a conversion rate of $.20 per share or five shares of
Common Stock for each $1.00 principal amount of Notes, or (iii) upon
exercise of seven-year warrants issued in connection with the
aforementioned private placement (the "Private Placement Warrants"). All
of the foregoing conversion and exercise prices are subject to
adjustment in certain instances.
Item 2. Identity and Background.
This statement is filed jointly by Commonwealth Associates L.P.
("Commonwealth"), a limited partnership organized under the laws of New
York, whose principal business is investment banking and advisory
services, Commonwealth Associates Management Corp., the corporate
general partner of Commonwealth ( "CAMC"), Michael S. Falk, the Chairman
and controlling equity owner CAMC, Keith Rosenbloom and Basil Ascuitto,
employees, directors and shareholders of CAMC and Robert Priddy, a
director and shareholder of CAMC (the "Reporting Persons").
The officers of CAMC (the "CMAC Officers"), all of whom are U.S.
citizens, are :
Michael Falk Chief Executive Officer
Bruce Glaser Chief Administrative Officer
Joseph Wynne Chief Financial Officer
Basil Ascuitto Chief Operating Officer
The business address for all of the Reporting Persons other than Mr.
Priddy is 830 Third Avenue, 4th Floor, New York, New York 10022. Mr.
Priddy's is a principal of RMC Capital, 1640 Powers Ferry, Suite 125,
Marietta, Georgia 30067, an investment firm.
During the past five years, none of the Reporting Persons or CAMC
Officers has been convicted in a criminal proceeding or been a party to
a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding, was or is subject to a
judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, federal or state
securities laws or finding any violation with respect to such laws.
<PAGE>
Page 9 of 84 Pages
Item 3. Source and Amount of Funds or Other Consideration.
Commonwealth acquired the Agent's Warrants in April and May 1999 for a
nominal purchase price with funds provided from working capital pursuant
to an Agency Agreement dated as of April 14, 1999 with the Company (the
"Agency Agreement") filed as Exhibit (1) hereto, pursuant to which
Commonwealth acted as placement agent in connection with a private
placement (the "Private Placement") of units (the "Units"), each Unit
consisting of $50,000 principal amount of Notes and 125,000 Private
Placement Warrants. In no case were any funds borrowed. The Agent's
Warrants were distributed by Commonwealth among its employees, including
the Reporting Persons (other than Mr. Priddy). The Reporting Persons
currently hold an aggregate of 14,289,279 Agent's Warrants.
Commonwealth, Mr. Falk, Mr. Priddy, Mr. Rosenbloom and Mr. Asciutto
purchased an aggregate of $1,075,000 principal amount of Notes and
2,687,500 Private Placement Warrants as investors in the Private
Placement for an aggregate purchase price of $1,075,000, which amount
was provided by Commonwealth from its working capital and by Messrs.
Falk, Priddy, Rosenbloom and Asciutto from personal funds.
Item 4. Purpose of Transaction.
The Agent's Warrants were acquired by the Reporting Persons as
compensation for services rendered in connection with the Private
Placement solely for investment purposes and not for the purpose of
acquiring control of the Company. The Notes and the Private Placement
Warrants were acquired to make a profitable investment.
Pursuant to the Agency Agreement, Commonwealth has the right until April
29, 2001 to designate a nominee to the Company's Board of Directors.
Commonwealth has the right to immediately appoint a majority of the
Board if the Company fails to repay the Notes when due. In addition, the
Agency Agreement contained restrictions on the Company's ability while
the Notes were outstanding to amend its by-laws with shareholder
approval and approval of the holders of a majority of the Notes issued
in the Private Placement.
Other than as set forth above, the Reporting Persons have no present
plans or proposals which relate to, or could result in, any of the
matters referred to in paragraphs (a) through (j), inclusive, of Item 4
of Schedule 13D. The Reporting Persons may, at any time and from time to
time, review or reconsider their position and formulate plans or
proposals with respect thereto, but have no present intention of doing
so.
Item 5. Interest in Securities of the Issuer.
(a)(1) Commonwealth is the beneficial owner of an aggregate of 12,256,348
shares of Common Stock, representing approximately 29.4% of the issued
and outstanding shares of Common Stock of the Company. Commonwealth's
holdings include the right to acquire (i) 10,006,348 shares issuable
upon exercise of Agent's Warrants, (ii) 1,500,000 shares issuable upon
conversion of Notes, and (iii) 750,000 shares issuable upon exercise of
Private Placement Warrants. CAMC is the beneficial owner of
Commonwealth's shares.
<PAGE>
Page 10 of 84 Pages
(a)(2) Mr. Falk is the beneficial owner of an aggregate of 17,197,239 shares of
Common Stock, representing approximately 37.8% of the issued and
outstanding shares of Common Stock of the Company. In addition to
Commonwealth's 12,256,348 shares, Mr. Falk's holdings represent the
right to acquire (i) 3,253,391 shares issuable upon exercise of Agent's
Warrants, (ii) 1,125,000 shares issuable upon conversion of Notes, and
(iii) 562,500 shares issuable upon exercise of Private Placement
Warrants. In his capacity as Chairman and controlling equity owner of
CAMC, Mr. Falk shares voting and dispositive power with respect to the
securities beneficially owned by Commonwealth and may be deemed to be
the beneficial owner of such securities.
(a)(3) Mr. Priddy is the beneficial owner of an aggregate of 3,750,000 shares
of Common Stock, representing approximately 11.3% of the issued and
outstanding shares of Common Stock of the Company. Mr. Priddy's holdings
represent the right to acquire (i) 2,500,000 shares issuable upon
conversion of Notes, and (ii) 1,250,000 shares issuable upon exercise of
Private Placement Warrants. In his capacity as a director and equity
owner of CAMC, Mr. Priddy shares indirect voting and dispositive power
with respect to Commonwealth's 12,256,348 shares and may be deemed to be
the beneficial owner of such securities, although Mr. Priddy disclaims
beneficial interest in such shares other than that portion which
corresponds with his equity ownership in CAMC.
(a)(4) Mr. Rosenbloom is the beneficial owner of an aggregate of 1,304,540
shares of Common Stock, representing approximately 4.2% of the issued
and outstanding shares of Common Stock of the Company. Mr. Rosenbloom's
holdings represent the right to acquire (i) 929,540 shares issuable upon
exercise of Agent's Warrants, (ii) 250,000 shares issuable upon
conversion of Notes, and (iii) 125,000 shares issuable upon exercise of
Private Placement Warrants. In his capacity as a director and equity
owner of CAMC, Mr. Rosenbloom shares indirect voting and dispositive
power with respect to Commonwealth's 12,256,348 shares and may be deemed
to be the beneficial owner of such securities, although Mr. Rosenbloom
disclaims beneficial interest in such shares other than that portion
which corresponds with his equity ownership in CAMC.
(a)(5) Mr. Ascuitto is the beneficial owner of an aggregate of 100,000 shares
of Common Stock, representing approximately 0.3% of the issued and
outstanding shares of Common Stock of the Company. Mr. Ascuitto's
holdings represent the right to acquire shares issuable upon exercise of
Agent's Warrants. In his capacity as a director of CAMC, Mr. Ascuitto
shares voting and dispositive power with respect to Commonwealth's
12,256,348 shares and may be deemed to be the beneficial owner of such
securities, although Mr. Ascuitto disclaims beneficial interest in such
shares other than that portion which corresponds with his equity
ownership in CAMC.
The percentages set forth above are calculated using a base of
29,433,305 shares of Common Stock outstanding. An additional 40,192,500 shares
would be outstanding if the Notes issued in the Private Placement were converted
in full and an additional 20,096,250 shares would be outstanding if the Private
Placement Warrants were exercised in full. Assuming conversion of all the Notes
and exercise of all the Private Placement Warrants, the percentage holdings of
the Reporting Persons would be as follows: Commonwealth and CAMC--12.3%; Mr.
Falk--18.4%; Mr. Priddy--4.2%; Mr. Rosenbloom--1.4%; Mr. Ascuitto--0.1%.
<PAGE>
Page 11 of 84 Pages
(b) Number of shares as to which each such person has:
(1) sole power to vote or to direct the vote:
(i) Mr. Falk has the sole power to vote or to direct the vote of his
4,940,891 shares.
(ii) Mr. Priddy has the sole power to vote or to direct the vote of his
3,750,000 shares.
(iii) Mr. Rosenbloom has the sole power to vote or to direct the vote of
his 1,304,540 shares.
(iv) Mr. Ascuitto has the sole power to vote or to direct the vote of
his 100,000 shares.
(2) shared power to vote or to direct the vote:
Commonwealth, CAMC, Michael Falk, Robert Priddy, Keith Rosenbloom and
Basil Ascuitto share the power to vote or to direct the vote of
Commonwealth's 12,256,348 shares.
(3) sole power to dispose or to direct the disposition of:
(i) Mr. Falk has the sole power to dispose or to direct the
isposition of his 4,940,891 shares.
(ii) Mr. Priddy has the sole power to dispose or to direct the
disposition of his 3,750,000 shares.
(iii) Mr. Rosenbloom has the sole power to dispose or to direct the
disposition of his 1,304,540 shares.
(iv) Mr. Ascuitto has the sole power to dispose or to direct the
disposition of his 100,000 shares.
(4) shared power to dispose of or to direct the disposition of:
Commonwealth, CAMC, Michael Falk, Robert Priddy, Keith Rosenbloom and
Basil Ascuitto share the power to dispose or to direct the disposition
of Commonwealth's 12,256,348 shares.
(c) Inapplicable
(d) Inapplicable
(e) Inapplicable
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to
Securities of the Issuer.
Under the terms of the Subscription Agreement filed as Exhibit 4 hereto
between the Company and the purchasers of the Notes and Private
Placement Warrants, the Company is required to prepare and file a
registration statement with the Securities and Exchange Commission with
respect to the shares issuable upon conversion of the Notes and exercise
of the Private Placement Warrants. Pursuant to the terms of the Agent's
Warrant filed as
<PAGE>
Page 12 of 84 Pages
Exhibit 5 hereto, the Company has agreed to register the shares of
Common Stock underlying the Agent's Warrants with the SEC under certain
circumstances.
Item 7. Materials to be Filed as Exhibits.
(1) Agency Agreement dated as of April 14, 1999 between Commonwealth and
the Company
(2) Form of Note
(3) Form of Private Placement Warrant
(4) Subscription Agreement regarding purchase of the Company's Notes and
Private Placement Warrants
(5) Form of Agent's Warrant
(6) Joint Statement on Schedule 13D, as required by Rule 13d-1(f)(1)
under the Exchange Act
<PAGE>
Page 13 of 84 Pages
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certify that the information set forth in this statement is true,
complete and correct.
Dated: May 14, 1999 Commonwealth Associates L.P.
New York, New York
By: Commonwealth Associates Management Corp.,
its general partner
By: /s/ Joseph Wynne
----------------------------
Joseph Wynne
Chief Financial
Dated: May 14, 1999 /s/ Michael S. Falk
New York, New York --------------------------------
Michael S. Falk
Dated: May 14, 1999 /s/ Robert Priddy
Marietta, Georgia --------------------------------
Robert Priddy
Dated: May 14, 1999 /s/ Keith Rosenbloom
New York, New York --------------------------------
Keith Rosenbloom
Dated: May 14, 1999 /s/ Basil Ascuitto
New York, New York --------------------------------
Basil Ascuitto
<PAGE>
Page 14 of 84 Pages
EXHIBIT INDEX
Exhibit No. Page
- ----------- ----
(1) Agency Agreement dated as of April 14, 1999 between Commonwealth and the
Company
(2) Form of Note
(3) Form of Private Placement Warrant
(4) Subscription Agreement regarding purchase of the Company's Notes and
Private Placement Warrants
(5) Form of Agent's Warrant
(6) Joint Statement on Schedule 13D, as required by Rule 13d-1(f)(1) under the
Exchange Act
Page 15 of 84 Pages
Exhibit 1
FUTURELINK DISTRIBUTION CORP.
AGENCY AGREEMENT
Commonwealth Associates L.P.
830 Third Avenue
New York, New York 10022
April 14, 1999
Gentlemen:
FutureLink Distribution Corp., a Colorado corporation (the "Company"),
proposes to offer for sale to "accredited investors", in a private placement,
units ("Units"), each Unit consisting (i) $50,000 principal amount of 8%
convertible promissory notes (the "Notes") and (ii) seven-year warrants (the
"Warrants") to purchase 125,000 shares of the Company's common stock, $.0001 par
value (the "Common Stock"). Such offering and sale are referred to herein as the
"Offering." A minimum of 4 Units for $2,0000 ("Minimum Offering") and a maximum
of 100 Units for $5,000,000 ("Maximum Offering") will be sold in the Offering at
$50,000 per Unit. The Maximum Offering may be increased by up to $1,000,00 at
the discretion of the Placement Agent (as defined below) in the event of
over-subscription (the "Over-Allotment Option"). The Units will be offered
pursuant to those terms and conditions acceptable to you as reflected in the
Confidential Term Sheet dated April 14, 1999 (the "Term Sheet"). The Minimum
Offering will be made on a "best efforts - all-or-none" basis and the balance of
the Offering will be offered on a "best efforts" basis. The Units are being
offered pursuant to the Term Sheet and related documents in accordance with
Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act")
and Regulation D promulgated thereunder.
Commonwealth Associates is sometimes referred to herein as the "Placement
Agent." The Term Sheet (including the exhibits thereto), as it may be amended or
supplemented from time to time, and the form of proposed subscription agreement
between the Company and each subscriber (the "Subscription Agreement") and the
exhibits which are part of the Term Sheet and/or Subscription Agreement are
collectively referred to herein as the "Offering Documents."
The Company will prepare and deliver to the Placement Agent a reasonable
number of copies of the Offering Documents in form and substance satisfactory to
counsel to the Placement Agent.
Each prospective investor subscribing to purchase Units ("Subscriber")
will be required to deliver, among other things, a Subscription Agreement and a
confidential purchaser questionnaire ("Questionnaire") in the form to be
provided to offerees. Capitalized terms used herein, unless otherwise defined or
unless the context otherwise indicates, shall have the same meanings provided in
the Offering Documents.
<PAGE>
Page 16 of 84 Pages
1. Appointment of Placement Agent.
(a) You are hereby appointed exclusive Placement Agent of the
Company (subject to your right to have Selected Dealers, as defined in Section
1(c) hereof, participate in the Offering) during the Offering Period herein
specified for the purposes of assisting the Company in finding qualified
Subscribers pursuant to the offering (the "Offering") described in the Offering
Documents. The Offering Period shall commence on the day (the "Commencement
Date") the Offering Documents are first made available to you by the Company for
delivery in connection with the offering for sale of the Units and shall
continue until the earlier to occur of (i) the sale of all of the Maximum
Offering or (ii) April 30, 1999 (unless extended for a period of up to 30 days
under circumstances specified in the Term Sheet). If the Minimum Offering is not
sold prior to the end of the Offering Period, the Offering will be terminated
and all funds received from Subscribers will be returned, without interest and
without any deduction. The day that the Offering Period terminates is
hereinafter referred to as the "Termination Date."
(b) Subject to the performance by the Company of all of its
obligations to be performed under this Agreement and to the completeness and
accuracy of all representations and warranties of the Company contained in this
Agreement, Commonwealth Associates hereby accepts such agency and agrees to use
its best efforts to assist the Company in finding qualified subscribers pursuant
to the Offering described in the Offering Documents. It is understood that the
Placement Agent has no commitment to sell the Units. Your agency hereunder is
not terminable by the Company except upon termination of the Offering Period.
(c) Subscriptions for Units shall be evidenced by the execution by
Subscribers of a Subscription Agreement. No Subscription Agreement shall be
effective unless and until it is accepted by the Company. Until the Closing, all
subscription funds received shall be held as described in the Subscription
Agreement. The Placement Agent shall not have any obligation to independently
verify the accuracy or completeness of any information contained in any
Subscription Agreement or the authenticity, sufficiency, or validity of any
check delivered by any prospective investor in payment for Units.
(d) The Placement Agent and its affiliates will purchase Units sold
in the Offering.
2. Representations and Warranties of the Company. The Company represents
and warrants to the Placement Agent and each Selected Dealer, if any, as
follows:
(a) Securities Law Compliance. The Offering Documents conform in all
respects with the requirements of Section 4(2) of the Securities Act and
Regulation D promulgated thereunder and with the requirements of all other
published rules and regulations of the Securities and Exchange Commission (the
"Commission") currently in effect relating to "private offerings" to "accredited
investors" of the type contemplated by the Company. The Offering Documents will
not contain an untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading. If at any time prior to
the completion of the Offering or other termination of this Agreement any event
shall occur as a result of which it might become necessary to amend or
supplement the Offering Documents so that they do not include any untrue
statement of any
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Page 17 of 84 Pages
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances then existing, not
misleading, the Company will promptly notify you and will supply you with
amendments or supplements correcting such statement or omission. The Company
will also provide the Placement Agent for delivery to all offerees and
purchasers and their representatives, if any, any information, documents and
instruments which the Placement Agent deems reasonably necessary to comply with
applicable state and federal law.
(b) Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Colorado
and has all requisite corporate power and authority to own and lease its
properties, to carry on its business as currently conducted and as proposed to
be conducted, to execute and deliver this Agreement and to carry out the
transactions contemplated by this Agreement, as appropriate, and is duly
licensed or qualified to do business as a foreign corporation in each other
jurisdiction in which the conduct of its business or ownership or leasing of its
properties requires it to be so qualified, except where the failure to be so
licensed or qualified would not, in the aggregate, have a material adverse
effect on the business or financial condition of the Company (a "Material
Adverse Effect").
(c) Capitalization. The authorized, issued and outstanding capital
stock of the Company prior to the consummation of the transactions contemplated
hereby is as set forth in the Offering Documents. All issued and outstanding
shares of the Company are validly issued, fully paid and nonassessable (with the
exception of ______ shares held in escrow to satisfy certain obligations upon
conversion of outstanding debentures and exercise of outstanding warrants which
have not been paid for) and such shares have not been issued in violation of the
preemptive rights of any stockholder of the Company. All prior sales of
securities of the Company were either registered under the Securities Act and
applicable state securities laws or exempt from such registration, and no
security holder has any rescission rights with respect thereto.
(d) Warrants, Preemptive Rights, Etc. Except as set forth in or
contemplated by the Term Sheet, there are not, nor will there be immediately
after the Closing (as hereinafter defined), any outstanding warrants, options,
agreements, convertible securities, preemptive rights to subscribe for or other
commitments pursuant to which the Company is, or may become, obligated to issue
any shares of its capital stock or other securities of the Company and this
Offering will not cause any anti-dilution adjustments to such securities or
commitments except as reflected in the Term Sheet.
(e) Subsidiaries and Investments. Other than as set forth in the
Offering Documents, the Company has no subsidiaries and the Company does not
own, directly or indirectly, any capital stock or other equity ownership or
proprietary interests in any other corporation, association, trust, partnership,
joint venture or other entity.
(f) Financial Statements. The financial information contained in the
Offering Documents is accurate in all material respects. The financial
statements attached to the Offering Documents are hereinafter referred to
collectively as the "Financial Statements". The Financial Statements have been
prepared in conformity with generally accepted accounting principles
consistently applied and show all material liabilities, absolute or contingent,
of the Company required to be recorded thereon and present fairly the financial
position and results of operations of the Company as of the dates and for the
periods indicated.
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Page 18 of 84 Pages
(g) Absence of Changes. Since the date of the Term Sheet, except
with respect to matters of which the Company has notified you in writing, the
Company has not incurred any liabilities or obligations, direct or contingent,
not in the ordinary course of business, or entered into any transaction not in
the ordinary course of business, which is material to the business of the
Company, and, except as set forth in Schedule G to this Agreement there has not
been any change in the capital stock of, or any incurrence of long-term debt by,
the Company, or any issuance of options, warrants or other rights to purchase
the capital stock of the Company, or any adverse change or any development
involving, so far as the Company can now reasonably foresee, a prospective
adverse change in the condition (financial or otherwise), net worth, results of
operations, business, key personnel or properties which would be material to the
business or financial condition of the Company, and the Company has not become a
party to, and neither the business nor the property of the Company has become
the subject of, any material litigation whether or not in the ordinary course of
business.
(h) Title. Except as set forth on Schedule H hereto, the Company has
good and marketable title to all properties and assets, owned by it, free and
clear of all liens, charges, encumbrances or restrictions, except such as are
not significant or important in relation to the Company's business; all of the
material leases and subleases under which the Company is the lessor or sublessor
of properties or assets or under which the Company holds properties or assets as
lessee or sublessee are in full force and effect, and the Company is not in
default in any material respect with respect to any of the terms or provisions
of any of such leases or subleases, and no material claim has been asserted by
anyone adverse to rights of the Company as lessor, sublessor, lessee or
sublessee under any of the leases or subleases mentioned above, or affecting or
questioning the right of the Company to continued possession of the leased or
subleased premises or assets under any such lease or sublease. The Company owns
or leases all such properties as are necessary to its operations as now
conducted.
(i) Proprietary Rights. Except as set forth in Schedule I hereto,
the Company owns or possesses adequate and enforceable rights to use all
patents, patent applications, trademarks, service marks, copyrights, trade
secrets, processes, formulations, technology or know-how used in the conduct of
its business as described in the Term Sheet and will own or possess such rights
with respect to the business to be conducted as contemplated by the Term Sheet
(the "Proprietary Rights"). The Company has not received any notice of any
claims, nor does it have any knowledge of any threatened claims, and knows of no
facts which would form the basis of any claim, asserted by any person to the
effect that the sale or use of any product or process now used or offered by the
Company or proposed to be used or offered by the Company infringes on any
patents or infringes upon the use of any such Proprietary Rights of another
person and, to the best of the Company's knowledge, no others have infringed the
Company's Proprietary Rights.
(j) Litigation. Other than as set forth in the Offering Documents,
there is no material action, suit, investigation, customer complaint, claim or
proceeding at law or in equity by or before any arbitrator, governmental
instrumentality or other agency now pending or, to the knowledge of the Company,
threatened against the Company (or basis therefor known to the Company) the
adverse outcome of which would have a Material Adverse Effect. The Company is
not subject to any judgment, order, writ, injunction or decree of any Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign which have a Material Adverse
Effect.
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Page 19 of 84 Pages
(k) Non-Defaults; Non-Contravention. The Company is not in violation
of or default under, nor will the execution and delivery of this Agreement or
any of the Offering Documents, the Fund Escrow Agreement, the Advisory Agreement
or the M/A Agreement (all as defined herein) or consummation of the transactions
contemplated herein or therein result in a violation of or constitute a default
in the performance or observance of any obligation under (i) its Articles of
Incorporation, or its By-laws, or (ii) any indenture, mortgage, contract,
material purchase order or other agreement or instrument to which the Company is
a party or by which it or its property is bound or affected, where such
violation or default would have a Material Adverse Effect, or (iii) any material
order, writ, injunction or decree of any court of any Federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, where such violation or default would have
a Material Adverse Effect, and there exists no condition, event or act which
constitutes, nor which after notice, the lapse of time or both, could constitute
a default under any of the foregoing, which in either case would have a Material
Adverse Effect.
(l) Taxes. The Company has filed all Federal, state, local and
foreign tax returns which are required to be filed by it or otherwise met its
disclosure obligations to the relevant agencies and all such returns are true
and correct in all material respects. The Company has paid all taxes pursuant to
such returns or pursuant to any assessments received by it or which it is
obligated to withhold from amounts owing to any employee, creditor or third
party. The Company has properly accrued all taxes required to be accrued by
generally accepted accounting principals consistently applied. The tax returns
of the Company have never been audited by any state, local or Federal
authorities. The Company has not waived any statute of limitations with respect
to taxes or agreed to any extension of time with respect to any tax assessment
or deficiency.
(m) Compliance With Laws; Licenses, Etc. The Company has not
received notice of any violation of or noncompliance with any Federal, state,
local or foreign, laws, ordinances, regulations and orders applicable to its
business which has not been cured, the violation of, or noncompliance with
which, would have a Material Adverse Effect. The Company has all licenses and
permits and other governmental certificates, authorizations and permits and
approvals (collectively, "Licenses") required by every Federal, state and local
government or regulatory body for the operation of its business as currently
conducted and the use of its properties, except where the failure to be licensed
would not have a Material Adverse Effect. The Licenses are in full force and
effect and to the Company's knowledge no violations currently exist in respect
of any License and no proceeding is pending or threatened to revoke or limit any
thereof.
(n) Authorization of Agreement, Etc. This Agreement has been duly
and validly authorized, executed and delivered by the Company and the execution,
delivery and performance by the Company of this Agreement, the Subscription
Agreement, the Fund Escrow Agreement , the Advisory Agreement and the M/A
Agreement have been duly authorized by all requisite corporate action by the
Company and when delivered, constitute or will constitute the legal, valid and
binding obligations of the Company, enforceable in accordance with their
respective terms, subject to applicable laws regarding insolvency and to
principles of equity.
(o) Authorization of Notes and Warrants Etc. The issuance, sale and
delivery of the Notes, the Warrants and the Agent's Warrants (as defined herein)
have been duly authorized by all requisite corporate action of the Company. When
so issued, sold and delivered, the Notes,
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Page 20 of 84 Pages
the Warrants and the Agent's Warrants will be duly executed, issued and
delivered and will constitute valid and legal obligations of the Company
enforceable in accordance with their respective terms and, in each case, will
not be subject to preemptive or any other similar rights of the stockholders of
the Company or others which rights shall not have been waived prior to the
Initial Closing.
(p) Authorization of Reserved Shares. The issuance, sale and
delivery by the Company of the shares of Common Stock issuable upon conversion
of the Notes and exercise of the Warrants and the Agent's Warrants (the
"Reserved Shares") have been duly authorized by all requisite corporate action
of the Company, and the Reserved Shares have been duly reserved for issuance
upon conversion of all or any of the Notes and exercise of all or any of the
Warrants and Agent's Warrants and when so issued, sold, paid for and delivered,
the Reserved Shares will be validly issued and outstanding, fully paid and
nonassessable, and not subject to preemptive or any other similar rights of the
stockholders of the Company or others which rights shall not have been waived
prior to the Initial Closing.
(q) Exemption from Registration. Assuming (i) the accuracy of the
information provided by the respective Subscribers in the Subscription Documents
and (ii) that the Placement Agent has complied in all material respects with the
provisions of Regulation D promulgated under the Securities Act, the offer and
sale of the Units pursuant to the terms of this Agreement are exempt from the
registration requirements of the Securities Act and the rules and regulations
promulgated thereunder (the "Regulations"). The Company is not disqualified from
the exemption under Regulation D by virtue of the disqualifications contained in
Rule 505(b)(2)(iii) or Rule 507 promulgated thereunder.
(r) Registration Rights. Except with respect to holders of the
Units, and except as set forth in Schedule R hereto, no person has any right to
cause the Company to effect the registration under the Securities Act of any
securities of the Company. The Company shall grant registration rights under the
Securities Act to the investors in the Offering and/or their transferees as more
fully described in the Subscription Agreement between the Company and the
investors.
(s) Brokers. Neither the Company nor any of its officers, directors,
employees or stockholders has employed any broker or finder in connection with
the transactions contemplated by this Agreement other than the Placement Agent.
(t) Title to Units. When certificates representing the securities
comprising the Units shall have been duly delivered to the purchasers and
payment shall have been made therefor, the several purchasers shall have good
and marketable title to the Notes and Warrants and/or the Reserved Shares free
and clear of all liens, encumbrances and claims whatsoever (with the exception
of claims arising through the acts or omissions of the purchasers and except as
arising from applicable Federal and state securities laws), and the Company
shall have paid all taxes, if any, in respect of the original issuance thereof.
(u) Right of First Refusal. Except for the right of first refusal
granted to the Placement Agent herein, no person, firm or other business entity
is a party to any agreement, contract or understanding, written or oral
entitling such party to a right of first refusal with respect to offerings by
the Company.
<PAGE>
Page 21 of 84 Pages
3. Closing; Placement and Fees.
(a) Closing. Provided the Minimum Offering shall have been
subscribed for and funds representing the sale thereof shall have cleared, a
closing (the "Initial Closing") shall take place at the offices of the Placement
Agent, 830 Third Avenue, New York, New York within 10 days following the
Termination Date (which date (the "Closing Date") may be accelerated or
adjourned by agreement between the Company and the Placement Agent). At the
Initial Closing, payment for the Units issued and sold by the Company shall be
made against delivery of the Notes and Warrants comprising such Units. In
addition, subsequent closings (if applicable) may be scheduled at the discretion
of the Company and Placement Agent, each of which shall be deemed a "Closing"
hereunder.
(b) Conditions to Placement Agent's Obligations. The obligations of
the Placement Agent hereunder will be subject to the accuracy of the
representations and warranties of the Company herein contained as of the date
hereof and as of each Closing Date, to the performance by the Company of its
obligations hereunder and to the following additional conditions:
(i) Due Qualification or Exemption. (A) The Offering will become
qualified or be exempt from qualification under the securities laws of the
several states pursuant to paragraph 4(e) below not later than the Closing Date,
and (B) at the Closing Date no stop order suspending the sale of the Units shall
have been issued, and no proceeding for that purpose shall have been initiated
or threatened;
(ii) No Material Misstatements. Neither the Blue Sky
qualification materials nor the Term Sheet, nor any supplement thereto, will
contain an untrue statement of a fact which in the opinion of the Placement
Agent is material, or omits to state a fact, which in the opinion of the
Placement Agent is material and is required to be stated therein, or is
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(iii) Compliance with Agreements. The Company will have complied
with all agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to each Closing;
(iv) Corporate Action. The Company will have taken all necessary
corporate action, including, without limitation, obtaining the approval of the
Company's board of directors, for the execution and delivery of this Agreement,
the performance by the Company of its obligations hereunder and the offering
contemplated hereby;
(v) Opinion of Counsel. The Placement Agent shall receive the
opinion of acceptable counsel to the Company, dated the Closing(s),
substantially to the effect that:
(A) the Company is validly existing and in good standing
under the laws of the State of Colorado, has all requisite corporate power and
authority necessary to own or hold its respective properties and conduct its
business and is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in which the
<PAGE>
Page 22 of 84 Pages
ownership or leasing of its properties or conduct of its business requires such
qualification, except where the failure to so qualify or be licensed would not
have a Material Adverse Effect;
(B) each of this Agreement, the Notes, the Warrants, the
Agent's Warrants, the Fund Escrow Agreement, the Subscription Agreements, the
Advisory Agreement and the M/A Agreement has been duly and validly authorized,
executed and delivered by the Company, and is the valid and binding obligation
of the Company, enforceable against it in accordance with its terms, subject to
any applicable bankruptcy, insolvency or other laws affecting the rights of
creditors generally and to general equitable principles;
(C) the authorized, issued and outstanding capital stock
of the Company as of the date hereof (before giving effect to the transactions
contemplated by this Agreement) is as set forth in the Offering Documents. To
such counsel's knowledge, there are no outstanding warrants, options,
agreements, convertible securities, preemptive rights or other commitments
pursuant to which the Company is, or may become, obligated to issue any shares
of its capital stock or other securities of the Company other than as set forth
in the Offering Documents. All of the issued shares of capital stock of the
Company issued in connection with and subsequent to the reverse merger in
January1998 have been duly and validly authorized and issued, are fully paid and
nonassessable and to such counsel's knowledge have not been issued in violation
of the preemptive rights of any securityholder of the Company. The offers and
sales of such securities were either registered under the Securities Act and
applicable state securities laws or exempt from such registration requirements;
(D) assuming (i) the accuracy of the information
provided by the Subscribers in the Subscription Documents and (ii) that the
Placement Agent has complied with the requirements of section 4(2) of the
Securities Act (and the provisions of Regulation D promulgated thereunder), the
issuance and sale of the Units is exempt from registration under the Securities
Act and Regulation D promulgated thereunder;
(E) neither the execution and delivery of this
Agreement, the Subscription Agreement, the Advisory Agreement or the M/A
Agreement, nor compliance with the terms hereof or thereof, nor the consummation
of the transactions herein or therein contemplated, nor the issuance of the
Notes, the Warrants or the Agent's Warrants, has, nor will, conflict with,
result in a breach of, or constitute a default under the Articles of
Incorporation or By-laws of the Company, or any material contract, instrument or
document known to such counsel to which the Company is a party, or by which it
or any of its properties is bound or violate any applicable law, rule,
regulation, judgment, order or decree known to us of any governmental agency or
court having jurisdiction over the Company or any of its properties or business;
(F) to the best of such counsel's knowledge, there are
no claims, actions, suits, investigations or proceedings before or by any
arbitrator, court, governmental authority or instrumentality pending or, to such
counsel's knowledge, threatened against or affecting the Company or involving
the properties of the Company which might materially and adversely affect the
business, properties or financial condition of the Company or which might
materially adversely affect the transactions or other acts contemplated by this
Agreement or the validity or enforceability of this Agreement, except as set
forth in or contemplated by the Offering Documents; and
<PAGE>
Page 23 of 84 Pages
(G) such counsel has reviewed the Offering Documents and
nothing has come to the attention of such counsel to cause them to have reason
to believe that the Offering Documents contained any untrue statement of a
material fact required to be stated therein or omitted to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading (except for the financial statements, notes thereto and other
financial information and statistical data contained therein, as to which such
counsel need express no opinion).
(H) there have been no claims asserted against the
Company relating to the potential infringement of or conflict with any patents,
trademarks, copyrights or trade secrets of others; such counsel has conducted a
search for existing United States patents with claims that might cover the
Company's technology and, in such counsel's opinion, the Company's technology
does not infringe any United States patents.
(vi) Officers' Certificate. The Placement Agent shall receive
a certificate of the Company, signed by the Chief Executive Officer and Chief
Financial Officer thereof, that the representations and warranties contained in
Section 2 hereof are true and accurate in all material respects at such Closing
with the same effect as though expressly made at such Closing.
(vii) Fund Escrow Agreement. On or prior to the Initial
Closing Date, the Placement Agent shall receive a copy of a duly executed escrow
agreement in the form previously delivered to you regarding the deposit of funds
pending the Closing(s) with a bank or trust company acceptable to the Placement
Agent (the "Fund Escrow Agreement").
(viii) Insider Subscriptions. Prior to the Initial Closing
Date, the Placement Agent shall receive irrevocable Subscription Agreements for
the purchase of not less than an aggregate of $250,000 of Units from management
and directors of the Company or their designees and shall have been advised by
the escrow agent that cleared funds for the purchase of such Units is in escrow.
(ix) Independent Auditors. On or prior to the Initial Closing
Date, the Company shall have retained a firm of independent auditors acceptable
to the Placement Agent. The Company will not switch auditors other than to
another "Big Five" firm during the three-year period following the Initial
Closing Date.
(x) Financial Projections. On or prior to the Initial Closing
Date, the Placement Agent shall receive two-year quarterly financial projections
which have been reviewed and approved by the Company and the Placement Agent.
(xi) Advisory Agreement. On or prior to the Initial Closing
Date, the Company shall execute and deliver to the Placement Agent an advisory
agreement with the Placement Agent, in the form previously delivered to the
Company by the Placement Agent (the "Advisory Agreement") and shall deliver to
the Placement Agent the warrants provided for in such agreement.
(xii) Merger and Acquisition Agreement. On or prior to the
Initial Closing Date, the Company shall execute and deliver to the Placement
Agent an agreement with the
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Page 24 of 84 Pages
Placement Agent regarding mergers and acquisitions, in the form previously
delivered to the Company by the Placement Agent (the "M/A Agreement").
(xiii) Lock-Up Agreements. On or prior to the Initial Closing
Date, the Placement Agent shall receive agreements from each officer and
director of the Company to the effect that such individual shall not sell,
assign or transfer any of their securities of the Company for the period of 12
months from the final Closing without the prior written consent of the Placement
Agent and, if requested by the managing underwriter of a public offering, for an
additional 12-month period.
(xiv) Board Designee. During the period ending two years from
the Initial Closing Date, the Company agrees to nominate a designee of the
Placement Agent to the Company's Board of Directors. The Placement Agent shall
also have the right to immediately appoint a majority of the Board of Directors
if the Company fails to repay the Notes when due.
(xv) Irrevocable Proxy. The Placement Agent shall receive, on
or prior to the Initial Closing Date, an irrevocable proxy from each of the
officers and directors of the Company granting the Placement Agent a proxy to
vote their shares for the election of directors solely for the purpose of
enforcing the Placement Agent's rights described in subsection (xiv) above.
(c) Blue Sky. A summary blue sky survey shall be prepared by counsel
to the Placement Agent stating the extent to which and the conditions upon which
offers and sales of the Units may be made in certain jurisdictions. It is
understood that such survey may be based on or rely upon (i) the representations
of each Subscriber set forth in the Subscription Agreement delivered by such
Subscriber, (ii) the representations, warranties and agreements of the Company
set forth in Section 2 of this Agreement, (iii) the representations and
warranties of the Placement Agent, and (iv) the representations of the Company
set forth in the certificate to be delivered at the Closing pursuant to
paragraph (vii) of Section 3(b).
(d) Placement Fee and Expenses. Simultaneously with payment for and
delivery of the Units at each Closing as provided in paragraph 3(a) above, the
Company shall at such Closing pay to the Placement Agent (i) a commission equal
to 6.5% of the aggregate purchase price of the Units sold (including
Over-allotment Option Units); (ii) a structuring fee equal to 2.5% of the
aggregate purchase price of the Units sold (including Over-allotment Option
Units) and (iii) reimbursement of accountable expenses up to $25,000 (excluding
legal fees and disbursements of counsel to the Placement Agent which shall also
be reimbursable by the Company). The Company shall also pay all expenses in
connection with the qualification of the Units under the securities or Blue Sky
laws of the states which the Placement Agent shall designate, including legal
fees (not to exceed $2,500) and filing fees. The Company will, at each Closing,
issue to you or your designees (which may include any Selected Dealer or any
officer of the Placement Agent or a Selected Dealer) warrants to purchase 62,500
shares of Common Stock at an exercise price of $.25 per share $50,000 raised in
the Offering and sell to you for $.01 per warrant warrants to purchase 62,500
shares of Common Stock at an exercise price of $.25 per share $50,000 raised in
the Offering (collectively, the "Agent's Warrants"). The Agent's Warrants will
be substantially identical to the Warrants comprising the Units.
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Page 25 of 84 Pages
(e) Bring-Down Opinions and Certificates. If there is more than one
Closing, then at each such Closing there shall be delivered to the Placement
Agent updated opinion and certificate as described in (v) and (vi) of Section
3(b) above, respectively.
(f) No Adverse Changes. There shall not have occurred, at any time
prior to the Closing or, if applicable, any additional Closing, (i) any domestic
or international event, act or occurrence which has materially disrupted, or in
the Placement Agent's opinion will in the immediate future materially disrupt,
the securities markets; (ii) a general suspension of, or a general limitation on
prices for, trading in securities on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market; (iii) any outbreak of major
hostilities or other national or international calamity; (iv) any banking
moratorium declared by a state or federal authority; (v) any moratorium declared
in foreign exchange trading by major international banks or other persons; (vi)
any material interruption in the mail service or other means of communication
within the United States; (vii) any material adverse change in the business,
properties, assets, results of operations, or financial condition of the
Company; or (viii) any change in the market for securities in general or in
political, financial, or economic conditions which, in the Placement Agent's
reasonable judgment, makes it inadvisable to proceed with the offering, sale,
and delivery of the Units.
4. Covenants of the Company.
(a) Use of Proceeds. The net proceeds of the Offering will be used
by the Company substantially as set forth in the Term Sheet. Other than $200,000
of working capital advances to be repaid to an executive officer of the Company,
the Company shall not use any of the proceeds from the Offering to repay any
indebtedness of the Company (other than trade payables in the ordinary course),
including but not limited to indebtedness to any current executive officers,
directors or principal stockholders of the Company.
(b) Expenses of Offering. The Company shall be responsible for, and
shall bear all expenses directly incurred in connection with, the proposed
Offering including, but not limited to, (i) legal fees of the Company's counsel
relating to the costs of preparing the Offering Documents and all amendments,
supplements and exhibits thereto and preparing and delivering all placement
agent and selling documents, including, but not limited to, the Agency Agreement
with the Placement Agent and the blue sky memorandum; Note and Warrant
certificates; (ii) blue sky fees, filing fees and the fees (up to $2,500) and
disbursements of Placement Agent's counsel in connection with blue sky matters
(the "Company Expenses"). Such expenses shall not include the cost of the
Placement Agent's mailing, telephone, telegraph, travel, due diligence meetings,
or other similar expenses (the "Placement Agent expenses") which are
reimbursable by the Company up to $25,000 (exclusive of fees and expenses of
counsel to the Placement Agent which are also reimbursable by the Company).
If the Company decides not to proceed with the Offering for any
reason (other than Placement Agent's failure to close on the Offering in the
time frame set forth in Paragraph 1 of the letter of intent dated March 15, 1999
between the parties (the "LOI")), or if the Placement Agent decides not to
proceed with the Offering because of a material breach by the Company of its
representations, warranties, or covenants in this Agreement or in the LOI or as
a result of material adverse changes in the affairs of the Company, or failure
to meet the General Conditions set forth
<PAGE>
Page 26 of 84 Pages
in Paragraph 9 of the LOI, the Company will be obligated to pay the Placement
Agent liquidated damages of $120,000, to reimburse the Placement Agent for its
time, work and expenses up to the sum of $25,000 and to issue the Placement
Agent Agent's Warrants to purchase 12,500,000 shares of Common Stock. If the
Placement Agent decides not to proceed with the Offering other than for the
reasons set forth above, the Company's obligation to reimburse the Placement
Agent shall be limited to $25,000. The Placement Agent shall have no liability
to the Company for any reason should the Placement Agent choose not to proceed
with the Offering contemplated hereby.
(c) Notification. The Company shall notify the Placement Agent
immediately, and in writing, (A) when any event shall have occurred during the
period commencing on the date hereof and ending on the later of the last Closing
or the Termination Date as a result of which the Offering Documents would
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (B) of the receipt of any notification with respect to the
modification, rescission, withdrawal or suspension of the qualification or
registration of the Units, or of any exemption from such registration or
qualification, in any jurisdiction. The Company will use its best efforts to
prevent the issuance of any such modification, rescission, withdrawal or
suspension and, if any such modification, rescission, withdrawal or suspension
is issued and you so request, to obtain the lifting thereof as promptly as
possible.
(d) Blue Sky. The Company will use its best efforts to qualify or
register the Units for offering and sale under, or establish an exemption from
such qualification or registration under, the securities or "blue sky" laws of
such jurisdictions as you may reasonably request; provided however, that the
Company will not be obligated to qualify as a dealer in securities in any
jurisdiction in which it is not so qualified. The Company will not consummate
any sale of Units in any jurisdiction in which it is not so qualified or in any
manner in which such sale may not be lawfully made.
(f) Form D Filing. The Company shall file five copies of a Notice of
Sales of Securities on Form D with the Securities and Exchange Commission (the
"Commission") no later than 15 days after the first sale of the Units. The
Company shall file promptly such amendments to such Notices on Form D as shall
become necessary and shall also comply with any filing requirement imposed by
the laws of any state or jurisdiction in which offers and sales are made. The
Company shall furnish the Placement Agent with copies of all such filings.
(g) Press Releases, Etc. The Company shall not, during the period
commencing on the date hereof and ending on the later of the last Closing and
the Termination Date, issue any press release or other communication, or hold
any press conference with respect to the Company, its financial condition,
results of operations, business, properties, assets, or liabilities, or the
Offering, without the prior consent of the Placement Agent, which consent shall
not be unreasonably withheld.
(h) Key-Man Insurance. Prior to the Initial Closing Date, the
Company shall have obtained "key-man" life insurance policies in the amount of
at least $2,000,000 on the life of Cameron Shell. Such policy will be kept in
effect for at least three years from the Initial Closing Date.
<PAGE>
Page 27 of 84 Pages
(i) Executive Compensation. The compensation of the executive
officers of the Company shall not increase until repayment of the Notes. In
addition, prior to the maturity date of the Notes and thereafter in the event
the Company defaults on repayment of the Notes, the Company shall not amend or
enter into any employment agreement containing anti-takeover provisions without
the approval of the holders of a majority in principal amount of the Notes
(including holders who have converted their Notes).
(j) Budgets. During the period ending two years after the Initial
Closing Date, the Company shall prepare quarterly budgets reflecting its
proposed operations and cash flow needs and submit such budgets to the Placement
Agent for review and to the Company's Board of Directors for its approval.
(k) By-Laws. Prior to the maturity date of the Notes and thereafter
in the event the Company defaults on repayment of the Notes, the Company shall
not amend its By-laws without shareholder approval and the approval of the
holders of a majority in principal amount of the Notes (including holders who
have converted their Notes).
(l) Right of First Refusal. In the event the Maximum Offering is
sold, if during the two-year period after the Initial Closing Date the Company
proposes to use a manager, placement agent or investment banker or persons
performing similar services for a fee, the Placement Agent shall have the right
of first refusal (the "Right of First Refusal") to purchase for the account of
the Placement Agent or to act as an underwriter or agent for any and all public
or private offerings of the securities of the Company, or any successor to or
subsidiary of the Company or other entity in which the Company has a controlling
equity interest (collectively referred to herein as the "Company"), up to
$40,000,000 (the "Subsequent Offering"); provided, that if the Subsequent
Offering is to be lead managed by a "major bracket underwriting firm", the
Placement Agent shall have only the right to participate in the Subsequent
Offering as a co-manager and receive at least 33% of the total consideration
(including commissions, expense allowance, consulting fees, warrants or other
equity); and provider, further, that if more than $40,000,000 is to be raised in
the Subsequent Offering, the Placement Agent shall have the right on to act as
co-manager or co-agent and receive at least 25% of the total consideration.
Accordingly, if during such period the Company intends to make a Subsequent
Offering, the Company shall notify you in writing of such intention and of the
proposed terms of the offering. The Company shall thereafter promptly furnish
you with such information concerning the business, condition and prospects of
the Company as you may reasonably request. If within 10 business days of the
mailing by registered mail addressed to the Placement Agent with respect to a
Subsequent Offering of such notice of intention and statement of terms you do
not accept in writing such offer to act as underwriter or agent with respect to
such offering or investment banker with respect to such transaction, upon the
terms proposed, the Company shall be free to negotiate terms with other
underwriters or agents with respect to such offering or investment banker with
respect to such transaction, and to effect such offering or transaction on such
proposed terms. Before the Company shall accept any proposal less favorable to
the Company from such underwriter or agent or investment banker or if such
Subsequent Offering is not consummated within six (6) months, your preferential
right shall be reinstated and the same procedure with respect to such modified
proposal as provided above shall be adopted; provided, however, that your
preferential right shall not be reinstated later than two years after the
Initial Closing Date. The failure by you to exercise your
<PAGE>
Page 28 of 84 Pages
Right of First Refusal in any particular instance shall not affect in any way
such right with respect to any other Subsequent Offering.
(m) Transmittal Letters. Within five days after the Closing, the
Placement Agent shall receive copies of all letters from the Company to the
investors transmitting the Notes and Warrants and shall receive a letter from
the Company confirming transmittal of the securities to the investors.
5. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Placement
Agent and each Selected Dealer, if any, and their respective shareholders,
directors, officers, agents and controlling persons (an "Indemnified Party")
against any and all loss, liability, claim, damage and expense whatsoever (and
all actions in respect thereof), and to reimburse the Placement Agent for
reasonable legal fees and related expenses as incurred (including, but not
limited to the costs of investigating, preparing or defending any such action or
claim whether or not in connection with litigation in which the Placement Agent
is a party and the costs of giving testimony or furnishing documents in response
to a subpoena or otherwise), arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Offering Documents or the
omission or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading;
(b) The Company agrees to indemnify and hold harmless an Indemnified
Party to the same extent as the foregoing indemnity, against any and all loss,
liability, claim, damage and expense whatsoever directly arising out of the
exercise by any person of any right under the Securities Act or the Exchange Act
or the securities or Blue Sky laws of any state on account of violations of the
representations, warranties or agreements set forth in Section 2 hereof.
(c) Promptly after receipt by an Indemnified Party under this
Section of notice of the commencement of any action, the indemnified party will,
if a claim in respect thereof is to be made against the Company under this
Section, notify in writing the Company of the commencement thereof; but the
omission so to notify the Company will not relieve it from any liability which
it may have to the Indemnified Party otherwise than under this Section except to
the extent the defense of the claim is prejudiced. In case any such action is
brought against an Indemnified Party, and it notifies the Company of the
commencement thereof, the Company will be entitled to participate in, and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, subject to the provisions herein
stated, with counsel reasonably satisfactory to the Indemnified Party, and after
notice from the Company to the Indemnified Party of its election so to assume
the defense thereof, the Company will not be liable to the Indemnified Party
under this Section for any legal or other expenses subsequently incurred by the
Indemnified Party in connection with the defense thereof other than reasonable
costs of investigation (provided the Company has been advised in writing that
such investigation is being undertaken). The Indemnified Party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the Company if the Company has assumed the defense of the action with
counsel reasonably satisfactory to the Indemnified Party; provided that the fees
and expenses of such counsel shall be at the expense of the Company if (i) the
employment of such counsel has been
<PAGE>
Page 29 of 84 Pages
specifically authorized in writing by the Company or (ii) the named parties to
any such action (including any impleaded parties) include both the Indemnified
Party or Parties and the Company and, in the reasonable judgment of counsel for
the Indemnified Party, it is advisable for the Indemnified Party or Parties to
be represented by separate counsel due to an actual conflict of interest (in
which case the Company shall not have the right to assume the defense of such
action on behalf of the an Indemnified Party or Parties), it being understood,
however, that the Company shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for all
the Indemnified Parties. No settlement of any action against an Indemnified
Party shall be made unless such an Indemnified Party is fully and completely
released in connection therewith.
6. Contribution.
To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section (5) but
it is found in a final judicial determination, not subject to further appeal,
that such indemnification may not be enforced in such case, even though this
Agreement expressly provides for indemnification in such case, or (ii) any
indemnified or indemnifying party seeks contribution under the Securities Act,
the Exchange Act, or otherwise, then the Company (including for this purpose any
contribution made by or on behalf of any officer, director, employee or agent
for the Company, or any controlling person of the Company), on the one hand, and
the Placement Agent and any Selected Dealers (including for this purpose any
contribution by or on behalf of an indemnified party), on the other hand, shall
contribute to the losses, liabilities, claims, damages, and expenses whatsoever
to which any of them may be subject, in such proportions as are appropriate to
reflect the relative benefits received by the Company, on the one hand, and the
Placement Agent and the Selected Dealers, on the other hand; provided, however,
that if applicable law does not permit such allocation, then other relevant
equitable considerations such as the relative fault of the Company and the
Placement Agent and the Selected Dealers in connection with the facts which
resulted in such losses, liabilities, claims, damages, and expenses shall also
be considered. In no case shall the Placement Agent or a Selected Dealer be
responsible for a portion of the contribution obligation in excess of the
compensation received by it pursuant to Section 3 hereof or the Selected Dealer
Agreement, as the case may be. No person guilty of a fraudulent
misrepresentation shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section 6,
each person, if any, who controls the Placement Agent or a Selected Dealer
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act and each officer, director, stockholder, employee and agent of the
Placement Agent or a Selected Dealer, shall have the same rights to contribution
as the Placement Agent or the Selected Dealer, and each person, if any who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act and each officer, director, employee and agent
of the Company, shall have the same rights to contribution as the Company,
subject in each case to the provisions of this Section 6. Anything in this
Section 6 to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 6 is intended to supersede any right
to contribution under the Securities Act, the Exchange Act, or otherwise.
<PAGE>
Page 30 of 84 Pages
7. Miscellaneous.
(a) Survival. Any termination of the Offering without consummation
thereof shall be without obligation on the part of any party except that the
indemnification provided in Section 5 hereof and the contribution provided in
Section 6 hereof shall survive any termination and shall survive the Closing for
a period of five years.
(b) Representations, Warranties and Covenants to Survive Delivery.
The respective representations, warranties, indemnities, agreements, covenants
and other statements of the Company as of the date hereof shall survive
execution of this Agreement and delivery of the Units and the termination of
this Agreement for a period of one year after such respective event.
(c) No Other Beneficiaries. This Agreement is intended for the sole
and exclusive benefit of the parties hereto and their respective successors and
controlling persons, and no other person, firm or corporation shall have any
third-party beneficiary or other rights hereunder.
(d) Governing Law; Resolution of Disputes. This Agreement shall be
governed by and construed in accordance with the law of the State of New York
without regard to conflict of law provisions. The Placement Agent and the
Company will attempt to settle any claim or controversy arising out of this
Agreement through consultation and negotiation in good faith and a spirit of
mutual cooperation. Should such attempts fail, then the dispute will be mediated
by a mutually acceptable mediator to be chosen by the Placement Agent and the
Company within 15 days after written notice from either party demanding
mediation. Neither party may unreasonably withhold consent to the selection of a
mediator, and the parties will share the costs of the mediation equally. Any
dispute which the parties cannot resolve through negotiation or mediation within
six months of the date of the initial demand for it by one of the parties may
then be submitted to the courts for resolution. The use of mediation will not be
construed under the doctrine of latches, waiver or estoppel to affect adversely
the rights of either party. Nothing in this paragraph will prevent either party
from resorting to judicial proceedings if (a) good faith efforts to resolve the
dispute under these procedures have been unsuccessful or (b) interim relief from
a court is necessary to prevent serious and irreparable injury.
(e) Counterparts. This Agreement may be signed in counterparts with
the same effect as if both parties had signed one and the same instrument.
(f) Notices. Any communications specifically required hereunder to
be in writing, if sent to the Placement Agent, will be sent by overnight courier
providing a receipt of delivery or by certified or registered mail to it at
Commonwealth Associates, 830 Third Avenue, New York, New York 10022, Att:
Alexandra Salas, with a copy to Bachner, Tally, Polevoy & Misher LLP, 380
Madison Avenue, New York, New York 10017, Att: Fran Stoller and if sent to the
Company, will be sent by overnight courier providing a receipt of delivery or by
certified or registered mail to it at 300, 250-6 Avenue SW, Calgary, AB Canada
T2P 3H7, Att: Raghu Kilambi, with a copy to Jeffer, Mangels, Butler & Maranaro,
2121 Avenue of the Stars, 10th Floor, Los Angeles, California, Att: Jeff Sultan.
(g) Entire Agreement. This Agreement constitutes the entire
agreement of the parties with respect to the matters herein referred and
supersedes all prior agreements and
<PAGE>
Page 31 of 84 Pages
understandings, written and oral, between the parties with respect to the
subject matter hereof. Neither this Agreement nor any term hereof may be
changed, waived or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver or
termination is sought.
If you find the foregoing is in accordance with our understanding, kindly
sign and return to us a counterpart hereof, whereupon this instrument along with
all counterparts will become a binding agreement between us.
Very truly yours,
FUTURELINK DISTRIBUTION CORP.
By: ___________________________________
Name:
Title:
Agreed:
COMMONWEALTH ASSOCIATES,
a New York limited partnership
By: Commonwealth Associates Management Corp., Inc.
a New York corporation, its general partner
By: ________________________________________________
Name: Joseph Wynne
Title: Chief Financial Officer
Page 32 of 84 Pages
Exhibit 2
FUTURELINK DISTRIBUTION CORP.
AGENCY AGREEMENT
Commonwealth Associates L.P.
830 Third Avenue
New York, New York 10022
April 14, 1999
Gentlemen:
FutureLink Distribution Corp., a Colorado corporation (the "Company"),
proposes to offer for sale to "accredited investors", in a private placement,
units ("Units"), each Unit consisting (i) $50,000 principal amount of 8%
convertible promissory notes (the "Notes") and (ii) seven-year warrants (the
"Warrants") to purchase 125,000 shares of the Company's common stock, $.0001 par
value (the "Common Stock"). Such offering and sale are referred to herein as the
"Offering." A minimum of 4 Units for $2,0000 ("Minimum Offering") and a maximum
of 100 Units for $5,000,000 ("Maximum Offering") will be sold in the Offering at
$50,000 per Unit. The Maximum Offering may be increased by up to $1,000,00 at
the discretion of the Placement Agent (as defined below) in the event of
over-subscription (the "Over-Allotment Option"). The Units will be offered
pursuant to those terms and conditions acceptable to you as reflected in the
Confidential Term Sheet dated April 14, 1999 (the "Term Sheet"). The Minimum
Offering will be made on a "best efforts - all-or-none" basis and the balance of
the Offering will be offered on a "best efforts" basis. The Units are being
offered pursuant to the Term Sheet and related documents in accordance with
Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act")
and Regulation D promulgated thereunder.
Commonwealth Associates is sometimes referred to herein as the "Placement
Agent." The Term Sheet (including the exhibits thereto), as it may be amended or
supplemented from time to time, and the form of proposed subscription agreement
between the Company and each subscriber (the "Subscription Agreement") and the
exhibits which are part of the Term Sheet and/or Subscription Agreement are
collectively referred to herein as the "Offering Documents."
The Company will prepare and deliver to the Placement Agent a reasonable
number of copies of the Offering Documents in form and substance satisfactory to
counsel to the Placement Agent.
Each prospective investor subscribing to purchase Units ("Subscriber")
will be required to deliver, among other things, a Subscription Agreement and a
confidential purchaser questionnaire ("Questionnaire") in the form to be
provided to offerees. Capitalized terms used herein, unless otherwise defined or
unless the context otherwise indicates, shall have the same meanings provided in
the Offering Documents.
<PAGE>
Page 33 of 84 Pages
1. Appointment of Placement Agent.
(a) You are hereby appointed exclusive Placement Agent of the
Company (subject to your right to have Selected Dealers, as defined in Section
1(c) hereof, participate in the Offering) during the Offering Period herein
specified for the purposes of assisting the Company in finding qualified
Subscribers pursuant to the offering (the "Offering") described in the Offering
Documents. The Offering Period shall commence on the day (the "Commencement
Date") the Offering Documents are first made available to you by the Company for
delivery in connection with the offering for sale of the Units and shall
continue until the earlier to occur of (i) the sale of all of the Maximum
Offering or (ii) April 30, 1999 (unless extended for a period of up to 30 days
under circumstances specified in the Term Sheet). If the Minimum Offering is not
sold prior to the end of the Offering Period, the Offering will be terminated
and all funds received from Subscribers will be returned, without interest and
without any deduction. The day that the Offering Period terminates is
hereinafter referred to as the "Termination Date."
(b) Subject to the performance by the Company of all of its
obligations to be performed under this Agreement and to the completeness and
accuracy of all representations and warranties of the Company contained in this
Agreement, Commonwealth Associates hereby accepts such agency and agrees to use
its best efforts to assist the Company in finding qualified subscribers pursuant
to the Offering described in the Offering Documents. It is understood that the
Placement Agent has no commitment to sell the Units. Your agency hereunder is
not terminable by the Company except upon termination of the Offering Period.
(c) Subscriptions for Units shall be evidenced by the execution by
Subscribers of a Subscription Agreement. No Subscription Agreement shall be
effective unless and until it is accepted by the Company. Until the Closing, all
subscription funds received shall be held as described in the Subscription
Agreement. The Placement Agent shall not have any obligation to independently
verify the accuracy or completeness of any information contained in any
Subscription Agreement or the authenticity, sufficiency, or validity of any
check delivered by any prospective investor in payment for Units.
(d) The Placement Agent and its affiliates will purchase Units sold
in the Offering.
2. Representations and Warranties of the Company. The Company represents
and warrants to the Placement Agent and each Selected Dealer, if any, as
follows:
(a) Securities Law Compliance. The Offering Documents conform in all
respects with the requirements of Section 4(2) of the Securities Act and
Regulation D promulgated thereunder and with the requirements of all other
published rules and regulations of the Securities and Exchange Commission (the
"Commission") currently in effect relating to "private offerings" to "accredited
investors" of the type contemplated by the Company. The Offering Documents will
not contain an untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading. If at any time prior to
the completion of the Offering or other termination of this Agreement any event
shall occur as a result of which it might become necessary to amend or
supplement the Offering Documents so that they do not include any untrue
statement of any
<PAGE>
Page 34 of 84 Pages
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances then existing, not
misleading, the Company will promptly notify you and will supply you with
amendments or supplements correcting such statement or omission. The Company
will also provide the Placement Agent for delivery to all offerees and
purchasers and their representatives, if any, any information, documents and
instruments which the Placement Agent deems reasonably necessary to comply with
applicable state and federal law.
(b) Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Colorado
and has all requisite corporate power and authority to own and lease its
properties, to carry on its business as currently conducted and as proposed to
be conducted, to execute and deliver this Agreement and to carry out the
transactions contemplated by this Agreement, as appropriate, and is duly
licensed or qualified to do business as a foreign corporation in each other
jurisdiction in which the conduct of its business or ownership or leasing of its
properties requires it to be so qualified, except where the failure to be so
licensed or qualified would not, in the aggregate, have a material adverse
effect on the business or financial condition of the Company (a "Material
Adverse Effect").
(c) Capitalization. The authorized, issued and outstanding capital
stock of the Company prior to the consummation of the transactions contemplated
hereby is as set forth in the Offering Documents. All issued and outstanding
shares of the Company are validly issued, fully paid and nonassessable (with the
exception of ______ shares held in escrow to satisfy certain obligations upon
conversion of outstanding debentures and exercise of outstanding warrants which
have not been paid for) and such shares have not been issued in violation of the
preemptive rights of any stockholder of the Company. All prior sales of
securities of the Company were either registered under the Securities Act and
applicable state securities laws or exempt from such registration, and no
security holder has any rescission rights with respect thereto.
(d) Warrants, Preemptive Rights, Etc. Except as set forth in or
contemplated by the Term Sheet, there are not, nor will there be immediately
after the Closing (as hereinafter defined), any outstanding warrants, options,
agreements, convertible securities, preemptive rights to subscribe for or other
commitments pursuant to which the Company is, or may become, obligated to issue
any shares of its capital stock or other securities of the Company and this
Offering will not cause any anti-dilution adjustments to such securities or
commitments except as reflected in the Term Sheet.
(e) Subsidiaries and Investments. Other than as set forth in the
Offering Documents, the Company has no subsidiaries and the Company does not
own, directly or indirectly, any capital stock or other equity ownership or
proprietary interests in any other corporation, association, trust, partnership,
joint venture or other entity.
(f) Financial Statements. The financial information contained in the
Offering Documents is accurate in all material respects. The financial
statements attached to the Offering Documents are hereinafter referred to
collectively as the "Financial Statements". The Financial Statements have been
prepared in conformity with generally accepted accounting principles
consistently applied and show all material liabilities, absolute or contingent,
of the Company required to be recorded thereon and present fairly the financial
position and results of operations of the Company as of the dates and for the
periods indicated.
<PAGE>
Page 35 of 84 Pages
(g) Absence of Changes. Since the date of the Term Sheet, except
with respect to matters of which the Company has notified you in writing, the
Company has not incurred any liabilities or obligations, direct or contingent,
not in the ordinary course of business, or entered into any transaction not in
the ordinary course of business, which is material to the business of the
Company, and, except as set forth in Schedule G to this Agreement there has not
been any change in the capital stock of, or any incurrence of long-term debt by,
the Company, or any issuance of options, warrants or other rights to purchase
the capital stock of the Company, or any adverse change or any development
involving, so far as the Company can now reasonably foresee, a prospective
adverse change in the condition (financial or otherwise), net worth, results of
operations, business, key personnel or properties which would be material to the
business or financial condition of the Company, and the Company has not become a
party to, and neither the business nor the property of the Company has become
the subject of, any material litigation whether or not in the ordinary course of
business.
(h) Title. Except as set forth on Schedule H hereto, the Company has
good and marketable title to all properties and assets, owned by it, free and
clear of all liens, charges, encumbrances or restrictions, except such as are
not significant or important in relation to the Company's business; all of the
material leases and subleases under which the Company is the lessor or sublessor
of properties or assets or under which the Company holds properties or assets as
lessee or sublessee are in full force and effect, and the Company is not in
default in any material respect with respect to any of the terms or provisions
of any of such leases or subleases, and no material claim has been asserted by
anyone adverse to rights of the Company as lessor, sublessor, lessee or
sublessee under any of the leases or subleases mentioned above, or affecting or
questioning the right of the Company to continued possession of the leased or
subleased premises or assets under any such lease or sublease. The Company owns
or leases all such properties as are necessary to its operations as now
conducted.
(i) Proprietary Rights. Except as set forth in Schedule I hereto,
the Company owns or possesses adequate and enforceable rights to use all
patents, patent applications, trademarks, service marks, copyrights, trade
secrets, processes, formulations, technology or know-how used in the conduct of
its business as described in the Term Sheet and will own or possess such rights
with respect to the business to be conducted as contemplated by the Term Sheet
(the "Proprietary Rights"). The Company has not received any notice of any
claims, nor does it have any knowledge of any threatened claims, and knows of no
facts which would form the basis of any claim, asserted by any person to the
effect that the sale or use of any product or process now used or offered by the
Company or proposed to be used or offered by the Company infringes on any
patents or infringes upon the use of any such Proprietary Rights of another
person and, to the best of the Company's knowledge, no others have infringed the
Company's Proprietary Rights.
(j) Litigation. Other than as set forth in the Offering Documents,
there is no material action, suit, investigation, customer complaint, claim or
proceeding at law or in equity by or before any arbitrator, governmental
instrumentality or other agency now pending or, to the knowledge of the Company,
threatened against the Company (or basis therefor known to the Company) the
adverse outcome of which would have a Material Adverse Effect. The Company is
not subject to any judgment, order, writ, injunction or decree of any Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign which have a Material Adverse
Effect.
<PAGE>
Page 36 of 84 Pages
(k) Non-Defaults; Non-Contravention. The Company is not in violation
of or default under, nor will the execution and delivery of this Agreement or
any of the Offering Documents, the Fund Escrow Agreement, the Advisory Agreement
or the M/A Agreement (all as defined herein) or consummation of the transactions
contemplated herein or therein result in a violation of or constitute a default
in the performance or observance of any obligation under (i) its Articles of
Incorporation, or its By-laws, or (ii) any indenture, mortgage, contract,
material purchase order or other agreement or instrument to which the Company is
a party or by which it or its property is bound or affected, where such
violation or default would have a Material Adverse Effect, or (iii) any material
order, writ, injunction or decree of any court of any Federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, where such violation or default would have
a Material Adverse Effect, and there exists no condition, event or act which
constitutes, nor which after notice, the lapse of time or both, could constitute
a default under any of the foregoing, which in either case would have a Material
Adverse Effect.
(l) Taxes. The Company has filed all Federal, state, local and
foreign tax returns which are required to be filed by it or otherwise met its
disclosure obligations to the relevant agencies and all such returns are true
and correct in all material respects. The Company has paid all taxes pursuant to
such returns or pursuant to any assessments received by it or which it is
obligated to withhold from amounts owing to any employee, creditor or third
party. The Company has properly accrued all taxes required to be accrued by
generally accepted accounting principals consistently applied. The tax returns
of the Company have never been audited by any state, local or Federal
authorities. The Company has not waived any statute of limitations with respect
to taxes or agreed to any extension of time with respect to any tax assessment
or deficiency.
(m) Compliance With Laws; Licenses, Etc. The Company has not
received notice of any violation of or noncompliance with any Federal, state,
local or foreign, laws, ordinances, regulations and orders applicable to its
business which has not been cured, the violation of, or noncompliance with
which, would have a Material Adverse Effect. The Company has all licenses and
permits and other governmental certificates, authorizations and permits and
approvals (collectively, "Licenses") required by every Federal, state and local
government or regulatory body for the operation of its business as currently
conducted and the use of its properties, except where the failure to be licensed
would not have a Material Adverse Effect. The Licenses are in full force and
effect and to the Company's knowledge no violations currently exist in respect
of any License and no proceeding is pending or threatened to revoke or limit any
thereof.
(n) Authorization of Agreement, Etc. This Agreement has been duly
and validly authorized, executed and delivered by the Company and the execution,
delivery and performance by the Company of this Agreement, the Subscription
Agreement, the Fund Escrow Agreement , the Advisory Agreement and the M/A
Agreement have been duly authorized by all requisite corporate action by the
Company and when delivered, constitute or will constitute the legal, valid and
binding obligations of the Company, enforceable in accordance with their
respective terms, subject to applicable laws regarding insolvency and to
principles of equity.
(o) Authorization of Notes and Warrants Etc. The issuance, sale and
delivery of the Notes, the Warrants and the Agent's Warrants (as defined herein)
have been duly authorized by all requisite corporate action of the Company. When
so issued, sold and delivered, the Notes,
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the Warrants and the Agent's Warrants will be duly executed, issued and
delivered and will constitute valid and legal obligations of the Company
enforceable in accordance with their respective terms and, in each case, will
not be subject to preemptive or any other similar rights of the stockholders of
the Company or others which rights shall not have been waived prior to the
Initial Closing.
(p) Authorization of Reserved Shares. The issuance, sale and
delivery by the Company of the shares of Common Stock issuable upon conversion
of the Notes and exercise of the Warrants and the Agent's Warrants (the
"Reserved Shares") have been duly authorized by all requisite corporate action
of the Company, and the Reserved Shares have been duly reserved for issuance
upon conversion of all or any of the Notes and exercise of all or any of the
Warrants and Agent's Warrants and when so issued, sold, paid for and delivered,
the Reserved Shares will be validly issued and outstanding, fully paid and
nonassessable, and not subject to preemptive or any other similar rights of the
stockholders of the Company or others which rights shall not have been waived
prior to the Initial Closing.
(q) Exemption from Registration. Assuming (i) the accuracy of the
information provided by the respective Subscribers in the Subscription Documents
and (ii) that the Placement Agent has complied in all material respects with the
provisions of Regulation D promulgated under the Securities Act, the offer and
sale of the Units pursuant to the terms of this Agreement are exempt from the
registration requirements of the Securities Act and the rules and regulations
promulgated thereunder (the "Regulations"). The Company is not disqualified from
the exemption under Regulation D by virtue of the disqualifications contained in
Rule 505(b)(2)(iii) or Rule 507 promulgated thereunder.
(r) Registration Rights. Except with respect to holders of the
Units, and except as set forth in Schedule R hereto, no person has any right to
cause the Company to effect the registration under the Securities Act of any
securities of the Company. The Company shall grant registration rights under the
Securities Act to the investors in the Offering and/or their transferees as more
fully described in the Subscription Agreement between the Company and the
investors.
(s) Brokers. Neither the Company nor any of its officers, directors,
employees or stockholders has employed any broker or finder in connection with
the transactions contemplated by this Agreement other than the Placement Agent.
(t) Title to Units. When certificates representing the securities
comprising the Units shall have been duly delivered to the purchasers and
payment shall have been made therefor, the several purchasers shall have good
and marketable title to the Notes and Warrants and/or the Reserved Shares free
and clear of all liens, encumbrances and claims whatsoever (with the exception
of claims arising through the acts or omissions of the purchasers and except as
arising from applicable Federal and state securities laws), and the Company
shall have paid all taxes, if any, in respect of the original issuance thereof.
(u) Right of First Refusal. Except for the right of first refusal
granted to the Placement Agent herein, no person, firm or other business entity
is a party to any agreement, contract or understanding, written or oral
entitling such party to a right of first refusal with respect to offerings by
the Company.
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3. Closing; Placement and Fees.
(a) Closing. Provided the Minimum Offering shall have been
subscribed for and funds representing the sale thereof shall have cleared, a
closing (the "Initial Closing") shall take place at the offices of the Placement
Agent, 830 Third Avenue, New York, New York within 10 days following the
Termination Date (which date (the "Closing Date") may be accelerated or
adjourned by agreement between the Company and the Placement Agent). At the
Initial Closing, payment for the Units issued and sold by the Company shall be
made against delivery of the Notes and Warrants comprising such Units. In
addition, subsequent closings (if applicable) may be scheduled at the discretion
of the Company and Placement Agent, each of which shall be deemed a "Closing"
hereunder.
(b) Conditions to Placement Agent's Obligations. The obligations of
the Placement Agent hereunder will be subject to the accuracy of the
representations and warranties of the Company herein contained as of the date
hereof and as of each Closing Date, to the performance by the Company of its
obligations hereunder and to the following additional conditions:
(i) Due Qualification or Exemption. (A) The Offering will
become qualified or be exempt from qualification under the securities laws of
the several states pursuant to paragraph 4(e) below not later than the Closing
Date, and (B) at the Closing Date no stop order suspending the sale of the Units
shall have been issued, and no proceeding for that purpose shall have been
initiated or threatened;
(ii) No Material Misstatements. Neither the Blue Sky
qualification materials nor the Term Sheet, nor any supplement thereto, will
contain an untrue statement of a fact which in the opinion of the Placement
Agent is material, or omits to state a fact, which in the opinion of the
Placement Agent is material and is required to be stated therein, or is
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(iii) Compliance with Agreements. The Company will have
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied hereunder at or prior to each Closing;
(iv) Corporate Action. The Company will have taken all
necessary corporate action, including, without limitation, obtaining the
approval of the Company's board of directors, for the execution and delivery of
this Agreement, the performance by the Company of its obligations hereunder and
the offering contemplated hereby;
(v) Opinion of Counsel. The Placement Agent shall receive the
opinion of acceptable counsel to the Company, dated the Closing(s),
substantially to the effect that:
(A) the Company is validly existing and in good standing
under the laws of the State of Colorado, has all requisite corporate power and
authority necessary to own or hold its respective properties and conduct its
business and is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in which the
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ownership or leasing of its properties or conduct of its business requires such
qualification, except where the failure to so qualify or be licensed would not
have a Material Adverse Effect;
(B) each of this Agreement, the Notes, the Warrants, the
Agent's Warrants, the Fund Escrow Agreement, the Subscription Agreements, the
Advisory Agreement and the M/A Agreement has been duly and validly authorized,
executed and delivered by the Company, and is the valid and binding obligation
of the Company, enforceable against it in accordance with its terms, subject to
any applicable bankruptcy, insolvency or other laws affecting the rights of
creditors generally and to general equitable principles;
(C) the authorized, issued and outstanding capital stock
of the Company as of the date hereof (before giving effect to the transactions
contemplated by this Agreement) is as set forth in the Offering Documents. To
such counsel's knowledge, there are no outstanding warrants, options,
agreements, convertible securities, preemptive rights or other commitments
pursuant to which the Company is, or may become, obligated to issue any shares
of its capital stock or other securities of the Company other than as set forth
in the Offering Documents. All of the issued shares of capital stock of the
Company issued in connection with and subsequent to the reverse merger in
January1998 have been duly and validly authorized and issued, are fully paid and
nonassessable and to such counsel's knowledge have not been issued in violation
of the preemptive rights of any securityholder of the Company. The offers and
sales of such securities were either registered under the Securities Act and
applicable state securities laws or exempt from such registration requirements;
(D) assuming (i) the accuracy of the information
provided by the Subscribers in the Subscription Documents and (ii) that the
Placement Agent has complied with the requirements of section 4(2) of the
Securities Act (and the provisions of Regulation D promulgated thereunder), the
issuance and sale of the Units is exempt from registration under the Securities
Act and Regulation D promulgated thereunder;
(E) neither the execution and delivery of this
Agreement, the Subscription Agreement, the Advisory Agreement or the M/A
Agreement, nor compliance with the terms hereof or thereof, nor the consummation
of the transactions herein or therein contemplated, nor the issuance of the
Notes, the Warrants or the Agent's Warrants, has, nor will, conflict with,
result in a breach of, or constitute a default under the Articles of
Incorporation or By-laws of the Company, or any material contract, instrument or
document known to such counsel to which the Company is a party, or by which it
or any of its properties is bound or violate any applicable law, rule,
regulation, judgment, order or decree known to us of any governmental agency or
court having jurisdiction over the Company or any of its properties or business;
(F) to the best of such counsel's knowledge, there are
no claims, actions, suits, investigations or proceedings before or by any
arbitrator, court, governmental authority or instrumentality pending or, to such
counsel's knowledge, threatened against or affecting the Company or involving
the properties of the Company which might materially and adversely affect the
business, properties or financial condition of the Company or which might
materially adversely affect the transactions or other acts contemplated by this
Agreement or the validity or enforceability of this Agreement, except as set
forth in or contemplated by the Offering Documents; and
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(G) such counsel has reviewed the Offering Documents and
nothing has come to the attention of such counsel to cause them to have reason
to believe that the Offering Documents contained any untrue statement of a
material fact required to be stated therein or omitted to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading (except for the financial statements, notes thereto and other
financial information and statistical data contained therein, as to which such
counsel need express no opinion).
(H) there have been no claims asserted against the
Company relating to the potential infringement of or conflict with any patents,
trademarks, copyrights or trade secrets of others; such counsel has conducted a
search for existing United States patents with claims that might cover the
Company's technology and, in such counsel's opinion, the Company's technology
does not infringe any United States patents.
(vi) Officers' Certificate. The Placement Agent shall receive
a certificate of the Company, signed by the Chief Executive Officer and Chief
Financial Officer thereof, that the representations and warranties contained in
Section 2 hereof are true and accurate in all material respects at such Closing
with the same effect as though expressly made at such Closing.
(vii) Fund Escrow Agreement. On or prior to the Initial
Closing Date, the Placement Agent shall receive a copy of a duly executed escrow
agreement in the form previously delivered to you regarding the deposit of funds
pending the Closing(s) with a bank or trust company acceptable to the Placement
Agent (the "Fund Escrow Agreement").
(viii) Insider Subscriptions. Prior to the Initial Closing
Date, the Placement Agent shall receive irrevocable Subscription Agreements for
the purchase of not less than an aggregate of $250,000 of Units from management
and directors of the Company or their designees and shall have been advised by
the escrow agent that cleared funds for the purchase of such Units is in escrow.
(ix) Independent Auditors. On or prior to the Initial Closing
Date, the Company shall have retained a firm of independent auditors acceptable
to the Placement Agent. The Company will not switch auditors other than to
another "Big Five" firm during the three-year period following the Initial
Closing Date.
(x) Financial Projections. On or prior to the Initial Closing
Date, the Placement Agent shall receive two-year quarterly financial projections
which have been reviewed and approved by the Company and the Placement Agent.
(xi) Advisory Agreement. On or prior to the Initial Closing
Date, the Company shall execute and deliver to the Placement Agent an advisory
agreement with the Placement Agent, in the form previously delivered to the
Company by the Placement Agent (the "Advisory Agreement") and shall deliver to
the Placement Agent the warrants provided for in such agreement.
(xii) Merger and Acquisition Agreement. On or prior to the
Initial Closing Date, the Company shall execute and deliver to the Placement
Agent an agreement with the
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Placement Agent regarding mergers and acquisitions, in the form previously
delivered to the Company by the Placement Agent (the "M/A Agreement").
(xiii) Lock-Up Agreements. On or prior to the Initial Closing
Date, the Placement Agent shall receive agreements from each officer and
director of the Company to the effect that such individual shall not sell,
assign or transfer any of their securities of the Company for the period of 12
months from the final Closing without the prior written consent of the Placement
Agent and, if requested by the managing underwriter of a public offering, for an
additional 12-month period.
(xiv) Board Designee. During the period ending two years from
the Initial Closing Date, the Company agrees to nominate a designee of the
Placement Agent to the Company's Board of Directors. The Placement Agent shall
also have the right to immediately appoint a majority of the Board of Directors
if the Company fails to repay the Notes when due.
(xv) Irrevocable Proxy. The Placement Agent shall receive, on
or prior to the Initial Closing Date, an irrevocable proxy from each of the
officers and directors of the Company granting the Placement Agent a proxy to
vote their shares for the election of directors solely for the purpose of
enforcing the Placement Agent's rights described in subsection (xiv) above.
(c) Blue Sky. A summary blue sky survey shall be prepared by counsel
to the Placement Agent stating the extent to which and the conditions upon which
offers and sales of the Units may be made in certain jurisdictions. It is
understood that such survey may be based on or rely upon (i) the representations
of each Subscriber set forth in the Subscription Agreement delivered by such
Subscriber, (ii) the representations, warranties and agreements of the Company
set forth in Section 2 of this Agreement, (iii) the representations and
warranties of the Placement Agent, and (iv) the representations of the Company
set forth in the certificate to be delivered at the Closing pursuant to
paragraph (vii) of Section 3(b).
(d) Placement Fee and Expenses. Simultaneously with payment for and
delivery of the Units at each Closing as provided in paragraph 3(a) above, the
Company shall at such Closing pay to the Placement Agent (i) a commission equal
to 6.5% of the aggregate purchase price of the Units sold (including
Over-allotment Option Units); (ii) a structuring fee equal to 2.5% of the
aggregate purchase price of the Units sold (including Over-allotment Option
Units) and (iii) reimbursement of accountable expenses up to $25,000 (excluding
legal fees and disbursements of counsel to the Placement Agent which shall also
be reimbursable by the Company). The Company shall also pay all expenses in
connection with the qualification of the Units under the securities or Blue Sky
laws of the states which the Placement Agent shall designate, including legal
fees (not to exceed $2,500) and filing fees. The Company will, at each Closing,
issue to you or your designees (which may include any Selected Dealer or any
officer of the Placement Agent or a Selected Dealer) warrants to purchase 62,500
shares of Common Stock at an exercise price of $.25 per share $50,000 raised in
the Offering and sell to you for $.01 per warrant warrants to purchase 62,500
shares of Common Stock at an exercise price of $.25 per share $50,000 raised in
the Offering (collectively, the "Agent's Warrants"). The Agent's Warrants will
be substantially identical to the Warrants comprising the Units.
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(e) Bring-Down Opinions and Certificates. If there is more than one
Closing, then at each such Closing there shall be delivered to the Placement
Agent updated opinion and certificate as described in (v) and (vi) of Section
3(b) above, respectively.
(f) No Adverse Changes. There shall not have occurred, at any time
prior to the Closing or, if applicable, any additional Closing, (i) any domestic
or international event, act or occurrence which has materially disrupted, or in
the Placement Agent's opinion will in the immediate future materially disrupt,
the securities markets; (ii) a general suspension of, or a general limitation on
prices for, trading in securities on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market; (iii) any outbreak of major
hostilities or other national or international calamity; (iv) any banking
moratorium declared by a state or federal authority; (v) any moratorium declared
in foreign exchange trading by major international banks or other persons; (vi)
any material interruption in the mail service or other means of communication
within the United States; (vii) any material adverse change in the business,
properties, assets, results of operations, or financial condition of the
Company; or (viii) any change in the market for securities in general or in
political, financial, or economic conditions which, in the Placement Agent's
reasonable judgment, makes it inadvisable to proceed with the offering, sale,
and delivery of the Units.
4. Covenants of the Company.
(a) Use of Proceeds. The net proceeds of the Offering will be used
by the Company substantially as set forth in the Term Sheet. Other than $200,000
of working capital advances to be repaid to an executive officer of the Company,
the Company shall not use any of the proceeds from the Offering to repay any
indebtedness of the Company (other than trade payables in the ordinary course),
including but not limited to indebtedness to any current executive officers,
directors or principal stockholders of the Company.
(b) Expenses of Offering. The Company shall be responsible for, and
shall bear all expenses directly incurred in connection with, the proposed
Offering including, but not limited to, (i) legal fees of the Company's counsel
relating to the costs of preparing the Offering Documents and all amendments,
supplements and exhibits thereto and preparing and delivering all placement
agent and selling documents, including, but not limited to, the Agency Agreement
with the Placement Agent and the blue sky memorandum; Note and Warrant
certificates; (ii) blue sky fees, filing fees and the fees (up to $2,500) and
disbursements of Placement Agent's counsel in connection with blue sky matters
(the "Company Expenses"). Such expenses shall not include the cost of the
Placement Agent's mailing, telephone, telegraph, travel, due diligence meetings,
or other similar expenses (the "Placement Agent expenses") which are
reimbursable by the Company up to $25,000 (exclusive of fees and expenses of
counsel to the Placement Agent which are also reimbursable by the Company).
If the Company decides not to proceed with the Offering for any
reason (other than Placement Agent's failure to close on the Offering in the
time frame set forth in Paragraph 1 of the letter of intent dated March 15, 1999
between the parties (the "LOI")), or if the Placement Agent decides not to
proceed with the Offering because of a material breach by the Company of its
representations, warranties, or covenants in this Agreement or in the LOI or as
a result of material adverse changes in the affairs of the Company, or failure
to meet the General Conditions set forth
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in Paragraph 9 of the LOI, the Company will be obligated to pay the Placement
Agent liquidated damages of $120,000, to reimburse the Placement Agent for its
time, work and expenses up to the sum of $25,000 and to issue the Placement
Agent Agent's Warrants to purchase 12,500,000 shares of Common Stock. If the
Placement Agent decides not to proceed with the Offering other than for the
reasons set forth above, the Company's obligation to reimburse the Placement
Agent shall be limited to $25,000. The Placement Agent shall have no liability
to the Company for any reason should the Placement Agent choose not to proceed
with the Offering contemplated hereby.
(c) Notification. The Company shall notify the Placement Agent
immediately, and in writing, (A) when any event shall have occurred during the
period commencing on the date hereof and ending on the later of the last Closing
or the Termination Date as a result of which the Offering Documents would
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (B) of the receipt of any notification with respect to the
modification, rescission, withdrawal or suspension of the qualification or
registration of the Units, or of any exemption from such registration or
qualification, in any jurisdiction. The Company will use its best efforts to
prevent the issuance of any such modification, rescission, withdrawal or
suspension and, if any such modification, rescission, withdrawal or suspension
is issued and you so request, to obtain the lifting thereof as promptly as
possible.
(d) Blue Sky. The Company will use its best efforts to qualify or
register the Units for offering and sale under, or establish an exemption from
such qualification or registration under, the securities or "blue sky" laws of
such jurisdictions as you may reasonably request; provided however, that the
Company will not be obligated to qualify as a dealer in securities in any
jurisdiction in which it is not so qualified. The Company will not consummate
any sale of Units in any jurisdiction in which it is not so qualified or in any
manner in which such sale may not be lawfully made.
(f) Form D Filing. The Company shall file five copies of a Notice of
Sales of Securities on Form D with the Securities and Exchange Commission (the
"Commission") no later than 15 days after the first sale of the Units. The
Company shall file promptly such amendments to such Notices on Form D as shall
become necessary and shall also comply with any filing requirement imposed by
the laws of any state or jurisdiction in which offers and sales are made. The
Company shall furnish the Placement Agent with copies of all such filings.
(g) Press Releases, Etc. The Company shall not, during the period
commencing on the date hereof and ending on the later of the last Closing and
the Termination Date, issue any press release or other communication, or hold
any press conference with respect to the Company, its financial condition,
results of operations, business, properties, assets, or liabilities, or the
Offering, without the prior consent of the Placement Agent, which consent shall
not be unreasonably withheld.
(h) Key-Man Insurance. Prior to the Initial Closing Date, the
Company shall have obtained "key-man" life insurance policies in the amount of
at least $2,000,000 on the life of Cameron Shell. Such policy will be kept in
effect for at least three years from the Initial Closing Date.
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(i) Executive Compensation. The compensation of the executive
officers of the Company shall not increase until repayment of the Notes. In
addition, prior to the maturity date of the Notes and thereafter in the event
the Company defaults on repayment of the Notes, the Company shall not amend or
enter into any employment agreement containing anti-takeover provisions without
the approval of the holders of a majority in principal amount of the Notes
(including holders who have converted their Notes).
(j) Budgets. During the period ending two years after the Initial
Closing Date, the Company shall prepare quarterly budgets reflecting its
proposed operations and cash flow needs and submit such budgets to the Placement
Agent for review and to the Company's Board of Directors for its approval.
(k) By-Laws. Prior to the maturity date of the Notes and thereafter
in the event the Company defaults on repayment of the Notes, the Company shall
not amend its By-laws without shareholder approval and the approval of the
holders of a majority in principal amount of the Notes (including holders who
have converted their Notes).
(l) Right of First Refusal. In the event the Maximum Offering is
sold, if during the two-year period after the Initial Closing Date the Company
proposes to use a manager, placement agent or investment banker or persons
performing similar services for a fee, the Placement Agent shall have the right
of first refusal (the "Right of First Refusal") to purchase for the account of
the Placement Agent or to act as an underwriter or agent for any and all public
or private offerings of the securities of the Company, or any successor to or
subsidiary of the Company or other entity in which the Company has a controlling
equity interest (collectively referred to herein as the "Company"), up to
$40,000,000 (the "Subsequent Offering"); provided, that if the Subsequent
Offering is to be lead managed by a "major bracket underwriting firm", the
Placement Agent shall have only the right to participate in the Subsequent
Offering as a co-manager and receive at least 33% of the total consideration
(including commissions, expense allowance, consulting fees, warrants or other
equity); and provider, further, that if more than $40,000,000 is to be raised in
the Subsequent Offering, the Placement Agent shall have the right on to act as
co-manager or co-agent and receive at least 25% of the total consideration.
Accordingly, if during such period the Company intends to make a Subsequent
Offering, the Company shall notify you in writing of such intention and of the
proposed terms of the offering. The Company shall thereafter promptly furnish
you with such information concerning the business, condition and prospects of
the Company as you may reasonably request. If within 10 business days of the
mailing by registered mail addressed to the Placement Agent with respect to a
Subsequent Offering of such notice of intention and statement of terms you do
not accept in writing such offer to act as underwriter or agent with respect to
such offering or investment banker with respect to such transaction, upon the
terms proposed, the Company shall be free to negotiate terms with other
underwriters or agents with respect to such offering or investment banker with
respect to such transaction, and to effect such offering or transaction on such
proposed terms. Before the Company shall accept any proposal less favorable to
the Company from such underwriter or agent or investment banker or if such
Subsequent Offering is not consummated within six (6) months, your preferential
right shall be reinstated and the same procedure with respect to such modified
proposal as provided above shall be adopted; provided, however, that your
preferential right shall not be reinstated later than two years after the
Initial Closing Date. The failure by you to exercise your
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Right of First Refusal in any particular instance shall not affect in any way
such right with respect to any other Subsequent Offering.
(m) Transmittal Letters. Within five days after the Closing, the
Placement Agent shall receive copies of all letters from the Company to the
investors transmitting the Notes and Warrants and shall receive a letter from
the Company confirming transmittal of the securities to the investors.
5. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Placement
Agent and each Selected Dealer, if any, and their respective shareholders,
directors, officers, agents and controlling persons (an "Indemnified Party")
against any and all loss, liability, claim, damage and expense whatsoever (and
all actions in respect thereof), and to reimburse the Placement Agent for
reasonable legal fees and related expenses as incurred (including, but not
limited to the costs of investigating, preparing or defending any such action or
claim whether or not in connection with litigation in which the Placement Agent
is a party and the costs of giving testimony or furnishing documents in response
to a subpoena or otherwise), arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Offering Documents or the
omission or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading;
(b) The Company agrees to indemnify and hold harmless an Indemnified
Party to the same extent as the foregoing indemnity, against any and all loss,
liability, claim, damage and expense whatsoever directly arising out of the
exercise by any person of any right under the Securities Act or the Exchange Act
or the securities or Blue Sky laws of any state on account of violations of the
representations, warranties or agreements set forth in Section 2 hereof.
(c) Promptly after receipt by an Indemnified Party under this
Section of notice of the commencement of any action, the indemnified party will,
if a claim in respect thereof is to be made against the Company under this
Section, notify in writing the Company of the commencement thereof; but the
omission so to notify the Company will not relieve it from any liability which
it may have to the Indemnified Party otherwise than under this Section except to
the extent the defense of the claim is prejudiced. In case any such action is
brought against an Indemnified Party, and it notifies the Company of the
commencement thereof, the Company will be entitled to participate in, and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, subject to the provisions herein
stated, with counsel reasonably satisfactory to the Indemnified Party, and after
notice from the Company to the Indemnified Party of its election so to assume
the defense thereof, the Company will not be liable to the Indemnified Party
under this Section for any legal or other expenses subsequently incurred by the
Indemnified Party in connection with the defense thereof other than reasonable
costs of investigation (provided the Company has been advised in writing that
such investigation is being undertaken). The Indemnified Party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the Company if the Company has assumed the defense of the action with
counsel reasonably satisfactory to the Indemnified Party; provided that the fees
and expenses of such counsel shall be at the expense of the Company if (i) the
employment of such counsel has been
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specifically authorized in writing by the Company or (ii) the named parties to
any such action (including any impleaded parties) include both the Indemnified
Party or Parties and the Company and, in the reasonable judgment of counsel for
the Indemnified Party, it is advisable for the Indemnified Party or Parties to
be represented by separate counsel due to an actual conflict of interest (in
which case the Company shall not have the right to assume the defense of such
action on behalf of the an Indemnified Party or Parties), it being understood,
however, that the Company shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for all
the Indemnified Parties. No settlement of any action against an Indemnified
Party shall be made unless such an Indemnified Party is fully and completely
released in connection therewith.
6. Contribution.
To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section (5) but
it is found in a final judicial determination, not subject to further appeal,
that such indemnification may not be enforced in such case, even though this
Agreement expressly provides for indemnification in such case, or (ii) any
indemnified or indemnifying party seeks contribution under the Securities Act,
the Exchange Act, or otherwise, then the Company (including for this purpose any
contribution made by or on behalf of any officer, director, employee or agent
for the Company, or any controlling person of the Company), on the one hand, and
the Placement Agent and any Selected Dealers (including for this purpose any
contribution by or on behalf of an indemnified party), on the other hand, shall
contribute to the losses, liabilities, claims, damages, and expenses whatsoever
to which any of them may be subject, in such proportions as are appropriate to
reflect the relative benefits received by the Company, on the one hand, and the
Placement Agent and the Selected Dealers, on the other hand; provided, however,
that if applicable law does not permit such allocation, then other relevant
equitable considerations such as the relative fault of the Company and the
Placement Agent and the Selected Dealers in connection with the facts which
resulted in such losses, liabilities, claims, damages, and expenses shall also
be considered. In no case shall the Placement Agent or a Selected Dealer be
responsible for a portion of the contribution obligation in excess of the
compensation received by it pursuant to Section 3 hereof or the Selected Dealer
Agreement, as the case may be. No person guilty of a fraudulent
misrepresentation shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section 6,
each person, if any, who controls the Placement Agent or a Selected Dealer
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act and each officer, director, stockholder, employee and agent of the
Placement Agent or a Selected Dealer, shall have the same rights to contribution
as the Placement Agent or the Selected Dealer, and each person, if any who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act and each officer, director, employee and agent
of the Company, shall have the same rights to contribution as the Company,
subject in each case to the provisions of this Section 6. Anything in this
Section 6 to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 6 is intended to supersede any right
to contribution under the Securities Act, the Exchange Act, or otherwise.
<PAGE>
Page 47 of 84 Pages
7. Miscellaneous.
(a) Survival. Any termination of the Offering without consummation
thereof shall be without obligation on the part of any party except that the
indemnification provided in Section 5 hereof and the contribution provided in
Section 6 hereof shall survive any termination and shall survive the Closing for
a period of five years.
(b) Representations, Warranties and Covenants to Survive Delivery.
The respective representations, warranties, indemnities, agreements, covenants
and other statements of the Company as of the date hereof shall survive
execution of this Agreement and delivery of the Units and the termination of
this Agreement for a period of one year after such respective event.
(c) No Other Beneficiaries. This Agreement is intended for the sole
and exclusive benefit of the parties hereto and their respective successors and
controlling persons, and no other person, firm or corporation shall have any
third-party beneficiary or other rights hereunder.
(d) Governing Law; Resolution of Disputes. This Agreement shall be
governed by and construed in accordance with the law of the State of New York
without regard to conflict of law provisions. The Placement Agent and the
Company will attempt to settle any claim or controversy arising out of this
Agreement through consultation and negotiation in good faith and a spirit of
mutual cooperation. Should such attempts fail, then the dispute will be mediated
by a mutually acceptable mediator to be chosen by the Placement Agent and the
Company within 15 days after written notice from either party demanding
mediation. Neither party may unreasonably withhold consent to the selection of a
mediator, and the parties will share the costs of the mediation equally. Any
dispute which the parties cannot resolve through negotiation or mediation within
six months of the date of the initial demand for it by one of the parties may
then be submitted to the courts for resolution. The use of mediation will not be
construed under the doctrine of latches, waiver or estoppel to affect adversely
the rights of either party. Nothing in this paragraph will prevent either party
from resorting to judicial proceedings if (a) good faith efforts to resolve the
dispute under these procedures have been unsuccessful or (b) interim relief from
a court is necessary to prevent serious and irreparable injury.
(e) Counterparts. This Agreement may be signed in counterparts with
the same effect as if both parties had signed one and the same instrument.
(f) Notices. Any communications specifically required hereunder to
be in writing, if sent to the Placement Agent, will be sent by overnight courier
providing a receipt of delivery or by certified or registered mail to it at
Commonwealth Associates, 830 Third Avenue, New York, New York 10022, Att:
Alexandra Salas, with a copy to Bachner, Tally, Polevoy & Misher LLP, 380
Madison Avenue, New York, New York 10017, Att: Fran Stoller and if sent to the
Company, will be sent by overnight courier providing a receipt of delivery or by
certified or registered mail to it at 300, 250-6 Avenue SW, Calgary, AB Canada
T2P 3H7, Att: Raghu Kilambi, with a copy to Jeffer, Mangels, Butler & Maranaro,
2121 Avenue of the Stars, 10th Floor, Los Angeles, California, Att: Jeff Sultan.
(g) Entire Agreement. This Agreement constitutes the entire
agreement of the parties with respect to the matters herein referred and
supersedes all prior agreements and
<PAGE>
Page 48 of 84 Pages
understandings, written and oral, between the parties with respect to the
subject matter hereof. Neither this Agreement nor any term hereof may be
changed, waived or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver or
termination is sought.
If you find the foregoing is in accordance with our understanding, kindly
sign and return to us a counterpart hereof, whereupon this instrument along with
all counterparts will become a binding agreement between us.
Very truly yours,
FUTURELINK DISTRIBUTION CORP.
By: _________________________________
Name:
Title:
Agreed:
COMMONWEALTH ASSOCIATES,
a New York limited partnership
By: Commonwealth Associates Management Corp., Inc.
a New York corporation, its general partner
By: _________________________________
Name: Joseph Wynne
Title: Chief Financial Officer
Page 49 of 84 Pages
Exhibit 3
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE
TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT
THERETO OR (ii) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE SECURITIES
ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS SUCH
TRANSFER IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL
BE ENDORSED UPON ANY WARRANT ISSUED IN EXCHANGE FOR THIS WARRANT OR ANY SHARES
OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT.
WARRANT TO PURCHASE COMMON STOCK
OF
FUTURELINK DISTRIBUTION CORP.
No. _____
This is to Certify That, FOR VALUE RECEIVED, ____________, or assigns
("Holder"), is entitled to purchase, subject to the provisions of this Warrant,
from FutureLink Distribution Corp., a corporation organized under the laws of
the State of Colorado ("Company"), ___________ (________) fully paid, validly
issued and nonassessable shares of common stock, $.0001 par value, of the
Company ("Common Stock") at a price of $.25 per share at any time or from time
to time during the period from April 29, 1999 until April 29, 2006, subject to
adjustment as set forth herein. The number of shares of Common Stock to be
received upon the exercise of this Warrant and the price to be paid for each
share of Common Stock may be adjusted from time to time as hereinafter set
forth. The shares of Common Stock deliverable upon such exercise, and as
adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares" and the exercise price of a share of Common Stock in effect at any time
and as adjusted from time to time is hereinafter sometimes referred to as the
"Exercise Price". This Warrant, together with warrants of like tenor,
constituting in the aggregate warrants (the "Warrants") to purchase up to
20,000,000 shares of Common Stock, was originally issued in connection with a
private offering of the Company's securities (the "Private Placement") through
Commonwealth Associates ("Commonwealth") in consideration for loans evidenced by
8% senior subordinated convertible promissory notes issued in the Private
Placement (the "Notes").
(a) EXERCISE OF WARRANT; CANCELLATION OF WARRANT.
(1) This Warrant may be exercised in whole or in part at any time or
from time to time on or after April 29, 1999 and until April 29, 2006 (the
"Exercise Period"), subject to the provisions of Section (j)(2) hereof;
provided, however, that (i) if either such day is a day on which banking
institutions in the State of New York are authorized by law to close, then on
the next succeeding day which shall not be such a day, and (ii) in the event of
any merger, consolidation or sale of substantially all the assets of the Company
as an entirety, resulting in any distribution to the Company's stockholders,
prior to April 29, 2006, the Holder shall have the right to exercise this
Warrant commencing at such time through April 29, 2006 into the kind and amount
of shares of stock and other securities and property (including cash) receivable
by a holder of the number of
<PAGE>
Page 50 of 84 Pages
shares of Common Stock into which this Warrant might have been exercisable
immediately prior thereto. This Warrant may be exercised by presentation and
surrender hereof to the Company at its principal office with the Purchase Form
annexed hereto duly executed and accompanied by payment of the Exercise Price
for the number of Warrant Shares specified in such form. As soon as practicable
after each such exercise of the warrants, but not later than seven (7) days
following the receipt of good and available funds, the Company shall issue and
deliver to the Holder a certificate or certificate for the Warrant Shares
issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a new
Warrant evidencing the rights of the Holder thereof to purchase the balance of
the Warrant Shares purchasable thereunder. Upon receipt by the Company of this
Warrant at its office in proper form for exercise, the Holder shall be deemed to
be the holder of record of the shares of Common Stock issuable upon such
exercise, notwithstanding that the stock transfer books of the Company shall
then be closed or that certificates representing such shares of Common Stock
shall not then be physically delivered to the Holder.
(2) At any time during the Exercise Period, the Holder may, at its
option, exchange this Warrant, in whole or in part (a "Warrant Exchange"), into
the number of Warrant Shares determined in accordance with this Section (a)(2),
by surrendering this Warrant at the principal office of the Company or at the
office of its stock transfer agent, accompanied by a notice stating such
Holder's intent to effect such exchange, the number of Warrant Shares to be
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
shares issuable upon such Warrant Exchange and, if applicable, a new warrant of
like tenor evidencing the balance of the shares remaining subject to this
Warrant, shall be issued as of the Exchange Date and delivered to the Holder
within seven (7) days following the Exchange Date. In connection with any
Warrant Exchange, this Warrant shall represent the right to subscribe for and
acquire the number of Warrant Shares equal to (i) the number of Warrant Shares
specified by the Holder in its Notice of Exchange (the "Total Number") less (ii)
the number of Warrant Shares equal to the quotient obtained by dividing (A) the
product of the Total Number and the existing Exercise Price by (B) the current
market value of a share of Common Stock. Current market value shall have the
meaning set forth Section (c) below, except that for purposes hereof, the date
of exercise, as used in such Section (c), shall mean the Exchange Date.
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrants.
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined as follows:
(1) If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange or listed for
trading on the Nasdaq National Market, the current market value shall be the
last reported sale price of the Common Stock on such
<PAGE>
Page 51 of 84 Pages
exchange or market on the last business day prior to the date of exercise of
this Warrant or if no such sale is made on such day, the average of the closing
bid and asked prices for such day on such exchange or market; or
(2) If the Common Stock is not so listed or admitted to unlisted
trading privileges, but is traded on the Nasdaq SmallCap Market, the current
market value shall be the average of the closing bid and asked prices for such
day on such market and if the Common Stock is not so traded, the current market
value shall be the mean of the last reported bid and asked prices reported by
the NASD Electronic Bulletin Board on the last business day prior to the date of
the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value shall be an amount, not less than book value thereof as at the end
of the most recent fiscal year of the Company ending prior to the date of the
exercise of the Warrant, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other warrants of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Upon surrender of this Warrant to the Company at
its principal office or at the office of its stock transfer agent, if any, with
the Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be cancelled. This Warrant may be divided or
combined with other warrants which carry the same rights upon presentation
hereof at the principal office of the Company or at the office of its stock
transfer agent, if any, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. The term "Warrant" as used herein includes any Warrants into which this
Warrant may be divided or exchanged. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) ANTI-DILUTION PROVISIONS. Subject to the provisions of Section l
hereof, the Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of the Warrants shall be subject to
adjustment from time to time upon the happening of certain events as follows:
<PAGE>
Page 52 of 84 Pages
(1) In case the Company shall hereafter (i) declare a dividend or
make a distribution on its outstanding shares of Common Stock in
shares of Common Stock, (ii) subdivide or reclassify its outstanding
shares of Common Stock into a greater number of shares, or (iii)
combine or reclassify its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect at the time
of the record date for such dividend or distribution or of the
effective date of such subdivision, combination or reclassification
shall be adjusted so that it shall equal the price determined by
multiplying the Exercise Price by a fraction, the denominator of
which shall be the number of shares of Common Stock outstanding
after giving effect to such action, and the numerator of which shall
be the number of shares of Common Stock outstanding immediately
prior to such action. Such adjustment shall be made successively
whenever any event listed above shall occur.
(2) In case the Company shall hereafter fix a record date for the
issuance of rights or warrants to all holders of its Common Stock
entitling them to subscribe for or purchase shares of Common Stock
(or securities convertible into Common Stock) at a price (the
"Subscription Price") (or having a conversion price per share) less
than the current market price of the Common Stock (as defined in
Subsection (8) below) on the record date mentioned below (if on the
record date the Company is Public), the Exercise Price shall be
adjusted so that the same shall equal the price determined by
multiplying the Exercise Price in effect immediately prior to the
date of such issuance by a fraction, the numerator of which shall be
the sum of the number of shares of Common Stock outstanding on the
record date mentioned below and the number of additional shares of
Common Stock which the aggregate offering price of the total number
of shares of Common Stock so offered (or the aggregate conversion
price of the convertible securities so offered) would purchase at
such current market price per share of the Common Stock, and the
denominator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date and the number of
additional shares of Common Stock offered for subscription or
purchase (or into which the convertible securities so offered are
convertible). Such adjustment shall be made successively whenever
such rights or warrants are issued and shall become effective
immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the
extent that shares of Common Stock are not delivered (or securities
convertible into Common Stock are not delivered) after the
expiration of such rights or warrants the Exercise Price shall be
readjusted to the Exercise Price which would then be in effect had
the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of
Common Stock (or securities convertible into Common Stock) actually
delivered.
(3) In case the Company shall hereafter distribute to the
holders of its Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions and dividends or
distributions referred to in Subsection (1) above) or subscription
rights or warrants (excluding those referred to in Subsection (2)
above), then in each such case the Exercise Price in effect
thereafter shall be determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, the numerator of
which shall be the total number of shares of Common
<PAGE>
Page 53 of 84 Pages
Stock outstanding multiplied by the current market price per share
of Common Stock (as defined in Subsection (8) below), less the fair
market value (as determined by the Company's Board of Directors) of
said assets or evidences of indebtedness so distributed or of such
rights or warrants, and the denominator of which shall be the total
number of shares of Common Stock outstanding multiplied by such
current market price per share of Common Stock. Such adjustment
shall be made successively whenever such a record date is fixed.
Such adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such distribution.
(4) In case the Company shall hereafter issue shares of its
Common Stock (excluding shares issued (a) in any of the transactions
described in Subsection (1) above, (b) upon exercise of options
granted to the Company's officers, directors and employees under a
plan or plans adopted by the Company's Board of Directors and
approved by its shareholders, if such shares would otherwise be
included in this Subsection (4), (but only to the extent that the
aggregate number of shares excluded hereby and issued after the date
hereof, shall not exceed 5% of the Company's Common Stock
outstanding at the time of any issuance), (c) upon exercise of
options, warrants and convertible debentures outstanding as of the
final closing of the Private Placement, or conversion of the Notes
or the Warrants, (d) to shareholders of any corporation which merges
into the Company in proportion to their stock holdings of such
corporation immediately prior to such merger, upon such merger, (e)
issued in a private placement through Commonwealth, as placement
agent, or upon exercise or conversion of any securities issued in or
in connection with such a private placement (including agent,
consulting or advisory warrants) or (f) issued in a bona fide public
offering pursuant to a firm commitment underwriting, but only if no
adjustment is required pursuant to any other specific subsection of
this Section (f) (without regard to Subsection (9) below) with
respect to the transaction giving rise to such rights) for a
consideration per share (the "Offering Price") less than the current
market price per share (as defined in Subsection (8) below) on the
date the Company fixes the offering price of such additional shares,
the Exercise Price shall be adjusted immediately thereafter so that
it shall equal the price determined by multiplying the Exercise
Price in effect immediately prior thereto by a fraction, the
numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such
additional shares and the number of shares of Common Stock which the
aggregate consideration received (determined as provided in
Subsection (7) below) for the issuance of such additional shares
would purchase at such current market price per share of Common
Stock, and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after the issuance of such
additional shares. Such adjustment shall be made successively
whenever such an issuance is made.
(5) In case the Company shall hereafter issue any securities
convertible into or exchangeable for its Common Stock (excluding
securities issued in transactions described in Subsections (2) and
(3) above) for a consideration per
<PAGE>
Page 54 of 84 Pages
share of Common Stock (the "Conversion Price") initially deliverable
upon conversion or exchange of such securities (determined as
provided in Subsection (7) below) less than the current market price
per share (as defined in Subsection (8) below) in effect immediately
prior to the issuance of such, the Exercise Price shall be adjusted
immediately thereafter so that it shall equal the price determined
by multiplying the Exercise Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the sum of
the number of shares of Common Stock outstanding immediately prior
to the issuance of such securities and the number of shares of
Common Stock which the aggregate consideration received (determined
as provided in Subsection (7) below) for such securities would
purchase at such current market price per share of Common Stock, and
the denominator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to such issuance and the
maximum number of shares of Common Stock of the Company deliverable
upon conversion of or in exchange for such securities at the initial
conversion or exchange price or rate. Such adjustment shall be made
successively whenever such an issuance is made.
(6) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Subsections (1), (2), (3), (4) and
(5) above, the number of Shares purchasable upon exercise of this
Warrant shall simultaneously be adjusted by multiplying the number
of Shares initially issuable upon exercise of this Warrant by the
Exercise Price in effect on the date hereof and dividing the product
so obtained by the Exercise Price, as adjusted.
(7) For purposes of any computation respecting consideration
received pursuant to Subsections (4) and (5) above, the following
shall apply:
(A) in the case of the issuance of shares of Common
Stock for cash, the consideration shall be the amount of such
cash, provided that in no case shall any deduction be made for
any commissions, discounts or other expenses incurred by the
Company for any underwriting of the issue or otherwise in
connection therewith;
(B) in the case of the issuance of shares of Common
Stock for a consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to be the
fair market value thereof as determined in good faith by the
Board of Directors of the Company (irrespective of the
accounting treatment thereof), whose determination shall be
conclusive; and
(C) in the case of the issuance of securities
convertible into or exchangeable for shares of Common Stock,
the aggregate consideration received therefor shall be deemed
to be the consideration received by the Company for the
issuance of such securities plus the additional minimum
consideration, if any, to be received by the Company upon the
conversion or exchange thereof (the consideration in each case
to be determined in the same manner as provided in clauses (A)
and (B) of this Subsection (7)).
<PAGE>
Page 55 of 84 Pages
(8) For the purpose of any computation under Subsections (2),
(3), (4) and (5) above, the current market price per share of Common
Stock at any date shall be determined in the manner set forth in
Section (c) hereof except that the current market price per share
shall be deemed to be the higher of (i) the average of the prices
for 30 consecutive business days before such date or (ii) the price
on the business day immediately preceding such date.
(9) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at
least five cents ($0.05) in such price; provided, however, that any
adjustments which by reason of this Subsection (9) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment required to be made hereunder. All
calculations under this Section (f) shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be.
Anything in this Section (f) to the contrary notwithstanding, the
Company shall be entitled, but shall not be required, to make such
changes in the Exercise Price, in addition to those required by this
Section (f), as it shall determine, in its sole discretion, to be
advisable in order that any dividend or distribution in shares of
Common Stock, or any subdivision, reclassification or combination of
Common Stock, hereafter made by the Company shall not result in any
Federal Income tax liability to the holders of Common Stock or
securities convertible into Common Stock (including Warrants).
(10) Whenever the Exercise Price is adjusted, as herein
provided, the Company shall promptly but no later than 10 days after
any request for such an adjustment by the Holder, cause a notice
setting forth the adjusted Exercise Price and adjusted number of
Shares issuable upon exercise of each Warrant, and, if requested,
information describing the transactions giving rise to such
adjustments, to be mailed to the Holders at their last addresses
appearing in the Warrant Register, and shall cause a certified copy
thereof to be mailed to its transfer agent, if any. In the event the
Company does not provide the Holder with such notice and information
within 10 days of a request by the Holder, then notwithstanding the
provisions of this Section (f), the Exercise Price shall be
immediately adjusted to equal the lowest Offering Price,
Subscription Price or Conversion Price, as applicable, since the
date of this Warrant, and the number of shares issuable upon
exercise of this Warrant shall be adjusted accordingly. The Company
may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation
required by this Section (f), and a certificate signed by such firm
shall be conclusive evidence of the correctness of such adjustment.
(11) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (1) above, the Holder of this
Warrant thereafter shall become entitled to receive any shares of
the Company, other than Common Stock, thereafter the number of such
other shares so receivable upon exercise of this Warrant shall be
subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to
the Common Stock contained in Subsections (1) to (9), inclusive
above.
<PAGE>
Page 56 of 84 Pages
(12) Irrespective of any adjustments in the Exercise Price or
the number or kind of shares purchasable upon exercise of this
Warrant, Warrants theretofore or thereafter issued may continue to
express the same price and number and kind of shares as are stated
in the similar Warrants initially issuable pursuant to this
Agreement.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted
as required by the provisions of the foregoing Section, the Company shall
forthwith file in the custody of its Secretary or an Assistant Secretary at its
principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all reasonable times for inspection by the holder or any
holder of a Warrant executed and delivered pursuant to Section (a) and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any share of any class or any
other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant at any time
prior to the expiration of the Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such
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Page 57 of 84 Pages
reclassification, change, consolidation, merger, sale or conveyance. Any such
provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances. In
the event that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of Subsection (1) of Section (f) hereof.
(j) REGISTRATION UNDER THE SECURITIES ACT OF 1933. The holder will have
registration rights with respect to the Warrant Shares as more particularly set
forth in the subscription agreement executed in connection with the Private
Placement.
(k) REDEMPTION.
(1) The Warrants may be redeemed, at the option of the Company
on not less than thirty (30) days notice (the "Redemption Notice")
to the Holders, at a redemption price of $0.05 per Warrant (the
"Redemption Price"), if (i) the average closing bid price of the
Company's Common Stock for 15 consecutive trading days ending within
five days of the date of the Redemption Notice exceeds the greater
of (a) 300% of the average closing bid price of the Common Stock for
the 30 consecutive trading days immediately preceding the first
closing of the Private Placement and (b) $1.50 (the "Target Price")
and (ii) either a registration statement covering the Warrant Shares
has been declared effective by the Securities and Exchange
Commission or two years has elapsed since the issuance of the
Warrants. The date fixed for redemption of the Warrants (the
"Redemption Date") shall be set forth in the Redemption Notice.
(2) Any right to exercise a Warrant shall terminate at 5:00
P.M. (New York time) on the business day immediately preceding the
Redemption Date. On and after the Redemption Date, Holders of the
Warrants shall have no further rights except to receive, upon
surrender of the Warrant, the Redemption Price.
(3) From and after the Redemption Date, the Company shall, at
the place specified in the Redemption Notice, upon presentation and
surrender to the Company by or on behalf of the Holder thereof of
one or more Warrant Certificates evidencing Warrants to be redeemed,
deliver or cause to be delivered to or upon the written order of
such Holder a sum in cash equal to the Redemption Price of each such
Warrant. From and after the Redemption Date and upon the deposit or
setting aside by the Company of a sum sufficient to redeem all the
Warrants called for redemption, such Warrants shall expire and
become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the Redemption
Price, shall cease.
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(4) If the shares of the Company's Common Stock are subdivided
or combined into a greater or smaller number of shares of Common
Stock, the Target Price shall be proportionally adjusted by the
ratio which the total number of shares of Common Stock outstanding
immediately prior to such event bears to the total number of shares
of Common Stock to be outstanding immediately after such event.
FUTURELINK DISTRIBUTION CORP.
By: ______________________________________
Cameron Chell, Chief Executive Officer
By: ______________________________________
Raghu Kilambi, Chief Financial Officer
Dated: April 29 , 1999
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PURCHASE FORM
Dated _______________
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing _______ shares of Common Stock and hereby
makes payment of in payment of _______ the actual exercise price thereof.
_______
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name _______________________________________
(Please typewrite or print in block letters)
Address ____________________________________
Signature __________________________________
ASSIGNMENT FORM
FOR VALUE RECEIVED, __________________________ hereby sells, assigns
and transfers unto
Name _______________________________________
(Please typewrite or print in block letters)
Address ____________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
______ shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint _______ Attorney, to transfer the same on the books of
the Company with full power of substitution in the premises.
Date _______________________________
Signature __________________________
Page 60 of 84 Pages
Exhibit 4
FUTURELINK DISTRIBUTION CORP.
SUBSCRIPTION AGREEMENT made as of this 29th day of April, 1999 between
FutureLink Distribution Corp., a corporation organized under the laws of the
State of Colorado with offices at 300, 250-6 Avenue SW, Calgary, AB Canada T2P
3H7 (the "Company") and the undersigned (the "Subscriber").
WHEREAS, the Company desires to issue a minimum of 40 (the "Minimum
Offering") and a maximum of 80 (the "Maximum Offering") units ("Units") in a
private placement in accordance with an exemption provided by Regulation D from
the registration provisions of the Securities Act of 1933 (the "Act"), each Unit
consisting of $50,000 principal amount of 8% senior subordinated convertible
promissory notes of (the "Notes") in the form attached as Exhibit (ii) to the
Confidential Term Sheet dated April 14, 1999 (the "Term Sheet") and 125,000
common stock purchase warrants (the "Warrants") in the form attached as Exhibit
(iii) to the Term Sheet on the terms and conditions hereinafter set forth and
the Subscriber desires to acquire the number of Units set forth on the signature
page hereof; and
WHEREAS, the Maximum Offering may be increased by up to 80 additional
Units to cover over-subscriptions;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto do hereby agree as follows:
I. SUBSCRIPTION FOR UNITS AND REPRESENTATIONS BY AND COVENANTS OF
SUBSCRIBER
1.1 Subject to the terms and conditions hereinafter set forth, the
Subscriber hereby subscribes for and agrees to purchase from the Company such
number of Units as is set forth upon the signature page hereof at a price equal
to $50,000 per Unit, and the Company agrees to sell such Units to the Subscriber
for said purchase price subject to the Company's right to sell to the Subscriber
such lesser number of Units as the Company may, in its sole discretion, deem
necessary or desirable. The purchase price is payable by certified or bank check
made payable to United States Trust Company of New York, as Escrow Agent for
FutureLink, or by wire transfer of funds, contemporaneously with the execution
and delivery of this Subscription Agreement. The Notes and Warrants will be
delivered by the Company within 10 days following the consummation of this
offering as set forth in Article III hereof. The Subscriber understands however,
that this purchase of Units is contingent upon the Company making sales of a
minimum of 40 Units ($2,000,000 principal amount of Notes and 5,000,000
Warrants) prior to the Termination Date as defined in Article III hereof.
1.2 The Subscriber recognizes that the purchase of Units involves a
high degree of risk in that (i) an investment in the Company is highly
speculative and only investors who can afford the loss of their entire
investment should consider investing in the Company and the Units; (ii) he may
not be able to liquidate his investment; (iii) transferability of the securities
comprising the Units is extremely limited; and (iv) an investor could suffer the
loss of his entire investment,
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as well as other risk factors as more fully set forth herein and in the Term
Sheet and the exhibits thereto.
1.3 The Subscriber represents and warrants that he is an "accredited
investor" as such term in defined in Rule 501 of Regulation D promulgated under
the United States Securities Act of 1933, as amended (the "Act"), as indicated
by his responses to the Investor Questionnaire, and that he is able to bear the
economic risk of an investment in the Units. The Subscriber further represents
and warrants that the information furnished in the Investor Questionnaire is
accurate and complete in all material respects.
1.4 The Subscriber acknowledges that he has prior investment
experience, including investment in non-listed and non-registered securities and
that he recognizes the highly speculative nature of this investment.
1.5 The Subscriber acknowledges receipt and careful review of the
Term Sheet and all exhibits thereto and other documents furnished in connection
with this transaction (collectively, the "Offering Documents") and hereby
represents that he has been furnished by the Company during the course of this
transaction with all information regarding the Company which he has requested or
desires to know and that he has been afforded the opportunity to ask questions
of and receive answers from duly authorized officers or other representatives of
the Company concerning the terms and conditions of the offering.
1.6 The Subscriber acknowledges that this offering of Units may
involve tax consequences (including, but not limited to, the possible need to
recognize interest income relating to the Warrants) and that the contents of the
Offering Documents do not contain tax advice or information. The Subscriber
acknowledges that he must retain his own professional advisors to evaluate the
tax and other consequences of an investment in the Units.
1.7 The Subscriber acknowledges that this offering of Units has not
been reviewed by the United States Securities and Exchange Commission ("SEC")
because of the Company's representations that this is intended to be a nonpublic
offering pursuant to Sections 4(2) or 3(b) of the Act. The Subscriber represents
that the Notes and Warrants comprising his Units are being purchased for his own
account, for investment and not for distribution or resale to others. The
Subscriber agrees that he will not sell or otherwise transfer the Notes or the
Warrants unless they are registered under the Act or unless an exemption from
such registration is available.
1.8 The Subscriber understands that Rule 144 (the "Rule")
promulgated under the Act requires, among other conditions, a one year holding
period prior to the resale (in limited amounts) of securities acquired in a
non-public offering without having to satisfy the registration requirements
under the Act. The Subscriber understands that the Company makes no
representation or warranty regarding its fulfillment in the future of any
reporting requirements under the Securities Exchange Act of 1934, as amended, or
its dissemination to the public of any current financial or other information
concerning the Company, as is required by the Rule as one of the conditions of
its availability. The Subscriber understands and hereby acknowledges that the
Company is under no obligation to register the securities comprising the Units
under the Act, with the exception of certain registration rights set forth in
Article IV herein. The Subscriber consents that the Company may, if it desires,
permit the transfer of the Notes, the shares of Common Stock issuable upon
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Page 62 of 84 Pages
conversion of the Notes (the "Conversion Shares"), the Warrants or the shares of
Common Stock issuable upon exercise of the Warrants (the "Warrant Shares") out
of his name only when his request for transfer is accompanied by an opinion of
counsel reasonably satisfactory to the Company that neither the sale nor the
proposed transfer results in a violation of the Act or any applicable state
"blue sky" laws (collectively "Securities Laws").
1.9 The Subscriber hereby agrees not to sell, transfer or otherwise
dispose of the Conversion Shares or the Warrant Shares for a period of 12 months
after the Initial Closing (as defined herein) without the prior written consent
of the Placement Agent which may be given after six months from the Initial
Closing.
1.10 The Subscriber consents to the placement of a legend on any
certificate or other document evidencing the Notes, the Conversion Shares, the
Warrants and the Warrant Shares stating that they have not been registered under
the Act and setting forth or referring to the restrictions on transferability
and sale thereof.
1.11 The Subscriber acknowledges that if he is a Registered
Representative of an NASD member firm, he must give such firm the notice
required by the NASD's Rules of Fair Practice, receipt of which must be
acknowledged by such firm on the signature page hereof.
1.12 If the undersigned Subscriber is a partnership, corporation,
trust or other entity, such partnership, corporation, trust or other entity
further represents and warrants that: (i) it was not formed for the purpose of
investing in the Company; (ii) it is authorized and otherwise duly qualified to
purchase and hold the Units; and (iii) that this Subscription Agreement has been
duly and validly authorized, executed and delivered constitutes the legal,
binding and enforceable obligation of the undersigned.
II. REPRESENTATIONS BY THE COMPANY
2.1 The Company represents and warrants to the Subscriber that prior
to the consummation of this offering and at the Closing Date:
(a) The Company is a corporation duly organized, existing and
in good standing under the laws of the State of Colorado and has the corporate
power to conduct the business which it conducts and proposes to conduct.
(b) The execution, delivery and performance of this
Subscription Agreement by the Company will have been duly approved by the Board
of Directors of the Company and all other actions required to authorize and
effect the offer and sale of the Units and the securities contained therein will
have been duly taken and approved.
(c) The Notes and Warrants have been duly and validly
authorized and when issued and paid for in accordance with the terms hereof,
will be duly and validly issued and fully paid and non assessable.
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Page 63 of 84 Pages
(d) The Company will at all times have authorized and reserved
a sufficient number of Conversion Shares and Warrant Shares to provide for
conversion of the Notes and exercise of the Warrants.
(e) The Company has obtained, or is in the process of
obtaining, all licenses, permits and other governmental authorizations necessary
to the conduct of its business; such licenses, permits and other governmental
authorizations obtained are in full force and effect; and the Company is in all
material respects complying therewith.
(f) The Company knows of no pending or threatened legal or
governmental proceedings to which the Company is a party which could materially
adversely affect the business, property, financial condition or operations of
the Company.
(g) The Company is not in violation of or default under, nor
will the execution and delivery of this Subscription Agreement, the issuance of
the Notes or the Warrants, and the incurrence of the obligations herein and
therein set forth and the consummation of the transactions herein or therein
contemplated, result in a violation of, or constitute a default under, the
Company's articles of incorporation or by-laws, any material obligations,
agreement, covenant or condition contained in any bond, debenture, note or other
evidence of indebtedness or in any material contract, indenture, mortgage, loan
agreement, lease, joint venture or other agreement or instrument to which the
Company is a party or by which it or any of its properties may be bound or any
material order, rule, regulation, writ, injunction, or decree of any government,
governmental instrumentality or court, domestic or foreign.
III. TERMS OF SUBSCRIPTION
3.1 The subscription period will begin as of April 14, 1999 and will
terminate at 11:59 PM Eastern time on April 30, 1999, unless extended by the
Company and the Placement Agent for up to an additional 30 days (the
"Termination Date"). Such extension may be effected without notice to the
Subscribers. Of the Units, 40 will be offered on a "best efforts-all or none"
basis and the remaining Units will be offered on a "best efforts" basis as more
particularly set forth in the Term Sheet.
3.2 Placement of the Units will be made by Commonwealth Associates
which will receive (i) a placement fee equal to 6.5% of the gross proceeds of
the offering; (ii) a structuring fee equal to 2.5% of the gross proceeds of the
offering; (iii) reimbursement of its accountable expenses up to $25,000 plus
legal fees and disbursements; and (ii) warrants (substantially identical to the
Warrants included in the Units) to purchase 62,500 shares of Common Stock for
each $50,000 raised in the private placement (for a total of between 2,500,000
and 10,000,000 warrants in the event that all the over-subscription Units are
sold).
3.3 Pending the sale of the Units, all funds paid hereunder shall be
deposited by the Company in escrow with United States Trust Company of New York.
If the Company shall not have obtained subscriptions (including this
subscription) for purchases of 40 Units for an aggregate purchase price of
$2,000,000 on or before the Termination Date, then this subscription shall be
void and all funds paid hereunder by the Subscriber, without interest, shall be
promptly returned to the Subscriber, subject to paragraph 3.5 hereof. If 40
Units are sold at or prior to the Termination Date,
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Page 64 of 84 Pages
then all subscription proceeds shall be paid over to the Company within 10 days
thereafter at an initial closing (the "Initial Closing"). In such event,
placements of additional Units may continue until the Termination Date, with
subsequent releases of funds to be at the mutual consent of the Company and the
Placement Agent.
3.4 The Subscriber hereby authorizes and directs the Company to
deliver certificates representing the securities to be issued to such Subscriber
pursuant to this Subscription Agreement either (a) to the residential or
business address indicated in the Confidential Purchaser Questionnaire or (b)
directly to the Subscriber's account maintained with the Placement Agent, if
any.
3.5 The Subscriber hereby authorizes and directs the Company to
return any funds for unaccepted subscriptions to the same account from which the
funds were drawn, including any customer account maintained with the Placement
Agent.
3.6 If the Subscriber is not a United States person, such Subscriber
hereby represents that it has satisfied itself as to the full observance of the
laws of its jurisdiction in connection with any invitation to subscribe for the
securities comprising the Units or any use of this Agreement, including (i) the
legal requirements within its jurisdiction for the purchase of the Units, (ii)
any foreign exchange restrictions applicable to such purchase, (iii) any
governmental or other consents that may need to be obtained, and (iv) the income
tax and other tax consequences, if any, that may be relevant to the purchase,
holding, redemption, sale or transfer of the securities comprising the Units.
Such Subscriber's subscription and payment for, and his or her continued
beneficial ownership of the Units, will not violate any applicable securities or
other laws of the Subscriber's jurisdiction.
IV. REGISTRATION RIGHTS
4.1 The Company hereby agrees with the holders of the Notes, the
Warrants, the Conversion and the Warrant Shares or their transferees
(collectively, the "Holders") to file a registration statement with the SEC
covering the resale of the Conversion Shares and Warrant Shares (collectively,
the "Underlying Shares") on Form S-1 or such other form as the Company desires,
pursuant to the Act within four months of the Initial Closing Date, and to use
its best efforts to cause such registration to become effective no later than
180 days after the Initial Closing Date.
4.2 Registration Procedures. The Company will, until such time as
the Underlying Shares may be sold under Rule 144 without volume limitation:
(a) prepare and file with the SEC a registration statement
with respect to such securities, and use its best efforts to cause such
registration statement to become and remain effective;
(b) prepare and file with the SEC such amendments to such
registration statement and supplements to the prospectus contained therein as
may be necessary to keep such registration statement effective;
(c) furnish to the Holders participating in such registration
and to the underwriters of the securities being registered such reasonable
number of copies of the registration
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Page 65 of 84 Pages
statement, preliminary prospectus, final prospectus and such other documents as
such underwriters may reasonably request in order to facilitate the public
offering of such securities;
(d) use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or blue sky
laws of such jurisdictions as the Holders may reasonably request in writing
within 20 days following the original filing of such registration statement,
except that the Company shall not for any purpose be required to execute a
general consent to service of process or to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified;
(e) notify the Holders, promptly after it shall receive notice
thereof, of the time when such registration statement has become effective or a
supplement to any prospectus forming a part of such registration statement has
been filed;
(f) notify the Holders promptly of any request by the SEC for
the amending or supplementing of such registration statement or prospectus or
for additional information;
(g) prepare and file with the SEC, promptly upon the request
of any Holders, any amendments or supplements to such registration statement or
prospectus which, in the opinion of counsel for such Holders (and concurred in
by counsel for the Company), is required under the Act or the rules and
regulations thereunder in connection with the distribution of Common Stock by
such Holders;
(h) prepare and promptly file with the SEC and promptly notify
such Holders of the filing of such amendment or supplement to such registration
statement or prospectus as may be necessary to correct any statements or
omissions if, at the time when a prospectus relating to such securities is
required to be delivered under the Act, any event shall have occurred as the
result of which any such prospectus or any other prospectus as then in effect
would include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading; and
(i) advise the Holders, promptly after it shall receive notice
or obtain knowledge thereof, of the issuance of any stop order by the SEC
suspending the effectiveness of such registration statement or the initiation or
threatening of any proceeding for that purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued.
4.3 Expenses.
(a) With respect to the registration required pursuant to
Section 4.1 hereof, all fees, costs and expenses of and incidental to such
registration, inclusion and public offering (as specified in paragraph (b)
below) in connection therewith shall be borne by the Company, provided, however,
that the Holders shall bear their pro rata share of the underwriting discount
and commissions and transfer taxes.
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Page 66 of 84 Pages
(b) The fees, costs and expenses of registration to be borne
by the Company as provided in paragraph (a) above shall include, without
limitation, all registration, filing, and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, and all legal fees and
disbursements and other expenses of complying with state securities or blue sky
laws of any jurisdictions in which the securities to be offered are to be
registered and qualified (except as provided in 4.3(a) above). Fees and
disbursements of counsel and accountants for the Holders and any other expenses
incurred by the Holders not expressly included above shall be borne by the
Holders.
4.4 Indemnification.
(a) The Company will indemnify and hold harmless each Holder
of Underlying Shares which are included in the registration statement pursuant
to the provisions of Section 4.1 hereof, its directors and officers, and any
underwriter (as defined in the Act) for such Holder and each person, if any, who
controls such Holder or such underwriter within the meaning of the Act, from and
against, and will reimburse such Holder and each such underwriter and
controlling person with respect to, any and all loss, damage, liability, cost
and expense to which such Holder or any such underwriter or controlling person
may become subject under the Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or alleged
untrue statement of any material fact contained in such registration statement,
any prospectus contained therein 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 light of the circumstances in which they were made, not
misleading; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, damage, liability, cost or expenses
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission so made in conformity with information furnished
by such Holder, such underwriter or such controlling person in writing
specifically for use in the preparation thereof.
(b) Each Holder of Underlying Shares included in the
registration pursuant to the provisions of Section 4.1 hereof will indemnify and
hold harmless the Company, its directors and officers, any controlling person
and any underwriter from and against, and will reimburse the Company, its
directors and officers, any controlling person and any underwriter with respect
to, any and all loss, damage, liability, cost or expense to which the Company or
any controlling person and/or any underwriter may become subject under the Act
or otherwise, insofar as such losses, damages, liabilities, costs or expenses
are caused by any untrue statement or alleged untrue statement of any material
fact contained in such registration statement, any prospectus contained therein
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 light of the
circumstances in which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was so made in reliance upon and in
strict conformity with written information furnished by or on behalf of such
Holder specifically for use in the preparation thereof.
(c) Promptly after receipt by an indemnified party pursuant to
the provisions of paragraph (a) or (b) of this Section 4.4 of notice of the
commencement of any action
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Page 67 of 84 Pages
involving the subject matter of the foregoing indemnity provisions such
indemnified party will, if a claim thereof is to be made against the
indemnifying party pursuant to the provisions of said paragraph (a) or (b),
promptly notify the indemnifying party of the commencement thereof; but the
omission to so notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than hereunder.
In case such action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party shall
have the right to participate in, and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party, provided, however,
if counsel for the indemnifying party concludes that a single counsel cannot
under applicable legal and ethical considerations, represent both the
indemnifying party and the indemnified party, the indemnified party or parties
have the right to select separate counsel to participate in the defense of such
action on behalf of such indemnified party or parties. 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 pursuant to the provisions of said paragraph (a) or (b) for any legal or
other expense subsequently incurred by such indemnified party in connection with
the defense thereof other than reasonable costs of investigation, unless (I) the
indemnified party shall have employed counsel in accordance with the provisions
of the preceding sentence, (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after the notice of the commencement of the action or
(iii) the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party.
V. MISCELLANEOUS
5.1 Any notice or other communication given hereunder shall be
deemed sufficient if in writing and sent by registered or certified mail, return
receipt requested, addressed to the Company, at its registered office, 300,
250-6 Avenue SW, Calgary, AB Canada T2P 3H7, Attention: Chief Executive Officer
and to the Subscriber at his address indicated on the last page of this
Subscription Agreement. Notices shall be deemed to have been given on the date
of mailing, except notices of change of address and notices sent from outside
the continental United States, which shall be deemed to have been given when
received.
5.2 This Subscription Agreement shall not be changed, modified or
amended except by a writing signed by the parties to be charged, and this
Subscription Agreement may not be discharged except by performance in accordance
with its terms or by a writing signed by the party to be charged.
5.3 This Subscription Agreement shall be binding upon and inure to
the benefit of the parties hereto and to their respective heirs, legal
representatives, successors and assigns. This Subscription Agreement sets forth
the entire agreement and understanding between the parties as to the subject
matter thereof and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them.
5.4 Notwithstanding the place where this Subscription Agreement may
be executed by any of the parties hereto, the parties expressly agree that all
the terms and provisions hereof shall be construed in accordance with and
governed by the laws of the State of New York.
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Page 68 of 84 Pages
The parties hereby agree that any dispute which may arise between them arising
out of or in connection with this Subscription Agreement shall be adjudicated
before a court located in New York City and they hereby submit to the exclusive
jurisdiction of the courts of the State of New York located in New York, New
York and of the federal courts in the Southern District of New York with respect
to any action or legal proceeding commenced by any party, and irrevocably waive
any objection they now or hereafter may have respecting the venue of any such
action or proceeding brought in such a court or respecting the fact that such
court is an inconvenient forum, relating to or arising out of this Subscription
Agreement or any acts or omissions relating to the sale of the securities
hereunder, and consent to the service of process in any such action or legal
proceeding by means of registered or certified mail, return receipt requested,
in care of the address set forth below or such other address as the undersigned
shall furnish in writing to the other.
5.5 This Subscription Agreement may be executed in counterparts.
Upon the execution and delivery of this Subscription Agreement by the
Subscriber, this Subscription Agreement shall become a binding obligation of the
Subscriber with respect to the purchase of Units as herein provided; subject,
however, to the right hereby reserved to the Company to enter into the same
agreements with other subscribers and to add and/or to delete other persons as
subscribers.
5.6 The holding of any provision of this Subscription Agreement to
be invalid or unenforceable by a court of competent jurisdiction shall not
affect any other provision of this Subscription Agreement, which shall remain in
full force and effect.
5.7 It is agreed that a waiver by either party of a breach of any
provision of this Subscription Agreement shall not operate, or be construed, as
a waiver of any subsequent breach by that same party.
5.8 The parties agree to execute and deliver all such further
documents, agreements and instruments and take such other and further action as
may be necessary or appropriate to carry out the purposes and intent of this
Subscription Agreement.
5.9 The Company agrees not to disclose the names, addresses or any
other information about the Subscribers, except as required by law, provided,
that the Company may use information relating to the Subscriber in any
registration statement under the Act with respect to the Warrant Shares.
VI. BLUE SKY LEGENDS
California
The sale of securities which are the subject of this agreement has not
been qualified with the Commissioner of Corporations of the State of California
and the issuance of such securities or the payment or receipt of any part of the
consideration for such securities prior to such qualification is unlawful,
unless the sale of securities is exempt from qualification by Section 25100,
25102 or 25105 of the California Corporations Code. The rights of all parties to
this agreement are expressly conditioned upon such qualification being obtained,
unless the sale is so exempt.
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Page 69 of 84 Pages
Connecticut
The undersigned acknowledges that the Securities have not been registered
under the Connecticut Uniform Securities Act, as amended (the "Act") and are
subject to restrictions on transferability and sale of securities as set forth
herein. The undersigned hereby agrees that such Securities will not be
transferred or sold without registration under the Act or exemption therefrom.
Pennsylvania
The undersigned hereby acknowledges that the Issuer is relying upon the
exemption from registration of securities set forth in Section 203(d) of the
Pennsylvania Securities Act of 1972, as amended (the "Pennsylvania Act") in
connection with the sale of the Securities to the undersigned.
In accordance with the requirements of Section 203(d) of the
Pennsylvania Act, the undersigned hereby agrees not to sell his Securities
within twelve (12) months from the date of purchase except pursuant to Section
204.01 of the Blue Sky Regulations of the Pennsylvania Securities Act of 1972.
Additionally, the undersigned is aware of the right of withdrawal under Section
207(m) of the Act described in the cover pages of the Term Sheet.
Texas
The undersigned hereby acknowledges that the Securities cannot be sold
unless they are subsequently registered under the Securities Act of 1933, as
amended, and the Texas Securities Act, or an exemption from registration is
available. The undersigned further acknowledges that because the Securities are
not readily transferable, he must bear the economic risk of his investment for
an indefinite period of time.
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IN WITNESS WHEREOF, the parties have executed this Subscription
Agreement as of the day and year first written above.
______________________________ ____________________________________
Signature of Subscriber Signature of Co-Subscriber
______________________________ ____________________________________
Name of Subscriber Name of Co-Subscriber
[please print] [please print]
______________________________ ____________________________________
Address of Subscriber Address of Co-Subscriber
______________________________ ____________________________________
Social Security or Taxpayer Social Security or Taxpayer
Identification Number of Subscriber Identification Number of Co-Subscriber
______________________________
Subscriber's Account Number
at Commonwealth Associates
_______________________________
Dollar Amount of Units Subscribed For
*If Subscriber is a Registered Representative
with an NASD member firm, have the following
acknowledgment signed by the appropriate party:
The undersigned NASD member firm
acknowledges receipt of the notice
required by Rule 3050 of the NASD Subscription Accepted:
Conduct Rules.
FUTURELINK DISTRIBUTION CORP.
______________________________
Name of NASD Member Firm By: ______________________________
Name:
Title:
By ______________________________
Authorized Officer
Page 71 of 84 Pages
Exhibit 5
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE
TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT
THERETO OR (ii) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE SECURITIES
ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS SUCH
TRANSFER IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL
BE ENDORSED UPON ANY WARRANT ISSUED IN EXCHANGE FOR THIS WARRANT OR ANY SHARES
OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT.
WARRANT TO PURCHASE COMMON STOCK
OF
FUTURELINK DISTRIBUTION CORP.
No.AW _____
This is to Certify That, FOR VALUE RECEIVED, Commonwealth Associates L.P.,
or assigns ("Holder"), is entitled to purchase, subject to the provisions of
this Warrant, from FutureLink Distribution Corp., a corporation organized under
the laws of the State of Colorado ("Company"), ___________ (________) fully
paid, validly issued and nonassessable shares of common stock, $.0001 par value,
of the Company ("Common Stock") at a price of $.25 per share at any time or from
time to time during the period from April 29, 1999 until April 29, 2006, subject
to adjustment as set forth herein. The number of shares of Common Stock to be
received upon the exercise of this Warrant and the price to be paid for each
share of Common Stock may be adjusted from time to time as hereinafter set
forth. The shares of Common Stock deliverable upon such exercise, and as
adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares" and the exercise price of a share of Common Stock in effect at any time
and as adjusted from time to time is hereinafter sometimes referred to as the
"Exercise Price". This Warrant was originally issued pursuant to an agency
agreement ("Agency Agreement") between the Company and Commonwealth Associates,
L.P. ("Commonwealth"), in connection with a private offering of the Company's
securities through Commonwealth pursuant to the terms of a confidential term
sheet dated April 14, 1999, as supplemented.
(a) EXERCISE OF WARRANT; CANCELLATION OF WARRANT.
(1) This Warrant may be exercised in whole or in part at any time or
from time to time on or after April 29, 1999 and until April 29, 2006 (the
"Exercise Period"), subject to the provisions of Section (j)(2) hereof;
provided, however, that (i) if either such day is a day on which banking
institutions in the State of New York are authorized by law to close, then on
the next succeeding day which shall not be such a day, and (ii) in the event of
any merger, consolidation or sale of substantially all the assets of the Company
as an entirety, resulting in any distribution to the Company's stockholders,
prior to April 29, 2006, the Holder shall have the right to exercise this
Warrant commencing at such time through April 29, 2006 into the kind and amount
of shares of stock and other securities and property (including cash) receivable
by a holder of the number of shares of Common Stock into which this Warrant
might have been exercisable immediately prior
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thereto. This Warrant may be exercised by presentation and surrender hereof to
the Company at its principal office with the Purchase Form annexed hereto duly
executed and accompanied by payment of the Exercise Price for the number of
Warrant Shares specified in such form. As soon as practicable after each such
exercise of the warrants, but not later than seven (7) days following the
receipt of good and available funds, the Company shall issue and deliver to the
Holder a certificate or certificate for the Warrant Shares issuable upon such
exercise, registered in the name of the Holder or its designee. If this Warrant
should be exercised in part only, the Company shall, upon surrender of this
Warrant for cancellation, execute and deliver a new Warrant evidencing the
rights of the Holder thereof to purchase the balance of the Warrant Shares
purchasable thereunder. Upon receipt by the Company of this Warrant at its
office in proper form for exercise, the Holder shall be deemed to be the holder
of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be physically delivered to the Holder.
(2) At any time during the Exercise Period, the Holder may, at its
option, exchange this Warrant, in whole or in part (a "Warrant Exchange"), into
the number of Warrant Shares determined in accordance with this Section (a)(2),
by surrendering this Warrant at the principal office of the Company or at the
office of its stock transfer agent, accompanied by a notice stating such
Holder's intent to effect such exchange, the number of Warrant Shares to be
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
shares issuable upon such Warrant Exchange and, if applicable, a new warrant of
like tenor evidencing the balance of the shares remaining subject to this
Warrant, shall be issued as of the Exchange Date and delivered to the Holder
within seven (7) days following the Exchange Date. In connection with any
Warrant Exchange, this Warrant shall represent the right to subscribe for and
acquire the number of Warrant Shares equal to (i) the number of Warrant Shares
specified by the Holder in its Notice of Exchange (the "Total Number") less (ii)
the number of Warrant Shares equal to the quotient obtained by dividing (A) the
product of the Total Number and the existing Exercise Price by (B) the current
market value of a share of Common Stock. Current market value shall have the
meaning set forth Section (c) below, except that for purposes hereof, the date
of exercise, as used in such Section (c), shall mean the Exchange Date.
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrants.
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined as follows:
(1) If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange or listed for
trading on the Nasdaq National Market, the current market value shall be the
last reported sale price of the Common Stock on such exchange or market on the
last business day prior to the date of exercise of this Warrant or if no
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such sale is made on such day, the average of the closing bid and asked prices
for such day on such exchange or market; or
(2) If the Common Stock is not so listed or admitted to unlisted
trading privileges, but is traded on the Nasdaq SmallCap Market, the current
market value shall be the average of the closing bid and asked prices for such
day on such market and if the Common Stock is not so traded, the current market
value shall be the mean of the last reported bid and asked prices reported by
the NASD Electronic Bulletin Board on the last business day prior to the date of
the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value shall be an amount, not less than book value thereof as at the end
of the most recent fiscal year of the Company ending prior to the date of the
exercise of the Warrant, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other warrants of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Upon surrender of this Warrant to the Company at
its principal office or at the office of its stock transfer agent, if any, with
the Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be cancelled. This Warrant may be divided or
combined with other warrants which carry the same rights upon presentation
hereof at the principal office of the Company or at the office of its stock
transfer agent, if any, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. The term "Warrant" as used herein includes any Warrants into which this
Warrant may be divided or exchanged. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) ANTI-DILUTION PROVISIONS. Subject to the provisions of Section l
hereof, the Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of the Warrants shall be subject to
adjustment from time to time upon the happening of certain events as follows:
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(1) In case the Company shall hereafter (i) declare a dividend or
make a distribution on its outstanding shares of Common Stock in
shares of Common Stock, (ii) subdivide or reclassify its outstanding
shares of Common Stock into a greater number of shares, or (iii)
combine or reclassify its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect at the time
of the record date for such dividend or distribution or of the
effective date of such subdivision, combination or reclassification
shall be adjusted so that it shall equal the price determined by
multiplying the Exercise Price by a fraction, the denominator of
which shall be the number of shares of Common Stock outstanding
after giving effect to such action, and the numerator of which shall
be the number of shares of Common Stock outstanding immediately
prior to such action. Such adjustment shall be made successively
whenever any event listed above shall occur.
(2) In case the Company shall hereafter fix a record date for the
issuance of rights or warrants to all holders of its Common Stock
entitling them to subscribe for or purchase shares of Common Stock
(or securities convertible into Common Stock) at a price (the
"Subscription Price") (or having a conversion price per share) less
than the current market price of the Common Stock (as defined in
Subsection (8) below) on the record date mentioned below (if on the
record date the Company is Public), the Exercise Price shall be
adjusted so that the same shall equal the price determined by
multiplying the Exercise Price in effect immediately prior to the
date of such issuance by a fraction, the numerator of which shall be
the sum of the number of shares of Common Stock outstanding on the
record date mentioned below and the number of additional shares of
Common Stock which the aggregate offering price of the total number
of shares of Common Stock so offered (or the aggregate conversion
price of the convertible securities so offered) would purchase at
such current market price per share of the Common Stock, and the
denominator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date and the number of
additional shares of Common Stock offered for subscription or
purchase (or into which the convertible securities so offered are
convertible). Such adjustment shall be made successively whenever
such rights or warrants are issued and shall become effective
immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the
extent that shares of Common Stock are not delivered (or securities
convertible into Common Stock are not delivered) after the
expiration of such rights or warrants the Exercise Price shall be
readjusted to the Exercise Price which would then be in effect had
the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of
Common Stock (or securities convertible into Common Stock) actually
delivered.
(3) In case the Company shall hereafter distribute to the
holders of its Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions and dividends or
distributions referred to in Subsection (1) above) or subscription
rights or warrants (excluding those referred to in Subsection (2)
above), then in each such case the Exercise Price in effect
thereafter shall be determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, the numerator of
which shall be the total number of shares of Common
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Stock outstanding multiplied by the current market price per share
of Common Stock (as defined in Subsection (8) below), less the fair
market value (as determined by the Company's Board of Directors) of
said assets or evidences of indebtedness so distributed or of such
rights or warrants, and the denominator of which shall be the total
number of shares of Common Stock outstanding multiplied by such
current market price per share of Common Stock. Such adjustment
shall be made successively whenever such a record date is fixed.
Such adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such distribution.
(4) In case the Company shall hereafter issue shares of its
Common Stock (excluding shares issued (a) in any of the transactions
described in Subsection (1) above, (b) upon exercise of options
granted to the Company's officers, directors and employees under a
plan or plans adopted by the Company's Board of Directors and
approved by its shareholders, if such shares would otherwise be
included in this Subsection (4), (but only to the extent that the
aggregate number of shares excluded hereby and issued after the date
hereof, shall not exceed 5% of the Company's Common Stock
outstanding at the time of any issuance), (c) upon exercise of
options, warrants and convertible debentures outstanding as of the
final closing of the Private Placement, or conversion of the Notes
or the Warrants, (d) to shareholders of any corporation which merges
into the Company in proportion to their stock holdings of such
corporation immediately prior to such merger, upon such merger, (e)
issued in a private placement through Commonwealth, as placement
agent, or upon exercise or conversion of any securities issued in or
in connection with such a private placement (including agent,
consulting or advisory warrants) or (f) issued in a bona fide public
offering pursuant to a firm commitment underwriting, but only if no
adjustment is required pursuant to any other specific subsection of
this Section (f) (without regard to Subsection (9) below) with
respect to the transaction giving rise to such rights) for a
consideration per share (the "Offering Price") less than the current
market price per share (as defined in Subsection (8) below) on the
date the Company fixes the offering price of such additional shares,
the Exercise Price shall be adjusted immediately thereafter so that
it shall equal the price determined by multiplying the Exercise
Price in effect immediately prior thereto by a fraction, the
numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such
additional shares and the number of shares of Common Stock which the
aggregate consideration received (determined as provided in
Subsection (7) below) for the issuance of such additional shares
would purchase at such current market price per share of Common
Stock, and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after the issuance of such
additional shares. Such adjustment shall be made successively
whenever such an issuance is made.
(5) In case the Company shall hereafter issue any securities
convertible into or exchangeable for its Common Stock (excluding
securities issued in transactions described in Subsections (2) and
(3) above) for a consideration per
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share of Common Stock (the "Conversion Price") initially deliverable
upon conversion or exchange of such securities (determined as
provided in Subsection (7) below) less than the current market price
per share (as defined in Subsection (8) below) in effect immediately
prior to the issuance of such, the Exercise Price shall be adjusted
immediately thereafter so that it shall equal the price determined
by multiplying the Exercise Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the sum of
the number of shares of Common Stock outstanding immediately prior
to the issuance of such securities and the number of shares of
Common Stock which the aggregate consideration received (determined
as provided in Subsection (7) below) for such securities would
purchase at such current market price per share of Common Stock, and
the denominator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to such issuance and the
maximum number of shares of Common Stock of the Company deliverable
upon conversion of or in exchange for such securities at the initial
conversion or exchange price or rate. Such adjustment shall be made
successively whenever such an issuance is made.
(6) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Subsections (1), (2), (3), (4) and
(5) above, the number of Shares purchasable upon exercise of this
Warrant shall simultaneously be adjusted by multiplying the number
of Shares initially issuable upon exercise of this Warrant by the
Exercise Price in effect on the date hereof and dividing the product
so obtained by the Exercise Price, as adjusted.
(7) For purposes of any computation respecting consideration
received pursuant to Subsections (4) and (5) above, the following
shall apply:
(A) in the case of the issuance of shares of Common
Stock for cash, the consideration shall be the amount of such
cash, provided that in no case shall any deduction be made for
any commissions, discounts or other expenses incurred by the
Company for any underwriting of the issue or otherwise in
connection therewith;
(B) in the case of the issuance of shares of Common
Stock for a consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to be the
fair market value thereof as determined in good faith by the
Board of Directors of the Company (irrespective of the
accounting treatment thereof), whose determination shall be
conclusive; and
(C) in the case of the issuance of securities
convertible into or exchangeable for shares of Common Stock,
the aggregate consideration received therefor shall be deemed
to be the consideration received by the Company for the
issuance of such securities plus the additional minimum
consideration, if any, to be received by the Company upon the
conversion or exchange thereof (the consideration in each case
to be determined in the same manner as provided in clauses (A)
and (B) of this Subsection (7)).
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(8) For the purpose of any computation under Subsections (2),
(3), (4) and (5) above, the current market price per share of Common
Stock at any date shall be determined in the manner set forth in
Section (c) hereof except that the current market price per share
shall be deemed to be the higher of (i) the average of the prices
for 30 consecutive business days before such date or (ii) the price
on the business day immediately preceding such date.
(9) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at
least five cents ($0.05) in such price; provided, however, that any
adjustments which by reason of this Subsection (9) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment required to be made hereunder. All
calculations under this Section (f) shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be.
Anything in this Section (f) to the contrary notwithstanding, the
Company shall be entitled, but shall not be required, to make such
changes in the Exercise Price, in addition to those required by this
Section (f), as it shall determine, in its sole discretion, to be
advisable in order that any dividend or distribution in shares of
Common Stock, or any subdivision, reclassification or combination of
Common Stock, hereafter made by the Company shall not result in any
Federal Income tax liability to the holders of Common Stock or
securities convertible into Common Stock (including Warrants).
(10) Whenever the Exercise Price is adjusted, as herein
provided, the Company shall promptly but no later than 10 days after
any request for such an adjustment by the Holder, cause a notice
setting forth the adjusted Exercise Price and adjusted number of
Shares issuable upon exercise of each Warrant, and, if requested,
information describing the transactions giving rise to such
adjustments, to be mailed to the Holders at their last addresses
appearing in the Warrant Register, and shall cause a certified copy
thereof to be mailed to its transfer agent, if any. In the event the
Company does not provide the Holder with such notice and information
within 10 days of a request by the Holder, then notwithstanding the
provisions of this Section (f), the Exercise Price shall be
immediately adjusted to equal the lowest Offering Price,
Subscription Price or Conversion Price, as applicable, since the
date of this Warrant, and the number of shares issuable upon
exercise of this Warrant shall be adjusted accordingly. The Company
may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation
required by this Section (f), and a certificate signed by such firm
shall be conclusive evidence of the correctness of such adjustment.
(11) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (1) above, the Holder of this
Warrant thereafter shall become entitled to receive any shares of
the Company, other than Common Stock, thereafter the number of such
other shares so receivable upon exercise of this Warrant shall be
subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to
the Common Stock contained in Subsections (1) to (9), inclusive
above.
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(12) Irrespective of any adjustments in the Exercise Price or
the number or kind of shares purchasable upon exercise of this
Warrant, Warrants theretofore or thereafter issued may continue to
express the same price and number and kind of shares as are stated
in the similar Warrants initially issuable pursuant to this
Agreement.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted
as required by the provisions of the foregoing Section, the Company shall
forthwith file in the custody of its Secretary or an Assistant Secretary at its
principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all reasonable times for inspection by the holder or any
holder of a Warrant executed and delivered pursuant to Section (a) and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any share of any class or any
other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant at any time
prior to the expiration of the Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such
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reclassification, change, consolidation, merger, sale or conveyance. Any such
provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances. In
the event that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of Subsection (1) of Section (f) hereof.
(j) REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(1) The Company hereby agrees with the holders of the Warrants and
the Warrant Shares or their transferees (collectively, the "Holders") that
upon notice by either Commonwealth or Holders beneficially owning at least
50% of the Warrants and Warrant Shares, it will prepare and file with the
Securities and Exchange Commission ("SEC") a registration statement under
the Securities Act of 1933, as amended (the "Act") covering the resale of
the Warrant Shares and use its best efforts to cause such registration
statement to become effective as soon as practicable thereafter. If the
Company shall determine to proceed with the actual preparation and filing
of a registration statement under the Act in connection with the proposed
offer and sale of any of its securities by it or any of its security
holders (other than a registration statement on Form S-4, S-8 or other
limited purpose form), then the Company will give written notice of its
determination to all record holders of the Warrants and Warrant Shares.
Upon the written request from any Holder, the Company will, except as
herein provided, cause all such Warrant Shares to be included in such
registration statement, all to the extent requisite to permit the sale or
other disposition by the prospective seller or sellers of the Warrant
Shares to be so registered; provided, further, that nothing herein shall
prevent the Company from, at any time, abandoning or delaying any
registration. If any registration pursuant to this Section j(1) shall be
underwritten in whole or in part, the Company may require that the Warrant
Shares requested for inclusion by the Holders be included in the
underwriting on the same terms and conditions as the securities otherwise
being sold through the underwriters.
(2) The Company will, until such time as the Warrant Shares may be
sold under Rule 144 without volume limitation:
(A) prepare and file with the SEC such amendments to such
registration statement and supplements to the prospectus contained
therein as may be necessary to keep such registration statement
effective;
(B) furnish to the Holders participating in such registration
and to the underwriters of the securities being registered such
reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as
such underwriters may reasonably request in order to facilitate the
public offering of such securities;
<PAGE>
Page 80 of 84 Pages
(C) use its best efforts to register or qualify the securities
covered by such registration statement under such state securities
or blue sky laws of such jurisdictions as the Holders may reasonably
request in writing within twenty (20) days following the original
filing of such registration statement, except that the Company shall
not for any purpose be required to execute a general consent to
service of process or to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified or
subject itself to taxation in any such jurisdiction;
(D) notify the Holders, promptly after it shall receive notice
thereof, of the time when such registration statement has become
effective or a supplement to any prospectus forming a part of such
registration statement has been filed;
(E) notify the Holders promptly of any request by the SEC for
the amending or supplementing of such registration statement or
prospectus or for additional information;
(F) prepare and file with the SEC, promptly upon the request
of any Holders, any amendments or supplements to such registration
statement or prospectus which, in the opinion of counsel for such
Holders (and concurred in by counsel for the Company), is required
under the Act or the rules and regulations thereunder in connection
with the distribution of Common Stock by such Holders;
(G) prepare and promptly file with the SEC and promptly notify
such Holders of the filing of such amendment or supplement to such
registration statement or prospectus as may be necessary to correct
any statements or omissions if, at the time when a prospectus
relating to such securities is required to be delivered under the
Act, any event shall have occurred as the result of which any such
prospectus or any other prospectus as then in effect would include
an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading; and
(H) advise the Holders, promptly after it shall receive notice
or obtain knowledge thereof, of the issuance of any stop order by
the SEC suspending the effectiveness of such registration statement
or the initiation or threatening of any proceeding for that purpose
and promptly use its best efforts to prevent the issuance of any
stop order or to obtain its withdrawal if such stop order should be
issued.
The Company may require each Holder of Warrant Shares as to which any
registration is being effected to furnish to the Company such information
regarding the distribution of such Warrant Shares as the Company may from time
to time reasonably request in writing.
(3) All fees, costs and expenses of and incidental to such
registration, inclusion and public offering in connection therewith shall
be borne by the Company, provided, however, that the Holders shall bear
their pro rata share of the underwriting discount and commissions and
transfer taxes. The fees, costs and expenses of registration to be borne
by
<PAGE>
Page 81 of 84 Pages
the Company as provided above shall include, without limitation, all
registration, filing, and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, and all legal
fees and disbursements and other expenses of complying with state
securities or blue sky laws of any jurisdictions in which the securities
to be offered are to be registered and qualified (except as provided
above). Fees and disbursements of counsel and accountants for the Holders
and any other expenses incurred by the Holders not expressly included
above shall be borne by the Holders.
(4) The Company will indemnify and hold harmless each Holder of
Warrant Shares which are included in a registration statement pursuant to
the provisions of Section (j)(1) hereof, its directors and officers, and
any underwriter (as defined in the Act) for such Holder and each person,
if any, who controls such Holder or such underwriter within the meaning of
the Act, from and against, and will reimburse such Holder and each such
underwriter and controlling person with respect to, any and all loss,
damage, liability, cost and expense to which such Holder or any such
underwriter or controlling person may become subject under the Act or
otherwise, insofar as such losses, damages, liabilities, costs or expenses
are caused by any untrue statement or alleged untrue statement of any
material fact contained in such registration statement, any prospectus
contained therein 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 light of the circumstances in which they were made,
not misleading; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, damage, liability, cost or
expenses arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity
with information furnished by such Holder, such underwriter or such
controlling person in writing specifically for use in the preparation
thereof.
(5) Each Holder of Warrant Shares included in a registration
pursuant to the provisions of Section (j)(1) hereof will indemnify and
hold harmless the Company, its directors and officers, any controlling
person and any underwriter from and against, and will reimburse the
Company, its directors and officers, any controlling person and any
underwriter with respect to, any and all loss, damage, liability, cost or
expense to which the Company or any controlling person and/or any
underwriter may become subject under the Act or otherwise, insofar as such
losses, damages, liabilities, costs or expenses are caused by any untrue
statement or alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein 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 light of
the circumstances in which they were made, not misleading, in each case to
the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was so made in reliance
upon and in strict conformity with written information furnished by or on
behalf of such Holder specifically for use in the preparation thereof.
(6) Promptly after receipt by an indemnified party pursuant to the
provisions of Sections (j)(4) or (5) of notice of the commencement of any
action involving the subject matter of the foregoing indemnity provisions
such indemnified party will, if a claim thereof
<PAGE>
Page 82 of 84 Pages
is to be made against the indemnifying party pursuant to the provisions of
said Sections (j)(4) or (5), promptly notify the indemnifying party of the
commencement thereof; but the omission to so notify the indemnifying party
will not relieve it from any liability which it may have to any
indemnified party otherwise than hereunder. In case such action is brought
against any indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party shall have the right to
participate in, and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party, provided,
however, if counsel for the indemnifying party concludes that a single
counsel cannot under applicable legal and ethical considerations,
represent both the indemnifying party and the indemnified party, the
indemnified party or parties have the right to select separate counsel to
participate in the defense of such action on behalf of such indemnified
party or parties. 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 pursuant
to the provisions of said Sections (j)(4) or (5) for any legal or other
expense subsequently incurred by such indemnified party in connection with
the defense thereof other than reasonable costs of investigation, unless
(i) the indemnified party shall have employed counsel in accordance with
the provisions of the preceding sentence, (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after the notice
of the commencement of the action or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party.
FUTURELINK DISTRIBUTION CORP.
By: ______________________________________
Cameron Chell, Chief Executive Officer
By: ______________________________________
Raghu Kilambi, Chief Financial Officer
Dated: April 29 , 1999
<PAGE>
Page 83 of 84 Pages
PURCHASE FORM
Dated ____________
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing __________ shares of Common Stock and hereby
makes payment of in payment of_________ the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name _______________________________________
(Please typewrite or print in block letters)
Address ____________________________________
Signature __________________________________
ASSIGNMENT FORM
FOR VALUE RECEIVED, __________________________ hereby sells, assigns
and transfers unto
Name _______________________________________
(Please typewrite or print in block letters)
Address ____________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
__________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ___________ Attorney, to transfer the same on
the books of the Company with full power of substitution in the premises.
Date __________________________
Signature _____________________
Page 84 of 84 Pages
Exhibit 6
JOINT FILING OF SCHEDULE 13D
The undersigned hereby agree to jointly prepare and file with regulatory
authorities a Schedule 13D and any future amendments thereto reporting each of
the undersigned's ownership of securities of FutureLink Distribution Corp. and
hereby affirm that such Schedule 13D is being filed on behalf of each of the
undersigned.
Dated: May 14, 1999 Commonwealth Associates L.P.
New York, New York
By: Commonwealth Associates Management Corp.,
its general partner
By: /s/ Joseph Wynne
--------------------------
Joseph Wynne
Chief Financial
Dated: May 14, 1999 /s/ Michael S. Falk
New York, New York --------------------------------
Michael S. Falk
Dated: May 14, 1999 /s/ Robert Priddy
Marietta, Georgia --------------------------------
Robert Priddy
Dated: May 14, 1999 /s/ Keith Rosenbloom
New York, New York --------------------------------
Keith Rosenbloom
Dated: May 14, 1999 /s/ Basil Ascuitto
New York, New York --------------------------------
Basil Ascuitto
