1,150,000 Units
consisting of
1,150,000 Shares of Common Stock
and
1,150,000 Warrants
MULTI-LINK TELECOMMUNICATIONS, INC.
UNDERWRITING AGREEMENT
________, 1999
Schneider Securities, Inc.
1120 Lincoln Street
Suite 900
Denver, Colorado 80203
Dear Sirs:
Multi-Link Telecommunications, Inc., a Colorado corporation (the "Company")
hereby confirms its agreement with you (who are sometimes hereinafter referred
to as the "Representative") and with the other members of the underwriting group
(the "Underwriters") named on Schedule 1 hereto as follows:
1. Introductory. Subject to the terms and conditions contained herein, the
Company proposes to issue and sell to the Underwriters 1,150,000 Units (the
"Units"), comprised of 1,150,000 shares of common stock (the "Common Stock") and
1,150,000 redeemable warrants (the "Warrants"). The Common Stock and Warrants
shall be immediately separately transferable and the Units shall not be listed
for trading on the Nasdaq SmallCap Market. For the purpose of this Agreement,
references hereinafter to Common Stock and Warrants shall be deemed to include,
where appropriate, the Units. In addition, solely for the purpose of covering
over-allotments, the Company grants to the Representative the option to purchase
up to an additional 172,500 Units (the "Additional Securities"), which option to
purchase shall be exercisable, in whole or in part, from time to time during the
forty-five (45) day period commencing on the date on which the Registration
Statement (as hereinafter defined) is initially declared effective (the
"Effective Date") by the Securities and Exchange Commission (the "Commission").
Unless otherwise noted, the Common Stock, together with the additional 172,500
shares of Common Stock issuable on exercise of the over-allotment option, is
referred to hereinafter as the "Common Stock" and the Warrants and the 172,500
Warrants issuable on exercise of the over-allotment option are referred to
hereinafter as the "Warrants".
Two Warrants will entitle the holder to purchase one share of Common Stock
(a "Warrant Share") at a price of $9.00 during the thirty-six (36) month
exercise period of the Warrants, subject to the Company's right of redemption.
The Warrants may be redeemed by the Company commencing one year from the
Effective Date of the Registration Statement upon at least 30 days prior written
notice, in whole but not in part, at a price of $.05 per Warrant provided the
closing bid price for the Company's Common Stock is at least 125% of the
exercise price of the Warrant during each day of the twenty (20) trading day
period ending five days preceding the date of the written notice. During the one
year period commencing on the Effective Date, the Company shall not lower the
exercise price of the Warrants without the Representative's prior consent, which
will not be unreasonably withheld. The terms and provisions of the Warrants
shall be governed by a warrant agreement between the Company and its transfer
agent (the "Warrant Agreement"), which Warrant Agreement will contain, among
other provisions, anti-dilution protection for warrant holders on terms
acceptable to the Representative. The Common Stock, Warrants and Additional
Securities are more fully described in the Prospectus referred to below. All
references to the Company below shall be deemed to include, where appropriate,
the Company's subsidiaries, if any.
2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, each of the Underwriters that:
a. The Company has filed with the Commission a registration statement,
and may have filed one or more amendments thereto, on Form SB-2
(Registration No. 333-______), including in such registration statement and
each such amendment a facing sheet, the information called for by Part I,
audited consolidated financial statements for the past two fiscal years or
such other period as may be appropriate, the information called for by Part
II, the undertakings to deliver certificates, file reports and file
post-effective amendments, the required signatures, consents of experts,
exhibits, a related preliminary prospectus (a "Preliminary Prospectus") and
any other information or documents which are required for the registration
of the Units, Common Stock and Warrants, the Warrant Shares, the purchase
options referred to in Section 2(n) (the "Representative's Options"), and
the securities referred to in Section 2(n) underlying the Representative's
Options (the "Representative's Option Securities"), under the Securities
Act of 1933, as amended (the "Act"). As used in this Agreement, the term
"Registration Statement" means such registration statement, including
incorporated documents, all exhibits and consolidated financial statements
and schedules thereto, as amended, when it becomes effective, and shall
include the information with respect to the Units, the Common Stock, the
Warrants, the Warrant Shares, the Representative's Options, and the
Representative's Option Securities and the offering thereof permitted to be
omitted from the Registration Statement when it becomes effective pursuant
to Rule 430A of the General Rules and Regulations promulgated under the Act
(the "Regulations"), which information is deemed to be included therein
when it becomes effective as provided by Rule 430A; the term "Preliminary
Prospectus" means each prospectus included in the Registration Statement,
or any amendments thereto, before it becomes effective under the Act and
any prospectus filed by the Company with the consent of the Representative
pursuant to Rule 424(a) of the Regulations; and the term "Prospectus" means
the final prospectus included as part of the Registration Statement, except
that if the prospectus relating to the securities covered by the
Registration Statement in the form first filed on behalf of the Company
with the Commission pursuant to Rule 424(b) of the Regulations shall differ
from such final prospectus, the term "Prospectus" shall mean the prospectus
as filed pursuant to Rule 424(b) from and after the date on which it shall
have first been used.
b. When the Registration Statement becomes effective, and at all times
subsequent thereto, to and including the Closing Date (as defined in
Section 3) and each Additional Closing Date (as defined in Section 3), and
during such longer period as the Prospectus may be required to be delivered
in connection with sales by the Representative or any dealer, and during
such longer period until any post-effective amendment thereto shall become
effective, the Registration Statement (and any post-effective amendment
thereto) and the Prospectus (as amended or as supplemented if the Company
shall have filed with the Commission any amendment or supplement to the
Registration Statement or the Prospectus) will contain all statements which
are required to be stated therein in accordance with the Act and the
Regulations, will comply with the Act and the Regulations, and will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and no event will have occurred which
should have been set forth in an amendment or supplement to the
Registration Statement or the Prospectus which has not then been set forth
in such an amendment or supplement; and no Preliminary Prospectus, as of
the date filed with the Commission, included any untrue statement of a
material fact or omitted to state any material fact required to be stated
2
therein or necessary to make the statements therein not misleading; except
that no representation or warranty is made in this Section 2(b) with
respect to statements or omissions made in reliance upon and in conformity
with written information furnished to the Company as stated in Section 8(b)
with respect to the Underwriters by or on behalf of the Underwriters
expressly for inclusion in any Preliminary Prospectus, the Registration
Statement, or the Prospectus, or any amendment or supplement thereto.
c. Neither the Commission nor the "blue sky" or securities authority
of any jurisdiction have issued an order (a "Stop Order") suspending the
effectiveness of the Registration Statement, preventing or suspending the
use of any Preliminary Prospectus, the Prospectus, the Registration
Statement, or any amendment or supplement thereto, refusing to permit the
effectiveness of the Registration Statement, or suspending the registration
or qualification of the Units, the Common Stock, the Warrants, the Warrant
Shares, the Representative's Options, or the Representative's Option
Securities, nor has any of such authorities instituted or threatened to
institute any proceedings with respect to a Stop Order.
d. Any contract, agreement, instrument, lease, or license required to
be described in the Registration Statement or the Prospectus has been
properly described therein. Any contract, agreement, instrument, lease, or
license required to be filed as an exhibit to the Registration Statement
has been filed with the Commission as an exhibit to or has been
incorporated as an exhibit by reference into the Registration Statement.
e. The Company is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Colorado, with full power
and authority, and all necessary consents, authorizations, approvals,
orders, licenses, certificates, and permits of and from, and declarations
and filings with, all federal, state, local, and other governmental
authorities and all courts and other tribunals, to own, lease, license, and
use its properties and assets and to carry on the business in the manner
described in the Prospectus. The Company is duly qualified to do business
and is in good standing in every jurisdiction in which its ownership,
leasing, licensing, or use of property and assets or the conduct of its
business makes such qualifications necessary. The Company has no
subsidiaries except as disclosed in the Prospectus.
f. The authorized capital stock of the Company consists of 20,000,000
shares of Common Stock, of which 1,691,542 shares of Common Stock are
issued and outstanding, 165,000 shares of Common Stock are reserved for
issuance upon the exercise of currently outstanding options, 135,000 shares
of Common Stock are reserved for issuance upon the exercise of the
remaining options authorized under the Company's option plan and 283,500
shares of Common Stock are reserved for issuance upon the exercise of
outstanding warrants; and 5,000,000 shares of Preferred Stock, none of
which are issued or outstanding. Of the outstanding shares of Common Stock,
200,000 shares are subject to a custody agreement, release under which will
occur upon the earlier of (i) the Company achieving designated financial
performance criteria as set forth in the custody agreement, or (ii)
________, 2006 (seven years from the date of the Prospectus), all as more
fully set forth in a custody agreement (the "Custody Agreement") by and
among Shawn B. Stickle, Nigel V. Alexander, American Securities Transfer &
Trust, Inc., the Company and the Representative. Each outstanding share of
Common Stock is validly authorized, validly issued, fully paid, and
nonassessable, without any personal liability attaching to the ownership
thereof, and has not been issued and is not owned or held in violation of
any preemptive rights of stockholders. There is no commitment,
3
plan, or arrangement to issue, and no outstanding option, warrant, or other
right calling for the issuance of, any share of capital stock of the
Company or any security or other instrument which by its terms is
convertible into, exercisable for, or exchangeable for capital stock of the
Company, except as set forth above, and as may be properly described in the
Prospectus.
g. The consolidated financial statements of the Company included in
the Registration Statement and the Prospectus fairly present with respect
to the Company the consolidated financial position, the results of
operations, and the other information purported to be shown therein at the
respective dates and for the respective periods to which they apply. Such
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles, except to the extent that certain
footnote disclosures regarding any stub period may have been omitted in
accordance with the applicable rules of the Commission under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), consistently applied
throughout the periods involved, are correct and complete, and are in
accordance with the books and records of the Company. The accountants whose
reports on the audited consolidated financial statements are filed with the
Commission as a part of the Registration Statement are, and during the
periods covered by their reports included in the Registration Statement and
the Prospectus were, independent certified public accountants with respect
to the Company within the meaning of the Act and the Regulations. No other
financial statements are required by Form SB-2 or otherwise to be included
in the Registration Statement or the Prospectus. There has at no time been
a material adverse change in the consolidated financial condition, results
of operations, business, properties, assets, liabilities, or future
prospects of the Company from the latest information set forth in the
Registration Statement or the Prospectus, except as may be properly
described in the Prospectus.
h. There is no litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation pending, or, to the
knowledge of the Company, threatened, or in prospect with respect to the
Company or any of its operations, businesses, properties, or assets, except
as may be properly described in the Prospectus or such as individually or
in the aggregate do not now have and will not in the future have a material
adverse effect upon the operations, business, properties, or assets of the
Company. The Company is not in violation of, or in default with respect to,
any law, rule, regulation, order, judgment, or decree except as may be
properly described in the Prospectus or such as in the aggregate do not now
have and will not in the future have a material adverse effect upon the
operations, business, properties, or assets of the Company; nor is the
Company required to take any action in order to avoid any such violation or
default.
i. The Company has good and marketable title in fee simple absolute to
all real properties and good title to all other properties and assets which
the Prospectus indicates are owned by it, free and clear of all liens,
security interests, pledges, charges, encumbrances, and mortgages except as
may be properly described in the Prospectus or such as in the aggregate do
not now have and will not in the future have a material adverse effect upon
the operations, business, properties, or assets of the Company. No real
property owned, leased, licensed, or used by the Company lies in an area
which is, or to the knowledge of the Company will be, subject to zoning,
use, or building code restrictions which would prohibit, and no state of
facts relating to the actions or inaction of another person or entity or
his or its ownership, leasing, licensing, or use of any real or personal
property exists or will exist which would prevent, the continued effective
4
ownership, leasing, licensing, or use of such real property in the business
of the Company as presently conducted or as the Prospectus indicates it
contemplates con ducting, except as may be properly described in the
Prospectus or such as in the aggregate do not now have and will not in the
future have a material adverse effect upon the operations, business,
properties, or assets of the Company.
j. Neither the Company nor any other party is now or is expected by
the Company to be in violation or breach of, or in default with respect to
complying with, any material provision of any contract, agreement,
instrument, lease, license, arrangement, or understanding which is material
to the Company, and each such contract, agreement, instrument, lease,
license, arrangement, and understanding is in full force and is the legal,
valid, and binding obligation of the parties thereto and is enforceable as
to them in accordance with its terms. The Company enjoys peaceful and
undisturbed possession under all leases and licenses under which it is
operating. The Company is not a party to or bound by any contract,
agreement, instrument, lease, license, arrangement, or understanding, or
subject to any charter or other restriction, which has had or may in the
future have a material adverse effect on the financial condition, results
of operations, business, properties, assets, liabilities, or future
prospects of the Company. The Company is not in violation or breach of, or
in default with respect to, any term of its Articles of Incorporation (or
other charter document) or by-laws.
k. All patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, franchises,
technology, know-how and other intangible properties and assets (all of the
foregoing being herein called "Intangibles") that the Company owns or has
pending, or under which it is licensed, are in good standing and
uncontested. Except as otherwise disclosed in the Registration Statement,
the Intangibles are owned by the Company, free and clear of all liens,
security interests, pledges, and encumbrances. The Company has filed an
application with the United States Patent and Trademark Office to register
"Multi-Link" as a registered servicemark used by the Company to identify
its services. There is no right under any Intangible necessary to the
business of the Company as presently conducted or as the Prospectus
indicates it contemplates conducting (except as may be so designated in the
Prospectus). The Company has not infringed, is not infringing, and has not
received notice of infringement with respect to asserted Intangibles of
others. To the knowledge of the Company, there is no infringement by others
of Intangibles of the Company. To the knowledge of the Company, there is no
Intangible of others which has had or may in the future have a materially
adverse effect on the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of the Company.
l. Neither the Company nor any director, officer, agent, employee, or
other person associated with or acting on behalf of the Company has,
directly or indirectly: used any corporate funds for unlawful
contributions, gifts, entertainment, or other unlawful expenses relating to
political activity; made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political
parties or campaigns from corporate funds; violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended by the International
Anti-Bribery Act of 1998; or made any bribe, rebate, payoff, influence
payment, kickback, or other unlawful payment. The Company has not accepted
any material advertising allowances or marketing allowances from suppliers
to the Company and, to the extent any advertising allowance has been
accepted, the Company has provided proper documentation to the supplier
with respect to advertising as to which the advertising allowance has been
granted.
5
m. The Company has all requisite power and authority to execute and
deliver, and to perform thereunder each of this Agreement, the Warrants,
the Representative's Options, the Warrant Exercise Fee Agreement described
in Section 5(ff) (the "Warrant Exercise Fee Agreement") and the Custody
Agreement. All necessary corporate proceedings of the Company have been
duly taken to authorize the execution and delivery, and performance
thereunder by the Company of this Agreement, the Warrants, the
Representative's Options, the Warrant Exercise Fee Agreement and the
Custody Agreement. This Agreement has been duly authorized, executed, and
delivered by the Company, is a legal, valid, and binding obligation of the
Company, and is enforceable as to the Company in accordance with its terms.
Each of the Warrants, the Representative's Options, the Warrant Exercise
Fee Agreement and the Custody Agreement has been duly authorized by the
Company and, when executed and delivered by the Company, will each be a
legal, valid, and binding obligation of the Company, and will be
enforceable against the Company in accordance with its respective terms. No
consent, authorization, approval, order, license, certificate, or permit of
or from, or declaration or filing with, any federal, state, local, or other
governmental authority or any court or other tribunal is required by the
Company for the execution and delivery, or performance thereunder by the
Company of this Agreement, the Warrants or the Representative's Options
except filings under the Act which have been or will be made before the
Closing Date and such consents consisting only of consents under "blue sky"
or securities laws which are required in connection with the transactions
contemplated by this Agreement and which have been obtained at or prior to
the date of this Agreement. No consent of any party to any contract,
agreement, instrument, lease, license, arrangement, or understanding to
which the Company is a party, or to which any of its properties or assets
are subject, is required for the execution or delivery, or performance
thereunder of this Agreement, the Warrants, the Representative's Options,
the Warrant Exercise Fee Agreement or the Custody Agreement; and the
execution and delivery, and performance thereunder of this Agreement, the
Warrants, the Representative's Options, the Warrant Exercise Fee Agreement
and the Custody Agreement will not violate, result in a breach of, conflict
with, or (with or without the giving of notice or the passage of time or
both) entitle any party to terminate or call a default under any such
contract, agreement, instrument, lease, license, arrangement, or
understanding, or violate or result in a breach of any term of the Articles
of Incorporation or by-laws of the Company, or violate, result in a breach
of, or conflict with any law, rule, regulation, order, judgment, or decree
binding on the Company or to which any of its operations, businesses,
properties, or assets are subject.
n. The Common Stock, the Warrants, the Warrant Shares, the
Representative's Options and the Representative's Option Securities are
validly authorized and reserved for issuance. The Common Stock, when issued
and delivered in accordance with this Agreement, the Warrant Shares, when
issued and delivered upon exercise of the Warrants, the Representative's
Option Securities, when issued and delivered upon exercise of the
Representative's Options and the Representative's Option Shares issuable on
exercise of warrants included in the Representative's Option Securities,
upon payment of the exercise price therefor, will be validly issued, fully
paid, and nonassessable, without any personal liability attaching to the
ownership thereof, and will not be issued in violation of any preemptive
rights of stockholders, and the Underwriters will receive good title to the
Common Stock and the Warrants purchased, the Representative will receive
good title to the Representative's Options purchased and any purchaser of
the Warrant Shares or Representative's Option Securities will receive good
title thereto, all such title free and clear of all liens, security
interests, pledges, charges, encumbrances, stockholders' agreements, and
voting trusts.
6
o. The Units, the Common Stock, the Warrants, the Warrant Shares, the
Representative's Options and the Representative's Option Securities conform
to all statements relating thereto contained in the Registration Statement
and the Prospectus.
p. Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, and except as may
otherwise be properly described in the Prospectus, the Company has not (i)
issued any securities or incurred any liability or obligation, primary or
contingent, for borrowed money, (ii) entered into any transaction not in
the ordinary course of business, or (iii) declared or paid any dividend on
its capital stock.
q. Neither the Company nor any of its officers, directors, or
affiliates (as defined in the Regulations), has taken or will take,
directly or indirectly, prior to the termination of the distribution of
securities contemplated by this Agreement, any action designed to stabilize
or manipulate the price of any security of the Company, or which has caused
or resulted in, or which might in the future reasonably be expected to
cause or result in, stabilization or manipulation of the price of any
security of the Company, to facilitate the sale or resale of the Units,
Common Stock and Warrants.
r. The Company has not incurred any liability for a fee, commission,
or other compensation on account of the employment of a broker or finder in
connection with the trans actions contemplated by this Agreement.
s. The Company has obtained from each officer, director and person or
entity that beneficially owns 1% or more of the Company's capital stock or
derivative securities convertible into shares of the Company's capital
stock his, her or its enforceable written agreement that for a period of 13
months from the Effective Date, he, she or it will not, without the
Representative's prior written consent, offer, pledge, sell, contract to
sell, grant any option for the sale of, enter into any swap or other
arrangement that transfers all or a portion of the economic consequences
associated with the ownership of the Company's capital stock, or otherwise
dispose of, directly or indirectly, any shares of capital stock or any
security or other instrument which by its terms is convertible into,
exercisable for, or exchangeable for shares of Common Stock (except that,
subject to compliance with applicable securities laws, any such officer,
director or stockholder may transfer his or her stock pursuant to a bona
fide gift or gifts, provided that any such transferee shall agree, as a
condition to such transfer, to be bound by the restrictions set forth in
this Agreement and further provided that the transferor, except in the case
of the transferor's death, shall continue to be deemed the beneficial owner
of such shares in accordance with Regulation 13d-(3) of the Exchange Act).
The Company has obtained from each officer, director and person or entity
that beneficially owns less than 1% of the Company's capital stock or
derivative securities convertible into shares of the Company's capital
stock his, her or its enforceable written agreement that for a period of 12
months from the Effective Date, he, she or it will not, without the
Representative's prior written consent, offer, pledge, sell, contract to
sell, grant any option for the sale of, enter into any swap or other
arrangement that transfers all or a portion of the economic consequences
associated with the ownership of the Company's capital stock, or otherwise
dispose of, directly or indirectly, any shares of capital stock or any
security or other instrument which by its terms is convertible into,
exercisable for, or exchangeable for shares of Common Stock (except that,
subject to compliance with applicable securities laws, any such officer,
director or stockholder may transfer his or her stock pursuant to a bona
fide gift or gifts, provided that any such transferee shall agree, as a
condition to such transfer, to be bound by the restrictions set forth in
this Agreement and further provided that the transferor, except in the case
of the transferor's death, shall continue to be deemed the beneficial owner
of such shares in accordance with Regulation 13d-(3) of the Exchange Act).
For a period of three (3) years, commencing 12 or 13 months from the
Effective Date, as the case may be, all public sales of the Company's
securities by officers, directors and stockholders of the Company shall be
7
effected through or with the Representative on an exclusive basis, provided
that the Representative offers the best price reasonably available to the
selling stockholders. In addition, for a period of three years commencing
12 or 13 months, as the case may be, from the Effective Date in the case of
private transactions in the Company's Common Stock, each such selling
security holder specified above shall offer the Representative the
exclusive opportunity to purchase or sell the securities on terms at least
as favorable as the selling security holder can obtain elsewhere. If the
Representative fails to accept in writing any such proposal for sale by the
selling security holders within three (3) business days after receipt of a
notice containing such proposal, then the Representative shall have no
claim or right with respect to any such sales contained in such notice. If,
thereafter, such proposal is modified in any material respect, the selling
security holders shall adopt the same procedure as with respect to the
original proposal. An appropriate legend shall be marked on the face of the
certificates representing all of such securities restricting transfers
which are not in compliance with this section. Public or private sales of
Common Stock by such persons shall not include gifts, intra-family
transfers or transfers for estate planning purposes, which shall be exempt
from the foregoing provisions. The Company, on behalf of itself, and all
officers, directors and holders of five percent or more of the Common Stock
of the Company, have provided the Representative their enforceable written
agreements not to sell, transfer, or hypothecate capital stock or
derivative securities of the Company through a "Regulation S" transaction
for a minimum period of five years from the Effective Date without the
prior written consent of the Representative, and the Company has provided
the Representative with the Company's enforceable written agreement not to
sell capital stock or derivative securities of the Company through a
"Regulation D" transaction for a minimum period of 24 months from the
Effective Date.
t. Except as otherwise provided in the Registration Statement, no
person or entity has the right to require registration of shares of Common
Stock or other securities of the Company because of the filing or
effectiveness of the Registration Statement.
u. The Company is eligible to use Form SB-2 for registration of the
Units, the Common Stock, the Warrants, the Warrant Shares, the
Representative's Options and the Representative's Option Securities.
v. No unregistered securities of the Company, of an affiliate of the
Company or of a predecessor of the Company have been sold within three
years prior to the date hereof, except as described in the Registration
Statement.
w. Except as set forth in the Registration Statement, there is and at
the Closing Date there will be no action, suit or proceeding before any
court, arbitration tribunal or governmental agency, authority or body
pending or, to the knowledge of the Company, threatened which might result
in judgments against the Company not adequately covered by insurance or
which collectively might result in any material adverse change in the
condition (financial or otherwise), the business or the prospects of the
Company or would materially affect the properties or assets of the Company.
x. The Company has filed all federal and state tax returns which are
required to be filed by it and has paid all taxes shown on such returns and
all assessments received by it to the extent such taxes have become due.
All taxes with respect to which the Company is obligated have been paid or
adequate accruals have been set up to cover any such unpaid taxes.
y. Except as set forth in the Registration Statement:
8
i. The Company has obtained all permits, licenses and other
authorizations which are required under the Environmental Laws for the
ownership, use and operation of each location operated or leased by
the Company (the "Property"), all such permits, licenses and
authorizations, if any, obtained are in effect, no appeal nor any
other action is pending to revoke any such permit, license or
authorization, and the Company is in full compliance with all terms
and conditions of all such permits, licenses and authorizations, if
any, obtained by the Company.
ii. To the best knowledge of the Company's executive officers,
the Company and the Property are in compliance with all Environmental
Laws including, without limitation, all restrictions, conditions,
standards, limitations, prohibitions, requirements, obligations,
schedules and timetables contained in the Environmental Laws or
contained in any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered, promulgated or
approved thereunder.
iii. The Company has not, and to the best knowledge of the
Company's executive officers, no other person has, released, placed,
stored, buried or dumped any Hazardous Substances, Oils, Pollutants or
Contaminants or any other wastes produced by, or resulting from, any
business, commercial, or industrial activities, operations, or
processes, on, beneath, or adjacent to the Property or any property
formerly owned, operated or leased by the Company except for
inventories of such substances to be used, and wastes generated
therefrom, in the ordinary course of business of the Company (which
inventories and wastes, if any, were and are stored or disposed of in
accordance with applicable laws and regulations and in a manner such
that there has been no release of any such substances into the
environment).
iv. Except as provided to the Representative, there exists no
written or tangible report, synopsis or summary of any asbestos, toxic
waste or Hazardous Substances, Oils, Pollutants or Contaminants
investigation made with respect to all or any portion of the assets of
the Company (whether or not prepared by experts and whether or not in
the possession of the executive officers of the Company).
v. Definitions: As used herein:
(1) Environmental Laws means all federal, state and local
laws, regulations, rules and ordinances relating to pollution or
protection of the environment, including, without limitation,
laws relating to Releases or threatened Releases of Hazardous
Substances, Oils, Pollutants or Contaminants into the indoor or
outdoor environment (including, without limitation, ambient air,
surface water, groundwater, land, surface and subsurface strata)
or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, Release, transport or
handling of Hazardous Substances, Oils, Pollutants or
Contaminants.
(2) Hazardous Substances, Oils, Pollutants or Contaminants
means all substances defined as such in the National Oil and
Hazardous Substances Pollutant Contingency Plan, 40 C.F.R.
ss.300.6, or defined as such under any Environmental Law.
9
(3) Release means any release, spill, emission, discharge,
leaking, pumping, injection, deposit, disposal, discharge,
dispersal, leaching or migration into the indoor or outdoor
environmental (including, without limitation, ambient air,
surface water, groundwater, and surface or subsurface strata) or
into or out of any property, including the movement of Hazardous
Substances, Oils, Pollutants or Contaminants through or in the
air, soil, surface water, groundwater or any property.
All of the above representations and warranties shall survive the
performance or termination of this Agreement.
3. Purchase, Sale, and Delivery of the Units. On the basis of the
representations, warranties, covenants, and agreements of the Company herein
contained, but subject to the terms and conditions herein set forth, the Company
agrees to sell to the Underwriters, severally and not jointly, and the
Underwriters, severally and not jointly, agree to purchase from the Company the
number of Units set forth opposite the Underwriters' names in Schedule 1 hereto.
The purchase price per Unit to be paid by the Underwriters shall be $5.40.
The initial public offering price of the Units shall be $6.00.
Payment for the Units by the Underwriters shall be made by certified or
official bank check in clearing house funds, payable to the order of the Company
at the offices of Schneider Securities, Inc., 1120 Lincoln Street, Suite 900,
Denver, Colorado 80203, or at such other place in Denver, Colorado as the
Representative shall determine and advise the Company by at least two full days'
notice in writing, upon delivery of the Units to the Representative. Such
delivery and payment shall be made at 10:00 a.m., Mountain Time, on the third
business day following the time of the initial public offering, as defined in
Section 10(a) hereof, unless the Commission declares the Registration Statement
effective after 4:30 p.m. Eastern time, in which event delivery and payment
shall be made on the fourth (4th) business day following the time of the initial
public offering. The time and date of such delivery and payment are herein
called the "Closing Date."
In addition, the Company hereby grants to the Representative the option to
purchase all or a portion of the Additional Securities as may be necessary to
cover over-allotments, at the same purchase price per Additional Security as the
price per share of Common Stock or Warrant provided for in this Section 3. The
Representative may purchase Common Stock and/or Warrants when exercising such
option, in its sole discretion. This option may be exercised by the
Representative on the basis of the representations, warranties, covenants, and
agreements of the Company herein contained, but subject to the terms and
conditions herein set forth, at any time and from time to time on or before the
45th day following the Effective Date of the Registration Statement, by written
notice by the Representative to the Company. Such notice shall set forth the
aggregate number of Additional Securities as to which the option is being
exercised, and the time and date, as determined by the Representative, when such
Additional Securities are to be delivered (such time and date are herein called
an "Additional Closing Date"); provided, however, that no Additional Closing
Date shall be earlier than the Closing Date nor earlier than the third business
day after the date on which the notice of the exercise of the option shall have
been given nor later than the eighth business day after the date on which such
notice shall have been given; and further provided, that not more than two
Additional Closings shall be noticed and held following purchase of Additional
Securities by the Representative.
Payment for the Additional Securities shall be made by certified or
official bank check in clearing house funds payable to the order of the Company
at the offices of Schneider Securities, Inc., 1120 Lincoln Street, Suite 900,
Denver, Colorado, or at such other place in Denver, Colorado as you shall
determine and advise the Company by at least two full days' notice in writing,
upon delivery of certificates representing the Additional Securities to you.
10
Certificates for the Common Stock and Warrants and any Additional
Securities purchased shall be registered in such name or names and in such
authorized denominations as you may request in writing at least two full
business days prior to the Closing Date or Additional Closing Date, as
applicable. The Company shall permit you to examine and package such
certificates for delivery at least one full business day prior to any such
closing with respect thereto.
If for any reason one or more Underwriters shall fail or refuse (otherwise
than for a reason sufficient to justify the termination of this Agreement under
the provisions of Section 10 hereof) to purchase and pay for the number of Units
agreed to be purchased by such Underwriter, the Company shall immediately give
notice thereof to the Representative, and the non-defaulting Underwriters shall
have the right within 24 hours after the receipt by the Representative of such
notice, to purchase or procure one or more other Underwriters to purchase, in
such proportions as may be agreed upon among the Representative and such
purchasing Underwriter or Underwriters and upon the terms herein set forth, the
Units which such defaulting Underwriter or Underwriters agreed to purchase. If
the non-defaulting Underwriters fail so to make such arrangements with respect
to all such Units, the number of Units which each non-defaulting Underwriter is
otherwise obligated to purchase under the Agreement shall be automatically
increased pro rata to absorb the remaining Units which the defaulting
Underwriter or Underwriters agreed to purchase; provided, however, that the
non-defaulting Underwriters shall not be obligated to purchase the Units which
the defaulting Underwriter or Underwriters agreed to purchase in excess of 10%
of the total number of Units which such non-defaulting Underwriter agreed to
purchase hereunder, and provided further that the non-defaulting Underwriters
shall not be obligated to purchase any Units which the defaulting Underwriter or
Underwriters agreed to purchase if such additional purchase would cause the
Underwriter to be in violation of the net capital rule of the Commission or
other applicable law. If the total number of Units which the defaulting
Underwriter or Underwriters agreed to purchase shall not be purchased or
absorbed in accordance with the two preceding sentences, the Company shall have
the right, within 24 hours next succeeding the 24-hour period above referred to,
to make arrangements with other underwriters or purchasers satisfactory to the
Representative for the purchase of such Units on the terms herein set forth. In
any such case, either the Representative or the Company shall have the right to
postpone the Closing for not more than seven business days after the date
originally fixed as the Closing in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or arrangements
may be made. If neither the non-defaulting Underwriters nor the Company shall
make arrangements within the 24-hour periods stated above for the purchase of
all the Units which the defaulting Underwriter or Underwriters agreed to
purchase hereunder, this Agreement shall be terminated without further act or
deed and without any liability on the part of the Company to any non-defaulting
Underwriter, except the Company shall be liable for actual expenses incurred by
the Representative as provided in Section 10 hereof, and without any liability
on the part of any non-defaulting Underwriter to the Company.
Nothing contained herein shall relieve any defaulting Underwriter of its
liability, if any, to the Company or to the remaining Underwriters for damages
occasioned by its default hereunder.
4. Offering. The Underwriters are to make a public offering of the Units as
soon, on or after the effective date of the Registration Statement, as the
Representative deems it advisable so to do. The Units are to be initially
offered to the public at the initial public offering price as provided for in
Section 3 (such price being herein called the "public offering price"). After
the initial public offering, you may from time to time increase or decrease the
prices of the Units, Common Stock and/or Warrants, in your sole discretion, by
reason of changes in general market conditions or otherwise.
11
5. Covenants of the Company. The Company covenants that it will:
a. Use its best efforts to cause the Registration Statement to become
effective as promptly as possible. If the Registration Statement has become
or becomes effective with a form of Prospectus omitting certain information
pursuant to Rule 430A of the Regulations, or filing of the Prospectus is
otherwise required under Rule 424(b), the Company will file the Prospectus,
properly completed, pursuant to Rule 424(b) within the time period
prescribed and will provide evidence satisfactory to you of such timely
filing.
b. Notify you immediately, and confirm such notice in writing, (i)
when the Registration Statement and any post-effective amendment thereto
become effective, (ii) of the receipt of any comments from the Commission
or the "blue sky" or securities authority of any jurisdiction regarding the
Registration Statement, any post-effective amendment thereto, the
Prospectus, or any amendment or supplement thereto, and (iii) of the
receipt of any notification with respect to a Stop Order or the initiation
or threatening of any proceeding with respect to a Stop Order. The Company
will use its best efforts to prevent the issuance of any Stop Order and, if
any Stop Order is issued, to obtain the lifting thereof as promptly as
possible.
c. During the time when a prospectus relating to the Units, Common
Stock and Warrants or the Additional Securities is required to be delivered
hereunder or under the Act or the Regulations, comply so far as it is able
with all requirements imposed upon it by the Act, as now existing and as
hereafter amended, and by the Regulations, as from time to time in force,
so far as necessary to permit the continuance of sales of or dealings in
the Common Stock and Warrants and Additional Securities in accordance with
the provisions hereof and the Prospectus. If, at any time when a prospectus
relating to the Units, Common Stock and Warrants or Additional Securities
is required to be delivered hereunder or under the Act or the Regulations,
any event shall have occurred as a result of which, in the reasonable
opinion of counsel for the Company or counsel for the Representative, the
Registration Statement or the Prospectus, as then amended or supplemented,
contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, or if, in the opinion of either of such
counsel, it is necessary at any time to amend or supplement the
Registration Statement or the Prospectus to comply with the Act or the
Regulations, the Company will immediately notify you and promptly prepare
and file with the Commission an appropriate amendment or supplement (in
form and substance satisfactory to you) which will correct such statement
or omission or which will effect such compliance and will use its best
efforts to have any such amendment declared effective as soon as possible.
d. Deliver without charge to you such number of copies of each
Preliminary Prospectus as you may reasonably request and, as soon as the
Registration Statement or any amendment thereto becomes effective or a
supplement is filed, deliver without charge to you two signed copies of the
Registration Statement or such amendment thereto, as the case may be,
including exhibits, and two copies of any supplement thereto, and deliver
without charge to you such number of copies of the Prospectus, the
Registration Statement, and amendments and supplements thereto, if any,
without exhibits, as you may reasonably request for the purposes
contemplated by the Act.
e. Endeavor in good faith, in cooperation with you, at or prior to the
time the Registration Statement becomes effective, to qualify the Units,
Common Stock and Warrants and Additional Securities for offering and sale
under the "blue sky" or securities laws of such jurisdictions as you may
designate; provided, however, that no such qualification shall be required
12
in any jurisdiction where, as a result thereof, the Company would be
subject to service of general process or to taxation as a foreign
corporation doing business in such jurisdiction to which it is not then
subject. In each jurisdiction where such qualification shall be effected,
the Company will, unless you agree in writing that such action is not at
the time necessary or advisable, file and make such statements or reports
at such times as are or may be required by the laws of such jurisdiction.
f. Make generally available (within the meaning of Section 11(a) of
the Act and the Regulations) to its security holders as soon as
practicable, but not later than fifteen (15) months after the date of the
Prospectus, an earnings statement (which need not be certified by
independent certified public accountants unless required by the Act or the
Regulations, but which shall satisfy the provisions of Section 11(a) of the
Act and the Regulations) covering a period of at least 12 months beginning
after the effective date of the Registration Statement.
g. For a period of 13 months after the date of the Prospectus, not,
without your prior written consent, offer, issue, sell, contract to sell,
grant any option for the sale of, or otherwise dispose of, directly or
indirectly, any shares of Common Stock (or any security or other instrument
which by its terms is convertible into, exercisable for, or exchangeable
for shares of Common Stock) except as provided in Section 3 and except for
(i) the issuance of Warrant Shares issuable upon the exercise of Warrants
or issuance of Common Stock underlying options and warrants outstanding on
the date hereof which are properly described in the Prospectus, (ii) the
issuance of the Representative's Option Securities, or (iii) the grant of
options pursuant to the Company's existing stock option plan, or (iv) the
issuance of capital stock in connection with any acquisitions undertaken by
the Company.
h. For a period of five years after the Effective Date of the
registration statement, furnish you, without charge, the following:
i. Within 105 days after the end of each fiscal year, three
copies of consolidated financial statements certified by independent
certified public accountants, including a balance sheet, statement of
operations, and statement of cash flows of the Company and its then
existing subsidiaries, with supporting schedules, prepared in
accordance with generally accepted accounting principles, at the end
of such fiscal year and for the 12 months then ended;
ii. As soon as practicable after they have been sent to
stockholders of the Company or filed with the Commission, three copies
of each annual and interim financial and other report or communication
sent by the Company to its stockholders or filed with the Commission;
iii. As soon as practicable, two copies of every press release
and every material news item and article in respect of the Company or
its affairs which was released by the Company;
iv. Notice of any regular quarterly or special meeting of the
Company's Board of Directors concurrently with the sending of such
notice to the Company's directors; and
v. Such additional documents and information with respect to the
Company and its affairs and the affairs of any of its subsidiaries as
you may from time to time reasonably request.
i. Designate an Audit Committee and a Compensation Committee, the
members of which shall be subject to your reasonable approval, which will
generally supervise the financial affairs of the Company and review
executive compensation, respectively.
13
j. Furnish to you as early as practicable prior to the Closing Date
and any Additional Closing Date, as the case may be, but not less than two
full business days prior thereto, a copy of the latest available unaudited
interim consolidated financial statements of the Company which have been
read by the Company's independent certified public accountants, as stated
in their letters to be furnished pursuant to Section 7(e).
k. File no amendment or supplement to the Registration Statement or
Prospectus at any time, whether before or after the Effective Date of the
Registration Statement, unless such filing shall comply with the Act and
the Regulations and unless you shall previously have been advised of such
filing and furnished with a copy thereof, and you and counsel for the
Representative shall have approved such filing in writing within a
reasonable time of receipt thereof.
l. Comply with all periodic reporting and proxy solicitation
requirements which may from time to time be applicable to the Company as a
result of the Company's registration under the Exchange Act on a
registration statement on Form 8-A .
m. Comply with all provisions of all undertakings contained in the
Registration Statement.
n. Prior to the Closing Date or any Additional Closing Date, as the
case may be, issue no press release or other communication, directly or
indirectly, and hold no press conference and grant no interviews with
respect to the Company, the financial condition, results of operations,
business, properties, assets, or liabilities of the Company, or this
offering, without your prior written consent.
o. Appoint American Securities Transfer & Trust, Inc. as its transfer
agent.
p. On or prior to the Closing Date, sell to the Representative for a
total purchase price of $100, Representative's Options entitling the
Representative or its assigns to purchase 115,000 Units at a price equal to
120% of the public offering price of the Units, with the terms of the
Representative's Options, including exercise period, anti-dilution
provisions, exercise price, exercise provisions, transferability, and
registration rights, to be in the form filed as an exhibit to the
Registration Statement.
q. Until expiration of the Representative's Options, keep reserved
sufficient Units, Common Stock and Warrants for issuance upon exercise of
the Representative's Options, and shares of Common Stock for issuance upon
exercise of the warrants contained in the Representative's Options.
r. If the Representative, any employee of the Representative or any
company controlled by or under control with the Representative acts as the
introducing broker or finder during the five year period commencing on the
Effective Date with regard to (i) the sale of all or substantially all of
the assets and properties of the Company, (ii) the merger or consolidation
of the Company (other than a merger or consolidation effected for the
purpose of changing the Company's domicile) or (iii) the acquisition by the
Company of the assets or stock of another business entity, which agreement
or understanding is thereafter consummated during such five-year period or
within one year of expiration of such five-year period, pay to the
Representative or such person(s) as the Representative may designate an
amount equal to 5% of the first $1,000,000 or portion thereof in value or
consideration received or paid by the Company, 4% of the second $1,000,000
or portion thereof in value or consideration received or paid by the
Company and 3% of such value or consideration received by the Company in
excess of the first $2,000,000 of such value or consideration received or
paid by the Company. The fee payable to the Representative will be in the
14
same form of consideration as that paid by or to the Company, as the case
may be, in any such transaction. It is understood that the designation of
the Representative to act as a finder is not exclusive and that the
Representative shall not be entitled to the foregoing amounts unless it
participates in the introduction.
s. Within three months of the Closing Date, engage a financial public
relations firm to assist the Company in preparing regular announcements and
disseminating such information to the financial community, such engagement
to extend for a period of at least one year from the date of retention of
such firm.
t. Adopt procedures for the application of the net proceeds it
receives from the sale of the Units and apply the net proceeds from the
sale of the Units substantially in the manner set forth in the Registration
Statement, which does not contemplate repayment of debt to officers,
directors, stockholders or affiliates of the Company (except to CS Capital,
Inc.), unless any deviation from such application is in accordance with the
Registration Statement and occurs only after approval by the Board of
Directors of the Company and then only after the Board of Directors has
obtained the written opinion of recognized legal counsel experienced in
federal and state securities laws as to the propriety of any such
deviation.
u. Within the time period which the Prospectus is required to be
delivered under the Act, comply, at its own expense, with all requirements
imposed upon it by the Act, as now or hereafter amended, by the Rules and
Regulations, as from time to time may be enforced, and by any order of the
Commission, so far as necessary to permit the continuance of sales or
dealing in the Units, Common Stock and Warrants.
v. At the Closing, deliver to the Representative true and correct
copies of the Articles of Incorporation of the Company and all amendments
thereto, all such copies to be certified by the Secretary of the Company;
true and correct copies of the by-laws of the Company and of the minutes of
all meetings of the directors and stockholders of the Company held prior to
the Closing which in any way relate to the subject matter of this Agreement
or the Registration Statement.
w. Use all reasonable efforts to comply or cause to be complied with
the conditions precedent to the several obligations of the Underwriters in
Section 7 hereof.
x. File with the Commission all required information concerning use of
proceeds of the Public Offering in Forms 10-QSB and 10-KSB in accordance
with the provisions of the Exchange Act and to provide a copy of such
reports to the Representative and its counsel.
y. Supply to the Representative and the Representative's counsel at
the Company's cost, two bound volumes each containing material documents
relating to the offering of the Units within a reasonable time after the
Closing, not to exceed 90 days.
z. As soon as possible prior to the Effective Date, and as a condition
of the Underwriter's obligations hereunder, (i) if requested by the
Representative, have the Company listed on an accelerated basis, and to
maintain such listing for not less than ten years from the Closing Date, in
Standard & Poor's Standard Corporation Records; and (ii) have the Common
Stock and Warrants quoted on The Nasdaq SmallCap Market_ as of the
Effective Date, on the Closing Date, on the Additional Closing Date and
thereafter for at least ten years provided the Company is in compliance
with The Nasdaq SmallCap Market_ maintenance requirements.
aa. At such time as the Company qualifies for listing on the Nasdaq
National Market, take all steps necessary to have the Company's Common
Stock and Warrants, to the extent eligible, listed on the Nasdaq National
Market.
15
bb. Continue, for a period of at least five years following the
Effective Date of the Registration Statement, to appoint such auditors as
are reasonably acceptable to the Representative, which auditors shall (i)
prepare consolidated financial statements in accordance with Regulation S-B
or, if applicable, Regulation S-X under the General Rules and Regulations
of the Act and (ii) examine (but not audit) the Company's consolidated
financial statements for each of the first three (3) fiscal quarters prior
to the announcement of quarterly financial information, the filing of the
Company's 10-QSB quarterly report and the mailing of quarterly financial
information to security holders.
cc. Within 90 days of the Effective Date of the Registration
Statement, obtain "key man" life insurance policies in the amount of
$1,000,000 each on the life of Nigel V. Alexander and on the life of Shawn
B. Stickle, with the Company designated as the beneficiary of such policy,
and pay the annual premiums thereon for a period of not less than five
years from the Effective Date of the Registration Statement.
dd. Cause its transfer agent to furnish the Representative a duplicate
copy of the daily transfer sheets prepared by the transfer agent during the
six-month period commencing on the Effective Date of the Registration
Statement and instruct the transfer agent to timely provide, upon the
request of the Representative, duplicate copies of such transfer sheets
and/or a duplicate copy of a list of stockholders, all at the Company's
expense, for a period of 4 1/2 years after such six-month period.
ee. Refrain from filing a Form S-8 registration statement for a period
of 90 days from the Effective Date of the Registration Statement without
the Representative's prior written consent. If the Company files a
registration statement on Form S-8 at any time thereafter through and until
13 months from the Effective Date, the Company shall obtain reaffirmation
of previously executed, or new, lock-up agreements under which all
officers, directors and stockholders of the Company owning in excess of
1,000 shares of Common Stock of the Company on the Effective Date shall
agree not to sell, transfer, hypothecate or convey any such shares of
Common Stock for the period through 13 months from the Effective Date.
After the registration statement on Form S-8 is declared effective, the
Company may permit the sale from time to time of Common Stock issued on
exercise of options by stockholders who are not officers or directors and
who own less than 1,000 shares of Common Stock of the Company, subject to
the Company's agreement that such sales shall not exceed an aggregate of
30,000 shares of Common Stock of the Company during the period of 13 months
from the Effective Date. Any such sales of Common Stock issued upon
exercise of stock options within such 13 month period shall be made through
the Representative. The Company will also obtain from each holder of
options to acquire Common Stock of the Company such person's written
enforceable agreement not to sell shares of Common Stock pursuant to the
exemption afforded by Rule 701 under the 1933 Act for a minimum period of
13 months from the Effective Date without the prior written consent of the
Representative.
ff. On the Closing Date, enter into a Warrant Exercise Fee Agreement
with the Representative whereby the Company will agree to pay the
Representative a fee of 5% of the aggregate exercise price of each Warrant
exercised commencing one year after the Effective Date, of which a portion
may be allowed by the Representative to the dealer who solicited the
exercise (which may also be the Representative), subject to applicable NASD
guidelines.
16
gg. Afford the Representative the right, but not the obligation,
commencing on the Effective Date and surviving for a period of five years,
to designate an observer to attend meetings of the Board of Directors. The
designee, if any, and the Representative will receive notice of each
meeting of the Board of Directors in accordance with Colorado law, of which
no less than four meetings will be held in person or by video conference
each year. Any such designee will receive reimbursement for all reasonable
costs and expenses incurred in attending meetings of the Board of
Directors, including but not limited to, food, lodging and transportation,
together with such other fee or compensation as is paid by the Company to
other members of the Board of Directors. Moreover, to the extent permitted
by law, the Representative and its designee shall be indemnified for the
actions of such designee as an observer to the Board of Directors and in
the event the Company maintains a liability insurance policy affording
coverage for the acts of its officers and/or directors, to the extent
permitted under such policy, each of the Representative and its designee
shall be an insured under such policy.
hh. Refrain from granting any options or warrants to any member of the
Board of Directors appointed by Spencer Edwards, Inc. or make any cash or
other payment to such member of the Board of Directors for such person's
service on the Board of Directors unless the Company shall have secured the
prior written approval of the Representative and the Representative shall
have confirmed with the NASD that the payment of any such compensation
shall not cause any reduction in the allowable compensation to the
Representative in connection with any past, present or future transactions
involving the Company.
ii. That for a period of three years after the Effective Date of the
Registration Statement the Representative shall have a right of first
refusal to purchase for its account or to sell for the account of the
Company or any of its subsidiaries, any debt or equity securities of the
Company with respect to which the Company or any of its subsidiaries or
successors (other than a successor entity which has acquired the Company
and in which the stockholders of the Company own less than 25% of the
outstanding shares) may seek to offer and sell pursuant to a registration
statement under the Act or in a private transaction other than with a
lending institution. The Company and its subsidiaries will consult the
Representative with regard to any such offering and will offer the
Representative the opportunity to purchase or sell any such securities on
terms not more favorable to the Company than it can secure elsewhere. If
the Representative fails to accept in writing such proposal for financing
made by the Company or its subsidiaries within thirty (30) days after the
receipt by the Representative of a notice containing such proposal, then
the Representative shall have no further claim or right with respect to the
financing proposal contained in such notice. If, thereafter, such proposal
is modified, the Company and its subsidiaries shall adopt the same
procedure as with respect to the original proposals, except that upon
re-presentation, such term for response by the Representative shall be 15
days. The Company agrees that any breach by the Company of the
Representative's rights of first refusal shall be enforceable through
injunctive relief.
6. Payment of Expenses. The Company hereby agrees to pay all expenses
(subject to the last sentence of this Section 6) in connection with the
offering, including but not limited to (a) the preparation, printing, filing,
distribution, and mailing of the Registration Statement and the Prospectus,
including NASD, SEC, Nasdaq filing and/or application fees, and the printing,
filing, distribution, and mailing of this Agreement, any Agreement Among
Underwriters, Selected Dealers Agreement, preliminary and final Blue Sky
Memorandums, material to be circulated to the Underwriters by you and other
incidental or related documents, including the cost of all copies thereof and of
the Preliminary Prospectuses and of the Prospectus, and any amendments or
supplements thereto, supplied to the Representative in quantities as herein
above stated, (b) the issuance, sale, transfer, and delivery of the Common Stock
17
and Warrants, the Additional Securities, the Warrant Shares, the
Representative's Options and the Representative's Option Securities, including,
without limitation, any original issue, transfer or other taxes payable thereon
and the costs of preparation, printing and delivery of certificates representing
such securities, as applicable, (c) the qualification of the Units, Common Stock
and Warrants, Additional Securities, Representative's Options, Representative's
Option Securities, and Warrant Shares under state or foreign "blue sky" or
securities laws, which qualification shall be undertaken by counsel to the
Representative at the Company's expense, (d) the fees and disbursements of
counsel for the Company and the accountants for the Company, (e) the listing of
the Common Stock and Warrants on The Nasdaq SmallCap Market_, and (f) the
Representative's non-accountable expense allowance equal to 3% of the aggregate
gross proceeds from the sale of the Units and the Additional Securities. Prior
to or immediately following the Closing Date, the Company shall bear the costs
of tombstone announcements not to exceed $3,000, if requested to do so by the
Representative. The Company and the Representative shall pay their own expenses
incurred in connection with any road shows.
The Company has previously remitted to the Representative the sum of
$45,000, which sum has been credited as a partial payment in advance of the
non-accountable expense allowance provided for in Section 6(f) above.
7. Conditions of Underwriters' Obligations. The Underwriters' obligation to
purchase and pay for the Units and the Additional Securities, as provided
herein, shall be subject to the continuing accuracy of the representations and
warranties of the Company contained herein and in each certificate and document
contemplated under this Agreement to be delivered to you, as of the date hereof
and as of the Closing Date (or the Additional Closing Date, as the case may be),
to the performance by the Company of its obligations hereunder, and to the
following conditions:
a. The Registration Statement shall have become effective not later
than 5:00 p.m., Mountain time, on the date of this Agreement or such later
date and time as shall be consented to in writing by you.
b. At the Closing Date and any Additional Closing Date, you shall have
received the favorable opinion of Smith McCullough, P.C., counsel for the
Company, dated the date of delivery, addressed to you, and in form and
scope satisfactory to your counsel, to the effect that:
i. The Company is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Colorado, with
full power and authority, and, after reasonable investigation, counsel
has no knowledge that the Company does not have all necessary
consents, authorizations, approvals, orders, certificates, and permits
of and from, and declarations and filings with, all federal, state,
local, and other governmental authorities and all courts and other
tribunals, to own, lease, license, and use its properties and assets
and to conduct its business in the manner described in the Prospectus.
The Company is duly qualified to do business and is in good standing
in every jurisdiction in which its ownership, leasing, licensing, or
use of property and assets or the conduct of its business makes such
qualification necessary;
ii. The authorized capital stock of the Company as of the date of
this Agreement consisted of 20,000,000 shares of Common Stock, of
which 1,691,542 shares of Common Stock are issued and outstanding,
448,500 shares of Common Stock are reserved for issuance upon the
exercise of outstanding options and warrants and 135,000 shares of
Common Stock are reserved for issuance upon the exercise of the
remaining options authorized under the Company's option plan; and
5,000,000 shares of Preferred Stock, none of which are issued and
18
outstanding; and there have been no changes in the authorized and
outstanding capital stock of the Company since the date of this
Agreement, except as contemplated by the Registration Statement and
the Prospectus. Each outstanding share of capital stock is validly
authorized, validly issued, fully paid, and nonassessable, with no
personal liability attaching to the ownership thereof, has not been
issued and is not owned or held in violation of any preemptive right
of stockholders. There is no commitment, plan, or arrangement to
issue, and no outstanding option, warrant, or other right calling for
the issuance of, any share of capital stock of the Company or any
security or other instrument which by its terms is convertible into,
exercisable for, or exchangeable for capital stock of the Company,
except as set forth above, and except as is properly described in the
Prospectus. There is outstanding no security or other instrument which
by its terms is convertible into or exchangeable for capital stock of
the Company, except as described in the Prospectus;
iii. To the knowledge of counsel, after reasonable investigation,
there is no litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation pending, threatened,
or in prospect (or any basis therefor) with respect to the Company or
any of its respective operations, businesses, properties, or assets,
except as may be properly described in the Prospectus or such as
individually or in the aggregate do not now have and will not in the
future have a material adverse effect upon the operations, business,
properties, or assets of the Company. To the knowledge of counsel, the
Company is not in violation of, or in default with respect to, any
law, rule, regulation, order, judgment, or decree, except as may be
properly described in the Prospectus or such as in the aggregate have
been disclosed to the Representative and do not now have and will not
in the future have a material adverse effect upon the operations,
business, properties, or assets of the Company; nor is the Company
required to take any action in order to avoid any such violation or
default;
iv. Based upon the certificates received from the Company's
officers, neither the Company nor any other party is now or is
expected by the Company to be in violation or breach of, or in default
with respect to, complying with any material provision of any
contract, agreement, instrument, lease, license, arrangement, or
understanding which is material to the Company;
v. The Company is not in violation or breach of, or in default
with respect to, any term of its Articles of Incorporation or by-laws;
vi. The Company has all requisite power and authority to execute
and deliver and to perform thereunder this Agreement, the Warrants,
the Representative's Options, the Warrant Exercise Fee Agreement and
the Custody Agreement. All necessary corporate proceedings of the
Company have been taken to authorize the execution and delivery and
performance thereunder by the Company of this Agreement, the Warrants,
the Representative's Options, the Warrant Exercise Fee Agreement and
the Custody Agreement. Each of this Agreement, the Warrants, the
Representative's Options, the Warrant Exercise Fee Agreement and the
Custody Agreement have been duly authorized, executed and delivered by
the Company, and is a legal, valid, and binding obligation of the
Company, and (subject to applicable bankruptcy, insolvency, and other
laws affecting the enforceability of creditors' rights generally)
enforceable as to the Company in accordance with its respective terms.
No consent, authorization, approval, order, license, certificate, or
permit of or from, or declaration or filing with, any federal, state,
local, or other governmental authority or any court or other tribunal
is required by the Company for the execution or delivery, or
performance thereunder by the Company of this Agreement, the Warrants,
the Representative's Options, the Warrant Exercise Fee Agreement and
the Custody Agreement (except filings under the Act which have been
19
made prior to the Closing Date and consents consisting only of
consents under "blue sky" or securities laws which are required in
connection with the transactions contemplated by this Agreement, and
which counsel has been advised by counsel to the underwriters have
been obtained on or prior to the date the Registration Statement
becomes effective under the Act). No consent of any party to any
contract, agreement, instrument, lease, license, arrangement, or
understanding to which the Company is a party, or to which any of its
properties or assets are subject, is required for the execution or
delivery, or performance thereunder of this Agreement, the Warrants,
the Representative's Options, the Warrant Exercise Fee Agreement or
the Custody Agreement; and the execution and delivery and performance
thereunder of this Agreement, the Warrants, the Representative's
Options, the Warrant Exercise Fee Agreement and the Custody Agreement
will not violate, result in a breach of, conflict with, or (with or
without the giving of notice or the passage of time or both) entitle
any party to terminate or call a default under any such contract,
agreement, instrument, lease, license, arrangement, or understanding,
or violate or result in a breach of any term of the Articles of
Incorporation or by-laws of the Company, or violate, result in a
breach of, or conflict with any law, rule, regulation, order,
judgment, or decree binding on the Company or to which any of its
operations, businesses, properties, or assets are subject;
vii. The shares of Common Stock are, the shares of Common Stock
issuable on exercise of the Warrants will be upon exercise of the
Warrants, the shares of Common Stock underlying the Representative's
Options will be upon exercise of the Representative's Options, and the
Representative's Option Shares will be upon exercise of the Warrants
underlying the Representative's Options, validly authorized, validly
issued, fully paid, and nonassessable and will not have been issued in
violation of any preemptive rights of stockholders, and the
Underwriters have received good title to the Units and Additional
Securities purchased by them from the Company, free and clear of all
liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts; upon payment for the
Warrant Shares and the Representative's Option Securities, the holders
thereof will receive good title to such securities, free and clear of
all liens, security interests, pledges, charges, encumbrances,
stockholders' agreement and voting trusts. The Units, the Common
Stock, the Warrants, the Warrant Shares, the Representative's Options
and the Representative's Option Securities conform in all material
respects to all statements relating thereto contained in the
Registration Statement or the Prospectus;
viii. The Warrant Shares have been duly and validly reserved for
issuance pursuant to the terms of the Warrant Agreement between the
Company and its transfer agent, and the Representative's Option
Securities have been duly and validly reserved for issuance pursuant
to the terms of the Representative's Options or the Warrant Agreement,
as the case may be;
ix. To the knowledge of counsel, after reasonable investigation,
all contracts, agreements, instruments, leases, and licenses that are
required to be described in the Registration Statement or the
Prospectus have been properly described therein. To the knowledge of
counsel, after reasonable investigation, all contracts, agreements,
instruments, leases, or licenses required to be filed as an exhibit to
the Registration Statement have been filed with the Commission as an
exhibit to or have been incorporated as an exhibit by reference into
the Registration Statement;
20
x. Insofar as statements in the Prospectus purport to summarize
the status of litigation or the provisions of laws, rules,
regulations, orders, judgments, decrees, contracts, agreements,
instruments, leases, or licenses, such statements have been prepared
or reviewed by such counsel and accurately reflect the status of such
litigation and provisions purported to be summarized and are correct
in all material respects;
xi. Except as provided in the Registration Statement, no person
or entity has the right to require registration of shares of Common
Stock or other securities of the Company because of the filing or
effectiveness of the Registration Statement;
xii. The Registration Statement has become effective under the
Act. No Stop Order has been issued and no proceedings for that purpose
have been instituted or threatened;
xiii. The Registration Statement and the Prospectus, and any
amendment or supplement thereto, comply as to form in all material
respects with the requirements of the Act and the Regulations;
xiv. After reasonable investigation, such counsel has no
knowledge that either the Registration Statement or the Prospectus, or
any amendment or supplement thereto, contains any untrue statement of
a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading (except that no opinion need be expressed as to the
consolidated financial statements and other financial data and
schedules which are or should be contained therein);
xv. After reasonable investigation, counsel has no knowledge of
any event which has occurred since the Effective Date which should
have been set forth in an amendment or supplement to the Registration
Statement or the Prospectus that has not been set forth in such an
amendment or supplement;
xvi. The Company is not currently offering any securities for
sale except as described in the Registration Statement;
xvii. After reasonable investigation, such counsel has no
knowledge of any promoters, affiliates, parents or subsidiaries of the
Company except as are described in the Registration Statement;
xviii. The Company owns or possesses, free and clear of all liens
or encumbrances and rights thereto or therein by third parties, the
requisite licenses or other rights to use all trademarks, copyrights,
service marks, service names, trade names and licenses necessary to
conduct its business (including without limitation, any such licenses
or rights described in the Registration Statement as being owned or
possessed by the Company or any subsidiary) (all of which are
collectively referred to herein as the "Intellectual Property"); there
is no actual or, to the knowledge of counsel, pending, or threatened
claim, proceeding or action by any person pertaining to or which
challenges the exclusive rights of the Company with respect to any of
the Company's Intellectual Property; based on a review of all the
Company's products, proposed products and Intellectual Property, to
the knowledge of counsel, such products, proposed products or
Intellectual Property do not and will not infringe on any trademarks,
copyrights, service marks, service names, trade names or valid patents
or patents pending held by third parties known to the Company and such
counsel;
21
xix. The Company is not a party to any agreement giving rise to
any obligation by the Company or any subsidiary to pay any third-party
royalties or fees of any kind whatsoever with respect to any
technology developed, employed, used or licensed by the Company or any
subsidiary, other than is disclosed in the Prospectus;
xx. The Common Stock and Warrants are eligible for quotation on
The Nasdaq SmallCap Market; and
xxi. All issued and outstanding shares of Common Stock and all
other securities issued and sold or exchanged by the Company or its
subsidiaries have been issued and sold or exchanged in compliance with
all applicable state and federal securities laws and regulations. For
the purposes of this subsection xxi, counsel shall be able to further
rely upon the opinion of such other of the Company's counsel as
counsel shall deem appropriate.
Such opinion shall be governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section
of Business Law (1991) and shall be subject to the qualifications,
exceptions, definitions, limitations on coverage and other limitations set
forth therein and in such opinion. Qualifications in such opinion as to
knowledge or the absence of knowledge shall be based upon and limited to
the "Actual Knowledge" (as defined in the Accord) of the "Primary Lawyer
Group" (as identified in such opinion). In rendering such opinion, such
legal counsel shall be entitled to rely upon Public Authority Documents and
upon information provided by client officials in written Certificates
provided that copies of such Public Authority Documents and Certificates
are attached as exhibits to the written opinion of legal counsel. The term
"Public Authority Documents" shall have the meaning ascribed to it in the
Legal Opinion Accord of the ABA Section of Business Law (1991).
c. On or prior to the Closing Date and any Additional Closing Date, as
the case may be, you shall have been furnished such information, documents,
certificates, and opinions as you may reasonably require for the purpose of
enabling you to review the matters referred to in Sections 7(b) and (c),
and in order to evidence the accuracy, completeness, or satisfaction of any
of the representations, warranties, covenants, agreements, or conditions
herein contained, or as you may reasonably request.
d. At the Closing Date and any Additional Closing Date, as the case
may be, you shall have received a certificate of the chief executive
officer and of the chief financial officer of the Company, dated the
Closing Date or such Additional Closing Date, as the case may be, to the
effect that the conditions set forth in Section 7(a) have been satisfied,
that as of the date of this Agreement and as of the Closing Date or such
Additional Closing Date, as the case may be, the representations and
warranties of the Company contained herein were and are accurate, and that
as of the Closing Date or such Additional Closing Date, as the case may be,
the obligations to be performed by the Company hereunder on or prior
thereto have been fully performed.
e. At the time this Agreement is executed and at the Closing Date and
any Additional Closing Date, as the case may be, you shall have received
letters from HEIN + ASSOCIATES, LLP and James E. Scheifley & Associates,
Inc., Certified Public Accountants, addressed to you and dated the date of
delivery but covering a period within three business days of such date, in
form and substance satisfactory to you.
22
f. All proceedings taken in connection with the issuance, sale,
transfer, and delivery of the Units and the Additional Securities shall be
satisfactory in form and substance to you and to counsel for the
Representative, and you shall have received a favorable opinion from
counsel to the Company, dated as of the Closing Date or the Additional
Closing Date, as the case may be, with respect to such of the matters set
forth under Sections 7(b) and 7(c), respectively, and with respect to such
other related matters, as you may reasonably request.
g. The NASD, upon review of the terms of the public offering of the
Units and the Additional Securities, shall not have objected to your
participation in such offering.
h. The Company shall have received notice that the Common Stock and
Warrants will be quoted on The Nasdaq SmallCap Market_ as of the Effective
Date.
Any certificate or other document signed by any officer of the Company and
delivered to you or to counsel for the Representative shall be deemed a
representation and warranty by such officer individually and by the Company
hereunder to the Representative as to the statements made therein. If any
condition to your obligations hereunder to be fulfilled prior to or at the
Closing Date or any Additional Closing Date, as the case may be, is not so
fulfilled, you may terminate this Agreement or, if you so elect, in writing
waive any such conditions which have not been fulfilled or extend the time for
their fulfillment.
8. Indemnification and Contribution.
a. Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless the Underwriters, the Representative, and each
of their officers, directors, partners, employees, agents, and counsel, and
each person, if any, who controls the Representative or any one of the
Underwriters within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act, against any and all loss, liability, claim, damage,
and expense whatsoever (which shall include, for all purposes of this
Section 8, but not be limited to, attorneys' fees and any and all expense
whatsoever incurred in investigating, preparing, or defending against any
litigation, commenced or threatened, or any claim whatsoever and any and
all amounts paid in settlement of any claim or litigation) as and when
incurred arising out of, based upon, or in connection with (i) any untrue
statement or alleged untrue statement of a material fact contained (A) in
any Preliminary Prospectus, the Registration Statement, or the Prospectus
(as from time to time amended and supplemented), or any amendment or
supplement thereto, or (B) in any application or other document or
communication (in this Section 8 collectively called an "application") in
any jurisdiction in order to qualify the Units and Additional Securities
under the "blue sky" or securities laws thereof or filed with the
Commission or any securities exchange; or any omission or alleged omission
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, or (ii) any breach of any
representation, warranty, covenant, or agreement of the Company contained
in this Agreement. The foregoing agreement to indemnify shall be in
addition to any liability the Company may otherwise have, including
liabilities arising under this Agreement; however, the Company shall have
no liability under this Section 8 if such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company as stated in Section 8(b) with respect to the Underwriters by or on
behalf of the Underwriters expressly for inclusion in any Preliminary
Prospectus, the Registration Statement, or the Prospectus, or any amendment
or supplement thereto, or in any application, as the case may be . If any
23
action is brought against the Underwriters, the Representative or any of
their officers, directors, partners, employees, agents, or counsel, or any
controlling persons of an Underwriter or the Representative (an
"indemnified party") in respect of which indemnity may be sought against
the Company pursuant to the foregoing paragraph, such indemnified party or
parties shall promptly notify the Company in writing of the institution of
such action (but the failure so to notify shall not relieve the Company
from any liability it may have other than pursuant to this Section 8(a))
and the Company shall promptly assume the defense of such action, including
the employment of counsel (satisfactory to such indemnified party or
parties) and payment of expenses. Such indemnified party or parties shall
have the right to employ its or their own counsel in any such case, but the
fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless the employment of such counsel shall
have been authorized in writing by the Company in connection with the
defense of such action or the Company shall not have promptly employed
counsel satisfactory to such indemnified party or parties to have charge of
the defense of such action or such indemnified party or parties shall have
reasonably concluded that there may be one or more legal defenses available
to it or them or to other indemnified parties which are different from or
additional to those available to the Company, in any of which events such
fees and expenses shall be borne by the Company. Anything in this paragraph
to the contrary notwithstanding, the Company shall not be liable for any
settlement of any such claim or action effected without its written
consent. The Company agrees promptly to notify the Underwriters and the
Representative of the commencement of any litigation or proceedings against
the Company or against any of its officers or directors in connection with
the sale of the Units or the Additional Securities, any Preliminary
Prospectus, the Registration Statement, or the Prospectus, or any amendment
or supplement thereto, or any application.
b. The Underwriters agree to indemnify and hold harmless the Company,
the Company's counsel, each director of the Company, each officer of the
Company who shall have signed the Registration Statement, each other
person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, to the same extent as the
foregoing indemnity from the Company to the Underwriters in Section 8(a),
but only with respect to statements or omissions, if any, made in any
Preliminary Prospectus, the Registration Statement, or the Prospectus (as
from time to time amended and supplemented), or any amendment or supplement
thereto, or in any application, in reliance upon and in con formity with
written information furnished to the Company as stated in this Section 8(b)
with respect to the Underwriters by or on behalf of the Underwriters
expressly for inclusion in any Preliminary Prospectus, the Registration
Statement, or the Prospectus, or any amendment or supplement thereto, or in
any application, as the case may be; provided, however, that the obligation
of the Underwriters to provide indemnity under the provisions of this
Section 8(b) shall be limited to the amount which represents the product of
the number of Units and Additional Securities sold hereunder and the
initial public offering price per Unit set forth on the cover page of the
Prospectus. For all purposes of this Agreement, the amounts of the selling
concession and reallowance set forth in the Prospectus, the information
under "Underwriting" and the identification of counsel to the
Representative under "Legal Matters" constitute the only information
furnished in writing by or on behalf of the Underwriters expressly for
inclusion in any Preliminary Prospectus, the Registration Statement, or the
Prospectus (as from time to time amended or supplemented), or any amendment
or supplement thereto, or in any application, as the case may be. If any
action shall be brought against the Company or any other person so
indemnified based on any Preliminary Prospectus, the Registration
Statement, or the Prospectus, or any amendment or supplement thereto, or
any application, and in respect of which indemnity may be sought against
the Underwriters pursuant to this Section 8(b), the Underwriters shall have
the rights and duties given to the Company, and the Company and each other
person so indemnified shall have the rights and duties given to the
indemnified parties, by the provisions of Section 8(a).
24
c. In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in this Section
8 is for any reason held to be unavailable to the Underwriters or the
Company, then the Company shall contribute to the damages paid by the
several Underwriters, and the several Underwriters shall contribute to the
damages paid by the Company; provided, however, that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. In determining the amount of
contribution to which the respective parties are entitled, there shall be
considered the relative benefits received by each party from the sale of
the Units and Additional Securities (taking into account the portion of the
proceeds of the offering realized by each), the parties' relative knowledge
and access to information concerning the matter with respect to which the
claim was asserted, the opportunity to correct and prevent any statement or
omission, and any other equitable considerations appropriate in the
circumstances. The Company and the Underwriters agree that it would not be
equitable if the amount of such contribution were determined by pro rata or
per capita allocation (even if the Underwriters were treated as one entity
for such purpose). No Underwriter or person controlling such Underwriter
shall be obligated to make contribution hereunder which in the aggregate
exceeds the total public offering price of the Units and Additional
Securities purchased by such Underwriter under this Agreement, less the
aggregate amount of any damages which such Underwriter and its controlling
persons have otherwise been required to pay in respect of the same or any
substantially similar claim. The Underwriters' obligations to contribute
hereunder are several in proportion to their respective underwriting
obligations and not joint. For purposes of this Section, each person, if
any, who controls an Underwriter within the meaning of Section 15 of the
Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the Act, shall have the same rights to
contribution as the Company. Anything in this Section 8(c) to the contrary
notwithstanding, no party shall be liable for contribution with respect to
the settlement of any claim or action effected without its written consent.
This Section 8(c) is intended to supersede any right to contribution under
the Act, the Exchange Act, or otherwise.
9. Representations and Agreements to Survive Delivery. All representations,
warranties, covenants, and agreements contained in this Agreement shall be
deemed to be representations, warranties, covenants, and agreements at the
Closing Date and any Additional Closing Date, and such representations,
warranties, covenants, and agreements of the Underwriters and the Company,
including the indemnity and contribution agreements contained in Section 8,
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Representative, the Underwriters or
any indemnified person, or by or on behalf of the Company or any person or
entity which is entitled to be indemnified under Section 8(b), and shall survive
termination of this Agreement or the delivery of the Units and the Additional
Securities to the Underwriters for a period equal to the statute of limitations
for claims related hereto, but not to exceed an aggregate of five years from the
date hereof. In addition, the provisions of Sections 5(a), 6, 8, 9, 10, and 12
shall survive termination of this Agreement, whether such termination occurs
before or after the Closing Date or any Additional Closing Date.
10. Effective Date of This Agreement and Termination Thereof.
a. This Agreement shall be executed within 24 hours of the Effective
Date of the Registration Statement and shall become effective on the
Effective Date or at the time of the initial public offering of the Units,
whichever is earlier. The time of the initial public offering shall mean
the time, after the Registration Statement becomes effective, of the
release by the Representative for publication of the first newspaper
advertisement which is subsequently published relating to the Units or the
25
time, after the Registration Statement becomes effective, when the Units
are first released by the Representative for offering by dealers by letter
or telegram, whichever shall first occur. The Representative or the Company
may prevent this Agreement from becoming effective without liability of any
party to any other party, except as noted below in this Section 10, by
giving the notice indicated in Section 10(c) before the time this Agreement
becomes effective.
b. The Representative shall have the right to terminate this Agreement
at any time prior to the Closing Date or any Additional Closing Date, as
the case may be, by giving notice to the Company if there shall have been a
general suspension of, or a general limitation on prices for, trading in
securities on the New York Stock Exchange or the American Stock Exchange or
in the over-the-counter market; or if there shall have been an outbreak of
major hostilities or other national or international calamity; or if a
banking moratorium has been declared by a state or federal authority; or if
a moratorium in foreign exchange trading by major international banks or
persons has been declared; or if there shall have been a material
interruption in the mail service or other means of communication within the
United States; or if the Company shall have sustained a material or
substantial loss by fire, flood, accident, hurricane, earthquake, theft,
sabotage, or other calamity or malicious act which, whether or not such
loss shall have been insured, will, in the Representative's opinion, make
it inadvisable to proceed with the offering, sale, or delivery of the Units
or the Additional Securities, as the case may be; or if there shall have
been such material and adverse change in the market for securities in
general so as to make it inadvisable to proceed with the offering, sale,
and delivery of the Units or the Additional Securities, as the case may be,
on the terms contemplated by the Prospectus due to the impaired investment
quality of the Units or the Additional Securities; or if the Dow Jones
Industrial Average shall have fallen by 15% or more from its closing price
on the day immediately preceding the date that the Registration Statement
is declared effective by the Commission.
c. If the Representative elects to prevent this Agreement from
becoming effective as provided in this Section 10, or to terminate this
Agreement, it shall notify the Company promptly by telephone, telex, or
telegram, confirmed by letter. If, as so provided, the Company elects to
prevent this Agreement from becoming effective, the Company shall notify
the Representative promptly by telephone, telex, or telegram, confirmed by
letter.
d. Anything in this Agreement to the contrary notwithstanding other
than Section 10(e), if this Agreement shall not become effective by reason
of an election pursuant to this Section 10 or if this Agreement shall
terminate or shall otherwise not be carried out prior to May 31, 1999
because (i) of any reason solely within the control of the Company or its
stockholders and not due to the breach of any representation, warranty or
covenant or bad faith of the Representative, (ii) the Company unilaterally
withdraws the proposed Public Offering from the Representative in favor of
another underwriter, (iii) the Company does not permit the Registration
Statement to become effective, (iv) of any material discrepancy in any
representation by the Company and/or its officers, directors, stockholders,
agents, advisers or representatives, made in writing, including but not
limited to the Registration Statement, to the Representative, (v) the
Company is, directly and/or indirectly, negotiating with other persons or
entities of whatsoever nature relating to a possible Public Offering of its
securities, or (vi) of any failure on the part of the Company to perform
any covenant or agreement or satisfy any condition of this Agreement by it
to be performed or satisfied, then, in any of such events, the Company
shall be obligated to reimburse the Representative for its out-of-pocket
26
expenses on an accountable basis. Should the Representative be required to
account for "out-of-pocket" expenses, any expense incurred by the
Representative shall be deemed to be reasonable and unobjectionable upon a
reasonable showing by the Representative that such expenses were incurred,
directly or indirectly, in connection with the proposed transaction and/or
relationship of the parties hereto, as described herein. In no event will
the Representative be entitled to reimbursement of accountable expenses
exceeding $45,000, inclusive of the $45,000 advanced against the
non-accountable expense allowance. The Representative will return to the
Company any portion of the $45,000 payment previously received that is not
used in the payment of accountable expenses if the Public Offering is not
completed.
e. Notwithstanding any election hereunder or any termination of this
Agreement, and whether or not this Agreement is otherwise carried out, the
provisions of Sections 5(a), 6, 8, 9, and 10 shall not be in any way
affected by such election or termination or failure to carry out the terms
of this Agreement or any part hereof.
11. Notices. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to the
Representative, shall be mailed, delivered, or sent by facsimile transmission
and confirmed by original letter, to Schneider Securities, Inc., 1120 Lincoln
Street, Suite 900, Denver, Colorado 80203, Attention: Keith Koch, with a copy to
Robert W. Walter, Esq., Berliner Zisser Walter & Gallegos, P.C., 1700 Lincoln
Street, Suite 4700, Denver, Colorado 80203; or if sent to the Company shall be
mailed, delivered, or telexed or telegraphed and confirmed by letter, to
Multi-Link Telecommunications, Inc., 811 Lincoln Street, 5th Floor, Denver,
Colorado 80203, Attention: Nigel V. Alexander and Shawn B. Stickle, with a copy
to Thomas S. Smith, Esq. , Smith McCullough, P.C., 4643 South Ulster Street,
Suite 900, Denver, Colorado 80237. All notices hereunder shall be effective upon
receipt by the party to which it is addressed.
12. Parties. This Agreement shall inure solely to the benefit of, and shall
be binding upon, the Underwriters, the Company, and the persons and entities
referred to in Section 8 who are entitled to indemnification or contribution,
and their respective successors, legal representatives, and assigns (which shall
not include any buyer, as such, of the Units, Common Stock and Warrants or the
Additional Securities) and no other person shall have or be construed to have
any legal or equitable right, remedy, or claim under or in respect of or by
virtue of this Agreement or any provision herein contained.
13. Construction. This Agreement shall be construed in accordance with the
laws of the State of Colorado, without giving effect to conflict of laws. Time
is of the essence in this Agreement. The parties acknowledge that this Agreement
was initially prepared by the Representative, and that all parties have read and
negotiated the language used in this Agreement. The parties agree that, because
all parties participated in negotiating and drafting this Agreement, no rule of
construction shall apply to this Agreement which construes ambiguous language in
favor of or against any party by reason of that party's role in drafting this
Agreement.
If the foregoing correctly sets forth the understanding between us, please
so indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement between us.
Very truly yours,
MULTI-LINK TELECOMMUNICATIONS, INC.
By: /s/ Nigel V. Alexander
-------------------------------------------------------
Nigel V. Alexander, Chief Executive Officer
By: /s/ Shawn B. Stickle
-------------------------------------------------------
Shawn B. Stickle, President and Chief Operating Officer
Accepted as of the date first above written.
Denver, Colorado
SCHNEIDER SECURITIES, INC.
for itself and any other Underwriters:
By: /s/ Thomas Schneider
------------------------------------------
Thomas Schneider, Chief Executive Officer
MULTI-LINK TELECOMMUNICATIONS, INC.
(a Colorado corporation)
SCHEDULE 1
This Schedule sets forth the name of each Underwriter referred to in the
Underwriting Agreement and the number of Units to be sold by the Company.
Number of
Name Units
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Schneider Securities, Inc.
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Total 1,150,000