COMMUNITY CARE SERVICES, INC.
UNDERWRITING AGREEMENT
New York, New York
Dated: , 1996
MAIDSTONE FINANCIAL, INC.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Gentlemen:
The undersigned, COMMUNITY CARE SERVICES, INC., a New York
corporation (the "Company"), proposes to issue and sell to Maidstone Financial,
Inc. ("Maidstone," the "Underwriter" or "the Representative") as representative
of the several underwriters (the "Underwriters") named on Schedule A hereto,
pursuant to this Underwriting Agreement ("Agreement"), an aggregate of 1,300,000
shares of Common Stock, par value $.01 per share, of the Company (the "Common
Stock"), and 1,300,000 Class A Redeemable Common Stock Purchase Warrants (the
"Class A Warrants" or the "Warrants"). The Class A Warrants will each be
exercisable to purchase one share of Common Stock, at any time commencing two
years from the date on which the Registration Statement (as defined in Section
1(a) hereof), shall have become or been declared effective (the "Effective
Date"), and ending on the seventh anniversary of the Effective Date. The Class A
Warrant exercise price, subject to adjustment as described in the agreement
providing for the Warrants (the "Warrant Agreement"), shall be $6.00 per share,
subject to adjustment as described in the Warrant Agreement.
Commencing two years after the Effective Date, the Warrants
are subject to redemption by the Company at $.10 per Warrant, provided that (a)
prior notice of not less than 30 days is given to the holders of the Warrants
(the "Warrantholders"), and (b) the closing high bid price per share of Common
Stock, if traded on The NASDAQ Stock Market, or the last sale price per share of
Common Stock, if traded on a national exchange, for the 20 consecutive trading
days ending on the third day prior to the date on which notice of redemption is
given, is at least $8.00.
In addition, the Company proposes to grant to the Underwriters
the Over-Allotment Option (as defined in Section 2(c) hereof) to purchase all
or any part of an aggregate of 195,000 shares of Common Stock and/or 195,000
Warrants, and to issue to you the Underwriters' Warrants (as defined in Section
11 hereof) to purchase certain further additional Shares and/or Warrants.
The aggregate of 1,300,000 shares of Common Stock to be sold
by the Company, together with the aggregate of 195,000 additional shares of
Common Stock that are the subject of the Over-allotment Option, are herein
collectively called the "Shares." The Shares and the Warrants (the Warrants, the
additional Warrants subject to the Over-Allotment Option and the Warrants
issuable upon exercise of the Underwriters' Warrants), the shares of Common
Stock issuable upon exercise of the Warrants and the shares of Common Stock
issuable upon exercise of the Underwriters' Warrants, are herein collectively
called the "Securities." The term "Underwriters' Counsel" shall mean the firm of
Gersten, Savage, Xxxxxxxxx & Xxxxxx, LLP, counsel to the Underwriter, and the
term "Company Counsel" shall mean the firm of Xxxxxx Xxxxxx Xxxxxx & Xxxx,
counsel to the Company. Unless the context otherwise requires, all references
herein to a "Section" shall mean the appropriate Section of this Agreement.
You have advised the Company that you, severally and not
jointly, desire to purchase the Shares and Warrants as herein provided. The
Company confirms the agreements made by it with respect to the purchase of the
Shares and Warrants by you, as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) Registration Statement; Prospectus; A
registration statement (File No. 333-1700) on Form SB-2 relating to the public
offering of the Securities (the "Offering"), including a preliminary form of
prospectus, copies of which have heretofore been delivered to you, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933 (the "Act"), and the rules and regulations of the Securities and
Exchange Commission (the "Commission") promulgated thereunder (the "Rules and
Regulations"), and has been filed with the Commission under the Act. As used
herein, the term "Preliminary Prospectus" shall mean each prospectus filed
pursuant to Rule 430 or Rule 424(a) of the Rules and Regulations. The
Preliminary Prospectus bore the legend required by Item 501 of Regulation S-B
under the Act and the Rules and Regulations. Such registration statement
(including all financial statements, schedules and exhibits) as amended at the
time it becomes effective and the final prospectus included therein are herein
respectively called the "Registration Statement" and the "Prospectus," except
that (i) if the prospectus filed by the Company pursuant to Rule 424(b) or Rule
430A of the Rules and Regulations shall differ from such final prospectus as
then amended, then the term "Prospectus" shall instead mean the prospectus first
filed pursuant to said Rule 424(b) or Rule 430A, and (ii) if such registration
statement is amended or such prospectus is amended or supplemented after the
effective date of such registration statement and prior to the Option Closing
Date (as defined in Section 2(c) hereof), then (unless the context necessarily
requires otherwise) the term "Registration Statement" shall include such
2
registration statement as so amended, and the term "Prospectus" shall include
such prospectus as so amended or supplemented, as the case may be.
(b) Contents of Registration Statement. On the
Effective Date, and at all times subsequent thereto for so long as the delivery
of a prospectus is required in connection with the offering or sale of any of
the Securities, (i) the Registration Statement and the Prospectus shall in all
material respects conform to the requirements of the Act and the Rules and
Regulations, and (ii) neither the Registration Statement nor the Prospectus
shall include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary or make statements
therein in light of the circumstances in which they were made, not misleading;
provided, however, that the Company makes no representations, warranties or
agreements as to information contained in or omitted from the Registration
Statement or Prospectus in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus with respect to stabilization, the
material set forth under the caption "UNDERWRITING," the information on the
cover page of the Prospectus regarding the underwriting arrangements and the
identity of the Underwriters' Counsel under the caption "LEGAL MATTERS," which
information the Underwriter hereby represents and warrants to the Company is
true and correct in all material respects and does not omit to state any
material fact required to be stated therein or necessary to make statements
therein, in light of the circumstances in which they were made, not misleading,
constitute the only information furnished in writing by or on behalf of the
Underwriter for inclusion in the Registration Statement and Prospectus, as the
case may be.
Except for the registration rights granted under the
Underwriter's Warrants, to the Selling Security Holders named in the
Registration Statement, or as disclosed in the Prospectus, no holders of any
securities of the Company or of any options, warrants or convertible or
exchangeable securities of the Company exercisable for or convertible or
exchangeable for securities of the Company, have the right to include any
securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company.
(c) Organization, Standing, Etc. The Company is duly
incorporated and validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, with full power and corporate
authority to own their properties and conduct its business as described in the
Prospectus, and is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each other jurisdiction in which the
nature of its business or the character or location of its properties requires
such qualification, except where failure so to qualify will not have a material
adverse effect on the business or financial condition of the Company ("Material
Adverse Effect").
3
(d) Capitalization. The authorized, issued and
outstanding capital stock of the Company as of the date of the Prospectus is as
set forth in the Prospectus under the caption "CAPITALIZATION". The shares of
Common Stock issued and outstanding on the Effective Date have been duly
authorized, validly issued and are fully paid and non-assessable. No options,
warrants or other rights to purchase, agreements or other obligations to issue,
or agreements or other rights to convert any obligation into, any shares of
capital stock of the Company have been granted or entered into by the Company,
except as expressly described in the Prospectus. The Securities conform to all
statements relating thereto contained in the Registration Statement or the
Prospectus.
(e) Securities. The Securities conform, or will
conform when issued, in all material respects to all statements with respect
thereto contained in the Registration Statement and the Prospectus. The
Securities have been duly authorized and, when issued and delivered against
payment therefor pursuant to this Agreement, the Warrant Agreement or the
Underwriters' Warrants, as the case may be, will be duly authorized, validly
issued, fully paid and non-assessable and free of preemptive rights of any
security holder of the Company. Neither the filing of the Registration Statement
nor the offering or sale of any of the Securities as contemplated by this
Agreement gives rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any securities of the Company,
except as described in the Registration Statement.
(f) Authority, Etc. This Agreement, the Warrant
Agreement, the Underwriters' Warrants, and the Financial Consulting Agreement
(as hereinafter defined), have been duly and validly authorized, executed and
delivered by the Company and, assuming due execution of this Agreement and such
other agreements by the other party or parties hereto and thereto, constitute
valid and binding obligations of the Company enforceable against the Company in
accordance with their respective terms, except as such enforcement is limited by
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
affecting the enforcement of creditors' rights generally, and except insofar as
the enforceability of the indemnification and contribution terms may be limited
by applicable as or public policy. The Company has full right, power and lawful
authority to authorize, issue and sell the Securities and the Underwriter's Unit
Purchase Options on the terms and conditions set forth herein. All consents,
approvals, authorizations and orders of any court or governmental authority
which are required in connection with the authorization, execution and delivery
of such agreements, the authorization, issue and sale of the Securities and the
Underwriters' Warrants, and the consummation of the transactions contemplated
hereby have been obtained.
(g) No Conflict. Except as described in the
Prospectus, the Company is not in violation, breach or default of or under, and
consummation of the transactions hereby contemplated and fulfillment of the
terms of this Agreement will not conflict with or result in a breach of, any of
the terms or provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance pursuant to the terms
of, any contract, indenture, mortgage, deed of trust, loan agreement or other
material agreement or instrument to which the Company is a party or by which the
Company may be bound or to which any of
4
the property or assets of the Company is subject, except such as would not have
a Material Adverse Effect, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or the By-laws of the Company,
except such as would not have a Material Adverse Effect, or any statute or any
order, rule or regulation applicable to the Company, or of any court or of any
regulatory authority or other governmental body having jurisdiction over the
Company, except such as would not have a Material Adverse Effect.
(h) Assets. Subject to the qualifications stated in
the Prospectus: (i) the Company has good and marketable title to all properties
and assets described in the Prospectus as owned by it, including without
limitation intellectual property, free and clear of all liens, charges,
encumbrances or restrictions, except such as do not materially affect the value
of such properties or assets and do not interfere with the use made or proposed
to be made of such assets or properties by the Company or are not materially
significant or important in relation to the business of the Company; (ii) all of
the material leases and subleases under which the Company is the lessor or
sublessor of properties or assets or under which the Company hold properties or
assets as lessee or sublessee, as described in the Prospectus, are in full force
and effect and, except as described in the Prospectus, the Company is not in
default in any material respect with respect to any of the terms or provisions
of any of such leases or subleases, and no claim has been asserted by any party
adverse to the rights of the Company as lessor, sublessor, lessee or sublessee
under any such lease or sublease, or affecting or questioning the right of the
Company to continued possession of the leased or subleased premises or assets
under any such lease or sublease, except as described or referred to in the
Prospectus; and (iii) the Company, owns or leases all such assets and
properties, described in the Prospectus, as are necessary to its operations as
now conducted and, except as otherwise stated in the Prospectus, as proposed to
be conducted as set forth in the Prospectus.
The outstanding debt, the property and the business of the
Company conforms in all material respects to the descriptions thereof contained
in the Registration Statement and Prospectus.
(i) Independent Accountants. Xxxxxxx X. Xxxxxx &
Company, LLP, who have given their report on certain financial statements filed
or to be filed with the Commission as a part of the Registration Statement, and
which are included in the Prospectus, are with respect to the Company,
independent public accountants as required by the Act and the Rules and
Regulations.
(j) Financial Statements. The consolidated financial
statements, together with related notes, set forth in the Registration Statement
and the Prospectus present fairly the consolidated financial position, results
of operations, changes in stockholders' equity and cash flows of the Company on
the basis stated in the Registration Statement, at the respective dates and for
the respective periods to which they apply. Such financial statements and
related notes have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the entire period
involved, except to the extent disclosed therein. The Summary Financial Data and
Selected Financial Data included in the Registration
5
Statement and the Prospectus present fairly the information shown therein and
have been prepared on a basis consistent with that of the financial statements
included in the Registration Statement and the Prospectus.
(k) No Material Change. Except as otherwise set forth
in the Prospectus, subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the Company has not: (i)
incurred any liability or obligation, direct or contingent, or entered into any
transaction, which is material to its business; (ii) effected or experienced any
change in its capital stock or incurred any long-term debt; (iii) issued any
options, warrants or other rights to acquire its capital stock; (iv) declared,
paid or made any dividend or distribution of any kind on its capital stock; or
(v) effected or experienced any material adverse change, or development
involving a prospective material adverse change, in its financial position, net
worth, results of operations, business or business prospects, assets or
properties or key personnel.
(l) Litigation. Except as set forth in the
Prospectus, there is not now pending nor, to the knowledge of the Company,
threatened, any action, suit or proceeding (including any related to
environmental matters or discrimination on the basis of age, sex, religion or
race), whether or not in the ordinary course of business, to which the Company
is a party or its business or property is subject, before or by any court or
governmental authority, which, if determined adversely to the Company, would
have a material adverse effect on the financial position, net worth, or results
of operations, business or business prospects, assets or property of the
Company; and no labor disputes involving the employees of the Company exist
which would affect materially adversely the business, property, financial
position or results of operations of the Company.
(m) Employee and Independent Contractor Matters. The
Company has generally enjoyed satisfactory employer/employee relationships with
its employees and is in compliance in all material respects with all Federal,
state and local laws and regulations, including but not limited to, applicable
tax laws and regulations, respecting the employment of employees and employment
practices, terms and conditions of employment and wages and hours relating
thereto. To the knowledge of the Company, there are no pending or threatened
investigations involving the Company by the U.S. Department of Labor or
corresponding foreign agency, or any other governmental agency responsible for
the enforcement of such Federal, state or local laws and regulations. To the
knowledge of the Company, there are no unfair labor practice charges or
complaints against the Company pending before the National Labor Relations Board
or corresponding foreign agency or any strikes, picketing, boycotts, disputes,
slowdowns or stoppages pending or threatened against or involving the Company,
or any predecessor entity, and none has occurred. No representation question
exists respecting the employees of the Company. No collective bargaining
agreements or modifications thereof are currently in effect or being negotiated
by the Company and their respective employees. No grievance or arbitration
proceeding is pending under any expired or existing collective bargaining
agreements of the Company.
The Company does not: (i) maintain nor has it
maintained, sponsored or contributed to any program or arrangement that is an
"employee pension benefit plan," an
6
"employee welfare benefit plan" or a "multi-employer plan" as such terms are
defined in Sections 3(2), 3(1) and 3(37), respectively of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), except for the
Stock Option Plan described in the Prospectus; (ii) presently maintain or
contribute nor at any time in the past, has maintained or contributed to a
defined benefit plan, as defined in Section 3(35) of ERISA; or (iii) has ever
completely or partially withdrawn from a "multi-employer plan."
The Company has generally enjoyed satisfactory relationships
with its independent contractors and is in compliance in all material respects
with all federal, state and local laws and regulations, including but not
limited to applicable tax laws and regulations, respecting the engagement of its
independent contractors.
(n) No Unlawful Prospectuses. The Company has not
distributed any prospectus or other offering material in connection with the
Offering contemplated herein, other than any Preliminary Prospectus, the
Prospectus or other material permitted by the Act and the Rules and Regulations.
(o) Taxes. Except as disclosed in the Prospectus, the
Company has filed all necessary federal, state, local and foreign income and
franchise tax returns and has paid all taxes shown as due thereon on or before
the date such taxes are due to be paid; and there is no tax deficiency which has
been or, to the knowledge of the Company, might be asserted against the Company.
(p) Licenses, Etc. The Company has in effect all
necessary licenses, permits and other governmental authorizations currently
required for the conduct of its business or the ownership of its property, as
described in the Prospectus, and is in all material respects in compliance
therewith. To the knowledge of the Company, none of the activities or business
of the Company is in violation of, or would cause the Company to violate, any
law, rule, regulation or order of the United States, any country, state, county
or locality, the violation of which would have a material adverse effect upon
the financial position, net worth, results of operations, business or business
prospects, assets or property of the Company taken as a whole.
(q) No Prohibited Payments. The Company has not, nor,
to the knowledge of the Company, any of its employees or officers or directors,
agents or any other person acting on behalf of the Company has, directly or
indirectly, contributed or agreed to contribute any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer,
supplier, or official or governmental agency or instrumentality of any
government (domestic or foreign) or any political party or candidate for office
(domestic or foreign) or other person who was, is, or may be in a position to
help or hinder the business of the Company (or assist it in connection with any
actual or proposed transaction) which (i) could reasonably be expected to
subject the Company to any material damage or penalty in any civil, criminal or
governmental litigation or proceeding, or (ii) if not made in the future, could
reasonably be expected to materially adversely affect the assets, business,
operations or prospects of the Company. The Company's internal accounting
controls and procedures are sufficient to cause the Company to comply in all
material respects with the Foreign Corrupt Practices Act of 1977, as amended.
7
(r) Transfer Taxes. On the Closing Dates (as defined
in Section 2(d) hereof), all transfer and other taxes (including franchise,
capital stock and other taxes, other than income taxes, imposed by any
jurisdiction), if any, which are required to be paid in connection with the sale
and transfer of the Securities to the Underwriters hereunder shall have been
fully paid or provided for by the Company, and all laws imposing such taxes
shall have been fully complied with.
(s) Exhibits. All contracts and other documents of
the Company described in the Registration statement or the Prospectus or to be
filed as exhibits to the Registration Statement, have been described in the
Registration Statement or the Prospectus or filed with the Commission, as
required under the Rules and Regulations.
(t) Subsidiaries. Except as described in the
Prospectus, the Company has no subsidiaries.
(u) Registration Rights. No security holder of the
Company whose securities are not included in the Registration Statement has any
rights with respect to the registration of any Securities, and all registration
rights with respect to the Offering have been waived.
(v) No Stabilization or Manipulation. Neither the
Company nor, to the Company's knowledge, any of its officers or directors or any
of its employees or stockholders, have taken and will not take, directly or
indirectly, any action designed to cause or result in, or which has constituted
or which might reasonably be expected to constitute, under the Exchange Act or
otherwise, the stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Securities.
(w) No Finders. Except as described in the
Prospectus, to the knowledge of the Company, there are no claims, payments,
issuances, arrangements or understandings for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, commitments, payments or
issuances of securities with respect to the Company that may affect the
Underwriter's compensation, as determined by the National Association of
Securities Dealers, Inc. ("NASD").
(x) Lock-up Agreements. The Company has obtained from
each irector, officer and existing stockholder of the Company (the "Existing
Shareholders"), a LockUp Agreement (as defined in Section 3(r) hereof) in the
form previously delivered.
(y) Licensing and Accreditation. The Company has at
all times since the commencement of its business been in compliance with all
federal, state and local laws, rules and regulations applicable to the nature of
its business and operation, except for such non-compliance which would not have
a Material Adverse Effect. The Company has all necessary licenses to operate its
business.
8
(aa) No Adverse Effect of Transaction Contemplated
Hereby. Neither the completion of the Offering nor any of the transactions
contemplated herein or in the Prospectus, including but not limited to the
issuance of any of the Securities, will result in a "change of control" or the
loss of, or have any adverse effect on, the maintenance in good standing of the
Company's licenses.
2. PURCHASE, DELIVERY AND SALE OF SECURITIES
(a) Purchase Price for Securities. The Securities
shall be sold to and purchased by the Underwriters at the purchase price of
$4.641 per Share and $.091 per Warrant (that being the public offering price of
$5.10 per Share and $.10 per Warrant less an underwriting discount of 10
percent) (the "Purchase Price").
(b) Firm Securities.
(i) Subject to the terms and conditions of
this Agreement, and on the basis of the representations, warranties and
agreements herein contained the Company agrees to issue and sell to the
Underwriters, and the Underwriters, agree to buy from the Company at the
Purchase Price, all of the Shares and Warrants (the "Firm Securities").
(ii) Delivery of the Firm Securities against
payment therefor shall take place at the offices of Maidstone Financial, Inc.,
000 Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (or at such other place as may be
designated by agreement between you and the Company) at 10:00 a.m., New York
Time, on , 1996, or at such later time and date, not later than eight business
days after the Effective Date, as you may designate (such time and date of
payment and delivery for the Firm Securities being herein called the "First
Closing Date").
(c) Option Securities.
(i) In addition, subject to the terms and
conditions of this Agreement, and on the basis of the representations,
warranties and agreements herein contained, the Company hereby grants to the
Underwriters an option (the "Over-Allotment Option"), to purchase from the
Company all or any part of an aggregate of an additional 195,000 Shares and/or
195,000 Warrants at the Purchase Price (the "Option Securities").
(ii) The Over-Allotment Option may be
exercised by the Underwriters, in whole or in part, within thirty business days
after the Effective Date, upon written notice by Maidstone to the Company
advising it of the number of Option Securities as to which the Over-Allotment
Option is being exercised, the names and denominations in which the certificates
for the Shares and the Warrants comprising such Option Securities are to be
registered, and the time and date when such certificates are to be delivered.
Such time and date shall be determined by you but shall not be less than two nor
more than ten business days after
9
exercise of the Over-Allotment Option, nor in any event prior to the First
Closing Date (such time and date being herein called the "Option Closing Date").
Delivery of the Option Securities against payment therefor shall take place at
Maidstone's offices.
(iii) The Over-Allotment may be exercised
only to cover over-allotments in the sale by the Underwriters of Firm
Securities.
(d) Delivery of Certificates; Payment.
(i) The Company shall make the certificates
for the Shares and the Warrants to be purchased hereunder available to you for
checking at least one full business day prior to the First Closing Date or the
Option Closing Date (each, a "Closing Date"), as the case may be. The
certificates shall be in such names and denominations as you may request at
least two business days prior to the relevant Closing Date. The availability of
the certificates at the time and place specified in this Section 2(d)(i) is a
further condition to the obligations of the Underwriter hereunder.
(ii) On the First Closing Date, the Company
shall deliver to you for the account of the Underwriters definitive engraved
certificates in negotiable form representing all of the Shares and the Warrants
to be sold by the Company, against payment of the Purchase Price therefor by you
for the account of the Underwriters, by certified or bank cashier's checks
payable in New York Clearing House funds to the order of the Company.
(iii) In addition, if and to the extent that
the Underwriters exercise the Over-Allotment Option, then on the Option Closing
Date the Company shall deliver to you for the account of the Underwriters or its
designees definitive engraved certificates in negotiable form representing the
Shares and the Warrants to be sold by the Company, against payment of the
Purchase Price therefor by the Underwriters for the account of the Underwriters
or its designees, by certified or bank cashier's checks payable in next day
funds to the order of the Company.
(iv) It is understood that the Underwriters
propose to offer the Shares and Warrants to be purchased hereunder to the
public, upon the terms and conditions set forth in the Registration Statement,
after the Registration Statement becomes effective.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees
with the Underwriters that:
10
(a) Registration.
(i) The Company shall use its best efforts
to cause the Registration Statement to become effective and, upon notification
from the Commission that the Registration Statement has become effective, shall
so advise you and shall not at any time, whether before or after the Effective
Date, file any amendment to the Registration Statement or any amendment or
supplement to the Prospectus of which you shall not previously have been advised
and furnished with a copy, or to which you or Underwriters' Counsel shall have
objected in writing, or which is not in compliance with the Act and the Rules
and Regulations.
(ii) Promptly after you or the Company shall
have been advised thereof, you shall advise the Company or the Company shall
advise you, as the case may be, and confirm such advice in writing, of (A) the
receipt of any comments of the Commission, (B) the effectiveness of any
post-effective amendment to the Registration Statement, (C) the filing of any
supplement to the Prospectus or any amended Prospectus, (D) any request made by
the Commission for amendment of the Registration Statement or amendment or
supplementing of the Prospectus, or for additional information with respect
thereto, or (E) the issuance by the Commission or any state or regulatory body
of any stop order or other order denying or suspending the effectiveness of the
Registration Statement, or preventing or suspending the use of any Preliminary
Prospectus, or suspending the qualification of the Securities for offering in
any jurisdiction, or otherwise preventing or impairing the Offering, or the
institution or threat of any proceeding for any of such purposes. The Company
and you shall not acquiesce in such order or proceeding, and shall instead
actively defend such order or proceeding, unless the Company and you agree in
writing to such acquiescence.
(iii) The Company has caused to be delivered
to you copies of each Preliminary Prospectus, and the Company has consented and
hereby consents to the use of such copies for the purposes permitted by the Act.
The Company authorizes the Underwriters and selected dealers to use the
Prospectus in connection with the sale of the Securities for such period as in
the opinion of Underwriters' Counsel the use thereof is required to comply with
the applicable provisions of the Act and the Rules and Regulations. In case of
the happening, at any time within such period as a prospectus is required under
the Act to be delivered in connection with sales by an underwriter or dealer, of
any event of which the Company has knowledge and which materially affects the
Company or the Securities, or which in the opinion of Company Counsel or of
Underwriters' Counsel should be set forth in an amendment to the Registration
Statement or an amendment or supplement to the Prospectus in order to make the
statement made therein not then misleading, in light of the circumstances
existing at the time the Prospectus is required to be delivered to a purchaser
of the Securities, or in case it shall be necessary to amend or supplement the
Prospectus to comply with the Act or the Rules and Regulations, the Company
shall notify you promptly and forthwith prepare and furnish to the Underwriters
copies of such amended Prospectus or of such supplement to be attached to the
Prospectus, in such quantities as you may reasonably request, in order that the
Prospectus, as so amended or supplemented, shall not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements in the Prospectus, in the light
11
of the circumstances under which they are made, not misleading. The preparation
and furnishing of each such amendment to the Registration Statement, amended
Prospectus or supplement to be attached to the Prospectus shall be without
expense to the Underwriters, except that in the case that the Underwriters are
required, in connection with the sale of the Securities, to deliver a prospectus
nine months or more after the Effective Date, the Company shall upon your
request and at the expense of the Underwriter, amend the Registration Statement
and amend or supplement the Prospectus, or file a new registration statement, if
necessary, and furnish the Underwriters with reasonable quantities of
prospectuses complying with section 10(a)(3) of the Act.
(iv) The Company will deliver to you at or
before the First Closing Date two signed copies of the Registration Statement
including all financial statements and exhibits filed therewith, and of all
amendments thereto. The Company will deliver to or upon your order, from time to
time until the Effective Date as many copies of any Preliminary Prospectus filed
with the Commission prior to the Effective Date as the Underwriters may
reasonably request. The Company will deliver to you on the Effective Date and
thereafter for so long as a Prospectus is required to be delivered under the
Act, from time to time, as many copies of the Prospectus, in final form, or as
thereafter amended or supplemented, as the Underwriters may from time to time
reasonably request.
(v) The Company shall comply with the Act,
the Rules and Regulations, and the Securities Exchange Act of 1934 (the
"Exchange Act"), and the rules and regulations promulgated thereunder in
connection with the offering and issuance of the Securities in all material
respects.
(b) Blue Sky. The Company shall, at its own expense,
use its best efforts to qualify or register the Securities for sale (or obtain
an exemption from registration) under the securities or "blue sky" laws of such
jurisdictions as you may designate, and shall make such applications and furnish
such information to Underwriters' Counsel as may be required for that purpose,
and shall comply with such laws; provided, however, that the Company shall not
be required to qualify as a foreign corporation or a dealer in securities or to
execute a general consent to service of process in any jurisdiction in any
action other than one arising out of the offering or sale of the Securities. The
Company shall bear all of the expense of such qualifications and registrations,
including without limitation the legal fees and disbursements of Underwriters'
Counsel, up to $35,000 ($10,000 of which has already been paid), which fees
shall be based on counsel's customary hourly billing rates, plus disbursements
relating to, but not limited, long-distance telephone calls, photocopying,
messengers, excess postage, overnight mail and courier services. After each
Closing Date the Company shall, at its own expense, from time to time prepare
and file such statements and reports as may be required to continue each such
qualification (or maintain such exemption from registration) in effect for so
long a period as required by law, regulation or administrative policy in
connection with the offering of the Securities.
12
(c) Exchange Act Registration. The Company shall at
its own expense, prepare and file with the Commission a registration statement
(on Form 8-A or Form 10) under section 12 of the Exchange Act, and shall use its
best efforts to cause such registration statement to be declared effective by
the Commission on an accelerated basis on the Effective Date and maintained in
effect for at least five years from the Effective Date.
(d) Prospectus Copies. The Company shall deliver to
you on or before the First Closing Date a copy of the Registration Statement
including all financial statements, schedules and exhibits filed therewith, and
of all amendments thereto. The Company shall deliver to or on the order of the
Underwriter, from time to time until the Effective Date, as many copies of any
Preliminary Prospectus filed with the Commission prior to the Effective Date as
the Underwriters may reasonably request. The Company shall deliver to the
Underwriters on the Effective Date, and thereafter for so long as a prospectus
is required to be delivered under the Act, from time to time, as many copies of
the Prospectus, in final form, or as thereafter amended or supplemented, as the
Underwriters may from time to time reasonably request.
(e) Amendments and Supplements. The Company shall,
promptly upon your request, prepare and file with the Commission any amendments
to the Registration Statement, and any amendments or supplements to the
Preliminary Prospectus or the Prospectus, and take any other action which in the
reasonable opinion of Underwriters' Counsel and Company Counsel may be
reasonably necessary or advisable in connection with the distribution of the
Securities, and shall use its best efforts to cause the same to become effective
as promptly as possible.
(f) Certain Market Practices. The Company has not
taken, and shall not take, directly or indirectly, any action designed, or which
might reasonably be expected, to cause or result in, or which has constituted,
the stabilization or manipulation of the price of the Securities to facilitate
the sale or resale thereof.
(g) Certain Representations. Neither the Company nor
any representative of the Company has made nor shall make any written or oral
representation in connection with the Offering and sale of the Securities or the
Underwriters' Warrants which is not contained in the Prospectus, which is
otherwise inconsistent with or in contravention of anything contained in the
Prospectus, or which shall constitute a violation of the Act, the Rules and
Regulations, the Exchange Act or the rules and regulations promulgated under the
Exchange Act.
(h) Continuing Registration of Warrants and
Underlying Common Stock. For so long as any Warrant is outstanding, the Company
shall, at its own expense: (i) use its reasonable best efforts to cause
post-effective amendments to the Registration Statement, or new registration
statements relating to the Warrants and the Common Stock underlying the Warrants
to become effective in compliance with the Act and without any lapse of time
between the effectiveness of the Registration Statement and of any such
post-effective amendment or new
13
registration statement; provided, however, that the Company shall have no
obligation to maintain the effectiveness of such Registration Statement or file
a new Registration Statement, or to keep available a prospectus at any time at
which such registration or prospectus is not then required; (ii) cause a copy of
each Prospectus, as then amended, to be delivered to each holder of record of a
Warrant; (iii) furnish to the Underwriters and dealers as many copies of each
such Prospectus as the Underwriters or dealers may reasonably request; and (iv)
maintain the "blue sky" qualification or registration of the Warrants and the
Common Stock underlying the Warrants, or have a currently available exemption
therefrom, in each jurisdiction in which the Securities were so qualified or
registered for purposes of the Offering.
(i) Use of Proceeds. The Company shall apply the net
proceeds from the sale of the Securities substantially for the purposes set
forth in the Prospectus under the caption "USE OF PROCEEDS," and shall file such
reports with the Commission with respect to the sale of the Securities and the
application of the proceeds therefrom as may be required pursuant to Rule 463 of
the Rules and Regulations.
(j) Twelve Months' Earnings Statement. The Company
shall make generally available to its security holders and deliver to you as
soon as it is practicable so to do, but in no event later than ninety days after
the end of twelve months after the close of its current fiscal quarter, an
earnings statement (which need not be audited) covering a period of at least
twelve consecutive months beginning after the Effective Date, which shall
satisfy the requirements of section 11(a) of the Act.
(k) NASDAQ Exchange Listings, Etc. The Company shall
immediately make all filings required to seek approval for the quotation of the
Securities on the NASDAQ National Market System ("NASDAQ") and shall use its
best efforts to effect and maintain such approval for at least five years from
the Effective Date. Within 10 days after the Effective Date, the Company shall
also use its best efforts to list itself, on an expedited basis, in Xxxxx'x OTC
Industrial Manual, Standard and Poor's Corporation Descriptions or other
recognized securities manuals acceptable to the Underwriters and to cause such
listing to be maintained for five years from the Effective Date.
(l) Board of Directors. For a period of three (3)
years after the First Closing Date, Maidstone shall have the right to appoint a
designee as a nonvoting advisor to the Company's Board of Directors (the
"Advisor"); provided, however, that the Company may require as a condition
precedent that any such Advisor shall agree to hold in confidence and trust and
to act in a fiduciary manner with respect to all information, including, but not
limited to, trade secrets, so received during such meetings and may require that
such Advisor sign a confidentiality agreement with the Company; and, provided,
further, that the Company reserves the right not to provide information and to
exclude such Advisor from any meeting or portion thereof if attendance at such
meeting by such Advisory or dissemination of any information at such meeting to
such Advisor would compromise or adversely affect the attorney-client privilege
between the Company and its counsel, or would, in the good faith judgment of the
Board of Directors, result in a conflict of interest situation. The Company
shall use its reasonable efforts
14
to promptly bring to the attention of such Advisor any agenda item that, in the
good faith judgment of the Board of Directors, would result in such a trade
secret, privileged matter or conflict of interest and the Board of Directors may
exclude such Advisor or alternatively, the Advisor shall be entitled to exclude
himself or herself) from any deliberation or discussion of the Board of
Directors concerning such trade secret (if the Advisor has not executed a
confidentiality agreement), privileged matter of conflict of interest matter and
as a recipient in the dissemination of any such information. If such Advisor in
his or her good faith judgment believes that an item to be discussed by the
Board of Directors would result in any conflict of interest, such Advisor shall
promptly bring such conflict to the attention of the Chairman of the Board. In
no event shall any provision of this paragraph waive any obligation or
confidentiality to the Company owed by any such Advisor or the Representative.
The designee may be a director, officer, partner, employee or affiliate of an
Underwriter, and Maidstone shall designate such person in writing to the Board.
In the event Maidstone shall not have designated such individual at the time of
any meeting of the Board or such person is unavailable to serve, the Company
shall notify Maidstone of each meeting of the Board. An individual, if any,
designated by Maidstone shall receive all notices and other correspondence and
communications sent by the Company to members of the Board. Such Advisor shall
be entitled to receive reimbursement for all reasonable costs incurred in
attending such meetings including, but not limited to, food, lodging, and
transportation. In addition, such Advisor shall be entitled to the same
compensation as the Company gives to other non-employee directors for acting in
such capacity. The Company further agrees that, during said three (3) year
period, it shall schedule no less than four (4) formal and "in person" meetings
of its Board of Directors in each such year at which meetings such Advisor shall
be permitted to attend as set forth herein; said meetings shall be held
quarterly each year and thirty (30) days advance notice of such meetings shall
be given to the Advisor. Further, during such three (3) year period, the Company
shall give notice to Maidstone with respect to any proposed acquisitions,
mergers, reorganizations or other similar transactions.
The Company agrees to indemnify and hold harmless the
Underwriters and the Advisor against any and all claims, actions, damages, costs
and expenses, and judgments arising solely out of the attendance and
participation of the Advisor at any such meeting described herein. In the event
the Company maintains a liability insurance policy affording coverage for the
acts of its officers and directors, it agrees, if possible, to include the
Advisor as an insured under such policy.
(m) Periodic Reports. For so long as the Company is a
reporting company under section 12(g) or section 15(d) of the Exchange Act, the
Company shall, at its own expense, hold an annual meeting of stockholders for
the election of directors within 180 days after the end of each of the Company's
fiscal years and, within 150 days after the end of each of the Company's fiscal
years, and furnish to its stockholders an annual report (including financial
statements audited by certified public accountants) in reasonable detail. In
addition, during the period ending five years from the date hereof, the Company
shall, at its own expense, furnish to you: (i) within 90 days of the end of each
fiscal year, a balance sheet of the Company as at the end of such fiscal year,
together with statements of income, stockholders' equity and
15
cash flows of the Company as at the end of such fiscal year, all in reasonable
detail and accompanied by a copy of the certificate or report thereon of
certified public accountants; (ii) as soon as they are available, a copy of all
reports (financial or otherwise) distributed to security holders; and (iii) as
soon as they are available, a copy of all non-confidential reports and financial
statements furnished to or filed with the Commission. The financial statements
referred to herein shall be on a consolidated basis to the extent the accounts
of the Company are consolidated in reports furnished to its stockholders
generally.
(n) Form S-8 Registrations. For a period of two years
following the First Closing Date, the Company shall not, without Maidstone's
prior written consent, register or otherwise facilitate the registration of any
of its securities issuable upon the exercise of options, warrants (other than
options issued pursuant to the 1996 Stock Option Plan, the Warrants and the
Underwriter's Warrants) or other rights, whether by means of a Registration
Statement on Form S-8 or otherwise.
(o) Future Sales. For a period of two years following
the First Closing Date, the Company shall not, without Maidstone's prior written
consent, issue any shares of Common Stock. Notwithstanding the foregoing, the
Company may at any time issue shares of Common Stock pursuant to the exercise of
the Warrants, the Warrants, the Warrants underlying the Underwriter's Warrants,
and options, warrants or conversion rights issued and outstanding on the
Effective Date and described in the Prospectus.
(p) Regulation S Sales. For a period of two years
following the First Closing Date, the Company shall not issue or sell any
securities pursuant to Regulation S of the Rules and Regulations under the Act,
without Maidstone's prior written consent.
(q) Agreements with Shareholders, Directors and
Officers. The Company shall cause each of the Company's existing stockholders,
directors and officers to enter into written agreements with Maidstone (the
"Lock-up Agreements") prior to the Effective Date, that, for a period of
twenty-four months from the Effective Date (except for the Selling
Securityholders who have agreed to identical restrictions for a period of 18
months), they will not, without the consent of Maidstone, (i) publicly sell any
securities of the Company owned directly or indirectly by them or owned
beneficially by them (as defined in the Exchange Act), or (ii) otherwise sell,
or transfer such securities unless the transferee agrees in writing to be bound
by an identical lock-up.
(r) Warrant Solicitation. Upon the exercise of any
Warrants on or after the first anniversary of the Effective Date, the Company
shall pay to Maidstone a commission of eight (8%) percent of the aggregate
exercise price of such Warrants, a portion of which may be reallowed by
Maidstone to the dealer who solicited the exercise (which may also be you), if:
(i) the market price of the Common Stock is greater than the exercise price of
the Warrant on the date of exercise; (ii) the exercise of the Warrant was
solicited by Maidstone; (iii) the Warrant is not held in a discretionary
account; (iv) the disclosure of the compensation arrangements has been made in
documents provided to customers, both as part of the Offering
16
and at the time of exercise; and (v) the solicitation of the Warrant was not in
violation of Rule 10b-6 promulgated under the Exchange Act. No commission shall
be paid to you on any Warrant exercise prior to the first anniversary of the
Effective Date, or on any Warrant exercised at any time without solicitation by
Maidstone or a soliciting dealer.
(s) Available Shares. The Company shall reserve and
at all times keep available that maximum number of it authorized but unissued
shares of Common Stock which are issuable upon exercise of the Warrants, the
Underwriters' Warrants, and the Warrants issuable upon exercise of the
Underwriters' Warrants, in each case taking into account the anti-dilution
provisions thereof.
(t) Financial Consulting Agreement. On the First
Closing Date and simultaneously with the delivery of the Firm Securities, the
Company shall execute and deliver to Maidstone an agreement with Maidstone, or
its representative, in the form previously delivered to the Company by
Maidstone, regarding the services of Maidstone or its representative a financial
consultant to the Company (the "Financial Consulting Agreement"), for a
thirty-six month period commencing as of the date hereof at a fee equal to
$3,000 per month which shall be paid in its entirety on the First Closing Date.
(u) Management. On each Closing Date, the President
of the Company shall be Xxxx X. Xxxxxxxxx and the Secretary of the Company shall
be Xxxxx X. Xxxxxxxxx. Prior to the Effective Date, the Company shall have
obtained "key-employee" life insurance coverage in the amount of $1,000,000 on
each of them. As of the Effective Date, the Company shall have entered into
employment agreements with Messrs. Sheinwald and Xxxxxxxxx as set forth in the
Registration Statement.
(v) Stock Transfer Sheets. The Company shall instruct
its Transfer Agent (as defined in Section 4(h) hereto) to deliver to you copies
of all advice sheets showing the daily transfer of the outstanding shares of
Common Stock and Warrants sold by the Company in the public offering and shall,
at its own expense, furnish you weekly following the First Closing Date during
the period ending three years following the First Closing Date with Depository
Trust Company stock transfer sheets.
(w) Public Relations. As of the Effective Date, the
Company shall have retained a public relations firm reasonably acceptable to
you, and shall continue to retain such firm, or an alternate firm reasonably
acceptable to Maidstone, for a period of twelve (12) months.
(x) Additional Representations. The Company shall
engage the Underwriters' Counsel to provide the Underwriter, at the First
Closing Date and quarterly thereafter, until such time as the Common Stock is
listed on the New York Stock Exchange or the American Stock Exchange or quoted
on NASDAQ National Market System, with an opinion, setting forth those states in
which the Common Stock may be traded in non-issuer transactions under the blue
sky laws of the fifty states. The Company shall pay the Underwriters' Counsel
17
a one-time fee of $12,500 at the First Closing Date for such opinions.
(aa) Bound Volumes. Within a reasonable time after
the First Closing Date, the Company shall deliver to you, at the Company's
expense, five bound volumes, containing the Registration Statement and all
exhibits filed therewith and all amendments thereto, and all other agreements,
correspondence, filings, certificates and other documents filed and/or delivered
in connection with the Offering.
4. CONDITIONS TO UNDERWRITERS' OBLIGATIONS. The obligations of
the Underwriters to purchase and pay for the Securities which the Underwriters
have agreed to purchase hereunder are subject to the material accuracy (as of
the date hereof and as of each Closing Date) of the representations and
warranties of the Company contained herein, the performance by the Company of
all of its respective obligations hereunder and the following further
conditions:
(a) Effective Registration Statement; No Stop Order.
The Registration Statement shall have become effective and you shall have
received notice thereof not later than 6:00 p.m., New York time, on the date of
this Agreement, or at such later time or on such later date as provided herein
or to which you may agree in writing. In addition, on each Closing Date (i) no
stop order denying or suspending the effectiveness of the Registration Statement
shall be in effect, and no proceedings for that or any similar purpose shall
have been instituted or shall be pending or, to your knowledge or to the
knowledge of the Company, shall be contemplated by the Commission, and (ii) all
requests on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of Underwriters' Counsel.
(b) Opinion of Company Counsel. On the First Closing
Date, you shall have received the opinion, dated as of the First Closing Date,
of Company Counsel, in form and substance satisfactory to the Underwriters'
Counsel, to the effect that:
(i) the Company has been duly incorporated
and validly exists as a corporation in good standing under the laws of
its jurisdiction of incorporation, with full corporate power and
authority to own its properties and conduct its business as described
in the Prospectus, and to such counsel's knowledge, is duly qualified
or licensed to do business as a foreign corporations and is in good
standing in each other jurisdiction in which the nature of its business
or the character or location of its properties requires such
qualification, except where failure to so qualify will not have a
material adverse affect on the business, properties or financial
condition of the Company taken as a whole;
(ii) (A) the authorized capitalization of
the Company as of the date of the Prospectus was as is set forth in the
Prospectus under the caption "CAPITALIZATION;" (B) all of the shares of
Common Stock now outstanding have been duly authorized and validly
issued, are fully paid and non-assessable,
18
conform in all material respects to the description thereof contained
in the Prospectus, have not been issued in violation of the preemptive
rights of any stockholder and, except as described in the Prospectus,
are not subject to any restrictions upon the voting or transfer
thereof; (C) all of the Shares and all of the Warrants comprising the
Securities have been duly authorized and, when issued and delivered to
the Underwriters against payment therefor as provided herein, shall be
validly issued, fully paid and non-assessable, shall not have been
issued in violation of the preemptive rights of any stockholder, and no
personal liability shall attach to the ownership thereof; (D) to such
counsel's knowledge, the stockholders of the Company do not have any
preemptive rights or other rights to subscribe for or purchase, and
except for the transfer restrictions imposed by Rule 144 of the Rules
and Regulations promulgated under the Act or contained in the Lock-up
Agreements executed with the Underwriters, there are no restrictions
upon the voting or transfer of, any of the Securities; (E) the Shares
and the Warrants comprising the Securities, the Warrant Agreement and
the Underwriters' Unit Purchase Options conform in all material
respects to the respective descriptions thereof contained in the
Prospectus; (F) to such counsel's knowledge, all issuances of the
Company's securities have been made in compliance with, or under an
exemption from, the Act and applicable state securities laws; (G) a
sufficient number of shares of Common Stock has been reserved, for all
times when any of the Warrants (including the Warrants issuable upon
exercise of the Underwriters' Warrants) are outstanding, for issuance
upon exercise of all of the Warrants; and (H) to the knowledge of such
counsel, neither the filing of the Registration Statement nor the
offering or sale of the Securities as contemplated by this Agreement
gives rise to any registration rights or other rights, other than those
which have been effectively waived or satisfied or described in the
Prospectus, for or relating to the registration of any securities of
the Company;
(iii) the certificates evidencing the Shares
and the Warrants comprising the Securities are each in valid and proper
legal form; and the Warrants are exercisable for shares of Common Stock
in accordance with the terms of the Warrants;
(iv) this Agreement, the Warrant Agreement,
the Underwriters' Warrants, and the Financial Consulting Agreement have
been duly and validly authorized, executed and delivered by the Company
and (assuming due execution and delivery thereof by the Underwriter
and/or Continental Stock Transfer & Trust Company, as the case may be)
all of such agreements are, or when duly executed shall be, the valid
and legally binding obligations of the Company, enforceable in
accordance with their respective terms (except as enforceability may be
limited by bankruptcy, insolvency or other laws affecting the rights of
creditors generally or by general equitable principles); provided,
however, that no opinion need to be expressed as to the enforceability
of the
19
indemnity provisions contained in Section 6 or the contribution
provisions contained in Section 7;
(v) to the knowledge of such counsel, other
than as described in the Prospectus (A) there is no pending, threatened
or contemplated legal or governmental proceeding affecting the Company
which could materially and adversely affect the business, property,
operations, condition (financial or otherwise) or earnings of the
Company, or which questions the validity of the Offering, the
Securities, this Agreement, the Warrant Agreement, the Underwriters'
Warrants, or the Financial Consulting Agreement or of any action taken
or to be taken by the Company pursuant thereto; and (B) there is no
legal or governmental regulatory proceeding required to be described or
referred to in the Registration Statement which is not so described or
referred to;
(vi) to the knowledge of such counsel, (A)
the Company is not in violation of or default under this Agreement, the
Warrant Agreement, the Underwriters' Warrants, or the Financial
Consulting Agreement; and (B) to the knowledge of such counsel, the
execution and delivery hereof and thereof and consummation of the
transactions herein or therein contemplated shall not result in a
material violation of, or constitute a default under, the Certificate
of Incorporation or By-laws of the Company, or any material obligation,
agreement, covenant of condition contained in any bond, debenture, note
or other evidence of indebtedness, or in any material contract,
indenture, mortgage, loan agreement, lease, joint venture or other
agreement or instrument to which the Company is a party or by which the
assets of the Company is bound, or any material order, rule,
regulation, writ, injunction or decree of any government, governmental
instrumentality or court applicable to the Company;
(vii) to the knowledge of such counsel, (a)
the Company has obtained, or is in the process of obtaining, all
licenses, permits and other governmental authorizations necessary to
the conduct of its business as described in the Prospectus, (b) such
obtained licenses, permits and other governmental authorizations are in
full force and effect, and (c) the Company is in all material respects
complying therewith;
(viii) the Registration Statement has become
effective under the Act, and to the knowledge of such counsel, no stop
order denying or suspending the effectiveness of the Registration
Statement is in effect, and no proceedings for that or any similar
purpose have been instituted or are pending before or threatened by the
Commission;
(ix) the Registration Statement and the
Prospectus (except for the financial statements, notes thereto and
other financial information and statistical data contained therein, as
to which counsel need not express an opinion)
20
comply as to form in all material respects with the Act and the Rules
and Regulations;
(x) all descriptions contained in the
Registration Statement and the Prospectus, and any amendments or
supplements thereto, of contracts and other documents are accurate and
fairly present the information required to be described, and such
counsel is familiar with all contracts and other documents referred to
in the Registration Statement and the Prospectus, and any such
amendment or supplement, or filed as exhibits to the Registration
Statement and, to the knowledge of such counsel, no contract, document,
license or permit of a character required to be summarized or described
therein or to be filed as an exhibit thereto is not so summarized,
described or filed.
(xi) the statements in the Registration
Statement and the Prospectus under the captions "Risk Factors," "Use of
Proceeds," "Business," "Management," and "Description of Securities,"
which purport to summarize the provisions of agreements, licenses,
statutes or rules and regulations, have been reviewed by such counsel
and are accurate summaries in all material respects;
(xii) except for registration under the Act
and registration or qualification of the Securities under applicable
state or foreign securities or blue sky laws and NASD approval, no
authorization, approval, consent or license of any governmental or
regulatory authority or agency is necessary in connection with: (A) the
authorization, issuance, sale, transfer or delivery of the Securities
by the Company in accordance with this Agreement; (B) the execution,
delivery and performance of this Agreement by the Company or the taking
of any action contemplated herein; (C) the issuance of the
Underwriters' Warrants in accordance with this Agreement or the
Securities issuable upon exercise thereof; or the taking of any action
contemplated herein.
In rendering the opinions as set forth above, such counsel may rely upon
certificates of officers of the Company and of public officials as to matters of
fact. Such opinion shall also include a statement to the effect that in
connection with the preparation of the Registration Statement and the
Prospectus, such counsel has participated in conferences with officers and other
representatives of the Company, the Representative, Underwriters' counsel and
the independent certified public accountants of the Company, at which
conferences the contents of the Registration Statement and the Prospectus and
related matters were discussed, although such counsel is not passing on, and has
not verified the accuracy, completeness or fairness of the statements contained
in the Prospectus (except for customary due diligence) nothing has come to the
attention of such counsel which leads them to believe that at the time it became
effective contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus (other than the
schedules, financial statements and other financial and statistical information
as to which no view is expressed) at the time it became effective contained any
21
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, or that the Prospectus (other than the financial statements and
other financial and statistical information as to which counsel need not express
an opinion) contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. In addition, such
opinion shall also cover such matters incident to the transactions contemplated
hereby as you or Underwriters' Counsel shall reasonably request. In rendering
such opinion, Company Counsel may rely as to matters of fact upon certificates
of officers of the Company, and of public officials, and may rely as to all
matters of law other than the law of the United States or the State of New York
and the General Corporation Law of the State of Delaware, upon opinions of
counsel reasonably satisfactory to you, in which case the opinion shall state
that they have no reason to believe that you and they are not entitled so to
rely.
(c) Intentionally omitted.
(d) Corporate Proceedings. All corporate proceedings
and other legal matters relating to this Agreement, the Registration Statement,
the Prospectus and other related matters shall be reasonably satisfactory to or
approved by Underwriters' Counsel.
(e) Comfort Letter. Prior to the Effective Date, and
again on and as of the First Closing Date, you shall have received a letter from
Xxxxxxx X. Xxxxxx & Company, LLP, certified public accountants for the Company,
satisfactory in form and substance to the Underwriters' Counsel.
(f) Bring Down. At each of the Closing Dates, (i) the
representations and warranties of the Company contained in this Agreement shall
be true and correct with the same effect as if made on and as of such Closing
Date, and the Company shall have performed all of its obligations hereunder and
satisfied all the conditions to be satisfied at or prior to such Closing Date;
(ii) the Registration Statement and the Prospectus shall contain all statements
which are required to be stated therein in accordance with the Act and the Rules
and Regulations, and shall in all material respects conform to the requirements
of the Act and the Rules and Regulations, and neither the Registration Statement
nor the Prospectus shall contain any untrue statement of a material fact or omit
to state any material fact required to be stated or which they were made, not
misleading; (iii) there shall have been, since the respective dates as of which
information is given, no material adverse change in the business, operations,
condition (financial or otherwise), earnings, capital stock, long-term or
short-term debt or general affairs of the Company from that set forth in the
Registration Statement and the Prospectus, except changes which the Registration
Statement and Prospectus indicate might occur after the Effective Date, and the
Company shall not have incurred any material liabilities nor entered into any
material agreement other than as referred to in the Registration Statement and
Prospectus; and (iv) except as set forth in the Prospectus, no action, suit or
proceeding shall be pending or threatened against the Company before or by any
commission, board or administrative agency in the United States or elsewhere,
wherein an unfavorable decision, ruling
22
or finding would materially adversely affect the business, property, operations,
condition (financial or otherwise), earnings or general affairs of the Company.
In addition, you shall have received, at the First Closing Date, a certificate
signed by the principal executive officer and by the principal financial officer
of the Company, dated as of the First Closing Date, evidencing compliance with
the provisions of this Section 4(g).
(g) Transfer and Warrant Agent. On or before the
Effective Date, the Company shall have appointed Continental Stock Transfer &
Trust Company (or other agent mutually acceptable to the Company and Maidstone),
as its transfer agent and warrant agent ("Transfer Agent") to transfer all of
the Shares and Warrants issued in the Offering, as well as to transfer other
shares of the Common Stock outstanding from time to time.
(h) NASD Approval Of Underwriters' Compensation. By
the Effective Date, the Underwriter shall have received clearance from the NASD
as to the amount of compensation allowable or payable to the Underwriters, as
described in the Registration Statement.
(i) Certain Further Matters. On each Closing Date,
Underwriters' Counsel shall have been furnished with all such other documents
and certificates as they may reasonably request for the purpose of enabling them
to render their legal opinion to the Underwriter and in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements, the performance of any of the covenants, or the fulfillment of any
of the conditions, herein contained.
(j) All proceedings taken in connection with the
authorization, issuance or sale of the Securities, as herein contemplated shall
be reasonably satisfactory in form and substance to the Underwriters and to
Underwriters' Counsel;
(k) On each Closing Date there shall have been duly
tendered to you for your account the appropriate number of Securities;
(l) No order suspending the sale of the Securities in
any jurisdiction designated by you pursuant to Section 3(b) hereof shall have
been issued on either Closing Date, and no proceedings for that purpose shall
have been instituted or, to the knowledge of the Underwriters or the Company,
shall be contemplated;
(m) Prior to each Closing Date, there shall not have
been received or provided by the Company's independent public accountants or
attorneys, qualifications to the effect of either difficulties in furnishing
certifications as to material items including, without limitation, information
contained within the footnotes to the financial statements, or as affecting
matters incident to the issuance and sale of the Securities or as to corporate
proceedings or other matters;
(n) On or prior to the First Closing Date, the
Underwriters' Warrants,
23
the Warrant Agreement and the Financial Consulting Agreement shall have been
executed and delivered by the Company, and the Lock-Up Agreements shall have
been executed and delivered by all of the Company's officers, directors and
existing stockholders, to the Underwriters.
(o) Additional Conditions Relating to Option Closing.
Upon exercise of the Over-Allotment Option, Maidstone's obligations to purchase
and pay for the Option Securities shall be subject to the following conditions:
(i) The Registration Statement shall remain
effective at the Option Closing Date, no stop order denying or suspending the
effectiveness thereof shall have been issued, and no proceedings for that or any
similar purpose shall have been instituted or shall be pending or, to your
knowledge or the knowledge of the Company, shall be contemplated by the
Commission, and all reasonable requests on the part of the Commission for
additional information shall have been complied with to the satisfaction of
Underwriters' Counsel.
(ii) On the Option Closing Date there shall
have been delivered to you the signed opinion of Company Counsel, dated as of
the Option Closing Date, in form and substance satisfactory to Underwriters'
Counsel, which opinion shall be substantially the same in scope and substance as
the opinion furnished to you on the First Closing Date pursuant to Section 4(b),
except that such opinion, where appropriate, shall cover the Option Securities
rather than the Firm Securities. If the First Closing Date is the same as the
Option Closing Date, such opinions may be combined.
(iii) All proceedings taken at or prior to
the Option Closing Date in connection with the sale and issuance of the Option
Securities shall be reasonably satisfactory in form and substance to you, and
you and Underwriters' Counsel shall have been furnished with all such documents,
certificates and opinions as you may reasonably request in connection with this
transaction in order to evidence the accuracy and completeness of any of the
representations, warranties or statements of the Company or its compliance with
any of the covenants or conditions contained herein.
(iv) On the Option Closing Date there shall
have been delivered you a letter in form and substance satisfactory to Maidstone
from Xxxxxxx X. Xxxxxx & Company, LLP, dated the Option Closing Date addressed
to you, confirming the information in their letter referred to in Section 4(f)
as of the date thereof and stating that, without any additional investigation
required, nothing has come to their attention during the period from the ending
date of their review referred to in such letter to a date not more than five
banking days prior to the Option Closing Date which would require any change in
such letter if it were required to be dated the Option Closing Date.
Any certificate signed by any officer of the Company and
delivered to the Underwriters or to Underwriters' Counsel shall be deemed a
representation and warranty by the Company to the Underwriter as to the
statements made therein. If any of the conditions herein provided for in this
Section shall not have been completely fulfilled as of the date indicated, this
24
Agreement and all obligations of the Underwriter under this Agreement may be
cancelled at, or at any time prior to, each Closing Date by your notifying the
Company of such cancellation in writing or by telecopy at or prior to the
applicable Closing Date. Any such cancellation shall be without liability of any
Underwriters to the Company, except as otherwise provided herein.
5. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to sell and deliver the Securities are subject to the
following conditions:
(a) Effective Registration Statement. The
Registration Statement shall have become effective not later than 6:00 p.m. New
York Time, on the date of this Agreement, or at such later time or on such later
date as the Company and you may agree in writing.
(b) No Stop Order. On the applicable Closing Date, no
stop order denying or suspending the effectiveness of the Registration Statement
shall have been issued under the Act or any proceedings therefor initiated or
threatened by the Commission.
(c) Payment for Securities. On the applicable Closing
Date, you shall have made payment, for the account of the Underwriter, of the
aggregate Purchase Price for the Securities then being purchased by certified or
bank cashier's checks payable in next day funds to the order of the Company.
If the conditions to the obligations of the Company provided by this Section 5
have been fulfilled on the First Closing Date but are not fulfilled after the
First Closing Date and prior to the Option Closing Date, then only the
obligation of the Company to sell and deliver the Option Securities upon
exercise of the Over-Allotment Option shall be affected.
6. INDEMNIFICATION.
(a) Indemnification by the Company. As used in this
Agreement, the term "Liabilities" shall mean any and all losses, claims, damages
and liabilities, and actions and proceedings in respect thereof (including
without limitation all reasonable costs of defense and investigation and all
attorneys' fees) including without limitation those asserted by any party to
this Agreement against any other party to this Agreement. The Company hereby
indemnifies and holds harmless the Underwriters and each person, if any, who
controls the Underwriters within the meaning of the Act, from and against all
Liabilities, to which the Underwriters or such controlling person may become
subject, under the Act or otherwise, insofar as such Liabilities arise out of or
are based upon: (i) any untrue statement or alleged untrue statement of any
material fact, in light of the circumstances in which it was made, contained in
(A) the Registration Statement or any amendment thereto, or the Prospectus or
any Preliminary Prospectus, or any amendment or supplement thereto, or (B) any
"blue sky" application or other document executed by the Company specifically
for that purpose, or based upon written information furnished by the Company,
filed in any state or other jurisdiction in order to qualify any or all of the
Securities under the securities laws thereof (any such application, document or
25
information being herein called a "Blue Sky Application"); or (ii) the omission
or alleged omission to state in the Registration Statement or any amendment
thereto, or the Prospectus or any Preliminary Prospectus, or any amendment or
supplement thereto, or in any Blue Sky Application, a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances in which it was made, not misleading; provided, however, that the
Company shall not be liable in any such case to the extent, but only to the
extent, that any such Liabilities arise out of or are based upon an untrue
statement or alleged untrue statement or omission or alleged omission (x) made
in reliance upon and in conformity with written information furnished to the
Company through you by or on behalf of the Underwriters specifically for use in
the preparation of the Registration Statement or any such amendment thereto, or
the Prospectus or any such Preliminary Prospectus, or any such amendment or
supplement thereto, or any such Blue Sky Application or (y) corrected by the
final Prospectus and the failure of the Underwriter to deliver the final
Prospectus. The foregoing indemnity shall be in addition to any other liability
which the Company may otherwise have.
(b) Indemnification by each Underwriter. The
Underwriters hereby indemnify and hold harmless the Company, each of its
directors, each nominee (if any) for director named in the Prospectus, each of
its officers who have signed the Registration Statement, and each person, if
any, who controls the Company within the meaning of the Act, from and against
all Liabilities to which the Company or any such director, nominee, officer or
controlling person may become subject under the Act or otherwise, insofar as
such Liabilities arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or any amendment thereto, or the Prospectus or any Preliminary
Prospectus, or any amendment or supplement thereto, or (ii) the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that any such Liabilities arise out of or are
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement or any amendment thereto, or
the Prospectus or any Preliminary Prospectus, or any amendment or supplement
thereto, in reliance upon and in conformity with written information furnished
to the Company through you, by or on behalf of such Underwriters, specifically
for use in the preparation thereof. In no event shall any Underwriters be liable
under this Section 6(b) for any amount in excess of the compensation received by
such Underwriters, in the form of underwriting discounts or otherwise, pursuant
to this Agreement or any other agreement contemplated hereby. The foregoing
indemnity shall be in addition to any other liability which any Underwriters may
otherwise have.
(c) Procedure. Promptly after receipt by an
indemnified party under this Section 6 of notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under this Section 6, notify in writing the
indemnifying party of the commencement thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to any indemnified party otherwise than under this Section 6 unless the rights
of the indemnifying party have been prejudiced by such omission or delay. In
case any such action is brought against any
26
indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, subject to the provisions hereof, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided, however, that the fees and expenses of such
counsel shall be at the expense of the indemnifying party if (i) the employment
of such counsel has been specifically authorized in writing by the indemnifying
party, or (ii) the named parties to any such action (including any impleaded
parties) include both such indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it which are different from or in addition to those
available to the indemnifying party or that the indemnified and indemnifying
party have conflicting interests which would make it inappropriate for the same
counsel to represent both of them (in which case the indemnifying party shall
into have the right to assume the defense of such action on behalf of the
indemnified party, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys). No settlement of any
action against an indemnified party shall be made without the consent of the
indemnified party, which shall not be unreasonably withheld in light of all
factors of importance to such indemnified party.
7. CONTRIBUTION. In order to provide for just and equitable
contribution under the Act in any case in which (a) any indemnified party makes
claims for indemnification pursuant to Section 6 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case, notwithstanding the
fact that the express provisions of Section 6 provide for indemnification in
such case, or (b) contribution under the Act may be required on the part of any
indemnified party, then such indemnified party and each indemnifying party (if
more than one) shall contribute to the aggregate Liabilities to which it may be
subject, in either such case (after contribution from others) in such
proportions that the Underwriters are responsible in the aggregate for the
portion of such Liabilities represented by the percentage that the underwriting
discount per Share and per Warrant appearing on the cover page of the Prospectus
bears to the public Offering price per Share and per Warrant appearing thereon,
and the Company shall be responsible for the remaining portion; provided,
however, that if such allocation is not permitted by applicable law, then the
relative fault of the Company, and the Underwriters in connection with the
statements or omissions which resulted in such Liabilities and other relevant
equitable considerations shall
27
also be considered. The relative fault shall be determined by reference to,
among other things, whether in the case of an untrue statement of material fact
or the omission to state a material fact, such statement or omission relates to
information supplied by the Company, or the Underwriters, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if the respective obligations of
the Company, and the Underwriters to contribute pursuant to this Section 7 were
to be determined by pro rata or per capita allocation of the aggregate
Liabilities or by any other method of allocation that does not take account of
the equitable considerations referred to in the first sentence of this Section
7. Moreover, the contribution of any Underwriters shall not be in excess of the
cash compensation received by such Underwriters, in the form of underwriting
discounts or otherwise, pursuant to this agreement or any other agreement
contemplated hereby. No person guilty of a fraudulent misrepresentation (within
the meaning of section 11(f) of the Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. As used in
this Section 7, the term "Company" shall include any officer, director or person
who controls the Company within the meaning of section 15 of the Act. If the
full amount of the contribution specified in this Section 7 is not permitted by
law, then each indemnified party and each person who controls an indemnified
party shall be entitled to contribution from each indemnifying party to the full
extent permitted by law. The foregoing contribution agreement shall in no way
affect the contribution liabilities of any persons having liability under
section 11 of the Act other than the Company and the Underwriters. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent to the settlement; provided, however, that such
consent shall not be unreasonably withheld in light of all factors of importance
to such party.
8. COSTS AND EXPENSES.
(a) Certain Costs and Expenses. Whether or not this
Agreement becomes effective or the sale of the Securities to the Underwriters is
consummated, the Company shall pay all costs and expense incident to the
issuance, offering, sale and delivery of the Securities and the performance of
its obligations under this Agreement, including without limitation: (i) all fees
and expenses of the Company's legal counsel and accountants; (ii) all costs and
expenses incident to the preparation, printing, filing and distribution of the
Registration Statement (including the financial statements contained therein and
all exhibits and amendments thereto), each Preliminary Prospectus and the
Prospectus, each as amended or supplemented, this Agreement and the other
underwriting documents, as well as the other agreements and documents referred
to herein and the Blue Sky Memorandum; each in such quantities as you shall deem
necessary; (iii) all fees of NASD required in connection with the filing
required by NASD to be made by the Underwriter with respect to the Offering;
(iv) all expenses, including fees (but not in excess of the amount set forth in
Section 3(b)) and disbursements of Underwriters' Counsel in connection with the
qualification of the Securities under the "blue sky" laws which you shall
designate; (v) all costs and expenses of printing the respective certificates
representing the Shares and the Warrants; (vi) the expense of placing one or
more "tombstone" advertisements or promotional materials as directed by you
(provided, however, that the
28
aggregate amount thereof shall not exceed $10,000) and of offering memorabilia;
(vii) all costs and expenses of the Company and its employees (but not of the
Underwriters or its employees) associated with due diligence meetings and
presentations (including the payment for road show conference centers); (viii)
any and all taxes (including without limitation any transfer, franchise, capital
stock or other tax imposed by any jurisdiction) on sales of the Securities to
the Underwriters hereunder; and (xi) all costs and expenses incident to the
furnishing of any amended Prospectus or any supplement to be attached to the
Prospectus as required by Sections 3(a) and 3(d), except as otherwise provided
by said Sections. In addition, the Company shall engage Underwriters' Counsel to
provide the Underwriters, at the Closing and quarterly thereafter, until such
time as the Common Stock is listed on the New York Stock Exchange or the
American Stock Exchange or quoted on NASDAQ/NMS, with a memorandum, setting
forth those states in which the Common Stock and the Warrants may be traded in
non-issuer transactions under the blue sky laws of the 50 states. The Company
shall pay such counsel a one-time fee of $12,500 at the Closing for such
opinions.
(b) Underwriters' Expense Allowance. In addition to
the expenses described in Section 8(a), the Company shall on the First Closing
Date pay to Maidstone the balance of a non-accountable expense allowance,
exclusive of the fees referred to in Section 3(b), an amount equal to three
percent (3%) of the gross proceeds received upon sale of the Firm Securities, of
which $35,000 has been paid to Maidstone prior to the date hereof. In the event
that the Over-Allotment Option is exercised, then the Company shall, on the
Option Closing Date, pay to Maidstone, based on the number of Option Securities
to be sold by the Company, an additional amount equal to three percent (3%) of
the gross proceeds received upon sale of any of the Option Securities. In the
event that the transactions contemplated hereby fail to be consummated for any
reason, then Maidstone shall return to the Company that portion of $35,000
heretofore paid by the Company to the extent that it has not been utilized by
you in connection with the Offering for reasonable accountable out-of-pocket
expenses; provided, however, that if such failure is due to a breach by the
Company of any covenant, representation or warranty contained herein or because
any other condition to the Underwriters' obligations hereunder required to be
fulfilled by the Company is not fulfilled, then the Company shall be liable for
your reasonable accountable out-of-pocket expenses to the full extent thereof
(with credit given to the $35,000 paid).
(c) No Finders. No person is entitled either directly
or indirectly to compensation from the Company, the Underwriters or any other
person for services as a finder in connection with the Offering, and the Company
hereby indemnifies and hold harmless the Underwriters, and the Underwriters
hereby indemnify and hold harmless the Company from and against all Liabilities,
joint or several, to which the indemnified party may become subject insofar as
such Liabilities arise out of or are based upon the claim of any person (other
than an employee of the party claiming indemnity) or entity that he or it is
entitled to a finder's fee in connection with the Offering by reason of such
person's or entity's influence or prior contact with the indemnifying party.
9. EFFECTIVE DATE. The Agreement shall become effective at
9:30
29
A.M. on the first full business day following the day on which the Registration
Statement becomes effective or at the time of the initial public offering by you
of the Stock, whichever is earlier. The time of the initial public offering
shall mean the time of release by you of the first newspaper advertisement which
is subsequently published with respect to the Securities, or the time when the
Securities are first generally offered by you to dealers by letter or telegram,
whichever shall first occur. You or the Company may prevent this Agreement from
becoming effective without liability at any party to any other party, except as
provided in Section 8, by giving the notice indicated below in Section 13 before
the time this Agreement becomes effective.
10. TERMINATION.
(a) Grounds for Termination.
(i) This Agreement, except for Sections 6,
7, 8, 12, 13, 14 and 15, may be terminated at any time prior to the First
Closing Date, and the Over-Allotment Option, if exercised, may be cancelled at
any time prior to the Option Closing Date, by you if in your sole judgment it is
impracticable to offer for sale or to enforce contracts made by you for the
resale of the Securities agreed to be purchased hereunder, by reason of: (A) the
Company having sustained a material loss, whether or not insured, by reason of
fire, earthquake, flood, accident or other calamity, or from any labor dispute
or court or government action, order or decree; (B) trading in securities on the
New York Stock Exchange or the American Stock Exchange having been suspended or
limited; (C) material governmental restrictions having been imposed on trading
in securities generally which are not in force and effect on the date hereof;
(D) a banking moratorium having been declared by federal or New York State
authorities; (E) an outbreak or significant escalation of major international
hostilities or other national or international calamity having occurred; (F) the
passage by the Congress of the United States or by any state legislative body of
similar impact, of any act or measure, or the adoption of any orders, rules or
regulations by any governmental body or any authoritative accounting institute
or board, or any governmental executive, which is reasonably believed likely by
you to have a material adverse impact on the business, financial condition or
financial statements of the Company; (G) any material adverse change in the
financial or securities markets beyond normal fluctuations in the United States
having occurred since the date of this Agreement; or (H) any material adverse
change having occurred, since the respective dates for which information is
given in the Registration Statement and Prospectus, in the earnings, business,
prospects or condition (financial or otherwise) of the Company, whether or not
arising in the ordinary course of business.
(ii) Maidstone shall have the right, in its
sole discretion, to terminate this Agreement, including without limitation, the
obligation to purchase the Firm Securities and the obligation to purchase the
Option Securities after the exercise of the Over- Allotment Option, by notice
given to the Company prior to delivery and payment for all the Firm Securities
or the Option Securities, as the case may be, if any of the conditions
enumerated in Section 4 are not either fulfilled or waived by the Underwriters
on or before any Closing Date.
30
(iii) Anything herein to the contrary
notwithstanding, if this Agreement shall not be carried out within the time
specified herein, or any extensions thereof granted by the Underwriters, by
reason of any failure on the part of the Company to perform any undertaking or
satisfy any condition of this Agreement by it to be performed or satisfied then,
in addition to the obligations assumed by the Company pursuant to Section 8(a)
hereof, the Underwriter shall provide the Company with, and the Company shall
pay, a statement of the Underwriters' accountable expenses.
(b) Notification. If you elect to prevent this
Agreement from becoming effective or to terminate this Agreement as provided by
this Section 10 or by Section 9, the Company shall be promptly notified by you,
by telephone or telegram, confirmed by letter.
11. Underwriters' Warrants. On the First Closing Date, the
Company shall issue and sell to you, for nominal consideration, and upon the
terms and conditions set forth in the form of Underwriters' Warrants filed as an
exhibit to the Registration Statement, a Warrant entitling you to purchase
130,000 Shares and/or Warrants at an exercise price equal to 165% of the initial
public offering price per unit exercisable for a period of four years commencing
one year from the Effective Date (the "Underwriters' Warrants"). The
Underwriters' Warrants grant to the holders thereof certain "piggyback"
registration rights for a period of four years, and demand registration rights
for a period of four years, commencing one year from the Effective Date with
respect to the registration under the Securities Act of the Securities issuable
upon exercise thereof. In the event of conflict in the terms of this Agreement
and the Underwriters' Warrants, the terms and conditions of the Underwriters'
Warrants shall control.
12. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. The respective indemnities, agreements, representations, warranties,
covenants and other statements of the Company and the Underwriter set forth in
Sections 3, 6, 7 and 8 of this Agreement shall remain in full force and effect
regardless of any investigation made by or on behalf of any other party, and
shall survive delivery of and payment for the Securities and the termination of
this Agreement. The Company hereby indemnifies and holds harmless the
Underwriters from and against all Liabilities, joint or several, to which the
Underwriters may become subject insofar as such Liabilities arise out of or are
based upon the breach or failure of any of the provisions of Sections 3, 6, 7
and 8.
13. NOTICES. All communications hereunder shall be in writing
and, except as otherwise expressly provided herein, if sent to you, shall be
mailed, delivered or telegraphed and confirmed to you at Maidstone Financial,
Inc., 000 Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, with a copy sent to Xxx X.
Xxxxxxxxx, Esq., Gersten, Savage, Kaplowitz & Xxxxxx, LLP, 000 Xxxxxxxxx Xxxxxx,
Xxx Xxxx, Xxx Xxxx 00000; or if sent to the Company, shall be mailed, delivered,
or telegraphed and confirmed to it at Community Care Services, Inc., 00 Xxxxxxx
Xxxxx, Xxxxx Xxxxxx, Xxx Xxxx 00000, Attention: Xxxx X. Xxxxxxxxx, with a copy
sent to Xxxxxxx XxXxxxxxxx, Esq., Xxxxxx Xxxxxx Xxxxxx & Xxxx, 000 Xxxxx Xxxxxx,
Xxx Xxxx, Xxx Xxxx 00000.
31
14. PARTIES IN INTEREST. This Agreement is made solely for the
benefit of the Underwriters, the Company, and, to the extent expressed, any
person controlling the Company or the Underwriters, as the case may be, and the
directors of the Company, nominees for directors of the Company (if any) named
in the Prospectus, officers of the Company who have signed the Registration
Statement, and their respective executors, administrators, successors and
assigns; and no other person shall acquire or have any right under or by virtue
of this Agreement. The term "successors and assigns" shall not include any
purchaser, as such, from an underwriter of the Securities.
15. CONSTRUCTION. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
without giving effect to conflict of laws. The parties agree to submit
themselves to the jurisdiction of the courts of the State of New York or of the
United States of America for the Southern District of New York, which shall be
the sole tribunals in which any parties may institute and maintain a legal
proceeding against the other party arising from any dispute in this Agreement.
In the event either party initiates a legal proceeding in a jurisdiction other
than in the courts of the State of New York or of the United States of America
for the Southern District of New York, the other party may assert as a complete
defense and as a basis for dismissal of such legal proceeding that the legal
proceeding was not initiated and maintained in the courts of the State of New
York or of the United States of America for the Southern District of New York,
in accordance with the provisions of this Section 15.
16. ENTIRE AGREEMENT. This Agreement, the Underwriter's
Warrants, and the Financial Consulting Agreement contain the entire agreement
between the parties hereto in connection with the subject matter hereof and
thereof.
17. COUNTERPARTS. This Agreement may be executed in two or more
counterpart copies, each of which shall be deemed and an original but all of
which together shall constitute one and the same instrument.
18. DEFAULT BY AN UNDERWRITER.
(a) If any Underwriter or Underwriters shall default
in its or their obligations to purchase the Stock hereunder, and if the number
of shares with respect to which such default relates does not exceed in the
aggregate 10% of the number of shares of Stock which all Underwriters have
agreed to purchase hereunder, then such Stock to which the default relates shall
be purchased by the nondefaulting Underwriters in proportion to their respective
commitments hereunder.
(b) In the event that such default relates to more
than 10% of the number of shares of Stock, you may in your discretion arrange
for yourself or for another party or parties to purchase such Stock to which
such default relates on the terms contained herein.
32
if within one (1) business day after such default relating to more than 10% of
the number of shares of Stock, then the Company shall be entitled to a further
period of one (1) business day within which to procure another party or parties
satisfactory to you to purchase said Stock on such terms. In the event that
neither you nor the Company arrange for the purchase of the Stock to which a
default relates as provided in this Section 9, this Agreement may be terminated
by you or the Company (except as provided in Section 6 and Section 8(a) hereof)
or the several Underwriters, but nothing herein shall relieve a defaulting
Underwriter of its liability, if any, to the other several Underwriters and to
the Company for damages occasioned by its default hereunder.
(c) In the event that the Stock to which the default
relates is to be purchased by the non-defaulting Underwriters, or is to be
purchased by another party or parties as aforesaid, you or the Company shall
have the right to postpone the Closing Date for a reasonable period but not in
any event exceeding five (5) business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus or
in any other documents and arrangements, and the Company agrees to file promptly
any amendment to the Registration Statement or the Prospectus which in the
opinion of counsel for the Underwriters may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any party substituted
under this Section 18 with like effect as if it had originally been a party to
this Agreement with respect to such Stock.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return this Agreement, whereupon it will become a
binding agreement between the Company and the Underwriters in accordance with
its terms.
Very truly yours,
COMMUNITY CARE SERVICES, INC.
By: ____________________________________
Name:
Title:
Accepted as of the date
first above written:
New York, New York
MAIDSTONE FINANCIAL, INC., as Representative
of the Several Underwriters
By: ________________________________________
Name:
33
Title:
34
EXHIBIT A
Name Number of Shares and/or Warrants
---- --------------------------------
Maidstone Financial, Inc.
The Xxxxxxxx Group, Inc.
35
