Exhibit 1.01
ROYCE INVESTMENT GROUP, INC.
199 Crossways Park Drive
Woodbury, NY 11797
with
EASTCO INDUSTRIAL SAFETY CORP.
STANDBY AGREEMENT
Eastco Industrial Safety Corp.
130 West 10th Street
Huntington Station, New York 11746
Gentlemen:
Eastco Industrial Safety Corp., a New York corporation (the
"Company"), with principal offices located at 130 West 10th Street, Huntington
Station, New York 11746, has an authorized capitalization as set forth in the
Prospectus. The Company has offered to its shareholders the non-transferable
right to purchase Units, each Unit consisting of one share of Common Stock and
one Class B Redeemable Common Stock Purchase Warrant (the "Class B Warrants")
on the basis of four rights for each five shares of Common Stock owned by each
shareholder at a price of $5.00 per Unit.
The Company has issued and outstanding 879,488 shares of its Common
Stock after giving effect to the reverse stock split which is to be approved
by shareholders in August 1996. The Company by this Agreement will have
entered into a Stand-by Agreement with Royce Investment Group, Inc. ("Royce"),
the terms of which are set forth hereinafter, for the purpose of effectuating
the exercise of all of the rights. The exercise of the such rights and the
terms of this Stand-by Agreement will be set forth in a Registration
Statement, effective __________, 1996, as hereinafter more fully referred to.
1. Certain Definitions.
The following shall constitute the definitions of certain
additional terms used in this Agreement.
(a) "Act" shall refer to the Securities Act of 1933, as
Amended.
(b) "Closing Date" shall be the seventh calendar day
after the expiration of the Rights.
(c) "Commission" shall refer to the Securities and
Exchange Commission.
(d) "Common Stock" shall refer to the Common Stock, $.12
par value, of the Company.
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(e) "Company" shall refer to Eastco Industrial Safety
Corp and its subsidiaries.
(f) "Effective Date" shall be the date upon which the
Registration Statement becomes effective pursuant to notice from the
Commission and/or the passage of time in accordance with the Act.
(g) "Exercise Price" shall mean the exercise price of
the Rights ($5.00 per Unit).
(h) "Prospectus" shall refer to the Prospectus filed as part
of the Registration Statement filed by the Company, as finally amended and
revised prior to the Effective Date.
(i) "Regulations" shall refer to the rules and regulations
of the Commission.
(j) "Rights" shall mean each Right offered pursuant to the
Registration Statement to the shareholders of the Company to purchase one Unit
at $5.00 per Unit with each shareholder receiving four Rights for each five
shares owned by the shareholder. No fractional Rights will be issued and all
rights will be rounded down to the nearest whole number.
(k) "Share" shall mean one (1) share of Common Stock, $.12
par value, of the Company.
(l) Class B Warrant shall mean the right to purchase one
share of Common Stock, $.12 par value, at an exercise price of $6.25 per share
(125% of the Exercise Price) commencing ________, 199__ (18 months from the
Effective Date) and expiring _______, ____ (36 months from the Effective
Date). The Class B Warrants shall be redeemable commencing _______, 199__
(18 months from the Effective Date), at a redemption price of $.01 per Warrant
provided that the closing high bid price of the Company's Common Stock for the
fifteen consecutive trading days ending on the third day prior to the date on
which the Company gives notice, has been at least $9.375 per share (150% of
the exercise price of the Class B Warrants to be proportionately adjusted for
any stock dividends and stock splits occurring after the Effective Date and
which may be adjusted to 150% of the then current exercise price of the Class
B Warrants, if such exercise price is changed.
(m) "Royce" shall refer to Royce Investment Group, Inc.
(n) "Registration Statement" shall refer to the Registration
Statement filed by the Company, including exhibits and financial statement,
under Commission File Number 333-_____ as amended through the Effective Date.
(o) "Royce's Warrant" shall mean the Warrants referred
to in Section 2(d) hereof.
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(p) "Termination Date" shall refer to the date upon which
this Agreement shall terminate for whatever reason.
(q) Subscription Agency Agreement shall refer to an
agreement between the Company and American Stock Transfer & Trust Company with
respect to the Rights.
(r) Warrant Agreement shall refer to the agreement
between the Company and American Stock Transfer & Trust Company with respect to
the Class B Warrants.
2. Terms of the Stand-by Agreement.
(a) On the Closing Date, subject to all the terms and
conditions set forth herein, (i) the Company hereby agrees to sell to Royce
the number of Units determined as hereinafter provided, and (ii) on the basis
of the representations and warranties and agreements of the Company herein
contained, Royce agrees to purchase from the Company the Units determined as
hereinafter provided, at a price of $5.00 per Unit. All references herein to
the 703,591 Units that may be purchased by Royce shall be referred to as the
"Standby Units." The precise number of Units to be issued and sold by the
Company to Royce shall be the difference between 703,591 Units and the number
of Units sold pursuant to the exercise of the Rights to buy Units offered by
the Company that have been exercised on or before 30 days from the Effective
Date (the "Unsubscribed Units"). The determination of the number of Units to
be purchased by Royce shall be made by American Stock Transfer and Trust
Company, acting as Subscription Agent, pursuant to the Subscription Agency
Agreement.
In the event that the Unsubscribed Units to be purchased by Royce is
less than 300,000 Units, certain additional Units (hereinafter referred to as
the "Optional Units") will be sold to Royce at Royce's option so that it will
have the right but not the obligation to purchase a minimum of 300,000 Units
within 30 days of the Closing Date at the subscription price paid by the
public of $5.00 per Unit less a 10% discount and 3% non-accountable expense
allowance so that at closing of the Optional Units, Royce will pay $4.35 per
Unit for the Optional Units.
(b) The Company shall pay to Royce at Closing its stand-by
fee in the sum of $351,795.50 (i.e. an amount equal to 10% of the gross
proceeds from the sale of the Standby Units), which fee is payable
irrespective of any amount required to be paid by Royce pursuant to its
stand-by commitment hereunder.
(c) As and for its non-accountable expense allowance , the
Company shall pay to Royce at Closing the sum of $105,538.65 (i.e. an amount
equal to 3% of the gross proceeds from the sale of the Standby Units).
(d) At the Closing of this offering the Company shall sell
and deliver to Royce warrants ("Royce's Warrant") at a price of $.0001 per
warrant, for the purchase of 70,359 Units equal to ten (10%) percent of the
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amount of Units purchasable by shareholders pursuant to this Standby Agreement,
which shall be exercisable only during a term of 4 years commencing 12 months
after the Effective Date, at an exercise price of 120% of the public offering
price of the Units. The sale and delivery to Royce of Royce's Warrants will
take place at the Closing Date. Royce represents that for a period of not less
than 12 months commencing from the Effective Date of the offering Royce will
not sell, transfer, assign or hypothecate any of the said Royce's Warrants or
the securities underlying said Royce's Warrants except to officers of Royce and
that upon the purchase by Royce of the said Royce's Warrants, Royce will not
thereafter resell any of the said Royce's Warrants or the underlying securities
thereof, except in conformity with the applicable provisions of the Act and all
applicable "Blue Sky" laws.
The Company agrees that solely upon the written request of
Royce or its specific authorized designee or, together with Royce's or its
specific authorized designee's consent, the holders of at least 40% of Royce's
Warrants and/or the holders of the underlying securities made at any time
after 12 months following the Effective Date (and during Royce's exercise
period) but, in any event for a period not to exceed five (5) years following
the Effective Date, the Company will file no more than one Registration
Statement under the Act registering Royce's Warrants and/or the securities
underlying Royce's Warrants, and the Company agrees to use its best efforts to
cause the above filing to become effective. The expenses of such registration,
including but not limited to printing charges (including sufficient number of
Prospectuses to permit the sale of the securities), all legal fees and
disbursements of the Company's counsel and all accounting fees, and all filing
and miscellaneous expenses, will be borne by the Company. The Company agrees
that if at any time during the period when Royce has the right to exercise its
Warrants but in any event for a period not to exceed seven (7) years following
the Effective Date it should file a Registration Statement or Notification
with the Commission pursuant to the Act regardless of whether Royce or Royce's
authorized designees shall have theretofore availed themselves of the right
hereinabove provided, the Company, at its own expense, will offer to Royce or
its specific authorized designee the opportunity to register Royce's Warrants
and/or securities underlying Royce's Warrants, but unless such registration
includes all of Royce's Warrants and/or underlying securities it will not
relieve the Company of such foregoing obligation to qualify the same. In
addition to the rights hereinabove provided, the Company will cooperate with
Royce or its specific authorized designee in preparing any additional
Registration Statement required to sell or transfer the underlying securities
and will supply information required therefore, but such additional
Registration Statement shall be at the expense of the holders of the Warrants
and/or securities issuable thereunder, and not at the expense of the Company.
Moreover, the Company represents that, except as described in the
Prospectus, no existing shareholders, option holders, warrant holders nor
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any other existing holder of any right or interest in the Company, as of the
date hereof as well as the Effective Date, have or will have any registration
rights with respect to their holdings or interest and that such rights, if
subsequently granted, will be subordinate to the registration rights contained
in Royce's Warrants. It being understood that such rights, if granted without
Royce's prior written consent, shall only become operative when the registration
rights contained in Royce's Warrants have been exercised and six (6) months
after such Warrants and/or underlying securities have been effectively
registered with the Securities and Exchange Commission and the appropriate
regulatory authority of states in which said securities are to be distributed.
(e) If at any time any condition of the obligations of the
Company hereunder shall not have been met or shall cease to be met and Royce
shall have given the Company notice of the desire of Royce to terminate this
Agreement on account of the non-fulfillment of any such condition or
obligation, then upon such notice, the within Agreement shall terminate,
saving all such rights as the respective parties may then by law possess. Any
such notice must be in writing.
(f) The Company shall be obligated to pay to Royce the
compensation set forth in this paragraph 2 irrespective of how many Units are
actually required to be purchased by Royce pursuant to this Agreement unless
Royce (i) terminates this Agreement pursuant to the provisions contained
herein or (ii) fails to make payment for the Unsubscribed Units.
3. Representations and Warranties of the Company.
(a) A Registration Statement with respect to the within
transaction, copies of which have heretofore been delivered by the Company to
Royce, has been carefully prepared by the Company in conformity with the
requirements of the Act, and such Registration Statement has been filed with
the Commission, and one or more amendments to said Registration Statement,
copies of which have heretofore been delivered to Royce, has or have been
filed; and the Company may file on or prior to the Effective Date an
additional amendment to said Registration Statement.
(b) The Commission has not issued any order preventing or
suspending the use of any Prospectus with respect to the within transaction
and each Prospectus has conformed in all material respects with the
requirements of the Act and the Regulations and has not included any fact
required to be stated therein or necessary to make the statements therein not
misleading. When the Registration Statement becomes effective and on the
Closing Date hereinafter mentioned, it will conform in all material respects
with the requirements of the Act and the applicable Regulations, and the
Registration Statement and any further amendments or supplements thereto will
contain all statements which are required to be stated therein or necessary to
make the statements therein not misleading; provided, however, the Company
does not make any representations or warranties as to information contained in
or omitted from the Registration Statement or Prospectus in reliance upon
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written information furnished on behalf of Royce or by Royce, specifically for
use therein or in any amendments or supplements thereto.
(c) The financial statements of the Company together with
the related schedules and notes as set forth in the Registration Statement and
Prospectus or incorporated therein by reference, as reported upon by an
independent certified public accountant, fairly present the financial position
of the Company at the respective dates or for the respective periods to which
they apply; such financial statements have been prepared in accordance with
generally accepted principles of accounting consistently applied throughout
the periods concerned except as otherwise stated therein.
(d) Except as may be reflected in or contemplated by the
Registration Statement or the Prospectus, subsequent to the dates as of which
information is given in the Registration Statement and the Prospectus, and
prior to the Closing Date (i) there shall not be any material adverse change
in the condition, financial or otherwise, or in the results of operations or
the general affairs of the Company or in its business taken as a whole; (ii)
there shall not have been any material transaction entered into by the Company
other than transactions in the ordinary course of business; (iii) the Company
shall not have incurred any material obligations, contingent or otherwise,
which are not disclosed in the Prospectus; and (iv) there shall not have been,
nor will there be, any change in the common stock or long term debt (except
current payments) of the Company.
(e) Except as may be set forth in the Registration Statement
or Prospectus, the Company is not in violation of any term or provision of its
Charter or By-laws, or of any material agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to the
Company.
(f) The execution and delivery of this Agreement by the
Company has been duly authorized by all necessary corporate action, and this
Agreement is the valid, binding and legally enforceable obligation of the
Company; the execution and delivery of, and compliance with, this Agreement,
and the consummation of the transaction hereunder do not conflict with or
constitute a breach of or default under the Certificate of Incorporation or
By-laws of the Company, any indenture, agreement, or other instrument by which
the Company is, or on the Closing Date will be, bound, or any order, rule or
regulation applicable to the Company of any court or any law, administrative
regulation or court decree.
(g) The Company is, and at the Closing Date will be, duly
incorporated and validly existing in good standing as a corporation under the
laws of its jurisdiction of incorporation, with an authorized and outstanding
common stock as set forth in the Registration Statement and the Prospectus,
and with full power and authority (corporate and other) to own its property
and conduct its business, present and proposed, as described in the Registration
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Statement and Prospectus; the Company has full power and authority to enter
into this Agreement; the Company has subsidiaries; and the Company including
its subsidiaries is duly qualified and in good standing as a foreign
corporation in each jurisdiction, other than its jurisdiction of
incorporation, in which qualification is required by the laws of such
jurisdiction except where failure to qualify shall not have an adverse
material effect on the Company's business.
(h) The Company has an authorized and outstanding
capitalization as set forth in the Registration Statement and Prospectus; all
of the outstanding securities of the Company have been validly authorized and
issued and are fully paid and non-assessable; no sales of securities have been
made by the Company in violation of the Act; the transaction hereunder has
been validly authorized; Royce's Warrant will represent the binding
obligations of the Company; and the holders of Royce's Warrant and/or
underlying shares thereof will not be subject to any liability as
shareholders.
(i) The securities referred to hereunder conform to the
description thereof contained in the Prospectus.
(j) No consent, approval, authorization or other order of
any governmental authority is required in connection with the consummation of
the transaction set forth herein, except such as may be required under the Act
or state securities laws.
(k) Except as set forth in the Registration Statement and
Prospectus, there is, and at the Closing Date there will be, no action, suit
or proceeding before any court or governmental agency, authority or body
pending or, to the knowledge of the Company, threatened, which might result in
judgments against the Company not adequately covered by insurance or which
collectively might result in any material change in the condition (financial
or otherwise), business or prospects of the Company or would materially affect
its properties or assets.
(l) Upon delivery of any payment required by Royce for the
purchase of Units hereunder and for Royce's Warrant to be sold by the Company
set forth herein, Royce will receive good and marketable title thereto free
and clear of any and all liens, encumbrances, charges and claims whatsoever;
and the Company will have, on the Effective Date and at the time of delivery
of such securities, full legal right and power and all authorization and
approval required by law to sell, transfer and deliver such securities in the
manner provided hereunder.
(m) The Company knows of no outstanding claims for services
in the nature of a finder's fee or origination fee with respect to the
transaction hereunder resulting from its acts for which Royce may be
responsible.
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(n) Each contract to which the Company is a party and to
which reference is made in the Registration Statement and Prospectus has been
duly and validly executed, is in full force and effect in all material
respects in accordance with their respective terms, and none of such contracts
have been assigned by the Company and the Company knows of no present
situation or condition or fact which would prevent compliance with the terms
of such contracts, as amended to date. The Company has no intention of
exercising any right which it may have to cancel any of its rights or
obligations under any of such contracts and has no knowledge that any other
party to any of such contracts has any intention not to render full
performance under such contracts.
(o) The Company has filed all federal and state tax returns
which are required to be filed, and will pay all taxes shown due on such
returns and all assessments received by it to the extent such taxes have
become due. All taxes with respect to which the Company is obligated have been
paid or adequate accruals have been set up to cover any such unpaid taxes.
(p) Except as otherwise set forth in the Prospectus, (i) the
Company has good and marketable title, free and clear of all liens,
encumbrances and defects, except liens for current taxes not due and payable,
to all property and assets which are described in the Registration Statement
and the Prospectus as being owned by the Company, subject only to such
exceptions as are not material and do not adversely affect the present or
prospective business of the Company; and (ii) the properties, including any
equipment, referred to in the Registration Statement and the Prospectus as
being held under lease by the Company are held under valid, subsisting and
enforceable leases with only such exceptions which collectively are not
material and do not adversely affect the present or prospective business of
the Company.
(q) The Company's Common Stock is currently listed for
trading in the NASDAQ Small Cap Market under the symbol ESTO.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or that has constituted
or that might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate the sale
or resale of the Units.
(s) Except persons who invested in the Company's May through
July 1996 private placements covering 513,000 shares, none of the Company's
holders of restrictive shares of Common Stock own three percent or greater of
the Company's outstanding shares.
4. The Closing Date.
The Closing Date will take place at a place to be designated
by Royce in writing in the Metropolitan New York area at 10:00 A.M. in the
forenoon of the seventh calendar day after the expiration of the Rights. At
such Closing Royce will make payment to the Company by a certified or a bank
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check or wire transfer for any Units required to be purchased by Royce under
this Agreement upon delivery of the Units to be purchased by the Company to
Royce in such names and denominations as may be required by Royce, as set
forth in a written notice delivered to the Company at least 48 hours prior to
Closing. At Closing the Company will pay to Royce the standby fee,
non-accountable expense allowance and financial consulting fee.
5. Covenants of the Company.
The Company covenants and agrees with Royce as follows:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective and will advise Royce immediately
and, if requested by Royce, will confirm such advice in writing (i) when the
Registration Statement has become effective and when any amendment thereto
becomes effective, or when any supplement to the Prospectus or any amended
Prospectus has been filed; (ii) of any request by the Commission for any
amendments or supplements to the Registration Statement or the Prospectus or
for additional information; (iii) of the issuance by the Commission of any
order suspending the effectiveness of the Registration Statement or of any
order preventing or suspending the use of any Prospectus or the institution of
any proceedings for any such purposes; and (iv) of the happening of any event
which in the judgment of the Company makes any statement in the Registration
Statement or the Prospectus untrue or which requires the making of any changes
in the Registration Statement or the Prospectus in order to make the
statements therein not misleading. The Company will use its best efforts to
prevent the issuance of any such order or of any order preventing or
suspending such use, to prevent any such refusal to qualify or any such
suspension, and to obtain as soon as possible a lifting of any such order, the
reversal of any such refusal and the termination of any such suspension.
(b) The Company will not at any time, whether before, after
or on the Effective Date, file any amendment to the Registration Statement or
supplement the Prospectus of which Royce shall not previously have been
advised and furnished with copies and to which Royce and its counsel shall
have approved (which approval shall not be unreasonably withheld) in writing
or which is not in compliance with the Act and the Regulations. It is
understood that no such approval shall make Royce or its counsel responsible
in any way for misstatements or omissions therefrom, except to the extent, if
any, such misstatements or omissions are in conformity with written
information furnished by Royce or its counsel for use in the Registration
Statement or the Prospectus.
(c) To deliver to Royce, without charge, three (3) signed
copies of the Registration Statement, including all financial statements and
exhibits filed therewith and any amendments or supplements thereto, and to
deliver, without charge, to Royce three (3) conformed copies of the
Registration Statement and any amendment or supplement thereto, including
financial statements and exhibits.
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(d) Prior to the Effective Date of the Registration
Statement, the Company will have delivered to Royce, without charge, in such
quantities as Royce may reasonably request, copies of each form of Preliminary
Prospectus.
(e) To deliver to Royce, without charge, as soon as
practicable after the Effective Date of the Registration Statement and
thereafter from time to time as many copies as it may request of the
Prospectus and of any amended or supplemented Prospectus as Royce may
reasonably request.
(f) If, during such period of time as in the opinion of
Royce or its counsel, a Prospectus relating to this transaction is required to
be delivered, any event occurs as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a material fact,
or omit to state any material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
or if it is necessary at any time after the Effective Date of the Registration
Statement to amend or supplement the Prospectus to comply with the Act, the
Company will forthwith notify Royce thereof and prepare and file with the
Commission and furnish and deliver to Royce and to others whose names and
addresses are designated by Royce, all at the cost of the Company, a
reasonable number of the amended or supplemented Prospectus which as so
amended or supplemented will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
Prospectus not misleading in light of the circumstances when it is delivered
to a purchaser or prospective purchaser, and which will comply in all respects
with the Act; and, in the event Royce is required to deliver a Prospectus
twenty-five (25) days or more after the Effective Date, upon request, to
prepare promptly such Prospectus as may be necessary to permit compliance with
the requirements of the Act.
(g) The Company will at its own expense, for a period of
five (5) years from the Closing Date: (i) furnish to Royce and to the
Company's shareholders annual financial statements; (ii) furnish to Royce
quarterly unaudited financial statements including both a balance sheet and
statement of income; (iii) distribute an annual report to all shareholders
setting forth clearly the financial position of the Company; (iv) furnish
Royce with a duplicated copy of the daily transfer sheets prepared by the
transfer agent a duplicated copy of the transfer sheets prepared by Depository
Trust Company and a duplicate copy of a list of shareholders; and (v) list the
Company's securities on regional or other stock exchange if requested by
Royce.
(h) The Company will deliver to Royce true and correct
copies of its Articles of Incorporation and all amendments thereto, such
copies to be certified by the Secretary of the Company; true and correct
copies of the By-laws of the Company and of the minutes of all meetings of the
directors and stockholders of the Company held during the twenty-four (24)
month period immediately prior to the Closing Date; and true and correct
copies of all material contracts to which the Company is a party.
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(i) Prior to the Effective Date, the Company will make such
necessary registration or qualification under the Securities or Blue Sky laws
of such states as Royce may designate and will file such consents to service
of process or other documents as may be necessary in order to effect such
registration or qualification. The Company shall bear the expenses incurred in
such registration or qualification under the Securities or Blue Sky laws of
such states including the fees and charges of the various states, the cost of
a printed memorandum with respect thereto, and reasonable legal fees and
expenses as set forth in sub-paragraph 5(j), below. The Company shall not be
required, however, to sign a general consent to service of process in any
jurisdiction where it is not now subject to such service.
(j) The Company will pay and bear, whether or not the
transactions contemplated hereunder are consummated or this Agreement is
prevented from becoming effective, or is terminated all costs and expenses
incident to the performance of its obligations under this Agreement, including
all expenses incident to this transaction; the fees and expenses of the
Company's counsel and accountants, the costs and expenses incident to the
issuance, sale and delivery of Royce's Warrant to Royce, the costs and
expenses incident to the preparation, printing and filing under the Act, the
Registration Statement (including financial statements), any Preliminary
Prospectus and the Prospectus and any amendments or supplements thereto; the
reproduction and distribution of this Agreement, the filing fees of the
Commission and the National Association of Securities Dealers, Inc., and any
state regulatory agencies, the cost of preparing and filing all exhibits to
the Registration Statement; the cost of furnishing the Underwriter copies of
the Registration Statement and Prospectus as herein provided; the cost and
fees of qualifying the Registration Statement under the Securities or Blue Sky
laws as herein provided, legal fees of $20,000 to the Underwriter's counsel
for filing in up to twenty (20) states ($750 for each additional state) and
disbursements incurred by said counsel, in connection with the Blue Sky filing
of this transaction.
(k) If the transaction pursuant to this Standby Agreement is
not completed because (i) of any reason solely within the control of the
Company or its stockholders, (ii) the Company does not permit the Registration
Statement to become effective for any reason whatsoever, or (iii) of any
material discrepancy in any representation by the Company and/or its officers,
directors, shareholders, agents, advisers or representatives, made in writing,
including but not limited to the Registration Statement, to Royce Investment
Group, Inc., then the Company will be obligated to reimburse Royce Investment
Group, Inc. for all of its out-of-pocket expenses incurred in connection
herewith less credit for monies paid on account. It is understood and agreed
by the parties hereto that any expense incurred by the Underwriter shall be
deemed to be reasonable and unobjectionable upon a reasonable showing by the
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Underwriter that such expenses were incurred, directly or indirectly, in
connection with the proposed transaction and/or relationship of the parties
hereto, as described herein.
Furthermore, if the Company should fail to pay the agreed
upon amounts set forth above to Royce, its successors or assigns, said Company
shall, furthermore, be liable to Royce for attorney's fees and costs incurred
in the collection of said amounts.
(l) Royce may offer components of the Units it acquires
pursuant to the Standby Agreement, to investors at prices set from time to
time by it. Such prices may exceed the highest asked price for the securities
reported on NASDAQ (or in the over-the-counter market).
(m) The Company represents that its Common Stock is,and its
Class B Warrants will be, registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended ("1934 Act") and will promptly
furnish Royce with all materials filed with the SEC pursuant to the 1934 Act.
(n) The Company shall use its best efforts to obtain no
later than three (3) months subsequent to the date of the consummation of this
Standby Agreement a "Key Man" life insurance policy in the amount of $500,000
each on the lives of its President, Alan E. Densen and Vice-President,
Lawrence Densen, provided each is insurable, and the Company shall pay the
premiums therefor for a period of not less than five (5) years from the
Closing Date.
(o) Provided this Standby Agreement is consummated, the
Company shall enter into a one year Financial Consulting Agreement with us
pursuant to which we shall receive a consulting fee in an amount equal to 2%
of the gross proceeds of the Offering (including the Optional Units) Such
consulting fee shall be paid in full in advance at closing.
(p) Provided this Standby Agreement is consummated, unless
waived by Royce, Royce shall have the right to designate a director and/or a
non-voting advisor to the Board for a period of five years after the Effective
Date. Said designee(s), shall attend meetings of the Board and receive no more
or less compensation than is paid to other non-management directors of the
Company and shall be entitled to receive reimbursement for all reasonable
costs incurred in attending such meetings, including but not limited to, food,
lodging and transportation. Moreover,to the extent permitted by law, the
Company will agree to indemnify the Underwriter and its designee(s) for the
actions of such designee(s) as director and/or as advisor of the Company. In
the event the Company maintains a liability insurance policy affording
coverage for the acts of its officers and/or directors, it will agree, to the
extent permitted under such policy, to include each of the Underwriter and its
designee(s) as an insured under such policy.
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(q) The Company represents that its shares of Common Stock
are currently listed on NASDAQ Small Cap system and further represents that it
shall use its best reasonable efforts at its cost and expense to take all
necessary and appropriate action such that its Common Stock continue to be
listed and its Class B Warrants be listed for trading in the NASDAQ Small Cap
System for at least ten years from the date of consummation of this Standby
Agreement provided that the Company otherwise complies with the prevailing
requirements of NASDAQ. In the case of the Class B Warrants, the Company
agrees to maintain such listing for the life of the Warrants unless the
Underwriter requests the Company to delist such Warrants. The Company agrees
to list its Common Stock and Class B Warrants on NASDAQ/NMS as soon as
practicable after the Company is eligible to do same in lieu of the Small Cap
Market. Further, the Company agrees not to list the Units for trading on
NASDAQ without the prior written consent of the Underwriter.
(r) Provided this Standby Agreement is consummated, all
officers and directors and their relatives who own securities of the Company
(including but not limited to stock, options and warrants to purchase stock,
and securities convertible into stock), shall agree not to sell, transfer or
convey any of such securities by registration or otherwise for a period of
eighteen (18) months from the date the Standby Agreement is consummated
without the prior written consent of Royce or any greater period required by
any state in which the offering of the securities is to be registered. An
appropriate legend shall be marked on the face of stock certificates
representing all of such securities.
(s) Until such time as the securities of the Company are
listed on the National Market System of NASDAQ, the Company shall cause its
legal counsel or an independent firm acceptable to the Representative to
provide the Representative with a survey, to be updated at least
semi-annually, of those states in which the securities of the Company may be
traded in non-issuer transactions under the Blue Sky laws of the states and
the basis for such authority. The first such survey shall be delivered by
Company's counsel at closing and, thereafter, on a semi-annual basis on April
30 and October 31 of each year.
(t) Prior to the Effective Date, the Company shall apply for
listing in Standard and Poor's Corporation Reports and shall use its best
efforts to have the Company listed in such reports for a period of not less
than ten (10) years thereafter.
(u) The Company has appointed or shall promptly hereafter
appoint American Stock Transfer & Trust Company as Transfer Agent, which
entity shall agree to provisions of Royce's Warrant, for the securities being
offered and for a period of five (5) years following the Closing Date the
Company will not change or terminate any such appointment without the written
consent of Royce, which consent shall not be unreasonably withheld.
13
(v) The Company will deliver to Royce and its counsel two
(2) bound volumes of copies of all documents and appropriate correspondence
filed or received from the Commission and the NASD and all closing documents.
(w) The Company will use the net proceeds to be received by
it from the sale of the securities being offered in the manner and for the
purposes set forth in the Prospectus and will comply with all reporting and
other requirements of the Act respecting the use of the proceeds.
(x) The Company will comply with the Act and Regulations and
the Securities Exchange Act of 1934 and the rules and regulations of the
Commission thereunder so as to permit the continuance of sales of and dealings
in the securities being offered under the Act and the Securities Exchange Act
of 1934, as and if required under said Act.
(y) Prior to the Closing time the Company will not issue
directly or indirectly without Royce's prior written consent any press release
or other communication or hold any press conference with respect to the
Company or its activities or the offering of the securities.
(z) Provided this Standby Agreement is consummated and for a
period of five (5) years commencing from the Closing Date, the Company shall
continue to employ the services of a firm of independent certified public
accountants reasonably acceptable to Royce in connection with the preparation
of the financial statements to be included in any Registration Statement to be
filed by the Company hereunder, or any amendment or supplement thereto. For
the purposes of the foregoing, Cornick, Garber & Sandler LLP, and any
"Regional" accounting firm shall be deemed to be acceptable to Royce.
(aa) Notwithstanding any provision contained to the
contrary, if the Company shall within five (5) years from the Effective Date,
enter into any agreement or understanding with any person or entity introduced
by the Underwriter involving (i) the sale of all or substantially all of the
assets and properties of the Company, (ii) the merger or consolidation of the
Company (other than a merger or consolidation effected for the purpose of
changing the Company's domicile) or (iii) the acquisition by the Company of
the assets or stock of another business entity, which agreement or
understanding is thereafter consummated, whether or not during such five (5)
year period, the Company, upon such consummation, shall pay to the Underwriter
an amount equal to the following percentages of the consideration paid by the
Company in connection with such transaction: 5% of the first $1,000,000 or
portio thereof, of such consideration; 4% of the second $1,000,000 or portion
thereof, of such consideration; and 3% of such consideration in excess of the
first $2,000,000 of such consideration.
14
(bb) The Company will pay the Underwriter a fee of 7% of the
aggregate exercise price of each Warrant exercised commencing one year after
the Effective Date, of which a portion of which may be allowed by the
Underwriter to the dealer who solicited the exercise (which may also be the
Underwriter); provided: (1) the market price of the Common Stock on the date
the Warrant was exercised was greater than the Warrant exercise price on that
date; (2) exercise of the Class B Warrant was solicited by a member of the
NASD; (3) the Class B Warrant was not held in a discretionary account; (4)
disclosure of compensation arrangements was made both at the time of the
offering and at the time of exercise of the Class B Warrant; and (5) the
solicitation of the exercise of the Class B Warrant was not in violation of
Rule 10b-6 promulgated under the Securities Exchange Act of 1934.
(cc) The Company, for a period of one year from the
Effective Date, shall not file a registration statement for the benefit of
officers, directors, employees, consultants and/or affiliates of the Company
without the prior written consent of the Underwriter.
(dd) For a period of one year from the Effective Date,
without the consent of Royce, the Company will not place or sell any of its
securities other than in connection with mergers, acquisitions or the exercise
of currently outstanding options and warrants.
(ee) The Company will maintain a current Registration
Statement for the Underwriter to offer and sell the Units and the components
thereof purchased by it for a period of at least nine months from the
Effective Date or such reasonable further period as Royce may request.
Nevertheless, Royce agrees to notify the Company when its distribution has
been completed.
(ff) Neither the Company nor any officer or director thereof
shall for a period of five years from the Effective Date offer to sell any
securities of the Company in a Regulation S offering without the prior written
consent of Royce.
6. Conditions of Royce's Obligations.
Royce's obligations to perform its obligations pursuant to
this Agreement and the purchase of securities of the Company required
hereunder on the Closing Date is subject to the accuracy of and compliance
with the representations and warranties on the part of the Company herein as
of the date hereof and as of the Closing Date, to the performance by the
Company of its obligations and covenants hereunder, to the accuracy of
certificates of the Company and officers of the Company to be delivered
pursuant to this Agreement, all as of the Closing Date, and to the following
further conditions:
15
(a) The Registration Statement shall become effective on or
at such reasonable date as Royce may agree to. No stop order or order
suspending the effectiveness of the Registration Statement shall have been
issued at or before the Closing Date and no proceedings for that purpose shall
have been instituted or shall be pending or, to the knowledge of the Company,
contemplated by the Commission, and any request for additional information on
the part of the Commission to be included in the Registration Statement or the
Prospectus or otherwise shall have been complied with, and no amendments to
the Registration Statement or the Prospectus shall have been filed to which
Royce and its counsel have not given their consent in writing.
(b) All corporate action taken and all legal opinions and
proceedings relating to the transaction and Royce's Warrant, the Registration
Statement and Prospectus and all other matters incident thereto and to the
transaction to which this Agreement relates shall be satisfactory in all
respects to Lester Morse P.C., counsel for Royce, and they shall have been
furnished with such certificates, documents and information as they may
request in this connection.
(c) On the Closing Date, (i) the Registration Statement and
Prospectus and any amendments or supplements thereto shall contain all
statements which are required to be stated therein in accordance with the Act
and shall in all material respects conform to the requirements of the Act and
neither the Registration Statement nor the Prospectus nor any amendment or
supplement thereto shall contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, (ii) there shall have been no
material adverse change in the business, properties or financial condition of
the Company from that set forth in the Registration Statement and Prospectus
and there shall not have been any material transaction, contract or agreement
entered into by the Company which is not referred to in the Registration
Statement, (iii) no action, suit or proceeding at law or in equity shall be
pending or, to the knowledge of the Company, threatened against the Company
which would be required to be set forth in the Registration Statement other
than as set forth therein, and no proceedings shall be pending or, to the
knowledge of the Company, threatened against the Company before or by any
federal, state or other commission, board or administrative agency wherein an
unfavorable decision, ruling or finding would have a material adverse effect
upon the business, property, financial condition or income of the Company, and
(iv) the Company shall not have declared dividends or made any payments or
made any acquisitions or capital stock or made any other distribution on
outstanding shares of capital stock other than as set forth in the
Registration Statement.
(d) Prior to the Closing Date, the Company shall not
have sustained a loss on account of fire, flood, accident or other
16
calamity which, in the judgment of Royce materially and adversely affects the
Company, regardless of whether or not such loss shall have been insured.
(e) Royce shall receive on and as of the Closing Date an
opinion of Hollenberg Levin Solomon Ross Belsky & Daniels, counsel for the
Company, to the effect that (i) the Company is a corporation in good standing,
duly organized and validly existing under the laws of the state of
incorporation, and is authorized by its Certificate of Incorporation to own
its properties and to conduct its business, present and proposed, as set forth
in the Prospectus; (ii) the Company is duly qualified to transact the business
in which it is engaged and is in good standing in each jurisdiction in which
its ownership of property or its conduct of business requires such
qualification or registration (naming such jurisdictions); (iii) the Company
has an authorized and outstanding capitalization as set forth in the
Prospectus; all of the outstanding securities of the Company have been validly
authorized and issued; and are fully paid and non-assessable; the Common Stock
issuable upon exercise of the Class B Warrant, Royce Warrant and underlying
warrants have been validly authorized and reserved for issuance and when
issued, will be fully paid validly issued and will fully paid and
non-assessable; there are no options, warrants, agreements or similar rights
calling for the issuance by the Company of any of its securities except as
described in the Registration Statement and the Prospectus; (iv) this
Agreement has been duly authorized, executed and delivered by the Company and
is a valid and binding agreement of the Company in accordance with its terms;
to the best of such counsel's knowledge, (1) the execution, performance and
delivery of this Agreement and the consummation of the transactions
contemplated hereby will not result in any material breach or violation (a) of
any of the terms or provisions of, or constitute a default under, any statute,
indenture, mortgage, deed or trust, note, material agreement or other
agreement or instrument known to counsel to which the Company is a party or by
which it is bound or of which any of its property is the subject, and (b) the
Company's Certificate of Incorporation, as amended, or By-laws, or any order,
rule or regulation known to counsel of any court or governmental agency or
body having jurisdiction over the Company or any of their activities or
properties, and, (2) no consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation of the
transactions contemplated hereby except such as have been obtained under the
Act or Regulations or under state securities laws; (v) the Registration
Statement has become effective under the Act and the transaction hereunder is
made pursuant to such effective Registration Statement and, to the best
knowledge of such counsel, no order suspending the effectiveness of such
Registration Statement has been issued and no proceedings for such purposes
have been instituted or are pending or contemplated by the Commission and to
such counsel's knowledge and belief no grounds exist for the suspension of
such Registration Statement and Prospectus and any supplement of amendment
thereto (except as to the financial statements and schedules included
17
therein as to which counsel need not express an opinion) comply as to form in
all material respects with the Act and such counsel has received no
information which would indicate that the Registration Statement or Prospectus
or any supplement or amendment thereto contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary in order to make the statements therein not misleading; (vi) such
counsel does not know of any legal or government proceedings required to
described in the Registration Statement or Prospectus or of any contract or
document of a character required to be described in the Registration Statement
or Prospectus or required to be filed as an exhibit thereto which is not
described or filed as required; (vii) the Company, to the best knowledge of
such counsel, has good marketable title in fee simple, except as stated in the
Registration Statement or Prospectus, to all of the real property described
therein as being owned by it, free and clear of all liens and encumbrances
other than mortgages as more fully described in the Registration Statement and
Prospectus, except liens and encumbrances, if any, which in the opinion of
such counsel, are not material and do not interfere with the use made and
proposed to be made of such property, and holds such valid leases, property
rights and easements as are set forth in the Registration Statement or the
Prospectus, are necessary to the operations and proposed operations of the
Company (such counsel being entitled to rely with respect to the opinions
called for by this subdivision on certificates of the Company as to the use or
proposed use of properties and as to the materiality and non-interference of
liens and encumbrances on opinions of local counsel or on abstracts of title
and certificates, reports or title policies of title insurance companies); and
(viii) Royce's Warrant to be sold by the Company have been duly authorized and
constitute valid and binding obligations of the Company; the Company had at
the date of this Agreement and has at the Closing Date full legal right and
authority to sell and deliver in the manner provided in this Agreement,
Royce's Warrant sold by it hereunder; and the delivery by the Company as
described in the Registration Statement or certificates for Royce's Warrant
sold hereunder, will pass good and marketable title to such Royce's Warrant,
free and clear of all liens, encumbrances, charges and claims whatsoever,
except as may be provided by federal and state securities laws. The opinion
referred to in this subdivision shall also cover such other legal matters
relating to this Agreement and the transactions contemplated hereby as Royce
or its counsel may reasonably request.
In expressing their opinion on the matters set forth in this
paragraph 6(e), said counsel shall be entitled to rely, as to any questions of
fact upon which such opinion is predicated, on the representations of the
officers of the Company or opinions of other counsel.
(f) Royce shall have received on the Closing Date
certificates dated as of the Closing Date, signed by the President, Treasurer
and Secretary of the Company certifying that:
18
(i) No order suspending the effectiveness of the
Registration Statement or stop order is in effect and no proceeding for such
purpose are pending or are, to their knowledge, threatened by the Commission;
(ii) They do not know of any litigation instituted or
threatened against the Company of a character required to be disclosed in the
Post Effective amendment to the Registration Statement which are not disclosed
therein; they do not know of any contracts which are required to be summarized
in the Prospectus which are not so summarized; and they do not know of any
material contracts required to be filed as exhibits to the Registration
Statement which are not so filed;
(iii) They have each carefully examined the Registration
Statement and the Prospectus and, to the best of their knowledge, neither the
Registration Statement nor the Prospectus nor any amendment or supplement to
either of the foregoing contains an untrue statement of any material fact or
omits to state any material fact required to be so stated therein or necessary
to make the statement therein not misleading; and since the Effective Date, to
the best of their knowledge, there has occurred no event required to be set
forth in an amended or supplemented Prospectus which has not been so set
forth;
(iv) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not been any
material adverse change in the condition of the Company, financial or
otherwise, or in the results of its operations, except as reflected in or
contemplated by the Registration Statement and the Prospectus, and except as
so reflected or contemplated since such date, there has not been any material
transaction entered into by the Company;
(v) The representations and warranties set forth in this
Agreement are true and correct and the Company has complied with all of its
agreements herein contained;
(vi) The Company is not delinquent in the filing of any
federal, state and municipal taxes return or the payment of any federal, state
or municipal taxes; they known of no proposed redetermination or re-assessment
of taxes, adverse to the Company, and the Company has paid or provided by
adequate reserves for all known tax liabilities;
(vii) They know of no material obligation or liability of
the Company, contingent or otherwise, not disclosed in the
Registration Statement and Prospectus;
(viii) This Agreement, the consummation of the
transactions herein contemplated, and the fulfillment of the terms hereof,
will not result in a breach by the Company of any terms or constitute a default
under its Certificate of Incorporation or By-laws, any indenture, mortgage,
lease, deed or trust, bank loan or credit agreement or any other agreement or
19
undertaking of the Company including, by way of specification but not by way
of limitation, any agreement or instrument to which the Company is now a party
or pursuant to which the Company has acquired any right and/or obligations by
succession or otherwise;
(ix) The financial statements and schedules filed with and
as part of the Registration Statement present fairly the financial position of
the Company as of the dates thereof all in conformity with generally accepted
principles of accounting applied on a consistent basis throughout the periods
involved. Since the respective dates of such financial statements, there has
been no material adverse change in the condition or general affairs of the
Company, financial or otherwise, other than as referred to in the Prospectus;
and
(x) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, except as
may otherwise be indicated therein, the Company has not prior to the Closing
Date, either (i) issued any securities or incurred any liability or
obligation, direct or contingent, or borrowed money, or (ii) entered into any
material transaction other than in the ordinary course of business. The
Company has not declared , paid or made any dividend or distribution of any
kind on its capital stock.
(g) The Company shall have performed all agreements herein
contained to be performed on its part at or before the Closing Date and all
other covenants and conditions set forth in paragraph 5 shall have been
performed.
(h) At the time that this Agreement is executed by the
Company and at the Closing Date, Royce shall have received a letter from
Cornick, Garber & Sandler, LLP, dated as of the date this Agreement is
executed by the Company and as of the Closing Date, confirming that it is an
independent public accountant within the meaning of the Securities Act and the
published Rules and Regulations and the answer to item 11 of Registration
Statement is correct insofar as it related to it and stating in effect that:
(i) They are independent public accountants with respect
to the Company within the meaning of the Act and the applicable published Rules
and Regulations of the Commission;
(ii) In their opinion, the financial statements and
related schedules of the Company included in the Registration Statement and
Prospectus and covered by their reports comply as to form in all material
respects with the applicable accounting requirements of the Act and the
published Rules and Regulations of the Commission issued thereunder;
20
(iii) On the basis of limited procedures, not
constituting an audit, including a review of the latest interim unaudited
financial statements of the Company on the basis specified by the American
Institute of Certified Public Accountants for a review of interim financial
information, a reading of the minutes of meetings of the boards of directors,
and stockholders of the Company, inquiries of officials of the Company
responsible for financial and accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to their attention
which caused them to believe:
(A) that at the date of the latest balance sheet
read by them and at a subsequent specified date not more than five business
days prior to the date of such letter, there was any change in the capital
stock or increase in long-term debt of the Company as compared with amounts
shown in the most recent balance sheet included in the Prospectus, except for
changes which the Prospectus discloses have occurred or may occur or which are
described in such letter;
(B) that at the date of the latest balance sheet
read by them and at a subsequent specified date not more than five business
days prior to the date of such letter, there were any decreases, as compared
with amounts shown in the most recent balance sheet included in the
Prospectus, in total assets, net current assets or stockholder's equity of the
Company except for decreases which the Prospectus discloses have occurred or
may occur or which are described in such letter; or
(C) that for the period from the date of the most
recent financial statements in the Registration Statement to a subsequent
specified date not more than five business days prior to the date of such
letter, there were any decreases, as compared with the corresponding period of
the preceding year, in gross profit or the total or per share amounts of net
income of the Company except for decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter.
(iv) In addition to the audit referred to in their
report included in the Registration Statement and the Prospectus and the
limited procedures referred to in clause (iii) above, they have carried out
certain specified procedures, not constituting an audit, with respect to
certain amounts, percentages and financial information which are derived from
the general accounting records of the Company which appear in the Prospectus
under the captions "Summary Financial Information," "Capitalization",
"Management", "Management's Discussion and Analysis of Financial Condition and
Results of Operations", "Certain Transactions", "Dilution" and "Risk Factors,"
as well as such other financial information as may be specified by the
Representative, and that they have compared such amounts, percentages and
financial information with the accounting records of the Company and have
found them to be in agreement.
21
(i) The transaction herein shall be qualified under the
Securities and Blue Sky laws of such states as Royce may request and each such
qualification shall be in effect and not subject to any stop order or other
proceeding on the Effective Date, and Closing Date.
(j) The Company shall have furnished to Royce such other and
further certificates, documents, and opinions as Royce may reasonably request
or its counsel may request (including certificates of officers) as to the
accuracy, at and as of the Closing Date, of the representations and warranties
of the Company herein, to the performance by the Company of its obligations
hereunder as to other conditions concurrent and precedent to its obligations
hereunder.
All opinions, affidavits, letters, evidence and certificates
specified in this paragraph 6 or elsewhere in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in form
reasonable satisfactory to Royce and its counsel.
Any certification signed by an officer of the Company and
delivered to Royce or to its counsel will be deemed a representation and
warranty of the Company to Royce as to the Statements made therein.
In the event that any of the conditions specified in this
paragraph 6 shall not have been fulfilled, Royce shall have the right, upon
written notice to the Company, and upon the Company's failure to cure the
condition within ten (10) days from the date of such notice, to terminate the
obligations of Royce under this Agreement.
7. Termination.
This Agreement shall be terminated at any time prior to the
Closing Date, by Royce by written notice to the Company if in the reasonable
judgment of Royce it is impracticable to consummate this transaction, by
reason of (i) the Company having sustained a material loss of whatsoever
nature, except losses which occur as result of litigations solely and
unequivocally based 1) upon asbestos provided that the Company remains and/or
would remain a viable entity, and 2) upon product liability provided such
litigation is covered under the Company's basic product liability insurance
coverage and to the extent that the losses in excess of such insurance
coverage do not cause the Company to be and/or result in it becoming an
inviable entity, whether or not insured, which, in the sole and absolute
opinion of Royce, substantially affects the value of the property of the
Company or materially interferes with the operation of the business of the
Company, (ii) any material adverse change in the business, property or
financial condition of the Company; (iii) trading in securities on the New
York Stock Exchange, the American Stock Exchange or NASDAQ System having been
22
suspended or limited or minimum prices having been established on either such
Exchange or System, (iv) a banking moratorium having been declared by either
federal or state authorities, (v) an outbreak of major hostilities or other
national or international calamity having occurred, (vi) any action having
been taken by any government in respect of its monetary affairs which, in the
reasonable opinion of Royce, has a material adverse effect on the United
States securities markets; (vii) any action, suit or proceeding at law or in
equity against the Company, or by any Federal, Sate or other Commission, board
or agency wherein any unfavorable decision would materially adversely effect
the business, property, financial condition or income of the Company; or
(viii) due to conditions arising subsequent to the execution hereof, Royce
reasonably believes that, as a result of material and adverse events affecting
the market for the Company's Common Stock or the securities markets in
general, it is impracticable or inadvisable to proceed with the offering.
Any notice under this section 7 may be given by telephone,
or telegraph, but shall be subsequently confirmed by letter within three (3)
days of such notification.
8. Registration of Units to be Purchased by Royce.
The Registration Statement will include registration of up
to a maximum of 703,591 Units that may be purchased by Royce pursuant to this
Standby Agreement and provide for the distribution of such Units and the
components therein by Royce from time to time.
9. Indemnification.
(a) The Company will indemnify and hold harmless Royce and
each person who controls Royce within the meaning of Section 15 of the Act
from and against any and all losses, claims, damages, expenses or liabilities,
joint or several to which they or any of them may become subject under the Act
or under any other statute or at common law or otherwise and will reimburse
Royce and each such person specified as above for any legal or other expenses
(including the cost of any investigation and preparation) reasonably incurred
by them or any one them in connection with investigating or defending any
litigation or claim whether or not resulting in any liability, only insofar as
such losses, claims, damages, expenses, liabilities or actions arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or any amendment thereto or in
any Blue Sky application or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein necessary to make the statements therein not misleading, all as of the
date when the Registration Statement or any amendment thereto, the filing of
any such Blue Sky application as the case may be, becomes effective or any
untrue statement or alleged untrue statement of a material fact contained
23
in the Preliminary Prospectus or Prospectus (as amended or as supplemented
thereto), or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary in
order to make the statements therein, not misleading; provided, however, that
the indemnity agreement contained in this subsection (a) shall not apply to
amounts paid in settlement of any such litigation if such settlement is
effected without the consent of the Company, nor shall it extend to Royce or
any person controlling Royce in respect of any such losses, claims, damages,
expenses, liabilities, or actions arising out of, or based upon any such
untrue statement or alleged untrue statement, or any such omission, if such
statement or omission was made in reliance upon and in conformity with,
written information furnished to the Company by Royce on its behalf
specifically for use in connection with the preparation of the Registration
Statement, the Prospectus, or any such amendment thereof or supplement thereto
or Blue Sky Application.
Royce and each controlling person of Royce agree after their
receipt of written notice of the commencement of any action against Royce or
against any such person controlling Royce as aforesaid, in respect of which
indemnity may be sought from the Company on account of the Indemnity agreement
contained in this subsection (a), to notify the Company within ten (10) days
in writing of the commencement thereof and to supply a copy of any legal
documents served upon such Underwriter or such controlling person in
connection with such action. The omission of Royce or such controlling person
of Royce to so notify the Company of any such action shall relieve the Company
from any liability which it may have to Royce or such controlling persons as
to any such action on account of the indemnity agreement contained in this
subsection (a), but shall not relieve the Company from any other liability
which it may have to Royce, to such controlling person. In case any such
action shall be brought against Royce or any controlling person, Royce or such
controlling person shall promptly notify the Company of the commencement
thereof and the Company shall be entitled to participate in (and, to the
extent it shall wish, to direct) the defense thereof at its own expense but
such defense shall be conducted by counsel of recognized standing and
reasonably satisfactory to Royce and to such controlling person or persons who
are defendant or defendants in such litigation. Royce or any such controlling
person shall have the right to employ separate counsel in any such action and
to participate in the defense thereof subject to the Company's reasonable
right to approve such counsel which will not be unreasonably withheld, but the
fees and expenses of such counsel shall not be at the expense of the Company
unless (i) the employment of such counsel has been specifically authorized by
the Company, or (ii) the Company shall not have employed counsel to have
charge of the defense of such action,. or (iii) there is a conflict of
interest which would prevent counsel for the Company from representing both
the Company and Royce or such controlling person, in any of which cases the
Company shall not have the right to direct the defense of such action on
behalf of Royce or such controlling person. It is understood that, regardless
24
of whether such counsel is representing all of the parties entitled to
indemnification under this subsection (a), the Company shall not be liable,
under clause (iii) above, for the fees and expenses of more than one separate
counsel who shall be approved by Royce. The Company agrees to notify each
Underwriter promptly of the commencement of any litigation or proceeding
against it or against any of the officers or directors of the Company of which
it may be advised, in connection with the issue and sale of any of its
securities, and to furnish Royce, at the Royce's request, with copies of all
pleadings therein and to permit Royce to be an observer therein and to apprise
it of all of the developments therein, all at the Company's expense. The
provisions of this paragraph 9(a) shall also apply to the subsequent
registration of Royce's Warrants and/or the securities underlying Royce's
Warrants.
(b) Royce will indemnify and hold harmless the Company, the
directors of the Company, the officers of the Company who shall have signed
the Registration Statement and each person, if any, who controls the Company
within the meaning of Section 15 of the Act, from and against any and all
losses, claims, damages, expenses or liabilities, joint or several, to which
they or any of them may become subject under the Act or under any other
statute or at common law or otherwise and, except as hereinafter provided,
will reimburse the Company and such officers or controlling person indemnified
for as above for any legal or other expenses (including the cost of any
investigation and preparation) reasonably incurred by them or any of them in
connection with investigating or defending any litigation or claims whether or
not resulting in any liability, only insofar as such losses, claims, damages,
expenses, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereto or in any Blue Sky application
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, all as of the date when the Registration
Statement or such amendment thereto, or the date the filing of any such Blue
Sky application as the case may be, becomes effective, or any untrue statement
or alleged untrue statement of a material fact contained in the Preliminary
Prospectus or the Prospectus (as amended or as supplemented if the Company
shall have filed with the Commission any amendments thereof or supplements
thereto), or the omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, but only if insofar
as such statement or omission was made in reliance upon information furnished
in writing to the Company by Royce specifically for use in connection with the
preparation of the Registration Statement, the Preliminary Prospectus or the
Prospectus, or any such amendment thereof or supplement thereto or Blue Sky
application. This indemnity agreement is in addition to any other liability
which Royce may have to the Company. Royce shall not be liable for amounts
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paid in settlement of any such litigation, if such settlement was effected
without its consent. In case of the commencement of any action, respect of
which indemnity may be sought from Royce on account of its indemnity agreement
contained in this subsection (b), the Company and each person agreed to be
indemnified by Royce shall have the same obligation to notify Royce and Royce
shall have the same right to participate in (and, to the extent that it shall
wish, to direct), as set forth in subsection (a) above, the defense of such
action at its own expense but such defense shall be conducted by counsel of
recognized standing and reasonably satisfactory to the Company or such other
person agreed to be indemnified by Royce. Royce agrees to notify the Company
promptly of the commencement of any litigation or proceeding against it or
against any such controlling person of which it may be advised in connection
with the issue or sale of any of the securities of the Company. The provisions
of this subparagraph shall also apply to the subsequent registration of
Royce's Warrants and/or securities underlying Royce's Warrants.
(c) The respective indemnity agreements of the Company, and
Royce contained in subsections (a) and (b) above, and the representations and
warranties of the Company set forth in this Agreement, shall remain operative
and in full force and effect, regardless of any investigation made by Royce or
on its behalf or by or on behalf of any person who controls Royce or the
Company or any controlling person of the Company or any director or any
officer of the Company,, and shall survive the delivery of the Units, and any
successor of Royce, or the Company or of any controlling person of Royce or
the Company, as the case may be, shall be entitled to the benefit of these
respective indemnity agreements.
10. Contribution.
In order to provide for just and equitable contribution under
the Act in any case in which (i) Royce makes claims for indemnification pursuant
to Section 9 hereto 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 9 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of Royce,
then the Company and each person who controls the Company, in the aggregate,
and Royce shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (which shall, for all purposes of
this Agreement, include, but not be limited to, all reasonable costs of
defense and investigation and all reasonable attorneys' fees) in either such
case (after contribution from others) in such proportions that Royce is
responsible in the aggregate for that portion of such losses, claims, damages
or liabilities represented by the lower of the percentage that a) the standby
fee set forth in the Prospectus bears to the total gross sum received by the
26
Company without deduction of any nature whatsoever thereon, or b) the dollar
amount of the securities acquired by Royce pursuant to this Standby Agreement
bears to the total gross sum received by the Company without deduction of any
nature whatsoever thereon, and the Company shall be responsible for the
remaining portion, provided, however, that (a) if such allocation is not
permitted by applicable law, then the relative fault of the Company and Royce
and controlling persons, in the aggregate, in connection with the statements
or omissions which resulted in such damages and other relevant equitable
considerations shall also be considered. The relative fault shall be
determined by reference to, among other things, whether in the case of an
untrue statement of a material fact or the omission to state a material fact,
such statement or omission relates to information supplied by the Company or
Royce, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The
Company and Royce agree that it would not be just and equitable if the
representative obligations of the Company and Royce to contribute pursuant to
this Section 10 were to be determined by pro rata or per capita allocation of
the aggregate damages 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 10; and, (b) the contribution of Royce shall not be in excess of
its proportionate share of the portion of such losses, claims, damages or
liabilities for which Royce is responsible. 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 paragraph, the word "Company" includes 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 paragraph is not permitted by law, then Royce and each person who
controls any Underwriter shall be entitled to contribution from the Company 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 Royce. 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
not be unreasonably withheld in light of all factors of importance to such
party.
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11. Finders.
(a) The Company knows of no claims for services in the
nature of a finder's fee or origination fee with respect to this transaction
resulting from the respective acts of its officers, directors or employees,
for which Royce may be responsible, and the Company agrees to indemnify and
hold Royce free and harmless from any claims for any services of such nature
arising from any act of the Company or its employees, officers or directors
and will reimburse Royce for any counsel fees, legal or other expense
reasonable incurred by Royce in investigating or defending against any such
claim.
(b) Royce knows of no claims for services in the nature of a
finder's fee or origination fee with respect to this transaction resulting
from the respective acts of its officers, directors or employees, for which
the Company may be responsible, and Royce agrees to indemnify and hold the
Company free and harmless from any claims for any services of such nature
arising from any act of Royce or its employees, officers or directors and will
reimburse the Company for any legal or other expenses reasonable incurred by
the Company in investigating or defending against any such claim.
12. Royce's Covenant.
Royce covenants and agrees with the Company as follows:
(a) Royce is registered as a broker-dealer with the
Commission and is a member in good standing with the National
Association of Securities Dealers, Inc. ("NASD").
(b) There is not now pending or threatened or to the best
knowledge of Royce or its counsel, contemplated against Royce any action or
proceeding, either in any court of competent jurisdiction or before the
Commission or any state securities commission, or administrative body or
tribunal, except as fully disclosed or required to be disclosed in the
Prospectus.
(c) In the event of any action or proceeding of the type
referred to in subparagraph (b) above shall be instituted or threatened
against Royce at any time prior to the Effective Date, or in the event that
Royce shall cease to be a member in good standing of the NASD, or in the event
there shall be filed by or against Royce in any court pursuant to any federal,
state, local or municipal statute, a petition in bankruptcy or insolvency or
for reorganization or for the appointment of a receiver or trustee of its
assets or if Royce makes an assignment for the benefit of creditors, Royce
shall give written notice of the occurrence of such event or events to the
Company, and the Company shall have the right on three (3) days written notice
to Royce to terminate this Agreement without any liability to Royce of any
kind.
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13. Survival of Representations, Warranties and Agreements.
The respective indemnities, agreements, representations,
warranties and other statements of the Company or its officers as set forth in
or made pursuant to this Agreement and the respective indemnities, agreements,
representations, warranties, covenants and other statements of Royce or its
officers as set forth in or made pursuant to this Agreement shall remain
operative and in full force and effect, regardless of any investigation made
by or on behalf of the Company or Royce or any controlling person, and will
survive termination of this Agreement and the delivery of any payment for the
consummation of this transaction, on the Closing Date.
14. Benefits and Assignment.
This Agreement has been made solely for the benefit of the
Company and its legal representatives and may not be assigned by the Company
or Royce to any other entity and no other person shall qualify or have any
right in or by virtue of this Agreement.
15. Other Agreements
The Registration Statement shall also cover 513,000 shares
of the Company's Common Stock for sale by certain selling security holders.
However, the Company has entered into agreements with certain Selling Security
Holders who own (i) 399,000 shares of the Company's Common Stock which
prohibits them from making any sales until three months after the Effective
Date without the prior written consent of the Underwriter and (ii) an
additional 114,000 shares of the Company's Common Stock which prohibit them
from making any sales until nine months after the Effective Date without the
consent of the Company. The Company agrees not to give such consent without
the prior written consent of the Underwriter. The 513,000 shares being sold by
the selling security holders are not covered by this Standby Agreement except
for the aforementioned restrictions against sale.
16. New York Law.
This Agreement shall be construed in accordance with the
laws of the State of New York.
17. Notices.
All communications hereunder shall be in writing and, if to
Royce, shall be mailed by certified mail or delivered to Royce at its address
appearing on page 1 hereof, or if to the Company, shall be mailed by certified
mail or delivered to it at its address appearing on page 1 hereof, or sent to
counsel to such parties named in the Prospectus at the respective addresses
indicated therein.
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If a party signs this Agreement and transmits an electronic
facsimile of the signature page to the other party, the party who receives the
transmission may rely upon the electronic facsimile as a signed original of
this Agreement.
If the foregoing correctly states and sets forth in full the
Agreement between us, please indicate by signing this letter in the space
provided below for that purpose. The within Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed the
original, but all of which together shall constitute one and the same
instrument and shall be valid and binding between us.
Very truly yours,
ROYCE INVESTMENT GROUP, INC.
By:__________________________________
ROYCE KANOFSKY, President
Dated: Woodbury, New York
_____________, 1996
Accepted and Agreed:
EASTCO INDUSTRIAL SAFETY CORP.
By:____________________________
ALAN E. DENSEN, President
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