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 was to be approved by
shareholders on August 12, 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 third business day after the
Underwriter receives notice from the Company or its Subscription Agent as to the
number of unsubscribed Units.
(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 ________, 1997 (12 months from the Effective
Date) and expiring _______, 1999 (36 months from the Effective Date). The Class
B Warrants shall be redeemable commencing _______, 1998 (18 months from the
Effective Date), but no earlier than twelve months from the date that the
Warrants first become exercisable, 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 333-09517 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 number of 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 such number of Units that will
bring the number of Units to be purchased by Royce up to a total 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 standby 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
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ten (10%) percent of the amount of Units purchasable by shareholders pursuant
to this Stand-by 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 specific authorized
designee 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
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holders nor 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 and Royce each agree to use their best efforts
to secure prompt and maximum exercise of the Rights by the shareholders prior to
Closing.
(g) 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.
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
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omitted from the Registration Statement or Prospectus in reliance upon 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
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business, present and proposed, as described in the Registration 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.
(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.
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. At such
Closing Royce will make payment
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to the Company by a certified or a bank check 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.
(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 not exceed the lowest 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 represents that none of the selling security
holders have provided any consulting or other services to the Company.
(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.
(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
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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), and 3% or greater stockholders (excluding
institutional investors and investors who purchased in the Company's recent
private placements) as of the Effective Date, shall agree not to sell, transfer
or convey any of such securities by registration or otherwise for a period of
twelve (12) months from Effective Date and thereafter for an additional six
months 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) Prior to the Effective Date, the Company will enter
into employment contracts with its President, Alan E. Densen, and
its Vice-President, Larry Densen satisfactory to Royce.
(t) Prior to the Effective Date, the Company shall apply for
listing in Standard & 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.
(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
13
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.
(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; 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;
14
(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.
(gg) Until such time as the securities of the Company are
listed on the New York Stock Exchange, the American Stock Exchange, or the
NASDAQ/NMS; 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.
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
15
this Agreement, all as of the Closing Date, and to the following
further conditions:
(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.
16
(d) Prior to the Closing Date, the Company shall not have
sustained a loss on account of fire, flood, accident or other 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 except where failure to qualify would
have no material effect upon the Company); (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 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 exit for the suspension of such
Registration
17
Statement and Prospectus and any supplement of amendment thereto (except as to
the financial statements and schedules included 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.
18
(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:
(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;
19
(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 Bylaws, any indenture, mortgage, lease, deed or
trust, bank loan or credit agreement or any other agreement or 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
20
requirements of the Act and the published Rules and Regulations of
the Commission issued thereunder;
(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
21
such amounts, percentages and financial information with the accounting records
of the Company and have found them to be in agreement.
(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
22
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 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
23
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 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
24
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 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 statem ent 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 paid in settlement of any such litigation, if such
settlement was effected without its consent. In case of the commencement of any
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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
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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 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.
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,
27
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.
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
28
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 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 114,000 shares of the Company's Common Stock which prohibit them
from making any sales until nine months after the Effective Date. The 513,000
shares being sold by the selling security holders are not covered by this
Standby Agreement except for the aforementioned restriction against sale and as
provided below.
With respect to the selling security holders, the Company
agrees (i)to provide the National Association of Securities Dealers, Inc.
("NASD") all post-effective amendments or prospectus supplements disclosing
actual price and selling terms at the same time they are filed with the
Securities and Exchange Commission; (ii) to provide the NASD with notice if
subsequent to the filing of this offering any 5% or greater shareholder of the
Company is or becomes an affiliate or associated person of an NASD member
participating in the distribution and (iii) in the event a portion of the
securities being registered become underwritten, the Company will prior to the
commencement of the distribution provide the Corporate Finance Department of the
NASD with copies of all underwriting documents for the Department's review and
that the maximum compensation to be paid will first be approved by the
Department.
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
29
named in the Prospectus at the respective addresses indicated
therein.
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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