EXHIBIT 1.1
UNDERWRITING AGREEMENT
BETWEEN
STONE ARCADE ACQUISITION CORPORATION
AND
MORGAN JOSEPH & CO. INC.
Dated: _____________, 2005
STONE ARCADE ACQUISITION CORPORATION
UNDERWRITING AGREEMENT
New York, New York
_______________, 2005
Morgan Joseph & Co. Inc.
600 Fifth Avenue, 19th Floor
New York, New York 10020
Dear Sirs:
The undersigned, Stone Arcade Acquisition Corporation, a Delaware corporation
("COMPANY"), hereby confirms its agreement with Morgan Joseph & Co. Inc. (being
referred to herein variously as "YOU," "MORGAN JOSEPH & CO." or the
"REPRESENTATIVE") and with the other underwriters named on Schedule I hereto for
which Morgan Joseph & Co. is acting as Representative (the Representative and
the other Underwriters being collectively called the "UNDERWRITERS" or,
individually, an "UNDERWRITER") as follows:
1. Purchase and Sale of Securities.
1.1 Firm Securities.
1.1.1 Purchase of Firm Units. On the basis of the representations
and warranties herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to issue and sell, severally and not jointly, to
the several Underwriters, an aggregate of 30,000,000 units ("FIRM UNITS") of the
Company, at a purchase price (net of discounts and commissions) of $5.58 per
Firm Unit. The Underwriters, severally and not jointly, agree to purchase from
the Company the number of Firm Units set forth opposite their respective names
on Schedule I attached hereto and made a part hereof at a purchase price (net of
discounts and commissions) of $5.58 per Firm Unit. The Firm Units are to be
offered initially to the public ("OFFERING") at the offering price of $6.00 per
Firm Unit. Each Firm Unit consists of one share of the Company's common stock,
par value $.0001 per share ("COMMON STOCK"), and two warrants ("WARRANT(S)").
The shares of Common Stock and the Warrants included in the Firm Units will not
be separately transferable until 20 trading days following the earlier to occur
of the expiration of Morgan Joseph's over-allotment option or its exercise in
full unless Morgan Joseph & Co. informs the Company of its decision to allow
earlier separate trading, but in no event will Morgan Joseph & Co. allow
separate trading until the preparation of an audited balance sheet of the
Company reflecting receipt by the Company of the proceeds of the Offering
and the filing of a Form 8-K by the Company which includes such balance sheet.
Each Warrant entitles its holder to exercise it to purchase one share of Common
Stock for $5.00 during the period commencing on the later of the consummation by
the Company of its "Business Combination" or one year from the effective date of
the Registration Statement (as defined in Section 2.1.1 hereof) ("Effective
Date") and terminating on the four-year anniversary of the Effective Date.
"BUSINESS COMBINATION" shall mean any merger, capital stock exchange, asset
acquisition or other similar business combination consummated by the Company
with an operating business (as described more fully in the Registration
Statement).
1.1.2 Payment and Delivery. Delivery and payment for the Firm Units
shall be made at 10:00 A.M., New York City local time, on the third business day
following the effective date of the Registration Statement (or the fourth
business day following the effective date, if the Registration Statement is
declared effective after 4:30 p.m.) or at such earlier time as shall be agreed
upon by the Representative and the Company at the offices of the Representative
or at such other place as shall be agreed upon by the Representative and the
Company. The hour and date of delivery and payment for the Firm Units are called
"CLOSING DATE." Payment for the Firm Units shall be made on the Closing Date at
the Representative's election by wire transfer in Federal (same day) funds or by
certified or bank cashier's check(s) in New York Clearing House funds, payable
as follows: $_______ of the proceeds received by the Company for the Firm Units
shall be deposited in the trust fund established by the Company for the benefit
of the public stockholders as described in the Registration Statement ("TRUST
FUND") pursuant to the terms of an Investment Management Trust Agreement ("TRUST
AGREEMENT") and the remaining proceeds shall be paid to the order of the Company
upon delivery to you of certificates (in form and substance satisfactory to the
Underwriters) representing the Firm Units (or through the facilities of the
Depository Trust Company ("DTC")) for the account of the Underwriters. The Firm
Units shall be registered in such name or names and in such authorized
denominations as the Representative may request in writing at least two full
business days prior to the Closing Date. The Company will permit the
Representative to examine and package the Firm Units for delivery, at least one
full business day prior to the Closing Date. The Company shall not be obligated
to sell or deliver the Firm Units except upon tender of payment by the
Representative for all the Firm Units.
1.2 Over-Allotment Option.
1.2.1 Option Units. For the purposes of covering any over-allotments
in connection with the distribution and sale of the Firm Units, the Underwriters
are hereby granted, severally and not jointly, an option to purchase up to an
additional 4,500,000 units from the Company ("OVER-ALLOTMENT OPTION"). Such
additional 4,500,000 units are hereinafter referred to as "OPTION UNITS." The
Firm Units and the Option Units are hereinafter collectively referred to as the
"UNITS," and the Units, the shares of Common Stock and the Warrants included in
the Units and the shares of Common Stock issuable upon exercise of the Warrants
are hereinafter referred to collectively as the "PUBLIC SECURITIES." The
purchase price to be paid for the Option Units will be the same price per Option
Unit as the price per Firm Unit set forth in Section 1.1.1 hereof.
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1.2.2 Exercise of Option. The Over-allotment Option granted pursuant
to Section 1.2.1 hereof may be exercised by the Representative as to all (at any
time) or any part (from time to time) of the Option Units within 45 days after
the Effective Date. The Underwriters will not be under any obligation to
purchase any Option Units prior to the exercise of the Over-allotment Option.
The Over-allotment Option granted hereby may be exercised by the giving of oral
notice to the Company by the Representative, which must be confirmed in writing
by overnight mail or facsimile transmission setting forth the number of Option
Units to be purchased and the date and time for delivery of and payment for the
Option Units (the "OPTION CLOSING DATE"), which will not be later than five full
business days after the date of the notice or such other time as shall be agreed
upon by the Company and the Representative, at the offices of the Representative
or at such other place as shall be agreed upon by the Company and the
Representative. Upon exercise of the Over-allotment Option, the Company will
become obligated to convey to the Underwriters, and, subject to the terms and
conditions set forth herein, the Underwriters will become obligated to purchase,
the number of Option Units specified in such notice.
1.2.3 Payment and Delivery. Payment for the Option Units shall be
made on the Option Closing Date at the Representative's election by wire
transfer in Federal (same day) funds or by certified or bank cashier's check(s)
in New York Clearing House funds, payable as follows: $5.58 per Option Unit
shall be deposited in the Trust Fund pursuant to the Trust Agreement and the
remaining proceeds shall be paid to the order of the Company upon delivery to
you of certificates (in form and substance satisfactory to the Underwriters)
representing the Option Units (or through the facilities of DTC) for the account
of the Underwriters. The certificates representing the Option Units to be
delivered will be in such denominations and registered in such names as the
Representative requests not less than two full business days prior to the
Closing Date or the Option Closing Date, as the case may be, and will be made
available to the Representative for inspection, checking and packaging at the
aforesaid office of the Company's transfer agent or correspondent not less than
one full business day prior to such Closing Date.
1.3 Representative's Purchase Option.
1.3.1 Purchase Option. The Company hereby agrees to issue and sell
to the Representative (and/or their designees) on the Effective Date an option
("REPRESENTATIVE'S PURCHASE OPTION") for the purchase of an aggregate of
1,500,000 units ("REPRESENTATIVE'S UNITS") for an aggregate purchase price of
$100. Each of the Representative's Units is identical to the Firm Units, except
that the exercise price of the Warrant shall be $6.25, which is equal to one
hundred twenty-five percent (125%) of the exercise price of the warrants
included in the Firm Units ("REPRESENTATIVE'S WARRANTS"). The Representative's
Purchase Option shall be exercisable, in whole or in part, commencing on the
later of the consummation of a Business Combination or one year from the
Effective Date and expiring on the five-year anniversary of the Effective Date
at an initial exercise price per Representative's Unit of $7.50, which is equal
to one hundred twenty-five percent (125%) of the initial public offering price
of a Unit. The Representative's Purchase Option, the Representative's Units, the
Representative's
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Warrants and the shares of Common Stock issuable upon exercise of the
Representative's Warrants are hereinafter referred to collectively as the
"REPRESENTATIVE'S SECURITIES." The Public Securities and the Representative's
Securities are hereinafter referred to collectively as the "SECURITIES." The
Representative understands and agrees that there are significant restrictions
against transferring the Representative's Purchase Option during the first year
after the Effective Date, as set forth in Section 3 of the Representative's
Purchase Option.
1.3.2 Payment and Delivery. Delivery and payment for the
Representative's Purchase Option shall be made on the Closing Date. The Company
shall deliver to the Underwriters, upon payment therefor, certificates for the
Representative's Purchase Option in the name or names and in such authorized
denominations as the Representative may request.
2. Representations and Warranties of the Company. The Company represents and
warrants to the Underwriters as follows:
2.1 Filing of Registration Statement.
2.1.1 Pursuant to the Act. The Company has filed with the Securities
and Exchange Commission ("COMMISSION") a registration statement and an amendment
or amendments thereto, on Form S-1 (File No. 333-o), including any related
preliminary prospectus ("PRELIMINARY PROSPECTUS"), for the registration of the
Securities under the Securities Act of 1933, as amended ("ACT"), which
registration statement and amendment or amendments have been prepared by the
Company in conformity with the requirements of the Act, and the rules and
regulations ("REGULATIONS") of the Commission under the Act. Except as the
context may otherwise require, such registration statement, as amended, on file
with the Commission at the time the registration statement becomes effective
(including the prospectus, financial statements, schedules, exhibits and all
other documents filed as a part thereof or incorporated therein and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430A of the Regulations), is hereinafter called the "REGISTRATION
STATEMENT," and the form of the final prospectus dated the Effective Date
included in the Registration Statement (or, if applicable, the form of final
prospectus filed with the Commission pursuant to Rule 424 of the Regulations),
is hereinafter called the "PROSPECTUS." The Registration Statement has been
declared effective by the Commission on the date hereof.
2.1.2 Pursuant to the Exchange Act. The Company has filed with the
Commission a Form 8-A (File Number 000-______) providing for the registration
under the Securities Exchange Act of 1934, as amended ("EXCHANGE ACT"), of the
Units, the Common Stock and the Warrants. The registration of the Units, Common
Stock and Warrants under the Exchange Act has been declared effective by the
Commission on the date hereof.
2.2 No Stop Orders, Etc. Neither the Commission nor, to the best of the
Company's knowledge, any state regulatory authority has issued any order or
threatened to issue any order preventing or suspending the use of any
Preliminary Prospectus or has
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instituted or, to the best of the Company's knowledge, threatened to institute
any proceedings with respect to such an order.
2.3 Disclosures in Registration Statement.
2.3.1 10b-5 Representation. At the time the Registration Statement
became effective and at all times subsequent thereto up to the Closing Date and
the Option Closing Date, if any, the Registration Statement and the Prospectus
will contain all material statements that are required to be stated therein in
accordance with the Act and the Regulations, and will in all material respects
conform to the requirements of the Act and the Regulations; and neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, on such dates, will 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, in light of the circumstances under which they were
made, not misleading. When any Preliminary Prospectus was first filed with the
Commission (whether filed as part of the Registration Statement for the
registration of the Securities or any amendment thereto or pursuant to Rule
424(a) of the Regulations) and when any amendment thereof or supplement thereto
was first filed with the Commission, such Preliminary Prospectus and any
amendments thereof and supplements thereto complied or will comply in all
material respects with the applicable provisions of the Act and the Regulations
and did not and will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The representation and warranty made in this Section
2.3.1 does not apply to statements made or statements omitted in reliance upon
and in conformity with written information furnished to the Company with respect
to the Underwriters by the Representative expressly for use in the Registration
Statement or Prospectus or any amendment thereof or supplement thereto.
2.3.2 Disclosure of Agreements. The agreements and documents
described in the Registration Statement and the Prospectus conform to the
descriptions thereof contained therein and there are no agreements or other
documents required to be described in the Registration Statement or the
Prospectus or to be filed with the Commission as exhibits to the Registration
Statement, that have not been so described or filed. Each agreement or other
instrument (however characterized or described) to which the Company is a party
or by which its property or business is or may be bound or affected and (i) that
is referred to in the Prospectus, or (ii) is material to the Company's business,
has been duly and validly executed by the Company, is in full force and effect
and is enforceable against the Company and, to the Company's knowledge, the
other parties thereto, in accordance with its terms, except (x) as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally, (y) as enforceability of any
indemnification or contribution provision may be limited under the federal and
state securities laws, and (z) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought, and none of such agreements or instruments has been assigned by
the Company, and neither the Company nor, to the best of the Company's
knowledge,
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any other party is in breach or default thereunder and, to the best of the
Company's knowledge, no event has occurred that, with the lapse of time or the
giving of notice, or both, would constitute a breach or default thereunder. To
the best of the Company's knowledge, performance by the Company of the material
provisions of such agreements or instruments will not result in a material
violation of any existing applicable law, rule, regulation, judgment, order or
decree of any governmental agency or court, domestic or foreign, having
jurisdiction over the Company or any of its assets or businesses, including,
without limitation, those relating to environmental laws and regulations.
2.3.3 Prior Securities Transactions. No securities of the Company
have been sold by the Company or by or on behalf of, or for the benefit of, any
person or persons controlling, controlled by, or under common control with the
Company within the three years prior to the date hereof, except as disclosed in
the Registration Statement.
2.3.4 Regulations. The disclosures in the Registration Statement
concerning the effects of Federal, State and local regulation on the Company's
business purpose as currently contemplated are correct in all material respects
and do not omit to state a material fact necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading.
2.4 Changes After Dates in Registration Statement.
2.4.1 No Material Adverse Change. Since the respective dates as of
which information is given in the Registration Statement and the Prospectus,
except as otherwise specifically stated therein, (i) there has been no material
adverse change in the condition, financial or otherwise, or business prospects
of the Company, (ii) there have been no material transactions entered into by
the Company, other than as contemplated pursuant to this Agreement, and (iii) no
member of the Company's management has resigned from any position with the
Company.
2.4.2 Recent Securities Transactions, Etc. Subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, and except as may otherwise be indicated or contemplated
herein or therein, the Company has not (i) issued any securities or incurred any
material liability or obligation, direct or contingent, for borrowed money; or
(ii) declared or paid any dividend or made any other distribution on or in
respect to its equity securities.
2.5 Independent Accountants. Eisner LLP ("EISNER"), whose report is filed
with the Commission as part of the Registration Statement, are independent
accountants as required by the Act and the Regulations. Eisner has not, during
the periods covered by the financial statements included in the Prospectus,
provided to the Company any non-audit services, as such term is used in Section
10A(g) of the Exchange Act.
2.6 Financial Statements. The financial statements, including the notes
thereto and supporting schedules included in the Registration Statement and
Prospectus fairly present the financial position, the results of operations and
the cash flows of the Company at the dates and for the periods to which they
apply; such financial statements
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have been prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved; and the supporting
schedules included in the Registration Statement present fairly the information
required to be stated therein. The Registration Statement discloses all material
off-balance sheet transactions, arrangements, obligations (including contingent
obligations), and other relationships of the Company with unconsolidated
entities or other persons that may have a material current or future effect on
the Company's financial condition, changes in financial condition, results of
operations, liquidity, capital expenditures, capital resources, or significant
components of revenues or expenses.
2.7 Authorized Capital; Options; Etc. The Company had at the date or dates
indicated in the Prospectus duly authorized, issued and outstanding
capitalization as set forth in the Registration Statement and the Prospectus.
Based on the assumptions stated in the Registration Statement and the
Prospectus, the Company will have on the Closing Date the adjusted stock
capitalization set forth therein. Except as set forth in, or contemplated by,
the Registration Statement and the Prospectus, on the Effective Date and on the
Closing Date, there will be no options, warrants, or other rights to purchase or
otherwise acquire any authorized but unissued shares of Common Stock of the
Company or any security convertible into shares of Common Stock of the Company,
or any contracts or commitments to issue or sell shares of Common Stock or any
such options, warrants, rights or convertible securities.
2.8 Valid Issuance of Securities; Etc.
2.8.1 Outstanding Securities. All issued and outstanding securities
of the Company have been duly authorized and validly issued and are fully paid
and non-assessable; the holders thereof have no rights of rescission with
respect thereto, and are not subject to personal liability by reason of being
such holders; and none of such securities were issued in violation of the
preemptive rights of any holders of any security of the Company or similar
contractual rights granted by the Company. The authorized Common Stock conforms
to all statements relating thereto contained in the Registration Statement and
the Prospectus. The offers and sales of the outstanding Common Stock were at all
relevant times either registered under the Act and the applicable state
securities or Blue Sky laws or, based in part on the representations and
warranties of the purchasers of such shares of Common Stock, exempt from such
registration requirements.
2.8.2 Securities Sold Pursuant to this Agreement. The Securities
have been duly authorized and, when issued and paid for, will be validly issued,
fully paid and non-assessable; the holders thereof are not and will not be
subject to personal liability by reason of being such holders; the Securities
are not and will not be subject to the preemptive rights of any holders of any
security of the Company or similar contractual rights granted by the Company;
and all corporate action required to be taken for the authorization, issuance
and sale of the Securities has been duly and validly taken. The Securities
conform in all material respects to all statements with respect thereto
contained in the Registration Statement. When issued, the Representative's
Purchase Option, the Representative's Warrant, and the Warrants will constitute
valid and binding obligations
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of the Company to issue and sell, upon exercise thereof and payment of the
respective exercise prices therefor, the number and type of securities of the
Company called for thereby in accordance with the terms thereof and such
Representative's Purchase Option, the Representative's Warrants, and Warrants
are enforceable against the Company in accordance with their respective terms,
except (i) as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally, (ii) as
enforceability of any indemnification or contribution provision may be limited
under the federal and state securities laws, and (iii) that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to the equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
2.9 Registration Rights of Third Parties. Except as set forth in the
Prospectus, no holders of any securities of the Company or any rights
exercisable for or convertible or exchangeable into securities of the Company
have the right to require the Company to register any such securities of the
Company under the Act or to include any such securities in a registration
statement to be filed by the Company.
2.10 Validity and Binding Effect of Agreements. This Agreement, the
Warrant Agreement (as defined in Section 2.20 hereof), the Trust Agreement, the
Services Agreement (as defined in Section 3.7.2 hereof) and the Escrow Agreement
(as defined in Section 2.21.2 hereof) have been duly and validly authorized by
the Company and constitute, and the Representative's Purchase Option has been
duly and validly authorized by the Company and, when executed and delivered,
will constitute, the valid and binding agreements of the Company, enforceable
against the Company in accordance with their respective terms, except (i) as
such enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally, (ii) as enforceability of
any indemnification or contribution provision may be limited under the federal
and state securities laws, and (iii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
2.11 No Conflicts, Etc. The execution, delivery, and performance by the
Company of this Agreement, the Representative's Purchase Option, the Warrant
Agreement, the Trust Agreement, the Services Agreement and the Escrow Agreement,
the consummation by the Company of the transactions herein and therein
contemplated and the compliance by the Company with the terms hereof and thereof
do not and will not, with or without the giving of notice or the lapse of time
or both (i) result in a breach of, or conflict with any of the terms and
provisions of, or constitute a default under, or result in the creation,
modification, termination or imposition of any lien, charge or encumbrance upon
any property or assets of the Company pursuant to the terms of any agreement or
instrument to which the Company is a party except pursuant to the Trust
Agreement referred to in Section 2.22 hereof; (ii) result in any violation of
the provisions of the Certificate of Incorporation or the Bylaws of the Company;
or (iii) violate any existing applicable law, rule, regulation, judgment, order
or decree of any governmental
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agency or court, domestic or foreign, having jurisdiction over the Company or
any of its properties or business.
2.12 No Defaults; Violations. No material default exists in the due
performance and observance of any term, covenant or condition of any material
license, contract, indenture, mortgage, deed of trust, note, loan or credit
agreement, or any other agreement or instrument evidencing an obligation for
borrowed money, or any other material agreement or instrument to which the
Company is a party or by which the Company may be bound or to which any of the
properties or assets of the Company is subject. The Company is not in violation
of any term or provision of its Certificate of Incorporation or Bylaws or in
violation of any material franchise, license, permit, applicable law, rule,
regulation, judgment or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any of its properties or
businesses.
2.13 Corporate Power; Licenses; Consents.
2.13.1 Conduct of Business. The Company has all requisite corporate
power and authority, and has all necessary authorizations, approvals, orders,
licenses, certificates and permits of and from all governmental regulatory
officials and bodies that it needs as of the date hereof to conduct its business
purpose as described in the Prospectus. The disclosures in the Registration
Statement concerning the effects of federal, state and local regulation on this
offering and the Company's business purpose as currently contemplated are
correct in all material respects and do not omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
2.13.2 Transactions Contemplated Herein. The Company has all
corporate power and authority to enter into this Agreement and to carry out the
provisions and conditions hereof, and all consents, authorizations, approvals
and orders required in connection therewith have been obtained. No consent,
authorization or order of, and no filing with, any court, government agency or
other body is required for the valid issuance, sale and delivery, of the
Securities and the consummation of the transactions and agreements contemplated
by this Agreement, the Warrant Agreement, the Representative's Purchase Option,
the Trust Agreement and the Escrow Agreement and as contemplated by the
Prospectus, except with respect to applicable federal and state securities laws.
2.14 D&O Questionnaires. To the best of the Company's knowledge, all
information contained in the questionnaires ("QUESTIONNAIRES") completed by each
of the Company's stockholders immediately prior to the Offering ("INITIAL
STOCKHOLDERS") and provided to the Underwriters as an exhibit to his or her
Insider Letter (as defined in Section 2.21.1) is true and correct and the
Company has not become aware of any information which would cause the
information disclosed in the questionnaires completed by each Initial
Stockholder to become inaccurate and incorrect.
2.15 Litigation; Governmental Proceedings. There is no action, suit,
proceeding, inquiry, arbitration, investigation, litigation or governmental
proceeding
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pending or, to the best of the Company's knowledge, threatened against, or
involving the Company or, to the best of the Company's knowledge, any Initial
Stockholder which has not been disclosed in the Registration Statement or the
Questionnaires.
2.16 Good Standing. The Company has been duly organized and is validly
existing as a corporation and is in good standing under the laws of its state of
incorporation, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which its ownership or lease of
property or the conduct of business requires such qualification, except where
the failure to qualify would not have a material adverse effect on the Company.
2.17 Transactions Affecting Disclosure to NASD.
2.17.1 Finder's Fees. Except as described in the Prospectus, there
are no claims, payments, arrangements, agreements or understandings relating to
the payment of a finder's, consulting or origination fee by the Company or any
Initial Stockholder with respect to the sale of the Securities hereunder or any
other arrangements, agreements or understandings of the Company or, to the best
of the Company's knowledge, any Initial Stockholder that may affect the
Underwriters' compensation, as determined by the National Association of
Securities Dealers, Inc. ("NASD").
2.17.2 Payments Within Twelve Months. The Company has not made any
direct or indirect payments (in cash, securities or otherwise) (i) to any
person, as a finder's fee, consulting fee or otherwise, in consideration of such
person raising capital for the Company or introducing to the Company persons who
raised or provided capital to the Company, (ii) to any NASD member or (iii) to
any person or entity that has any direct or indirect affiliation or association
with any NASD member, within the twelve months prior to the Effective Date,
other than payments to Morgan Joseph & Co.
2.17.3 Use of Proceeds. None of the net proceeds of the Offering
will be paid by the Company to any participating NASD member or its affiliates,
except as specifically authorized herein and except as may be paid in connection
with a Business Combination as contemplated by the Prospectus.
2.17.4 Insiders' NASD Affiliation. Based on questionnaires
distributed to such persons, except as set forth on Schedule 2.17.4, no officer,
director or any beneficial owner of the Company's unregistered securities has
any direct or indirect affiliation or association with any NASD member. The
Company will advise the Representative and its counsel if it learns that any
officer, director or owner of at least 5% of the Company's outstanding Common
Shares is or becomes an affiliate or associated person of an NASD member
participating in the offering.
2.18 Foreign Corrupt Practices Act. Neither the Company nor any of the
Initial Stockholders or any other person acting on behalf of the Company has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any
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governmental agency or instrumentality of any government (domestic or foreign)
or any political party or candidate for office (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other person
who was, is, or may be in a position to help or hinder the business of the
Company (or assist it in connection with any actual or proposed transaction)
that (i) might subject the Company to any damage or penalty in any civil,
criminal or governmental litigation or proceeding, (ii) if not given in the
past, might have had a material adverse effect on the assets, business or
operations of the Company as reflected in any of the financial statements
contained in the Prospectus or (iii) if not continued in the future, might
adversely affect the assets, business, operations or prospects of the Company.
The Company's internal accounting controls and procedures are sufficient to
cause the Company to comply with the Foreign Corrupt Practices Act of 1977, as
amended.
2.19 Officers' Certificate. Any certificate signed by any duly authorized
officer of the Company and delivered to you or to your counsel shall be deemed a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
2.20 Warrant Agreement. The Company has entered into a warrant agreement
with respect to the Warrants and the Representative's Warrants with Continental
Stock Transfer & Trust Company substantially in the form filed as an exhibit to
the Registration Statement ("WARRANT AGREEMENT").
2.21 Agreements With Initial Stockholders.
2.21.1 Letters. The Company has caused to be duly executed legally
binding and enforceable agreements (except (i) as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally, (ii) as enforceability of any indemnification,
contribution or noncompete provision may be limited under the federal and state
securities laws, and (iii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought) a form of which is annexed as Exhibit 10.1 to the Registration
Statement ("INSIDER LETTER"), pursuant to which each of the Initial Stockholders
of the Company agree to certain matters, including but not limited to, certain
matters described as being agreed to by them under the "Proposed Business"
section of the Prospectus.
2.21.2 Escrow Agreement. The Company has caused the Initial
Stockholders to enter into an escrow agreement ("ESCROW AGREEMENT") with
Continental Stock Transfer & Trust Company ("ESCROW AGENT"), substantially in
the form annexed as Exhibit 10.4 to the Registration Statement, whereby the
Common Stock owned by the Initial Stockholders will be held in escrow by the
Escrow Agent, until the first anniversary of the Business Combination. During
such escrow period, the Initial Stockholders shall be prohibited from selling or
otherwise transferring such shares (except to spouses and children of Initial
Stockholders and trusts established for their benefit and as otherwise set forth
in the Escrow Agreement) but will retain the right to vote such shares. To the
Company's knowledge, the Escrow Agreement is enforceable
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against each of the Initial Stockholders and will not, with or without the
giving of notice or the lapse of time or both, result in a breach of, or
conflict with any of the terms and provisions of, or constitute a default under,
any agreement or instrument to which any of the Initial Stockholders is a party.
The Escrow Agreement shall not be amended, modified or otherwise changed without
the prior written consent of Morgan Joseph & Co.
2.22 Investment Management Trust Agreement. The Company has entered into
the Trust Agreement with respect to certain proceeds of the Offering
substantially in the form annexed as Exhibit 10.3 to the Registration Statement.
2.23 Covenants Not to Compete. Except for the agreements dated July 1,
2004 between International Paper Company and each of Roger Stone and Matthew
Kaplan, no Initial Stockholder, employee, officer or director of the Company is
subject to any noncompetition agreement or non-solicitation agreement with any
employer or prior employer which could materially affect his ability to be an
Initial Stockholder, employee, officer and/or director of the Company.
2.24 Investments. No more than 45% of the "value" (as defined in Section
2(a)(41) of the Investment Company Act of 1940 ("INVESTMENT COMPANY ACT")) of
the Company's total assets consist of, and no more than 45% of the Company's net
income after taxes is derived from, securities other than "Government
securities" (as defined in Section 2(a)(16) of the Investment Company Act).
2.25 Subsidiaries. The Company does not own an interest in any
corporation, partnership, limited liability company, joint venture, trust or
other business entity.
2.26 Related Party Transactions. There are no business relationships or
related party transactions involving the Company or any other person required to
be described in the Prospectus that have not been described as required.
3. Covenants of the Company. The Company covenants and agrees as follows:
3.1 Amendments to Registration Statement. The Company will deliver to the
Representative, prior to filing, any amendment or supplement to the Registration
Statement or Prospectus proposed to be filed after the Effective Date and not
file any such amendment or supplement to which the Representative shall
reasonably object in writing.
3.2 Federal Securities Laws.
3.2.1 Compliance. During the time when a Prospectus is required to
be delivered under the Act, the Company will use all reasonable efforts to
comply with all requirements imposed upon it by the Act, the Regulations and the
Exchange Act and by the regulations under the Exchange Act, as from time to time
in force, so far as necessary to permit the continuance of sales of or dealings
in the Securities in accordance with the provisions hereof and the Prospectus.
If at any time when a Prospectus relating to the Securities is required to be
delivered under the Act, any event shall have occurred as a result of which, in
the opinion of counsel for the Company or counsel for the
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Underwriters, the Prospectus, as then amended or supplemented, includes an
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Prospectus to comply with the Act, the
Company will notify the Representative promptly and prepare and file with the
Commission, subject to Section 3.1 hereof, an appropriate amendment or
supplement in accordance with Section 10 of the Act.
3.2.2 Filing of Final Prospectus. The Company will file the
Prospectus (in form and substance satisfactory to the Representative) with the
Commission pursuant to the requirements of Rule 424 of the Regulations.
3.2.3 Exchange Act Registration. For a period of five years from the
Effective Date, or until such earlier time upon which the Company is required to
be liquidated, the Company will use its best efforts to maintain the
registration of the Units, Common Stock and Warrants under the provisions of the
Exchange Act (except in connection with a going private transaction). For a
period of five years from the Effective Date, the Company will not deregister
the Units, Common Stock and Warrants under the Exchange Act without the prior
written consent of Morgan Joseph & Co.
3.3 Blue Sky Filing. The Company will endeavor in good faith, in
cooperation with the Representative, at or prior to the time the Registration
Statement becomes effective, to qualify the Securities for offering and sale
under the securities laws of such jurisdictions as the Representative may
reasonably designate, provided that no such qualification shall be required in
any jurisdiction where, as a result thereof, the Company would be subject to
service of general process or to taxation as a foreign corporation doing
business in such jurisdiction. In each jurisdiction where such qualification
shall be effected, the Company will, unless the Representative agrees that such
action is not at the time necessary or advisable, use all reasonable efforts to
file and make such statements or reports at such times as are or may be required
by the laws of such jurisdiction.
3.4 Delivery to Underwriters of Prospectuses. The Company will deliver to
each of the several Underwriters, without charge, from time to time during the
period when the Prospectus is required to be delivered under the Act or the
Exchange Act such number of copies of each Preliminary Prospectus and the
Prospectus as such Underwriters may reasonably request and, as soon as the
Registration Statement or any amendment or supplement thereto becomes effective,
deliver to you two original executed Registration Statements, including
exhibits, and all post-effective amendments thereto and copies of all exhibits
filed therewith or incorporated therein by reference and all original executed
consents of certified experts.
3.5 Effectiveness and Events Requiring Notice to the Representative. The
Company will use its best efforts to cause the Registration Statement to remain
effective and will notify the Representative immediately and confirm the notice
in writing (i) of the effectiveness of the Registration Statement and any
amendment thereto, (ii) of the issuance by the Commission of any stop order or
of the initiation, or the threatening, of any proceeding for that purpose, (iii)
of the issuance by any state securities commission
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of any proceedings for the suspension of the qualification of the Securities for
offering or sale in any jurisdiction or of the initiation, or the threatening,
of any proceeding for that purpose, (iv) of the mailing and delivery to the
Commission for filing of any amendment or supplement to the Registration
Statement or Prospectus, (v) of the receipt of any comments or request for any
additional information from the Commission, and (vi) of the happening of any
event during the period described in Section 3.2.3 hereof that, in the judgment
of the Company, makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or that requires the making of any changes in
the Registration Statement or the Prospectus in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. If the Commission or any state securities commission shall enter a
stop order or suspend such qualification at any time, the Company will make
every reasonable effort to obtain promptly the lifting of such order.
3.6 Review of Financial Statements. For a period of five years from the
Effective Date, or until such earlier time upon which the Company is required to
be liquidated, the Company, at its expense, shall cause its regularly engaged
independent certified public accountants to review (but not audit) the Company's
financial statements for each of the first three fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
Form 10-Q quarterly report and the mailing of quarterly financial information to
stockholders.
3.7 Affiliated Transactions.
3.7.1 Business Combinations. The Company will not consummate a
Business Combination with any entity which is affiliated with any Initial
Stockholder unless the Company obtains an opinion from an independent investment
banking firm that the Business Combination is fair to the Company's stockholders
from a financial perspective.
3.7.2 Administrative Services. The Company has entered into an
agreement ("SERVICES AGREEMENT") with Stone-Kaplan Investments, LLC
("STONE-KAPLAN") substantially in the form annexed as Exhibit 10.5 to the
Registration Statement pursuant to which Stone-Kaplan will make available to the
Company administrative, technology and secretarial services, as well as the use
of certain limited office space, in Northfield, Illinois for $7,500 per month,
of which a portion will be paid to Arcade Partners LLC for overhead expenses
incurred on the Company's behalf.
3.7.3 Compensation. Except as set forth above in this Section 3.7,
the Company shall not pay any Initial Stockholder or any of their affiliates any
fees or compensation from the Company, for services rendered to the Company
prior to, or in connection with, the consummation of a Business Combination;
provided that the Initial Stockholders shall be entitled to reimbursement from
the Company for their reasonable out-of-pocket expenses incurred in connection
with seeking and consummating a Business Combination.
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3.8 Secondary Market Trading and Standard & Poor's. The Company will apply
to be included in Standard & Poor's Daily News and Corporation Records Corporate
Descriptions for a period of five years from the consummation of a Business
Combination. Promptly after the consummation of the Offering, the Company shall
take such steps as may be necessary to obtain a secondary market trading
exemption for the Company's securities in the State of California. The Company
shall also take such other action as may be reasonably requested by the
Representative to obtain a secondary market trading exemption in such other
states as may be requested by the Representative.
3.9 Intentionally Omitted.
3.10 Financial Public Relations Firm. Promptly after the execution of a
definitive agreement for a Business Combination, the Company shall retain a
financial relations firm.
3.11 Reports to the Representative.
3.11.1 Periodic Reports, Etc. For a period of five years following
the Effective Date or until such earlier time upon which the Company is required
to be liquidated, the Company will furnish to the Representative and its
counsel, as reasonably requested from time to time, (i) copies of such financial
statements and other periodic and special reports as the Company from time to
time furnishes generally to holders of any class of its securities, (ii) a copy
of monthly statements, if any, setting forth such information regarding the
Company's results of operations and financial position (including balance sheet,
profit and loss statements and data regarding outstanding purchase orders) as is
regularly prepared by management of the Company and (iii) such additional
documents and information with respect to the Company and the affairs of any
future subsidiaries of the Company as the Representative may reasonably request;
provided that the Representative shall sign, if requested by the Company, a
Regulation FD-compliant confidentiality agreement which is reasonably acceptable
to the Representative and its counsel in connection with the Representative's
receipt of such information.
3.11.2 Transfer Sheets. For a period of two years following the
Effective Date or until such earlier time upon which the Company is required to
be liquidated, the Company shall retain a transfer and warrant agent acceptable
to the Representative ("TRANSFER AGENT") and will furnish to the Underwriters at
the Company's sole cost and expense, for a period of one year following the
Effective Date, such transfer sheets of the Company's securities as the
Representative may request, including the daily and monthly consolidated
transfer sheets of the Transfer Agent and DTC. The Underwriters acknowledge that
Continental Stock Transfer & Trust Company is an acceptable Transfer Agent.
3.11.3 Secondary Market Trading Survey. Until such time as the
Securities are listed or quoted, as the case may be, on the New York Stock
Exchange, the American Stock Exchange or quoted on the Nasdaq National Market,
or until such earlier time upon which the Company is required to be liquidated,
the Company shall engage
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Greenberg Traurig, LLP ("GREENBERG"), for a one-time fee of $5,000 payable on
the Closing Date, to deliver and update to the Underwriters on a timely basis,
but in any event on the Effective Date and at the beginning of each fiscal
quarter, a written report detailing those states in which the Securities may be
traded in non-issuer transactions under the Blue Sky laws of the fifty States
("SECONDARY MARKET TRADING SURVEY").
3.11.4 Trading Reports. During such time as any of the Securities
are quoted on the NASD OTC Bulletin Board (or any successor trading market such
as the Bulletin Board Exchange) or the Pink Sheets, LLC (or similar publisher of
quotations) and no other automated quotation system, the Company shall provide
to the Representative, at its expense, such reports published by the NASD or the
Pink Sheets, LLC relating to price trading of the Securities, as the
Representative shall reasonably request.
3.12 Disqualification of Form S-3. For a period equal to four years from
the date hereof, the Company will not take any action or actions which may
prevent or disqualify the Company's use of Form S-3 (or other appropriate form)
for the registration of the Warrants under the Act (except in connection with a
going-private transaction).
3.13 Payment of Expenses.
3.13.1 General Expenses Related to the Offering. The Company hereby
agrees to pay on each of the Closing Date and the Option Closing Date, if any,
to the extent not paid at the Closing Date, all expenses incident to the
performance of the obligations of the Company under this Agreement, including
but not limited to (i) the preparation, printing, filing and mailing (including
the payment of postage with respect to such mailing) of the Registration
Statement, the Preliminary and Final Prospectuses and the printing and mailing
of this Agreement and related documents, including the cost of all copies
thereof and any amendments thereof or supplements thereto supplied to the
Underwriters in quantities as may be required by the Underwriters, (ii) the
printing, engraving, issuance and delivery of the Units, the shares of Common
Stock and the Warrants included in the Units, including any transfer or other
taxes payable thereon, (iii) the qualification of the Securities under state or
foreign securities or Blue Sky laws, including the costs of printing and mailing
the "Preliminary Blue Sky Memorandum," and all amendments and supplements
thereto, fees and disbursements of Greenberg retained for such purpose (such
fees shall be $45,000 in the aggregate (of which $____ has previously been
paid)), and a one-time fee of $5,000 payable to Greenberg for the preparation of
the Secondary Market Trading Survey, (iv) filing fees, costs and expenses
(including disbursements for the Representative's counsel) incurred in
registering the Offering with the NASD, (v) fees and disbursements of the
Transfer Agent, (vi) the Company's expenses associated with "due diligence"
meetings arranged by the Representative, and (vii) all other costs and expenses
customarily borne by an issuer incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section
3.13. The Company also agrees that, if requested by the Representative, it will
engage and pay up to $5,000 or such greater amount as may be mutually agreed to
by the Representative and the Company for an investigative search firm of the
Representative's choice to conduct an investigation of the principals of the
- 16 -
Company as shall be mutually selected by the Representative and the Company. The
Representative may deduct from the net proceeds of the Offering payable to the
Company on the Closing Date, or the Option Closing Date, if any, the expenses
set forth in this Agreement to be paid by the Company to the Representative and
others. If the Offering contemplated by this Agreement is not consummated for
any reason whatsoever then the Company shall reimburse the Underwriters in full
for their out of pocket expenses, including, without limitation, its legal fees
and disbursements and "road show" and due diligence expenses.
3.13.2 Expenses Related to Business Combination. The Company further
agrees that, in the event the Representative assists the Company in trying to
obtain stockholder approval of a proposed Business Combination, the Company will
reimburse the Representative for all out-of-pocket expenses, including, but not
limited to, "road-show" and due diligence expenses.
3.14 Application of Net Proceeds. The Company will apply the net proceeds
from the Offering received by it in a manner consistent with the application
described under the caption "Use Of Proceeds" in the Prospectus.
3.15 Delivery of Earnings Statements to Security Holders. The Company will
make generally available to its security holders as soon as practicable, but not
later than the first day of the fifteenth full calendar month following the
Effective Date, an earnings statement (which need not be certified by
independent public or independent certified public accountants unless required
by the Act or the Regulations, but which shall satisfy the provisions of Rule
158(a) under Section 11(a) of the Act) covering a period of at least twelve
consecutive months beginning after the Effective Date.
3.16 Notice to NASD. In the event any person or entity (regardless of any
NASD affiliation or association) is engaged to assist the Company in its search
for a merger candidate or to provide any other merger and acquisition services,
the Company will provide the following to the NASD and to Morgan Joseph & Co.
prior to the consummation of the Business Combination: (i) complete details of
all services and copies of agreements governing such services; and (ii)
justification as to why the person or entity providing the merger and
acquisition services should not be considered an "underwriter and related
person" with respect to the Company's initial public offering, as such term is
defined in Rule 2710 of the NASD's Conduct Rules. The Company also agrees that
proper disclosure of such arrangement or potential arrangement will be made in
the proxy statement which the Company will file for purposes of soliciting
stockholder approval for the Business Combination.
3.17 Stabilization. Except with respect to the agreement between Morgan
Joseph & Co. and each of the Initial Stockholders (the "WARRANT PURCHASE
AGREEMENT") annexed as Exhibit 10.7 to the Registration Statement, neither the
Company, nor, to its knowledge, any of its employees, directors or stockholders
(without the consent of Morgan Joseph & Co.) has taken or will take, directly or
indirectly, any action designed to or that has constituted or that might
reasonably be expected to cause or
- 17 -
result in, under the Exchange Act, or otherwise, stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Units.
3.18 Internal Controls. The Company will maintain a system of internal
accounting controls sufficient to provide reasonable assurances that: (i)
transactions are executed in accordance with management's general or specific
authorization, (ii) transactions are recorded as necessary in order to permit
preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
3.19 Accountants. For a period of five years from the Effective Date or
until such earlier time upon which the Company is required to be liquidated, the
Company shall retain Eisner, one of the "Big Four" accounting firms or BDO
Seidman, LLP or other independent public accountants reasonably acceptable to
Morgan Joseph & Co.
3.20 Form 8-K. The Company shall, on the date hereof, retain its
independent public accountants to audit the financial statements of the Company
as of the Closing Date ("AUDITED FINANCIAL STATEMENTS") that reflect the receipt
by the Company of the proceeds of the initial public offering. As soon as the
Audited Financial Statements become available, the Company shall immediately
file a Current Report on Form 8-K with the Commission, which Report shall
contain the Company's Audited Financial Statements.
3.21 NASD. The Company shall advise the NASD if it is aware that any 5% or
greater stockholder of the Company becomes an affiliate or associated person of
an NASD member participating in the distribution of the Company's Securities.
3.22 Corporate Proceedings. All corporate proceedings and other legal
matters necessary to carry out the provisions of this Agreement and the
transactions contemplated hereby shall have been done to the reasonable
satisfaction to counsel for the Underwriters.
3.23 Investment Company. The Company shall cause the proceeds of the
Offering to be held in the Trust Fund to be invested only in "government
securities" with specific maturity dates as set forth in the Trust Agreement and
disclosed in the Prospectus. The Company will otherwise conduct its business in
a manner so that it will not become subject to the Investment Company Act.
Furthermore, once the Company consummates a Business Combination, it shall be
engaged in a business other than that of investing, reinvesting, owning, holding
or trading securities.
3.24 Business Combination Announcement. Within five business days
following the consummation by the Company of a Business Combination, the Company
shall cause an announcement ("BUSINESS COMBINATION ANNOUNCEMENT") to be placed,
at its cost, in The Wall Street Journal. Such announcement shall describe the
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consummation of the Business Combination and indicate that the Representative
was the managing underwriter in the Offering. The Company shall supply the
Representative with a draft of the Business Combination Announcement and provide
the Representative with a reasonable opportunity to comment thereon. The Company
will not place the Business Combination Announcement without the final approval
of the Representative, which such approval will not be unreasonably withheld.
3.25 Colorado Trust Filing. In the event the Securities are registered in
the State of Colorado, the Company will cause a Colorado Form ES to be filed
with the Commissioner of the State of Colorado no less than 10 days prior to the
distribution of the Trust Fund in connection with a Business Combination and
will do all things necessary to comply with Section 11-51-302 and Rule 51-3.4 of
the Colorado Securities Act.
4. Conditions of Underwriters' Obligations. The obligations of the several
Underwriters to purchase and pay for the Units, as provided herein, shall be
subject to the continuing accuracy of the representations and warranties of the
Company as of the date hereof and as of each of the Closing Date and the Option
Closing Date, if any, to the accuracy of the statements of officers of the
Company made pursuant to the provisions hereof and to the performance by the
Company of its obligations hereunder and to the following conditions:
4.1 Regulatory Matters.
4.1.1 Effectiveness of Registration Statement. The Registration
Statement shall have become effective not later than 5:00 P.M., New York City
local time, on the date of this Agreement or such later date and time as shall
be consented to in writing by you, and, at each of the Closing Date and the
Option Closing Date, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending or contemplated by the
Commission and any request on the part of the Commission for additional
information shall have been complied with to the reasonable satisfaction of
Greenberg Traurig, LLP, counsel to the Underwriters ("GREENBERG").
4.1.2 NASD Clearance. By the Effective Date, the Representative
shall have received clearance from the NASD as to the amount of compensation
allowable or payable to the Underwriters as described in the Registration
Statement.
4.1.3 No Blue Sky Stop Orders. No order suspending the sale of the
Units in any jurisdiction designated by you pursuant to Section 3.3 hereof shall
have been issued on either on the Closing Date or the Option Closing Date, and
no proceedings for that purpose shall have been instituted or shall be
contemplated.
4.2 Company Counsel Matters.
4.2.1 Effective Date Opinion of Counsel. On the Effective Date, the
Representative shall have received the favorable opinion of Loeb & Loeb LLP
("LOEB"), counsel to the
- 19 -
Company, dated the Effective Date, addressed to the Representative and in form
and substance satisfactory to Greenberg to the effect that:
(i) The Company has been duly organized and is validly existing
as a corporation and is in good standing under the laws of its state of
incorporation. The Company is duly qualified and licensed and in good standing
as a foreign corporation in each jurisdiction in which its ownership or leasing
of any properties or the character of its operations requires such qualification
or licensing, except where the failure to qualify would not have a material
adverse effect on the Company.
(ii) All issued and outstanding securities of the Company have
been duly authorized and validly issued and are fully paid and non-assessable;
the holders thereof are not subject to personal liability by reason of being
such holders and none of such securities were issued in violation of the
preemptive rights of any stockholder of the Company arising by operation of law
or under the Certificate of Incorporation or Bylaws of the Company. The offers
and sales of the outstanding Common Stock were at all relevant times either
registered under the Act and the applicable state securities or Blue Sky Laws or
exempt from such registration. The authorized and outstanding capital stock of
the Company is as set forth in the Prospectus.
(iii) The Securities have been duly authorized and, when issued
and paid for, will be validly issued, fully paid and non-assessable; the holders
thereof are not and will not be subject to personal liability by reason of being
such holders. The Securities are not and will not be subject to the preemptive
rights of any holders of any security of the Company arising by operation of law
or under the Certificate of Incorporation, as amended, or Bylaws of the Company.
When issued, the Warrants, the Representative's Purchase Option and the
Representative's Warrants will constitute valid and binding obligations of the
Company to issue and sell, upon exercise thereof and payment therefor, the
number and type of securities of the Company called for thereby and such
Warrants, the Representative's Purchase Option and the Representative's
Warrants, when issued, in each case, are enforceable against the Company in
accordance with their respective terms, except (a) as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally, (b) as enforceability of any indemnification or
contribution provision may be limited under the federal and state securities
laws, and (c) that the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to the equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought. The
certificates representing the Securities are in due and proper form.
(iv) This Agreement, the Warrant Agreement, the Representative's
Purchase Option, the Services Agreement, the Trust Agreement and the Escrow
Agreement have each been duly and validly authorized and, when executed and
delivered by the Company, constitute the valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, except (a) as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, (b) as enforceability of any indemnification or
- 20 -
contribution provisions may be limited under the federal and state securities
laws, and (c) that the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to the equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(v) The execution, delivery and performance of this Agreement,
the Warrant Agreement, the Representative's Purchase Option, the Escrow
Agreement, the Trust Agreement and the Services Agreement, the issuance and sale
of the Securities, the consummation of the transactions contemplated hereby and
thereby, and compliance by the Company with the terms and provisions hereof and
thereof, do not and will not, with or without the giving of notice or the lapse
of time, or both, (a) to such counsel's knowledge, conflict with, or result in a
breach of, any of the terms or provisions of, or constitute a default under, or
result in the creation or modification of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company pursuant to the
terms of, any mortgage, deed of trust, note, indenture, loan, contract,
commitment or other agreement or instrument filed as an exhibit to the
Registration Statement, (b) result in any violation of the provisions of the
Certificate of Incorporation or the Bylaws of the Company, or (c) to such
counsel's knowledge, violate any statute or any judgment, order or decree, rule
or regulation applicable to the Company of any court, domestic or foreign, or of
any federal, state or other regulatory authority or other governmental body
having jurisdiction over the Company, its properties or assets.
(vi) The Registration Statement, each Preliminary Prospectus and
the Prospectus and any post-effective amendments or supplements thereto (other
than the financial statements included therein, as to which no opinion need be
rendered) each as of their respective dates complied as to form in all material
respects with the requirements of the Act and Regulations. The Securities and
each agreement filed as an exhibit to the Registration Statement conform in all
material respects to the description thereof contained in the Registration
Statement and the Prospectus. No statute or regulation required to be described
in the Prospectus is not described as required, nor are any contracts or
documents of a character required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement not
so described or filed as required.
(vii) Counsel has participated in conferences with officers and
other representatives of the Company, representatives of the independent public
accountants for the Company and representatives of the Underwriters at which the
contents of the Registration Statement, the Prospectus and related matters were
discussed and although such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement and Prospectus (except as otherwise set
forth in this opinion), no facts have come to the attention of such counsel
which should lead them to believe that either the Registration Statement or the
Prospectus or any amendment or supplement thereto, as of the date of such
opinion contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it
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being understood that such counsel need express no opinion with respect to the
financial statements and schedules and other financial and statistical data
included in the Registration Statement or Prospectus).
(viii) The Registration Statement is effective under the Act. To
such counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened under the Act or applicable state
securities laws.
(ix) To such counsel's knowledge, there is no action, suit or
proceeding before or by any court of governmental agency or body, domestic or
foreign, now pending, or threatened against the Company that is required to be
described in the Registration Statement.
4.2.2 Closing Date and Option Closing Date Opinion of Counsel. On each
of the Closing Date and the Option Closing Date, if any, the Representative
shall have received the favorable opinion of Loeb, dated the Closing Date or the
Option Closing Date, as the case may be, addressed to the Representative and in
form and substance reasonably satisfactory to Greenberg, confirming as of the
Closing Date and, if applicable, the Option Closing Date, the statements made by
Loeb in their opinion delivered on the Effective Date.
4.2.3 Reliance. In rendering such opinion, such counsel may rely (i)
as to matters involving the application of laws other than the laws of the
United States and jurisdictions in which they are admitted, to the extent such
counsel deems proper and to the extent specified in such opinion, if at all,
upon an opinion or opinions (in form and substance reasonably satisfactory to
Greenberg) of other counsel reasonably acceptable to Greenberg, familiar with
the applicable laws, and (ii) as to matters of fact, to the extent they deem
proper, on certificates or other written statements of officers of the Company
and officers of departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company, provided
that copies of any such statements or certificates shall be delivered to the
Underwriters' counsel if requested. The opinion of counsel for the Company and
any opinion relied upon by such counsel for the Company shall include a
statement to the effect that it may be relied upon by counsel for the
Underwriters in its opinion delivered to the Underwriters.
4.3 Cold Comfort Letter. At the time this Agreement is executed, and at
each of the Closing Date and the Option Closing Date, if any, you shall have
received a letter, addressed to the Representative and in form and substance
satisfactory in all respects (including the non-material nature of the changes
or decreases, if any, referred to in clause (iii) below) to you and to Greenberg
from Eisner dated, respectively, as of the date of this Agreement and as of the
Closing Date and the Option Closing Date, if any:
(i) Confirming that they are independent accountants with respect
to the Company within the meaning of the Act and the applicable Regulations and
that they have not, during the periods covered by the financial statements
included in the
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Prospectus, provided to the Company any non-audit services, as such term is used
in Section 10A(g) of the Exchange Act;
(ii) Stating that in their opinion the financial statements of
the Company included in the Registration Statement and Prospectus comply as to
form in all material respects with the applicable accounting requirements of the
Act and the published Regulations thereunder;
(iii) Stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of the latest
available unaudited interim financial statements), a reading of the latest
available minutes of the stockholders and board of directors and the various
committees of the board of directors, consultations with officers and other
employees of the Company responsible for financial and accounting matters and
other specified procedures and inquiries, nothing has come to their attention
which would lead them to believe that (a) the unaudited financial statements of
the Company included in the Registration Statement do not comply as to form in
all material respects with the applicable accounting requirements of the Act and
the Regulations or are not fairly presented in conformity with generally
accepted accounting principles applied on a basis substantially consistent with
that of the audited financial statements of the Company included in the
Registration Statement, (b) at a date not later than five days prior to the
Effective Date, Closing Date or Option Closing Date, as the case may be, there
was any change in the capital stock or long-term debt of the Company, or any
decrease in the stockholders' equity of the Company as compared with amounts
shown in the April 26, 2005 balance sheet included in the Registration
Statement, other than as set forth in or contemplated by the Registration
Statement, or, if there was any decrease, setting forth the amount of such
decrease, and (c) during the period from April 26, 2005 to a specified date not
later than five days prior to the Effective Date, Closing Date or Option Closing
Date, as the case may be, there was any decrease in revenues, net earnings or
net earnings per share of Common Stock, in each case as compared with the
corresponding period in the preceding year and as compared with the
corresponding period in the preceding quarter, other than as set forth in or
contemplated by the Registration Statement, or, if there was any such decrease,
setting forth the amount of such decrease;
(iv) Setting forth, at a date not later than five days prior to
the Effective Date, the amount of liabilities of the Company (including a
break-down of commercial papers and notes payable to banks);
(v) Stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus in
each case to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including work
sheets, of the Company and excluding any questions requiring an interpretation
by legal counsel, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with
- 23 -
generally accepted auditing standards) set forth in the letter and found them to
be in agreement;
(vi) Stating that they have not during the immediately preceding
five year period brought to the attention of the Company's management any
reportable condition related to internal structure, design or operation as
defined in the Statement on Auditing Standards No. 60 "Communication of Internal
Control Structure Related Matters Noted in an Audit," in the Company's internal
controls; and
(vii) Statements as to such other matters incident to the
transaction contemplated hereby as you may reasonably request.
4.4 Officers' Certificates.
4.4.1 Officers' Certificate. At each of the Closing Date and the
Option Closing Date, if any, the Representative shall have received a
certificate of the Company signed by the Chairman of the Board or the President
and the Secretary or Assistant Secretary of the Company, dated the Closing Date
or the Option Closing Date, as the case may be, respectively, to the effect that
the Company has performed all covenants and complied with all conditions
required by this Agreement to be performed or complied with by the Company prior
to and as of the Closing Date, or the Option Closing Date, as the case may be,
and that the conditions set forth in Section 4.5 hereof have been satisfied as
of such date and that, as of the Closing Date and the Option Closing Date, as
the case may be, the representations and warranties of the Company set forth in
Section 2 hereof are true and correct. In addition, the Representative will have
received such other and further certificates of officers of the Company as the
Representative may reasonably request.
4.4.2 Secretary's Certificate. At each of the Closing Date and the
Option Closing Date, if any, the Representative shall have received a
certificate of the Company signed by the Secretary or Assistant Secretary of the
Company, dated the Closing Date or the Option Closing Date, as the case may be,
respectively, certifying (i) that the Bylaws and Certificate of Incorporation of
the Company are true and complete, have not been modified and are in full force
and effect, (ii) that the resolutions relating to the public offering
contemplated by this Agreement are in full force and effect and have not been
modified, (iii) all correspondence between the Company or its counsel and the
Commission, and (iv) as to the incumbency of the officers of the Company. The
documents referred to in such certificate shall be attached to such certificate.
4.5 No Material Changes. Prior to and on each of the Closing Date and the
Option Closing Date, if any, (i) there shall have been no material adverse
change or development involving a prospective material adverse change in the
condition or prospects or the business activities, financial or otherwise, of
the Company from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus, (ii) no action suit or proceeding, at law
or in equity, shall have been pending or threatened against the Company or any
Initial Stockholder before or by any court or federal or state commission, board
or other administrative agency wherein an unfavorable
- 24 -
decision, ruling or finding may materially adversely affect the business,
operations, prospects or financial condition or income of the Company, except as
set forth in the Registration Statement and Prospectus, (iii) no stop order
shall have been issued under the Act and no proceedings therefor shall have been
initiated or threatened by the Commission, and (iv) the Registration Statement
and the Prospectus and any amendments or supplements thereto shall contain all
material statements which are required to be stated therein in accordance with
the Act and the Regulations and shall conform in all material respects to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto shall
contain any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
4.6 Delivery of Agreements. On the Effective Date, the Company shall have
delivered to the Representative executed copies of the Escrow Agreement, the
Trust Agreement, the Warrant Agreement, the Warrant Purchase Agreement, the
Services Agreement and all of the Insider Letters. On the Closing Date, the
Company shall have delivered to the Representative executed copies of the
Representative's Purchase Option.
4.7 Opinion of Counsel for the Underwriters. All proceedings taken in
connection with the authorization, issuance or sale of the Securities as herein
contemplated shall be reasonably satisfactory in form and substance to you and
to Greenberg and you shall have received from such counsel a favorable opinion,
dated the Closing Date and the Option Closing Date, if any, with respect to such
of these proceedings as you may reasonably require. On or prior to the Effective
Date, the Closing Date and the Option Closing Date, as the case may be, counsel
for the Underwriters shall have been furnished such documents, certificates and
opinions as they may reasonably require for the purpose of enabling them to
review or pass upon the matters referred to in this Section 4.7, or in order to
evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
4.8 Secondary Market Trading Survey. On the Closing Date, the
Representative shall have received the Secondary Market Trading Survey from
Greenberg.
5. Indemnification.
5.1 Indemnification of Underwriters.
5.1.1 General. Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless each of the Underwriters, and each dealer
selected by you that participates in the offer and sale of the Securities (each
a "SELECTED DEALER") and each of their respective directors, officers and
employees and each person, if any, who controls any such Underwriter
("controlling person") within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, against any and all loss, liability, claim, damage
and expense whatsoever (including but not limited to any and all legal or other
expenses reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever, whether
arising out of any
- 25 -
action between any of the Underwriters and the Company or between any of the
Underwriters and any third party or otherwise) to which they or any of them may
become subject under the Act, the Exchange Act or any other statute or at common
law or otherwise or under the laws of foreign countries, arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
contained in (i) any Preliminary Prospectus, the Registration Statement or the
Prospectus (as from time to time each may be amended and supplemented); (ii) any
materials or information provided to investors by, or with the approval of, the
Company in connection with the marketing of the offering of the Securities,
including any "road show" or investor presentations made to investors by the
Company (whether in person or electronically); or (iii) any application or other
document or written communication (in this Section 5, collectively called
"application") executed by the Company or based upon written information
furnished by the Company in any jurisdiction in order to qualify the Units under
the securities laws thereof or filed with the Commission, any state securities
commission or agency, Nasdaq or any securities exchange; or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, unless such statement or omission
was made in reliance upon and in conformity with written information furnished
to the Company with respect to an Underwriter by or on behalf of such
Underwriter expressly for use in any Preliminary Prospectus, the Registration
Statement or Prospectus, or any amendment or supplement thereof, or in any
application, as the case may be. With respect to any untrue statement or
omission or alleged untrue statement or omission made in the Preliminary
Prospectus, the indemnity agreement contained in this paragraph shall not inure
to the benefit of any Underwriter to the extent that any loss, liability, claim,
damage or expense of such Underwriter results from the fact that a copy of the
Prospectus was not given or sent to the person asserting any such loss,
liability, claim or damage at or prior to the written confirmation of sale of
the Securities to such person as required by the Act and the Regulations, and if
the untrue statement or omission has been corrected in the Prospectus, unless
such failure to deliver the Prospectus was a result of non-compliance by the
Company with its obligations under Section 3.4 hereof. The Company agrees
promptly to notify the Representative of the commencement of any litigation or
proceedings against the Company or any of its officers, directors or controlling
persons in connection with the issue and sale of the Securities or in connection
with the Registration Statement or Prospectus.
5.1.2 Procedure. If any action is brought against an Underwriter, a
Selected Dealer or a controlling person in respect of which indemnity may be
sought against the Company pursuant to Section 5.1.1, such Underwriter or
Selected Dealer shall promptly notify the Company in writing of the institution
of such action and the Company shall assume the defense of such action,
including the employment and fees of counsel (subject to the reasonable approval
of such Underwriter or Selected Dealer, as the case may be) and payment of
actual expenses. Such Underwriter, Selected Dealer or controlling person shall
have the right to employ its or their own counsel in any such case, but the fees
and expenses of such counsel shall be at the expense of such Underwriter,
Selected Dealer or controlling person unless (i) the employment of such counsel
at the expense of the Company shall have been authorized in writing by the
Company in connection with the defense of such action, or (ii) the Company shall
not
- 26 -
have employed counsel to have charge of the defense of such action, or (iii)
such indemnified party or parties shall have reasonably concluded that there may
be defenses available to it or them which are different from or additional to
those available to the Company (in which case the Company shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events the reasonable fees and expenses of not more
than one additional firm of attorneys selected by the Underwriter, Selected
Dealer and/or controlling person shall be borne by the Company. Notwithstanding
anything to the contrary contained herein, if the Underwriter, Selected Dealer
or controlling person shall assume the defense of such action as provided above,
the Company shall have the right to approve the terms of any settlement of such
action which approval shall not be unreasonably withheld.
5.2 Indemnification of the Company. Each Underwriter, severally and not
jointly, agrees to indemnify and hold harmless the Company, its directors,
officers and employees and agents who control the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act against any and all
loss, liability, claim, damage and expense described in the foregoing indemnity
from the Company to the several Underwriters, as incurred, but only with respect
to untrue statements or omissions, or alleged untrue statements or omissions
made in any Preliminary Prospectus, the Registration Statement or Prospectus or
any amendment or supplement thereto or in any application, in reliance upon, and
in strict conformity with, written information furnished to the Company with
respect to such Underwriter by or on behalf of the Underwriter expressly for use
in such Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment or supplement thereto or in any such application. In case any action
shall be brought against the Company or any other person so indemnified based on
any Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment or supplement thereto or any application, and in respect of which
indemnity may be sought against any Underwriter, such Underwriter shall have the
rights and duties given to the Company, and the Company and each other person so
indemnified shall have the rights and duties given to the several Underwriters
by the provisions of Section 5.1.2.
5.3 Contribution.
5.3.1 Contribution Rights. In order to provide for just and equitable
contribution under the Act in any case in which (i) any person entitled to
indemnification under this Section 5 makes claim for indemnification pursuant
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 this Section 5 provides for
indemnification in such case, or (ii) contribution under the Act, the Exchange
Act or otherwise may be required on the part of any such person in circumstances
for which indemnification is provided under this Section 5, then, and in each
such case, the Company and the Underwriters shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature contemplated by
said indemnity agreement incurred by the Company and the Underwriters, as
incurred, in such proportions that the Underwriters are responsible for that
portion represented by the percentage that the underwriting discount appearing
on the cover page of the Prospectus
- 27 -
bears to the initial offering price appearing thereon and the Company is
responsible for the balance; provided, that, 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 was not guilty of such fraudulent
misrepresentation. Notwithstanding the provisions of this Section 5.3.1, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages that such Underwriter has otherwise been required to pay in respect of
such losses, liabilities, claims, damages and expenses. For purposes of this
Section, each director, officer and employee of an Underwriter or the Company,
as applicable, and each person, if any, who controls an Underwriter or the
Company, as applicable, within the meaning of Section 15 of the Act shall have
the same rights to contribution as the Underwriters or the Company, as
applicable.
5.3.2 Contribution Procedure. Within fifteen days after receipt by any
party to this Agreement (or its representative) of notice of the commencement of
any action, suit or proceeding, such party will, if a claim for contribution in
respect thereof is to be made against another party ("contributing party"),
notify the contributing party of the commencement thereof, but the omission to
so notify the contributing party will not relieve it from any liability which it
may have to any other party other than for contribution hereunder. In case any
such action, suit or proceeding is brought against any party, and such party
notifies a contributing party or its representative of the commencement thereof
within the aforesaid fifteen days, the contributing party will be entitled to
participate therein with the notifying party and any other contributing party
similarly notified. Any such contributing party shall not be liable to any party
seeking contribution on account of any settlement of any claim, action or
proceeding effected by such party seeking contribution on account of any
settlement of any claim, action or proceeding effected by such party seeking
contribution without the written consent of such contributing party. The
contribution provisions contained in this Section are intended to supersede, to
the extent permitted by law, any right to contribution under the Act, the
Exchange Act or otherwise available. The Underwriters' obligations to contribute
pursuant to this Section 5.3 are several and not joint.
6. Default by an Underwriter.
6.1 Default Not Exceeding 10% of Firm Units or Option Units. If any
Underwriter or Underwriters shall default in its or their obligations to
purchase the Firm Units or the Option Units, if the over-allotment option is
exercised, hereunder, and if the number of the Firm Units or Option Units with
respect to which such default relates does not exceed in the aggregate 10% of
the number of Firm Units or Option Units that all Underwriters have agreed to
purchase hereunder, then such Firm Units or Option Units to which the default
relates shall be purchased by the non-defaulting Underwriters in proportion to
their respective commitments hereunder.
6.2 Default Exceeding 10% of Firm Units or Option Units. In the event that
the default addressed in Section 6.1 above relates to more than 10% of the Firm
Units or Option Units, you may in your discretion arrange for yourself or for
another party or
- 28 -
parties to purchase such Firm Units or Option Units to which such default
relates on the terms contained herein. If within one business day after such
default relating to more than 10% of the Firm Units or Option Units you do not
arrange for the purchase of such Firm Units or Option Units, then the Company
shall be entitled to a further period of one business day within which to
procure another party or parties satisfactory to you to purchase said Firm Units
or Option Units on such terms. In the event that neither you nor the Company
arrange for the purchase of the Firm Units or Option Units to which a default
relates as provided in this Section 6, this Agreement may be terminated by you
or the Company without liability on the part of the Company (except as provided
in Sections 3.13 and 5 hereof) or the several Underwriters (except as provided
in Section 5 hereof); provided, however, that if such default occurs with
respect to the Option Units, this Agreement will not terminate as to the Firm
Units; and provided further that nothing herein shall relieve a defaulting
Underwriter of its liability, if any, to the other several Underwriters and to
the Company for damages occasioned by its default hereunder.
6.3 Postponement of Closing Date. In the event that the Firm Units or
Option Units to which the default relates are to be purchased by the
non-defaulting Underwriters, or are to be purchased by another party or parties
as aforesaid, you or the Company shall have the right to postpone the Closing
Date or Option Closing Date for a reasonable period, but not in any event
exceeding five business days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus or in any other
documents and arrangements, and the Company agrees to file promptly any
amendment to the Registration Statement or the Prospectus that in the opinion of
counsel for the Underwriters may thereby be made necessary. The term
"UNDERWRITER" as used in this Agreement shall include any party substituted
under this Section 6 with like effect as if it had originally been a party to
this Agreement with respect to such Securities.
7. Right to Appoint Observer. Until the consummation of a Business Combination,
upon notice from Morgan Joseph & Co. to the Company, Morgan Joseph & Co. shall
have the right to send a representative (who need not be the same individual
from meeting to meeting) to observe each meeting of the Board of Directors of
the Company; provided that such representative shall sign a Regulation FD
compliant confidentiality agreement which is reasonably acceptable to Morgan
Joseph & Co. and its counsel in connection with such representative's attendance
at meetings of the Board of Directors; and provided further that upon written
notice to Morgan Joseph & Co., the Company may exclude the representative from
meetings where, in the written opinion of counsel for the Company, the
representative's presence would destroy the attorney-client privilege. The
Company agrees to give Morgan Joseph & Co. written notice of each such meeting
and to provide Morgan Joseph & Co. with an agenda and minutes of the meeting no
later than it gives such notice and provides such items to the other directors
and to reimburse the representative of Morgan Joseph & Co. for its reasonable
out-of-pocket expenses incurred in connection with its attendance at the
meeting, including but not limited to, food, lodging and transportation.
8. Additional Covenants.
- 29 -
8.1 Additional Shares or Options. The Company hereby agrees that until the
Company consummates a Business Combination, it shall not issue any shares of
Common Stock or any options or other securities convertible into Common Stock,
or any shares of Preferred Stock which participate in any manner in the Trust
Fund or which vote as a class with the Common Stock on a Business Combination.
8.2 Trust Fund Waiver Acknowledgment. Prior to the commencement by the
Company of its due diligence investigation of any operating business which the
Company seeks to acquire ("TARGET BUSINESS") or the obtaining of the services of
any vendor, the Company shall seek to have such Target Business or vendor
acknowledge in writing, whether through a letter of intent, memorandum of
understanding or other similar document (and subsequently acknowledge the same
in any definitive document replacing any of the foregoing), that (a) it has read
the Prospectus and understands that the Company has established the Trust Fund,
initially in an amount of $______________ for the benefit of the Public
Stockholders and that the Company may disburse monies from the Trust Fund only
(i) to the Public Stockholders in the event of the conversion of their shares or
the liquidation of the Company or (ii) to the Company after it consummates a
Business Combination and (b) for and in consideration of the Company (1)
agreeing to evaluate such Target Business for purposes of consummating a
Business Combination with it or (2) agreeing to engage the services of the
vendor, as the case may be, such Target Business or vendor agrees that it does
not have any right, title, interest or claim of any kind in or to any monies in
the Trust Fund ("CLAIM") and waives any Claim it may have in the future as a
result of, or arising out of, any negotiations, contracts or agreements with the
Company and will not seek recourse against the Trust Fund for any reason
whatsoever.
8.3 Insider Letters. The Company shall not take any action or omit to take
any action which would cause a breach of any of the Insider Letters executed
between each Initial Stockholder, officer and director and Morgan Joseph & Co.
and will not allow any amendments to, or waivers of, such Insider Letters
without the prior written consent of Morgan Joseph & Co.
8.4 Certificate of Incorporation and Bylaws. The Company shall not take any
action or omit to take any action that would cause the Company to be in breach
or violation of its Certificate of Incorporation or Bylaws. Prior to the
consummation of a Business Combination, the Company will not amend its
Certificate of Incorporation without the prior written consent of Morgan Joseph
& Co.
8.5 Blue Sky Requirements. The Company shall provide counsel to the
Representative with ten copies of all proxy information and all related material
filed with the Commission in connection with a Business Combination concurrently
with such filing with the Commission. In addition, the Company shall furnish any
other state in which its initial public offering was registered, such
information as may be requested by such state.
8.6 Acquisition/Liquidation Procedure. The Company agrees: (i) that, prior
to the consummation of any Business Combination, it will submit such transaction
to the
- 30 -
Company's stockholders for their approval ("BUSINESS COMBINATION VOTE") even if
the nature of the acquisition is such as would not ordinarily require
stockholder approval under applicable state law; and (ii) that, in the event
that the Company does not effect a Business Combination within 18 months from
the consummation of this Offering (subject to extension for an additional
six-month period, as described in the Prospectus), the Company will be
liquidated and will distribute to all holders of IPO Shares (defined below) an
aggregate sum equal to the Company's "Liquidation Value." The Company's
"LIQUIDATION VALUE" shall mean the Company's book value, as determined by the
Company and approved by Eisner. In no event, however, will the Company's
Liquidation Value be less than the Trust Fund, inclusive of any net interest
income thereon. Only holders of IPO Shares shall be entitled to receive
liquidating distributions and the Company shall pay no liquidating distributions
with respect to any other shares of capital stock of the Company. With respect
to the Business Combination Vote, the Company shall cause all of the Initial
Stockholders to vote the shares of Common Stock owned by them immediately prior
to this Offering in accordance with the vote of the holders of a majority of the
IPO Shares present, in person or by proxy, at a meeting of the Company's
stockholders called for such purpose. At the time the Company seeks approval of
any potential Business Combination, the Company will offer each holder of the
Company's Common Stock issued in this Offering ("IPO SHARES") the right to
convert their IPO Shares at a per share price ("CONVERSION PRICE") equal to the
amount in the Trust Fund (inclusive of any interest income therein) calculated
as of two business days prior to the consummation of the proposed Business
Combination divided by the total number of IPO Shares. If holders of less than
20% in interest of the Company's IPO Shares elect to convert their IPO Shares,
the Company may, but will not be required to, proceed with such Business
Combination. If the Company elects to so proceed, it will convert shares, based
upon the Conversion Price, from those holders of IPO Shares who affirmatively
requested such conversion and who voted against the Business Combination. If
holders of 20% or more in interest of the IPO Shares, who vote against approval
of any potential Business Combination, elect to convert their IPO Shares, the
Company will not proceed with such Business Combination and will not convert
such shares.
8.7 Rule 419. The Company agrees that it will use its best efforts to
prevent the Company from becoming subject to Rule 419 under the Act prior to the
consummation of any Business Combination, including but not limited to using its
best efforts to prevent any of the Company's outstanding securities from being
deemed to be a "penny stock" as defined in Rule 3a-51-1 under the Exchange Act
during such period.
8.8 Affiliated Transactions. Except as set forth on Schedule 8.8, the
Company shall cause each of the officers to agree that, in order to minimize
potential conflicts of interest which may arise from multiple affiliations, the
officers will present to the Company for its consideration, prior to
presentation to any other person or company, any suitable opportunity to acquire
an operating business, until the earlier of the consummation by the Company of a
Business Combination, the liquidation of the Company or until such time as the
officers cease to be an officer of the Company, subject to any pre-existing
fiduciary obligations the officers might have.
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8.9 Target Net Assets. The Company agrees that the initial Target Business
that it acquires must have a fair market value equal to at least 80% of the
Company's net assets at the time of such acquisition. The fair market value of
such business must be determined by the Board of Directors of the Company based
upon standards generally accepted by the financial community, such as actual and
potential sales, earnings and cash flow and book value. If the Board of
Directors of the Company is not able to independently determine that the target
business has a fair market value of at least 80% of the Company's fair market
value at the time of such acquisition, the Company will obtain an opinion from
an unaffiliated, independent investment banking firm which is a member of the
NASD with respect to the satisfaction of such criteria. The Company is not
required to obtain an opinion from an investment banking firm as to the fair
market value if the Company's Board of Directors independently determines that
the Target Business does have sufficient fair market value.
9. Representations and Agreements to Survive Delivery. Except as the context
otherwise requires, all representations, warranties and agreements contained in
this Agreement shall be deemed to be representations, warranties and agreements
as of the Closing Date or the Option Closing Date, if any, and such
representations, warranties and agreements of the Underwriters and Company,
including the indemnity agreements contained in Section 5 hereof, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Underwriter, the Company or any controlling person, and
shall survive termination of this Agreement or the issuance and delivery of the
Securities to the several Underwriters until the earlier of the expiration of
any applicable statute of limitations and the seventh anniversary of the later
of the Closing Date or the Option Closing Date, if any, at which time the
representations, warranties and agreements shall terminate and be of no further
force and effect.
10. Effective Date of This Agreement and Termination Thereof.
10.1 Effective Date. This Agreement shall become effective on the Effective
Date at the time the Registration Statement is declared effective by the
Commission.
10.2 Termination. You shall have the right to terminate this Agreement at
any time prior to the Closing Date, (i) if any domestic or international event
or act or occurrence has materially disrupted, or in your opinion will in the
immediate future materially disrupt, general securities markets in the United
States; or (ii) if trading on the New York Stock Exchange, the American Stock
Exchange, the Nasdaq Stock Market or on the NASD OTC Bulletin Board (or
successor trading market) shall have been suspended, or minimum or maximum
prices for trading shall have been fixed, or maximum ranges for prices for
securities shall have been fixed, or maximum ranges for prices for securities
shall have been required on the NASD OTC Bulletin Board or by order of the
Commission or any other government authority having jurisdiction, or (iii) if
the United States shall have become involved in a new war or an increase in
major hostilities, or (iv) if a banking moratorium has been declared by a New
York State or federal authority, or (v) if a moratorium on foreign exchange
trading has been declared which materially and adversely impacts the United
States securities market, or (vi) if the Company shall have sustained a material
loss by fire, explosion, flood, accident,
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hurricane, earthquake, theft, sabotage or other calamity or malicious act which,
whether or not such loss shall have been insured, will, in your opinion, make it
inadvisable to proceed with the delivery of the Units, or (vii) if any of the
Company's representations, warranties or covenants hereunder are breached, or
(viii) if the Representative shall have become aware after the date hereof of
such a material adverse change in the conditions or prospects of the Company, or
such adverse material change in general market conditions, including without
limitation as a result of terrorist activities after the date hereof, as in the
Representative's judgment would make it impracticable to proceed with the
offering, sale and/or delivery of the Units or to enforce contracts made by the
Underwriters for the sale of the Securities.
10.3 Expenses. In the event that this Agreement shall not be carried out
for any reason whatsoever, within the time specified herein or any extensions
thereof pursuant to the terms herein, the obligations of the Company to pay the
out of pocket expenses related to the transactions contemplated herein shall be
governed by Section 3.13 hereof.
10.4 Indemnification. Notwithstanding any contrary provision contained in
this Agreement, any election hereunder or any termination of this Agreement, and
whether or not this Agreement is otherwise carried out, the provisions of
Section 5 shall not be in any way affected by, such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
11. Miscellaneous.
11.1 Notices. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and shall be mailed, delivered or
telecopied and confirmed and shall be deemed given when so delivered or
telecopied and confirmed or if mailed, two days after such mailing
If to the Representative:
Morgan Joseph & Co. Inc.
600 Fifth Avenue 19th Floor
New York, New York 10020
Attn: Michael Powell
Copy to:
Greenberg Traurig, LLP
MetLife Building
200 Park Avenue
New York, New York 10166
Attn: Alan I. Annex, Esq.
If to the Company:
Stone Arcade Acquisition Corporation
c/o Stone-Kaplan Investments, LLC
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One Northfield Plaza, Suite 480
Northfield, Illinois 60093
Attn: Roger Stone, Chief Executive Officer
Copy to:
Loeb & Loeb LLP
345 Park Avenue
New York, New York 10154
Attn: Fran Stoller, Esq.
11.2 Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
11.3 Amendment. This Agreement may only be amended by a written instrument
executed by each of the parties hereto.
11.4 Entire Agreement. This Agreement (together with the other agreements
and documents being delivered pursuant to or in connection with this Agreement)
constitute the entire agreement of the parties hereto with respect to the
subject matter hereof and thereof, and supersede all prior agreements and
understandings of the parties, oral and written, with respect to the subject
matter hereof.
11.5 Binding Effect. This Agreement shall inure solely to the benefit of
and shall be binding upon the Representative, the Underwriters, the Company and
the controlling persons, directors and officers referred to in Section 5 hereof,
and their respective successors, legal representatives and assigns, and no other
person shall have or be construed to have any legal or equitable right, remedy
or claim under or in respect of or by virtue of this Agreement or any provisions
herein contained.
11.6 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York, without giving
effect to conflict of laws. The Company hereby agrees that any action,
proceeding or claim against it arising out of, relating in any way to this
Agreement shall be brought and enforced in the courts of the State of New York
of the United States of America for the Southern District of New York, and
irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive.
The Company hereby waives any objection to such exclusive jurisdiction and that
such courts represent an inconvenient forum. Any such process or summons to be
served upon the Company may be served by transmitting a copy thereof by
registered or certified mail, return receipt requested, postage prepaid,
addressed to it at the address set forth in Section 11.1 hereof. Such mailing
shall be deemed personal service and shall be legal and binding upon the Company
in any action, proceeding or claim. The Company agrees that the prevailing
party(ies) in any such action shall be entitled to recover from the other
party(ies) all of its reasonable attorneys' fees and expenses relating to such
action or proceeding and/or incurred in connection with the preparation
therefor.
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11.7 Execution in Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement, and shall become effective when one
or more counterparts has been signed by each of the parties hereto and delivered
to each of the other parties hereto.
11.8 Waiver, Etc. The failure of any of the parties hereto to at any time
enforce any of the provisions of this Agreement shall not be deemed or construed
to be a waiver of any such provision, nor to in any way affect the validity of
this Agreement or any provision hereof or the right of any of the parties hereto
to thereafter enforce each and every provision of this Agreement. No waiver of
any breach, non-compliance or non-fulfillment of any of the provisions of this
Agreement shall be effective unless set forth in a written instrument executed
by the party or parties against whom or which enforcement of such waiver is
sought; and no waiver of any such breach, non-compliance or non-fulfillment
shall be construed or deemed to be a waiver of any other or subsequent breach,
non-compliance or non-fulfillment.
If the foregoing correctly sets forth the understanding between the Underwriters
and the Company, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
STONE ARCADE ACQUISITION CORPORATION
By: ___________________________________
Name: Roger Stone
Title: Chief Executive Officer
Accepted on the date first above written.
MORGAN JOSEPH & CO. INC.
By: ______________________________
Name:
Title:
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SCHEDULE I
STONE ARCADE ACQUISITION CORPORATION
30,000,000 Units
Underwriter Number of Firm Units to be
Purchased
Morgan Joseph & Co. Inc.
Oppenheimer & Co.
EarlyBirdCapital, Inc.
Legend Merchant Group
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