<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 3, 1996
REGISTRATION NO. 333-1700
===============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------
Amendment No. 4 to
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------
COMMUNITY CARE SERVICES, INC.
(Name of small business issuer in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
New York 8082 13-3677548
(State or other jurisdiction of (Primary Standard Industrial I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
18 Sargent Place
Mount Vernon, New York 10550
(914) 665-9050
(Address and telephone number of principal executive offices
and place of business)
ALAN T. SHEINWALD, President
18 Sargent Place
Mount Vernon, New York 10550
(914) 665-9050
(Name, address and telephone number of agent for service)
------
Copies to:
MICHAEL D. DIGIOVANNA, Esq. JAY M. KAPLOWITZ, Esq.
PARKER DURYEE ROSOFF & HAFT GERSTEN, SAVAGE, KAPLOWITZ
529 Fifth Avenue & CURTIN, LLP
New York, New York 10017 575 Lexington Avenue
(212) 599-0500 New York, New York 10022
(212) 752-9700
------
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement
If this Form is filed to register additional securities for an Offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same Offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same Offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. [X]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
==============================================================================
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================
Proposed Proposed
maximum maximum
Title of each class of Amount to be offering price aggregate Amount of
securities to be registered registered(1) per security(2) offering price registration fee
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value(3) 1,495,000 $ 5.10 $ 7,624,500 $ 2,629.14
- ----------------------------------------------------------------------------------------------------
Class A Warrant(4) ............. 1,495,000 $ .10 $149,500 $ 51.55
- ----------------------------------------------------------------------------------------------------
Common Stock(5) ................ 1,495,000 $ 6.00 $ 8,970,000 $ 3,093.10
- ----------------------------------------------------------------------------------------------------
Underwriters' Warrants ......... 130,000 $ .00007 $ 10 $ 0.01
- ----------------------------------------------------------------------------------------------------
Common Stock(6) ................ 130,000 $ 8.42 $ 1,094,600 $ 377.45
- ----------------------------------------------------------------------------------------------------
Class A Warrant(7) ............. 130,000 $ .165 $ 21,450 $ 7.40
- ----------------------------------------------------------------------------------------------------
Common Stock(8) ................ 130,000 $ 6.00 $ 780,000 $ 268.94
- ----------------------------------------------------------------------------------------------------
Class A Warrant(9) ............. 4,158,332 $ .01 $ 41,583.32 $ 14.38
- ----------------------------------------------------------------------------------------------------
Common Stock(10) ............... 4,158,332 $ 6.00 $24,949,992 $ 8,603.44
- ----------------------------------------------------------------------------------------------------
Common Stock(11) ............... 220,000 $ 5.10 $1,122,000 $ 386.87
- ----------------------------------------------------------------------------------------------------
Total Registration Fee ....................................................... $15,432.28
- ----------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------------------------------------------------------
(1) Pursuant to Rule 416, the Registration Statement also relates to an
indeterminate number of additional shares of Common Stock issuable upon
the exercise of Warrants pursuant to anti-dilution provisions contained
therein, which shares of Common Stock are registered hereunder.
(2) Pursuant to Rule 457, estimated solely for the purpose of calculating
the registration fee.
(3) Includes shares of Common Stock issuable upon exercise of the
Underwriters' Over-Allotment Option.
(4) Includes Class A Warrants issuable upon exercise of the Underwriters'
Over-Allotment Option.
(5) Issuable upon exercise of the Class A Warrants. Includes shares issuable
upon exercise of the Class A Warrants issuable upon exercise of the
Underwriters' Over-Allotment Option.
(6) Issuable upon exercise of the Underwriters' Warrants.
(7) Issuable upon exercise of the Underwriters' Warrants.
(8) Issuable upon exercise of the Class A Warrants included in the
Underwriters' Warrants.
(9) Consists of Class A Warrants registered on behalf of Selling
Securityholders.
(10) Consists of Common Stock underlying Class A Warrants owned by Selling
Securityholders.
(11) Consists of Common Stock owned by Selling Securityholders.
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an Offering of 1,300,000 shares of Common Stock and
1,300,000 Class A Warrants , (the "Offering Prospectus"), and one to be used
in connection with the sale of shares of Common Stock and Class A Warrants by
certain selling securityholders (the "Selling Securityholders' Prospectus").
The Offering Prospectus and the Selling Securityholders' Prospectus will be
identical in all respects except for the alternate pages for the Selling
Securityholders' Prospectus included herein which are labeled "Alternate Page
for Selling Securityholders' Prospectus."
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
PRELIMINARY PROSPECTUS DATED OCTOBER 3, 1996
SUBJECT TO COMPLETION
PROSPECTUS
LOGO
COMMUNITY CARE SERVICES, INC.
1,300,000 Shares of Common Stock, $.01 par value
1,300,000 Class A Warrants
Community Care Services, Inc. (the "Company") is hereby offering 1,300,000
shares of Common Stock, $.01 par value of the Company (the "Common Stock")
and 1,300,000 Class A warrants each to purchase one share of Common Stock at
an exercise price of $6.00 per share (the "Class A Warrant") (the
"Offering"). The Class A Warrants are also referred to as the "Warrants". The
Warrants are exercisable for a period of five years commencing two years from
the effective date of the Offering (the "Effective Date"). The exercise price
of the Warrants is subject to adjustment in certain events pursuant to the
anti-dilution provisions thereof. Prior to this Offering, there has been no
public market for the Common Stock or the Warrants, and there can be no
assurance that a public market for such securities will develop or be
sustained on completion of the Offering. See "Risk Factors." Application has
been made to list the Common Stock and Warrants on The Nasdaq National Market
System ("NMS") under the proposed symbols -- CCSV and CCSW, respectively. It
is currently expected that the initial public offering price will be $5.10
per share of Common Stock and $.10 per Class A Warrant. The offering price
has been determined by negotiations between Maidstone Financial, Inc. (the
"Representative"), as representative of the several underwriters named herein
(the "Underwriters") and the Company, and does not necessarily bear any
relationship to any recognized criteria of value. See "Underwriting" for a
discussion of the factors considered in determining the initial public
offering price.
The Warrants are redeemable, in whole or in part, at a price of $.05 per
Warrant commencing two years from the Effective Date and prior to their
expiration, provided that (i) prior written notice of not less than 30 days
is given to the Warrantholders; (ii) the closing high bid price per share of
the Common Stock, or the last sale price per share if listed on a national
exchange, for the 20 consecutive trading days ending on the third business
day prior to the date on which the Company gives notice, has been at least
$8.00 for the Class A Warrants, subject to adjustment for certain events; and
(iii) Warrantholders shall have the exercise rights until the close of the
business day preceding the date fixed for redemption. See "Description of
Securities -- Warrants."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AND "DILUTION" ON PAGES SIX AND
FIFTEEN, RESPECTIVELY, OF THIS PROSPECTUS.
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting Discounts
Price to Public and Commissions (1) Proceeds to Company (2)
------------------- -------------------------- -------------------------
<S> <C> <C> <C>
Per Share of Common Stock .... $ 5.10 $ .459 $ 4.641
Per Class A Warrant .......... $ .10 $ .009 $ .091
Total(3) ..................... $6,760,000 $ 608,400 $ 6,151,600
</TABLE>
<PAGE>
- ------
(1) Excludes additional compensation to be received by the Underwriters in
the form of (a) Warrants to purchase 130,000 shares of Common Stock and
130,000 Class A Warrants and exercisable for a period of four years
commencing one year from the date of this Prospectus at $8.42 per share
of Common Stock and $.165 per Warrant; (b) a non-accountable expense
allowance of $202,800, or $233,220 if the Underwriters exercise the
over-allotment option in full; (c) a 36-month consulting agreement for an
aggregate payment of $104,600 payable in full at the closing of this
Offering. The underwriting agreement between the Company and the
Underwriters (i) provides for indemnification of the Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended and (ii) gives the Representative the right to appoint a
designee to attend all meetings of the Board of Directors for a period of
no less than three years following the closing of this offering. See
"Underwriting."
(2) Before deducting offering expenses payable by the Company estimated at
$483,000, excluding the Underwriters' non-accountable expense allowance
and consulting fees.
(3) The Company has granted the Underwriters a 30-day option to purchase up
to 195,000 additional shares of Common Stock and/or 195,000 Class A
Warrants solely to cover over-allotments (the "Over-Allotment Option").
If the Over-Allotment Option is exercised in full, the Price to Public,
Underwriting Discounts and Commissions, and Proceeds to Company will be
$7,774,000, $699,660 and $7,074,340. See "Underwriting."
The shares of Common Stock and Class A Warrants are offered on a "firm
commitment" basis by the Underwriters named herein, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, subject to
approval of certain legal matters by the counsel for the Underwriters. The
Underwriters reserve the right to withdraw, cancel or modify the Offering and
to reject any order in whole or in part. It is expected that delivery of
certificates representing the shares of Common Stock and Warrants will be
made against payment therefor at the offices of Maidstone Financial, Inc.,
101 E. 52nd Street, New York, New York 10022 on or about , 1996.
- ------
[LOGO] MAIDSTONE FINANCIAL, INC. [LOGO] THE HARRIMAN GROUP INC.
The date of this Prospectus is______ , 1996.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMPANY'S SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER
MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
The Company intends to furnish to its shareholders annual reports
containing audited financial statements examined by its independent auditors.
In addition, the Company may furnish to its shareholders quarterly or
semi-annual reports containing unaudited financial information and such other
interim reports as the Company may determine.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus and should be read in conjunction with the
section entitled "Risk Factors." Unless otherwise indicated, all financial
and other information contained in this Prospectus (i) reflects the
2.2-for-one stock dividend effected by the Company in August 1996, (ii)
reflects the exchange of 1,441,666 shares of Common Stock for 2,883,332 Class
A Warrants effected in August 1996 and (iii) assumes that the Over-Allotment
Option has not been exercised.
THE COMPANY
COMMUNITY CARE SERVICES, INC. (the "Company") is a provider of an
extensive variety of home health care products and services, medical
equipment and disposable medical supplies primarily in the five boroughs of
New York City, and Westchester, Rockland, and Nassau Counties, New York, as
well as northern New Jersey and southern Connecticut. The Company's equipment
and products are generally used for acute (short term) and long term medical
care, and respiratory, rehabilitative and wound care therapies.
The Company services the home health care market by coordinating with
various health care workers and payor case managers to determine the home
health needs for patients. The Company then supplies and delivers the
necessary medical products and equipment to the patients' homes. The Company
works with physicians, discharge planners, case/utilization managers, social
workers, nurses, patients and family members to identify the home care
products and equipment that are appropriate and cost effective, given the
patients' diagnosis, for care, treatment and recovery at home. The Company
has developed a diagnostic centered program pursuant to which its personnel
is educated about the various needs of, and appropriate products for,
patients with particular diseases such as cancer, AIDS or Alzheimer's
disease, among others, and for particular classes of patients such as the
developmentally disabled and hospice patients. The Company sells or rents, as
appropriate, the relevant equipment and/or supplies to the patient, with
payment generally received from Medicare, Medicaid, a private insurer and to
a lesser extent, the patients themselves. See "Risk Factors -- Dependence
Upon Third Party Reimbursement" and "Business -- Government Regulation and
Reimbursement". The Company is accredited with commendation by the Joint
Commission on Accreditation of Healthcare Organizations ("JCAHO"), a private
not-for-profit organization which surveys and evaluates hospitals and health
care organizations. A team of JCAHO experts surveys an organization every
three years in accordance with established standards to determine its
accreditation status, which ranges from a rating with commendation, the
highest standard, to no accreditation, the lowest standard.
The Company's objective is to become a leading regional provider of
comprehensive home health care equipment and products in the metropolitan New
York/New Jersey/Connecticut tri-state region. The Company's strategy to
achieve this objective is focused on continuing to provide to patients and
referral sources an integrated program of equipment, products and services,
while ensuring the highest quality delivery and set-up of medical equipment
and products. The specific areas of growth that the Company intends to target
are (i) increasing sales of basic medical equipment and disposable medical
supplies it currently offers to customers; (ii) adding additional product
lines for high growth markets, such as orthotics, mastectomy supplies and
specialized wound care products; and (iii) aggressively expanding its
position as a supplier of choice for home health care products to health
maintenance organizations ("HMOs"), preferred provider organizations
("PPOs"), and other managed care organizations and medical providers in the
tri-state region. The Company has recently experienced growth in the medical
supplies portion of its business since becoming a provider of disposable
medical supplies for the largest certified home health care agency in New
York.
The Company anticipates continued growth in the home health care market
generally due to the increasing emphasis on cost effective medical treatment,
the "Greying of our Society" and continuing advances in medical technology,
although there can be no assurance as to any such growth or advances.
3
<PAGE>
The Company intends to seek out regional acquisition opportunities that
are compatible with the Company's product lines and services. The Company has
not identified any specific acquisitions and there can be no assurance that
the Company will effect any acquisitions.
The Company was incorporated in the State of New York in July 1992 and
acquired certain assets of Adam Health Care Equipment Corp. ("Adam"), a New
York based durable medical equipment and supply company, in April 1993. The
Company acquired the assets for cash and notes totaling $1,500,000.
Approximately $450,000 was paid at or prior to the closing of the acquisition
and the balance was payable in installments through March 31, 1995. The
Company has not paid the balance and is seeking rescission of the obligation.
See "Risk Factors -- Pending Litigation; Potential Adverse Impact of
Counterclaims" and "Business -- Legal Proceedings". The principal executive
offices of the Company are located at 18 Sargent Place, Mount Vernon, New
York 10550 and its telephone number is (914) 665-9050.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities Offered by the
Company...................... 1,300,000 shares of Common Stock(1)
1,300,000 Class A Warrants(1)
Common Stock Outstanding Before
the Offering................. 4,730,000 shares
Common Stock to be Outstanding
After the Offering........... 6,030,000 shares (2)
Class A Warrants to be
Outstanding After the
Offering .................... 5,458,332
Use of Proceeds................ The proceeds of this Offering will be used
for expanded marketing efforts;
technological upgrades; development of an
independent rehabilitation division;
repayment of loans in an aggregate amount of
$255,409, of which $135,409 will be paid to
Dean L. Sloane, a director of the Company;
repayment of 8% promissory notes in the
aggregate principal amount of $937,500; and
working capital purposes. See "Use of
Proceeds."
Risk Factors and Dilution...... An investment in the securities offered
hereby is highly speculative and involves
substantial dilution. Prospective investors
should consider carefully the factors set
forth under "Risk Factors" and "Dilution."
Proposed Symbols for The
Nasdaq NMS ................. The Company has applied for listing of the
Common Stock and Warrants offered hereby on The
Nasdaq NMS. It is anticipated that following
this Offering, the Common Stock and Warrants
offered hereby will be quoted on The Nasdaq NMS
under the following proposed symbols: CCSV and
CCSW, respectively.(3)
</TABLE>
- ------
(1) Does not include 220,000 shares of Common Stock and 4,158,332 Class A
Warrants being offered concurrently with this Offering by selling
securityholders pursuant to a Selling Securityholders' Prospectus.
(2) Does not include (i) 130,000 shares of Common Stock and 130,000 Warrants
issuable upon exercise of the Underwriters' Warrants, (ii) 195,000 shares
of Common Stock and 195,000 Class A Warrants which may be issued upon
exercise of the Over-Allotment Option and (iii) shares subject to
exercise of all Class A Warrants. See "Underwriting."
(3) The Nasdaq NMS listing does not imply that a liquid and active market
will develop, or be sustained, for the securities upon completion of the
Offering.
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Three Months Ended
Year Ended March 31, June 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Statement of Operations:
Net revenues ...................... $6,181,757 $2,940,892 $2,487,381 $1,042,240
Cost of net revenues .............. 2,335,751 1,159,996 1,103,358 421,000
Selling, general and administrative
(including provision for doubtful
accounts) ........................ 2,958,882 1,746,777 1,052,538 531,819
Amortization of intangible assets . 107,966 245,012 43,024 23,753
Income (loss) from operations ..... 779,158 (210,893) 288,461 65,668
Net income (loss) ................. 427,925 (322,691) 125,588 39,609
Net income (loss) per common
share(1) ......................... .09 (.07) .03 .01
Weighted average number of shares
outstanding ...................... 4,730,000 4,510,000 4,730,000 4,730,000
</TABLE>
<TABLE>
<CAPTION>
March 31, June 30, 1996 (1)
------------ ------------------------------
1996 As
Actual Actual Adjusted (2)
------------ ------------- ------------
<S> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) $ (978,683) $ (907,611) $ 3,853,161
Total assets 5,467,115 5,689,676 10,199,567
Total long-term debt 931,512 883,283 0
Total shareholders' equity 103,764 229,352 5,622,526
</TABLE>
- ------
(1) Gives effect to (i) the exchange of 1,441,666 shares of Common Stock for
2,883,332 Class A Warrants and (ii) the 2.2-for-one stock dividend
effected by the Company in August 1996.
(2) Gives effect to the 1,300,000 shares of Common Stock and 1,300,000 Class
A Warrants offered hereby and the application of the estimated net
proceeds therefrom.
5
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND SHOULD BE PURCHASED
ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT IN THE
COMPANY. EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS, AS WELL AS ALL OTHER INFORMATION SET FORTH ELSEWHERE IN THIS
PROSPECTUS.
1. History of Operating Losses. From the acquisition of the assets of Adam
in April 1993 through the end of the 1995 fiscal year, the Company had
sustained ongoing losses. The Company had an accumulated deficit of $699,281
and $271,356 from inception through March 31, 1995 and March 31, 1996,
respectively. For the fiscal year ended March 31, 1995, the Company had a net
loss of $322,691, a shareholders' deficit of $649,281 and a working capital
deficit of $1,523,640. For the fiscal year ended March 31, 1996, the Company
had net income of $427,925, shareholders' equity of $103,764 and a working
capital deficit of $978,683. As of June 30, 1996, the Company had a
shareholder's equity of $229,352 and a working capital deficit of $907,611.
There can be no assurance as to the future profitability of the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
2. Dependence Upon Third Party Reimbursement. Virtually all of the
Company's revenues are attributable to payments received from third-party
payors, including the Medicare and Medicaid programs and private insurers.
For the three months ended June 30, 1996, 32.3% and 29.6% of the Company's
revenues were derived from Medicare and Medicaid, respectively and for the
fiscal year ended March 31, 1996, 35.4% and 36.4% of the Company's revenues
were derived from Medicare and Medicaid programs, respectively. The revenues,
cash flows and profitability of the Company, like those of other companies in
the health care industry, are affected by the continuing efforts of
third-party payors to control expenditures for health care. In addition,
reimbursement can be influenced by the financial instability of private
third-party payors and by budget pressures and cost shifting by governmental
payors. A reduction in coverage or reimbursement rates by third-party payors
could have a material adverse effect on the Company's results of operations.
Additionally, the third party payors generally do not make payments until
75-90 days after invoicing. See "Business -- Government Regulation and
Reimbursement."
3. Reliance on Key Sources of Referral. During the three months ended June
30, 1996, the Company's five largest sources of referral, the Visiting Nurse
Service of New York -- Manhattan, the Visiting Nurse Service of New York --
Bronx, the Visiting Nurse Service -- Queens, the Visiting Nurse Service --
Brooklyn and Wyckoff Hospital accounted for approximately 28.8%, 16.3%,
13.8%, 7.7% and 4.4%, respectively, of the Company's total revenues. During
the fiscal year ended March 31, 1996, the Visiting Nurse Service --
Manhattan, the Visiting Nurse Service -- Bronx, Wyckoff Hospital, the
Hospital for Joint Diseases and the Visiting Nurse Service -- Queens
accounted for 18.4%, 12.4%, 9.2%, 6.7% and 5.5%, respectively, of the
Company's total revenues. For the three months ended June 30, 1996, the four
borough offices of the Visiting Nurse Service of New York ("VNS")
collectively accounted for 66.6% of the Company's revenues. Each of the VNS
offices in Brooklyn, Queens, Manhattan and the Bronx place orders separately.
However, if the parent office of VNS were to eliminate the Company as a
provider, the Company could experience a material adverse effect on its
business. The loss of, or decrease in, business generated by any of its major
sources of referral could have a material adverse effect on the Company's
business. Although the Company has entered into agreements with various
providers which govern the terms of reimbursement, the Company does not have
any long term purchase orders but receives its purchase orders on an
individual basis. See "Business -- Marketing Programs."
4. Government Regulation; Medicaid and Medicare Reimbursement;
Anti-Kickback Laws. Health care in the U.S. is subject to laws and
regulations of federal, state and local governments. The failure to obtain,
renew or maintain required regulatory approvals or licenses, if any, could
adversely affect the Company's business, and could prevent it from offering
any or all of its products or services to patients. The Company is not
currently subject to any material regulatory approvals or licenses. If the
Company fails to comply with governmental requirements pertaining to Medicaid
and Medicare reimbursements, the Company can be terminated as a Medicaid and
Medicare service provider. This could jeopardize the ability of the Company
to maintain reimbursement from other programs. There can be no assurance that
federal, state or local laws or regulations will not be adopted which could
increase the Company's cost of doing business, reduce reimbursement levels or
otherwise have a material adverse effect on the Company's business, financial
condition or operating results. See "Business -- Government Regulation and
Reimbursement."
6
<PAGE>
As suppliers of services under the Medicare and Medicaid programs, the
Company is also subject to Medicare and state health care program
anti-kickback laws. These laws generally prohibit any remuneration for the
referral of Medicare or Medicaid patients. Proposed federal legislation
expands the anti-kickback laws to include referrals of any patients
regardless of payor source. Violations of the anti-kickback laws may result
in civil and criminal penalties and exclusion from participation in the
Medicare and state health programs such as Medicaid.
5. Pending Litigation; Potential Adverse Impact of Counterclaims Against
the Company. In 1993, the Company commenced an action against Adam and its
principals in the Supreme Court of the State of New York, County of
Westchester. The action arises out of the acquisition of certain assets of
Adam by the Company in April 1993. The complaint alleges that the defendants
made numerous misrepresentations relating to the business previously
conducted by Adam. The complaint seeks recovery of damages of $1,500,000,
additional punitive damages, the reduction of the original purchase price or
rescission of the original purchase agreement. The defendants have asserted
counterclaims against the Company. The counterclaims seek the payment of the
unpaid purchase price of $1,050,000 and collection expense of over $175,000.
Defendants also allege various additional causes of action, claiming
plaintiffs converted or interfered with the collection of property owned or
due to defendants and seek damages of over $7,000,000, including $5,000,000
in punitive damages. The Company believes it has meritorious defenses to the
counterclaims. However, there can be no assurance that the Company will be
successful in recovering damages for its claims or in defending itself
against the counterclaims. A judgment against the Company as a result of the
counterclaims could have a material adverse effect on its business. The
action is still in its final pre-trial stages and the Company expects a trial
date to be set shortly. See "Business -- Legal Proceedings."
6. Immediate and Substantial Dilution. This Offering involves an immediate
and substantial dilution to investors. Purchasers of shares of Common Stock
in the Offering will incur an immediate dilution of $4.32 per share in the
net tangible book value of their investment from the initial Offering price,
which dilution amounts to approximately 83% of the initial Offering price per
share of Common Stock. Investors in the offering will pay $5.20 per share of
Common Stock (giving effect to the aggregate offering price per share of
Common Stock and Class A Warrant), as compared with an average cash price of
$.01 per share of Common Stock paid by existing shareholders. See "Dilution."
7. Competition. The home health care market is highly competitive and
includes a large number of providers. Some of the Company's current and
potential competitors have, or may obtain, significantly greater financial
and marketing resources than the Company. There are relatively few barriers
to entry in the local markets that the Company serves. Other companies,
hospitals and health maintenance organizations ("HMOs") have entered the home
health care market in the past and others may do so in the future. There can
be no assurance that the Company will not encounter increased competition in
the future that could limit its ability to maintain or increase its market
share. Such increased competition could have a material adverse effect on the
Company's business and results of operations. See "Business -- Competition."
8. Potential Liability; Adequacy of Insurance Coverage. Participants in
the home health care market are subject to lawsuits alleging negligence,
product liability or other similar legal theories, many of which involve
large claims and significant defense costs. Although the Company currently
maintains liability insurance intended to cover such claims, there can be no
assurance that the coverage limits of such insurance will be adequate or that
all such claims will be covered by the insurance. In addition, such insurance
policies must be renewed annually. Such insurance varies in cost, is
difficult to obtain and may not be available in the future on acceptable
terms, if at all. A successful claim in excess of the insurance coverage
could have a material adverse effect on the Company's business and results of
operations. Claims, regardless of their merit or eventual outcome, may also
have a material adverse effect upon the Company's reputation. See "Business
- -- Insurance."
9. Dependence on Key Personnel; Experience of Management. There are only
two executive officers of the Company. The Company is dependent on the
continued services of Alan T. Sheinwald, the Company's President and Chief
Executive Officer and Allan Goldfeder, the Company's Chief Operating Officer.
If such executive officers were to leave the Company, its operating results
could be adversely affected. Following this Offering, there can be no
assurance that, if the Company grows, the current management team will be
able to continue to adequately manage the Company's affairs. Further, there
can be no assurance that the Company will be able to identify and hire
additional qualified managers on terms economically feasible for the Company.
See "Management -- Directors, Executive Officers and Key Employees."
7
<PAGE>
10. Control by Current Shareholders and Management. Upon completion of
this Offering, the current shareholders of the Company will beneficially own
78.44% of the outstanding shares of Common Stock. The Company's directors and
executive officers and their affiliates will control approximately 76.92% of
the outstanding shares of Common Stock. As a result, these shareholders will
be able to determine the outcome of certain corporate actions requiring
shareholder approval, and will be able to elect the Board of Directors of the
Company. Such concentration of ownership may have the effect of preventing a
change in control of the Company. See "Dilution," "Principal Shareholders"
and "Description of Securities."
11. Broad Discretion in Application of Proceeds; Unspecified Acquisitions.
Approximately 58.5% of the net proceeds of this Offering, or $3,134,291, will
be applied to working capital and general corporate purposes. In addition,
the Company may utilize a portion of the net proceeds of this Offering
currently allocated to working capital for potential acquisitions. As of the
date of this Prospectus, the Company has not identified any particular
acquisition targets. Shareholders of the Company may have no opportunity to
approve specific acquisitions or to review the financial condition of any
potential target. Accordingly, management of the Company will have broad
discretion over the use of proceeds. See "Use of Proceeds."
12. Shareholder Inability to Review and Vote on Any Unspecified
Acquisitions. Pursuant to New York Corporate law, the Company's Board of
Directors has the authority to approve unspecified acquisitions to be made by
the Company. Such acquisitions are not subject to review or voting by the
shareholders of the Company.
13. Benefits to Affiliates. Certain of the Company's shareholders and
former shareholders and their affiliates have made loans to the Company in an
aggregate principal amount equal to $255,409. The Company intends to use the
proceeds of this Offering to repay these loans as follows: $135,409 to Dean
L. Sloane, a director and shareholder of the Company; $15,000 to each of
Manuel N. Wilson and Wade Wilson, former shareholders; and $90,000 to At Home
Health Care Supplies, Inc., an affiliate of two former shareholders of the
Company. See "Use of Proceeds."
14. Repayment of Debt. Approximately 12.4% of the proceeds of this
Offering, or $667,500, will be used to repay 8% promissory notes issued by
the Company in connection with a private placement in January 1996. In
addition, approximately 5.7% of the proceeds of this Offering, or $304,000,
will be used to pay 8% promissory notes issued by the Company in August and
September, 1996 to fund its operating expenses. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources."
15. No Dividends and None Anticipated. To date, no dividends have been
declared or paid on the Common Stock, and the Company does not anticipate
declaring or paying any dividends in the foreseeable future, but rather
intends to reinvest profits, if any, in its business. Investors should,
therefore, be aware that it is unlikely that any dividends will be paid on
the Common Stock in the foreseeable future. See "Dividend Policy."
16. Lack of Market; Possible Volatility of Stock Price; Arbitrary
Determination of Offering Price. Prior to this Offering, there has been no
public market for the Company's Common Stock or Warrants, and there can be no
assurance that an active market in any securities of the Company will develop
or be sustained after this Offering. In the absence of an active public
trading market, an investor may be unable to liquidate his or her investment.
The price of the shares of Common Stock and Class A Warrants being offered
hereby, and the exercise price and other terms of the Warrants, were
determined by negotiations between the Company and the Underwriters and are
not necessarily related to the Company's assets, earnings, book value per
share, its results of operations or any other generally accepted criteria of
value and should not be construed as indicative of their value. See
"Underwriting."
The stock market has, from time to time, experienced significant price and
volume fluctuations that may be unrelated to the operating performance of any
particular company. In addition, the market prices of the securities of many
publicly-traded companies in the health care industry have in the past been,
and in the future can be expected to be, especially volatile. Various factors
and events, including future announcements of new services or products
offered by the Company or its competitors, developments or disputes
concerning, among other things, regulatory developments in the United States,
and economic and other external factors, as well as fluctuations in the
Company's financial results, could have a significant impact on the market
price of the Company's securities.
17. Concurrent Offering by Selling Securityholders; Potential Adverse
Impact on Price and Liquidity. Concurrently with this Offering, the Company
is registering for sale an aggregate of 220,000 shares of Common
8
<PAGE>
Stock and 4,158,332 Class A Warrants owned by the Selling Securityholders.
Such Selling Securityholders holding Warrants have entered into an agreement
with the Representative not to sell their Warrants for a period of two years
from the Effective Date without the Representative's prior written consent.
Selling Securityholders owning shares of Common Stock have entered into an
Agreement with the Representative not to sell their shares for a period of 18
months from the Effective Date without the Representative's written consent.
The Company anticipates that certain Selling Securityholders may request a
release from their lock up agreements. The Representative has the discretion
to release such lock-ups and has indicated that its decision to grant such
consent will be dependent on market conditions. The sale of such securities
could have an adverse effect on the market price and liquidity of the
Company's securities.
18. Shares Eligible for Future Sale. Of the 4,730,000 shares of Common
Stock of the Company outstanding as of the date of this Prospectus, 4,638,335
shares are "restricted securities," which are owned by "affiliates" of the
Company, as those terms are defined in Rule 144 promulgated under the
Securities Act.
Absent registration under the Securities Act, the sale of such "restricted
securities" is subject to Rule 144, as promulgated under the Securities Act.
In general, under Rule 144, subject to the satisfaction of certain other
conditions, a person, including an affiliate of the Company, who has
beneficially owned restricted shares of Common Stock for at least two years
is entitled to sell in brokerage transactions, within any three-month period,
a number of shares that does not exceed the greater of 1% of the total number
of outstanding shares of the same class, or if the Common Stock is quoted on
The Nasdaq SmallCap Market or a stock exchange, the average weekly trading
volume during the four calendar weeks preceding the sale. Rule 144 also
permits a person who presently is not and who has not been an affiliate of
the Company for at least three months immediately preceding the sale and who
has beneficially owned the shares of Common Stock for at least three years to
sell such shares without regard to any of the volume limitations as described
above.
Also being registered for sale pursuant to the Selling Securityholders'
Prospectus are 220,000 shares of Common Stock and 4,158,332 Class A Warrants
and the shares underlying such Warrants. All of the Company's existing
shareholders have agreed not to sell or otherwise dispose of any of their
warrants or shares of Common Stock now owned or issuable upon the exercise of
currently exercisable warrants for a period of 24 months from the date of
this Prospectus, without the prior written consent of the Representative,
except for the shareholders owning the 220,000 shares listed in the Selling
Securityholders' Prospectus who have agreed not to sell or otherwise dispose
of any of their shares for a period of 18 months from the date of this
Prospectus without the prior written consent of the Representative. The
Representative may release any shareholder from the "lock-up" agreement,
although not prior to the exercise or expiration of the Over-Allotment
Option. No prediction can be made as to the effect, if any, that sales of
shares of Common Stock or the availability of such shares for sale will have
on the market prices of the Company's securities prevailing from time to
time. The possibility that substantial amounts of Common Stock may be sold
pursuant to the Selling Securityholders' Prospectus or under Rule 144 into
the public market may adversely affect prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital in the
future through the sale of equity securities. See "Shares Eligible for Future
Sale."
19. Potential Adverse Effect of Future Issuances of Authorized Preferred
Stock. The Company's Certificate of Incorporation authorizes the issuance of
serial preferred stock with such designations, rights and preferences as may
be determined from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without stockholder approval, to issue
preferred stock, with such rates of dividends, redemption provisions,
liquidation preferences, voting rights, conversion privileges and other
characteristics as the Board of Directors may deem necessary. Such preferred
stock, if issued, could adversely affect the holders of the Common Stock. In
addition, the preferred stock could discourage, delay or prevent a takeover
of the Company. The Company has no present intention to issue any shares of
Preferred Stock. See "Description of Securities."
20. Dilutive Effect of Underwriters' Warrant and other Options. Upon
completion of this Offering, the Company will sell to the Underwriters a
Warrant to purchase up to 130,000 shares of Common Stock and Warrants, at a
price per share of Common Stock or Warrant equal to 165% of the initial
public Offering price of the shares of Common Stock and Warrants. The
Underwriters' Warrant will be exercisable at any time during the four-year
period commencing one year from the Effective Date of this Offering. As of
the date of this Prospectus, there are Warrants outstanding to purchase an
aggregate of 4,158,332 shares of Common Stock. If the
9
<PAGE>
Underwriters' Warrant and the outstanding Warrants are exercised, the
percentage of Common Stock then held by the existing shareholders will be
reduced. The Underwriters' Warrant and the outstanding Warrants can be
expected to be exercised at a time when the Company would be able to obtain
funds from the sale of Common Stock or other securities at a price higher
than the exercise price thereof. See "Underwriting."
21. Need for Additional Financing. The Company believes that the proceeds
of the Offering will be sufficient to finance the Company's working capital
requirements for a period of at least 12 months following the completion of
this Offering. However, the Company is required to maintain a high level of
inventory relative to its business, and accounts receivable are paid
primarily by third party payors who do not generally make payments until
75-90 days after invoicing. A greater than anticipated increase in volume may
require the Company to seek additional financing during such periods. In
addition, the Company's strategy is to acquire companies with related and
complementary businesses, although the Company has not presently identified
any specific acquisitions. The Company may require financing in connection
with acquisitions. The Company could also require financing if the defendants
in the Adams litigation prevailed in their counterclaims. There can be no
assurance that additional financing will be available on terms acceptable to
the Company, or at all. In addition, for a period of two years following the
Effective Date, the Company cannot issue shares of Common Stock (other than
pursuant to the 1996 Stock Option Plan) without the Representative's Consent
which consent may not be unreasonably withheld. Such limitation may adversely
affect the Company's ability to obtain financing. See "Underwriting." In the
event that the Company is unable to obtain such additional financing as it
becomes necessary, the Company will not be able to achieve all of its
business plans. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
22. The Nasdaq NMS Eligibility and Maintenance Requirements; Possible
Delisting of Securities from The Nasdaq NMS; Risks of Low-Priced Stocks.
Prior to this Offering, there has been no established public trading market
for the Company's securities and there is no assurance that a public trading
market for the Company's securities will develop after the completion of this
Offering. If a trading market does in fact develop for the securities offered
hereby, there can be no assurance that it will be sustained.
The Company intends to apply for listing of the Common Stock and Warrants
on The Nasdaq NMS upon the Effective Date. The Commission has approved rules
imposing criteria for listing of securities on The Nasdaq NMS, including
standards for maintenance of such listing. For continued listing, a company,
among other things, must have $2,000,000 in assets, $1,000,000 net worth and
a minimum bid price of $1.00 per share. If the Company is unable to satisfy
The Nasdaq NMS' maintenance criteria in the future, its securities may be
delisted from The Nasdaq NMS. In the event the Company's securities are
delisted from The Nasdaq NMS, and not traded on any other exchange, trading,
if any, in securities would thereafter be conducted in the over-the-counter
on the OTC Bulletin Board. Consequently, an investor may find it more
difficult to dispose of, or to obtain accurate quotations as to the price of
the Company's securities. Quotation on The Nasdaq NMS does not imply that a
meaningful, sustained market for the Company's securities will develop or, if
developed, that it will be sustained for any period of time.
23. Potential Adverse Effect of Redemption of Warrants. The Warrants
offered hereby are redeemable, in whole or in part, at a price of $.05 per
Warrant, commencing two years after the Effective Date and prior to their
expiration; provided that (i) prior notice of not less than 30 days is given
to the Warrantholders; (ii) the closing high bid price if traded on Nasdaq,
or the last sale price if traded on a national exchange, per share of Common
Stock on each of the 20 consecutive trading days ending on the third business
day prior to the date on which the Company gives notice of redemption has
been at least $8.00 for the Class A Warrants; and (iii) Warrantholders shall
have exercise rights until the close of the business day preceding the date
fixed for redemption. Notice of redemption of the Warrants could force the
holders to exercise the Warrants and pay the exercise price at a time when it
may be disadvantageous for them to do so, or to sell the Warrants at the
current market price when they might otherwise wish to hold them, or to
accept the redemption price, which may be substantially less than the market
value of the Warrants at the time of redemption. The Warrants may not be
exercised unless the registration statement pursuant to the Securities Act
covering the underlying shares of Common Stock is current and such shares
have been qualified for sale, or there is an exemption from applicable
qualification requirements, under the securities laws of the of the state of
residence of the holder of the Warrants. Although the Company
10
<PAGE>
does not presently intend to do so, the Company reserves the right to call
the Warrants for redemption whether or not a current prospectus is in effect
or such underlying shares are not, or cannot be, registered in the applicable
states. Such restrictions could have the effect of preventing certain
Warrantholders from liquidating their Warrants. See "Description of
Securities -- Warrants."
24. Current Prospectus and State Blue Sky Registration Required to
Exercise Warrants. Holders of the Warrants will have the right to exercise
the Warrants for the purchase of shares of Common Stock only if a current
prospectus relating to such shares is then in effect and only if the shares
qualified for sale under the securities laws of the applicable state or
states. The Company has undertaken and intends to file and keep effective and
current a prospectus which will permit the purchase and sale of the Common
Stock underlying the Warrants, but there can be no assurance that the Company
will be able to do so. Although the Company intends to seek to qualify for
sale the shares of Common Stock underlying the Warrants in those states in
which the securities are to be offered, no assurance can be given that such
qualifications will occur. The Warrants may lose or be of no value if a
prospectus covering the shares issuable upon the exercise thereof is not kept
current or if such underlying shares are not, or cannot be, registered in the
applicable states. See "Description of Securities -- Warrants."
25. Penny Stock Regulation. In the event that the Company is unable to
satisfy the maintenance requirements for The Nasdaq NMS, is not subsequently
accepted for listing on the Nasdaq SmallCap Market and its Common Stock falls
below the minimum bid price of $1.00 per share, trading would be conducted on
the "pink sheets' or the NASD's Electronic Bulletin Board. In the absence of
the Common Stock being quoted on The Nasdaq NMS, or the Company's having
$2,000,000 in stockholders' equity, trading in the Common Stock would be
covered by Rule 15g-9 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), for non-Nasdaq and non-exchange listed
securities. Under such rule, broker-dealers who recommend such securities to
persons other than established customers and accredited investors must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. Securities are
exempt from this rule if the market price is at least $5.00 per share.
The Commission adopted regulations that generally define a penny stock to
be any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Such exceptions include an equity security
listed on Nasdaq, and an equity security issued by an issuer that has (i) net
tangible assets of at least $2,000,000, if such issuer has been in continuous
operation for three years, (ii) net tangible assets of at least $5,000,000,
if such issuer has been in continuous operation for less than three years, or
(iii) average revenue of at least $6,000,000 for the preceding three years.
Unless an exception is available, the regulations require the delivery, prior
to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the risks associated therewith.
If the Company's securities were to become subject to the regulations
applicable to penny stocks, the market liquidity for the securities would be
severely affected, limiting the ability of broker-dealers to sell the
securities and the ability of purchasers in this Offering to sell their
securities in the secondary market. There is no assurance that trading in the
Company's securities will not be subject to these or other regulations that
would adversely affect the market for such securities.
26. Relationship of Underwriters to Trading; Potential Adverse Impact on
Liquidity and Market Price of Securities. The Underwriters may act as brokers
or dealers with respect to the purchase or sale of the Common Stock and the
Warrants in the over-the-counter market where each is expected to trade. The
Representative also has the right to act as the Company's exclusive agent in
connection with any future solicitation of Warrantholders to exercise their
Warrants. Unless granted an exemption by the Commission from Rule 10b-6 under
the Exchange Act, the Representative will be prohibited from engaging in any
market-making activities or solicited brokerage activities with regard to the
Company's securities during a period beginning nine business days prior to
the commencement of any such solicitation and ending on the later of the
termination of such solicitation activity or the termination (by waiver or
otherwise) of any right the Representative may have to receive a fee for the
exercise of the Warrants following such solicitation. As a result, the
Representative and soliciting broker/dealers may be unable to continue to
make a market in the Company's securities during certain periods while the
exercise of the Warrants is being solicited. Such a limitation, while in
effect, could impair the liquidity and market price of the Company's
securities.
11
<PAGE>
27. Consulting Agreement with Representative; Obligation to Make Payment
Out of Offering Proceeds. The Company has agreed to retain the Representative
as a financial consultant for a three-year period commencing on the Effective
Date. The consulting fees are payable to the Representative upon the closing
of the Offering. See "Use of Proceeds."
28. Non-Registration in Certain Jurisdictions of Shares Underlying the
Warrants. Although the shares of Common Stock and Warrants will not knowingly
be sold to purchasers in jurisdictions in which they are not registered or
otherwise qualified for sale, purchasers may buy Warrants in the aftermarket
or may move to jurisdictions in which the shares of Common Stock issuable
upon exercise of the Warrants are not so registered or qualified during the
period that the Warrants are exercisable. In such event, the Company would be
unable to issue shares to those persons desiring to exercise their Warrants
unless and until the shares could be registered or qualified for sale in the
jurisdiction in which such purchasers reside, or an exemption to such
qualification exists or is granted in such jurisdiction. If the Company was
unable to register or qualify the shares in a particular state and no
exemption to such registration or qualification was available in such
jurisdiction, in order to realize any economic benefit from the purchase of
the Warrants, a holder might have to sell the Warrants rather than exercise
them. No assurance can be given, however, as to the ability of the Company to
effect any required registration or qualification of the Common Stock or
Warrants in any jurisdiction in which registration or qualification has not
already been completed. See "Description of Securities -- Warrants."
12
<PAGE>
USE OF PROCEEDS
The gross proceeds from the sale of shares of Common Stock and Warrants in
this Offering are estimated to be $6,760,000 and the offering expenses are
estimated to be $1,398,800 including underwriting commissions of $608,400,
the Underwriters' non-accountable expense allowance of $202,800, consulting
fees aggregating $104,600 for a 36 month consulting agreement and $483,000 of
other Offering expenses. The net proceeds to the Company from the sale of
shares of Common Stock and Warrants in this Offering are estimated to be
approximately $5,361,200 ($6,253,520 if the Over-Allotment Option is
exercised in full), after deducting the estimated underwriting discounts and
offering expenses payable by the Company. The Company intends to use the
proceeds as follows:
<TABLE>
<CAPTION>
Percentage of
Purpose Amount Net Proceeds
----------------------------------------------------- ------------ ---------------
<S> <C> <C>
Marketing ........................................... $ 250,000 4.7%
Technological upgrades(1) ........................... $ 200,000 3.7%
Development of independent rehabilitation division(2) $ 550,000 10.2%
Repayment of shareholder loans(3) ................... $ 255,409 4.8%
Repayment of 8% Notes(4) ............................ $ 971,500 18.1%
Working capital ..................................... $3,134,291 58.5%
------------ ---------------
Total .......................................... $ 5,361,200 100.0%
============ ===============
</TABLE>
- ------
(1) Includes the costs of purchasing computer systems, and developing a
proprietary software system, to upgrade the Company's order taking,
accounting and billing systems.
(2) Includes the costs of staffing of, and creation of a workroom for, the
independent rehabilitation division.
(3) Includes the repayment of (i) $15,000 to each of Manuel N. Wilson and
Wade Wilson, former shareholders of the Company, (ii) $90,000 to At Home
Health Care Supplies, Inc., an affiliate of two former shareholders of
the Company, and (iii) $135,409 to Dean Sloane, a director of the
Company.
(4) Includes the repayment of principal and accrued interest pursuant to
promissory notes in the aggregate principal amount of $937,500. The
proceeds from such notes provided working capital which the Company used
to fund the expansion of its business.
The foregoing represents the Company's estimate of the allocation of the
net proceeds of the Offering, based upon the current status of its operations
and anticipated business plans. It is possible, however, that the application
of funds will differ considerably from the estimates set forth herein due to
changes in the economic climate and/or the Company's planned business
operations or anticipated complications, delays and expenses, as well as any
potential acquisitions that the Company may consummate, although no specific
acquisition has been identified. Any reallocation of the net proceeds will be
at the discretion of the Board of Directors of the Company.
Pending the foregoing uses, a portion of the net proceeds of this Offering
may be invested in certificates of deposit, United States government
obligations, prime commercial paper, money market funds or similar short-
term investments.
The Company estimates that the net proceeds from this Offering will be
sufficient to meet the Company's liquidity and working capital requirements
for a period of 12 months from the completion of this Offering. In the event
that the Company consummates any acquisition, such funds will be derived from
the funds currently allocated to working capital or from revenues generated
from the Company's operations. There can be no assurance that the Company
will generate sufficient revenues for such acquisitions. Additional working
capital financing may be required to finance the costs of the Company's
marketing and business plans. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
13
<PAGE>
DIVIDEND POLICY
The Company plans to retain any future earnings for use in its business
and, accordingly, the Company does not anticipate paying dividends in the
foreseeable future. Payment of dividends is within the discretion of the
Company's Board of Directors and will depend, among other factors, upon the
Company's earnings, financial condition and capital requirements.
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the
Company at June 30, 1996 after giving effect to (x) the 2.2-for-one stock
dividend and (y) the exchange of 1,441,666 shares of Common Stock for
2,883,332 Class A Warrants, and (ii) the capitalization as adjusted to
reflect the sale of the 1,300,000 shares of Common Stock and 1,300,000 Class
A Warrants offered by the Company hereby and the application of the estimated
net proceeds therefrom. See "Use of Proceeds." This section should be read in
conjunction with the Company's financial statements and related notes
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
June 30, 1996(1)
------------------------------
Actual As Adjusted
------------- -------------
<S> <C> <C>
Total long-term debt, excluding current portion ............................... $ 883,283 $ 0
Preferred Stock, $.01 par value; 1,000,000 shares authorized; none issued and
outstanding .................................................................. -- --
Common Stock, $.01 par value; 20,000,000 shares authorized; 4,730,000 shares
issued and outstanding; 6,030,000 shares issued and outstanding as adjusted .. $ 47,300 $ 60,300
Additional paid-in capital .................................................... $ 327,820 $ 5,770,994
Accumulated deficit ........................................................... $ (145,768) $ (208,768)
Total shareholders' equity ............................................... $ 229,352 $ 5,622,526
Total capitalization ................................................ $1,112,635 $ 5,622,526
</TABLE>
- ------
(1) Does not include (i) 1,275,000 shares of Common Stock reserved for
issuance upon exercise of the Company's Class A Warrants issued to the
holders of 8% Notes, (ii) 2,883,332 shares of Common Stock reserved for
issuance upon exercise of the Company's Class A Warrants, which Warrants
were issued by the Company in August 1996 in exchange for 1,441,666
shares of the Company's Common Stock, (iii) 1,300,000 shares of Common
Stock reserved for issuance upon the exercise of Class A Warrants offered
hereby, (iv) 260,000 shares issuable upon exercise of Underwriters'
Warrant and (v) 390,000 shares of the Company's Common Stock which may be
issued upon exercise of the Over-Allotment Option and the Warrants issued
in connection therewith. See "Underwriting."
14
<PAGE>
DILUTION
At June 30, 1996, the Company had a net tangible book value (deficit) of
$(317,349), or $(.07) per share of outstanding Common Stock. Net tangible
book value per share represents the Company's total tangible assets less
total liabilities, divided by the number of shares of Common Stock
outstanding. After giving effect to receipt of the estimated net proceeds
from the Company's sale of 1,300,000 shares of Common Stock at the Offering
price of $5.10 per share and 1,300,000 Class A Warrants at the Offering price
of $.10 per Warrant (after deducting the estimated offering expenses), the
pro forma net tangible book value of the Company would have been
approximately $5,336,332, or approximately $.88 per share of outstanding
Common Stock, at June 30, 1996. This represents an immediate dilution of
$4.32 per share, or 83%, to purchasers of Common Stock in this Offering. The
following table illustrates the per share dilution to be incurred by the
public investors in the Offering:
<TABLE>
<CAPTION>
Initial Offering price per Share of Common Stock(1) ........... $5.20
<S> <C> <C>
Net tangible book value (deficit) per share before Offering . $ (.07)
Increase per share attributable to shares offered hereby .... $ .95
---------
Pro forma net tangible book value per share after Offering. ... $ .88
-------
Dilution of net tangible book value per share to new investors. $4.32
=======
</TABLE>
- ------
(1) Aggregate price per share of Common Stock and Warrant for purposes of
calculating dilution.
The following table sets forth as of June 30, 1996 the number of shares of
Common Stock purchased from the Company and the total consideration and
weighted average price per share paid by existing shareholders of the Company
and by new investors purchasing shares in this Offering, before deducting the
underwriting discount and estimated Offering expenses:
<TABLE>
<CAPTION>
Weighted
Shares Purchased Total Consideration Average Price
Number Percent Amount Percent Per Share
----------- --------- ------------ --------- ---------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1) 4,730,000 78% $ 61,000 1% $ .01
New investors(2) ........ 1,300,000 22% 6,760,000 99% $5.20
----------- --------- ------------ --------- ---------------
Total ................. 6,030,000 100% $6,821,000 100%
=========== ========= ============ =========
</TABLE>
- ------
(1) Gives effect to (i) the exchange of 1,441,666 shares of the Company's
Class A Common Stock for 2,883,332 Class A Warrants effected in August
1996 and (ii) the 2.2 for-one stock dividend effected in August 1996.
(2) Gives effect to the aggregate purchase price of shares of Common Stock
and Class A Warrants.
15
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data as of and for the fiscal years ended
March 31, 1996 and March 31, 1995 derived from the audited financial
statements of the Company. The selected financial data as of and for the
three months ended June 30, 1996 and 1995 is derived from the financial
statements of the Company which have not been audited.
In the opinion of management, the selected financial data presented below
for the three months ended June 30, 1996 and 1995 include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for these
periods. The results of operations for the three months ended June 30, 1996
are not necessarily indicative of the results to be expected for the full
fiscal year. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements of the Company included elsewhere
herein.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months Ended
Year Ended March 31, June 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(Unaudited)
Operating Data:
Net Revenue ............................. $6,181,757 $2,940,892 $ 2,487,381 $1,042,240
------------ ------------ ------------ ------------
Costs and expenses:
Cost of net revenues:
Product and supply costs ........... 2,084,306 1,014,181 1,020,657 367,042
Rental equipment depreciation ...... 251,445 145,815 82,701 53,958
------------ ------------ ------------ ------------
2,335,751 1,159,996 1,103,358 421,000
Selling, general and administrative
expenses ........................... 2,660,071 1,621,777 1,009,743 479,320
Provision for doubtful accounts ....... 298,811 125,000 42,795 52,499
Amortization of intangible assets ..... 107,966 245,012 43,024 23,753
------------ ------------ ------------ ------------
5,402,599 3,151,785 2,198,920 976,572
------------ ------------ ------------ ------------
Operating income (loss) ............... 779,158 (210,893) 288,461 65,668
Interest expense ...................... 155,233 111,798 64,201 26,059
------------ ------------ ------------ ------------
Income (loss) before provision for income
taxes ................................. 623,925 (322,691) 224,260 39,609
Provision for income taxes .............. 196,000 0 98,672 0
------------ ------------ ------------ ------------
Net income (loss) ....................... 427,925 (322,691) 125,588 39,609
Net income (loss) per common share(1) ... .09 (.07) .03 .01
Weighted average number of shares
outstanding(1) ........................ 4,730,000 4,510,000 4,730,000 4,730,000
</TABLE>
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1996(1)
-------------- ----------------------------
As
Balance Sheet Data: Actual Actual Adjusted(2)
--------------------------- -------------- ------------ ------------
<S> <C> <C> <C>
Working capital (deficit) . $ (978,683) $ (907,611) $ 3,853,161
Total assets .............. 5,467,115 5,689,676 10,199,567
Total long-term debt ...... 931,512 883,283 0
Total shareholders' equity 103,764 229,352 5,622,526
</TABLE>
- ------
(1) Gives effect to (i) the 2.2-for-one stock dividend effected by the
Company in August 1996 and (ii) the exchange of 1,441,666 shares of the
Company's Common Stock for 2,883,332 Class A Warrants.
(2) Gives effect to the 1,300,000 shares of Common Stock and 1,300,000 Class
A Warrants offered hereby and the application of the estimated net
proceeds therefrom.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements and related Notes contained elsewhere in this
Prospectus.
GENERAL
The Company was formed to acquire and operate a home health care medical
equipment and supply business. It commenced operations in July 1992 and in
April 1993 expanded its operations by acquiring certain Adam assets,
primarily rental equipment and customer lists.
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED WITH FISCAL YEAR ENDED MARCH 31,
1995
Net revenues increased by $3,240,865, or 110.2%, to $6,181,757 at March
31, 1996 from $2,940,892 at March 31, 1995. The increase in revenues was due
primarily to the Company's expansion of its medical supply lines and
rehabilitation products division.
Cost of net revenues increased by $1,175,755, or 101.4%, to $2,335,751 for
the year ended March 31, 1996 from $1,159,996 for the year ended March 31,
1995. Cost of net revenues decreased as a percentage of net revenues to 37.8%
for the year ended March 31, 1996 from 39.4% for the year ended March 31,
1995. This decrease in cost of net revenues as a percentage of net revenues
in the year ended March 31, 1996 is primarily attributable to several volume
discounts received by the Company in connection with the initial bulk
purchases of medical supplies when the Company became a provider to the
largest certified home health care agency in New York.
Selling, general and administrative expenses increased by $1,038,294, or
64.0%, to $2,660,071 at March 31, 1996 from $1,621,777 at March 31, 1995
representing a decrease as a percentage of net revenues of 12.1%, to 43% from
55.1%. The decrease as a percentage of net revenues was primarily attributed
to certain fixed selling, general and administrative expenses remaining
constant as revenue increased. Selling, general and administrative expenses
increased due to the hiring of additional personnel to support the growth in
the Company's sales.
The Company had income from operations of $779,158 for the year ended
March 31, 1996, as compared to a loss from operations of ($210,893) for the
year ended March 31, 1995. This was mainly attributed to the Company's
significant increase in revenue while certain operating costs did not
increase proportionally with the increase in revenue. To a lesser degree, the
increased profits were also due to the expiration of certain intangible
assets which expired in the March 31, 1995 fiscal year and decreased legal
fees in the year ended March 31, 1996.
Interest expense increased by $43,435, or 38.9%, to $155,233 at March 31,
1996 from $111,798 at March 31, 1995. The increase was due to an increase in
outstanding indebtedness.
The Company had net income of $427,925 at March 31, 1996, compared with a
net loss of $(322,691) at March 31, 1995.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THREE MONTHS ENDED JUNE 30,
1995
Net revenues increased by $1,445,141, or 138.7%, to $2,487,381 for the
three months ended June 30, 1996 from $1,042,240 for the three months ended
June 30, 1995. This increase was primarily due to the expansion of the
Company's medical supply business after the Company became a provider of
disposable medical supplies for the largest certified home health care agency
in New York and further development of the Company's rehabilitation products
division.
Cost of net revenues increased by $682,358, or 162.1%, to $1,103,358 for
the three months ended June 30, 1996 from $421,000 for the three months ended
June 30, 1995. Cost of net revenues increased as a percentage of net revenues
to 44.4% for the three months ended June 30, 1996 from 40.4% for the three
months ended June 30, 1995. The increase in percentage of cost of net
revenues was due to the increase in net revenues from the
17
<PAGE>
sale of medical supplies which has a higher product cost than durable medical
equipment and additionally, the increased sales, rather than rentals, of
durable medical equipment which results in a higher product cost for such
equipment. Management does not anticipate that the sales of medical supplies
as a percentage of the Company's net revenues will further materially
increase.
Selling, general and administrative expenses increased by $530,423, or
110.7%, to $1,009,743 for the three months ended June 30, 1996 from $479,320
for the three months ended June 30, 1995, but decreased as a percentage of
net revenues to 40.6%, from 46.0%. The decrease in expenses as a percentage
of net revenues was primarily due to fixed expenses remaining constant as net
revenues increased. Selling, general and administrative expenses increased
due to the hiring of additional personnel to support the growth in the
Company's sales.
Income from operations increased by $222,793 to $288,461 for the three
months ended June 30, 1996 from income from operations of $65,668 for the
three months ended June 30, 1995. The operating income as a percentage of net
revenues was 11.6% for the three months ended June 30, 1996 as compared to
6.3% for the three months ended June 30, 1995. The increase was primarily due
to the increase in net revenues and a decrease in the selling, general and
administrative expenses as a percentage of net revenues as stated above.
Interest expense increased by $38,142, or 146.4%, to $64,201 for the three
months ended June 30, 1996 from $26,059 for the three months ended June 30,
1995. The increase in outstanding indebtedness resulted from the Company's
need to finance its expansion. The Company experienced a .1% increase in
interest expense as a percentage of net revenues to 2.6% for the three months
ended June 30, 1996 from 2.5% for the three months ended June 30, 1995.
The Company had net income of $125,558 for the three months ended June 30,
1996 and net income of $39,609 for the three months ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary need for funds is to provide working capital to
support its business plans. From inception through the end of fiscal 1994,
the Company financed its operations, in part, through loans from its officers
and directors in the aggregate principal amount of $245,200. The Company has
also financed its operations through credit obtained from vendors, and, to a
lesser extent, from credit lines and bank notes. In connection with the
expansion of its business, the Company entered into lease agreements relating
to the purchase of inventory and rental equipment at interest rates ranging
from 9% to 13% per year. The Company currently has seven lease financing
agreements outstanding with three vendors which it expects to satisfy out of
cash provided by operating activities.
Because of an increased need for working capital as a result of the
expansion of the Company's business, the Company completed two equity private
placements and one debt financing. Between April and December 1995, the
Company received net proceeds of $99,870 from the sale of 1,041,666 shares of
its Common Stock. In January 1996, the Company completed a private placement
of 500,000 shares of Common Stock for a net consideration to the Company of
$212,500. (In August 1996, 1,441,666 of such shares of Common Stock were
exchanged for 2,883,332 Class A Warrants.) In February 1996, the Company
completed a private placement of 25.5 units, each unit comprised of a
promissory note in the principal amount of $25,000 with interest payable at a
rate of 8% per year and 50,000 Class A Warrants. The net consideration
received by the Company in connection with this debt financing was $553,500.
The Company is obligated to repay the aggregate principal amount of $637,500
plus accrued interest on the 8% notes from the proceeds of the Offering. The
Company also intends to repay, with the proceeds of the Offering, the related
party loans in the aggregate principal amount of $255,409 (representing the
original loans from officers and directors in the aggregate principal amount
of $245,200 plus $10,209 of accrued interest which has been added to
principal). See "Use of Proceeds."
In January 1996, one of the Company's vendors advanced funds to enable the
Company to satisfy in full an outstanding line of credit with NatWest Bank in
the aggregate principal amount of $106,338. As a result, the Company has
outstanding a one year note, secured by inventory, with such vendor in the
aggregate principal amount of $106,338 with monthly principal payments of
$8,870 and interest at a rate of 1% over the prime rate of Chase Manhattan
Bank, N.A. The Company currently has a credit facility with the Bank of New
York in the aggregate principal amount of $200,000 which is fully drawn down,
with interest payable monthly at a rate of
18
<PAGE>
1.0% above the prime rate of the Bank of New York, as announced from
time-to-time. At June 30, 1996, the Company had negative working capital of
$(907,611). In August and September 1996, the Company received three loans
each in the principal amount of $100,000 with interest accruing at a rate of
8% per year. The Company intends to repay such loan out of the proceeds of
the Offering. Virtually all of the Company's revenues are attributable to
payments received from third party payors who generally do not make payments
for 75 to 90 days after invoicing. In order to manage the delay between
invoicing and receipt of payment, the Company has entered into various
financing arrangements to fund operations. See "Use of Proceeds."
The Company believes that internally generated funds and the proceeds of
this Offering will provide sufficient liquidity and enable it to meet its
currently foreseeable working capital requirements for at least the next 12
months. However, the Company may need to obtain additional financing to meet
its growth objectives or to continue its operations. There can be no
assurance that additional financings will be available if and when needed by
or on terms acceptable to the Company. Potential sources for any such
financings have not yet been identified. See "Risk Factors -- Need for
Additional Financing." In addition, for a period of two years following the
Effective Date, the Company cannot issue shares of Common Stock (other than
pursuant to the 1996 Stock Option Plan) without the prior written consent of
the Representative. Such limitation could adversely affect the Company's
ability to obtain additional financing. See "Underwriting."
The Company believes that the adoption by the Financial Accounting
Standards Board of Statement of Financial Accounting Standards ("SFAS") No.
121 "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of"
and SFAS No. 123, "Accounting for Stock Based-Compensation" will not have a
material impact on the Company's financial condition and results of
operations.
The Company believes that a final judgment in the Adams litigation in its
favor would not affect its liquidity, operations or capital resources,
because management believes that a judgement in the Company's favor would
result in a reduction of the purchase price to be paid by the Company for the
assets and the Company's current portion of long-term debt would be reduced
accordingly. If the defendants were to prevail, the Company would, in all
likelihood, attempt to obtain the necessary financing to satisfy any
additional amounts required to be paid pursuant to a judgment requiring
payment of the original purchase price. The Company does not believe such a
judgment would have a material adverse effect on its liquidity, operations
and capital resources. Although the Company does not believe that a judgment
in favor of the defendants would include punitive damages, should such a
judgment be awarded, it would have a material adverse effect on the Company's
liquidity, operations and capital resources.
SEASONALITY
The Company generally has not experienced seasonal fluctuation.
INFLATION
The Company believes that the relatively moderate rates of inflation in
recent years have not had a significant impact on its net revenues or its
profitability.
19
<PAGE>
BUSINESS
The Company is a provider of an extensive variety of home health care
products and services, durable medical equipment, and disposable medical
supplies in the metropolitan New York region. The Company services the home
health care market by coordinating with various health care workers and payor
case managers to determine the home health needs of patients. In April 1993,
the Company acquired certain assets of Adam, including inventory, office
equipment and an assignment of the office lease, for a purchase price of
$1,500,000. Approximately $450,000 was paid at or prior to the closing of the
Acquisition, with the balance payable in installments through March 31, 1995.
The Company has not paid the balance and is seeking a rescission of the
payment obligations. See "Legal Proceedings." Since acquiring the assets of
Adam, the Company's management has expanded operations by implementing a
sales strategy focusing on an informed diagnostic-centered approach, signing
new major payor contracts with additional HMOs and PPOs including Metro Plus
Health Maintenance Organization, Beech Street Corporation, Group Health
Insurance, Inc. and MultiPlan Inc., and offering new equipment, products and
services such as low air loss beds, alternating pressure beds and standing
wheelchairs. In addition, the Company has recently significantly increased
its sales of medical supplies as a result of becoming a provider of
disposable medical supplies for the largest certified home health care agency
in New York.
The Company anticipates continued growth in the home health care market
due to increasing emphasis on cost effective medical treatment, the "Greying
of Our Society" and continuing advances in medical technology. The over-65
population, which has a higher incidence of illness and disability, continues
to increase. At the same time, home treatment of medical needs as compared
with hospital treatment is generally considered more cost effective. The
increased acceptance of home care has been bolstered by medical technological
advances which have facilitated the maintenance of high medical standards in
home care. The Company believes that cost containment initiatives of managed
care providers and continued limitations on reimbursement to hospital and
other institutions will contribute to continued strong demand for home
medical equipment and products.
MARKET OVERVIEW
Based on market research prepared by FIND/SVP, Inc., an independent New
York city-based research firm, the Company estimates that the size of the
home health care market in 1992 was $20 billion and is expected to grow to
$42.5 billion by 1996. The Company estimates that the local tri-state market
(New York, New Jersey and Connecticut) was $4.2 billion in 1992, growing to
$8.5 billion by 1996.
Aging Population. According to FIND/SVP, Inc., the number of individuals
over 65 in the U.S. has grown from 25.7 million in 1980, or 11.3%, of the
population, to approximately 31.6 million in 1990, or 12.6%, of the
population and is projected to increase to more than 33.8 million, or 13%, of
the population by 1996. The elderly have traditionally accounted for two to
three times the average per capita share of health care expenditures. As the
number of Americans over 65 increases, the need for home health care services
is also expected to increase. The Company estimates that 4.0 million people
will reach the age of 65 by 1996 in its local market.
Cost Effectiveness of Home Health Care Services. According to FIND/SVP,
Inc., health care expenditures in the United States increased from
approximately $248 billion in 1980 (9.1% of the gross national product
("GNP") to approximately $666 billion in 1990 (12.2% of GNP). In response to
rapidly rising costs, governmental (Medicare and Medicaid) and private payors
have adopted costs and containment measures that encourage reduced hospital
admissions, reduced lengths of stay in the hospitals, and delayed nursing
home/institutional admission. For example, the current hospital reimbursement
methodology is based on patient diagnosis with very specific limitations on
the length of hospital stays, leading to the earlier discharge of patients
from hospitals. These measures have, in turn, fostered an increase in home
health care which, when appropriate, generally provides medically necessary
equipment and products at significantly less expense than in an institutional
setting.
Physician Acceptance. In the last decade, the medical professional has
shown greater acceptance of home health care in the clinical management of
patient care. Evidencing this greater acceptance, the American Medical
Association Councils on Scientific Affairs and Medical Education have
recommended that training in the principles and practice of home health care
be incorporated into the undergraduate, graduate and continuing
20
<PAGE>
education programs for physicians. In addition, the reimbursement guidelines
of payor sources (which are increasingly drafted to limit or avoid hospital
treatment) have created a climate in which physicians must prescribe and
arrange for home health equipment and products for their patients.
Advanced Technology. Advances in technology have enabled numerous patients
who previously required hospitalization to be treated at home without
sacrificing the quality of care. The advances in the miniaturization and
computerization of equipment have fostered the development of portable
medical equipment. For example, such advances have enabled patients requiring
acute respiratory care to be treated at home because of the availability of
portable respiratory equipment. In addition, the development of advanced
seating and positioning equipment and power vehicles (such as wheelchairs and
scooters) have greatly enhanced the feasibility of home care for many
developmentally disabled individuals, as well as patients suffering from
stroke, paralysis and head injuries. The number of medical conditions that
can be treated in the home is growing significantly. These conditions include
incontinence, wounds, diabetes, infections and infectious diseases (including
AIDS-related infections), impaired digestive tracts and various forms of
cancer.
PRODUCTS AND SERVICES
The Company services patients referred to the Company by nurses,
physicians, social workers and payor case managers, as well as discharge
planners at hospitals, HMOs, PPOs and rehabilitation centers. Working with
these individuals, the Company's personnel coordinate the delivery and set-up
of the products and supplies to be used by patients in their home recovery
and care. Upon receipt of an order, the Company will arrange for the
appropriate products and supplies to be delivered to the patient at home. At
the time of delivery, the Company's personnel will set up equipment as
necessary and spend time with the patient and/or care givers to explain the
proper use of the medical equipment delivered. The Company handles customer
service inquiries via an 800 telephone number and will generally send its
personnel to visit the patient if necessary to rectify any problems that may
arise.
The primary categories of products provided by the Company (and examples
of the products available in each category) are set forth below:
Durable Medical Equipment -- Hospital beds
-- Wheelchairs
-- Walking aids
-- Bathroom safety equipment
-- Patient lifts
Disposable Medical Supplies -- Incontinent products (diapers, liners,
chux)
-- Wound care products (dressings and
bandages for treating decubitus (bed
sores and lesions), pressure sores,
ulcerations, etc.)
-- Nutritional products (Ensure, Sustacal,
etc.)
-- Diabetic products/supplies
-- Ostomy supplies
-- Urological supplies (catheters, etc)
-- Blood pressure products
-- Skin care products
Rehabilitation Products -- Power operated vehicles
(includes specialized versions (such as wheelchairs and scooters)
of durable medical products) -- Advanced support surfaces (low air loss
beds, alternating pressure mattresses)
-- Specialized seating
Respiratory Equipment and Products -- O2 concentrators
-- Nebulizers with compressors
-- Suction pumps
-- Oximetry equipment
-- C-PAP (Continuous positive air pressure)
equipment
-- Bi-PAP (Bi-level positive air pressure)
equipment
21
<PAGE>
The Company's inventory is housed in its 20,000 square foot
office/warehouse facility in Mount Vernon, New York. All of its products are
readily available from more than one supplier and the Company can generally
fill an order within 24 hours of placement. The Company operates on a regular
basis 24 hours a day, Monday through Saturday and provides services on an
emergency basis on Sundays. The Company utilizes its 800 telephone number for
customer service calls. The Company's office receives calls from 8:00 A.M. to
6:00 P.M. Monday through Friday and 9:00 A.M. to 1:00 P.M. on Saturdays while
an answering service handles calls at all other hours. The Company's service
technicians are available to handle calls on a 24-hour basis.
Generally, the cost of the Company's products and supplies is covered by
third party payor arrangements such as Medicaid, Medicare or private
insurance. Equipment such as hospital beds, wheelchairs and patient lifters
covered by Medicare is generally paid for on a rental basis over a 15 month
term. In many instances, such equipment is returned to the Company prior to
the 15 month term, in which case the equipment is re-conditioned and
available for a new rental term. Generally, the equipment can be
reconditioned for use to be available for several rental terms for a period
in excess of five years. The Company receives a semi-annual maintenance
payment for any equipment that is used in excess of 15 months. Purchased
equipment covered by Medicare is reimbursed at approved published prices.
Equipment covered by Medicaid is generally sold pursuant to an approved price
range or a cost plus fee basis. Insurance payors use customary and usual
standards for their reimbursement terms which are generally comparable to
Medicare terms. The Company usually receives payment within 75 to 90 days of
invoicing. An inconsequential percentage of the Company's business is direct
cash sales to customers. For the fiscal year ending March 31, 1996, the
allocation of net revenues among the Company's third party payors was
approximately 35.4% to Medicare, 36.4% to Medicaid and 28.2% to private
insurers and direct cash sales. See "Risk Factors -- Dependence Upon Third
Party Reimbursement."
STRATEGIC OBJECTIVES
The Company's strategic objective is to become the leading provider of
home medical equipment, disposable medical supplies and services in the
metropolitan New York/New Jersey/Connecticut region by focusing on the
following objectives.
Integrated Care. The Company is committed to fulfilling the physician's
and/or payor source's need for a complete plan of care for their patients at
home by providing a full range of quality home medical equipment and related
services. The Company plans to seek out and negotiate agreements to provide
products and services in conjunction with providers of other home medical
services such as nursing companies and intravenous care providers. These
agreements will enable the Company to be considered a full service provider
to health care workers and customers for their home health care needs and
will also increase the number of the Company's referral sources. While the
Company's core business is its home medical equipment, the Company's revenues
are enhanced by its ability to provide other medical products (products for
the treatment of incontinence, diabetes and wound care, as well as advanced
support surfaces, etc.) to high acuity and multiple therapy patients.
Focus On Growth Markets. The Company is seeking to expand its core home
medical equipment business by enlarging its geographic sales territory and
increasing the number of referral sources with whom it has relationships. The
Company is also exploring the possibility of offering new products in some of
its existing high growth markets such as respiratory therapy, nutritional
products, decubitus care (skin sores or lesions), advanced support surfaces,
advanced seating and positioning products, power operated vehicles and
incontinence treatment. The Company is also exploring the possibility of
adding new product categories to its existing business. High growth markets
being considered include orthotics, mastectomy supplies, specialized wound
care products and products for the treatment of sleep disorders.
Increase Market Share. The metropolitan New York market is highly
fragmented, comprised of a large range of small local operators. The Company
estimates that there are 1,000 home medical equipment dealers in its market.
The Company believes 85% of such dealers generate revenues of up to $2.0
million, 13% generate revenues between $2.0 million and $5.0 million, and 2%
generate revenues of in excess of $5.0 million. There are a few regional or
national home medical equipment businesses. With the anticipated continued
growth of the home health care market, the Company believes that there is an
opportunity to expand its market share by providing the elements it believes
are critical to the success of home medical equipment providers -- (i)
providing high quality products, (ii) offering a high level of customer
service evidenced by prompt responsiveness to, and good communications with,
customers, and (iii) understanding and adapting to the needs of local
markets.
22
<PAGE>
Improve Operating Efficiencies. Management is committed to reducing
operating expenses through the use of improved systems and controls to
streamline its operations in the areas of billing and collections,
administrative support and sales administration. The Company has implemented
new systems for tracking sales, enabling management and sales personnel to
monitor performance and target particular geographic or product areas for
expansion. The Company recently redesigned and computerized its intake
procedures to simplify phone ordering for both the order placer (usually a
health care worker) and the end user (the patient). Simplifying the intake
process has improved the Company's billing and collection procedures because
of the improved accuracy and completeness of data collected. In addition, the
Company is in the process of installing new computer systems that the Company
believes will improve employee productivity and further reduce administrative
overhead.
In addition to expanding its business by increasing sales, the Company
may, if such opportunities arise, consider the expansion of its business by
means of acquisitions or joint ventures. The Company's ability to effect such
transactions could be adversely affected by its inability to issue shares of
Common Stock without the Representative's prior written consent for a period
of two years following the Effective Date. See "Underwriting." The Company is
not currently conducting formal negotiations for any such acquisitions.
The Company's operating strategy to achieve the foregoing objectives
include the following elements:
Targeting Referral Sources. The Company has been developing an effective
sales force currently consisting of four field sales representatives, seven
institutional on-site sales and service representatives, thirteen customer
service representatives at the Company's offices who take orders and
follow-up calls from customers and referral sources and six equipment
drivers/technicians who generally work in the field to handle certain repairs
and information inquiries. The field and customer service representatives
enable the Company to market its home medical equipment and products to
numerous sources of patient referrals, including physicians, therapists,
nurses, discharge/case management professionals, social workers, hospitals,
sub-acute facilities, clinics, nursing homes, HMOs, PPOs, insurance companies
and social service organizations as well as directly to the end user. The
Company is constantly training and tracking its sales representatives to
generate more revenues from the Company's existing referral sources and to
better target and penetrate new sources of patient referrals.
Commitment to Quality Service. The Company believes that the quality of
its service is critical to its ability to obtain referrals and to expand its
business. To assure delivery of high quality service, the Company has
established policies and procedures prescribing standards for patient care
and has retained the services of a full time consultant who regularly
examines its operation/facility to assure compliance with those standards.
The Company has been accredited with commendation by the Joint Commission on
Accreditation of Healthcare Organizations ("JCAHO").
Focus on Receivables Management. In selecting its equipment, products and
services, the Company carefully considers the adequacy of reimbursement and
the ease with which payment can be obtained. The Company's reimbursement
staff has significant experience in the industry as its primary billers
average 16.5 years experience in reimbursement. Their knowledge and
familiarity with the various reimbursement forms, policies and
categorizations expedites the Company's billing procedures and facilitates
the reimbursement process. The Company's receivables management is also
enhanced by its electronic billing of Medicare and Medicaid which reduces the
amount of paperwork to be handled and the amount of time required to process
reimbursement billing.
Management Information Systems. The Company has been implementing updated
computerized systems, including order entry, distribution, third-party
billing and customer information systems. These systems enable the Company to
have relatively easy access to all the information processed by it including
commencement of service, type of product utilized, the time period used and
clinical outcome (for rental equipment users) and frequency and nature of
service calls. These systems enable the Company to provide utilization
reports and relevant data to its referral sources who can use such
information to control the cost of managing home patient care. The Company
intends to seek to develop applications to integrate its database with those
of its referral sources and with other health care providers. This would
allow the Company to provide integrated patient discharge planning and
detailed utilization review data to its referral sources.
MARKETING PROGRAMS
Diagnostic Centered Programs. The Company has developed a diagnostic
centered approach to meeting the needs of its customers. The Company's
personnel receives continuing education focused on the needs of
23
<PAGE>
customers classified by diagnosis or special needs. As a result, the
Company's representatives can provide doctors, nurses, social workers,
therapists, payor case managers, and customers with information regarding
products for a patient's home care needs, both in terms of general care and
product improvements. The Company believes that this enhances the quality of
the service it can offer to referral sources as well as the products it
supplies to the end users.
Institutional Support Program. The Company's current management team has
developed a support program for the benefit of institutions such as hospitals
and certified home health agencies whereby the Company provides certain of
its personnel for on-site locations at these institutions. These on-site
managers work with the institution's personnel in determining the need for
medical equipment, products and services for patients about to be discharged.
They also help determine patient payor sources, order patient home medical
equipment and arrange for delivery of the equipment to the patient at home.
The Company believes that this program facilitates cost effective treatments
for the home patient, and enhances the Company's position as a source of home
medical equipment and supplies.
Rehabilitation Division. The Company has established a separate division
within its current facilities to provide specialized products for individuals
with acute, long-term home health care needs. These products include
specialized bathroom products, specialized vehicles and specialized support
services, many of which have to be customized to meet individual needs.
Although the Company has been providing such products for the past year,
management has recently established a separate division to sell, market and
customize these products. In addition to a separate sales staff, the Company
is establishing a workroom to customize the rehabilitation products as
needed.
Additional Home Care Services. The Company is exploring the potential for
expanding its business to include additional home care services. Management
expects that its knowledge of the needs of patients and providers in
connection with durable medical goods can be applied to a broader range of
home care medical services. The establishment of additional related home care
services would enable the Company to offer providers a single source for
coordinating all of their patients' at home health care needs. By working
through a single source, the patient's needs can be monitored and coordinated
to ensure that all necessary services and goods are provided on a timely,
efficient basis.
COMPETITION
The home health care provider industry is highly competitive and
fragmented. While there are a few selected national providers, the Company
currently encounters its most significant competition in providing home
health care products from small commercial providers operating in the New
York metropolitan area. The Company believes that health care facilities in
the geographic area serviced by the Company consider quality of care,
reliability and reputation to be the most important factors in referring a
home health care provider to its patients, although other factors such as
financial stability, personnel policies and practices and cost are also
considered. In addition to present competition, other companies that do not
currently provide home health care products may enter the business.
GOVERNMENT REGULATION AND REIMBURSEMENT
The Company must comply with various requirements in connection with its
participation in Medicaid and Medicare. Medicaid is a combined federal-state
program for medical assistance to impoverished individuals who are aged,
blind, or disabled or members of families with dependent children. The
Medicaid program in New York is subject to federal requirements. The New York
State Department of Social Services has the authority to set levels of
reimbursement within federal guidelines. The Company receives, from its
customers who are covered by Medicaid, only the reimbursement permitted by
Medicaid and is not permitted to collect from the patient any difference
between its customary charge to such customers and the amount reimbursed. Any
difference between the Company's customary charge to its customers who are
covered by Medicaid and amounts reimbursed by Medicaid are not material to
the Company's operating results because the Company's customary charges to
such customers generally do not exceed amounts reimbursable by Medicaid.
24
<PAGE>
Medicare is a federal health insurance program, for the elderly and for
chronically disabled individuals, which pays for equipment and services when
medically necessary. Medicare uses a charge-based reimbursement system for
purchased medical equipment based on approved published prices. Equipment
such as hospital beds, wheelchairs and patient lifters is generally paid for
on a rental basis over a 15 month term, with maintenance payments
semi-annually thereafter.
The Company, like other Medicaid and Medicare providers, is subject to
governmental audits of its Medicaid and Medicare reimbursement claims, but to
date has not experienced significant losses as a result of any such audit.
The Company is not subject to any pending audits or audit reports. As a
provider of services under the Medicaid and Medicare programs, the Company is
also subject to the Medicaid and Medicare fraud and abuse laws ("Fraud and
Abuse Laws"). The laws prohibit any bribe, kickback or rebate in return for
the referral of Medicaid or Medicare patients. Violations of these
prohibitions may result in civil and criminal penalties and exclusion from
participation in the Medicaid and Medicare programs. The United States
Department of Health and Human Services ("HHS") has interpreted the Fraud and
Abuse Laws as they apply to Medicare and Medicaid broadly to include the
intentional payment of anything of value to influence the referral of
Medicare or Medicaid recipients. HHS has issued regulations that set forth
certain so-called "safe harbors," representing business relationships and
payments that can be undertaken without violation of the Fraud and Abuse
Laws. The Company believes that it has arranged and will continue to arrange
its business relationships so as to comply with the Fraud and Abuse Laws. The
Company has not been the subject of any Medicaid or Medicare fraud
investigation to date.
Pursuant to the federal/state statutory scheme for the regulation and
administration of the Medicaid program, each state has a Medicaid Fraud
Control Unit. In New York State that Unit is placed within the Office of the
Attorney General. This office has broad civil and criminal jurisdiction over
Medicaid providers. In the course of its operations, it reviews Medicaid
providers. The Company is currently the subject of such a review. Several
other providers of medical equipment and supplies in the same general
geographic area have recently been subject to similar reviews. The Company
believes that it has complied with all appropriate regulations; and no claims
or charges have been lodged by the Attorney General as a result of this
review at this time.
The Company believes it is in substantial compliance with all material
statutes, regulations, standards and conditions applicable to its business.
However, new laws and/or regulations, standards or conditions may be adopted
or existing laws, regulations, standards or conditions may be interpreted by
governmental authorities in a manner which could adversely impact the
Company's operations. The Company cannot predict whether any such proposals
or interpretations will be adopted and, if adopted, what effect such
proposals or interpretations would have on the Company's business.
The Company's participation in the New York Medicaid program requires it
to enroll and re-enroll as an authorized provider with the New York State
Department of Social Services. Re-enrollment is required upon certain events
including a change of five (5%) percent or more of beneficial equity
ownership in the Company. An adverse determination, which is not subject to
prior judicial review, could have material adverse consequences to the
Company. The Company has recently received approval of its re-enrollment
application.
Government funding for health care programs is subject to statutory and
regulatory changes, administrative rulings, interpretations of policy,
determinations by intermediaries and governmental funding restrictions, all
of which could materially increase or decrease program reimbursements for the
Company's products and services. Efforts have been made at various levels to
reduce the costs of such programs. No assurance can be given that future
funding levels for Medicare and Medicaid programs will be comparable to
present levels. Changes in reimbursement policies as a result of budget cuts
or other government action could adversely affect the Company's operations.
The Clinton Administration, as well as certain United States Congressmen,
have each proposed legislation that would affect major reforms of the United
States health care system, including increasing access to health care for all
citizens. Although such legislation has not been enacted, health care reform
proposals are still under consideration and, New York State is considering
various health care reform proposals of its own. The Company anticipates that
Congress and state legislatures will continue to review and assess
alternative health care delivery systems and cost-control measures, and
public debate of these issues will likely continue in the future. Given the
complexity of these issues and the early stage of the legislative process,
the Company cannot predict which, if any, reform measures will be adopted
and, if adopted, the effect such measures will have on the Company's
business.
25
<PAGE>
INSURANCE
The Company carries a broad range of general liability, comprehensive
property damage, worker's compensation, and other insurance coverages that
management considers adequate for the protection of its assets and
operations, although there can be no assurance that the coverage limits of
such policies will be adequate. The Company has general liability coverage of
$1,000,000 per occurrence and $3,000,000 aggregate and umbrella coverage of
$1,000,000. A successful claim against the Company in excess of its insurance
coverage could have a material adverse effect on the Company and its
financial condition. Claims against the Company, regardless of their merit or
outcome, may also have an adverse effect on the Company's reputation and
business. See "Risk Factors -- Potential Liability; Adequacy of Insurance
Coverage."
EMPLOYEES
As of September 30, 1996, the Company had approximately 67 employees. Its
management team is comprised of two executives and two managers with
extensive experience in the home health care industry. Four field sales
representatives and seven institutional on-site sales and service
representatives work on a salary plus commission basis. Six drivers deliver
products and are specially trained by the Company to properly set up
equipment and explain its use to patients. The Company has nine warehouse
workers, two wheelchair mechanics, thirteen customer service and sales intake
personnel, sixteen individuals who handle reimbursement and a five person
administrative staff. The Company also has one supervisory staff respiratory
therapist and a pool of respiratory therapists who work on a consulting basis
on an as needed basis to provide service and advice to customers utilizing
respiratory equipment. The Company also has six contract drivers who make
deliveries. The Company is not a party to any collective bargaining
agreements and considers its relations with employees to be good.
LEGAL PROCEEDINGS
In 1993, the Company commenced an action against Adam and its principals
in the Supreme Court of the State of New York, County of Westchester. The
action arises out of the acquisition of the business and assets of Adam by
the Company in April 1993. The complaint alleges that the defendants made
numerous misrepresentations relating to the business previously conducted by
Adam. The complaint seeks recovery of damages of $1,500,000, additional
punitive damages, the reduction of the original purchase price or rescission
of the original purchase agreement. The defendants have asserted
counterclaims against the Company. The counterclaims seek the payment of the
unpaid purchase price of $1,050,000 and collection expense of over $175,000.
Defendants also allege various additional causes of action, claiming
plaintiffs converted or interfered with the collection of property owned or
due to defendants and seek damages of over $7,000,000, including $5,000,000
in punitive damages. A motion for summary judgment filed by defendants has
been denied in its entirety. Partial summary judgment has been granted to the
Company dismissing three of the counterclaims asserted against it. A Notice
of Appeal from these judgments has been filed by defendants. The Company
believes it has meritorious defenses to the remaining counterclaims. However,
there can be no assurance that the Company will be successful in recovering
damages for its claims or in defending itself against the remaining
counterclaims. A judgment against the Company as a result of the
counterclaims could have a material adverse effect on its business. See "Risk
Factors -- Pending Litigation; Potential Adverse Impact of Counterclaims
against the Company."
From time to time the Company is a party to litigation arising in the
ordinary course of business. There can be no assurance that the Company's
insurance coverage will be adequate to cover all liabilities occurring out of
such claims.
FACILITIES
The Company offices and warehouse are located in a 20,000 square foot
facility in Mount Vernon, N.Y., pursuant to a five year lease commencing
January 1, 1996 which provides for annual rental payments of $114,000 for the
first three years of the lease term and $132,000 for the last two years of
the lease term.
26
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
------------------------ ----- --------------------------------------------------
<S> <C> <C>
Alan T. Sheinwald ...... 31 President, Chief Executive Officer, Chief Financial
Officer and Chairman
Allan C. Goldfeder ..... 41 Chief Operating Officer and Secretary
Matthew J. McDonough ... 34 Operations Manager
Bruce L. Ansnes ........ 53 Director
Bernard M. Kruger, M.D. 54 Director
Craig V. Sloane ........ 45 Director
Dean L. Sloane ......... 50 Director
</TABLE>
Alan T. Sheinwald joined the Company in November 1995 as President, Chief
Executive Officer, Chief Financial Officer and Director and was elected
Chairman in June 1996. From April 1995 until joining the Company, he was
President and Chief Executive Officer of Alliance Care Services, Inc., a
health care consulting firm. From January 1990 until April 1995, Mr.
Sheinwald was employed by Mayflower Group, Inc. ("Mayflower"), initially as a
General Manager for a transportation facility, then as Senior Operations
Manager overseeing sales and operations for Mayflower's northeast division, a
$20 million operating division. In 1993, Mr. Sheinwald was named Vice
President -- Sales and Marketing for Mayflower, overseeing the development
and implementation, with agencies and institutions nationwide, of transport
systems, including medical transport systems. From May 1987 until January
1990, Mr. Sheinwald was a Cavalry Tank Platoon Leader, Division and Battalion
Staff Officer for the United States Army. Mr. Sheinwald has a B.S. from the
United States Military Academy at West Point and an M.B.A. from New York
University.
Allan C. Goldfeder has been Chief Operating Officer of the Company since
September 1993 and Secretary of the Company since January 1996. From January
1993 until September 1993, Mr. Goldfeder was an independent consultant to the
health care industry. From July 1989 until January 1993, he was a Director of
Operations and then Director of New Product Development for U.S. Home Care
Corporation. Mr. Goldfeder was a divisional Vice President from February 1986
until June 1989 with Continental Health Affiliates, Inc. From January 1977
until September 1985, Mr. Goldfeder was employed by Quality Care. Mr.
Goldfeder has a B.S. from City University of New York.
Matthew J. McDonough joined the Company in February 1996 as Operations
Manager. From December 1992 to July 1994, Mr. McDonough was a Regional
Manager for the Mayflower Group, Inc. and from July 1994 to February 1996 was
an Assistant Station Manager with Airborne Express Inc. Mr. McDonough has
also gained significant operational experience as an engineering officer in
the United States Navy. He has a B.S. from Old Dominion University.
Bruce L. Ansnes became a director of the Company in August 1996. Since
1986, he has been a private investor. From 1978 until 1983, Mr. Ansnes was
Treasurer, and from 1983 until 1986, Treasurer and Vice President, of Culbro
Corporation. He has a B.A. from Colby College and an M.B.A. from Columbia
University.
Bernard M. Kruger, M.D. became a Director of the Company in August 1996.
He has been in the private practice of internal medicine and medical oncology
since 1979, and is affiliated with Lenox Hill Hospital, Beth Israel Hospital,
Mount Sinai Hospital and the Orthopedic Institute. Dr. Kruger is a director
of Community Medical Transport, Inc. a publicly traded company.
Craig V. Sloane has been a director of the Company since its inception.
Since December, 1990, he has served as Vice President -- Operations and a
Director of Community Medical Transport, Inc., a publicly traded company.
From 1985 through October 1990, he was a futures analyst at Smith Barney
Harris Upham & Co.
Dean L. Sloane has been a director of the Company since its inception.
Since December, 1988, he has been Chairman of the Board, President and a
Director of Community Medical Transport, Inc., a publicly traded company. Mr.
Sloane has also been a director, since May, 1996, of SunStar Healthcare,
Inc., a publicly traded company. From 1973 through 1988, Mr. Sloane served as
Chief Executive Officer of Prime Medical Services Inc. (formerly known as
C.P. Rehab Corp.), a publicly traded specialty medical management service
company. Mr. Sloane co-founded and served as Chairman of the Board of
National Home Health Care Corp., a publicly traded
27
<PAGE>
medical management and home care company, from 1983 to 1986. Mr. Sloane also
served as a director of EPIC Health Group, Inc., a publicly traded mail order
pharmaceutical company, from 1984 to 1986. Mr. Sloane has been a member of
the Young Presidents Organization since 1985 and is a Certified Public
Accountant.
Dean L. Sloane and Craig V. Sloane are brothers.
Upon the closing of the Offering and for a period of three years
thereafter, the Underwriters shall have the right, but not the obligation, to
appoint a designee to serve as an advisor to the Board of Directors. The
Underwriters have not designated an individual to serve in such capacity.
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid or
accrued by the Company for services rendered during the fiscal years ended
March 31, 1994, 1995 and 1996 to the Company's Chief Executive Officer and
each of the Company's other executive officers (collectively, the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------------------- -------------------------------------------
Other Annual Restricted
Name and Fiscal Compensation Stock Awards Options LTIP
Principal Position Year Salary ($) Bonus ($) Other Compensation Granted Payouts All
------------------ -------- ---------- ------- -------------- ------------------ --------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Allan C. Goldfeder 1996 110,000 0 9,600 0 0 0 0
Chief Operating 1995 110,000 0 9,600 0 0 0 0
Officer(1) 1994 55,000 0 4,500 0 0 0 0
Alan T. Sheinwald 1996 48,077 0 3,150 0 0 0 0
Chief Executive
Officer(2)
</TABLE>
- ------
(1) Mr. Goldfeder was the Company's principal executive officer for the
fiscal years ended March 31, 1995 and 1994.
(2) Mr. Sheinwald's employment with the Company commenced November 13, 1995.
EMPLOYMENT AGREEMENTS
Upon consummation of this Offering, the Company will enter into an
employment agreement with Alan T. Sheinwald, President, Chief Executive
Officer and Chief Financial Officer of the Company. The agreement will have a
three-year term which renews for an additional year on each anniversary of
the agreement, and provides for an annual base compensation of $150,000. The
agreement provides for certain employee benefits including medical insurance,
vacation and a car allowance, and also contains a non-competition provision
covering the term of the agreement plus one year following termination.
Upon consummation of this Offering, the Company will also enter into an
employment agreement with Allan Goldfeder, Chief Operating Officer of the
Company. The agreement will have a three-year term which renews for an
additional year on each anniversary of the agreement, and provides for an
annual base compensation of $120,000. The agreement provides for certain
employee benefits including medical insurance, vacation and a car allowance,
and also contains a non-competition provision covering the term of the
agreement plus one-year following termination.
STOCK OPTION PLAN
The Company's Board of Directors has adopted a 1996 Stock Option Plan (the
"Plan") for officers, employees, directors and consultants of the Company or
any of its subsidiaries. The Plan authorizes the granting of stock options to
purchase an aggregate of not more than 603,000 shares of the Company's Common
Stock. As of the date hereof, no options have been granted and 603,000
options are available for grant under the Plan.
28
<PAGE>
The Plan is administered by a Stock Option Committee (the "Committee"),
consisting of two disinterested members of the Board of Directors. In
general, the Committee will select the persons to whom options will be
granted and will determine, subject to the terms of the Plan, the number, the
exercise period and other provisions of such options. The options granted
under the Plan will be exercisable in such installments as may be provided in
the grant.
Options granted to employees may be either incentive stock options under
the Internal Revenue Code ("ISOs") or non-ISOs. The Board may determine the
exercise price, provided that, in the case of ISOs, such price may not be
less than 100% (110% in the case of ISOs granted to holders of 10% of the
voting power of the Company's stock) of the fair market value (as defined in
the Plan) of the Company's Common Stock at the date of grant. The aggregate
fair market value (determined at time of option grant) of stock with respect
to which ISOs become exercisable for the first time in any year cannot exceed
$100,000. The Company does not expect the exercise price of non-ISO's to be
less than fair market value.
The options are evidenced by a written agreement containing the above
terms and such other terms and conditions consistent with the Plan as the
Board of Directors may impose. Each option, unless sooner terminated, shall
expire no later than 10 years (five years in the case of ISOs granted to
holders of 10% of the voting power of the Company's stock) from the date of
the grant, as the Board may determine. The Board has the right to amend,
suspend or terminate the Plan at any time, provided, however, that unless
ratified by the Company's shareholders within 12 months thereafter, no
amendment or change in the Plan will be effective: (a) increasing the total
number of shares which may be issued under the Plan; (b) reducing below fair
market value on the date of grant the price per share at which any option
which is an ISO may be granted; (c) extending the term of the Plan or the
period during which any option which is an ISO may be granted or exercised;
(d) altering in any way the class of persons eligible to participate in the
Plan; (e) materially increasing the benefits accruing to participants under
the Plan; or (f) with respect to options which are ISOs, amending the Plan in
any respect which would cause such options to no longer qualify for incentive
stock option treatment pursuant to the Internal Revenue Code of 1986.
COMPENSATION OF DIRECTORS
Following the consummation of this Offering, directors who are not
employed by the Company will be paid a fee of $1,000 for each meeting
attended and $500 for each committee meeting attended. All directors are
reimbursed for expenses incurred on behalf of the Company.
29
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of September 30, 1996 (after giving effect
to the 2.2-for-one stock dividend and the exchange of 1,441,666 shares of
Common Stock for 2,883,332 Class A Warrants) by (i) each shareholder known by
the Company to be the beneficial owner of more than 5% of the outstanding
Common Stock, (ii) each director and executive officer of the Company, and
(iii) all directors and executive officers as a group. Except as otherwise
indicated, the Company believes that the beneficial owners of the Common
Stock listed below, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to community
property laws where applicable.
<TABLE>
<CAPTION>
Number of Number of
Number of Shares Number of Shares Warrants Warrants
Beneficially Beneficially Owned Percentage of Common Stock Owned Beneficially
Owned Before After --------------------------------- Before Owned
Name Offering Offering Before Offering After Offering Offering After Offering
-------------------------- ---------------- ------------------ --------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Bruce L. Ansnes(1) 110,000 110,000 2.32% 1.83% 0 0
15 Glen Park Road
Purchase, NY 10577
Bernard M. Kruger, M.D.(1) 18,335 18,335 .39% .30% 0 0
170 East 78th Street
New York, NY 10021
Dean L. Sloane 1,713,800 1,713,800 36.23% 28.42% 0 0
45 Morris Street
Yonkers, NY 10705
Craig V. Sloane 428,450 428,450 9.06% 7.10% 0 0
45 Morris Street
Yonkers, NY 10705
Alan T. Sheinwald 2,142,250 2,142,250 45.29% 35.53% 0 0
18 Sargent Place
Mount Vernon, NY 10550
Allan C. Goldfeder 225,500 225,500 4.77% 3.74% 0 0
18 Sargent Place
Mount Vernon, NY 10550
All Executive Officers
and Directors 4,638,335 4,638,335 98.06% 76.92% 0 0
</TABLE>
- ------
(1) The shares of Common Stock owned by Mr. Ansnes and Dr. Kruger are being
registered for sale in the Selling Securityholders' Prospectus. Each of
Mr. Ansnes and Dr. Kruger has entered into a Lock-up Agreement not to
sell, transfer or dispose of such shares without the prior written
consent of the Representative for a period of 18 months from the date of
this Prospectus.
30
<PAGE>
CERTAIN TRANSACTIONS
All transactions with officers and shareholders and their affiliates were
made on terms no less favorable to the Company than those available from
unaffiliated parties. All future transactions between the Company and its
officers, directors and 5% shareholders will be on terms no less favorable
than could be obtained by independent third parties and will be approved by a
majority of the independent disinterested directors of the Company.
LOANS
The Company received loans from certain shareholders and former
shareholders and their affiliates in the aggregate amount of $255,409. All
the loans are currently non-interest bearing. The loans were made on March
31, 1993 to help finance the Company's operations. One loan of $80,000 bore
interest at a rate of 8-1/4% until September 30, 1994, at which time the
accrued interest was added to the principal outstanding. The Company expects
to repay these loans from the proceeds of this Offering as follows: $135,409
to Dean L. Sloane (which includes accrued interest of $10,209 through
September 30, 1994); $15,000 each to Manuel N. Wilson and Wade Wilson; and
$90,000 to At Home Health Care Supplies, Inc. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
LEASE
The Company entered into a sublease on September 1, 1995 with At Home
Health Care Supplies, Inc., an affiliate of former shareholders and directors
of the Company for the office/warehouse space it currently occupies. The
Company paid $4,500 per month for 10,000 square feet of space plus a pro rata
share of expenses which aggregated $18,000 for the term of the lease. The
Company has terminated the sublease and entered into a new lease with the
owner of the premises to occupy 20,000 square feet at the same location. See
"Business -- Facilities."
CONSULTING AGREEMENT
During the fiscal year ended March 31, 1995, the Company paid $35,136 to
Purchase Marketing Associates, a consulting company whose president, Manuel
N. Wilson, was a former shareholder, director and promoter of the Company,
pursuant to a consulting agreement between the Company and such entity. The
agreement was amended on May 1, 1995 to provide for the same consulting
services to be provided for a fixed fee of $4,500 per month. The agreement
was terminated in November 1995 with payments made through January 31, 1996
aggregating $45,000.
AGREEMENTS WITH REPRESENTATIVE
The Company expects to enter into a Consulting Agreement with the
Representative upon the closing of the Offering, whereby the Representative
will provide advisory services for a period of 36 months for an aggregate fee
of $104,600 payable at the closing out of the proceeds of the Offering. In
addition, the Representative shall have the right, for a period of three
years, after the closing of the Offering, to appoint a designee to serve as
an advisor to the Board of Directors. The Company has further agreed to
appoint the Representative as the Company's warrant solicitation agent
pursuant to which the Representative will receive a 8% fee upon exercise of
the Warrants, subject to NASD guidelines.
EXCHANGE OF SHARES FOR WARRANTS
In August, 1996, the Company issued to six shareholders an aggregate of
2,883,332 Class A Warrants in exchange for the cancellation of 1,441,666
shares of Common Stock owned by such shareholders.
31
<PAGE>
DESCRIPTION OF SECURITIES
The following descriptions of the Company's securities are qualified in
all respects by reference to the Certificate of Incorporation and By-laws of
the Company, and the warrant agreement (the "Warrant Agreement"), dated
_______________, 1996, by and between the Company and Continental Stock
Transfer & Trust Company (the "Warrant Agent"), copies of which are filed as
Exhibits to the Registration Statement of which this prospectus is a part.
The Certificate of Incorporation of the Company authorizes the Company to
issue up to 1,000,000 shares of preferred stock, par value $.01 per share
(the "Preferred Stock"), none of which is outstanding and 20,000,000 shares
of Common Stock, par value $.01 per share.
COMMON STOCK
As of September 30, 1996, there were 4,730,000 shares of Common Stock
outstanding. There will be 6,030,000 shares of Common Stock outstanding after
giving effect to the sale of the shares of Common Stock offered hereby. The
holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders. Subject to
preferential rights with respect to any outstanding Preferred Stock, holders
of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor.
In the event of a liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities and satisfaction of preferential rights and have
no rights to convert their Common Stock into any other securities. All shares
of Common Stock have equal, non-cumulative voting rights, and have no
preference, exchange, preemptive or redemption rights. The outstanding shares
of Common Stock are, and the Common Stock to be outstanding upon completion
of the Offering will be, fully paid and nonassessable. See "Capitalization."
WARRANTS
Each Class A Warrant entitles its holder, commencing two years from the
Effective Date, to purchase one share of Common Stock at an exercise price of
$6.00 per share. The Warrants expire on _____________, 2003, seven years
after the Effective Date.
The Registration Statement of which this Prospectus is a part may remain
effective for a period of nine months following the Effective Date although
the Warrants will not be exercisable until one year after the Effective Date.
The Warrants are redeemable by the Company at a price of $.05 per
Redeemable Warrant, commencing one year from the Effective Date and prior to
their expiration, on 30 days prior written notice to the registered holders
of the Warrants, provided the average closing price per share of the Common
Stock (if the Common Stock is then traded on a national securities exchange
or quoted on Nasdaq), for a period of 20 consecutive trading days ending not
more than three days prior to the date of any redemption notice equals or
exceeds at least $8.00, subject to adjustment, for the Class A Warrants. The
Warrants shall be exercisable until the close of the business day preceding
the date fixed for redemption. In addition, subject to the rules of the NASD,
the Company has agreed to engage the Representative as warrant solicitation
agent, in connection with which it would be entitled to a 8% fee upon
exercise of the Warrants. See "Underwriting."
The Warrants will be issued pursuant to the Warrant Agreement by the
Warrant Agent and will be evidenced by warrant certificates in registered
form.
The exercise price of the Warrants and the number and kind of shares of
Common Stock or other securities and property issuable upon exercise of the
Warrants are subject to adjustment in certain circumstances, including a
stock split of, stock dividend on, or a subdivision, combination or
recapitalization of the Common Stock. Additionally, an adjustment will be
made upon the sale of all or substantially all of the assets of the Company
in order to enable holders of Warrants to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable
in such event by a holder of the number of shares of Common Stock that might
otherwise have been purchased upon exercise of the Warrant.
32
<PAGE>
The Warrants do not confer upon the holder any voting or any other rights
of a stockholder of the Company. Upon notice to the Warrantholders, the
Company has the right to reduce the exercise price or extend the expiration
date of the Warrants.
Warrants may be exercised upon surrender of the Warrant certificate
evidencing those Warrants on or prior to the respective expiration date (or
earlier redemption date) of the Warrants at the offices of Continental Stock
Transfer & Trust Co., the warrant agent, with the form of "Election to
Purchase" on the reverse side of the warrant certificate completed and
executed as indicated, accompanied by payment of the full exercise price (by
certified check payable to the order of the warrant agent) for the number of
Warrants being exercised.
No Warrant will be exercisable or redeemable unless at the time of
exercise the Company has filed with the Commission a current prospectus
covering the issuance of shares of Common Stock issuable upon exercise of the
Warrant and the issuance of shares has been registered or qualified or is
deemed to be exempt from registration or qualification under the securities
laws of the state of residence of the holder of the Warrant. The Company has
undertaken to use its best efforts to maintain a current prospectus relating
to the issuance of shares of Common Stock upon the exercise of the Warrants
until the expiration of the Warrants, subject to the terms of the Warrant
Agreement. While it is the Company's intention to maintain a current
prospectus, there is no assurance that it will be able to do so. The Company
anticipates that this Registration Statement will remain effective for nine
months following the Effective Date. See "Risk Factors -- Current Prospectus
and State Blue Sky Registration Required to Exercise Warrants."
The Company may reduce the exercise price or extend the exercise of the
Warrants provided a current prospectus reflecting such changed terms is in
effect prior to the exercise of any Warrants. The Company will insure that
information regarding such impending change is disseminated to Warrantholders
and the public in an adequate and timely manner. In the event that such
action is taken, the Company must file a new registration statement and have
it declared effective prior to any exercise of any Warrants.
No fractional shares will be issued upon exercise of the Warrants.
However, if a Warrantholder exercises all Warrants then owned of record by
him or her, the Company will pay to that Warrantholder, in lieu of the
issuance of any fractional share which otherwise issuable, an amount in cash
based on the market value of the Common Stock on the last trading day prior
to the exercise date.
Upon the exercise of the Warrants, the Company will pay the Representative
a commission of 8% of the aggregate exercise price if (i) the market price of
the Company's shares of Common Stock on the date the Warrant is exercised is
greater than the then exercise price of the Warrants; (ii) the exercise of
the Warrant was solicited by the Representative; (iii) the Warrant is not
held in a discretionary account; (iv) disclosure of compensation arrangements
was made both at the time of the Offering and at the time of exercise of the
Warrant; (v) the holder of the Warrant, has stated in writing that the
exercise was solicited and designated in writing by the soliciting
broker-dealer; and (vi) the solicitation of the exercise of the Warrant was
not in violation of rule 10b-6, promulgated under the Exchange Act. No fee
will be paid to the Representative on Warrants exercised within one year of
the Effective Date or on Warrants voluntarily exercised at any time without
solicitation by the Representative.
In connection with the solicitation of Warrant exercises, unless granted
an exemption by the Commission from Rule 10b-6, the Representative and any
other soliciting broker-dealer will be prohibited from engaging in any
market-making activities with respect to the Company's securities for the
period commencing either two or nine business days (depending on the market
price of the Company's shares of Common Stock, prior to any solicitation
activity of the exercise of Warrants until the later of (i) the termination
of such solicitation activity or (ii) the termination (by waiver or
otherwise) of any right which the Representative or any other soliciting
broker-dealer may have to receive a fee for the exercise of Warrants
following such solicitation. As a result, the Representative or other
soliciting broker-dealer may be unable to provide a market for the Company's
securities, should it desire to do so, during certain periods which the
Warrants are exercisable.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
1,000,000 shares of Preferred Stock with designations, rights and preferences
determined from time to time by its Board of Directors.
33
<PAGE>
Accordingly, the Company's Board of Directors is empowered, without
shareholder approval, to issue Preferred Stock with dividend, liquidation,
conversion, voting or other rights that could adversely affect the voting
power or other rights of the holders of the Common Stock. In the event of
issuance, the Preferred Stock could be used, under certain circumstances, as
a method of discouraging, delaying or preventing a change in control of the
Company. Although the Company has no present intention to issue any shares of
its Preferred Stock, there can be no assurance that it will not do so in the
future.
UNDERWRITERS' WARRANT
In connection with this Offering, the Company has agreed to sell to the
Underwriters, or its designees, for $10, the Underwriters' Warrant to
purchase 130,000 shares of Common Stock and /or 130,000 Class A Warrants. The
Underwriters' Warrant is exercisable for a four-year period commencing one
year from the Effective Date of this Offering and entitles the Underwriters
to purchase each share of Common Stock or Warrant covered thereby at an
exercise price equal to 165% of the offering price per share of Common Stock
or Warrant, subject to adjustment in certain events. The Underwriters'
Warrant may not be sold, transferred, assigned or hypothecated except to
officers of the underwriters or members of the selling group or any officer
or partner of any member of the selling group. The prices payable for the
securities upon exercise of the Underwriters' Warrant and the number of
securities underlying the Underwriters' Warrant are subject to adjustment to
prevent dilution. See "Underwriting."
OPTIONS
As of the date of this Prospectus, no options have been granted. See
"Management -- Stock Option Plan."
TRANSFER AND WARRANT AGENT
The transfer and warrant agent for the Common Stock is Continental Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Common Stock.
Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices.
Upon completion of this Offering, the Company will have approximately
6,030,000 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option). Of these shares, the 1,300,000 shares
sold in this Offering will be freely tradeable without restriction (except as
to affiliates of the Company) or further registration under the Act.
Each of the Company's current shareholders is expected to enter into an
agreement (the "Lock-Up Agreement") not to offer, sell, contract to sell or
grant any option to purchase or otherwise dispose of the remaining 4,730,000
shares of Common Stock, without the prior written consent of the
Representative, (i) with respect to the 4,510,000 shares owned by the
Company's officers and three of its directors, for a period of 24 months
after the Effective Date, and (ii) with respect to the remaining 220,000
shares owned by Selling Securityholders, for a period of 18 months after the
Effective Date. Each of the Company's warrantholders is expected to enter
into a Lock-Up Agreement for a period of 24 months after the Effective Date.
Following expiration or release from the Lock-Up Agreement, (i) 4,510,000
shares will be eligible for immediate sale, subject to compliance with Rule
144 volume limitations and (ii) 220,000 shares, and 4,158,332 Class A
Warrants and the shares underlying such warrants, all of which are being
registered for sale pursuant to the Selling Securityholders' Prospectus, will
be eligible for immediate sale. The Representative will not release the
lock-up prior to the exercise or expiration of the Over-Allotment Option.
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned restricted securities within the
meaning of Rule 144 ("Restricted Shares") for at least two years, including
the holding period of any securities which converted into the Restricted
Shares and including the holding period of any prior owner except an
affiliate of the Company, would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of one percent of
the then outstanding shares of Common Stock or the average weekly trading
volume of the Common Stock reported during the four calendar weeks pre-
34
<PAGE>
ceding such sale. Sales under Rule 144 are also subject to certain manner of
sale provisions, notice requirements and the availability of current public
information about the Company. Any person (or persons whose shares are
aggregated with such person) who is not deemed to have been an affiliate of
the Company at any time during the 90 days preceding a sale, and who has
beneficially owned shares for at least three years (including any period of
ownership of preceding non-affiliated holders), would be entitled to sell
such shares under Rule 144(k) without regard to the volume limitations,
manner of sale provisions, public information requirements or notice
requirements.
Up to 130,000 shares of Common Stock and/or 130,000 Warrants may be
purchased by the Underwriters through the exercise of the Underwriters'
Warrant. Such shares may be freely tradeable, provided that the Company
satisfies certain securities registration and qualification requirements in
accordance with the terms of the Underwriters' Warrant. See "Underwriting."
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") between the Company and the Underwriters, the
Company has agreed to sell to the Underwriters, and the Underwriters,
severally and not jointly, have agreed to purchase, on a "firm commitment"
basis, all of the 1,300,000 shares of Common Stock and the 1,300,000 Warrants
offered hereby as follows:
Name Shares and Warrants
------ -------------------
Maidstone Financial Inc. ........................
The Harriman Group, Inc. ........................
-------------------
Total ........................................ 1,300,000
===================
The Underwriting Agreement provides that the obligations of the Underwriter
are subject to certain conditions precedent including the current
effectiveness of the Registration Statement, delivery of an opinion of
Company's counsel, a "comfort letter" from the Company's accountants, the
delivery of an officer's certificate certifying that all representations and
warranties are true and correct, the appointment of the Transfer and Warrant
Agent and NASD approval of the Underwriters' compensation. The Underwriting
Agreement also provides that the Underwriters will be obligated to purchase
all of the shares of Common Stock and Warrants if any are purchased.
The Underwriters have advised the Company that they propose to offer the
shares of Common Stock and Warrants to the public at the offering prices set
forth on the cover page of this Prospectus and that the Underwriters may
allow to certain dealers, who are members of the National Association of
Securities Dealers, concessions not in excess of $ _______ per share of
Common Stock and $______ per Class A Warrant. After the Offering, the public
offering price and concessions and discounts and other offering terms may be
changed.
The Company has granted an option to the Underwriters exercisable during
the 30-day period from the date of this Prospectus, to purchase up to a
maximum of 195,000 additional shares of Common Stock and/or 195,000
additional Class A Warrants solely to cover over-allotments, if any, in the
sale of the shares of Common Stock and Warrants, at the Offering price, less
the underwriting discounts and commission set forth on the cover page of this
Prospectus.
The Company has agreed to pay the Representative a non-accountable expense
allowance equal to 3% of the gross proceeds of the Offering, including the
proceeds of the Over-Allotment Option, if and to the extent exercised, of
which $30,000 has been paid to date. The Underwriting Agreement provides for
reciprocal indemnification between the Company and the Underwriter against
certain liabilities in connection with this Offering, including liabilities
under the Securities Act of 1933, as amended (the "Act").
As additional compensation in connection with this Offering the Company
has agreed to sell to the Underwriters, for nominal consideration, the
Underwriters' Warrants to purchase 130,000 shares of Common Stock and/or
Warrants. The Underwriters' Warrant is exercisable for a five-year period
commencing one year from the closing of this Offering and entitles the
Underwriters to purchase each share of Common Stock and Warrant covered
thereby at an exercise price equal to 165% of the initial public Offering
price per share of Common Stock and Warrant, subject to adjustment in certain
events. The Underwriters' Warrant may not be sold, trans-
35
<PAGE>
ferred, assigned or hypothecated except to officers of the underwriter or
members of the selling group or any officer or partner of any member of the
selling group. The prices payable for the securities upon exercise of the
Underwriters' Warrant and the number of securities underlying the
Underwriter's Warrant are subject to adjustment to prevent dilution.
For the term of the Underwriters' Warrant, the holder or holders thereof
are given, at a nominal cost, the opportunity to profit from a rise in the
market price of the shares of Common Stock subject to the Underwriter's
Warrant with a resulting dilution in the interests of other shareholders. The
Company may find it more difficult to raise additional equity capital if it
should be needed for its business while the Underwriters' Warrant is
outstanding; and at any time when the holders of the Underwriters' Warrant
might be expected to exercise such Warrant, the Company would in all
likelihood be able to obtain additional equity capital on terms more
favorable than those provided in the Underwriters' Warrant. Any profit
realized on the sale of the Underwriters' Warrant and shares of Common Stock
and Warrants subject to the Underwriters' Warrant may be deemed additional
underwriting compensation.
All of the Company's officers, three of its directors and all
warrantholders have agreed not to publicly sell, prior to 24 months from the
date hereof, any securities of the Company owned by them, without the prior
written approval of the Underwriter. The remaining Company shareholders have
agreed not to publicly sell prior to 18 months from the date hereof any
securities of the Company owned by them, without the prior written approval
of the Representative.
The Underwriting Agreement gives the Representative the right to appoint a
designee to attend all meetings of the Company's Board of Directors for a
period of three years following the closing of this Offering.
The Underwriting Agreement also provides that the Company may not issue
shares of Common Stock (other than pursuant to its 1996 Stock Option Plan)
for a period of two years following the Effective Date without the
Representative's prior written consent, which may not be unreasonably
withheld.
The Company has agreed to retain the Representative as a financial
consultant, for a period of three years from the date of this Prospectus at
an annual fee of $34,867, all of which fees (an aggregate of $104,600) will
be payable in advance on the completion of this Offering. The Underwriters
will seek out and review potential acquisition and joint venture targets for
the Company, as well as assisting the Company in responding to any
acquisitions for the Company.
The Company has agreed to indemnify the Underwriters against liabilities
incurred by the Underwriters by reason of misstatements or omissions to state
material facts in connection with the statements made in this Prospectus and
the Registration Statement of which it forms a part. The Underwriters, in
turn, have agreed to indemnify the Company against liabilities incurred by
the Company by reason of misstatements or omissions to state material facts
in connection with statements made in the Registration Statement and
Prospectus based on information furnished by the Underwriters.
The foregoing does not purport to be a complete statement of the terms and
conditions of the Underwriting Agreement. Reference is made to a copy of the
Underwriting Agreement, which is an exhibit to the Registration Statement of
which this Prospectus forms a part.
DETERMINATION OF OFFERING PRICE
There is currently no public market for the Company's securities.
Consequently, the Offering price has been determined by negotiations between
the Company and the Underwriters and does not necessarily bear any
relationship to any recognized criteria of value. In their negotiations of
the Offering price, the Company and the Underwriters took into account
estimates of the business potential and earning prospects of the Company, the
present state of the Company's development and prevailing market conditions.
In this regard, greater significance was given to the business potential and
earnings prospects of the Company than was given to historical financial
information. The Offering price set forth on the cover page of this
Prospectus should not, however, be considered an indication of the actual
value of the securities of the Company. Such market price is subject to
change as a result of market conditions and other factors.
36
<PAGE>
There can be no assurance that an established trading market will develop
for the Common Stock, or, if such market develops and continues, that the
prevailing market price for such securities will bear a favorable
relationship to the Offering price of the Common Stock. See "Risk Factors --
Lack of Market; Possible Volatility of Stock Price; Arbitrary Determination
of Offering Price."
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon
for the Company by Parker Duryee Rosoff & Haft, A Professional Corporation,
New York, New York. Gersten, Savage, Kaplowitz & Curtin, L.L.P., New York,
New York will act as counsel for the Underwriters.
EXPERTS
The financial statements of the Company as at March 31, 1996 and for each
of the years in the two-year period then ended included in this Prospectus,
have been audited by Richard A. Eisner & Company, LLP, independent certified
public accountants as set forth in their report thereon appearing elsewhere
herein. Such financial statements are included herein and in the Registration
Statement in reliance upon such report given upon the authority of said firm as
experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form SB-2 in accordance
with the provisions of the Securities Act of 1933, as amended, with respect
to the securities offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits filed
thereto. For further information, reference is made to such Registration
Statement and to the exhibits filed therewith. Statements herein contained
concerning the provisions of any document are not necessarily complete and,
in each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement. The Registration Statement and the
exhibits may be inspected without charge at the offices of the Commission
and, upon payment to the Commission of prescribed fees and rates, copies of
all or any part thereof may be obtained from the Commission's principal
office at the Public Reference Section, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 or at the Northeast Regional Office, 7
World Trade Center, New York, New York 10048.
37
<PAGE>
COMMUNITY CARE SERVICES, INC.
- I N D E X -
PAGE
NUMBER
----------
REPORT OF INDEPENDENT AUDITORS ................... F-2
BALANCE SHEETS ................................... F-3
STATEMENTS OF OPERATIONS ......................... F-4
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY .... F-5
STATEMENTS OF CASH FLOWS ......................... F-6
NOTES TO FINANCIAL STATEMENTS .................... F-7
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Community Care Services, Inc.
We have audited the accompanying balance sheet of Community Care Services,
Inc. as at March 31, 1996 and the related statements of operations, changes
in stockholders' equity and cash flows for the years ended March 31, 1996 and
March 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the financial position of Community Care Services,
Inc. at March 31, 1996, and the results of its operations and its cash flows
for the years ended March 31, 1996 and March 31, 1995, in conformity with
generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
June 6, 1996
F-2
<PAGE>
COMMUNITY CARE SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1996 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
-------
Current assets:
Cash .......................................................... $ 190,429 $ 163,113
Accounts receivable, trade - net (Notes D and F) .............. 2,808,265 2,955,638
Inventories (Notes B and F) ................................... 441,085 523,227
Prepaid expenses .............................................. 4,377 18,452
------------ ------------
Total current assets ......................................... 3,444,156 3,660,430
Rental equipment, less accumulated depreciation of $418,760 and
$485,211, respectively (Note B) ............................... 1,284,034 1,233,802
Property and equipment - net (Notes B and E) .................... 218,410 213,206
Covenants not to compete - net (Note B) ......................... 75,000 56,250
Accounts and customer lists - net (Note B) ...................... 139,972 134,970
Security deposits ............................................... 35,805 35,537
Deferred offering costs (Note C) ................................ 192,738 292,481
Deferred debt costs ............................................. 77,000 63,000
------------ ------------
TOTAL ......................................................... $5,467,115 $5,689,676
============ ============
LIABILITIES
-------------
Current liabilities:
Accounts payable and accrued expenses ......................... $2,179,432 $2,407,497
Current portion of long-term debt (Note F) .................... 691,123 553,053
Note payable - bank (Note G) .................................. 200,000 200,000
Due to Adam Health Care Equipment Corp. (Note A) .............. 1,170,985 1,170,985
Income taxes payable (Note L) ................................. 181,299 236,506
------------ ------------
Total current liabilities .................................... 4,422,839 4,568,041
Long-term debt (Notes D and F) .................................. 931,512 883,283
Deferred income taxes payable (Note L) .......................... 9,000 9,000
------------ ------------
Total liabilities .......................................... 5,363,351 5,460,324
------------ ------------
Commitments and contingencies (Notes A, C and K)
STOCKHOLDERS' EQUITY
---------------------
(Note H)
Common stock, $.01 par value; authorized 20,000,000 shares,
issued and outstanding 4,730,000 shares at March 31, 1996 and
June 30, 1996 ................................................. 47,300 47,300
Preferred stock, $.01 par value; authorized 1,000,000 shares,
none issued
Additional paid-in capital ...................................... 327,820 327,820
Accumulated deficit ............................................. (271,356) (145,768)
------------ ------------
Total stockholders' equity ................................. 103,764 229,352
------------ ------------
TOTAL ...................................................... $5,467,115 $5,689,676
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-3
<PAGE>
COMMUNITY CARE SERVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
Year Ended March 31, June 30,
----------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Net revenues ..................... $6,181,757 $2,940,892 $2,487,381 $1,042,240
------------ ------------- ------------ ------------
Costs and expenses:
Cost of net revenues:
Product and supply costs .... 2,084,306 1,014,181 1,020,657 367,042
Rental equipment depreciation 251,445 145,815 82,701 53,958
------------ ------------- ------------ ------------
2,335,751 1,159,996 1,103,358 421,000
Selling, general and
administrative expenses. .... 2,660,071 1,621,777 1,009,743 479,320
Provision for doubtful accounts 298,811 125,000 42,795 52,499
Amortization of intangible
assets ...................... 107,966 245,012 43,024 23,753
------------ ------------- ------------ ------------
5,402,599 3,151,785 2,198,920 976,572
------------ ------------- ------------ ------------
Operating income (loss) ....... 779,158 (210,893) 288,461 65,668
Interest expense ................. 155,233 111,798 64,201 26,059
------------ ------------- ------------ ------------
Income (loss) before provision for
income taxes ................... 623,925 (322,691) 224,260 39,609
Provision for income taxes ....... 196,000 98,672
------------ ------------- ------------ ------------
NET INCOME (LOSS) ................ $ 427,925 $ (322,691) $ 125,588 $ 39,609
============ ============= ============ ============
Per share data (Note B):
Net income (loss) per common
share ....................... $ .09 $ (.07) $ .03 $ .01
============ ============= ============ ============
Weighted average number of
shares outstanding .......... 4,730,000 4,510,000 4,730,000 4,730,000
============ ============= ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-4
<PAGE>
COMMUNITY CARE SERVICES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(NOTE H)
<TABLE>
<CAPTION>
Common Stock
---------------------------
Number Additional
of Paid-in Accumulated
Shares Amount Capital Deficit Total
------------- ---------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance -- March 31, 1994 ............ 2,050,000 $ 20,500 $ 29,500 $(376,590) $(326,590)
Net (loss) ........................... (322,691) (322,691)
------------- ---------- ------------ ------------- ------------
Balance -- March 31, 1995 ............ 2,050,000 20,500 29,500 (699,281) (649,281)
Net income ........................... 427,925 427,925
Warrants issued ...................... 12,750 12,750
Issuance of common stock ............. 1,541,666 15,417 296,953 312,370
------------- ---------- ------------ ------------- ------------
Balance -- March 31, 1996 ............ 3,591,666 35,917 339,203 (271,356) 103,764
Conversion of common stock to warrants (1,441,666) (14,417) 14,417 - 0 -
Stock split of remaining shares of
common stock ........................ 2,580,000 25,800 (25,800) - 0 -
Net income for the three months ended
June 30, 1996 ....................... 125,588 125,588
------------- ---------- ------------ ------------- ------------
BALANCE -- JUNE 30, 1996
(UNAUDITED) ......................... 4,730,000 $ 47,300 $327,820 $(145,768) $ 229,352
============= ========== ============ ============= ============
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-5
<PAGE>
COMMUNITY CARE SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
Year Ended March 31, June 30,
----------------------------- --------------------------
1996 1995 1996 1995
------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
(Unaudited)
Cash flows from operating activities:
Net income (loss) ........................ $ 427,925 $(322,691) $ 125,588 $ 39,609
Adjustments to reconcile net income (loss) to
net cash provided by operating
activities:
Depreciation and amortization expense . 363,676 396,696 117,192 77,713
Amortization of deferred unit cost and
debt discount ....................... 8,000 16,124
Disposal of rental equipment .......... 29,600 77,000 8,750
Loss on disposal of equipment ......... 3,833
Provision for doubtful accounts ....... 298,811 125,000 42,795 52,499
Interest added to loan balance ........ 10,209
Deferred income taxes payable ......... 9,000
Changes in operating assets and liabilities:
(Increase) in accounts receivable --
trade ............................ (2,434,237) (182,525) (190,168) (318,775)
(Increase) in inventories ........... (308,930) (68,149) (82,142) (22,221)
(Increase) decrease in prepaid expenses 21,145 (22,668) (14,075) (5,263)
(Increase) decrease in security deposits (19,268) 268
Increase in accounts payable and accrued
expenses ......................... 1,815,760 582,690 228,065 245,261
Increase in income taxes payable .... 181,299 55,207 488
------------- ------------ ----------- -----------
Net cash provided by operating
activities ..................... 396,614 595,562 307,604 69,311
------------- ------------ ----------- -----------
Cash flows from investing activities:
Acquisition of rental equipment .......... (819,331) (415,712) (43,345) (190,524)
Acquisition of property and equipment .... (51,962) (29,460) (3,408) (8,314)
------------- ------------ ----------- -----------
Net cash (used in) investing activities (871,293) (445,172) (46,753) (198,838)
------------- ------------ ----------- -----------
Cash flows from financing activities:
Proceeds of bank borrowings .............. 200,000 80,000 100,606
Principal repayments of bank borrowings .. (168,750) (250,000)
Proceeds from notes payable to suppliers . 106,338
Principal repayments of notes payable to
suppliers ............................. (241,337) (188,424)
Proceeds from debt offering .............. 637,500
Deferred debt costs ...................... (84,000)
Deferred offering costs .................. (172,738) (20,000) (99,743)
Proceeds from issuance of common stock ... 312,370 22,000
------------- ------------ ----------- -----------
Net cash provided by (used in)
financing activities ........... 589,383 (190,000) (288,167) 122,606
------------- ------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH ............ 114,704 (39,610) (27,316) (6,921)
Cash at beginning of year .................. 75,725 115,335 190,429 75,725
------------- ------------ ----------- -----------
CASH AT END OF YEAR ........................ $ 190,429 $ 75,725 $ 163,113 $ 68,804
============= ============ =========== ===========
Supplementary disclosures of cash flow
information:
Cash paid during the year:
Interest .............................. $ 60,792 $ 32,543 $ 32,145 $ 573
Income taxes .......................... 6,189 43,472
</TABLE>
During the year ended March 31, 1996 the Company purchased property and
equipment with a note of $150,000. Also during the year ended March 31, 1996
suppliers have agreed to convert $726,474 of trade payables into notes
payable.
The accompanying notes to financial statements are an integral part hereof.
F-6
<PAGE>
COMMUNITY CARE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE THREE MONTHS ENDED
JUNE 30, 1996 AND JUNE 30, 1995)
(NOTE A) -- ORGANIZATION:
[1] The Company was incorporated in July 1992 in the State of New York as
Community Support Services, Inc. During July 1992, it changed its name to
Community Care Services, Inc. (the "Company"). The Company operates a home
health care business which sells and rents durable medical equipment and
sells medical supplies primarily in the five boroughs of New York City, and
Westchester, Rockland and Nassau Counties, New York, as well as northern New
Jersey and southern Connecticut.
From inception through March 31, 1993, the Company had minimal activity.
In April 1993, the Company purchased certain assets and business of Adam
Health Care Equipment Corp. ("Adam"), a company in the same industry, for
$1,500,000 (the "Purchase Price"). In addition, the Company paid Adam an
additional $86,000 representing an adjustment to the Purchase Price mainly
for used equipment and parts. The Company paid $150,000 at the execution of
this agreement and $300,000 at the closing. $1,000,000 of the balance was to
be paid in equal quarterly installments evidenced by promissory notes with
interest at 6% per annum and a final payment due March 15, 1995. The
remaining $50,000 would be paid following the completion of a full Medicare
billing cycle.
In 1993, the Company commenced an action against Adam and its principals
arising out of the acquisition of certain assets of Adam by the Company in
April 1993. The complaint alleges that the defendants made numerous
misrepresentations relating to the business previously conducted by Adam. The
complaint seeks recovery of damages of $1,500,000, additional punitive
damages, the reduction of the original purchase price or rescission of the
original purchase agreement. The defendants have asserted counterclaims
against the Company. The counterclaims seek the payment of the unpaid
purchase price of $1,050,000 and collection expense of over $175,000.
Defendants also allege various additional causes of action, claiming
plaintiffs converted or interfered with the collection of property owned or
due to defendants and seek damages of over $7,000,000, including $5,000,000
in punitive damages. The Company believes it has meritorious defenses to the
counterclaims. However, there can be no assurance that the Company will be
successful in recovering damages for its claims or in defending itself
against the counterclaims. A judgment against the Company as a result of the
counterclaims could have a material adverse effect on its business. The
action is still in its final pre-trial stages and the Company expects a trial
date to be set shortly.
[2] The Company is in the process of raising additional funds through an
initial public offering of securities (the "IPO"). If the IPO is not
consummated, the Company intends to obtain additional bank financing.
However, there can be no guarantee that such financing will be available and
if available that these funds can be obtained on favorable terms.
(NOTE B) -- SIGNIFICANT ACCOUNTING POLICIES:
Significant accounting policies in the preparation of the financial
statements are as follows:
[1] Revenue recognition:
Revenues are recognized on the date services and related products are
provided to patients and are recorded at amounts estimated to be received
under reimbursement arrangements with third party payors, including private
insurers, Medicare and Medicaid.
[2] Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist primarily of medical supplies sold directly to patients
for use in their home.
[3] Rental equipment:
F-7
<PAGE>
COMMUNITY CARE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to the three months ended
June 30, 1996 and June 30, 1995) - (Continued)
(NOTE B) -- Significant Accounting Policies: - (Continued)
Rental equipment consists of medical equipment rented to patients for use
in their homes and is stated at cost. Depreciation is provided using the
straight-line method over the useful life of the equipment which is estimated
at five years.
[4] Property and equipment:
Property and equipment are stated at cost. The Company computed
depreciation and amortization using the straight-line method over the useful
lives of the assets acquired which is estimated at five years.
[5] Intangible assets:
Intangible assets consist of covenants not to compete and accounts and
customer lists. The covenants are being amortized on a straight-line basis
over their contractual lives which range from two to four years. The accounts
and customer lists are being amortized using the straight-line method over
the period of expected benefit which is estimated at ten years. Intangible
assets are evaluated periodically, and adjusted if necessary, if events and
circumstances indicate that a permanent decline in value below the carrying
amount has occurred.
[6] Income taxes:
Effective August 10, 1992, the Company elected to be taxed as an S
corporation under the provisions of the Internal Revenue Code and state tax
laws. Under those provisions the Company did not pay federal corporate income
tax. However, it was subject to a limited extent, to New York State corporate
tax. The stockholders were liable for individual income taxes on the
Company's taxable income until November 1995 when the S corporation status
was automatically terminated by the sale of common stock to an ineligible
stockholder. No pro forma tax provision benefit has been presented to reflect
the Company's taxes as if it were a C corporation. The Company would have
reported net operating losses if it were a C corporation for the year ended
March 31, 1995 resulting in a deferred tax asset which would be netted
against a valuation allowance thereby providing a zero tax provision. For the
period after the termination of the S corporation tax status through June 30,
1996, a deferred tax liability has been realized because the losses incurred
as an S corporation are not available to the Company for carryforward. See
Note L in reference to tax provision.
[7] Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
[8] Per share data:
Net income per common share is based on the weighted average number of
common shares outstanding after giving retroactive effect to the conversion
of common shares for warrants and the 2.2 for 1 stock split, both effected in
August 1996. See Note H[2].
[9] Recently issued accounting pronouncements:
The Company believes that Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long- Lived Assets and
for Long-Lived Assets to be Disposed of" and SFAS No. 123, "Accounting for
Stock-Based Compensation" issued by the Financial Accounting Standards Board
will not have a material impact on the Company's financial position and
results of operations. In accordance with SFAS No.
F-8
<PAGE>
COMMUNITY CARE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to the three months ended
June 30, 1996 and June 30, 1995) - (Continued)
(NOTE B) -- Significant Accounting Policies: - (Continued)
123 the Company expects to continue to account for employee stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and beginning in fiscal 1997 will
make the appropriate disclosures of pro forma net income (loss) and earnings
(loss) per share.
[10] Interim financial information:
The accompanying financial statements as of June 30, 1996 and for the
three-month periods ended June 30, 1996 and June 30, 1995 are unaudited. In
the opinion of management, they reflect all adjustments (consisting only of
normal and recurring adjustments) necessary for a fair presentation of the
Company's financial position, results of operations and cash flows.
The results of operations and cash flows for the three months ended June
30, 1996 are not necessarily indicative of the results that may be expected
for the full year ending March 31, 1997.
(NOTE C) -- PROPOSED PUBLIC OFFERING:
The Company has signed a letter of intent with respect to a proposed
public offering of the Company's securities. There is no assurance that such
offering will be consummated. In connection therewith the Company anticipates
incurring substantial expenses which, if the offering is not consummated,
will be charged to expense.
(NOTE D) -- ACCOUNTS RECEIVABLE:
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1996 1996
------------ ------------
<S> <C> <C>
Billed .............................. $1,871,154 $2,069,620
Unbilled ............................ 1,339,166 1,266,585
------------ ------------
Total ............................. 3,210,320 3,336,205
Less allowance for doubtful accounts . 402,055 380,567
------------ ------------
$2,808,265 $2,955,638
============ ============
</TABLE>
Unbilled receivables represent delivered products or services rendered as
of the balance sheet date which will be billed when the Company obtains the
physician's written prescription. Management evaluates the adequacy of the
allowance based on the specific payor and general economic conditions
including the aging of the account and the nature of the payor (private or
government agencies).
(NOTE E) -- PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1996 1996
----------- ----------
<S> <C> <C>
Machinery and equipment ....................... $ 50,697 $ 54,106
Security system ............................... 3,843 3,843
Furniture and fixtures ........................ 59,613 59,613
Vans .......................................... 5,447 5,447
Leasehold improvements ........................ 125,943 125,943
----------- ----------
245,543 248,952
Less accumulated depreciation and amortization . 27,133 35,746
----------- ----------
$218,410 $213,206
=========== ==========
</TABLE>
F-9
<PAGE>
COMMUNITY CARE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to the three months ended
June 30, 1996 and June 30, 1995)
- (Continued)
(NOTE F) -- LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1996 1996
----------- -----------
<S> <C> <C>
Notes payable to suppliers - payable at monthly intervals thru June
1997, with interest at 9% to 13% collateralized by inventory and
accounts receivable ................................................ $ 741,476 $ 553,053
Notes payable bearing interest at 8%, due August 1997 or upon closing
of public offering, face amount $637,500. The effective interest
rate is 9.53% ...................................................... 625,750 627,874
Loans payable to stockholders and affiliates - noninterest bearing
due the earlier of an IPO or due on demand after July 1, 1997 ...... 255,409 255,409
----------- -----------
Total ............................................................. 1,622,635 1,436,336
Less current maturities ............................................. 691,123 553,053
----------- -----------
$ 931,512 $ 883,283
=========== ===========
</TABLE>
(NOTE G) -- NOTE PAYABLE - BANK:
The note payable - bank is collateralized by personal guarantees of
certain stockholders, former stockholders and an affiliated company and a
$200,000 certificate of deposit of a former stockholder. The loan bears
interest at 1% above prime and is due on demand.
(NOTE H) -- STOCKHOLDERS' EQUITY:
[1] During April 1995, the Company issued 200,000 common shares for a
purchase price of $22,000.
During November 1995, the Company issued 841,666 common shares for an
aggregate price of $101,000. The net proceeds of this transaction were
$77,870.
During January 1996, the Company issued 500,000 common shares for an
aggregate price of $250,000. The net proceeds of this transaction were
$212,500.
[2] During April 1995, the Board of Directors authorized the changes and
increases of the Company's shares to reflect a change of the Company's no par
value common stock to $.01 par value and their exchange at the rate of one
share of no par value common stock for 13,666 2/3 shares of $.01 par value.
The Board of Directors also authorized the common stock $.01 par value to
increase by an additional 7,266,667 shares and authorized preferred stock
$.01 par value to increase to 1,000,000 shares. In August 1996 the Company
exchanged 1,441,666 shares of common stock for 2,883,332 Class A warrants and
then issued a 2.2 for 1 stock dividend on the remaining outstanding shares.
All references in the accompanying financial statements to the number of
shares and per share amounts reflect these changes.
[3] In April 1996, the Company amended its Certificate of Incorporation to
increase the number of authorized shares of common stock from 10,000,000 to
20,000,000 shares.
[4] During 1996, the Company adopted a 1996 Stock Option Plan (the "Plan")
which provides for the granting of options to purchase up to 603,000 common
shares to officers, employees, directors and consultants. Options granted may
be either Incentive Stock Options within the meaning of the Internal Revenue
Code or Nonstatutory Stock Options. The Plan is administered by the Board of
Directors or by a committee consisting of at least two persons chosen by the
Board of Directors, which determines to whom options will be granted and will
determine, subject to the terms of the Plan, the number, the exercise period
and other provisions of such options.
F-10
<PAGE>
COMMUNITY CARE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to the three months ended
June 30, 1996 and June 30, 1995) - (Continued)
(NOTE H) -- Stockholders' Equity: - (Continued)
Members of the committee (or all of the members of the Board of Directors,
if no committee is established) shall not be entitled to receive
discretionary grants of options under the Plan, but shall automatically be
granted, on the first day of each fiscal year, Nonstatutory Stock Options to
purchase 1,000 shares of common stock.
[5] In connection with the issuance of the 8% notes payable, the Company
issued warrants for the purchase of 1,275,000 shares of common stock at a
purchase price of $7.50 per share; exercisable commencing February 1997 to
February 2001. Upon closing of the proposed public offering the warrants will
be exchanged into an equal number of Class A warrants which may be sold
pursuant to the offering.
(NOTE I) -- RELATED PARTY:
During the year ended March 31, 1995, the Company entered into an
agreement with another entity which is owned by one of the stockholders of
the Company, whereby the entity acted as a nonexclusive agent to represent
the Company with potential managed care organizations.
On May 1, 1995, the Company entered into a new agreement with this entity,
whereby the entity was to provide the same services as the above agreement
for a fixed fee of $4,500 per month. The agreement was terminated in November
1995 with payments to be made through January 1996.
The amounts expensed were $45,000 and $35,136 for the years ended March
31, 1996 and March 31, 1995, respectively.
(NOTE J) -- CONCENTRATION OF RISK:
Revenues from principal sources are as follows:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
March 31, June 30,
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Medicare ........................... 35.4% 42.9% 32.3% 42.8%
Medicaid ........................... 36.4 34.0 29.6 31.7
Private insurance and other
nongovernment agencies ............ 28.2 23.1 38.1 25.5
-------- -------- -------- --------
Total ............................ 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ========
</TABLE>
The Company derives the majority of its revenues from reimbursements by
third-party payors, typically invoicing and collecting payments directly from
the third-party payor.
During the years ended March 31, 1996 and March 31, 1995 and for the three
months ended June 30, 1996 and June 30, 1995, the Company's five largest
sources of referral accounted for approximately 52%, 37%, 71% and 40% of the
Company's total revenue, respectively.
Reimbursements can be influenced by the financial instability of private
third-party payors and the budget pressures and cost shifting by governmental
payors. A reduction in coverage or reimbursement rates by third-party payors
could have a material adverse effect on the Company's results of operations.
The Company, like other Medicaid and Medicare providers, is subject to
governmental audits of its Medicaid and Medicare reimbursement claims. As a
provider of services, under the Medicaid and Medicare programs, the Company
is also subject to the Medicaid and Medicare fraud and abuse laws.
F-11
<PAGE>
COMMUNITY CARE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to the three months ended
June 30, 1996 and June 30, 1995) - (Continued)
(NOTE J) -- Concentration of Risk: - (Continued)
The percentage of accounts receivable is as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1996 1996
------------- ------------
<S> <C> <C>
Medicaid ............................................. 34% 34%
Medicare ............................................. 32 31
Private insurance and other nongovernment agencies ... 34 35
------------- ------------
100% 100%
============= ============
</TABLE>
(NOTE K) -- COMMITMENTS:
[1] Lease:
During January 1996, the Company became obligated under a long-term lease
agreement for its office and warehouse facilities. In addition to the basic
rental, the lease provides for increases due to real estate taxes. Minimum
future obligations on the lease are as follows:
Year Ending
March 31,
--------------
1997 ......... $114,000
1998 ......... 114,000
1999 ......... 118,500
2000 ......... 132,000
Later years .. 99,000
----------
Total ...... $577,500
==========
Furthermore, the Company leases office space on a month-to-month basis.
The rent expense was $81,969, $69,156, $388,800 and $12,030 for the years
ended March 31, 1996 and March 31, 1995 and for the three-month periods ended
June 30, 1996 and June 30, 1995, respectively.
[2] Employment agreement:
Upon consummation of the proposed public offering, the Company will enter
into an employment agreement with its President, who is also its Chief
Executive Officer and Chief Financial Officer. The agreement will have a
three-year term which renews for an additional year on each anniversary of
the agreement, and provides for an annual base compensation of $150,000. A
noncompetition provision covering the term of the agreement plus one year
following termination is also included.
Upon consummation of the proposed public offering, the Company will also
enter into an employment agreement with its Chief Operating Officer. The
agreement will have a three-year term which renews for an additional year on
each anniversary of the agreement, and provides for an annual base
compensation of $120,000. The agreement also provides for certain employee
benefits and contains a noncompetition provision covering the term of the
agreement plus one year following termination.
F-12
<PAGE>
COMMUNITY CARE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to the three months ended
June 30, 1996 and June 30, 1995) - (Continued)
(NOTE L) -- INCOME TAXES:
See Note B[6] in reference to change in S corporation status. The
estimated provision for income taxes for the period subsequent to termination
of the S corporation status through March 31, 1996 and June 30, 1996 consists
of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1996 1996
----------- ----------
<S> <C> <C>
Current ....................................................... $187,000 $98,672
Deferred tax applicable to temporary differences in
depreciation expense ......................................... 9,000
----------- ----------
Provision for income taxes .................................. $196,000 $98,672
=========== ==========
</TABLE>
The difference between the tax provision and the amount that would be
computed by applying the statutory federal income tax rate to income before
taxes is attributable to the following:
<TABLE>
<CAPTION>
March 31, June 30,
1996 1996
----------- ----------
<S> <C> <C>
Income tax provision at 34% ...................................... $212,000 $76,500
State taxes, net of federal benefit .............................. 37,000 22,172
Statutory federal income tax rate applicable to income earned
while Company was an S corporation .............................. (53,000)
----------- ----------
$196,000 $98,672
=========== ==========
</TABLE>
(NOTE M) -- SUBSEQUENT EVENTS:
During August and September 1996, the Company borrowed $300,000 with interest
at 8%. The loans are due at the earlier of October 15, 1996 or the closing of
the IPO and are collateralized by junior liens on inventory and accounts
receivables.
F-13
<PAGE>
=============================================================================
No dealer, salesperson or other person has been authorized to give any
information or make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must
not be relied upon as having been authorized by the Underwriters. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any securities, to any person in any jurisdiction where such offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor
any sale made hereunder shall under any circumstances create any implication
that there has been no change in the affairs of the Company since the date
hereof.
------
TABLE OF CONTENTS
Page
--------
Prospectus Summary ........................ 3
The Company ............................... 3
Risk Factors .............................. 6
Use of Proceeds ........................... 13
Dividend Policy ........................... 14
Capitalization ............................ 14
Dilution .................................. 15
Selected Financial Data ................... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................... 17
Business .................................. 20
Management ................................ 27
Principal Shareholders .................... 30
Certain Transactions ...................... 31
Description of Securities ................. 32
Shares Eligible for Future Sale ........... 34
Underwriting .............................. 35
Legal Matters ............................. 37
Experts ................................... 37
Additional Information .................... 37
Index to Financial Statements ............. F-1
Until ________, 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Company's securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus with
respect to their unsold allotments or subscriptions.
==============================================================================
<PAGE>
COMMUNITY CARE SERVICES, INC.
LOGO
1,300,000 SHARES OF COMMON STOCK
1,300,000 CLASS A WARRANTS
------
PROSPECTUS
------
[LOGO] MAIDSTONE FINANCIAL, INC.
[LOGO] THE HARRIMAN GROUP, INC.
______ , 1996
==============================================================================
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
SUBJECT TO COMPLETION, DATED OCTOBER 3, 1996
PROSPECTUS
COMMUNITY CARE SERVICES, INC.
4,378,332 SHARES OF COMMON STOCK AND
4,158,332 CLASS A WARRANTS
This prospectus relates to 220,000 shares (the "Selling Securityholders'
Shares") of Common Stock, $0.01 par value per share (the "Common Stock"), of
Community Care Services, Inc. (the "Company"), which are being offered for
sale by certain selling securityholders (the "Selling Shareholders"). This
prospectus also relates to 4,158,332 Class A Warrants (the "Selling
Securityholder's Warrants") and the 4,158,332 shares of Common Stock issuable
upon exercise thereof which are being offered for sale by certain Selling
Warrantholders (the "Selling Warrantholders"); the Selling Shareholders and
Selling Warrantholders are referred to collectively as the "Selling
Securityholders." Each Class A Warrant entitles the holder to purchase one
share of Common Stock at $6.00 per share for a period of seven years
commencing two years from the date of this Prospectus. (The Selling
Shareholders' Shares and Selling Warrantholders Warrants are collectively
referred to as the "Selling Securityholders' Securities"). The Selling
Shareholders may not sell or otherwise dispose of any of such Selling
Securityholders' Shares for a period of 18 months after the Effective Date
without the prior written consent of the Representative. The Selling
Warrantholders may not sell or otherwise dispose of any of the Selling
Securityholders' Warrants for a period of 24 months after the Effective Date
without the prior written consent of the Representative. See "Selling
Securityholders and Plan of Distribution."
The Company will not receive any of the proceeds from the sales of the
Selling Securityholders' Securities by the Selling Securityholders. The
Company is paying the expenses incurred in connection with the registration
for sale of the Selling Securityholders' Securities. The Selling
Securityholders' Securities may be offered from time to time by the Selling
Securityholders, their pledgees and/or their donees (who will be identified
in a prospectus supplement as appropriate), through ordinary brokerage
transactions in the over-the-counter market, in negotiated transactions or
otherwise, at market prices prevailing at the time of sale at negotiated
prices.
The Selling Securityholders, their pledgees and/or their donees, may be
deemed to be "Underwriters" as defined in the Securities Act of 1933, as
amended (the "Securities Act"). If any broker-dealers are used by the Selling
Securityholders, their pledgees and/or their donees, any commissions paid to
broker-dealers and, if broker-dealers purchase any Selling Securityholders'
Securities as principals, any profits received by such broker-dealers on the
resale of the Selling Securityholders' Securities may be deemed to be
underwriting discounts or commissions under the Securities Act. In addition,
any profits realized by the Selling Securityholders, their pledgees and/or
their donees, may be deemed to be underwriting commissions. All costs,
expenses and fees in connection with the registration of the Selling
Securityholders' Securities will be borne by the Company except for any
commission paid to broker-dealers.
The Selling Securityholders' Securities offered by the Prospectus may be
sold from time to time by the Selling Securityholders, their pledgees and/or
their donees. No underwriting arrangements have been entered into by the
Selling Securityholders. The distribution of the Selling Securityholders'
Securities by the Selling Securityholders, their pledgees and/or their
donees, may be effected in one or more transactions that may take place on
the over-the-counter market, including ordinary broker's transactions,
privately-negotiated transactions or through sales to one or more dealers for
resale of such shares as principals, at market prices prevailing at the time
of sale, at prices related to such prevailing market prices or negotiated
prices. Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by the Selling Securityholders, their pledgees and/or
their donees, in connection with sales of the Selling Securityholders'
Securities.
On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering of 1,300,000
shares of Common Stock and 1,300,000 Class A Warrants (without giving effect
to the Underwriters's over-allotment option to purchase an additional 195,000
shares of Common Stock and/or 195,000 Class A Warrants (the "Underwriters'
Over-Allotment Option") was declared effective by the Securities and Exchange
Commission. In connection with the Offering of the Common Stock and Class A
Warrants, the Company granted the Underwriters' warrants to purchase 130,000
shares of Common Stock and 130,000 Class A Warrants (the "Underwriters' Alt-1
Warrant").
------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" AND "DILUTION" ON PAGES SIX AND FIFTEEN, RESPECTIVELY, OF THIS
PROSPECTUS.
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Alt-1
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
THE OFFERING
Securities Registered (1) ..... 4,378,332 shares of Common Stock. See
"Description of Securities" and "Selling
Securityholders and Plan of Distribution."
4,158,332 Class A Warrants
Risk Factors .................. This Offering involves a high degree of
risk. See "Risk Factors."
- ------
(1) The 4,378,332 shares of Common Stock include the 4,158,332 shares of
Common Stock issuable upon exercise of the Class A Warrants being
registered herein.
Alt-2
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION
The Company has issued an aggregate of 220,000 shares of Common Stock to
the Selling Securityholders and 4,158,332 Class A Warrants that are being
offered pursuant to this Prospectus. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." The Selling Securityholders have advised the Company that
sales of the shares of Common Stock and Class A Warrants may be effected from
time-to-time by themselves, their pledgees and/or their donees, in
transactions (which may include block transactions) in the over-the-counter
market, in negotiated transactions, through the writing of options on the
Common Stock and Class A Warrants, or a combination of such methods of sale,
at fixed prices that may be changed, at market prices prevailing at the time
of sale, or at negotiated prices. The Selling Securityholders, their pledgees
and/or their donees, may effect such transactions by selling Common Stock and
Class A Warrants directly to purchasers or through broker-dealers that may
act as agents or principals. Such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the Selling
Securityholder and/or the purchasers of shares of Common Stock for whom such
broker-dealers may acts as agents or to whom they sell as principals, or
both.
The Selling Securityholders, their pledgees and/or their donees, any
broker-dealers that act in connection with the sale of the shares of Common
Stock and Class A Warrants as principals may be deemed to be " Underwriters"
within the meaning of Section 2(11) of the Securities Act and any commissions
received by them and any profit on the resale of the shares of Common Stock
and Class A Warrants as principals might be deemed to be underwriting
discounts and commissions under the Securities Act. The Selling
Securityholders' Securities being registered on behalf of the Selling
Securityholders are restricted securities while held by the Selling
Securityholders and the resale of such securities by the Selling
Securityholders is subject to prospectus delivery and other requirements of
the Act. The Selling Securityholders, their pledgees and/or their donees, may
agree to indemnify any agent, dealer or broker-dealer who participates in
transactions involving sales of the shares of Common Stock and Class A
Warrants against certain liabilities, including liabilities arising under the
Securities Act. The Company will not receive any proceeds from the sales of
the Selling Securityholders' Shares by the Selling Securityholders. Sales of
the Selling Securityholders' Securities by the Selling Securityholders, or
even the potential of such sales, would likely have an adverse effect on the
market price of the Company's Securities.
At the time a particular offer of the securities is made by or on behalf
of the Selling Securityholders, to the extent required, a prospectus
supplement will be distributed which will set forth the number of shares
being offered and the terms of the Offering, including the name or names of
any Underwriters, dealers or agents, the purchase price paid by any
Underwritersfor shares purchased from the selling stockholders and any
discounts, commissions or concessions allowed or reallowed or paid to
dealers, and the proposed selling price to the public.
Under the Security Exchange Act of 1934, as amended (the "Exchange Act"),
and the regulations thereto, any person engaged in distribution of Company
securities offered by this prospectus may not simultaneously engage in
market-making activities with respect to Company securities during the
applicable "cooling off" period prior to the commencement of such
distribution. In addition, and without limiting the foregoing, the Selling
Securityholders will be subject to applicable provisions of the Exchange Act
and the rules and regulations thereunder, including without limitation, Rules
10b-6 and 10b-7, in connection with transactions in the shares, which
provisions may limit the timing of purchases and sales of the Company's
securities by the Selling Securityholders.
The following table sets forth certain information with respect to persons
for whom the Company is registering the Selling Securityholders' Shares for
resale to the public. The Company will not receive any of the proceeds from
the sale of the Selling Securityholders' Securities. Beneficial ownership of
the Selling Securityholders' Securities by such Selling Securityholders after
the Offering will depend on the number of Selling Securityholders' Securities
sold by each Selling Securityholder. The securities held by the Selling
Securityholders are restricted securities while held by such Selling
Securityholders and the resale of such securities by the Selling
Securityholders is subject to prospectus delivery and other requirements of
the Act. The Selling Securityholders' Securities offered by the Selling
Securityholders are not being underwritten by the Underwriters.
Alt-3
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Selling After Selling
Selling Securityholders' Amount of Shares Securityholders' Offering
Securityholder(1) Offering of Shares Being Registered if all Shares are Sold
----------------------- -------------------- ---------------- -------------------------
<S> <C> <C> <C>
Bruce Ansnes 110,000 110,000 0
Bruce Haber 18,333 18,333 0
Bernard Kruger 18,335 18,334 0
Christopher Mahoney 18,333 18,334 0
Heather Morphy 7,333 7,333 0
John Morphy 7,333 7,333 0
Eyal Ofer 18,334 18,334 0
Renee Steinberg 14,666 14,666 0
Theodore Zimmerman 7,333 7,333 0
-------------------- ---------------- -------------------------
Total 220,000 220,000 0
==================== ================ =========================
</TABLE>
<TABLE>
<CAPTION>
Beneficial Ownership
Beneficial Ownership After Selling
Prior to Selling Securityholders'
Securityholders' Amount of Warrants Offering if all
Selling Securityholder(1) Offering of Warrants Being Registered Warrants are Sold
------------------------------ -------------------- ------------------ --------------------
<S> <C> <C> <C>
Alan Adler 525,000 525,000 0
Bruce Adler 400,000 400,000 0
Janet Adler 125,000 125,000 0
B-140 Holding Corp.(2) 800,000 800,000 0
David Cymrot 25,000 25,000 0
Fenner Reed & Jackson, Inc.(3) 50,000 50,000 0
Richard Gershman 83,332 83,332 0
Matthew Gissen 50,000 50,000 0
Phyllis H. Kramer 400,000 400,000 0
Joel M. Pashcow 1,250,000 1,250,000 0
Laurence Putterman 50,000 50,000 0
Anthony Recchia 25,000 25,000 0
Martin Rosenman 100,000 100,000 0
Robert L. Rosenthal 50,000 50,000 0
Richard Schlanger 50,000 50,000 0
Steven P. Schwartz 75,000 75,000 0
Gilda Shapiro 100,000 100,000 0
</TABLE>
- ------
(1) No Selling Securityholder, other than Bruce Ansnes or Bernard Kruger,
M.D., is an officer, director or affiliate of the Company.
(2) Cynthia Levine is the beneficial owner of B-140 Holding Corp.
(3) Selwyn Rudnick and Patricia Rudnick are the beneficial owners of Fenner
Reed & Jackson, Inc.
Alt-4
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 in accordance with the provisions of the Securities Act, with respect to
the securities offered hereby. This prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto.
For further information, reference is made to the Registration Statement and
to the exhibits filed therewith. Statements herein contained concerning the
provisions of any document are not necessarily complete and, in each
instance, reference is made to the copy of such document filed as an exhibit
to the Registration Statement. The Registration Statement and the exhibits
may be inspected without charge at the offices of the Commission and, upon
payment to the Commission of prescribed fees and rates, copies of all or any
part thereof may be obtained from the Commission's principal office at the
Public Reference Section, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at the Northeast Regional Office, 7 World Trade
Center, New York, New York 10048.
EXPERTS
The financial statements of the Company as at March 31, 1996 and for each
of the years in the two-year period then ended included in this Prospectus,
have been audited by Richard A. Eisner & Company, LLP, independent certified
public accountants as set forth in their report thereon appearing elsewhere
herein. Such financial statements are included herein and in the Registration
Statement in reliance upon such report given upon the authority of said firm as
experts in auditing and accounting.
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon
for the Company by Parker Duryee Rosoff & Haft, A Professional Corporation,
New York, New York. Gersten, Savage, Kaplowitz & Curtin, L.L.P., New York,
New York will act as counsel for the Underwriters.
Alt-5
<PAGE>
[ALTERNATE BACK COVER FOR SELLING SECURITYHOLDER PROSPECTUS]
=============================================================================
No dealer, salesperson or other person has been authorized to give any
information or make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must
not be relied upon as having been authorized by the Underwriters. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any securities, to any person in any jurisdiction where such offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor
any sale made hereunder shall under any circumstances create any implication
that there has been no change in the affairs of the Company since the date
hereof.
------
TABLE OF CONTENTS
Page
---------
Prospectus Summary ........................ 1
The Company ............................... 1
Risk Factors .............................. 5
Use of Proceeds ........................... 13
Dividend Policy ........................... 14
Capitalization ............................ 14
Dilution .................................. 15
Selected Financial Data ................... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................... 17
Business .................................. 20
Management ................................ 27
Principal Shareholders .................... 30
Certain Transactions ...................... 31
Description of Securities ................. 32
Shares Eligible for Future Sale ........... 34
Selling Securityholders and Plan of
Distribution ............................. Alt-3
Additional Information .................... Alt-5
Experts ................................... Alt-5
Legal Matters ............................. Alt-5
Index to Financial Statements ............. F-1
Until ________, 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Company's securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus with
respect to their unsold allotments or subscriptions.
==============================================================================
<PAGE>
=============================================================================
COMMUNITY CARE SERVICES, INC.
4,378,332 SHARES OF COMMON STOCK
4,158,332 CLASS A WARRANTS
------
PROSPECTUS
------
______ , 1996
=============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 6 of the Certificate of Incorporation of the Company contains the
following provision which provides for the indemnification of directors and
officers of the Company:
6. The Corporation shall, to the fullest extent permitted by Article 7
of the Business Corporation Law of the State of New York, as the same may
be amended and supplemented, indemnify any and all persons whom it shall
have power to indemnify under such Article from and against any and all of
the expenses, liabilities or other matters referred to in or covered by
such Article, and the indemnification provided for herein shall not be
deemed exclusive of any other rights to which any person may be entitled
under any By-Law, resolution of shareholders, resolution of directors,
agreements or otherwise, as permitted by such Article, as to action in any
capacity in which he served at the request of the Corporation. Any repeal
or modification of this Article SIX shall not adversely affect any right
or protection of any person existing hereunder with respect to any act or
omission occurring prior to such repeal or modification.
In accordance with Section 402(b)(7) of the BCL, Article 7 of the
Certificate of Incorporation of the Company eliminates the personal liability
of directors to the Company or its shareholders for monetary damages for
breach of fiduciary duty as a director with certain limited exceptions set
forth in Section 402(b)(7).
The Underwriting Agreement provides for reciprocal indemnification between
the Company and its controlling persons on the one hand and the Underwriters
and their respective controlling persons on the other hand against certain
liabilities in connection with this offering, including liabilities under the
Securities Act of 1933.
The Company intends to enter into an agreement with each of its officers
and directors pursuant to which they will be indemnified to the fullest
extent permitted under the BCL. The Company may also obtain and maintain its
own insurance for the benefit of its directors and officers and the directors
and officers of its subsidiaries, insuring such persons against certain
liabilities, including liabilities arising under the securities laws.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the Company's estimates of the expenses to
be incurred by it in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and
commissions:
Securities and Exchange Commission registration fee $15,432.28
NASD registration fee ............................. $ 5,725.36
NASDAQ listing fee ................................ $53,720.83
Printing registration statement and other documents $ 70,000
Fees and expenses of Registrant's counsel ......... $ 125,000
Underwriter's expense allowance ................... $ 202,800
Consulting fee .................................... $ 104,600
Accounting fees and expenses ...................... $ 150,000
Blue Sky expenses and counsel fees ................ $ 56,500
Miscellaneous ..................................... $ 6,221.53
------------
Total ........................................... $ 790,000
==========
- ------
* To be supplied by amendment.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Described below is information regarding all securities that have been
issued by the Company within the past three years.
In April 1995, the Company issued its Common Stock as follows:
(i) 50,000 shares to Susan Chestman for a purchase price of $5,500;
(ii) 100,000 shares to Phyllis H. Kramer for a purchase price of $11,000;
(iii) 50,000 shares to Collette Morgenstern for a purchase price of
$5,500.
No underwriter was engaged in connection with the foregoing sales of
securities.
In November 1995, the Company issued its Common Stock as follows:
(i) 400,000 shares to B-140 Holding Corp. for a purchase price of
$48,000;
(ii) 200,000 shares to Joel M. Pashcow for a purchase price of $24,000;
(iii) 100,000 shares to each of Alan Adler and Bruce Adler for a purchase
price of $12,000 each; and
(iv) 41,666 shares to Richard Gershman for a purchase price of $5,000.
In January 1996, the Company issued 500,000 shares of its Common Stock to
the following persons for a purchase price of $.50 per share:
(i) 100,000 shares to each of Bruce Adler, Alan Adler and Phyllis H.
Kramer;
(ii) 200,000 shares to Joel M. Pashcow.
In February 1996, the Company issued 25 and one half units for a purchase
price of $25,000 per unit (the "Unit"), each unit consisting of one
promissory note in the principal amount of $25,000 with interest payable at a
rate of 8% per year and warrants to purchase 50,000 shares of Common Stock at
$7.50 per share as follows:
(i) one half Unit to each of Anthony Recchia and David Cymrot;
(ii) one Unit to each of Matthew Gissen, Laurence Putterman, Robert L.
Rosenthal, Richard Schlanger and Fenner Reed & Jackson, Inc.;
(iii) one and one half Units to Steven P. Schwartz;
(iv) two Units to each of Martin Rosenman and Gilda Shapiro;
(v) two and one half Units to each of Alan Adler and Janet Adler;
(vi) nine Units to Joel M. Pashcow.
Maidstone Financial, Inc. was engaged as a placement agent for the
November 1995, January 1996 and February 1996 offerings of securities.
In August 1996, the Company issued 2,883,332 Class A Warrants in exchange
for 1,441,666 shares of Common Stock as follows:
(i) 800,000 Class A Warrants to B-140 Holding Corp. in exchange for
400,000 shares;
(ii) 800,000 Class A Warrants to Joel M. Pashcow in exchange for 400,000
shares;
(iii) 400,000 Class A Warrants to Bruce Adler in exchange for 200,000
shares
(iv) 400,000 Class A Warrants to Alan Adler in exchange for 200,000
shares;
(v) 400,000 Class A Warrants to Phyllis Kramer in exchange for 200,000
shares; and
(vi) 83,332 Class A Warrants to Richard Gershmann in exchange for 41,666
shares.
II-2
<PAGE>
The above transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities
Act of 1933, as amended, pursuant to Section 4(2) thereof.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
Exhibit Page
Number Description of Exhibit Number
----------- ------------------------------------------------------------------------------------- ----------
<S> <C> <C>
*1.01 Preliminary Form of Underwriting Agreement.
*1.02 Form of Underwriter's Warrant.
3.01 Certificate of Incorporation of Registrant.
3.02 By-Laws of the Registrant.
3.03 Certificate of Amendment to Certificate of Incorporation.
3.04 Certificate of Amendment to Certificate of Incorporation.
3.05 Certificate of Correction to Certificate of Amendment.
3.06 Certificate of Amendment to Certificate of Incorporation.
*4.01 Specimen Certificate representing the Common Stock, par value $.01 per share.
*5.01 Opinion of Parker Duryee Rosoff & Haft.
*10.01 1996 Stock Option Plan (Amended).
10.02 Form of Stock Option Agreement.
10.03 Form of Employment Agreement to be entered into between the Registrant and Alan T. Sheinwald.
10.04 Form of Employment Agreement to be entered into between the Registrant and Allan Goldfeder.
10.07 Lease dated January 1, 1996 by and between the Registrant and Petrillo Realty Development
Corporation.
*10.08 Form of Warrant Agreement.
10.09 Form of Conversion Agreement
*10.10 Form of Financial Advisory and Investment Banking Agreement between Maidstone Financial,
Inc. and the Registrant
21.01 Subsidiaries of the Registrant.
24.01 Consent of Parker Duryee Rosoff & Haft (included in Exhibit 5.01).
*24.02 Consent of Richard A. Eisner & Company, LLP.
25.01 Power of Attorney.
</TABLE>
- ------
* Filed herein.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because of the absence of conditions under
which they are required, or because the required information is given in the
financial statements or the notes thereto.
ITEM 28. UNDERTAKINGS.
The Company hereby undertakes to file, during any period in which offers
or sales are being made, a post-effective amendment to this Registration
Statement (i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933; (ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement; notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement.
II-3
<PAGE>
The Company hereby undertakes that, for the purpose of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The Company hereby undertakes to remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
The Company hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons
of the Company, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 403A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
hereby certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized Amendment No. 4 to
this registration statement to be signed on its behalf by the undersigned, in
the City of New York, State of New York, on October 2, 1996.
COMMUNITY CARE SERVICES, INC.
By: /s/ Alan T. Sheinwald
-----------------------------
Alan T. Sheinwald
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------------------------- -------------------------------------- ------------------
<S> <C> <C>
/s/ Alan T. Sheinwald Director, President and Chief Executive October 2, 1996
-------------------------- Officer (Principal Executive Officer,
Alan T. Sheinwald Principal Financial and Accounting
Officer)
/s/ Alan T. Sheinwald Director October 2, 1996
--------------------------
Dean L. Sloane*
/s/ Alan T. Sheinwald Director October 2, 1996
--------------------------
Craig V. Sloane*
Director October 2, 1996
--------------------------
Bruce L. Ansnes
Director October 2, 1996
--------------------------
Bernard M. Kruger, M.D.
</TABLE>
- ------
*By Alan T. Sheinwald as attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Description of Exhibit Number
----------- ------------------------------------------------------------------------------------- ----------
<S> <C> <C>
*1.01 Preliminary Form of Underwriting Agreement.
*1.02 Form of Underwriter's Warrant.
3.01 Certificate of Incorporation of Registrant.
3.02 By-Laws of the Registrant.
3.03 Certificate of Amendment to Certificate of Incorporation.
3.04 Certificate of Amendment to Certificate of Incorporation.
3.05 Certificate of Correction to Certificate of Amendment.
3.06 Certificate of Amendment to Certificate of Incorporation.
*4.01 Specimen Certificate representing the Common Stock, par value $.01 per share.
*5.01 Opinion of Parker Duryee Rosoff & Haft.
*10.01 1996 Stock Option Plan (Amended).
10.02 Form of Stock Option Agreement.
10.03 Form of Employment Agreement to be entered into between the Registrant and Alan T. Sheinwald.
10.04 Form of Employment Agreement to be entered into between the Registrant and Allan Goldfeder.
10.07 Lease dated January 1, 1996 by and between the Registrant and Petrillo Realty Development
Corporation.
*10.08 Form of Warrant Agreement.
10.09 Form of Conversion Agreement
*10.10 Form of Financial Advisory and Investment Banking Agreement between Maidstone Financial,
Inc. and the Registrant.
21.01 Subsidiaries of the Registrant.
24.01 Consent of Parker Duryee Rosoff & Haft (included in Exhibit 5).
*24.02 Consent of Richard A. Eisner & Company, LLP.
25.01 Power of Attorney.
</TABLE>
- ------
* Filed herein.
<PAGE>
COMMUNITY CARE SERVICES, INC.
UNDERWRITING AGREEMENT
New York, New York
Dated: , 1996
MAIDSTONE FINANCIAL, INC.
101 East 52nd Street
New York, New York 10022
Gentlemen:
The undersigned, COMMUNITY CARE SERVICES, INC., a New York
corporation (the "Company"), proposes to issue and sell to Maidstone Financial,
Inc. ("Maidstone," the "Underwriter" or "the Representative") as representative
of the several underwriters (the "Underwriters") named on Schedule A hereto,
pursuant to this Underwriting Agreement ("Agreement"), an aggregate of 1,300,000
shares of Common Stock, par value $.01 per share, of the Company (the "Common
Stock"), and 1,300,000 Class A Redeemable Common Stock Purchase Warrants (the
"Class A Warrants" or the "Warrants"). The Class A Warrants will each be
exercisable to purchase one share of Common Stock, at any time commencing two
years from the date on which the Registration Statement (as defined in Section
1(a) hereof), shall have become or been declared effective (the "Effective
Date"), and ending on the seventh anniversary of the Effective Date. The Class A
Warrant exercise price, subject to adjustment as described in the agreement
providing for the Warrants (the "Warrant Agreement"), shall be $6.00 per share,
subject to adjustment as described in the Warrant Agreement.
Commencing two years after the Effective Date, the Warrants
are subject to redemption by the Company at $.10 per Warrant, provided that (a)
prior notice of not less than 30 days is given to the holders of the Warrants
(the "Warrantholders"), and (b) the closing high bid price per share of Common
Stock, if traded on The NASDAQ Stock Market, or the last sale price per share of
Common Stock, if traded on a national exchange, for the 20 consecutive trading
days ending on the third day prior to the date on which notice of redemption is
given, is at least $8.00.
<PAGE>
In addition, the Company proposes to grant to the Underwriters
the Over-Allotment Option (as defined in Section 2(c) hereof) to purchase all
or any part of an aggregate of 195,000 shares of Common Stock and/or 195,000
Warrants, and to issue to you the Underwriters' Warrants (as defined in Section
11 hereof) to purchase certain further additional Shares and/or Warrants.
The aggregate of 1,300,000 shares of Common Stock to be sold
by the Company, together with the aggregate of 195,000 additional shares of
Common Stock that are the subject of the Over-allotment Option, are herein
collectively called the "Shares." The Shares and the Warrants (the Warrants, the
additional Warrants subject to the Over-Allotment Option and the Warrants
issuable upon exercise of the Underwriters' Warrants), the shares of Common
Stock issuable upon exercise of the Warrants and the shares of Common Stock
issuable upon exercise of the Underwriters' Warrants, are herein collectively
called the "Securities." The term "Underwriters' Counsel" shall mean the firm of
Gersten, Savage, Kaplowitz & Curtin, LLP, counsel to the Underwriter, and the
term "Company Counsel" shall mean the firm of Parker Duryee Rosoff & Haft,
counsel to the Company. Unless the context otherwise requires, all references
herein to a "Section" shall mean the appropriate Section of this Agreement.
You have advised the Company that you, severally and not
jointly, desire to purchase the Shares and Warrants as herein provided. The
Company confirms the agreements made by it with respect to the purchase of the
Shares and Warrants by you, as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) Registration Statement; Prospectus; A
registration statement (File No. 333-1700) on Form SB-2 relating to the public
offering of the Securities (the "Offering"), including a preliminary form of
prospectus, copies of which have heretofore been delivered to you, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933 (the "Act"), and the rules and regulations of the Securities and
Exchange Commission (the "Commission") promulgated thereunder (the "Rules and
Regulations"), and has been filed with the Commission under the Act. As used
herein, the term "Preliminary Prospectus" shall mean each prospectus filed
pursuant to Rule 430 or Rule 424(a) of the Rules and Regulations. The
Preliminary Prospectus bore the legend required by Item 501 of Regulation S-B
under the Act and the Rules and Regulations. Such registration statement
(including all financial statements, schedules and exhibits) as amended at the
time it becomes effective and the final prospectus included therein are herein
respectively called the "Registration Statement" and the "Prospectus," except
that (i) if the prospectus filed by the Company pursuant to Rule 424(b) or Rule
430A of the Rules and Regulations shall differ from such final prospectus as
then amended, then the term "Prospectus" shall instead mean the prospectus first
filed pursuant to said Rule 424(b) or Rule 430A, and (ii) if such registration
statement is amended or such prospectus is amended or supplemented after the
effective date of such registration statement and prior to the Option Closing
Date (as defined in Section 2(c) hereof), then (unless the context necessarily
requires otherwise) the term "Registration Statement" shall include such
2
<PAGE>
registration statement as so amended, and the term "Prospectus" shall include
such prospectus as so amended or supplemented, as the case may be.
(b) Contents of Registration Statement. On the
Effective Date, and at all times subsequent thereto for so long as the delivery
of a prospectus is required in connection with the offering or sale of any of
the Securities, (i) the Registration Statement and the Prospectus shall in all
material respects conform to the requirements of the Act and the Rules and
Regulations, and (ii) neither the Registration Statement nor the Prospectus
shall include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary or make statements
therein in light of the circumstances in which they were made, not misleading;
provided, however, that the Company makes no representations, warranties or
agreements as to information contained in or omitted from the Registration
Statement or Prospectus in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus with respect to stabilization, the
material set forth under the caption "UNDERWRITING," the information on the
cover page of the Prospectus regarding the underwriting arrangements and the
identity of the Underwriters' Counsel under the caption "LEGAL MATTERS," which
information the Underwriter hereby represents and warrants to the Company is
true and correct in all material respects and does not omit to state any
material fact required to be stated therein or necessary to make statements
therein, in light of the circumstances in which they were made, not misleading,
constitute the only information furnished in writing by or on behalf of the
Underwriter for inclusion in the Registration Statement and Prospectus, as the
case may be.
Except for the registration rights granted under the
Underwriter's Warrants, to the Selling Security Holders named in the
Registration Statement, or as disclosed in the Prospectus, no holders of any
securities of the Company or of any options, warrants or convertible or
exchangeable securities of the Company exercisable for or convertible or
exchangeable for securities of the Company, have the right to include any
securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company.
(c) Organization, Standing, Etc. The Company is duly
incorporated and validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, with full power and corporate
authority to own their properties and conduct its business as described in the
Prospectus, and is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each other jurisdiction in which the
nature of its business or the character or location of its properties requires
such qualification, except where failure so to qualify will not have a material
adverse effect on the business or financial condition of the Company ("Material
Adverse Effect").
3
<PAGE>
(d) Capitalization. The authorized, issued and
outstanding capital stock of the Company as of the date of the Prospectus is as
set forth in the Prospectus under the caption "CAPITALIZATION". The shares of
Common Stock issued and outstanding on the Effective Date have been duly
authorized, validly issued and are fully paid and non-assessable. No options,
warrants or other rights to purchase, agreements or other obligations to issue,
or agreements or other rights to convert any obligation into, any shares of
capital stock of the Company have been granted or entered into by the Company,
except as expressly described in the Prospectus. The Securities conform to all
statements relating thereto contained in the Registration Statement or the
Prospectus.
(e) Securities. The Securities conform, or will
conform when issued, in all material respects to all statements with respect
thereto contained in the Registration Statement and the Prospectus. The
Securities have been duly authorized and, when issued and delivered against
payment therefor pursuant to this Agreement, the Warrant Agreement or the
Underwriters' Warrants, as the case may be, will be duly authorized, validly
issued, fully paid and non-assessable and free of preemptive rights of any
security holder of the Company. Neither the filing of the Registration Statement
nor the offering or sale of any of the Securities as contemplated by this
Agreement gives rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any securities of the Company,
except as described in the Registration Statement.
(f) Authority, Etc. This Agreement, the Warrant
Agreement, the Underwriters' Warrants, and the Financial Consulting Agreement
(as hereinafter defined), have been duly and validly authorized, executed and
delivered by the Company and, assuming due execution of this Agreement and such
other agreements by the other party or parties hereto and thereto, constitute
valid and binding obligations of the Company enforceable against the Company in
accordance with their respective terms, except as such enforcement is limited by
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
affecting the enforcement of creditors' rights generally, and except insofar as
the enforceability of the indemnification and contribution terms may be limited
by applicable as or public policy. The Company has full right, power and lawful
authority to authorize, issue and sell the Securities and the Underwriter's Unit
Purchase Options on the terms and conditions set forth herein. All consents,
approvals, authorizations and orders of any court or governmental authority
which are required in connection with the authorization, execution and delivery
of such agreements, the authorization, issue and sale of the Securities and the
Underwriters' Warrants, and the consummation of the transactions contemplated
hereby have been obtained.
(g) No Conflict. Except as described in the
Prospectus, the Company is not in violation, breach or default of or under, and
consummation of the transactions hereby contemplated and fulfillment of the
terms of this Agreement will not conflict with or result in a breach of, any of
the terms or provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance pursuant to the terms
of, any contract, indenture, mortgage, deed of trust, loan agreement or other
material agreement or instrument to which the Company is a party or by which the
Company may be bound or to which any of
4
<PAGE>
the property or assets of the Company is subject, except such as would not have
a Material Adverse Effect, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or the By-laws of the Company,
except such as would not have a Material Adverse Effect, or any statute or any
order, rule or regulation applicable to the Company, or of any court or of any
regulatory authority or other governmental body having jurisdiction over the
Company, except such as would not have a Material Adverse Effect.
(h) Assets. Subject to the qualifications stated in
the Prospectus: (i) the Company has good and marketable title to all properties
and assets described in the Prospectus as owned by it, including without
limitation intellectual property, free and clear of all liens, charges,
encumbrances or restrictions, except such as do not materially affect the value
of such properties or assets and do not interfere with the use made or proposed
to be made of such assets or properties by the Company or are not materially
significant or important in relation to the business of the Company; (ii) all of
the material leases and subleases under which the Company is the lessor or
sublessor of properties or assets or under which the Company hold properties or
assets as lessee or sublessee, as described in the Prospectus, are in full force
and effect and, except as described in the Prospectus, the Company is not in
default in any material respect with respect to any of the terms or provisions
of any of such leases or subleases, and no claim has been asserted by any party
adverse to the rights of the Company as lessor, sublessor, lessee or sublessee
under any such lease or sublease, or affecting or questioning the right of the
Company to continued possession of the leased or subleased premises or assets
under any such lease or sublease, except as described or referred to in the
Prospectus; and (iii) the Company, owns or leases all such assets and
properties, described in the Prospectus, as are necessary to its operations as
now conducted and, except as otherwise stated in the Prospectus, as proposed to
be conducted as set forth in the Prospectus.
The outstanding debt, the property and the business of the
Company conforms in all material respects to the descriptions thereof contained
in the Registration Statement and Prospectus.
(i) Independent Accountants. Richard A. Eisner &
Company, LLP, who have given their report on certain financial statements filed
or to be filed with the Commission as a part of the Registration Statement, and
which are included in the Prospectus, are with respect to the Company,
independent public accountants as required by the Act and the Rules and
Regulations.
(j) Financial Statements. The consolidated financial
statements, together with related notes, set forth in the Registration Statement
and the Prospectus present fairly the consolidated financial position, results
of operations, changes in stockholders' equity and cash flows of the Company on
the basis stated in the Registration Statement, at the respective dates and for
the respective periods to which they apply. Such financial statements and
related notes have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the entire period
involved, except to the extent disclosed therein. The Summary Financial Data and
Selected Financial Data included in the Registration
5
<PAGE>
Statement and the Prospectus present fairly the information shown therein and
have been prepared on a basis consistent with that of the financial statements
included in the Registration Statement and the Prospectus.
(k) No Material Change. Except as otherwise set forth
in the Prospectus, subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the Company has not: (i)
incurred any liability or obligation, direct or contingent, or entered into any
transaction, which is material to its business; (ii) effected or experienced any
change in its capital stock or incurred any long-term debt; (iii) issued any
options, warrants or other rights to acquire its capital stock; (iv) declared,
paid or made any dividend or distribution of any kind on its capital stock; or
(v) effected or experienced any material adverse change, or development
involving a prospective material adverse change, in its financial position, net
worth, results of operations, business or business prospects, assets or
properties or key personnel.
(l) Litigation. Except as set forth in the
Prospectus, there is not now pending nor, to the knowledge of the Company,
threatened, any action, suit or proceeding (including any related to
environmental matters or discrimination on the basis of age, sex, religion or
race), whether or not in the ordinary course of business, to which the Company
is a party or its business or property is subject, before or by any court or
governmental authority, which, if determined adversely to the Company, would
have a material adverse effect on the financial position, net worth, or results
of operations, business or business prospects, assets or property of the
Company; and no labor disputes involving the employees of the Company exist
which would affect materially adversely the business, property, financial
position or results of operations of the Company.
(m) Employee and Independent Contractor Matters. The
Company has generally enjoyed satisfactory employer/employee relationships with
its employees and is in compliance in all material respects with all Federal,
state and local laws and regulations, including but not limited to, applicable
tax laws and regulations, respecting the employment of employees and employment
practices, terms and conditions of employment and wages and hours relating
thereto. To the knowledge of the Company, there are no pending or threatened
investigations involving the Company by the U.S. Department of Labor or
corresponding foreign agency, or any other governmental agency responsible for
the enforcement of such Federal, state or local laws and regulations. To the
knowledge of the Company, there are no unfair labor practice charges or
complaints against the Company pending before the National Labor Relations Board
or corresponding foreign agency or any strikes, picketing, boycotts, disputes,
slowdowns or stoppages pending or threatened against or involving the Company,
or any predecessor entity, and none has occurred. No representation question
exists respecting the employees of the Company. No collective bargaining
agreements or modifications thereof are currently in effect or being negotiated
by the Company and their respective employees. No grievance or arbitration
proceeding is pending under any expired or existing collective bargaining
agreements of the Company.
The Company does not: (i) maintain nor has it
maintained, sponsored or contributed to any program or arrangement that is an
"employee pension benefit plan," an
6
<PAGE>
"employee welfare benefit plan" or a "multi-employer plan" as such terms are
defined in Sections 3(2), 3(1) and 3(37), respectively of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), except for the
Stock Option Plan described in the Prospectus; (ii) presently maintain or
contribute nor at any time in the past, has maintained or contributed to a
defined benefit plan, as defined in Section 3(35) of ERISA; or (iii) has ever
completely or partially withdrawn from a "multi-employer plan."
The Company has generally enjoyed satisfactory relationships
with its independent contractors and is in compliance in all material respects
with all federal, state and local laws and regulations, including but not
limited to applicable tax laws and regulations, respecting the engagement of its
independent contractors.
(n) No Unlawful Prospectuses. The Company has not
distributed any prospectus or other offering material in connection with the
Offering contemplated herein, other than any Preliminary Prospectus, the
Prospectus or other material permitted by the Act and the Rules and Regulations.
(o) Taxes. Except as disclosed in the Prospectus, the
Company has filed all necessary federal, state, local and foreign income and
franchise tax returns and has paid all taxes shown as due thereon on or before
the date such taxes are due to be paid; and there is no tax deficiency which has
been or, to the knowledge of the Company, might be asserted against the Company.
(p) Licenses, Etc. The Company has in effect all
necessary licenses, permits and other governmental authorizations currently
required for the conduct of its business or the ownership of its property, as
described in the Prospectus, and is in all material respects in compliance
therewith. To the knowledge of the Company, none of the activities or business
of the Company is in violation of, or would cause the Company to violate, any
law, rule, regulation or order of the United States, any country, state, county
or locality, the violation of which would have a material adverse effect upon
the financial position, net worth, results of operations, business or business
prospects, assets or property of the Company taken as a whole.
(q) No Prohibited Payments. The Company has not, nor,
to the knowledge of the Company, any of its employees or officers or directors,
agents or any other person acting on behalf of the Company has, directly or
indirectly, contributed or agreed to contribute any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer,
supplier, or official or governmental agency or instrumentality of any
government (domestic or foreign) or any political party or candidate for office
(domestic or foreign) or other person who was, is, or may be in a position to
help or hinder the business of the Company (or assist it in connection with any
actual or proposed transaction) which (i) could reasonably be expected to
subject the Company to any material damage or penalty in any civil, criminal or
governmental litigation or proceeding, or (ii) if not made in the future, could
reasonably be expected to materially adversely affect the assets, business,
operations or prospects of the Company. The Company's internal accounting
controls and procedures are sufficient to cause the Company to comply in all
material respects with the Foreign Corrupt Practices Act of 1977, as amended.
7
<PAGE>
(r) Transfer Taxes. On the Closing Dates (as defined
in Section 2(d) hereof), all transfer and other taxes (including franchise,
capital stock and other taxes, other than income taxes, imposed by any
jurisdiction), if any, which are required to be paid in connection with the sale
and transfer of the Securities to the Underwriters hereunder shall have been
fully paid or provided for by the Company, and all laws imposing such taxes
shall have been fully complied with.
(s) Exhibits. All contracts and other documents of
the Company described in the Registration statement or the Prospectus or to be
filed as exhibits to the Registration Statement, have been described in the
Registration Statement or the Prospectus or filed with the Commission, as
required under the Rules and Regulations.
(t) Subsidiaries. Except as described in the
Prospectus, the Company has no subsidiaries.
(u) Registration Rights. No security holder of the
Company whose securities are not included in the Registration Statement has any
rights with respect to the registration of any Securities, and all registration
rights with respect to the Offering have been waived.
(v) No Stabilization or Manipulation. Neither the
Company nor, to the Company's knowledge, any of its officers or directors or any
of its employees or stockholders, have taken and will not take, directly or
indirectly, any action designed to cause or result in, or which has constituted
or which might reasonably be expected to constitute, under the Exchange Act or
otherwise, the stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Securities.
(w) No Finders. Except as described in the
Prospectus, to the knowledge of the Company, there are no claims, payments,
issuances, arrangements or understandings for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, commitments, payments or
issuances of securities with respect to the Company that may affect the
Underwriter's compensation, as determined by the National Association of
Securities Dealers, Inc. ("NASD").
(x) Lock-up Agreements. The Company has obtained from
each irector, officer and existing stockholder of the Company (the "Existing
Shareholders"), a LockUp Agreement (as defined in Section 3(r) hereof) in the
form previously delivered.
(y) Licensing and Accreditation. The Company has at
all times since the commencement of its business been in compliance with all
federal, state and local laws, rules and regulations applicable to the nature of
its business and operation, except for such non-compliance which would not have
a Material Adverse Effect. The Company has all necessary licenses to operate its
business.
8
<PAGE>
(aa) No Adverse Effect of Transaction Contemplated
Hereby. Neither the completion of the Offering nor any of the transactions
contemplated herein or in the Prospectus, including but not limited to the
issuance of any of the Securities, will result in a "change of control" or the
loss of, or have any adverse effect on, the maintenance in good standing of the
Company's licenses.
2. PURCHASE, DELIVERY AND SALE OF SECURITIES
(a) Purchase Price for Securities. The Securities
shall be sold to and purchased by the Underwriters at the purchase price of
$4.641 per Share and $.091 per Warrant (that being the public offering price of
$5.10 per Share and $.10 per Warrant less an underwriting discount of 10
percent) (the "Purchase Price").
(b) Firm Securities.
(i) Subject to the terms and conditions of
this Agreement, and on the basis of the representations, warranties and
agreements herein contained the Company agrees to issue and sell to the
Underwriters, and the Underwriters, agree to buy from the Company at the
Purchase Price, all of the Shares and Warrants (the "Firm Securities").
(ii) Delivery of the Firm Securities against
payment therefor shall take place at the offices of Maidstone Financial, Inc.,
101 East 52nd Street, New York, New York 10022 (or at such other place as may be
designated by agreement between you and the Company) at 10:00 a.m., New York
Time, on , 1996, or at such later time and date, not later than eight business
days after the Effective Date, as you may designate (such time and date of
payment and delivery for the Firm Securities being herein called the "First
Closing Date").
(c) Option Securities.
(i) In addition, subject to the terms and
conditions of this Agreement, and on the basis of the representations,
warranties and agreements herein contained, the Company hereby grants to the
Underwriters an option (the "Over-Allotment Option"), to purchase from the
Company all or any part of an aggregate of an additional 195,000 Shares and/or
195,000 Warrants at the Purchase Price (the "Option Securities").
(ii) The Over-Allotment Option may be
exercised by the Underwriters, in whole or in part, within thirty business days
after the Effective Date, upon written notice by Maidstone to the Company
advising it of the number of Option Securities as to which the Over-Allotment
Option is being exercised, the names and denominations in which the certificates
for the Shares and the Warrants comprising such Option Securities are to be
registered, and the time and date when such certificates are to be delivered.
Such time and date shall be determined by you but shall not be less than two nor
more than ten business days after
9
<PAGE>
exercise of the Over-Allotment Option, nor in any event prior to the First
Closing Date (such time and date being herein called the "Option Closing Date").
Delivery of the Option Securities against payment therefor shall take place at
Maidstone's offices.
(iii) The Over-Allotment may be exercised
only to cover over-allotments in the sale by the Underwriters of Firm
Securities.
(d) Delivery of Certificates; Payment.
(i) The Company shall make the certificates
for the Shares and the Warrants to be purchased hereunder available to you for
checking at least one full business day prior to the First Closing Date or the
Option Closing Date (each, a "Closing Date"), as the case may be. The
certificates shall be in such names and denominations as you may request at
least two business days prior to the relevant Closing Date. The availability of
the certificates at the time and place specified in this Section 2(d)(i) is a
further condition to the obligations of the Underwriter hereunder.
(ii) On the First Closing Date, the Company
shall deliver to you for the account of the Underwriters definitive engraved
certificates in negotiable form representing all of the Shares and the Warrants
to be sold by the Company, against payment of the Purchase Price therefor by you
for the account of the Underwriters, by certified or bank cashier's checks
payable in New York Clearing House funds to the order of the Company.
(iii) In addition, if and to the extent that
the Underwriters exercise the Over-Allotment Option, then on the Option Closing
Date the Company shall deliver to you for the account of the Underwriters or its
designees definitive engraved certificates in negotiable form representing the
Shares and the Warrants to be sold by the Company, against payment of the
Purchase Price therefor by the Underwriters for the account of the Underwriters
or its designees, by certified or bank cashier's checks payable in next day
funds to the order of the Company.
(iv) It is understood that the Underwriters
propose to offer the Shares and Warrants to be purchased hereunder to the
public, upon the terms and conditions set forth in the Registration Statement,
after the Registration Statement becomes effective.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees
with the Underwriters that:
10
<PAGE>
(a) Registration.
(i) The Company shall use its best efforts
to cause the Registration Statement to become effective and, upon notification
from the Commission that the Registration Statement has become effective, shall
so advise you and shall not at any time, whether before or after the Effective
Date, file any amendment to the Registration Statement or any amendment or
supplement to the Prospectus of which you shall not previously have been advised
and furnished with a copy, or to which you or Underwriters' Counsel shall have
objected in writing, or which is not in compliance with the Act and the Rules
and Regulations.
(ii) Promptly after you or the Company shall
have been advised thereof, you shall advise the Company or the Company shall
advise you, as the case may be, and confirm such advice in writing, of (A) the
receipt of any comments of the Commission, (B) the effectiveness of any
post-effective amendment to the Registration Statement, (C) the filing of any
supplement to the Prospectus or any amended Prospectus, (D) any request made by
the Commission for amendment of the Registration Statement or amendment or
supplementing of the Prospectus, or for additional information with respect
thereto, or (E) the issuance by the Commission or any state or regulatory body
of any stop order or other order denying or suspending the effectiveness of the
Registration Statement, or preventing or suspending the use of any Preliminary
Prospectus, or suspending the qualification of the Securities for offering in
any jurisdiction, or otherwise preventing or impairing the Offering, or the
institution or threat of any proceeding for any of such purposes. The Company
and you shall not acquiesce in such order or proceeding, and shall instead
actively defend such order or proceeding, unless the Company and you agree in
writing to such acquiescence.
(iii) The Company has caused to be delivered
to you copies of each Preliminary Prospectus, and the Company has consented and
hereby consents to the use of such copies for the purposes permitted by the Act.
The Company authorizes the Underwriters and selected dealers to use the
Prospectus in connection with the sale of the Securities for such period as in
the opinion of Underwriters' Counsel the use thereof is required to comply with
the applicable provisions of the Act and the Rules and Regulations. In case of
the happening, at any time within such period as a prospectus is required under
the Act to be delivered in connection with sales by an underwriter or dealer, of
any event of which the Company has knowledge and which materially affects the
Company or the Securities, or which in the opinion of Company Counsel or of
Underwriters' Counsel should be set forth in an amendment to the Registration
Statement or an amendment or supplement to the Prospectus in order to make the
statement made therein not then misleading, in light of the circumstances
existing at the time the Prospectus is required to be delivered to a purchaser
of the Securities, or in case it shall be necessary to amend or supplement the
Prospectus to comply with the Act or the Rules and Regulations, the Company
shall notify you promptly and forthwith prepare and furnish to the Underwriters
copies of such amended Prospectus or of such supplement to be attached to the
Prospectus, in such quantities as you may reasonably request, in order that the
Prospectus, as so amended or supplemented, shall not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements in the Prospectus, in the light
11
<PAGE>
of the circumstances under which they are made, not misleading. The preparation
and furnishing of each such amendment to the Registration Statement, amended
Prospectus or supplement to be attached to the Prospectus shall be without
expense to the Underwriters, except that in the case that the Underwriters are
required, in connection with the sale of the Securities, to deliver a prospectus
nine months or more after the Effective Date, the Company shall upon your
request and at the expense of the Underwriter, amend the Registration Statement
and amend or supplement the Prospectus, or file a new registration statement, if
necessary, and furnish the Underwriters with reasonable quantities of
prospectuses complying with section 10(a)(3) of the Act.
(iv) The Company will deliver to you at or
before the First Closing Date two signed copies of the Registration Statement
including all financial statements and exhibits filed therewith, and of all
amendments thereto. The Company will deliver to or upon your order, from time to
time until the Effective Date as many copies of any Preliminary Prospectus filed
with the Commission prior to the Effective Date as the Underwriters may
reasonably request. The Company will deliver to you on the Effective Date and
thereafter for so long as a Prospectus is required to be delivered under the
Act, from time to time, as many copies of the Prospectus, in final form, or as
thereafter amended or supplemented, as the Underwriters may from time to time
reasonably request.
(v) The Company shall comply with the Act,
the Rules and Regulations, and the Securities Exchange Act of 1934 (the
"Exchange Act"), and the rules and regulations promulgated thereunder in
connection with the offering and issuance of the Securities in all material
respects.
(b) Blue Sky. The Company shall, at its own expense,
use its best efforts to qualify or register the Securities for sale (or obtain
an exemption from registration) under the securities or "blue sky" laws of such
jurisdictions as you may designate, and shall make such applications and furnish
such information to Underwriters' Counsel as may be required for that purpose,
and shall comply with such laws; provided, however, that the Company shall not
be required to qualify as a foreign corporation or a dealer in securities or to
execute a general consent to service of process in any jurisdiction in any
action other than one arising out of the offering or sale of the Securities. The
Company shall bear all of the expense of such qualifications and registrations,
including without limitation the legal fees and disbursements of Underwriters'
Counsel, up to $35,000 ($10,000 of which has already been paid), which fees
shall be based on counsel's customary hourly billing rates, plus disbursements
relating to, but not limited, long-distance telephone calls, photocopying,
messengers, excess postage, overnight mail and courier services. After each
Closing Date the Company shall, at its own expense, from time to time prepare
and file such statements and reports as may be required to continue each such
qualification (or maintain such exemption from registration) in effect for so
long a period as required by law, regulation or administrative policy in
connection with the offering of the Securities.
12
<PAGE>
(c) Exchange Act Registration. The Company shall at
its own expense, prepare and file with the Commission a registration statement
(on Form 8-A or Form 10) under section 12 of the Exchange Act, and shall use its
best efforts to cause such registration statement to be declared effective by
the Commission on an accelerated basis on the Effective Date and maintained in
effect for at least five years from the Effective Date.
(d) Prospectus Copies. The Company shall deliver to
you on or before the First Closing Date a copy of the Registration Statement
including all financial statements, schedules and exhibits filed therewith, and
of all amendments thereto. The Company shall deliver to or on the order of the
Underwriter, from time to time until the Effective Date, as many copies of any
Preliminary Prospectus filed with the Commission prior to the Effective Date as
the Underwriters may reasonably request. The Company shall deliver to the
Underwriters on the Effective Date, and thereafter for so long as a prospectus
is required to be delivered under the Act, from time to time, as many copies of
the Prospectus, in final form, or as thereafter amended or supplemented, as the
Underwriters may from time to time reasonably request.
(e) Amendments and Supplements. The Company shall,
promptly upon your request, prepare and file with the Commission any amendments
to the Registration Statement, and any amendments or supplements to the
Preliminary Prospectus or the Prospectus, and take any other action which in the
reasonable opinion of Underwriters' Counsel and Company Counsel may be
reasonably necessary or advisable in connection with the distribution of the
Securities, and shall use its best efforts to cause the same to become effective
as promptly as possible.
(f) Certain Market Practices. The Company has not
taken, and shall not take, directly or indirectly, any action designed, or which
might reasonably be expected, to cause or result in, or which has constituted,
the stabilization or manipulation of the price of the Securities to facilitate
the sale or resale thereof.
(g) Certain Representations. Neither the Company nor
any representative of the Company has made nor shall make any written or oral
representation in connection with the Offering and sale of the Securities or the
Underwriters' Warrants which is not contained in the Prospectus, which is
otherwise inconsistent with or in contravention of anything contained in the
Prospectus, or which shall constitute a violation of the Act, the Rules and
Regulations, the Exchange Act or the rules and regulations promulgated under the
Exchange Act.
(h) Continuing Registration of Warrants and
Underlying Common Stock. For so long as any Warrant is outstanding, the Company
shall, at its own expense: (i) use its reasonable best efforts to cause
post-effective amendments to the Registration Statement, or new registration
statements relating to the Warrants and the Common Stock underlying the Warrants
to become effective in compliance with the Act and without any lapse of time
between the effectiveness of the Registration Statement and of any such
post-effective amendment or new
13
<PAGE>
registration statement; provided, however, that the Company shall have no
obligation to maintain the effectiveness of such Registration Statement or file
a new Registration Statement, or to keep available a prospectus at any time at
which such registration or prospectus is not then required; (ii) cause a copy of
each Prospectus, as then amended, to be delivered to each holder of record of a
Warrant; (iii) furnish to the Underwriters and dealers as many copies of each
such Prospectus as the Underwriters or dealers may reasonably request; and (iv)
maintain the "blue sky" qualification or registration of the Warrants and the
Common Stock underlying the Warrants, or have a currently available exemption
therefrom, in each jurisdiction in which the Securities were so qualified or
registered for purposes of the Offering.
(i) Use of Proceeds. The Company shall apply the net
proceeds from the sale of the Securities substantially for the purposes set
forth in the Prospectus under the caption "USE OF PROCEEDS," and shall file such
reports with the Commission with respect to the sale of the Securities and the
application of the proceeds therefrom as may be required pursuant to Rule 463 of
the Rules and Regulations.
(j) Twelve Months' Earnings Statement. The Company
shall make generally available to its security holders and deliver to you as
soon as it is practicable so to do, but in no event later than ninety days after
the end of twelve months after the close of its current fiscal quarter, an
earnings statement (which need not be audited) covering a period of at least
twelve consecutive months beginning after the Effective Date, which shall
satisfy the requirements of section 11(a) of the Act.
(k) NASDAQ Exchange Listings, Etc. The Company shall
immediately make all filings required to seek approval for the quotation of the
Securities on the NASDAQ National Market System ("NASDAQ") and shall use its
best efforts to effect and maintain such approval for at least five years from
the Effective Date. Within 10 days after the Effective Date, the Company shall
also use its best efforts to list itself, on an expedited basis, in Moody's OTC
Industrial Manual, Standard and Poor's Corporation Descriptions or other
recognized securities manuals acceptable to the Underwriters and to cause such
listing to be maintained for five years from the Effective Date.
(l) Board of Directors. For a period of three (3)
years after the First Closing Date, Maidstone shall have the right to appoint a
designee as a nonvoting advisor to the Company's Board of Directors (the
"Advisor"); provided, however, that the Company may require as a condition
precedent that any such Advisor shall agree to hold in confidence and trust and
to act in a fiduciary manner with respect to all information, including, but not
limited to, trade secrets, so received during such meetings and may require that
such Advisor sign a confidentiality agreement with the Company; and, provided,
further, that the Company reserves the right not to provide information and to
exclude such Advisor from any meeting or portion thereof if attendance at such
meeting by such Advisory or dissemination of any information at such meeting to
such Advisor would compromise or adversely affect the attorney-client privilege
between the Company and its counsel, or would, in the good faith judgment of the
Board of Directors, result in a conflict of interest situation. The Company
shall use its reasonable efforts
14
<PAGE>
to promptly bring to the attention of such Advisor any agenda item that, in the
good faith judgment of the Board of Directors, would result in such a trade
secret, privileged matter or conflict of interest and the Board of Directors may
exclude such Advisor or alternatively, the Advisor shall be entitled to exclude
himself or herself) from any deliberation or discussion of the Board of
Directors concerning such trade secret (if the Advisor has not executed a
confidentiality agreement), privileged matter of conflict of interest matter and
as a recipient in the dissemination of any such information. If such Advisor in
his or her good faith judgment believes that an item to be discussed by the
Board of Directors would result in any conflict of interest, such Advisor shall
promptly bring such conflict to the attention of the Chairman of the Board. In
no event shall any provision of this paragraph waive any obligation or
confidentiality to the Company owed by any such Advisor or the Representative.
The designee may be a director, officer, partner, employee or affiliate of an
Underwriter, and Maidstone shall designate such person in writing to the Board.
In the event Maidstone shall not have designated such individual at the time of
any meeting of the Board or such person is unavailable to serve, the Company
shall notify Maidstone of each meeting of the Board. An individual, if any,
designated by Maidstone shall receive all notices and other correspondence and
communications sent by the Company to members of the Board. Such Advisor shall
be entitled to receive reimbursement for all reasonable costs incurred in
attending such meetings including, but not limited to, food, lodging, and
transportation. In addition, such Advisor shall be entitled to the same
compensation as the Company gives to other non-employee directors for acting in
such capacity. The Company further agrees that, during said three (3) year
period, it shall schedule no less than four (4) formal and "in person" meetings
of its Board of Directors in each such year at which meetings such Advisor shall
be permitted to attend as set forth herein; said meetings shall be held
quarterly each year and thirty (30) days advance notice of such meetings shall
be given to the Advisor. Further, during such three (3) year period, the Company
shall give notice to Maidstone with respect to any proposed acquisitions,
mergers, reorganizations or other similar transactions.
The Company agrees to indemnify and hold harmless the
Underwriters and the Advisor against any and all claims, actions, damages, costs
and expenses, and judgments arising solely out of the attendance and
participation of the Advisor at any such meeting described herein. In the event
the Company maintains a liability insurance policy affording coverage for the
acts of its officers and directors, it agrees, if possible, to include the
Advisor as an insured under such policy.
(m) Periodic Reports. For so long as the Company is a
reporting company under section 12(g) or section 15(d) of the Exchange Act, the
Company shall, at its own expense, hold an annual meeting of stockholders for
the election of directors within 180 days after the end of each of the Company's
fiscal years and, within 150 days after the end of each of the Company's fiscal
years, and furnish to its stockholders an annual report (including financial
statements audited by certified public accountants) in reasonable detail. In
addition, during the period ending five years from the date hereof, the Company
shall, at its own expense, furnish to you: (i) within 90 days of the end of each
fiscal year, a balance sheet of the Company as at the end of such fiscal year,
together with statements of income, stockholders' equity and
15
<PAGE>
cash flows of the Company as at the end of such fiscal year, all in reasonable
detail and accompanied by a copy of the certificate or report thereon of
certified public accountants; (ii) as soon as they are available, a copy of all
reports (financial or otherwise) distributed to security holders; and (iii) as
soon as they are available, a copy of all non-confidential reports and financial
statements furnished to or filed with the Commission. The financial statements
referred to herein shall be on a consolidated basis to the extent the accounts
of the Company are consolidated in reports furnished to its stockholders
generally.
(n) Form S-8 Registrations. For a period of two years
following the First Closing Date, the Company shall not, without Maidstone's
prior written consent, register or otherwise facilitate the registration of any
of its securities issuable upon the exercise of options, warrants (other than
options issued pursuant to the 1996 Stock Option Plan, the Warrants and the
Underwriter's Warrants) or other rights, whether by means of a Registration
Statement on Form S-8 or otherwise.
(o) Future Sales. For a period of two years following
the First Closing Date, the Company shall not, without Maidstone's prior written
consent, issue any shares of Common Stock. Notwithstanding the foregoing, the
Company may at any time issue shares of Common Stock pursuant to the exercise of
the Warrants, the Warrants, the Warrants underlying the Underwriter's Warrants,
and options, warrants or conversion rights issued and outstanding on the
Effective Date and described in the Prospectus.
(p) Regulation S Sales. For a period of two years
following the First Closing Date, the Company shall not issue or sell any
securities pursuant to Regulation S of the Rules and Regulations under the Act,
without Maidstone's prior written consent.
(q) Agreements with Shareholders, Directors and
Officers. The Company shall cause each of the Company's existing stockholders,
directors and officers to enter into written agreements with Maidstone (the
"Lock-up Agreements") prior to the Effective Date, that, for a period of
twenty-four months from the Effective Date (except for the Selling
Securityholders who have agreed to identical restrictions for a period of 18
months), they will not, without the consent of Maidstone, (i) publicly sell any
securities of the Company owned directly or indirectly by them or owned
beneficially by them (as defined in the Exchange Act), or (ii) otherwise sell,
or transfer such securities unless the transferee agrees in writing to be bound
by an identical lock-up.
(r) Warrant Solicitation. Upon the exercise of any
Warrants on or after the first anniversary of the Effective Date, the Company
shall pay to Maidstone a commission of eight (8%) percent of the aggregate
exercise price of such Warrants, a portion of which may be reallowed by
Maidstone to the dealer who solicited the exercise (which may also be you), if:
(i) the market price of the Common Stock is greater than the exercise price of
the Warrant on the date of exercise; (ii) the exercise of the Warrant was
solicited by Maidstone; (iii) the Warrant is not held in a discretionary
account; (iv) the disclosure of the compensation arrangements has been made in
documents provided to customers, both as part of the Offering
16
<PAGE>
and at the time of exercise; and (v) the solicitation of the Warrant was not in
violation of Rule 10b-6 promulgated under the Exchange Act. No commission shall
be paid to you on any Warrant exercise prior to the first anniversary of the
Effective Date, or on any Warrant exercised at any time without solicitation by
Maidstone or a soliciting dealer.
(s) Available Shares. The Company shall reserve and
at all times keep available that maximum number of it authorized but unissued
shares of Common Stock which are issuable upon exercise of the Warrants, the
Underwriters' Warrants, and the Warrants issuable upon exercise of the
Underwriters' Warrants, in each case taking into account the anti-dilution
provisions thereof.
(t) Financial Consulting Agreement. On the First
Closing Date and simultaneously with the delivery of the Firm Securities, the
Company shall execute and deliver to Maidstone an agreement with Maidstone, or
its representative, in the form previously delivered to the Company by
Maidstone, regarding the services of Maidstone or its representative a financial
consultant to the Company (the "Financial Consulting Agreement"), for a
thirty-six month period commencing as of the date hereof at a fee equal to
$3,000 per month which shall be paid in its entirety on the First Closing Date.
(u) Management. On each Closing Date, the President
of the Company shall be Alan T. Sheinwald and the Secretary of the Company shall
be Allan C. Goldfeder. Prior to the Effective Date, the Company shall have
obtained "key-employee" life insurance coverage in the amount of $1,000,000 on
each of them. As of the Effective Date, the Company shall have entered into
employment agreements with Messrs. Sheinwald and Goldfeder as set forth in the
Registration Statement.
(v) Stock Transfer Sheets. The Company shall instruct
its Transfer Agent (as defined in Section 4(h) hereto) to deliver to you copies
of all advice sheets showing the daily transfer of the outstanding shares of
Common Stock and Warrants sold by the Company in the public offering and shall,
at its own expense, furnish you weekly following the First Closing Date during
the period ending three years following the First Closing Date with Depository
Trust Company stock transfer sheets.
(w) Public Relations. As of the Effective Date, the
Company shall have retained a public relations firm reasonably acceptable to
you, and shall continue to retain such firm, or an alternate firm reasonably
acceptable to Maidstone, for a period of twelve (12) months.
(x) Additional Representations. The Company shall
engage the Underwriters' Counsel to provide the Underwriter, at the First
Closing Date and quarterly thereafter, until such time as the Common Stock is
listed on the New York Stock Exchange or the American Stock Exchange or quoted
on NASDAQ National Market System, with an opinion, setting forth those states in
which the Common Stock may be traded in non-issuer transactions under the blue
sky laws of the fifty states. The Company shall pay the Underwriters' Counsel
17
<PAGE>
a one-time fee of $12,500 at the First Closing Date for such opinions.
(aa) Bound Volumes. Within a reasonable time after
the First Closing Date, the Company shall deliver to you, at the Company's
expense, five bound volumes, containing the Registration Statement and all
exhibits filed therewith and all amendments thereto, and all other agreements,
correspondence, filings, certificates and other documents filed and/or delivered
in connection with the Offering.
4. CONDITIONS TO UNDERWRITERS' OBLIGATIONS. The obligations of
the Underwriters to purchase and pay for the Securities which the Underwriters
have agreed to purchase hereunder are subject to the material accuracy (as of
the date hereof and as of each Closing Date) of the representations and
warranties of the Company contained herein, the performance by the Company of
all of its respective obligations hereunder and the following further
conditions:
(a) Effective Registration Statement; No Stop Order.
The Registration Statement shall have become effective and you shall have
received notice thereof not later than 6:00 p.m., New York time, on the date of
this Agreement, or at such later time or on such later date as provided herein
or to which you may agree in writing. In addition, on each Closing Date (i) no
stop order denying or suspending the effectiveness of the Registration Statement
shall be in effect, and no proceedings for that or any similar purpose shall
have been instituted or shall be pending or, to your knowledge or to the
knowledge of the Company, shall be contemplated by the Commission, and (ii) all
requests on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of Underwriters' Counsel.
(b) Opinion of Company Counsel. On the First Closing
Date, you shall have received the opinion, dated as of the First Closing Date,
of Company Counsel, in form and substance satisfactory to the Underwriters'
Counsel, to the effect that:
(i) the Company has been duly incorporated
and validly exists as a corporation in good standing under the laws of
its jurisdiction of incorporation, with full corporate power and
authority to own its properties and conduct its business as described
in the Prospectus, and to such counsel's knowledge, is duly qualified
or licensed to do business as a foreign corporations and is in good
standing in each other jurisdiction in which the nature of its business
or the character or location of its properties requires such
qualification, except where failure to so qualify will not have a
material adverse affect on the business, properties or financial
condition of the Company taken as a whole;
(ii) (A) the authorized capitalization of
the Company as of the date of the Prospectus was as is set forth in the
Prospectus under the caption "CAPITALIZATION;" (B) all of the shares of
Common Stock now outstanding have been duly authorized and validly
issued, are fully paid and non-assessable,
18
<PAGE>
conform in all material respects to the description thereof contained
in the Prospectus, have not been issued in violation of the preemptive
rights of any stockholder and, except as described in the Prospectus,
are not subject to any restrictions upon the voting or transfer
thereof; (C) all of the Shares and all of the Warrants comprising the
Securities have been duly authorized and, when issued and delivered to
the Underwriters against payment therefor as provided herein, shall be
validly issued, fully paid and non-assessable, shall not have been
issued in violation of the preemptive rights of any stockholder, and no
personal liability shall attach to the ownership thereof; (D) to such
counsel's knowledge, the stockholders of the Company do not have any
preemptive rights or other rights to subscribe for or purchase, and
except for the transfer restrictions imposed by Rule 144 of the Rules
and Regulations promulgated under the Act or contained in the Lock-up
Agreements executed with the Underwriters, there are no restrictions
upon the voting or transfer of, any of the Securities; (E) the Shares
and the Warrants comprising the Securities, the Warrant Agreement and
the Underwriters' Unit Purchase Options conform in all material
respects to the respective descriptions thereof contained in the
Prospectus; (F) to such counsel's knowledge, all issuances of the
Company's securities have been made in compliance with, or under an
exemption from, the Act and applicable state securities laws; (G) a
sufficient number of shares of Common Stock has been reserved, for all
times when any of the Warrants (including the Warrants issuable upon
exercise of the Underwriters' Warrants) are outstanding, for issuance
upon exercise of all of the Warrants; and (H) to the knowledge of such
counsel, neither the filing of the Registration Statement nor the
offering or sale of the Securities as contemplated by this Agreement
gives rise to any registration rights or other rights, other than those
which have been effectively waived or satisfied or described in the
Prospectus, for or relating to the registration of any securities of
the Company;
(iii) the certificates evidencing the Shares
and the Warrants comprising the Securities are each in valid and proper
legal form; and the Warrants are exercisable for shares of Common Stock
in accordance with the terms of the Warrants;
(iv) this Agreement, the Warrant Agreement,
the Underwriters' Warrants, and the Financial Consulting Agreement have
been duly and validly authorized, executed and delivered by the Company
and (assuming due execution and delivery thereof by the Underwriter
and/or Continental Stock Transfer & Trust Company, as the case may be)
all of such agreements are, or when duly executed shall be, the valid
and legally binding obligations of the Company, enforceable in
accordance with their respective terms (except as enforceability may be
limited by bankruptcy, insolvency or other laws affecting the rights of
creditors generally or by general equitable principles); provided,
however, that no opinion need to be expressed as to the enforceability
of the
19
<PAGE>
indemnity provisions contained in Section 6 or the contribution
provisions contained in Section 7;
(v) to the knowledge of such counsel, other
than as described in the Prospectus (A) there is no pending, threatened
or contemplated legal or governmental proceeding affecting the Company
which could materially and adversely affect the business, property,
operations, condition (financial or otherwise) or earnings of the
Company, or which questions the validity of the Offering, the
Securities, this Agreement, the Warrant Agreement, the Underwriters'
Warrants, or the Financial Consulting Agreement or of any action taken
or to be taken by the Company pursuant thereto; and (B) there is no
legal or governmental regulatory proceeding required to be described or
referred to in the Registration Statement which is not so described or
referred to;
(vi) to the knowledge of such counsel, (A)
the Company is not in violation of or default under this Agreement, the
Warrant Agreement, the Underwriters' Warrants, or the Financial
Consulting Agreement; and (B) to the knowledge of such counsel, the
execution and delivery hereof and thereof and consummation of the
transactions herein or therein contemplated shall not result in a
material violation of, or constitute a default under, the Certificate
of Incorporation or By-laws of the Company, or any material obligation,
agreement, covenant of condition contained in any bond, debenture, note
or other evidence of indebtedness, or in any material contract,
indenture, mortgage, loan agreement, lease, joint venture or other
agreement or instrument to which the Company is a party or by which the
assets of the Company is bound, or any material order, rule,
regulation, writ, injunction or decree of any government, governmental
instrumentality or court applicable to the Company;
(vii) to the knowledge of such counsel, (a)
the Company has obtained, or is in the process of obtaining, all
licenses, permits and other governmental authorizations necessary to
the conduct of its business as described in the Prospectus, (b) such
obtained licenses, permits and other governmental authorizations are in
full force and effect, and (c) the Company is in all material respects
complying therewith;
(viii) the Registration Statement has become
effective under the Act, and to the knowledge of such counsel, no stop
order denying or suspending the effectiveness of the Registration
Statement is in effect, and no proceedings for that or any similar
purpose have been instituted or are pending before or threatened by the
Commission;
(ix) the Registration Statement and the
Prospectus (except for the financial statements, notes thereto and
other financial information and statistical data contained therein, as
to which counsel need not express an opinion)
20
<PAGE>
comply as to form in all material respects with the Act and the Rules
and Regulations;
(x) all descriptions contained in the
Registration Statement and the Prospectus, and any amendments or
supplements thereto, of contracts and other documents are accurate and
fairly present the information required to be described, and such
counsel is familiar with all contracts and other documents referred to
in the Registration Statement and the Prospectus, and any such
amendment or supplement, or filed as exhibits to the Registration
Statement and, to the knowledge of such counsel, no contract, document,
license or permit of a character required to be summarized or described
therein or to be filed as an exhibit thereto is not so summarized,
described or filed.
(xi) the statements in the Registration
Statement and the Prospectus under the captions "Risk Factors," "Use of
Proceeds," "Business," "Management," and "Description of Securities,"
which purport to summarize the provisions of agreements, licenses,
statutes or rules and regulations, have been reviewed by such counsel
and are accurate summaries in all material respects;
(xii) except for registration under the Act
and registration or qualification of the Securities under applicable
state or foreign securities or blue sky laws and NASD approval, no
authorization, approval, consent or license of any governmental or
regulatory authority or agency is necessary in connection with: (A) the
authorization, issuance, sale, transfer or delivery of the Securities
by the Company in accordance with this Agreement; (B) the execution,
delivery and performance of this Agreement by the Company or the taking
of any action contemplated herein; (C) the issuance of the
Underwriters' Warrants in accordance with this Agreement or the
Securities issuable upon exercise thereof; or the taking of any action
contemplated herein.
In rendering the opinions as set forth above, such counsel may rely upon
certificates of officers of the Company and of public officials as to matters of
fact. Such opinion shall also include a statement to the effect that in
connection with the preparation of the Registration Statement and the
Prospectus, such counsel has participated in conferences with officers and other
representatives of the Company, the Representative, Underwriters' counsel and
the independent certified public accountants of the Company, at which
conferences the contents of the Registration Statement and the Prospectus and
related matters were discussed, although such counsel is not passing on, and has
not verified the accuracy, completeness or fairness of the statements contained
in the Prospectus (except for customary due diligence) nothing has come to the
attention of such counsel which leads them to believe that at the time it became
effective contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus (other than the
schedules, financial statements and other financial and statistical information
as to which no view is expressed) at the time it became effective contained any
21
<PAGE>
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, or that the Prospectus (other than the financial statements and
other financial and statistical information as to which counsel need not express
an opinion) contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. In addition, such
opinion shall also cover such matters incident to the transactions contemplated
hereby as you or Underwriters' Counsel shall reasonably request. In rendering
such opinion, Company Counsel may rely as to matters of fact upon certificates
of officers of the Company, and of public officials, and may rely as to all
matters of law other than the law of the United States or the State of New York
and the General Corporation Law of the State of Delaware, upon opinions of
counsel reasonably satisfactory to you, in which case the opinion shall state
that they have no reason to believe that you and they are not entitled so to
rely.
(c) Intentionally omitted.
(d) Corporate Proceedings. All corporate proceedings
and other legal matters relating to this Agreement, the Registration Statement,
the Prospectus and other related matters shall be reasonably satisfactory to or
approved by Underwriters' Counsel.
(e) Comfort Letter. Prior to the Effective Date, and
again on and as of the First Closing Date, you shall have received a letter from
Richard A. Eisner & Company, LLP, certified public accountants for the Company,
satisfactory in form and substance to the Underwriters' Counsel.
(f) Bring Down. At each of the Closing Dates, (i) the
representations and warranties of the Company contained in this Agreement shall
be true and correct with the same effect as if made on and as of such Closing
Date, and the Company shall have performed all of its obligations hereunder and
satisfied all the conditions to be satisfied at or prior to such Closing Date;
(ii) the Registration Statement and the Prospectus shall contain all statements
which are required to be stated therein in accordance with the Act and the Rules
and Regulations, and shall in all material respects conform to the requirements
of the Act and the Rules and Regulations, and neither the Registration Statement
nor the Prospectus shall contain any untrue statement of a material fact or omit
to state any material fact required to be stated or which they were made, not
misleading; (iii) there shall have been, since the respective dates as of which
information is given, no material adverse change in the business, operations,
condition (financial or otherwise), earnings, capital stock, long-term or
short-term debt or general affairs of the Company from that set forth in the
Registration Statement and the Prospectus, except changes which the Registration
Statement and Prospectus indicate might occur after the Effective Date, and the
Company shall not have incurred any material liabilities nor entered into any
material agreement other than as referred to in the Registration Statement and
Prospectus; and (iv) except as set forth in the Prospectus, no action, suit or
proceeding shall be pending or threatened against the Company before or by any
commission, board or administrative agency in the United States or elsewhere,
wherein an unfavorable decision, ruling
22
<PAGE>
or finding would materially adversely affect the business, property, operations,
condition (financial or otherwise), earnings or general affairs of the Company.
In addition, you shall have received, at the First Closing Date, a certificate
signed by the principal executive officer and by the principal financial officer
of the Company, dated as of the First Closing Date, evidencing compliance with
the provisions of this Section 4(g).
(g) Transfer and Warrant Agent. On or before the
Effective Date, the Company shall have appointed Continental Stock Transfer &
Trust Company (or other agent mutually acceptable to the Company and Maidstone),
as its transfer agent and warrant agent ("Transfer Agent") to transfer all of
the Shares and Warrants issued in the Offering, as well as to transfer other
shares of the Common Stock outstanding from time to time.
(h) NASD Approval Of Underwriters' Compensation. By
the Effective Date, the Underwriter shall have received clearance from the NASD
as to the amount of compensation allowable or payable to the Underwriters, as
described in the Registration Statement.
(i) Certain Further Matters. On each Closing Date,
Underwriters' Counsel shall have been furnished with all such other documents
and certificates as they may reasonably request for the purpose of enabling them
to render their legal opinion to the Underwriter and in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements, the performance of any of the covenants, or the fulfillment of any
of the conditions, herein contained.
(j) All proceedings taken in connection with the
authorization, issuance or sale of the Securities, as herein contemplated shall
be reasonably satisfactory in form and substance to the Underwriters and to
Underwriters' Counsel;
(k) On each Closing Date there shall have been duly
tendered to you for your account the appropriate number of Securities;
(l) No order suspending the sale of the Securities in
any jurisdiction designated by you pursuant to Section 3(b) hereof shall have
been issued on either Closing Date, and no proceedings for that purpose shall
have been instituted or, to the knowledge of the Underwriters or the Company,
shall be contemplated;
(m) Prior to each Closing Date, there shall not have
been received or provided by the Company's independent public accountants or
attorneys, qualifications to the effect of either difficulties in furnishing
certifications as to material items including, without limitation, information
contained within the footnotes to the financial statements, or as affecting
matters incident to the issuance and sale of the Securities or as to corporate
proceedings or other matters;
(n) On or prior to the First Closing Date, the
Underwriters' Warrants,
23
<PAGE>
the Warrant Agreement and the Financial Consulting Agreement shall have been
executed and delivered by the Company, and the Lock-Up Agreements shall have
been executed and delivered by all of the Company's officers, directors and
existing stockholders, to the Underwriters.
(o) Additional Conditions Relating to Option Closing.
Upon exercise of the Over-Allotment Option, Maidstone's obligations to purchase
and pay for the Option Securities shall be subject to the following conditions:
(i) The Registration Statement shall remain
effective at the Option Closing Date, no stop order denying or suspending the
effectiveness thereof shall have been issued, and no proceedings for that or any
similar purpose shall have been instituted or shall be pending or, to your
knowledge or the knowledge of the Company, shall be contemplated by the
Commission, and all reasonable requests on the part of the Commission for
additional information shall have been complied with to the satisfaction of
Underwriters' Counsel.
(ii) On the Option Closing Date there shall
have been delivered to you the signed opinion of Company Counsel, dated as of
the Option Closing Date, in form and substance satisfactory to Underwriters'
Counsel, which opinion shall be substantially the same in scope and substance as
the opinion furnished to you on the First Closing Date pursuant to Section 4(b),
except that such opinion, where appropriate, shall cover the Option Securities
rather than the Firm Securities. If the First Closing Date is the same as the
Option Closing Date, such opinions may be combined.
(iii) All proceedings taken at or prior to
the Option Closing Date in connection with the sale and issuance of the Option
Securities shall be reasonably satisfactory in form and substance to you, and
you and Underwriters' Counsel shall have been furnished with all such documents,
certificates and opinions as you may reasonably request in connection with this
transaction in order to evidence the accuracy and completeness of any of the
representations, warranties or statements of the Company or its compliance with
any of the covenants or conditions contained herein.
(iv) On the Option Closing Date there shall
have been delivered you a letter in form and substance satisfactory to Maidstone
from Richard A. Eisner & Company, LLP, dated the Option Closing Date addressed
to you, confirming the information in their letter referred to in Section 4(f)
as of the date thereof and stating that, without any additional investigation
required, nothing has come to their attention during the period from the ending
date of their review referred to in such letter to a date not more than five
banking days prior to the Option Closing Date which would require any change in
such letter if it were required to be dated the Option Closing Date.
Any certificate signed by any officer of the Company and
delivered to the Underwriters or to Underwriters' Counsel shall be deemed a
representation and warranty by the Company to the Underwriter as to the
statements made therein. If any of the conditions herein provided for in this
Section shall not have been completely fulfilled as of the date indicated, this
24
<PAGE>
Agreement and all obligations of the Underwriter under this Agreement may be
cancelled at, or at any time prior to, each Closing Date by your notifying the
Company of such cancellation in writing or by telecopy at or prior to the
applicable Closing Date. Any such cancellation shall be without liability of any
Underwriters to the Company, except as otherwise provided herein.
5. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to sell and deliver the Securities are subject to the
following conditions:
(a) Effective Registration Statement. The
Registration Statement shall have become effective not later than 6:00 p.m. New
York Time, on the date of this Agreement, or at such later time or on such later
date as the Company and you may agree in writing.
(b) No Stop Order. On the applicable Closing Date, no
stop order denying or suspending the effectiveness of the Registration Statement
shall have been issued under the Act or any proceedings therefor initiated or
threatened by the Commission.
(c) Payment for Securities. On the applicable Closing
Date, you shall have made payment, for the account of the Underwriter, of the
aggregate Purchase Price for the Securities then being purchased by certified or
bank cashier's checks payable in next day funds to the order of the Company.
If the conditions to the obligations of the Company provided by this Section 5
have been fulfilled on the First Closing Date but are not fulfilled after the
First Closing Date and prior to the Option Closing Date, then only the
obligation of the Company to sell and deliver the Option Securities upon
exercise of the Over-Allotment Option shall be affected.
6. INDEMNIFICATION.
(a) Indemnification by the Company. As used in this
Agreement, the term "Liabilities" shall mean any and all losses, claims, damages
and liabilities, and actions and proceedings in respect thereof (including
without limitation all reasonable costs of defense and investigation and all
attorneys' fees) including without limitation those asserted by any party to
this Agreement against any other party to this Agreement. The Company hereby
indemnifies and holds harmless the Underwriters and each person, if any, who
controls the Underwriters within the meaning of the Act, from and against all
Liabilities, to which the Underwriters or such controlling person may become
subject, under the Act or otherwise, insofar as such Liabilities arise out of or
are based upon: (i) any untrue statement or alleged untrue statement of any
material fact, in light of the circumstances in which it was made, contained in
(A) the Registration Statement or any amendment thereto, or the Prospectus or
any Preliminary Prospectus, or any amendment or supplement thereto, or (B) any
"blue sky" application or other document executed by the Company specifically
for that purpose, or based upon written information furnished by the Company,
filed in any state or other jurisdiction in order to qualify any or all of the
Securities under the securities laws thereof (any such application, document or
25
<PAGE>
information being herein called a "Blue Sky Application"); or (ii) the omission
or alleged omission to state in the Registration Statement or any amendment
thereto, or the Prospectus or any Preliminary Prospectus, or any amendment or
supplement thereto, or in any Blue Sky Application, a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances in which it was made, not misleading; provided, however, that the
Company shall not be liable in any such case to the extent, but only to the
extent, that any such Liabilities arise out of or are based upon an untrue
statement or alleged untrue statement or omission or alleged omission (x) made
in reliance upon and in conformity with written information furnished to the
Company through you by or on behalf of the Underwriters specifically for use in
the preparation of the Registration Statement or any such amendment thereto, or
the Prospectus or any such Preliminary Prospectus, or any such amendment or
supplement thereto, or any such Blue Sky Application or (y) corrected by the
final Prospectus and the failure of the Underwriter to deliver the final
Prospectus. The foregoing indemnity shall be in addition to any other liability
which the Company may otherwise have.
(b) Indemnification by each Underwriter. The
Underwriters hereby indemnify and hold harmless the Company, each of its
directors, each nominee (if any) for director named in the Prospectus, each of
its officers who have signed the Registration Statement, and each person, if
any, who controls the Company within the meaning of the Act, from and against
all Liabilities to which the Company or any such director, nominee, officer or
controlling person may become subject under the Act or otherwise, insofar as
such Liabilities arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or any amendment thereto, or the Prospectus or any Preliminary
Prospectus, or any amendment or supplement thereto, or (ii) the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that any such Liabilities arise out of or are
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement or any amendment thereto, or
the Prospectus or any Preliminary Prospectus, or any amendment or supplement
thereto, in reliance upon and in conformity with written information furnished
to the Company through you, by or on behalf of such Underwriters, specifically
for use in the preparation thereof. In no event shall any Underwriters be liable
under this Section 6(b) for any amount in excess of the compensation received by
such Underwriters, in the form of underwriting discounts or otherwise, pursuant
to this Agreement or any other agreement contemplated hereby. The foregoing
indemnity shall be in addition to any other liability which any Underwriters may
otherwise have.
(c) Procedure. Promptly after receipt by an
indemnified party under this Section 6 of notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under this Section 6, notify in writing the
indemnifying party of the commencement thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to any indemnified party otherwise than under this Section 6 unless the rights
of the indemnifying party have been prejudiced by such omission or delay. In
case any such action is brought against any
26
<PAGE>
indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, subject to the provisions hereof, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided, however, that the fees and expenses of such
counsel shall be at the expense of the indemnifying party if (i) the employment
of such counsel has been specifically authorized in writing by the indemnifying
party, or (ii) the named parties to any such action (including any impleaded
parties) include both such indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it which are different from or in addition to those
available to the indemnifying party or that the indemnified and indemnifying
party have conflicting interests which would make it inappropriate for the same
counsel to represent both of them (in which case the indemnifying party shall
into have the right to assume the defense of such action on behalf of the
indemnified party, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys). No settlement of any
action against an indemnified party shall be made without the consent of the
indemnified party, which shall not be unreasonably withheld in light of all
factors of importance to such indemnified party.
7. CONTRIBUTION. In order to provide for just and equitable
contribution under the Act in any case in which (a) any indemnified party makes
claims for indemnification pursuant to Section 6 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case, notwithstanding the
fact that the express provisions of Section 6 provide for indemnification in
such case, or (b) contribution under the Act may be required on the part of any
indemnified party, then such indemnified party and each indemnifying party (if
more than one) shall contribute to the aggregate Liabilities to which it may be
subject, in either such case (after contribution from others) in such
proportions that the Underwriters are responsible in the aggregate for the
portion of such Liabilities represented by the percentage that the underwriting
discount per Share and per Warrant appearing on the cover page of the Prospectus
bears to the public Offering price per Share and per Warrant appearing thereon,
and the Company shall be responsible for the remaining portion; provided,
however, that if such allocation is not permitted by applicable law, then the
relative fault of the Company, and the Underwriters in connection with the
statements or omissions which resulted in such Liabilities and other relevant
equitable considerations shall
27
<PAGE>
also be considered. The relative fault shall be determined by reference to,
among other things, whether in the case of an untrue statement of material fact
or the omission to state a material fact, such statement or omission relates to
information supplied by the Company, or the Underwriters, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if the respective obligations of
the Company, and the Underwriters to contribute pursuant to this Section 7 were
to be determined by pro rata or per capita allocation of the aggregate
Liabilities or by any other method of allocation that does not take account of
the equitable considerations referred to in the first sentence of this Section
7. Moreover, the contribution of any Underwriters shall not be in excess of the
cash compensation received by such Underwriters, in the form of underwriting
discounts or otherwise, pursuant to this agreement or any other agreement
contemplated hereby. No person guilty of a fraudulent misrepresentation (within
the meaning of section 11(f) of the Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. As used in
this Section 7, the term "Company" shall include any officer, director or person
who controls the Company within the meaning of section 15 of the Act. If the
full amount of the contribution specified in this Section 7 is not permitted by
law, then each indemnified party and each person who controls an indemnified
party shall be entitled to contribution from each indemnifying party to the full
extent permitted by law. The foregoing contribution agreement shall in no way
affect the contribution liabilities of any persons having liability under
section 11 of the Act other than the Company and the Underwriters. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent to the settlement; provided, however, that such
consent shall not be unreasonably withheld in light of all factors of importance
to such party.
8. COSTS AND EXPENSES.
(a) Certain Costs and Expenses. Whether or not this
Agreement becomes effective or the sale of the Securities to the Underwriters is
consummated, the Company shall pay all costs and expense incident to the
issuance, offering, sale and delivery of the Securities and the performance of
its obligations under this Agreement, including without limitation: (i) all fees
and expenses of the Company's legal counsel and accountants; (ii) all costs and
expenses incident to the preparation, printing, filing and distribution of the
Registration Statement (including the financial statements contained therein and
all exhibits and amendments thereto), each Preliminary Prospectus and the
Prospectus, each as amended or supplemented, this Agreement and the other
underwriting documents, as well as the other agreements and documents referred
to herein and the Blue Sky Memorandum; each in such quantities as you shall deem
necessary; (iii) all fees of NASD required in connection with the filing
required by NASD to be made by the Underwriter with respect to the Offering;
(iv) all expenses, including fees (but not in excess of the amount set forth in
Section 3(b)) and disbursements of Underwriters' Counsel in connection with the
qualification of the Securities under the "blue sky" laws which you shall
designate; (v) all costs and expenses of printing the respective certificates
representing the Shares and the Warrants; (vi) the expense of placing one or
more "tombstone" advertisements or promotional materials as directed by you
(provided, however, that the
28
<PAGE>
aggregate amount thereof shall not exceed $10,000) and of offering memorabilia;
(vii) all costs and expenses of the Company and its employees (but not of the
Underwriters or its employees) associated with due diligence meetings and
presentations (including the payment for road show conference centers); (viii)
any and all taxes (including without limitation any transfer, franchise, capital
stock or other tax imposed by any jurisdiction) on sales of the Securities to
the Underwriters hereunder; and (xi) all costs and expenses incident to the
furnishing of any amended Prospectus or any supplement to be attached to the
Prospectus as required by Sections 3(a) and 3(d), except as otherwise provided
by said Sections. In addition, the Company shall engage Underwriters' Counsel to
provide the Underwriters, at the Closing and quarterly thereafter, until such
time as the Common Stock is listed on the New York Stock Exchange or the
American Stock Exchange or quoted on NASDAQ/NMS, with a memorandum, setting
forth those states in which the Common Stock and the Warrants may be traded in
non-issuer transactions under the blue sky laws of the 50 states. The Company
shall pay such counsel a one-time fee of $12,500 at the Closing for such
opinions.
(b) Underwriters' Expense Allowance. In addition to
the expenses described in Section 8(a), the Company shall on the First Closing
Date pay to Maidstone the balance of a non-accountable expense allowance,
exclusive of the fees referred to in Section 3(b), an amount equal to three
percent (3%) of the gross proceeds received upon sale of the Firm Securities, of
which $35,000 has been paid to Maidstone prior to the date hereof. In the event
that the Over-Allotment Option is exercised, then the Company shall, on the
Option Closing Date, pay to Maidstone, based on the number of Option Securities
to be sold by the Company, an additional amount equal to three percent (3%) of
the gross proceeds received upon sale of any of the Option Securities. In the
event that the transactions contemplated hereby fail to be consummated for any
reason, then Maidstone shall return to the Company that portion of $35,000
heretofore paid by the Company to the extent that it has not been utilized by
you in connection with the Offering for reasonable accountable out-of-pocket
expenses; provided, however, that if such failure is due to a breach by the
Company of any covenant, representation or warranty contained herein or because
any other condition to the Underwriters' obligations hereunder required to be
fulfilled by the Company is not fulfilled, then the Company shall be liable for
your reasonable accountable out-of-pocket expenses to the full extent thereof
(with credit given to the $35,000 paid).
(c) No Finders. No person is entitled either directly
or indirectly to compensation from the Company, the Underwriters or any other
person for services as a finder in connection with the Offering, and the Company
hereby indemnifies and hold harmless the Underwriters, and the Underwriters
hereby indemnify and hold harmless the Company from and against all Liabilities,
joint or several, to which the indemnified party may become subject insofar as
such Liabilities arise out of or are based upon the claim of any person (other
than an employee of the party claiming indemnity) or entity that he or it is
entitled to a finder's fee in connection with the Offering by reason of such
person's or entity's influence or prior contact with the indemnifying party.
9. EFFECTIVE DATE. The Agreement shall become effective at
9:30
29
<PAGE>
A.M. on the first full business day following the day on which the Registration
Statement becomes effective or at the time of the initial public offering by you
of the Stock, whichever is earlier. The time of the initial public offering
shall mean the time of release by you of the first newspaper advertisement which
is subsequently published with respect to the Securities, or the time when the
Securities are first generally offered by you to dealers by letter or telegram,
whichever shall first occur. You or the Company may prevent this Agreement from
becoming effective without liability at any party to any other party, except as
provided in Section 8, by giving the notice indicated below in Section 13 before
the time this Agreement becomes effective.
10. TERMINATION.
(a) Grounds for Termination.
(i) This Agreement, except for Sections 6,
7, 8, 12, 13, 14 and 15, may be terminated at any time prior to the First
Closing Date, and the Over-Allotment Option, if exercised, may be cancelled at
any time prior to the Option Closing Date, by you if in your sole judgment it is
impracticable to offer for sale or to enforce contracts made by you for the
resale of the Securities agreed to be purchased hereunder, by reason of: (A) the
Company having sustained a material loss, whether or not insured, by reason of
fire, earthquake, flood, accident or other calamity, or from any labor dispute
or court or government action, order or decree; (B) trading in securities on the
New York Stock Exchange or the American Stock Exchange having been suspended or
limited; (C) material governmental restrictions having been imposed on trading
in securities generally which are not in force and effect on the date hereof;
(D) a banking moratorium having been declared by federal or New York State
authorities; (E) an outbreak or significant escalation of major international
hostilities or other national or international calamity having occurred; (F) the
passage by the Congress of the United States or by any state legislative body of
similar impact, of any act or measure, or the adoption of any orders, rules or
regulations by any governmental body or any authoritative accounting institute
or board, or any governmental executive, which is reasonably believed likely by
you to have a material adverse impact on the business, financial condition or
financial statements of the Company; (G) any material adverse change in the
financial or securities markets beyond normal fluctuations in the United States
having occurred since the date of this Agreement; or (H) any material adverse
change having occurred, since the respective dates for which information is
given in the Registration Statement and Prospectus, in the earnings, business,
prospects or condition (financial or otherwise) of the Company, whether or not
arising in the ordinary course of business.
(ii) Maidstone shall have the right, in its
sole discretion, to terminate this Agreement, including without limitation, the
obligation to purchase the Firm Securities and the obligation to purchase the
Option Securities after the exercise of the Over- Allotment Option, by notice
given to the Company prior to delivery and payment for all the Firm Securities
or the Option Securities, as the case may be, if any of the conditions
enumerated in Section 4 are not either fulfilled or waived by the Underwriters
on or before any Closing Date.
30
<PAGE>
(iii) Anything herein to the contrary
notwithstanding, if this Agreement shall not be carried out within the time
specified herein, or any extensions thereof granted by the Underwriters, by
reason of any failure on the part of the Company to perform any undertaking or
satisfy any condition of this Agreement by it to be performed or satisfied then,
in addition to the obligations assumed by the Company pursuant to Section 8(a)
hereof, the Underwriter shall provide the Company with, and the Company shall
pay, a statement of the Underwriters' accountable expenses.
(b) Notification. If you elect to prevent this
Agreement from becoming effective or to terminate this Agreement as provided by
this Section 10 or by Section 9, the Company shall be promptly notified by you,
by telephone or telegram, confirmed by letter.
11. Underwriters' Warrants. On the First Closing Date, the
Company shall issue and sell to you, for nominal consideration, and upon the
terms and conditions set forth in the form of Underwriters' Warrants filed as an
exhibit to the Registration Statement, a Warrant entitling you to purchase
130,000 Shares and/or Warrants at an exercise price equal to 165% of the initial
public offering price per unit exercisable for a period of four years commencing
one year from the Effective Date (the "Underwriters' Warrants"). The
Underwriters' Warrants grant to the holders thereof certain "piggyback"
registration rights for a period of four years, and demand registration rights
for a period of four years, commencing one year from the Effective Date with
respect to the registration under the Securities Act of the Securities issuable
upon exercise thereof. In the event of conflict in the terms of this Agreement
and the Underwriters' Warrants, the terms and conditions of the Underwriters'
Warrants shall control.
12. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. The respective indemnities, agreements, representations, warranties,
covenants and other statements of the Company and the Underwriter set forth in
Sections 3, 6, 7 and 8 of this Agreement shall remain in full force and effect
regardless of any investigation made by or on behalf of any other party, and
shall survive delivery of and payment for the Securities and the termination of
this Agreement. The Company hereby indemnifies and holds harmless the
Underwriters from and against all Liabilities, joint or several, to which the
Underwriters may become subject insofar as such Liabilities arise out of or are
based upon the breach or failure of any of the provisions of Sections 3, 6, 7
and 8.
13. NOTICES. All communications hereunder shall be in writing
and, except as otherwise expressly provided herein, if sent to you, shall be
mailed, delivered or telegraphed and confirmed to you at Maidstone Financial,
Inc., 101 East 52nd Street, New York, New York 10022, with a copy sent to Jay M.
Kaplowitz, Esq., Gersten, Savage, Kaplowitz & Curtin, LLP, 575 Lexington Avenue,
New York, New York 10022; or if sent to the Company, shall be mailed, delivered,
or telegraphed and confirmed to it at Community Care Services, Inc., 18 Sargent
Place, Mount Vernon, New York 10550, Attention: Alan T. Sheinwald, with a copy
sent to Michael DiGiovanna, Esq., Parker Duryee Rosoff & Haft, 529 Fifth Avenue,
New York, New York 10017.
31
<PAGE>
14. PARTIES IN INTEREST. This Agreement is made solely for the
benefit of the Underwriters, the Company, and, to the extent expressed, any
person controlling the Company or the Underwriters, as the case may be, and the
directors of the Company, nominees for directors of the Company (if any) named
in the Prospectus, officers of the Company who have signed the Registration
Statement, and their respective executors, administrators, successors and
assigns; and no other person shall acquire or have any right under or by virtue
of this Agreement. The term "successors and assigns" shall not include any
purchaser, as such, from an underwriter of the Securities.
15. CONSTRUCTION. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
without giving effect to conflict of laws. The parties agree to submit
themselves to the jurisdiction of the courts of the State of New York or of the
United States of America for the Southern District of New York, which shall be
the sole tribunals in which any parties may institute and maintain a legal
proceeding against the other party arising from any dispute in this Agreement.
In the event either party initiates a legal proceeding in a jurisdiction other
than in the courts of the State of New York or of the United States of America
for the Southern District of New York, the other party may assert as a complete
defense and as a basis for dismissal of such legal proceeding that the legal
proceeding was not initiated and maintained in the courts of the State of New
York or of the United States of America for the Southern District of New York,
in accordance with the provisions of this Section 15.
16. ENTIRE AGREEMENT. This Agreement, the Underwriter's
Warrants, and the Financial Consulting Agreement contain the entire agreement
between the parties hereto in connection with the subject matter hereof and
thereof.
17. COUNTERPARTS. This Agreement may be executed in two or more
counterpart copies, each of which shall be deemed and an original but all of
which together shall constitute one and the same instrument.
18. DEFAULT BY AN UNDERWRITER.
(a) If any Underwriter or Underwriters shall default
in its or their obligations to purchase the Stock hereunder, and if the number
of shares with respect to which such default relates does not exceed in the
aggregate 10% of the number of shares of Stock which all Underwriters have
agreed to purchase hereunder, then such Stock to which the default relates shall
be purchased by the nondefaulting Underwriters in proportion to their respective
commitments hereunder.
(b) In the event that such default relates to more
than 10% of the number of shares of Stock, you may in your discretion arrange
for yourself or for another party or parties to purchase such Stock to which
such default relates on the terms contained herein.
32
<PAGE>
if within one (1) business day after such default relating to more than 10% of
the number of shares of Stock, then the Company shall be entitled to a further
period of one (1) business day within which to procure another party or parties
satisfactory to you to purchase said Stock on such terms. In the event that
neither you nor the Company arrange for the purchase of the Stock to which a
default relates as provided in this Section 9, this Agreement may be terminated
by you or the Company (except as provided in Section 6 and Section 8(a) hereof)
or the several Underwriters, but nothing herein shall relieve a defaulting
Underwriter of its liability, if any, to the other several Underwriters and to
the Company for damages occasioned by its default hereunder.
(c) In the event that the Stock to which the default
relates is to be purchased by the non-defaulting Underwriters, or is to be
purchased by another party or parties as aforesaid, you or the Company shall
have the right to postpone the Closing Date for a reasonable period but not in
any event exceeding five (5) business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus or
in any other documents and arrangements, and the Company agrees to file promptly
any amendment to the Registration Statement or the Prospectus which in the
opinion of counsel for the Underwriters may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any party substituted
under this Section 18 with like effect as if it had originally been a party to
this Agreement with respect to such Stock.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return this Agreement, whereupon it will become a
binding agreement between the Company and the Underwriters in accordance with
its terms.
Very truly yours,
COMMUNITY CARE SERVICES, INC.
By: ____________________________________
Name:
Title:
Accepted as of the date
first above written:
New York, New York
MAIDSTONE FINANCIAL, INC., as Representative
of the Several Underwriters
By: ________________________________________
Name:
33
<PAGE>
Title:
34
<PAGE>
EXHIBIT A
Name Number of Shares and/or Warrants
- ---- --------------------------------
Maidstone Financial, Inc.
The Harriman Group, Inc.
35
<PAGE>
Exhibit 1.02
COMMUNITY CARE SERVICES, INC.
AND
MAIDSTONE FINANCIAL, INC.
UNDERWRITERS'
WARRANT AGREEMENT
<PAGE>
UNDERWRITERS' WARRANT AGREEMENT dated as of _______________,
1996 by and between COMMUNITY CARE SERVICES, INC. (the "Company") and MAIDSTONE
FINANCIAL, INC. ("Maidstone" or the "Representative"), as the Representative of
the underwriting group. The underwriting group is referred to collectively
herein as the "Underwriters."
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Underwriters
warrants (the "Underwriters' Warrants") to purchase up to 130,000 shares of the
Company's common stock, par value $.01 per share (the "Common Stock") and/or up
to 130,000 Class A Redeemable Common Stock Purchase Warrants (the "Redeemable
Warrants") each exercisable to purchase one share of Common Stock.
WHEREAS, the Underwriters have agreed, pursuant to the
underwriting agreement (the "Underwriting Agreement") dated __________, 1996, by
and between the Underwriters and the Company, to act as the underwriters in
connection with the Company's proposed initial public offering (the "Initial
Public Offering") of 1,300,000 shares of Common Stock and 1,300,000 Redeemable
Warrants (the "Offering Securities"), such Offering Securities being identical
to the securities issuable upon exercise of the Underwriters' Warrants (the
"Securities"); and
1
<PAGE>
WHEREAS, the Underwriters' Warrants to be issued pursuant to
this Agreement will be issued on the First Closing Date (as such term is defined
in the Underwriting Agreement) by the Company to the Underwriters in
consideration for, and as part of, the Underwriters' compensation in connection
with the Underwriters acting as the underwriters pursuant to the Underwriting
Agreement;
NOW, THEREFORE, in consideration of the promises, the payment
by the Underwriters to the Company of Ten Dollars ($10.00), the agreements
herein set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Grant. The Holder (as defined in Section 3 below) is hereby
granted the right to purchase, at any time from ________________, 1997 until
5:00 p.m., New York time, on ____________, 2001, an aggregate of up to 130,000
shares of Common Stock and/or 130,000 Redeemable Warrants, at an initial
purchase price (subject to adjustment as provided in Section 8 hereof) of $5.61
per share of Common Stock and $.11 per Redeemable Warrant (110% of the Initial
Public Offering price per Offering Security), subject to the terms and
conditions of this Agreement. The Securities issuable upon exercise of the
Underwriters' Warrants are sometimes referred to herein as the "Underwriters'
Securities."
2. Warrant Certificates. The warrant certificate (the
"Underwriters' Warrant Certificate") to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement.
2
<PAGE>
3. Exercise of Underwriters' Warrants. The Underwriters'
Warrants are exercisable during the term set forth in Section 1 hereof payable
by certified or cashier's check or money order in lawful money of the United
States. Upon surrender of an Underwriter's Warrant Certificate with the annexed
Form of Election to Purchase duly executed, together with payment of the
Purchase Price (as defined in Section 6 hereof) for the Underwriter's Securities
(and such other amounts, if any, arising pursuant to Section 4 hereof) at the
Company's principal office in New York located at 18 Sargent Place, Mt. Vernon,
New York 10550, the registered holder of an Underwriters' Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the Underwriters' Securities so purchased. The purchase rights
represented by each Underwriters' Warrant Certificate are exercisable at the
option of the Holder or Holders thereof, in whole or in part as to Underwriters'
Securities. The Underwriters' Warrants may be exercised to purchase all or any
part of the Underwriters' Securities represented thereby. In the case of the
purchase of less than all the Underwriters' Securities purchasable on the
exercise of the Underwriters' Warrants represented by an Underwriters' Warrant
Certificate, the Company shall cancel the Underwriters' Warrant Certificate
represented thereby upon the surrender thereof and shall execute and deliver a
new Underwriters' Warrant Certificate of like tenor for the balance of the
Underwriters' Securities purchasable thereunder.
4. Issuance of Certificates. Upon the exercise of the
Underwriters' Warrants and payment of the Purchase Price therefor, the issuance
of certificates representing the Underwriters' Securities or other securities,
properties or rights underlying such Underwriters' Warrants, shall be made
forthwith (and in any event within five (5) business days thereafter) without
further
3
<PAGE>
charge to the Holder thereof, and such certificates shall (subject to the
provisions of Sections 5 and 7 hereof) be issued in the name of, or in such
names as may be directed by, the Holder thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holder, and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid. The Underwriters' Warrant Certificates and the certificates
representing the Underwriters' Securities or other securities, property or
rights (if such property or rights are represented by certificates) shall be
executed on behalf of the Company by the manual or facsimile signature of the
then present Chairman or Vice Chairman of the Board of Directors or President or
Vice President of the Company, attested to by the manual or facsimile signature
of the then present Secretary or Assistant Secretary or Treasurer or Assistant
Treasurer of the Company. Underwriters' Warrant Certificates shall be dated the
date of issuance thereof by the Company upon initial issuance, transfer or
exchange.
5. Restriction On Transfer of Underwriters' Warrants. The
Holder of an Underwriters' Warrant Certificate (and its Permitted Transferee, as
defined below), by its acceptance thereof, covenants and agrees that the
Underwriters' Warrants are being acquired as an investment and not with a view
to the distribution thereof; that the Underwriters' Warrants may be sold,
transferred, assigned, hypothecated or otherwise disposed of, in whole or in
part, to any person (a "Permitted Transferee"), provided such transfer,
assignment, hypothecation or other disposition is made in accordance with the
provisions of the Securities Act of 1933, as amended (the "Act"); and provided,
further, that until ____________, 1997 (one year following the effective
4
<PAGE>
date of the Initial Public Offering), only officers and partners of the
Underwriters, or any Initial Public Offering selling group member and their
respective officers and partners, shall be Permitted Transferees.
6. Purchase Price.
(a) Initial and Adjusted Purchase Price. Except as
otherwise provided in Section 8 hereof, the initial purchase price of the
Underwriters' Securities shall be $5.61 per share of Common Stock and $.11 per
Redeemable Warrant. The adjusted purchase price shall be the price which shall
result from time to time from any and all adjustments of the initial purchase
price in accordance with the provisions of Section 8 hereof.
(b) Purchase Price. The term "Purchase Price" herein
shall mean the initial purchase price or the adjusted purchase price, depending
upon the context.
7. Registration Rights.
(a) Registration Under the Securities Act of 1933.
The Underwriters' Warrants have not been registered under the Act. The
Underwriters' Warrant Certificates shall bear the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), and may not be offered for sale or sold except
pursuant to (i) an effective registration statement under the
Act, or (ii) an opinion of counsel, if such opinion and
counsel shall be reasonably satisfactory to counsel to the
issuer, that an exemption from registration under the Act is
available.
(b) Demand Registration. (1) At any time commencing
on the first anniversary of and expiring on the fifth anniversary of the
effective date of the Company's Registration Statement relating to the Initial
Public Offering (the "Effective Date"), the Holders of a Majority (as
hereinafter defined) in interest of the Underwriters' Warrants, or the Majority
5
<PAGE>
in interest of the Underwriters' Securities (assuming the exercise of all of the
Underwriters' Warrants) shall have the right, exercisable by written notice to
the Company, to have the Company prepare and file with the U.S. Securities and
Exchange Commission (the "Commission"), solely on one (1) occasion, a
registration statement on Form SB-2 (or other appropriate form), and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for the Holders, in order to comply with the
provisions of the Act, so as to permit a public offering and sale, for a period
of nine (9) months, of the Underwriters' Securities by such Holders and any
other Holders of the Underwriters' Warrants and/or the Underwriters' Securities
who notify the Company within fifteen (15) business days after receipt of the
notice described in Section 7(b)(2). The Holders of the Underwriters' Warrants
may demand registration without exercising the Underwriters' Warrants, and are
never required to exercise same.
(2) The Company covenants and agrees to give written
notice of any registration request under this Section 7(b) by any Holders to all
other registered Holders of the Underwriters' Warrants and the Underwriters'
Securities within ten (10) calendar days from the date of the receipt of any
such registration request.
(3) For purposes of this Agreement, the term
"Majority" in reference to the Holders of the Underwriters' Warrants or
Underwriters' Securities, shall mean in excess of fifty percent (50%) of the
then outstanding Underwriters' Warrants or Underwriters' Securities that (i) are
not held by the Company, an affiliate, officer, employee or agent thereof or any
of their respective affiliates, members of their family, persons acting as
nominees or in conjunction therewith, or (ii) have not been resold to the public
pursuant to a registration statement filed with the Commission under the Act.
6
<PAGE>
(c) Piggyback Registration. (1) If, at any time within the
period commencing on the first anniversary and expiring on the fifth anniversary
of the Effective Date, the Company should file a registration statement with the
Commission under the Act (other than in connection with a merger or other
business combination transaction or pursuant to Form S-8) it will give written
notice at least thirty (30) calendar days prior to the filing of each such
registration statement to the Underwriters and to all other Holders of the
Underwriters' Warrants and/or the Underwriters' Securities of its intention to
do so. If either of the Underwriters or other Holders of the Underwriters'
Warrants and/or the Underwriters' Securities notify the Company within twenty
(20) calendar days after receipt of any such notice of its or their desire to
include any Underwriters' Securities in such proposed registration statement,
the Company shall afford the Underwriters and such Holders of the Underwriters'
Warrants and/or Underwriters' Securities the opportunity to have any such
Underwriters' Securities registered under such registration statement.
Notwithstanding the provisions of this Section 7(c)(1) and the provisions of
Section 7(d), the Company shall have the right at any time after it shall have
given written notice pursuant to this Section 7(c)(1) (irrespective of whether a
written request for inclusion of any such securities shall have been made) to
elect not to file any such proposed registration statement, or to withdraw the
same after the filing but prior to the effective date thereof.
(2) If the underwriter of an offering to which the
above piggyback rights apply objects to such rights, such objection shall
preclude such inclusion. However, in such event, the Company will, within nine
(9) months of completion of such subsequent underwriting, file at the expense of
the Company, a registration statement so as to permit a public offering and
sale, for a period of nine (9) months, of such excluded Underwriters'
Securities, which shall be in addition to any registration statement required to
be filed pursuant to Section 7(b).
7
<PAGE>
(d) Covenants of the Company With Respect to Registration. In
connection with any registrations under Sections 7(b) and 7(c) hereof, the
Company covenants and agrees as follows:
(1) The Company shall use its best efforts to file a
registration statement within forty-five (45) calendar days of receipt of any
demand therefor pursuant to Section 7(b); provided, however, that the Company
shall not be required to produce audited or unaudited financial statements for
any period prior to the date such financial statements are required to be filed
in a report on Form 10-KSB or Form 10-QSB, as the case may be. The Company shall
use its best efforts to have any registration statement declared effective at
the earliest possible time, and shall furnish each Holder desiring to sell
Underwriters' Securities such number of prospectuses as shall reasonably be
requested.
(2) The Company shall pay all costs (excluding fees
and expenses of Holders' counsel and any underwriting discounts or selling fees,
expenses or commissions), fees and expenses in connection with the first
registration statement filed pursuant to Sections 7(b) and 7(c) hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses.
(3) The Company will use its best efforts to qualify
or register the Underwriters' Securities included in a registration statement
for offering and sale under the securities or blue sky laws of such states as
reasonably are requested by the Holders, provided that the Company shall not be
obligated to execute or file any general consent to service of process or to
qualify as a foreign corporation to do business under the laws of any such
jurisdiction.
8
<PAGE>
(4) The Company shall indemnify the Holders of the
Underwriters' Securities to be sold pursuant to any registration statement and
each person, if any, who controls such Holders within the meaning of Section 15
of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising from such registration
statement, but only to the same extent and with the same effect as the
provisions pursuant to which the Company has agreed to indemnify the
Underwriters contained in Section 8 of the Underwriting Agreement.
(5) The Holders of the Underwriters' Securities to be
sold pursuant to a registration statement, and their successors and assigns,
shall indemnify the Company, its officers and directors and each person, if any,
who controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability to which they may become subject under the Act, the Exchange Act or
otherwise, arising from information furnished by or on behalf of such Holders,
or their successors or assigns, for specific inclusion in such registration
statement to the same extent and with the same effect as the provisions
contained in Section 8 of the Underwriting Agreement pursuant to which the
Underwriters have agreed to indemnify the Company.
(6) Nothing contained in this Agreement shall be
construed as requiring the Holders to exercise their Underwriters' Warrants
prior to the initial filing of any registration statement or the effectiveness
thereof.
(7) The Company shall not be entitled to include any
securities other than the Underwriters' Securities in any registration statement
filed pursuant to Section 7(b)
9
<PAGE>
hereof without the prior written consent, which consent shall not be
unreasonably withheld, of the Holders of the Underwriters' Warrants and
Underwriters' Securities representing a Majority of such securities (assuming
exercise of all of the Underwriters' Warrants). Except that the Company may
include the 220,000 shares registered on behalf of certain individuals included
in the Registration Statement without the consent of the Representative.
(8) The Company shall furnish to a designated
representative of the Holders participating in the offering and to each
underwriter, if any, a signed counterpart, addressed to the Company or the
underwriter of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) if such registration includes an underwritten
public offering a copy of the "cold comfort" letter dated the effective date of
such registration statement signed by each independent public accountant who has
issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letters, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters, with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(9) The Company shall as soon as practicable after
the effective date of the registration statement, and in any event within 15
months thereafter, make "generally available to its security holders" (within
the meaning of Rule 158 under the Act) an earnings
10
<PAGE>
statement (which need not be audited) complying with Section 11(a) of the Act
and covering a period of at least 12 consecutive months beginning after the
effective date of the registration statement.
(10) The Company shall deliver promptly to each
Holder participating in the offering requesting the correspondence described
below and any managing underwriter copies of all correspondence between the
Commission and the Company, its counsel or auditors with respect to the
registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
shall reasonably request.
(11) The Company shall enter into an underwriting
agreement with the managing underwriter selected for such underwriting by
Holders holding a Majority of the Underwriters' Securities requested to be
included in such underwriting, provided, however that (i) such managing
underwriter shall be reasonably acceptable to the Company, except that in
connection with an offering for which the Holders have piggyback rights, the
Company shall have the sole right to select the managing underwriter or
underwriters, and (ii) the Holders shall be responsible for any selling fees or
commissions in connection with such underwriting. Such underwriting agreement
shall be satisfactory in form and substance to the Company, a Majority of such
Holders (in respect of a registration under Section 7(b) only) and such managing
11
<PAGE>
underwriter, and shall contain such representations, warranties and covenants by
the Company and such other terms as are customarily contained in agreements of
that type used by the managing underwriter. The Holders shall be parties to any
underwriting agreement relating to an underwritten sale of their Underwriters'
Securities and may, at their option, require that any or all the
representations, warranties and covenants of the Company to or for the benefit
of such underwriters shall also be made to and for the benefit of such Holders.
Such Holders shall not be required to make any representations or warranties to
or agreements with the Company or the underwriters except as they may relate to
such Holders and their intended methods of distribution.
e. Further Registrations. The Company will cooperate
with the Holders of the Underwriters' Warrants and Underwriters' Securities in
preparing and signing any registration statement, in addition to the
registration statements discussed above, required in order to sell or transfer
the Underwriters' Securities and will supply all information required therefor,
but all of such additional registration statement expenses including legal and
accounting fees will be prorated between the Company and the Holders of the
Underwriters' Warrants and Underwriters' Securities according to the aggregate
sales price of the securities being issued. The provisions of Section 7(d) other
than subsection (2) shall apply to any such registration statement.
8. Adjustments to Purchase Price and Number of Securities.
(a) Computation of Adjusted Purchase Price. Except as
hereinafter provided, in case the Company shall at any time after the date
hereof issue or sell any shares of Common Stock (other than the issuances
referred to in Section 8(g) hereof), including shares held in the Company's
treasury, for a consideration per share less than the lesser of the Purchase
Price in effect immediately prior to the issuance or sale of such shares or the
"Market Price" (as defined in Section 8(a)(6) hereof) per share of Common Stock
on the date immediately prior to the
12
<PAGE>
issuance or sale of such shares, or without consideration, then forthwith upon
any such issuance or sale, the Purchase Price shall (until another such issuance
or sale) be reduced to the price (calculated to the nearest full cent)
determined by dividing (1) the product of (a) the Purchase Price in effect
immediately before such issuance or sale and (b) the sum of (i) the total number
of shares of Common Stock outstanding immediately prior to such issuance or
sale, and (ii) the number of shares determined by dividing (A) the aggregate
consideration, if any, received by the Company upon such sale or issuance, by
(B) the lesser of (x) the Market Price, and (y) the Purchase Price, in effect
immediately prior to such issuance or sale; by (2) the total number of shares of
Common Stock outstanding immediately after such issuance or sale provided,
however, that in no event shall the Purchase Price be adjusted pursuant to this
computation to an amount in excess of the Purchase Price in effect immediately
prior to such computation, except in the case of a combination of outstanding
shares of Common Stock, as provided by Section 8(c) hereof.
For the purposes of this Section 8, the term "Purchase Price"
shall mean the Purchase Price of the Underwriters' Securities set forth in
Section 6 hereof, as adjusted from time to time pursuant to the provisions of
this Section 8.
For the purposes of any computation to be made in accordance
with this Section 8(a), the following provisions shall be applicable:
(1) In case of the issuance or sale of shares of
Common Stock for a consideration part or all of which shall be cash, the amount
of the cash consideration therefor shall be deemed to be the amount of cash
received by the Company for such shares (or, if shares of Common Stock are
offered by the Company for subscription, the subscription price), before
deducting therefrom any compensation paid or discount allowed in the sale or
purchase thereof
13
<PAGE>
by underwriters or dealers or others performing similar services, or any
expenses incurred in connection therewith.
(2) In case of the issuance or sale (otherwise than
as a dividend or other distribution on any stock of the Company) of shares of
Common Stock for a consideration part or all of which shall be other than cash,
the amount of the consideration therefor other than cash shall be deemed to be
the value of such consideration as determined in good faith by the Board of
Directors of the Company.
(3) Shares of Common Stock issuable by way of
dividend or other distribution on any stock of the Company shall be deemed to
have been issued immediately after the opening of business on the day following
the record date for the determination of stockholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued without
consideration.
(4) The reclassification of securities of the Company
other than shares of Common Stock into securities including shares of Common
Stock shall be deemed to involve the issuance of such shares of Common Stock for
a consideration other than cash immediately prior to the close of business on
the date fixed for the determination of security holders entitled to receive
such shares, and the value of the consideration allocable to such shares of
Common Stock shall be determined as provided in Section 8(a)(2).
(5) The number of shares of Common Stock at any one
time deemed to be issued and outstanding, as determined for the purposes of
Sections 8(b)(1) and 8(b)(2) hereof, shall include the aggregate number of
shares of Common Stock issued or issuable (subject to readjustment upon the
actual issuance thereof) upon the exercise of options, rights, warrants and upon
the conversion or exchange of convertible or exchangeable securities.
14
<PAGE>
(6) As used herein, the phrase "Market Price" at any
date shall be deemed to be the last reported sale price, or, in the case no such
reported sale takes place on such day, the average of the last reported sales
prices for the last three (3) trading days, in either case as officially
reported by the principal securities exchange on which the Common Stock is
listed or admitted to trading, or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, the average closing bid price as
furnished by the NASD through the NASD Automated Quotation System ("NASDAQ") or
similar organization if NASDAQ is no longer reporting such information, or if
the Common Stock is not quoted on NASDAQ, as determined in good faith by
resolution of the Board of Directors of the Company, based on the best
information available to it.
(b) Options, Rights, Warrants and Convertible and Exchangeable
Securities. Except in the case of the Company issuing rights to subscribe for
shares of Common Stock distributed to all the stockholders of the Company and
Holders of Underwriters' Warrants, if the Company shall at any time after the
date hereof issue options, rights or warrants to purchase shares of Common
Stock, or issue any securities convertible into or exchangeable for shares of
Common Stock (other than the issuances referred to in Section 8(g) hereof), (i)
for a consideration per share less than the lessor of (a) the Purchase Price in
effect immediately prior to the issuance of such options, rights or warrants, or
such convertible or exchangeable securities or (b) the Market Price, or (ii)
without consideration, the Purchase Price in effect immediately prior to the
issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making a computation in accordance with the provisions of Section
8(a) hereof, provided that:
15
<PAGE>
(1) The aggregate maximum number of shares of Common
Stock issuable under such options, rights or warrants shall be deemed to be
issued and outstanding at the time such options, rights or warrants were issued,
and for a consideration equal to the minimum purchase price per share provided
for in such options, rights or warrants at the time of issuance, plus the
consideration (determined in the same manner as consideration received on the
issue or sale of shares in accordance with the terms of the Underwriters'
Warrants), if any, received by the Company for such options, rights or warrants;
provided, however, that upon the expiration or other termination of such
options, rights or warrants, if any thereof shall not have been exercised, the
number of shares of Common Stock deemed to be issued and outstanding pursuant to
this Section 8(b)(1) (and for the purposes of Section 8(a)(5) hereof) shall be
reduced by such number of shares as to which options, warrants and/or rights
shall have expired or terminated unexercised, and such number of shares shall no
longer be deemed to be issued and outstanding, and the Purchase Price then in
effect shall forthwith be readjusted and thereafter be the price which it would
have been had adjustment been made on the basis of the issuance only of shares
actually issued or issuable upon the exercise of those options, rights or
warrants as to which the exercise rights shall not be expired or terminated
unexercised.
(2) The aggregate maximum number of shares of Common
Stock issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of issuance
of such securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue or sale of
shares of Common Stock in accordance with the terms of the Underwriters'
Warrants) received by the Company for such securities, plus the minimum
consideration, if any, receivable by the Company upon the conversion or exchange
thereof; provided, however, that
16
<PAGE>
upon the termination of the right to convert or exchange such convertible or
exchangeable securities (whether by reason of redemption or otherwise), the
number of shares deemed to be issued and outstanding pursuant to this Section
8(b)(2) (and for the purpose of Section 8(a)(5) hereof) shall be reduced by such
number of shares as to which the conversion or exchange rights shall have
expired or terminated unexercised, and such number of shares shall no longer be
deemed to be issued and outstanding and the Purchase Price then in effect shall
forthwith be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of the shares actually
issued or issuable upon the conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised.
(3) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in Section
8(b)(1), or in the price per share at which the securities referred to in
Section 8(b)(2) are convertible or exchangeable, such options, rights or
warrants or conversion or exchange rights, as the case may be, shall be deemed
to have expired or terminated on the date when such price change became
effective in respect of shares not theretofore issued pursuant to the exercise
or conversion or exchange thereof, and the Company shall be deemed to have
issued upon such date new options, rights or warrants or convertible or
exchangeable securities at the new price in respect of the number of shares
issuable upon the exercise of such options, rights or warrants or the conversion
or exchange of such convertible or exchangeable securities.
(c) Subdivision and Combination. In case the Company shall at
any time issue any shares of Common Stock in connection with a stock dividend in
shares of Common Stock or subdivide or combine the outstanding shares of Common
Stock, the Purchase Price shall
17
<PAGE>
forthwith be proportionately decreased in the case of a stock dividend or a
subdivision or increased in the case of a combination.
(d) Adjustment in Number of Securities. Upon each adjustment
of the Purchase Price pursuant to the provisions of this Section 8, the number
of Underwriters' Securities issuable upon the exercise of the Underwriters'
Warrant shall be adjusted to the nearest whole share by multiplying a number
equal to the Purchase Price in effect immediately prior to such adjustment by
the number of Underwriters' Securities issuable upon exercise of the
Underwriters' Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Purchase Price.
(e) Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean the class of stock designated as
Common Stock in the Articles of Incorporation, of the Company as it may be
amended as of the date hereof.
(f) Reclassification, Merger or Consolidation. The Company
will not merge, reorganize or take any other action which would terminate the
Underwriters' Warrants without first making adequate provision for the
Underwriters' Warrants. In case of any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value to no par
value, or from nor par value to par value, or as a result of a subdivision or
combination), or in case of any consolidation of the Company with, or merger of
the Company with, or merger of the Company into, another corporation (other than
a consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification or change of the outstanding
Common Stock except a change as a result of a subdivision or combination of such
shares or a change in par value, as aforesaid), or in the case of a sale or
conveyance to another corporation or other entity of the property of the Company
as
18
<PAGE>
an entirety, the Holders of each Underwriters' Warrant then outstanding or to be
outstanding shall have the right thereafter (until the expiration of such
Underwriters' Warrant) to purchase, upon exercise of such Underwriters' Warrant,
the kind and number of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance as if the Holders were the owner of the shares of Common Stock
underlying the Underwriters' Warrants immediately prior to any such events at a
price equal to the product of (x) the number of shares issuable upon exercise of
the Underwriters' Warrants and (y) the Purchase Price in effect immediately
prior to the record date for such reclassification, change, consolidation,
merger, sale or conveyance, as if such Holders had exercised the Underwriters'
Warrants. In the event of a consolidation, merger, sale or conveyance of
property, the corporation formed by such consolidation or merger, or acquiring
such property, shall execute and deliver to the Holders a supplemental
underwriter's warrant agreement to such effect. Such supplemental underwriter's
warrant agreement shall provide for adjustments which shall be identical to the
adjustments provided for in this Section 8. The provisions of this Section 8(f)
shall similarly apply to successive consolidations or mergers.
(g) No Adjustment of Purchase Price in Certain Cases.
Notwithstanding any provision to the contrary contained herein, no adjustment of
the Purchase Price shall be made:
(1) Upon the issuance or sale of (i) the
Underwriters' Warrants or the securities underlying the Underwriters' Warrants,
(ii) the securities sold pursuant to the Initial Public Offering or securities
underlying securities sold in the Initial Public Offering or securities to be
sold in a bona fide public offering pursuant to a firm commitment underwriting
or securities underlying securities sold in such firm commitment underwriting,
(iii) the shares
19
<PAGE>
issuable pursuant to the options, warrants, rights, stock purchase agreements or
convertible or exchangeable securities outstanding or in effect on the date
hereof as described in the prospectus relating to the Initial Public Offering,
(iv) up to an aggregate of 603,000 shares of Common Stock issuable pursuant to
the Company's stock plans, described in such prospectus, or Shares to be issued
upon exercise of options granted by the Company under stock option plans
subsequently adopted by the Company and (v) securities issued in connection with
the acquisition of, or merger with, any entity by the Company.
(2) If the amount of said adjustments shall aggregate
less than five ($.05) cents for one (1) share of Common Stock; provided,
however, that in such case any adjustment that would otherwise be required then
to be made shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment which, together with any adjustment
so carried forward, shall aggregate at least five ($.05) cents for one (1) share
of Common Stock.
9. Exchange and Replacement of Warrant Certificates. Each
Underwriters' Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holders at the principal executive office of
the Company, for a new Underwriters' Warrant Certificate of like tenor and date
representing in the aggregate the right to purchase the same number of
Underwriters' Securities in such denominations as shall be designated by the
Holders thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any
Underwriters' Warrant Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to it, and reimbursement to the
Company of all reasonable expenses incidental thereto, and upon surrender and
cancellation
20
<PAGE>
of the Underwriters' Warrant Certificates, if mutilated, the Company will make
and deliver a new Underwriters' Warrant Certificate of like tenor, in lieu
thereof.
10. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock and/or Redeemable Warrants upon the exercise of the Underwriters'
Warrants, nor shall it be required to issue scrip or pay cash in lieu of
fractional interests; provided, however, that if a Holder exercises all
Underwriters' Warrants held of record by such Holder the fractional interests
shall be eliminated by rounding any fraction to the nearest whole number of
shares of Common Stock or other securities, properties or rights.
11. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Underwriters'
Warrants, such number of shares of Common Stock or other securities, properties
or rights as shall be issuable upon the exercise thereof and the exercise of the
Redeemable Warrants. The Company covenants and agrees that, upon exercise of the
Underwriters' Warrants and payment of the Purchase Price therefor, all the
shares of Common Stock and other securities issuable upon such exercise shall be
duly and validly issued, fully paid, non-assessable and not subject to the
preemptive rights of any stockholder. As long as the Underwriters' Warrants
shall be outstanding, the Company shall use its best efforts to cause the Common
Stock to be listed (subject to official notice of issuance) on all securities
exchanges on which the Common Stock issued in the Initial Public Offering may
then be listed or quoted.
12. Notices to Underwriters' Warrant Holders. Nothing
contained in this Agreement shall be construed as conferring upon the Holders
the right to vote or to consent or to receive notice as a stockholder in respect
of any meetings of stockholders for the election of
21
<PAGE>
directors or any other matter, or as having any rights whatsoever as a
stockholder of the Company. If, however, at any time prior to the expiration of
the Underwriters' Warrants and their exercise, any of the following events shall
occur:
(a) the Company shall take a record of the holders of
its shares of Common Stock for the purpose of entitling them to receive
a dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock
of the Company, or any option, right or warrant to subscribe therefor;
or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or merger) or a
sale of all or substantially all of its property, assets and business
as an entirety shall be proposed; then, in any one or more of said
events, the Company shall give written notice of such event at least
fifteen (15) calendar days prior to the date fixed as a record date or
the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on
such proposed dissolution, liquidation, winding up or sale. Such notice
shall specify such record date or the date of closing the transfer
books, as the case may be. Failure to give such notice or any defect
therein shall not affect the validity of any action taken in connection
with the declaration or payment of any such dividend, or the issuance
of any convertible
22
<PAGE>
or exchangeable securities, or subscription rights, options or
warrants, or any proposed dissolution, liquidation, winding up or sale.
13. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified mail, return
receipt requested:
(a) If to the registered Holders of the Underwriters'
Warrants, to the address of such Holders as shown on the books of the
Company; or
(b) If to the Company to the address set forth in
Section 3 hereof or to such other address as the Company may designate
by notice to the Holders.
14. Supplements and Amendments. The Company and the
Underwriters may from time to time supplement or amend this Agreement without
the approval of any Holders of Underwriters' Warrant Certificates (other than
the Underwriters) in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Underwriters may deem
necessary or desirable and which the Company and the Underwriters deem shall not
adversely affect the interests of the Holders of Underwriters' Warrant
Certificates.
15. Binding Effect; Successors. All the covenants and
provisions of this Agreement shall be binding upon and inure to the benefit of
the Company, the Underwriters, the Holders and their respective successors and
assigns hereunder.
16. Termination. This Agreement shall terminate at the close
of business on
23
<PAGE>
_______________, 2001. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination until the close of
business on the expiration of any applicable statute of limitations.
17. Governing Law; Submission to Jurisdiction. This Agreement
and each Underwriters' Warrant Certificate issued hereunder shall be deemed to
be a contract made under the laws of the State of New York and for all purposes
shall be construed in accordance with the laws of said state without giving
effect to the rules of said state governing the conflicts of laws. The Company,
the Underwriters and the Holders hereby each agree that any action, proceeding
or claim against it arising out of, or relating in any way to, this Agreement
shall be brought and enforced in the courts of the State of New York or 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, the Underwriters and the Holders hereby irrevocably waive any objection
to such exclusive jurisdiction or inconvenient forum. Any such process or
summons to be served upon any of the Company, the Underwriters and the Holders
(at the option of the party bringing such action, proceeding or claim) 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 13 hereof. Such mailing shall be deemed personal service and shall be
legal and binding upon the party so served in any action, proceeding or claim.
18. Entire Agreement; Modification. This Agreement (including
the Underwriting Agreement, to the extent portions thereof are referred to
herein) contains the entire understanding between the parties hereto with
respect to the subject matter hereof and thereof. Subject to Section 14, this
Agreement may not be modified or amended except by a writing duly signed by
24
<PAGE>
the Company and the Holders of a Majority in Interest of the Underwriters'
Securities (for this purpose, treating all then outstanding Underwriters'
Warrants as if they had been exercised).
19. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
21. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Underwriters and any other registered Holders of the Underwriters'
Warrant Certificates or Underwriters' Securities any legal or equitable right,
remedy or claim under this Agreement; and this Agreement shall be for the sole
and exclusive benefit of the Company and the Underwriters and any other Holders
of the Underwriter's Warrant Certificates or Underwriters' Securities.
22. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
COMMUNITY CARE SERVICES, INC.
By:______________________________
Alan T. Sheinwald, President
MAIDSTONE FINANCIAL, INC.
By:____________________________
Name:
Title:
26
<PAGE>
EXHIBIT A
COMMUNITY CARE SERVICES, INC.
WARRANT CERTIFICATE
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED FOR
SALE OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT, OR (ii) AN OPINION OF COUNSEL, IF SUCH OPINION AND COUNSEL SHALL BE
REASONABLY SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM
REGISTRATION UNDER THE ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
EXERCISABLE COMMENCING __________, 1997 THROUGH
5:00 P.M., NEW YORK TIME ON ________, 2001
No. UW- _______ Warrants
This Warrant Certificate certifies that ___________, or
registered assigns, is the registered holder of ___________ Warrants to purchase
initially, at any time from December 13, 1996, until 5:00 p.m., New York time on
___________, 2001 (the "Expiration Date"), up to 130,000 shares of Community
Care Services, Inc.'s (the "Company") Common Stock, $.01 par value (the "Common
Stock"), and/or up to 130,000 Redeemable Warrants each exercisable to purchase
one share of Common Stock (the "Common Stock Warrants"), at a purchase price of
$8.25 per share of Common Stock and $.165 per Redeemable Warrant (the "Purchase
Price"), upon the surrender of this Warrant Certificate and payment of the
applicable Purchase Price at an office or agency of the Company, but subject to
the conditions set forth herein and in the underwriters' warrant agreement,
dated as of ___________, 1996 (the "Warrant Agreement"), by and between the
Company and Maidstone Financial, Inc. ("Maidstone" or the "Representative"), as
the Representative of the several underwriters (the "Underwriting Group") named
in the Underwriting Agreement, dated ___________, 1996 between the Company and
Maidstone. The Underwriting Group is collectively referred to herein as the
"Underwriters." Payment of the Purchase Price shall be made by certified or
cashier's check or money order payable to the order of the Company.
No Warrant may be exercised after 5:00 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement
between the Company and the Underwriters, which Warrant Agreement is hereby
incorporated by reference in and made a part
<PAGE>
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the respective Purchase Prices and the type and/or number of the
Company's securities issuable upon the exercise of these Warrants, may, subject
to certain conditions, be adjusted. In such event, the Company will, at the
request of the holder, issue a new Warrant Certificate evidencing the adjustment
in the Purchase Price and the number and/or type of securities issuable upon the
exercise of the Warrants; provided, however, that the failure of the Company to
issue such new Warrant Certificates shall not in any way change, alter, or
otherwise impair, the rights of the holder as set forth in the Warrant
Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange as provided herein, without any charge except for any tax or other
governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
[THE REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
certificate this ______ day of _________________, 1996.
COMMUNITY CARE SERVICES, INC.
By:_____________________________
Alan T. Sheinwald, President
ATTEST:
By:_________________________
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED___________________________
hereby sells, assigns and transfers unto _____________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________________
Attorney, to transfer the within Warrant Certificate on the books of Community
Care Services, Inc., with full power of substitution.
Dated:_______________________________
Signature_____________________
(Signature must conform in
all respects to the name of
holder as specified on the
face of the Warrant
Certificate.)
________________________________
(Insert Social Security or Other
Identifying Number of Holders)
<PAGE>
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right, represented by
this Warrant Certificate, to purchase shares of Common Stock and/or Redeemable
Warrants and herewith tenders in payment for such securities a certified or
cashier's check or money order payable to the order of Community Care Services,
Inc. in the amount of $______, all in accordance with the terms hereof. The
undersigned requests that certificates for such securities be registered in the
name of ___________________________ whose address is _____________________ and
that such certificates be delivered to_______________________________________
____________________________________________________ whose address is
_____________________________________________________________.
Dated:
Signature_______________________
(Signature must conform in
all respects to the name of
holder as specified on the
face of the Warrant
Certificate.)
________________________________
(Insert Social Security or Other
Identifying Number of Holders)
<PAGE>
LOGO
COMMON STOCK COMMON STOCK
CC
COMMUNITY CARE SERVICES
Bringing Healthcare Home
NUMBER SHARES
COMMUNITY CARE SERVICES, INC.
SEE REVERSE FOR CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS
OF THE STATE OF NEW YORK CUSIP 203908 10 8
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE ORDINARY COMMON STOCK,
$.01 PAR VALUE, OF
COMMUNITY CARE SERVICES, INC.
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized attorney, upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ xxxxxxxxx xxxxxxx /s/ Alan T. Sheilmeld
- ------------------------- ------------------------------------
EXECUTIVE VICE PRESIDENT PRESIDENT AND CHIEF EXECUTIVE OFFICER
AND SECRETARY
CORPORATE SEAL
COMMUNITY CARE SERVICES, INC.
1992 NEW YORK
Countersigned and Registered:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(New York, N.Y.)
TRANSFER AGENT AND REGISTRAR,
By
AUTHORIZED OFFICER
<PAGE>
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional, or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM- as tenants in common UNIF GIFT MIN ACT- _____Custodian________
TEN ENT- as tenants by the entireties (Cust) (Minor)
JT TEN- as joint tenants with under Uniform Gifts to Minors
right of survivorship and Act__________________________
not as tenants in common (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,___________________ hereby sell, assign and tranfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________________________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint______________________________________Attorney
to transfer the said stock on the books of the within named Corportation with
full power of substitution in the premises.
Dated ________________________________
_______________________________________________________
NOTICE: The signature to this assignment must
correspond with the name as written upon the face of
the certificate in every particular, without alteration
or enlargement or any change whatever. The signature of
the person executing this power must be guaranteed by an
Eligible Guarantor Institution such as a Commercial
Bank, Trust Company, Securities Broker/Dealer, Credit
Union, or a Savings Association participating in a
Medallion program approved by the Securities Transfer
Association, Inc.
<PAGE>
Exhibit 5.01
October 3, 1996
Community Care Services, Inc.
18 Sargent Place
Mount Vernon, NY 10550
Re: Registration Statement on Form SB-2
Under the Securities Act of 1933
--------------------------------
Gentlemen:
In our capacity as counsel to Community Care Services, Inc., a New York
corporation (the "Company"), we have been asked to render this opinion in
connection with the registration statement on Form SB-2, as amended, heretofore
filed by the Company with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Registration Statement"), covering (i)
1,300,000 shares of Common Stock, par value $.01 per share (the "Common Stock"),
(ii) 1,300,000 Class A Warrants to purchase an identical number of shares of
Common Stock (the "Class A Warrants"), (iii) 1,300,000 shares of Common Stock
issuable upon exercise of the Class A Warrants (the "Class A Warrant Stock"),
(iv) 195,000 shares of Common Stock (the "Over-Allotment Stock"), (v) 195,000
Class A Warrants to purchase an identical number of shares of Common Stock (the
"Class A Over-Allotment Warrants"), (vi) 195,000 shares of Common Stock issuable
upon exercise of the Over-Allotment Warrants (the "Over-Allotment Warrant
Stock"); (vii) warrants issuable to the underwriter named in the Registration
Statement (the "Underwriters' Warrants") to purchase (A) 130,000 shares of
Common Stock (the "Underwriters' Stock"), and (B) 130,000 Class A Warrants to
purchase an identical number of shares of Common Stock (the "Underwriters' Class
A Warrants"), (viii) 130,000 shares of Common Stock issuable upon exercise of
the Underwriters' Warrants (the "Underwriters' Warrant Stock"), (ix) 4,158,332
Class A Warrants to purchase an identical number of shares of Common Stock (the
"Selling Securityholders Warrants"), (x) 4,158,332 shares of Common Stock
issuable upon the exercise of the Selling Securityholders' Warrants (the
"Selling Securityholders' Warrant Stock") and (xi) 220,000 shares of Common
Stock, $0.1 par value (the "Selling Securityholders' Stock").
In that connection , we have examined the Certificate of Incorporation,
and the amendment thereto, and the By-Laws of the Company, the Registration
Statement, corporate proceedings of the Company relating to the issuance of the
Common Stock, Class A Warrants, Class A Warrant Stock,
<PAGE>
Community Care Services, Inc.
October 3, 1996
Page 2
Over-Allotment Stock, Class A Over-Allotment Warrants, Over-Allotment Warrant
Stock, Underwriters' Warrants, Underwriters' Stock, Underwriters' Class A
Warrants , Underwriters' Warrant Stock, the Selling Securityholders' Warrants,
the Selling Securityholders' Warrant Stock and the Selling Securityholders'
Stock, respectively, and such other instruments and documents as we have deemed
relevant under the circumstances.
In making the aforesaid examinations, we have assumed the genuineness
of all signatures and the conformity to original documents of all copies
furnished to us as original or photostatic copies. We have also assumed that the
corporate records furnished to us by the Company include all corporate
proceedings taken by the Company to date.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of New
York.
2. The Common Stock, the Class A Warrant Stock, Over-Allotment
Stock, Over-Allotment Warrant Stock, Underwriters' Stock and
Underwriters' Warrant Stock have each been duly and validly
authorized and, when issued and paid for as described in the
Registration Statement, will be duly and validly issued, fully
paid and non-assessable.
3. The Class A Warrants, Class A Over-Allotment Warrants,
Underwriters' Warrants and Underwriters' Class A Warrants have
each been duly and validly authorized and, when issued and paid
for as described in the Registration Statement, will be duly and
validly issued.
4. The Selling Securityholders' Warrant Stock and the Selling
Securityholders' Stock have each been duly and validly authorized
and are issued and outstanding, fully paid and non-assessable.
5. The Selling Securityholders' Warrants have been duly and
validly authorized and are issued and outstanding.
We hereby consent to the use of our opinion as herein set forth as an
exhibit to the Registration Statement and to the use of our name under the
caption "Legal Matters" in the prospectus forming a part of the Registration
Statement.
Very truly yours,
PARKER DURYEE ROSOFF & HAFT
By: /s/ Michael D. DiGiovanna
--------------------------
A Member of the Firm
<PAGE>
EXHIBIT 10.01
Community Care Services, Inc.
1996 Stock Option Plan
1. Purpose of the Plan. The Community Care Services, Inc. 1996 Stock
Option Plan (the "Plan") is intended to advance the interests of Community Care
Services, Inc. , a New York corporation (the "Company"), by inducing persons of
outstanding ability and potential to join and remain with the Company, by
encouraging and enabling employees to acquire proprietary interests in the
Company, and by providing the participating employees with an additional
incentive to promote the success of the Company. This is accomplished by
providing for the granting of "Options" (which term as used herein includes both
"Incentive Stock Options" and "Nonstatutory Stock Options" as later defined) to
qualified employees and non-employee Directors and consultants.
2. Administration. The Plan shall be administered by the Board of
Directors of the Company (the "Board of Directors") or by a committee (the
"Committee") consisting of at least two persons chosen by the Board of
Directors. Except as herein specifically provided, the interpretation and
construction by the Board of Directors or the Committee of any provision of the
Plan or of any Option granted under it shall be final and conclusive. The
receipt of Options by Directors, or any members of the Committee, shall not
preclude their vote on any matters in connection with the administration or
interpretation of the Plan, except as otherwise provided by law.
3. Shares Subject to the Plan. The capital stock subject to grant under
the Plan shall be shares of the Company's common stock, $.01 par value (the
"Common Stock"), whether authorized but unissued or held in the Company's
treasury or shares purchased from shareholders expressly for use under the Plan.
The maximum number of shares of Common Stock which may be issued pursuant to
Options granted under the Plan shall not exceed 608,000 shares, subject to
adjustment in accordance with the provisions of Section 12 hereof. The Company
shall at all times while the Plan is in force reserve such number of shares of
Common Stock as will be sufficient to satisfy the requirements of all
outstanding Options granted under the Plan. In the event any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part, the unpurchased shares subject thereto shall again be available for
Options under the Plan.
4. Participation. The class of persons which shall be eligible to
receive Options under the Plan shall be (i) with respect to Incentive Stock
Options described in Section 6 hereof, all key employees (including officers) of
either the Company or any subsidiary corporation of the Company, and (ii) with
respect to Nonstatutory Stock Options described in Section 7 hereof, any key
employee (including any officer) of, any non-employee Director of, or any
non-employee consultant to, either the Company or any subsidiary corporation of
the Company. The Board of Directors or the Committee, in its sole discretion,
but subject to the provisions of the Plan, shall determine the employees and
non-employee Directors of and non-employee consultants to the Company or any
subsidiary corporation of the Company to whom Options shall be granted and the
number of shares, and the vesting thereof, to be covered by each Option taking
into account the nature of the employment or services rendered by the
individuals being considered, their annual compensation, their present and
potential contributions to the success of the Company and such other factors as
the Board of Directors or the Committee may deem relevant.
<PAGE>
5. Stock Option Agreement. Each Option granted under the Plan shall be
authorized by the Board of Directors or the Committee and shall be evidenced by
a Stock Option Agreement which shall be executed by the Company and by the
person to whom such Option is granted. The Stock Option Agreement shall specify
the number of shares of Common Stock as to which any Option is granted, the
period during which the Option is exercisable and the option price per share
thereof.
6. Incentive Stock Options. The Board of Directors or the Committee may
grant Options under the Plan which are intended to meet the requirements of
Section 422 of the Internal Revenue Code of 1986 (the "Code") (such an Option
referred to herein as an "Incentive Stock Option"), and which are subject to the
following terms and conditions and any other terms and conditions as may at any
time be required by Section 422 of the Code:
(a) No Incentive Stock Option shall be granted to individuals other
than key employees of the Company or of a subsidiary corporation of the
Company.
(b) Each Incentive Stock Option under the Plan must be granted prior to
February 27, 2006, which is within ten years from the date the Plan was
adopted by the Board of Directors.
(c) The option price of the shares subject to any Incentive Stock
Option shall not be less than the fair market value of the Common Stock
at the time such Incentive Stock Option is granted; provided, however,
if an Incentive Stock Option is granted to an individual who owns, at
the time the Incentive Stock Option is granted, more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company or of a subsidiary corporation of the Company, the option price
of the shares subject to the Incentive Stock Option shall be at least
one hundred ten percent (110%) of the fair market value of the Common
Stock at the time the Incentive Stock Option is granted.
(d) No Incentive Stock Option granted under the Plan shall be
exercisable after the expiration of ten (10) years from the date of its
grant. However, if an Incentive Stock Option is granted to an
individual who owns, at the time the Incentive Stock Option is granted,
more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of a subsidiary corporation of the
Company, such Incentive Stock Option shall not be exercisable after the
expiration of five years from the date of its grant. Every Incentive
Stock Option granted under the Plan shall be subject to earlier
termination as expressly provided in Sections 10 and 12(c) hereof.
(e) For purposes of determining stock ownership under this Section 6,
the attribution rules of Section 425(d) of the Code shall apply.
(f) For purposes of the Plan, fair market value shall be determined by
the Board of Directors or the Committee and, unless another reasonable
method for determining fair market value is specified by the Committee,
the closing sales price of a share of Common Stock as reported on the
NASDAQ Stock Market for the trading date next preceding the date in
question.
7. Nonstatutory Stock Options. The Board of Directors or the Committee
may grant Options under the Plan which are not intended to meet the requirements
of Section 422 of the Code, as well as Options which are intended to meet the
requirements of Section 422 of the Code, but the terms of which provide that
they will not be treated as Incentive Stock Options (referred to herein as a
"Nonstatutory Stock Option").
<PAGE>
Nonstatutory Stock Options which are not intended to meet these requirements
shall be subject to the following terms and conditions:
(a) A Nonstatutory Stock Option may be granted to any person eligible
to receive an Option under the Plan pursuant to Section 4(ii) hereof.
(b) The option price of the shares subject to a Nonstatutory Stock
Option shall be determined by the Board of Directors or the Committee,
in its absolute discretion, at the time of the grant of the
Nonstatutory Stock Option.
(c) A Nonstatutory Stock Option granted under the Plan may be of such
duration as shall be determined by the Board of Directors or the
Committee (not to exceed 10 years), and shall be subject to earlier
termination as expressly provided in Sections 10 and 12(c) hereof.
8. Rights of Option Holders. The holder of any Option granted under the
Plan shall have none of the rights of a shareholder with respect to the shares
covered by his Option until such shares shall be issued to him upon the exercise
of his Option.
9. Transferability. No Option granted under the Plan shall be
transferable by the individual to whom it was granted otherwise than by will or
the laws of descent and distribution, and, during the lifetime of such
individual, shall not be exercisable by any other person, but only by him.
10. Termination of Employment or Death.
(a) If the employment of an employee by, or the services of either a
non-employee Director of or a non-employee consultant to the Company or
a subsidiary corporation of the Company shall be terminated voluntarily
by the employee, the non-employee Director or the non-employee
consultant or for cause, then his Option shall expire forthwith. Except
as provided in subsections (b) and (c) of this Section 10, if such
employment or services shall terminate for any other reason, then such
Option may be exercised at any time within three months after such
termination, subject to the provisions of subparagraph (d) of this
Section 10. Notwithstanding the foregoing, the Board of Directors may
extend the period of time for exercise pursuant to this paragraph,
provided that such extension does not cause any Incentive Stock Options
to be disqualified as such. For purposes of the Plan, the retirement of
an individual either pursuant to a pension or retirement plan adopted
by the Company or at the normal retirement date prescribed from time to
time by the Company shall be deemed to be termination of such
individual's employment other than voluntarily or for cause. For
purposes of this subparagraph, an employee who leaves the employ of the
Company to become an employee of (i) a subsidiary corporation of the
Company or (ii) a corporation (or its parent or subsidiary) that has
assumed the Option of the Company as a result of a corporate
reorganization, etc., shall not be considered to have terminated his
employment.
(b) If the holder of an Option under the Plan dies (i) while employed
by, or while serving as either a non-employee Director of or a
non-employee consultant to, the Company or a subsidiary corporation of
the Company, or (ii) within three months after the termination of his
employment or his services other than voluntarily or for cause, then
such Option may, subject to the provisions of subparagraph (d) of this
Section 10, be exercised by the estate of the employee, the
non-employee Director or the non-employee consultant or by a person who
acquired the right to exercise such Option by bequest or inheritance or
by reason of the death of such employee, non-employee Director or
non-employee consultant at any time within one year after such death.
(c) If the holder of an Option under the Plan ceases employment because
of permanent and total disability (within the meaning of Section
22(e)(3) of the Code) while employed by, or
<PAGE>
while serving as a non-employee Director of or a non-employee
consultant to, the Company or a subsidiary corporation of the Company,
then such Option may, subject to the provisions of subparagraph (d) of
this Section 10, be exercised at any time within one year after his
termination of employment or termination of services due to the
disability.
(d) An Option may not be exercised pursuant to this Section 10 except
to the extent that the holder was entitled to exercise the Option at
the time of termination of employment, termination of services, or
death, and in any event may not be exercised after the expiration of
the Option.
(e) For purposes of this Section 10, the employment relationship of an
employee of the Company or of a subsidiary corporation of the Company
will be treated as continuing intact while he is on military or sick
leave or other bona fide leave of absence (such as temporary employment
by the Government) if such leave does not exceed ninety days, or, if
longer, so long as his right to reemployment is guaranteed either by
statute or by contract.
11. Exercise of Options.
(a) Unless otherwise provided in the Stock Option Agreement, any Option
granted under the Plan shall be exercisable in whole at any time, or in
part from time to time, prior to expiration. The Board of Directors or
the Committee, in its absolute discretion, may provide in any Stock
Option Agreement that the exercise of any Option granted under the Plan
shall be subject (i) to such condition or conditions as it may impose,
including, but not limited to, a condition that the holder thereof
remain in the employ or service of the Company or a subsidiary
corporation of the Company for such period or periods of time from the
date of grant of the Option, as the Board of Directors or the
Committee, in its absolute discretion, shall determine; and (ii) to
such limitations as it may impose, including, but not limited to, a
limitation that the aggregate fair market value of the Common Stock
with respect to which Incentive Stock Options are exercisable for the
first time by any employee during any calendar year (under all plans of
the Company and its parent and subsidiary corporations) shall not
exceed One Hundred Thousand Dollars ($100,000). In addition, in the
event that under any Stock Option Agreement the aggregate fair market
value of the Common Stock with respect to which Incentive Stock Options
are exercisable for the first time by any employee during any calendar
year (under all plans of the Company and its parent and subsidiary
corporations) exceeds One Hundred Thousand Dollars ($100,000), the
Board of Directors or the Committee may, when shares are transferred
upon exercise of such Options, designate those shares which shall be
treated as transferred upon exercise of an Incentive Stock Option and
those shares which shall be treated as transferred upon exercise of a
Nonstatutory Stock Option.
(b) An Option granted under the Plan shall be exercised by the delivery
by the holder thereof to the Company at its principal office (attention
of the Secretary) of written notice of the number of shares with
respect to which the Option is being exercised. Such notice shall be
accompanied by payment of the full option price of such shares, and
payment of such option price shall be made by the holder's delivery of
his check payable to the order of the Company; provided, however, that
notwithstanding the foregoing provisions of this Section 11 or any
other terms, provisions or conditions of the Plan, at the written
request of the optionee and upon approval by the Board of Directors or
the Committee, shares acquired pursuant to the exercise of any Option
may be paid for in full at the time of exercise by (i) the surrender of
shares of Common Stock of the Company held by or for the account of the
optionee at the time of exercise to the extent permitted by subsection
(c)(5) of Section 422 of the Code and, with respect to any person who
is subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934 (the "Act"), to the extent permitted by
Section 16(b) of that Act and the Rules of the Securities and Exchange
Commission, without
<PAGE>
liability to the Company; (ii) subject to the approval of the Board of
Directors, the issuance of a promissory note in compliance with law for
a portion of the purchase price; or (iii) such other methods approved
by the Board of Directors, in compliance with law and provided that
such methods donot disqualify Incentive Stock Options from being
treated as such and comply with the provisions of Section 16(b) of the
Act. In the case of (i) above, the fair market value of the surrendered
shares shall be determined by the Board of Directors or the Committee
as of the date of exercise in the same manner as such value is
determined upon the grant of an Incentive Stock Option.
12. Adjustment Upon Change in Capitalization.
(a) In the event that the outstanding Common Stock is hereafter changed
by reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination of shares, stock
dividends or the like, an appropriate adjustment shall be made by the
Board of Directors or the Committee in the aggregate number of shares
available under the Plan and in the number of shares and option price
per share subject to outstanding Options. Any adjustment in the number
of shares shall apply proportionately to only the unexercised portion
of the Option granted hereunder. If fractions of a share would result
from any such adjustment, the adjustment shall be revised to the next
lower whole number of shares.
(b) If the Company shall be reorganized, consolidated or merged with
another corporation, or if all or substantially all of the assets of
the Company shall be sold or exchanged, the holder of an Option shall
be entitled to receive upon the exercise of his Option (the timing of
which, as set forth in Section 11, is in the discretion of the Board of
Directors or the Committee) the same number and kind of shares of stock
or the same amount of property, cash or securities as he would have
been entitled to receive upon the happening of any such corporate event
as if he had been, immediately prior to such event, the holder of the
number of shares covered by his Option; provided, however, that in such
event the Board of Directors or the Committee shall have the
discretionary power to take any action necessary or appropriate to
prevent any Incentive Stock Option granted hereunder from being
disqualified as an "incentive stock option" under the then existing
provisions of the Code or any law amendatory thereof or supplemental
thereto.
13. Further Conditions of Exercise.
(a) Unless prior to the exercise of the Option the shares issuable upon
such exercise have been registered with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended, the
notice of exercise shall be accompanied by a representation or
agreement of the individual exercising the Option to the Company to the
effect that such shares are being acquired for investment and not with
a view to the resale or distribution thereof or such other
documentation as may be required by the Company unless in the opinion
of counsel to the Company such representation, agreement or
documentation is not necessary to comply with such Act.
(b) The Company shall not be obligated to deliver any Common Stock
until it has been listed on each securities exchange on which the
Common Stock may then be listed or until there has been qualification
under or compliance with such state or federal laws, rules or
regulations as the Company may deem applicable. The Company shall use
reasonable efforts to obtain such listing, qualifications and
compliance.
14. Effectiveness of the Plan. The Plan was originally adopted as of
the Board of Directors on February 28, 1996. The Plan shall be subject to
approval by the affirmative vote of a majority of the outstanding shares of
capital stock of the Company present in person or by proxy at a meeting of
shareholders
<PAGE>
of the Company convened for such purposes, or by unanimous written consent,
prior to February 27, 1997, which is within one year of adoption of the Plan by
the Board of Directors. In the event such shareholder approval is withheld or
otherwise not received on or before the latter date, the Plan and all Options
which may have been granted thereunder shall become null and void.
15. Termination, Modification and Amendment.
(a) The Plan (but not Options previously granted under the Plan) shall
terminate on February 27, 2006, which is within ten years of the date
of its adoption by the Board of Directors, or sooner as hereinafter
provided, and no Option shall be granted after the termination of the
Plan.
(b) The Plan may from time to time be terminated, modified or amended
by the affirmative vote of the holders of a majority of the outstanding
shares of capital stock of the Company present in person or by proxy at
a meeting of shareholders of the Company convened for such purpose.
(c) The Board of Directors may at any time, on or before the
termination date referred to in Section 15(a) hereof, terminate the
Plan, or from time to time make such modifications or amendments to the
Plan as it may deem advisable; provided, however, that the Board of
Directors shall not, without approval by the affirmative vote of the
holders of a majority of the outstanding shares of capital stock of the
Company present in person or by proxy at a meeting of shareholders of
the Company convened for such purpose, increase (except as provided by
Section 12 hereof) the maximum number of shares as to which Incentive
Stock Options may be granted, or change the designation of the
employees or class of employees eligible to receive Options or make any
other change which would prevent any Incentive Stock Option granted
hereunder which is intended to be an "incentive stock option" from
disqualifying as such under the then existing provisions of the Code or
any law amendatory thereof or supplemental thereto.
(d) No termination, modification or amendment of the Plan may, without
the consent of the individual to whom an Option shall have been
previously granted, adversely affect the rights conferred by such
Option.
16. Not a Contract of Employment. Nothing contained in the Plan or in
any Stock Option Agreement executed pursuant hereto shall be deemed to confer
upon any individual to whom an Option is or may be granted hereunder any right
to remain in the employ or service of the Company or a subsidiary corporation of
the Company.
17. Use of Proceeds. The proceeds from the sale of shares pursuant to
Options granted under the Plan shall constitute general funds of the Company.
18. Indemnification of Board of Directors or Committee. In addition to
such other rights of indemnification as they may have, the members of the Board
of Directors or the Committee, as the case may be, shall be indemnified by the
Company to the fullest extent permitted under applicable law against all costs
and expenses reasonably incurred by them in connection with any action, suit or
proceeding to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any rights
granted thereunder and against all amounts paid by them in settlement thereof or
paid by them in satisfaction of a judgment of any such action, suit or
proceeding, except a judgment based upon a finding of bad faith. Upon the
institution of any such action, suit or proceeding, the member or members of the
Board of Directors or the Committee, as the case may be, shall notify the
Company in writing, giving the Company an opportunity at its own cost to defend
the same before such member or members undertake to defend the same on their own
behalf.
<PAGE>
19. Definitions. For purposes of the Plan, the terms "parent
corporation" and "subsidiary corporation" shall have the same meanings as set
forth in Sections 425(e) and 425(f) of the Code, respectively, and the masculine
shall include the feminine and the neuter as the context requires.
20. Governing Law. The Plan shall be governed by, and all questions
arising hereunder shall be determined in accordance with, the laws of the State
of New York.
<PAGE>
Exhibit 10.08
WARRANT AGREEMENT
AGREEMENT, dated as of ______________________ , 1996, by and
mong COMMUNITY CARE SERVICES, INC., a New York corporation (the "Company"),
CONTINENTAL STOCK TRANSFER & TRUST COMPANY, a New York corporation, as Warrant
Agent (the "Warrant Agent") and MAIDSTONE FINANCIAL, INC. (a Delaware
corporation) ("Maidstone," the "Underwriter" or the "Representative") as
representative of the several Underwriters named in the underwriting agreement.
W I T N E S S E T H
WHEREAS, in connection with a public offering pursuant to a
registration statement (the "Registration Statement") on Form SB- 2 declared
effective by the Securities and Exchange Commission on __________, 1996, of
1,300,000 shares of Common Stock, par value $.01 per share, of the Company (the
"Common Stock"), and 1,300,000 Class A Redeemable Common Stock Purchase Warrants
(the "Class A Warrants" or the "Warrants"), and up to 195,000 shares of the
Common Stock and up to 195,000 Warrants covered by an over-allotment option
granted by the Company to the Underwriter pursuant to an underwriting agreement
(the "Underwriting Agreement") dated ______________, 1996 between the Company
and the Underwriter, the issuance to the Underwriter or its designees of an
option to purchase up to an aggregate of 130,000 Shares and/or Warrants (the
"Underwriter's Warrants") and 4,158,332 Warrants being registered on behalf of
the Selling Securityholders, as such term is defined in the Registration
Statement, the Company will issue up to an aggregate of 5,783,332 Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to so act, in connection
with the issuance, registration, transfer, exchange and redemption of the
Warrants, the issuance of certificates representing the Warrants, the exercise
of the Warrants, and the rights of the holders thereof.
NOW THEREFORE, in consideration of the promises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. Definitions. As used herein, the following
terms shall have the following meanings, unless the context shall
otherwise require:
<PAGE>
(a) "Common Stock" shall mean the authorized stock of
the Company of any class, whether now or hereafter authorized, which has the
right to participate in the distribution of earnings and assets of the Company
without limit as to amount or percentage, which at the date hereof consists of
20,000,000 shares of Common Stock, $.01 par value per share.
(b) "Corporate Office" shall mean the office of the
Warrant Agent (or its successor) at which at any particular time its principal
business shall be administered, which office is located on the date hereof at 2
Broadway, 19th Floor, New York, New York 10004.
(c) "Exercise Date" shall mean, as to any Warrant,
the date on which the Warrant Agent shall have received both (a) the Warrant
Certificate representing such Warrant, with the exercise form thereon duly
executed by the Registered Holder thereof or his attorney duly authorized in
writing, and (b) payment in cash, or by official bank or certified check made
payable to the Warrant Agent, of an amount in lawful money of the United States
of America equal to the applicable Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean, as to
each Warrant, ________________________, 1998.
(e) "Purchase Price" shall mean the price to be paid
upon exercise of each Warrant in accordance with the terms hereof, which price
shall be $6.00 per share, subject to adjustment from time to time pursuant to
the provisions of Section 9 hereof, and subject to the Company's right to reduce
the Purchase Price upon notice to all Warrant Holders.
(f) "Redemption Price" shall mean the price at which
the Company may, at its option, redeem the Warrants, in accordance with the
terms hereof, which price shall be $.05 per Warrant, subject to adjustment from
time to time pursuant to the provisions of Section 9.
(g) "Registered Holder" shall mean the person in
whose name any certificate representing Warrants shall be registered on the
books maintained by the Warrant Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean Continental Stock
Transfer & Trust Company, as the Company's transfer agent, or its authorized
successor, as such.
(i) "Warrant Expiration Date" shall mean, with
respect to each Warrant, 3:00 p.m. (New York, New York time) on , 2003, or the
Redemption Date as defined in Section 8, whichever is earlier; provided that if
such date shall in the State of New York be a holiday or a day on which banks
are
2
<PAGE>
authorized to close, then 3:00 p.m. (New York, New York time) on the next
following day which in the State of New York is not a holiday nor a day on which
banks are authorized to close. Upon notice to all Warrant Holders, the Company
shall have the right to extend the Warrant Expiration Date.
SECTION 2. Warrants and Issuance of Warrant
Certificates.
(a) Each Warrant shall initially entitle the
Registered Holder of the Warrant Certificate representing such Warrant to
purchase one (1) share of Common Stock upon the exercise thereof, in accordance
with the terms hereof, subject to modification and adjustment as provided in
Section 9.
(b) Upon execution of this Agreement, Warrant
Certificates representing the number of Warrants sold pursuant to the
Underwriting Agreement shall be executed by the Company and delivered to the
Warrant Agent. Upon written order of the Company signed by its President or
Chairman or a Vice President and by its Secretary or an Assistant Secretary, the
Warrant Certificates shall be countersigned, issued and delivered by the Warrant
Agent as part of the Units.
(c) From time to time, up to the Warrant Expiration
Date, the Transfer Agent shall countersign and deliver stock certificates in
required whole number denominations representing up to an aggregate of 5,783,332
shares of Common Stock, subject to adjustment as described herein, upon the
exercise of Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration
Date, the Warrant Agent shall countersign and deliver Warrant Certificates in
required whole number denominations to the persons entitled thereto in
connection with any transfer or exchange permitted under this Agreement;
provided that no Warrant Certificates shall be issued except to (i) those
initially issued hereunder, (ii) those issued on or after the Initial Warrant
Exercise Date, upon the exercise of fewer than all Warrants represented by any
Warrant Certificate, to evidence any unexercised Warrants held by the exercising
Registered Holder, (iii) those issued upon any transfer or exchange pursuant to
Section 6; (iv) those issued in replacement of lost, stolen, destroyed or
mutilated Warrant Certificates pursuant to Section 7; (v) those issued pursuant
to the Underwriter's Unit Purchase Option; and (vi) at the option of the
Company, in such form as may be approved by its Board of Directors, to reflect
any adjustment or change in the Purchase Price, the number of shares of Common
Stock purchasable upon exercise of the Warrants or the Redemption Price therefor
made pursuant to Section 9.
3
<PAGE>
(e) Pursuant to the terms of the Underwriter's Unit
Purchase Option, the Underwriter and its designees may purchase up to an
aggregate of 130,000 Shares and/or Warrants.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates for the Warrants shall
be substantially in the form annexed hereto as Exhibit A and may have such
letters, numbers or other marks of identification or designation and such
legends, summaries or endorsements printed, lithographed or engraved thereon as
the Company may deem appropriate and as are not inconsistent with the provisions
of this Agreement or as may be required to comply with any law or with any rule
or regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Warrants may be listed, or to conform to usage. The
Warrant Certificates shall be dated the date of issuance thereof (whether upon
initial issuance, transfer, exchange or in lieu of mutilated, lost, stolen, or
destroyed Warrant Certificates) and issued in registered form. Warrants shall be
numbered serially with the letter W on the Warrants.
(b) Warrant Certificates shall be executed on behalf
of the Company by its Chairman of the Board, President or any Vice President and
by its Secretary or an Assistant Secretary, by mutual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such officer of the Company before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates may nevertheless
be countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed such Warrant Certificates had not
ceased to be such officer of the Company. After countersignature by the Warrant
Agent, Warrant Certificates shall be delivered by the Warrant Agent to the
Registered Holder without further action by the Company, except as otherwise
provided by Section 4(a).
SECTION 4. Exercise
(a) Each Warrant may be exercised by the Registered
Holder thereof at any time on or after the Initial Warrant Exercise Date, but
not after the Warrant Expiration Date, upon the terms and subject to the
conditions set forth herein and in the applicable Warrant Certificate. A Warrant
shall be deemed to have been exercised immediately prior to the close of
business on the
4
<PAGE>
Exercise Date and the person entitled to receive the securities deliverable upon
such exercise shall be treated for all purposes as the holder upon exercise
thereof as of the close of business on the Exercise Date. As soon as practicable
on or after the Exercise Date, the Warrant Agent shall deposit the proceeds
received from the exercise of a Warrant and shall notify the Company in writing
of the exercise of the Warrants. Promptly following, and in any event within
five (5) days after the date of such notice from the Warrant Agent, the Warrant
Agent, on behalf of the Company, shall cause to be issued and delivered by the
Transfer Agent, to the person or persons entitled to receive the same, a
certificate or certificates for the securities deliverable upon such exercise
(plus a Warrant Certificate for any remaining unexercised Warrants of the
Registered Holder) unless prior to the date of issuance of such certificates the
Company shall instruct the Warrant Agent to refrain from causing such issuance
of certificates pending clearance of checks received in payment of the Purchase
Price pursuant to such Warrants. Notwithstanding the foregoing, in the case of
payment made in the form of a check drawn on an account of Maidstone or such
other investment banks and brokerage houses as the Company shall approve in
writing to the Warrant Agent, certificates shall immediately be issued without
prior notice to the Company or any delay. Upon the exercise of any Warrant and
clearance of the funds received, the Warrant Agent shall promptly remit the
payment received for the Warrant to the Company or as the Company may direct in
writing.
(b) If, on the Exercise Date in respect of the
exercise of any Warrant at any time on or after the first anniversary of the
date hereof (i) the market price of the Company's Common Stock is greater than
the then Purchase Price of the Warrant, (ii) the exercise of the Warrant was
solicited by the Underwriter, (iii) the Warrant was not held in a discretionary
account, (iv) disclosure of compensation arrangements was made both at the time
of the original offering and at the time of exercise; and (v) the solicitation
of the exercise of the Warrant was not in violation of Rule 10b-6 (as such rule
or any successor rule as may be in effect as of such time of exercise)
promulgated under the Securities Exchange Act of 1934, then the Warrant Agent,
simultaneously with the distribution of proceeds to the Company received upon
exercise of the Warrant(s) so exercised shall, on behalf of the Company, pay
from the proceeds received upon exercise of the Warrant(s), a fee of eight (8%)
percent of the Purchase Price to the Underwriter (of which a percentage may be
reallowed to the dealer who solicited the exercise, which dealer may also be
Maidstone). Within five days after the exercise, the Warrant Agent shall send to
the Underwriter a copy of the reverse side of each Warrant exercised. The
Underwriter shall reimburse the Warrant Agent, upon request, for its reasonable
expenses relating to compliance with this Section 4(b). In addition, the
Underwriter and the Company may at any time during business hours, examine the
records of the Warrant Agent, including its ledger of original
5
<PAGE>
Warrant certificates returned to the Warrant Agent upon exercise of Warrants.
The provisions of this paragraph may not be modified, amended or deleted without
the prior written consent of the Underwriter and the Company.
SECTION 5. Reservation of Shares; Listing; Payment of
Taxes; etc.
(a) The Company covenants that it will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issuance upon exercise of Warrants, such number of shares of Common
Stock as shall then be issuable upon the exercise of all outstanding Warrants.
The Company covenants that all shares of Common Stock which shall be issuable
upon exercise of the Warrants shall, at the time of delivery, be duly and
validly issued, fully paid, nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof (other than those which the Company
shall promptly pay or discharge) and that upon issuance such shares shall be
listed on each national securities exchange, if any, on which the other shares
of outstanding Common Stock of the Company are then listed.
(b) The Company covenants that if any securities to
be reserved for the purpose of exercise of Warrants hereunder require
registration with, or approval of, any governmental authority under any federal
securities law before such securities may be validly issued or delivered upon
such exercise, then the Company will in good faith and as expeditiously as
reasonably possible, endeavor to secure such registration or approval. The
Company will use reasonable effort to obtain appropriate approvals or
registrations under state "blue sky" securities laws with respect to any such
securities. However, Warrants may not be exercised by, or shares of Common Stock
issued to, any Registered Holder in any state in which such exercise would be
unlawful.
(c) The Company shall pay all documentary, stamp or
similar taxes and other governmental charges that may be imposed with respect to
the issuance of Warrants, or the issuance or delivery of any shares upon
exercise of the Warrants; provided, however, that if the shares of Common Stock
are to be delivered in a name other than the name of the Registered Holder of
the Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requiring the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably
authorized to requisition the Company's Transfer Agent from time to time for
certificates representing shares of Common Stock required upon exercise of the
Warrant, and the Company will authorize the Transfer Agent to comply with all
such proper requisitions. The
6
<PAGE>
Company will file with the Warrant Agent a statement setting forth the name and
address of the Transfer Agent of the Company for shares of Common Stock issuable
upon exercise of the Warrants, unless the Warrant Agent and the Transfer Agent
are the same entity.
SECTION 6. Exchange and Registration of Transfer
(a) Warrant Certificates may be exchanged for other
Warrant Certificates representing an equal aggregate number of Warrants of the
same class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of all the terms and provisions hereof, the Company shall
execute and the Warrant Agent shall countersign, issue and deliver in exchange
therefor the Warrant Certificate or Certificates which the Registered Holder
making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books
in which, subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof in accordance with its
regular practice. Upon due presentment for registration of transfer of any
Warrant Certificate at such office, the Company shall execute and the Warrant
Agent shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants
of the same class.
(c) With respect to all Warrant Certificates
presented for registration or transfer, or for exchange or exercise, the
subscription form on the reverse thereof shall be duly endorsed, or be
accompanied by a written instrument or instruments of transfer and subscription,
in form satisfactory to the Company and the Warrant Agent, duly executed by the
Registered Holder or his attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant
Agent for any exchange or registration of transfer of Warrant Certificates. In
addition, the Company may require payment by such holder of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith.
(e) All Warrant Certificates surrendered for exercise
or for exchange in case of mutilated Warrant Certificates shall be promptly
cancelled by the Warrant Agent and thereafter retained by the Warrant Agent
until termination of this Agreement or resignation as Warrant Agent, or, with
the prior written consent of the Underwriter, disposed of or destroyed, at the
direction of the Company.
7
<PAGE>
(f) Prior to due presentment for registration of
transfer thereof, the Company and the Warrant Agent may deem and treat the
Registered Holder of any Warrant Certificate as the absolute owner thereof and
of each Warrant represented thereby (notwithstanding any notations of ownership
or writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary. The Warrants, which are being publicly offered with
shares of Common Stock pursuant to the Underwriting Agreement, may be purchased
separately from the Shares.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and
the Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a bona
fide purchaser) countersign and deliver to the Registered Holder in lieu thereof
a new Warrant Certificate of like tenor representing an equal aggregate number
of Warrants. Applicants for a substitute Warrant Certificate shall comply with
such other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. Redemption
(a) Commencing 24 months from the effective date of
the Registration Statement (or earlier, with the prior written consent of the
Underwriter) on not less than thirty (30) days prior written notice, the
Warrants may be redeemed, at the option of the Company, at a redemption price of
$0.05 per Warrant, provided that (i) the closing price per share of the
Company's Common Stock on The Nasdaq Stock Market as reported by the National
Quotation Bureau, Incorporated (or the last sale price, if quoted on a national
securities exchange) equals or exceeds $8.00 with respect to the Warrants for at
least 20 consecutive trading days ending on the third business day prior to the
date of the notice of redemption. All Warrants must be redeemed if any of the
Warrants are redeemed.
(b) In case the Company shall desire to exercise its
right to so redeem the Warrants, it shall request the Warrant Agent, or the
Underwriter, if the date fixed for redemption is on or after the first
anniversary of the date hereof, to mail a notice of redemption to each of the
Registered Holders of the Warrants to be redeemed, first class, postage prepaid,
not later than the thirtieth (30th) day before the date fixed for redemption, at
their last address as shall appear on the records of the Warrant Agent.
8
<PAGE>
Any notice mailed in the manner provided herein shall be conclusively presumed
to have been duly given whether or not the Registered Holder receives such
notice.
(c) The notice of redemption shall specify (i) the
Redemption Price, (ii) the date fixed for redemption, (iii) the place where the
Warrant Certificates shall be delivered and the redemption price paid, (iv) that
Maidstone will assist each Registered Holder of a Warrant in connection with the
exercise thereof (if Maidstone has conducted, or caused to be conducted, the
mailing) and (v) that the right to exercise the Warrant shall terminate at 3:00
p.m. (New York, New York time) on the business day immediately preceding the
date fixed for redemption shall be the Redemption Date. No failure to mail such
notice nor any defect therein or in the mailing thereof shall affect the
validity of the proceedings for such redemption except as to a holder (a) to
whom notice was not mailed or (b) whose notice was defective. An affidavit of
the Warrant Agent or of the Secretary or an Assistant Secretary of Maidstone or
the Company that notice of redemption has been mailed shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant that has been
called for redemption shall terminate at 3:00 p.m. (New York, New York time) on
the business day immediately preceding the Redemption Date. On and after the
Redemption Date, Holders of the redeemed Warrants shall have no further rights
except to receive, upon surrender of the redeemed Warrant, the Redemption Price.
(e) From and after the date specified for redemption,
the Company shall, at the place specified in the notice of redemption, upon
presentation and surrender to the Company by or on behalf of the Registered
Holder thereof of one or more Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Holder a sum in cash equal to the
Redemption Price of each such Warrant. From and after the date fixed for
redemption and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the Redemption Price, shall
cease.
(f) In case the Company shall desire to exercise its
right to so redeem the Warrants before the Warrants are exercisable, the
Warrants shall become immediately exercisable upon receipt of written notice of
the Company's intent to exercise, as required by Section 8(a) or this Agreement.
SECTION 9. Adjustment of Exercise Price and Number of
Shares of Common Stock or Warrants.
9
<PAGE>
(a) Subject to the exceptions referred to in Section
9(g), in the event the Company shall, at any time or from time to time after the
date hereof, sell any shares of Common Stock for a consideration per share less
than the lesser of the market price of a share of Common Stock as quoted on
NASDAQ or then current Purchase Price or issue any shares of Common Stock as a
stock dividend to the holders of Common Stock, or subdivides or combines the
outstanding shares of Common Stock into a greater or lesser number of shares
(any such sale, issuance, subdivision or combination being herein called a
"Change of Shares"), then, and thereafter upon each further Change of Shares,
the applicable Purchase Price in effect immediately prior to such Change of
Shares shall be changed to a price (including any applicable fraction of a cent)
determined by multiplying the Purchase Price in effect immediately prior thereto
by a fraction, the numerator of which shall be the sum of (a) the total number
of shares of Common Stock outstanding immediately prior to such Change of Shares
and (b) the number of shares of Common Stock which the aggregate consideration
received by the Company upon such sale, issuance, subdivision or combination
(determined in accordance with subsection f(vi) below) could have purchased at
the then current Purchase Price, and the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such Change of
Shares.
Upon each adjustment of the applicable Purchase
Price pursuant to this Section 9, the total number of shares of Common Stock
purchasable upon the exercise of each Warrant shall (subject to the provisions
contained in Section 9(b)) be such number of shares (calculated to the nearest
tenth) purchasable at the applicable Purchase Price immediately prior to such
adjustment multiplied by a fraction, the numerator of which shall be the
applicable Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the applicable Purchase Price in effect
immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the
applicable Purchase Price hereunder, to adjust the number of Warrants
outstanding, in lieu of adjusting the number of shares of Common Stock
purchasable upon the exercise of each Warrant as hereinabove provided, so that
each Warrant outstanding after such adjustment shall represent the right to
purchase one share of Common Stock. Each Warrant held of record prior to such
adjustment of the number of Warrants shall become that number of Warrants
(calculated to the nearest tenth) determined by multiplying the number one by a
fraction, the numerator of which shall be the applicable Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the applicable Purchase Price in effect immediately after such adjustment.
Upon each such adjustment of the number of Warrants, the Redemption Price in
effect immediately prior to such adjustment also shall be adjusted by
multiplying such Redemption Price by a fraction, the numerator of which shall be
the Purchase Price in effect
10
<PAGE>
immediately after such adjustment and the denominator of which shall be the
Purchase Price in effect immediately prior to such adjustment. Upon each
adjustment of the number of Warrants pursuant to this Section 9, the Company
shall, as promptly as practicable, cause to be distributed to each Registered
Holder of Warrant Certificates on the date of such adjustment Warrant
Certificates evidencing, subject to Section 10, the number of additional
Warrants, if any, to which such Holder shall be entitled as a result of such
adjustment or, at the option of the Company, cause to be distributed to such
Holder in substitution and replacement for the Warrant Certificates held by him
prior to the date of adjustment (and upon surrender thereof, if required by the
Company) new Warrant Certificates evidencing the number of Warrants to which
such Holder shall be entitled after such adjustment.
(c) In case of any reclassification, capital
reorganization or other change of outstanding shares of Common Stock, or in case
of any consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been purchased upon exercise of such Warrant,
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The foregoing
provisions shall similarly apply to successive reclassifications, capital
reorganizations and other changes of outstanding shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the
Purchase Price or the number of shares of Common Stock purchasable upon exercise
of the Warrants, the Warrant Certificates theretofore and thereafter issued
shall, unless the Company shall exercise its option to issue new Warrant
Certificates pursuant to Section 2(f), continue to express the applicable
Purchase Price per share, the number of shares purchasable thereunder and the
Redemption Price therefor as the Purchase Price per share, and the number of
shares purchasable thereunder and the Redemption Price
11
<PAGE>
therefor as were expressed in the Warrant Certificates when the same were
originally issued.
(e) After each adjustment of the Purchase Price
pursuant to this Section 9, the Company will promptly prepare a certificate
signed by the Chairman or President, and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary, of the Company setting
forth: (i) the applicable Purchase Price as so adjusted, (ii) the number of
shares of Common Stock purchasable upon exercise of each Warrant after such
adjustment, and, if the Company shall have elected to adjust the number of
Warrants, the number of Warrants to which the registered holder of each Warrant
shall then be entitled, and the adjustment in Redemption Price resulting
therefrom, and (iii) a brief statement of the facts accounting for such
adjustment. The Company will promptly file such certificate with the Warrant
Agent and cause a brief summary thereof to be sent by ordinary first class mail
to the Underwriter and to each registered holder of Warrants at his last address
as it shall appear on the registry books of the Warrant Agent. No failure to
mail such notice nor any defect therein or in the mailing thereof shall affect
the validity thereof except as to the holder to whom the Company failed to mail
such notice, or except as to the holder whose notice was defective. The
affidavit of an officer of the Warrant Agent or the Secretary or an Assistant
Secretary of the Company that such notice has been mailed shall, in the absence
of fraud, be prima facie evidence of the facts stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the
following provisions (i) to (vi) shall also be applicable:
(i) The number of shares of Common Stock
outstanding at any given time shall include shares of Common Stock owned or held
by or for the account of the Company and the sale or issuance of such treasury
shares or the distribution of any such treasury shares shall not be considered a
Change of Shares for purposes of said sections.
(ii) No Adjustment of the Purchase Price
shall be made unless such adjustment would require an increase or decrease of at
least $0.05 in such price; provided that any adjustments which by reason of this
clause (ii) are not required to be made shall be carried forward and shall be
made at the time of and together with the next subsequent adjustment which,
together with any adjustment(s) so carried forward, shall require an increase or
decrease of at least $0.05 in the Purchase Price then in effect hereunder.
(iii) In case of (1) the sale by the Company
solely for cash of any rights or warrants to subscribe for or purchase, or any
options for the purchase of, Common Stock or any securities convertible into or
exchangeable for Common Stock
12
<PAGE>
without the payment of any further consideration other than cash, if any (such
convertible or exchangeable securities being herein called "Convertible
Securities"), or (2) the issuance by the Company, without the receipt by the
Company of any consideration therefor, of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, in each case, if (and only if) the consideration payable to the
Company upon the exercise of such rights, warrants or options shall consist
solely of cash, whether or not such rights, warrants or options, or the right to
convert or exchange such Convertible Securities, are immediately exercisable,
and the price per share for which Common Stock is issuable upon the exercise of
such rights, warrants or options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the minimum aggregate
consideration payable to the Company upon the exercise of such rights, warrants
or options, plus the consideration received by the Company for the issuance or
sale of such rights, warrants or options, plus, in the case of such Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
other than such Convertible Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Common Stock issuable upon
the exercise of such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities issuable upon the exercise of such
rights, warrants or options) is less than the then current Purchase Price
immediately prior to the date of the issuance or sale of such rights, warrants
or options, then the total maximum number of shares of Common Stock issuable
upon the exercise of such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities (as of the date of the issuance or sale
of such rights, warrants or options) shall be deemed to be outstanding shares of
Common Stock for purposes of Sections 9(a) and 9(b) hereof and shall be deemed
to have been sold for cash in an amount equal to such price per share.
(iv) In case of the sale by the Company
solely for cash of any Convertible Securities, whether or not the right of
conversion or exchange thereunder is immediately exercisable, and the price per
share for which Common Stock is issuable upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the total amount of
consideration received by the Company for the sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, other than such Convertible Securities, payable upon the conversion or
exchange thereof, by (y) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible Securities) is less
than the then Purchase Price immediately prior to the date of the sale of such
Convertible Securities, then the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible Securities (as of
the date of the sale of such Convertible Securities) shall be deemed to be
outstanding shares of Common
13
<PAGE>
Stock for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have
been sold for cash in an amount equal to such price per share.
(v) If the exercise or purchase price
provided for in any right, warrant or option referred to in clause (iii) above,
or the rate at which any Convertible Securities referred to in clause (iii) or
(iv) above are convertible into or exchangeable for Common Stock, shall change
at any time (other than under or by reason of provisions designed to protect
against dilution), the Purchase Price then in effect hereunder shall forthwith
be readjusted to such Purchase Price as would have been obtained (1) had the
adjustments made upon the issuance or sale of such rights, warrants, options or
Convertible Securities been made upon the basis of the issuance of only the
number of shares of Common Stock theretofore actually delivered (and the total
consideration received therefor) upon the exercise of such rights, warrants or
options or upon the conversion or exchange of such Convertible Securities, (2)
had adjustments been made on the basis of the Purchase Price as adjusted under
clause (1) for all transactions (which would have affected such adjusted
Purchase Price) made after the issuance or sale of such rights, warrants,
options or Convertible Securities, and (3) had any such rights, warrants,
options or Convertible Securities then still outstanding been originally issued
or sold at the time of such change. On the expiration of any such right, warrant
or option or the termination of any such right to convert or exchange any such
Convertible Securities, the Purchase Price then in effect hereunder shall
forthwith be readjusted to such Purchase Price as would have been obtained (a)
had the adjustments made upon the issuance or sale of such rights, warrants,
options or Convertible Securities been made upon the basis of the issuance of
only the number of shares of Common Stock theretofore actually delivered (and
the total consideration received therefor) upon the exercise of such rights,
warrants or options or upon the conversion or exchange of such Convertible
Securities and (b) had adjustments been made on the basis of the Purchase Price
as adjusted under clause (a) for all transactions (which would have affected
such adjusted Purchase Price) made after the issuance or sale of such rights,
warrants, options or Convertible Securities.
(vi) In case of the sale for cash of any
shares of Common Stock, any Convertible Securities, any rights or warrants to
subscribe for or purchase, or any options for the purchase of, Common Stock or
Convertible Securities, the consideration received by the Company therefore
shall be deemed to be the gross sales price therefor without deducting therefrom
any expense paid or incurred by the Company or any underwriting discounts or
commissions or concessions paid or allowed by the Company in connection
therewith.
14
<PAGE>
(g) No adjustment to the Purchase Price or to the
number of shares of Common Stock purchasable upon the exercise of each Warrant
will be made, however:
(i) upon the grant or exercise of up to an
aggregate of 603,000 options which may hereafter be granted or exercised under
any employee benefit plan of the Company as described in the Registration
Statement; or
(ii) upon the sale or exercise of the
Warrants or Underwriters' Warrants, including without limitation the sale or
exercise of any of the Warrants underlying the Underwriters' Warrant; or
(iii) upon the sale of any shares of Common
Stock in the public offering pursuant to the Registration Statement, including,
without limitation, shares sold upon the exercise of any over-allotment option
granted to the Underwriter in connection with such offering; or
(iv) upon the issuance or sale of Common
Stock or Convertible Securities upon the exercise of any rights or warrants to
subscribe for or purchase, or any options for the purchase of, Common Stock or
Convertible Securities, outstanding on the date of the original sale of the
Warrants;
(v) Upon the issuance or sale of securities
sold pursuant to the Initial Public Offering or securities underlying securities
sold in the Initial Public Offering or securities to be sold in a bona fide
public offering pursuant to a firm commitment underwriting or securities
underlying securities sold in such firm commitment underwriting.
(vi) upon the issuance or sale of Common
Stock upon conversion or exchange of any Convertible Securities outstanding on
the date of the original sale of the Warrants, whether or not any adjustment in
the Purchase Price was made or required to be made upon the issuance or sale of
such Convertible Securities; or
(vii) upon any amendment to or change in the
terms of any rights or warrants to subscribe for or purchase, or options for the
purchase of, Common Stock or Convertible Securities or in the terms of any
Convertible Securities, including, but not limited to, any extension of any
expiration date of any such right, warrant or option, any change in any exercise
or purchase price provided for in any such right, warrant or option, any
extension of any date through which any Convertible Securities are convertible
into or exchangeable for Common Stock or any change in the rate at which any
Convertible Securities are convertible into or exchangeable for Common Stock
(other than rights, warrants, options or Convertible Securities issued or sold
after the close of
15
<PAGE>
business on the date of the original issuance of the Units (i) for which an
adjustment in the Purchase Price then in effect was theretofore made or required
to be made, upon the issuance or sale thereof, or (ii) for which such an
adjustment would have been required had the exercise or purchase price of such
rights, warrants or options at the time of the issuance or sale thereof or the
rate of conversion or exchange of such Convertible Securities, at the time of
the sale of such Convertible Securities, or the issuance or sale of rights or
warrants to subscribe for or purchase, or options for the purchase of, such
Convertible Securities, been the price or rate as changed, in which case the
provisions of Section 9(f)(vi) hereof shall be applicable if, but only if, the
exercise or purchase price thereof, as changed, or the rate of conversion or
exchange thereof, as changed, consists solely of cash or requires the payment of
additional consideration, if any, consisting solely of cash or requires the
payment of additional consideration, if any, consisting solely of cash and the
Company did not receive any consideration other than cash, if any, in connection
with such change).
(h) As used in this Section 9, the term "Common
Stock" shall mean and include the Company's Common Stock authorized on the date
of the original issuance of the Units and shall also include any capital stock
of any class of the Company thereafter authorized which shall not be limited to
a fixed sum or percentage in respect of the rights of the holders thereof to
participate in dividends and in the distribution of assets upon the voluntary
liquidation, dissolution or winding up of the Company; provided, however, that
the shares issuable upon exercise of the Warrants shall include only shares of
such class designated in the Company's Certificate of Incorporation as Common
Stock on the date of the original issuance of the Units or (i), in the case of
any reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
provided for in such section or (ii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or consisting of a change
in par value, or from par value to no par value, or from no par value to par
value, such shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in
the Purchase Price in effect hereunder is required pursuant to Section 9, or as
to the amount of any such adjustment, if required, shall be binding upon the
holders of the Warrants and the Company if made in good faith by the Board of
Directors of the Company.
(j) If and whenever the Company shall grant to the
holders of Common Stock, as such, rights or warrants to subscribe for or to
purchase, or any options for the purchase of, Common Stock or securities
convertible into or exchangeable for or
16
<PAGE>
carrying a right, warrant or option to purchase Common Stock, the Company shall
concurrently therewith grant to each of the then Registered Holders of the
Warrants all of such rights, warrants or options to which each such holder would
have been entitled if, on the date of determination of stockholders entitled to
the rights, warrants or options being granted by the Company, such holder were
the holder of record of the number of whole shares of Common Stock then issuable
upon exercise (assuming, for purposes of this Section 9(j), that the exercise of
Warrants is permissible during periods prior to the Initial Warrant Exercise
Date) of his Warrants. Such grant by the Company to the holders of the Warrants
shall be in lieu of any adjustment which otherwise might be called for pursuant
to this Section 9.
SECTION 10. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock
purchasable upon the exercise of each Warrant is adjusted pursuant to Section 9
hereof, the Company shall nevertheless not be required to issue fractions of
shares, upon exercise of the Warrants or otherwise, or to distribute
certificates that evidence fractional shares. With respect to any fraction of a
share called for upon any exercise hereof, the Company shall pay to the Holder
an amount in cash equal to such fraction multiplied by the current market value
of such fractional share, determined as follows:
(i) If the Common Stock is listed on a
National Securities Exchange or admitted to unlisted trading privileges on such
exchange or listed for trading on the Nasdaq National Market, the current value
shall be the last reported sale price of the Common Stock on such exchange on
the last business day prior to the date of exercise of the Warrant, or if no
such sale is made on such day, the average of the closing bid and asked prices
for such day on such exchange; or
(ii) If the Common Stock is not listed or
admitted to unlisted trading privileges, the current value shall be the mean of
the last reported bid and asked prices reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of the exercise of the
Warrant; or
(iii) If the Common Stock is not so listed
or admitted to unlisted trading privileges and bid and asked prices are not so
reported, the current value shall be an amount determined in such reasonable
manner as may be prescribed by the Board of Directors of the Company.
SECTION 11. Warrant Holders Not Deemed Stockholders. No
holder of Warrants shall, as such, be entitled to vote or to
receive dividends or be deemed the holder of Common Stock that may
17
<PAGE>
at any time be issuable upon exercise of such Warrants for any purpose
whatsoever, nor shall anything contained herein be construed to confer upon the
holder of Warrants, as such, any of the rights of a stockholder of the Company
or any right to vote for the election of directors or upon any matter submitted
to stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance or
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger or conveyance or otherwise), or to receive notice
of meetings, or to receive dividends or subscription rights, until such Holder
shall have exercised such Warrants and been issued shares of Common Stock in
accordance with the provisions hereof.
SECTION 12. Rights of Action. All rights of action with
respect to this Agreement are vested in the respective Registered Holders of the
Warrants, and any Registered Holder of a Warrant, without consent of the Warrant
Agent or of the holder of any other Warrant, may, in his own behalf and for his
own benefit, enforce against the Company his right to exercise his Warrants for
the purchase of shares of Common Stock in the manner provided in the Warrant
Certificates and this Agreement.
SECTION 13. Agreement of Warrant Holders. Every holder of a
Warrant, by his acceptance thereof, consents and agrees with the Company, the
Warrant Agent and every other holder of a Warrant that:
(a) The Warrants are transferable only on the
registry books of the Warrant Agent by the Registered Holder thereof in person
or by his attorney duly authorized in writing and only if the Warrant
Certificates representing such Warrants are surrendered at the office of the
Warrant Agent, duly endorsed or accompanied by a proper instrument of transfer
satisfactory to the Warrant Agent and the Company in their sole discretion,
together with payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and
treat the person in whose name the Warrant Certificate is registered as the
holder and as the absolute, true and lawful owner of the Warrants represented
thereby for all purposes, and neither the Company nor the Warrant Agent shall be
affected by any notice or knowledge to the contrary, except as otherwise
expressly provided in Section 7 hereof.
SECTION 14. Cancellation of Warrant Certificates. If
the Company shall purchase or acquire any Warrant or Warrants, the
Warrant Certificate or Warrant Certificates evidencing the same
shall thereupon be delivered to the Warrant Agent and cancelled by
18
<PAGE>
it and retired. The Warrant Agent shall also cancel Common Stock following
exercise of any or all of the Warrants represented thereby or delivered to it
for transfer, split-up, combination or exchange.
SECTION 15. Concerning the Warrant Agent. The Warrant Agent
acts hereunder as agent and in a ministerial capacity for the Company, and its
duties shall be determined solely by the provisions hereof. The Warrant Agent
shall not, by issuing and delivering Warrant Certificates or by any other act
hereunder be deemed to make many representations as to the validity, value or
authorization of the Warrant Certificates or the Warrants represented thereby or
of any securities or other property delivered upon exercise of any Warrant or
whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or willful misconduct.
The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company or for the Underwriter)
and shall incur no liability or responsibility for any action taken, suffered or
omitted by it in good faith in accordance with the opinion or advice of such
counsel.
Any notice, statement, instruction, request, direction, order
or demand of the Company shall be sufficiently evidenced by an instrument signed
by the Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary, (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand believed by it to be genuine.
19
<PAGE>
The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; it further agrees to indemnify the Warrant Agent and save it
harmless against any and all losses, expenses and liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's negligence
or willful misconduct.
In the event of a dispute under this Agreement between the
Company and the Underwriter regarding proceeds received by the Warrant Agent
from the exercise of the Warrants, the Warrant Agent shall have the right, but
not the obligation, to bring an interpleader action to resolve such dispute.
The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own negligence or willful misconduct), after
giving 30 days' prior written notice to the Company. At least 15 days prior to
the date such resignation is to become effective, the Warrant Agent shall cause
a copy of such notice of resignation to be mailed to the Registered Holder of
each Warrant Certificate at the Company's expense. Upon such resignation, or any
inability of the Warrant Agent to act as such hereunder, the Company shall
appoint a new warrant agent in writing. If the Company shall fail to make such
appointment within a period of 15 days after it has been notified in writing of
such resignation by the resigning Warrant Agent, then the Registered Holder of
any Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court shall be a bank or trust company having a capital
and surplus as shown by its last published report to its stockholders, of not
less than Ten Million ($10,000,000.00) Dollars, or a stock transfer company.
After acceptance in writing of such appointment by the new warrant agent is
received by the Company, such new warrant agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally named
herein as the Warrant Agent, without any further assurance, conveyance, act or
deed; but if for any reason it shall be necessary or expedient to execute and
deliver any further assurance, conveyance, act or deed, the same shall be done
at the expense of the Company and shall be legally and validly executed and
delivered by the resigning Warrant Agent. Not later than the effective date of
any such appointment the Company shall file notice thereof with the resigning
Warrant Agent and shall forthwith cause a copy of such notice to be mailed to
the Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged or any corporation
20
<PAGE>
resulting from any consolidation to which the Warrant Agent or any new warrant
agent shall be a party or any corporation succeeding to the trust business of
the Warrant Agent shall be a successor warrant agent under this Agreement
without any further act, provided that such corporation is eligible for
appointment as successor to the Warrant Agent under the provisions of the
preceding paragraph. Any such successor warrant agent shall promptly cause
notice of its succession as warrant agent to be mailed to the Company and to the
Registered Holder of each Warrant Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of
its or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
SECTION 16. Modification of Agreement. Subject to the
provisions of Section 4(b), the Warrant Agent and the Company may by
supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates; provided,
however, that this Agreement shall not otherwise be modified, supplemented or
altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than 50% of the Warrants
then outstanding; and provided, further, that no change in the number or nature
of the securities purchasable upon the exercise of any Warrant, or the Purchase
Price therefor, or the acceleration of the Warrant Expiration Date, shall be
made without the consent in writing of the Registered Holder of the Warrant
Certificate representing such Warrant, other than such changes as are
specifically prescribed by this Agreement as originally executed.
SECTION 17. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company, at 18 Sargent Place, Mount Vernon, New York 10550,
Attention: Alan T. Sheinwald, with a copy to Parker Duryee Rosoff & Haft, at 529
Fifth Avenue, New York, New York 10017, Attention: Michael DiGiovanna, Esq., or
at such other address as may have been furnished to the Warrant Agreement in
21
<PAGE>
writing by the Company; if to the Warrant Agent, at Continental Stock Transfer &
Trust Company, 2 Broadway, 19th Floor, New York, New York 10004; if to
Maidstone, at 101 East 52nd Street, New York, New York 10022, attention:
President.
SECTION 18. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State
of New York, without reference to principles of conflict of laws.
SECTION 19. Binding Effect. This Agreement shall be binding
upon and inure to the benefit of the Company, the Warrant Agent and the
Underwriter, and their respective successors and assigns, and the holders from
time to time of the Warrant Certificates. Nothing in this Agreement is intended
or shall be construed to confer upon any other person any right, remedy or
claim, in equity or at law, or to impose upon any other person any duty,
liability or obligation.
SECTION 20. Termination. This Agreement shall terminate at the
close of business on the Expiration Date of all the Warrants of such earlier
date upon which all Warrants have been exercised, except that the Warrant Agent
shall account to the Company for cash held by it and the provisions of Section
15 hereof shall survive such termination.
SECTION 21. Counterparts. This Agreement may be executed in
several counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be duly executed as of the date first above written.
COMMUNITY CARE SERVICES, INC.
By: ______________________________________
Authorized Officer
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY
By: ______________________________________
Authorized Officer
22
<PAGE>
MAIDSTONE FINANCIAL, INC.
By: ______________________________________
Authorized Officer
23
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. W ________ (_____) Warrants
VOID AFTER ___________, 2003
CLASS A REDEEMABLE COMMON STOCK WARRANT CERTIFICATE
FOR PURCHASE OF COMMON STOCK OF
COMMUNITY CARE SERVICES, INC.
This certifies that FOR VALUE RECEIVED _______________________ or
registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Common Stock Purchase Warrants (the "Warrants") specified above. Each
Warrant initially entitles the Registered Holder to purchase, subject to the
terms and conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Common Stock,
$.01 par value, of Community Care Services, Inc., a New York corporation (the
"Company"), at any time between ______________, 1998 and the Expiration Date (as
hereinafter defined), upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse hereof duly executed, at
the corporate office of Continental Stock Transfer & Trust Company as Warrant
Agent, or its successor (the "Warrant Agent"), accompanied by payment of $6.00
per share (the "Purchase Price") in lawful money of the United States of America
in cash or by official bank or certified check made payable to the Warrant
Agent.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated as of
______________, 1996, by and among the Company, the Warrant Agent and Maidstone
Financial, Inc.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
24
<PAGE>
The term "Expiration Date" shall mean 3:00 p.m. (New York, New York
time) on _______________, 2003, or such earlier date as the Warrants shall be
redeemed. If such date shall in the State of New York be a holiday or a day on
which the banks are authorized to close, then the Expiration Date shall be 3:00
p.m. (New York, New York time) the next day which in the State of New York is
not a holiday nor a day in which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, with respect to such securities is effective. The
Company has covenanted and agreed that it will file a registration statement and
will use its best efforts to cause the same to become effective and to keep such
registration statement current while any of the Warrants are outstanding. This
Warrant shall not be exercisable by a Registered Holder in any state where such
exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment together with any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Commencing ________________, 1998, this Warrant may be redeemed at the
option of the Company, at a Redemption Price of $0.05 per Warrant, provided that
(a) the closing price of the Company's Common Stock on the Nasdaq SmallCap
Market as reported by the National Quotation Bureau, Incorporated (or the last
sale price, if quoted on a national securities exchange) equals or exceeds $8.00
for at least 20 consecutive trading days ending on the third business day prior
to the date of the notice of redemption. Notice of redemption shall be given not
later than the thirtieth (30th) day before the date fixed for redemption, all as
provided in the Warrant Agreement. On and after the date fixed for redemption,
the Registered Holder shall have no rights with respect
25
<PAGE>
to this Warrant except to receive the $0.05 per Warrant upon surrender of this
Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
The Company has agreed to pay a fee of eight percent (8%) of the
Purchase Price upon certain conditions as specified in the Warrant Agreement
upon the exercise of this Warrant.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two (2) of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: _______________
COMMUNITY CARE SERVICES, INC.
__________________________ By: _______________________________
Chairman
__________________________ By:________________________________
Secretary
[seal]
Countersigned:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By: ___________________________
Authorized Officer
26
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
__________________ (________________) Warrants represented by this Warrant
Certificate, and to purchase the securities issuable upon the exercise of such
Warrants, and requests that certificates for such securities shall be issued in
the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_______________________________________
_______________________________________
_______________________________________
_______________________________________
[please print or type name and address]
and be delivered to
_______________________________________
_______________________________________
_______________________________________
_______________________________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
The Undersigned represents that the exercise of the Warrant was
solicited by Maidstone. If not solicited by Maidstone, please write
"unsolicited" in the space below.
--------------------------------
Name of NASD Member Soliciting
Warrant
Dated: _________________________ ________________________________
Signature
________________________________
Street Address
________________________________
City, State and Zip Code
________________________________
Taxpayer ID Number
Signature Guaranteed:
________________________________
27
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_______________________________________
_______________________________________
_______________________________________
_______________________________________
[please print or type name and address]
___________________ (_____________) of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints __________________
____________________ Attorney to transfer this Warrant Certificate on the books
of the Company, with full power of substitution in the premises.
Dated: ______________________ ________________________________
Signature Guaranteed:
_________________________________
THE SIGNATURE MUST BE GUARANTEED BY A MEDALLION BANK.
28
<PAGE>
Exhibit 10.10
FINANCIAL ADVISORY AND INVESTMENT BANKING AGREEMENT
This Agreement is made and entered into as of the day of ,
1996 by and between Maidstone Financial, Inc., a Delaware corporation
("Maidstone" or the "Advisor"), and Community Care Services, Inc., a New York
corporation (the "Company").
In consideration of the mutual promises made herein and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Purpose: The Company hereby engages the Advisor for the
term specified in Paragraph 2 hereof to render consulting advice to the Company
as an investment banker relating to financial and similar matters upon the terms
and conditions set forth herein.
2. Term: Except as otherwise specified in Paragraph 4 hereof,
this Agreement shall be effective from , 1996 to , 1999.
3. Duties of the Advisor: During the term of this Agreement,
the Advisor shall seek out Transactions (as hereinafter defined) on behalf of
the Company and shall furnish advice to the Company in connection with any such
Transactions.
4. Compensation: In consideration for the services rendered by
the Advisor to the Company pursuant to this Agreement (and in addition to the
expenses provided for in Paragraph 5 hereof), the Company shall compensate the
Advisor as follows:
(a) The Company shall pay the Advisor a fee of $104,600 for
the entire term of this Agreement. The entire fee shall be payable on the date
hereof.
(b) In the event that any Transaction occurs during the term
of this Agreement or one year thereafter, the Company shall pay fees to the
Advisor as follows:
Consideration Fee
$ - 0 - to $ 500,000 $25,000
$ 500,000 to $5,000,000 5% of Consideration
$5,000,000 or more $250,000 plus 1% of the Consideration
in excess of $5,000,000
For the purposes of this Agreement, "Consideration" shall mean
the total market value on the day of the closing of stock, cash, assets and all
other property (real or personal) exchanged or received, directly or indirectly
by the Company or any of its security holders in connection with any
Transaction. In the event that the Consideration is not in the form of
Securities of a publicly traded company, the parties shall mutually appoint an
independent third party to make a determination as to the fair market value of
such property whose valuation shall be final. Any co-broker and/or co-
underwriter retained by the Advisor shall be paid by the Advisor.
(c) For the purposes of the Agreement, the term "Transaction"
shall include (i) any transaction originated by the Advisor, other than in the
ordinary course of trade or business of the Company, whereby, directly or
indirectly, control of, or an interest in, the Company or any of its
<PAGE>
businesses or any of their respective assets, is transferred for Consideration,
(ii) any transaction originated by the Advisor whereby the Company acquires any
other company or the assets of any other company or an interest in any other
company (an "Acquisition") or (iii) any joint venture or line of credit arranged
by the Advisor for the benefit of the Company as more fully set forth in the
next paragraph.
Notwithstanding Paragraph 4(b) above, in the event the Advisor
originates a line of credit with a lender or a corporate partner, or the Advisor
introduces the Company to a joint venture partner or customer and sales develop
as a result of the introduction, the Company and the Advisor will mutually agree
on a satisfactory fee and the terms of payment of such fee.
(d) All fees to be paid pursuant to this Agreement, except as
otherwise specified, are due and payable to the Advisor in cash at the closing
or closings of any Transaction. In the event that this Agreement shall not be
renewed or if terminated for any reason, notwithstanding any such non-renewal or
termination, the Advisor shall be entitled to a full fee and repayment of all
expenses as provided under Paragraphs 4 and 5 hereof, for any Transaction for
which the discussions were initiated during the term of this Agreement and which
is consummated within a period of 12 months after non-renewal or termination of
this Agreement. Nothing herein shall impose any obligation on the part of the
Company to enter into any Transaction.
5. Expenses of the Advisor: In addition to the fees payable
hereunder and regardless of whether any Transaction is proposed or consummated,
the Company shall reimburse the Advisor for all reasonable fees and
disbursements of the Advisor's counsel and the Advisor's travel and
out-of-pocket expenses incurred in connection with the services performed by
them pursuant to this Agreement, including without limitation, hotels, food and
associated expenses and long-distance telephone calls, except that all fees and
disbursements of the Advisor's counsel and expenses exceeding $1,000 must be
pre-approved in writing by the Company.
6. Liability of the Advisor:
(1) The Company acknowledges that all opinions and advice
(written or oral) given by the Advisor to the Company in connection with the
Advisor's engagement are intended solely for the benefit and use of the Company
in considering the Transaction to which they relate, and the Company agrees that
no person or entity other than the Company shall be entitled to make use of or
rely upon the advice of the Advisor to be given hereunder, and no such opinion
or advice shall be used for any other purpose or reproduced, disseminated,
quoted or referred to at any time, in any manner or for any purpose, nor may the
Company make any public references to the Advisor, or use the Advisor's name in
any annual reports or any other reports or releases of the Company, in each
case, without the Advisor's prior written consent.
(2) Other than as to comply with the rules and
regulations of listing on the NASDAQ System, the Company acknowledges that the
Advisor makes no commitment whatsoever as to making a market in the Company's
securities or to recommending or advising its clients to purchase the Company's
securities. Research reports or corporate finance reports that may be prepared
by the Advisor, when and if prepared, will be done solely on the merits or
judgment of analysis of the Advisor or any senior corporate finance personnel of
the Advisor.
7. The Advisor's Services to Others: The Company acknowledges
that the Advisor or its affiliates are in the business of providing financial
services and consulting advice to others. Nothing herein contained shall be
construed to limit or restrict the Advisor in conducting such business with
respect to others, or in rendering such advice to others.
<PAGE>
8. Company Information:
(a) The Company recognizes and confirms that, in advising the
Company and in fulfilling its engagement hereunder, the Advisor will use and
rely on data, material and other information furnished to the Advisor by the
Company. The Company acknowledges and agrees that in performing its services
under this engagement, the Advisor may rely upon the data, material and other
information supplied by the Company without independently verifying the
accuracy, completeness or veracity of same.
(b) Except as contemplated by the terms hereof or as required
by applicable law in the opinion of counsel to the Company, the Advisor shall
keep confidential all non-public information provided to it by the Company, and
shall not disclose such information to any third party without the Company's
prior written consent, other than such of its employees and advisors as the
Advisor determines to have a need to know. In the event that the Advisor
discloses such information to its employees or advisors, it will cause such
employees or advisors to be bound by the provisions of this Section 8(b).
9. Indemnification:
(a) The Company shall indemnify and hold harmless the Advisor
against any and all liabilities, claims, lawsuits, including any and all awards
and/or judgments to which it may become subject under the Securities Act of 1933
(the "1933 Act"), the Securities Exchange Act of 1934, (the "Act") or any other
federal or state statute, at common law or otherwise, insofar as said
liabilities, claims and lawsuits (including costs, expenses, awards and/or
judgments) arise out of or are in connection with the services rendered by the
Advisor or any Transactions effected in connection with this Agreement, except
for any liabilities, claims and lawsuits (including awards and/or judgments),
arising out of acts or omissions of the Advisor. In addition, the Company shall
also indemnify and hold harmless the Advisor against any and all costs and
expenses, including reasonable counsel fees, incurred or relating to the
foregoing.
The Advisor shall give the Company prompt notice of any such
liability, claim or lawsuit which the Advisor contends is the subject matter of
the Company's indemnification and the Company thereupon shall be granted the
right to take any and all necessary and proper action, at its sole cost and
expense, with respect to such liability, claim and lawsuit, including the right
to settle, compromise and dispose of such liability, claim or lawsuit, excepting
therefrom any and all proceedings or hearings before any regulatory bodies
and/or authorities.
The Advisor shall indemnify and hold harmless the Company
against any and all liabilities, claims and lawsuits, including any and all
awards and/or judgments to which it may become subject under the 1933 Act, the
Act or any other federal or state statute, at common law or otherwise, insofar
as said liabilities, claims and lawsuits (including costs, expenses, awards
and/or judgments) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact or the omission to disclose a material fact
required to be stated or necessary to make the statement not misleading, which
statement or omission was made in reliance upon information furnished in writing
to the Company by or on behalf of the Advisor for inclusion in any registration
statement, prospectus or other document or any amendment or supplement thereto
in connection with any Transaction to which this Agreement applies. In addition,
the Advisor shall also indemnify and hold harmless the Company against any and
all costs and expenses, including reasonable counsel fees, incurred or relating
to the foregoing.
The Company shall give the Advisor prompt notice of any such
liability, claim or lawsuit which the Company contends is the subject matter of
the Advisor's indemnification and the Advisor thereupon shall be granted the
right to a take any and all necessary and proper action, at its sole cost and
expense, with respect to such liability, claim and lawsuit, including the right
to settle, compromise or dispose of such liability, claim or lawsuit, excepting
therefrom any and all proceedings or hearings before any regulatory bodies
and/or authorities.
<PAGE>
(b) In order to provide for just and equitable contribution
under the 1933 Act in any case in which (i) any person entitled to
indemnification under this Paragraph 9 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 Paragraph 9 provides
for indemnification in such case, or (ii) contribution under the 1933 Act may be
required on the part of any such person in circumstances for which
indemnification is provided under this Paragraph 9, then, and in each such case,
the Company and the Advisor shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after any contribution from
others) in such proportion taking into consideration the relative benefits
received by each party from the offering covered by the prospectus or other
document with respect to any Transactions in connection with this Agreement
(taking into account the portion of the proceeds of the offering realized by
each), the parties' relative knowledge and access to information concerning the
matter with respect to which the claim was assessed, the opportunity to correct
and prevent any statement or omission and other equitable considerations
appropriate under the circumstances; provided, however, that notwithstanding the
above in no event shall the Advisor be required to contribute any amount in
excess of 10% of the offering price of any securities to which such prospectus
applies; and provided, that, in any such case, no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
Within 15 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 (the "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 his or its representative of the commencement thereof
within the aforesaid 15 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 without the written
consent of the Contributing Party. The indemnification provisions contained in
this Paragraph 9 are in addition to any other rights or remedies which either
party hereto may have with respect to the other or hereunder.
10. The Advisor as an Independent Contractor: The Advisor
shall perform its services hereunder as an independent contractor and not as an
employee of the Company or affiliates thereof. It is expressly understood and
agreed to by the parties hereto that the Advisor shall have no authority to act
for, represent or bind the Company or any affiliate thereof in any manner,
except as may be agreed to expressly by the Company in writing from time to
time.
11. Miscellaneous:
(a) This Agreement between the Company and the Advisor
constitutes the entire agreement and understanding of the parties hereto, and
supersedes any and all previous agreements and understandings, whether oral or
written, between the parties with respect to the matters set forth herein.
<PAGE>
(b) Any notice or communication permitted or required
hereunder shall be in writing and shall be deemed sufficiently given if
hand-delivered or sent (i) postage prepaid by registered mail, return receipt
requested, or (ii) by facsimile, to the respective parties as set forth below,
or to such other address as either party may notify the other in writing:
If to the Company, to: Community Care Services, Inc.
18 Sargent Place
Mount Vernon, New York 10550
Attn: Alan T. Sheinwald
Fax Number: (914) 665-9036
with a copy to: Parker Duryee Rosoff & Haft
529 Fifth Avenue
New York, New York 10017
Attn: Michael DiGiovanna, Esq.
Fax Number: (212) 972-9487
If to Maidstone, to: Maidstone Financial, Inc.
101 East 52nd Street
New York, New York 10022
Attn: President
Fax Number: (212) 832-6330
With a copy to: Gersten, Savage, Kaplowitz & Curtin, LLP
575 Lexington Avenue
New York, New York 10022
Attn: Jay M. Kaplowitz, Esq.
Fax Number: (212) 980-5192
(c) This Agreement shall be binding upon and inure to the
benefit of each of the parties hereto and their respective successors, legal
representatives and assigns.
(d) This Agreement may be executed in any number of
counterparts, each of which together shall constitute one and the same original
document.
(e) No provision of this Agreement may be amended, modified or
waived, except in a writing signed by all of the parties hereto.
(f) This Agreement may be terminated by a written agreement
signed by both of the parties hereto. Upon termination of the Agreement, no
party hereto shall thereafter have any further liability or obligation hereunder
other than the Company's obligations under Paragraph 4(d).
(g) This Agreement shall be construed in accordance with and
governed by the laws of the State of New York, without giving effect to conflict
of law principles. The parties hereby agree that any dispute which may arise
between them arising out of or in connection with this Agreement shall be
adjudicated before a court located in New York City, and they hereby submit to
the exclusive jurisdiction of the courts of the State of New York located in New
York, New York and of the federal courts in the Southern District of New York
with respect to any action or legal proceeding commenced by any party, and
irrevocably waive any objection they now or hereafter may have respecting the
venue of any such action or proceeding brought in such a court or respecting the
fact that such court is an inconvenient forum, relating to or arising out of
this Agreement, and consent to the service of process in any such action or
legal proceeding by means of registered or certified mail, return receipt
requested, in care of the address set forth in Paragraph 11(b) hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
MAIDSTONE FINANCIAL, INC.
By:
---------------------------------
Name:
Title:
COMMUNITY CARE SERVICES, INC.
By:
----------------------------------
Name:
Title:
<PAGE>
Exhibit 24.02
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Registration Statement on Form SB-2
Amendment No. 4 of our report dated June 6, 1996 on our audits of the financial
statements of Community Care Services, Inc. We also consent to the reference to
our firm under the caption "Experts".
Richard A. Eisner & Company, LLP
New York, New York
October 2, 1996
