-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Va7lf6wzu+zLcyv/Eyg/B2F2FS4C4Tj/5G1FkClRsFikESDAQT5Kaw+WkJYoubBd gjnOgI2E/Tj6lMg31yGN5A== 0000912057-96-019343.txt : 19960903 0000912057-96-019343.hdr.sgml : 19960903 ACCESSION NUMBER: 0000912057-96-019343 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19960830 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITY FIRST ACQUISITION CORP CENTRAL INDEX KEY: 0001021435 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133899021 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-11165 FILM NUMBER: 96624353 BUSINESS ADDRESS: STREET 1: 245 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 2126964282 MAIL ADDRESS: STREET 1: 245 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10016 S-1 1 S-1 As filed with the Securities and Exchange Commission on August 30, 1996 Registration No. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- UNITY FIRST ACQUISITION CORP. (Exact name of registrant as specified in its charter) Delaware 6770 13-3899021 (State or other (Primary Standard (I.R.S. Employer jurisdiction of Industrial Classification Identification incorporation Classification Code) Number) or organization) 245 Fifth Avenue - Suite 1500 New York, New York 10016 (212) 696-4282 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ---------------- LAWRENCE BURSTEIN, President UNITY FIRST ACQUISITION CORP. 245 Fifth Avenue - Suite 1502 New York, New York 10016 (212) 696-4282 (Name, address, including zip code, and telephone number, including area code, of agent for service) ---------------- Copies to: IRA I. ROXLAND, Esq. DAVID ALAN MILLER, Esq. PARKER DURYEE ROSOFF & HAFT GRAUBARD MOLLEN & MILLER 529 Fifth Avenue 600 Third Avenue New York, New York 10017 New York, New York 10016 (212) 599-0500 (212) 818-8661 Fax: (212) 972-9487 Fax: (212) 818-8881 ---------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement 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, please check the following box. /X/ 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. / / CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------- Title of each class of Amount to be Proposed maximum Proposed maximum Amount of securities to be registered registered offering price aggregate offering registration per unit(1) price(1) fee - ------------------------------------------------------------------------------------------------------------------------- Units, consisting of one share of Common Stock, $.0001 par value, one Class A Warrant and one Class B Warrant, each Warrant to purchase one share of Common Stock(2).................. 1,437,500 uts. $6.00 $ 8,625,000 $ 2,974.14 - ------------------------------------------------------------------------------------------------------------------------- Underwriter's Unit Purchase Option........... 125,000 opts. - $ 100 (3) - ------------------------------------------------------------------------------------------------------------------------- Units, issuable upon exercise of the Underwriter's Unit Purchase Option, consisting of one share of Common Stock, $.0001 par value, one Class A Warrant and one Class B Warrant, each Warrant to purchase one share of Common Stock(4).................. 125,000 uts. $6.60 $ 825,000 $ 284.48 - ------------------------------------------------------------------------------------------------------------------------- Class A Warrants, each to purchase one share of Common Stock(4).......... 100,000 wts. - - (3) - ------------------------------------------------------------------------------------------------------------------------- Class B Warrants, each to purchase one Share of Common Stock(4).......... 100,000 wts. - - (3) - ------------------------------------------------------------------------------------------------------------------------- Common Stock, $.0001 par value, issuable upon exercise of Class A Warrants(5).............. 1,662,500 shs. $5.50 $ 9,143,750 $ 3,153.02 - ------------------------------------------------------------------------------------------------------------------------- Common Stock, $.0001 par value, issuable upon exercise of Class B Warrants(5)............. 1,662,500 shs. $7.50 $12,468,750 $ 4,299.57 - ------------------------------------------------------------------------------------------------------------------------- Total..................... $10,711.21 - -------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457. (2) Includes 187,500 Units issuable pursuant to the Underwriter's over- allotment option. (3) No fee pursuant to Rule 457(g). (4) Represents outstanding Warrants which may be sold by a Warrantholder after the consummation of a Business Combination (as defined herein). (5) Includes shares of Common Stock reserved for issuance upon the exercise of the Warrants included in the Units subject to the Underwriter's over- allotment option, shares of Common Stock reserved for issuance upon the exercise of the Warrants included in the Units reserved for issuance upon exercise of the Underwriter's Unit Purchase Option and shares of Common Stock reserved for issuance upon exercise of outstanding Warrants; also includes such presently indeterminate number of additional shares of Common Stock as may be issued pursuant to the respective anti-dilution provisions of the Warrants and the Underwriter's Unit Purchase Option. -------------------------------- 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. - ------------------------------------------------------------------------------- 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. ------------------ Subject to Completion Preliminary Prospectus dated August 30, 1996 PROSPECTUS 1,250,000 UNITS UNITY FIRST ACQUISITION CORP. EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK, ONE CLASS A COMMON STOCK PURCHASE WARRANT AND ONE CLASS B COMMON STOCK PURCHASE WARRANT ------------------ Unity First Acquisition Corp. ("Company") is offering hereby 1,250,000 Units ("Units"), each consisting of one share of Common Stock, par value $0.0001 per share ("Common Stock"), one Class A Redeemable Common Stock Purchase Warrant ("Class A Warrants") and one Class B Redeemable Common Stock Purchase Warrant ("Class B Warrants" and together with the Class A Warrants, the "Warrants"). The Common Stock and the Warrants will become separable and transferable only upon consummation of a Business Combination (as hereinafter defined). One Class A Warrant and one Class B Warrant each entitle the holder to purchase one share of Common Stock at a price of $5.50 and $7.50, respectively, commencing on the later of (i) the consummation of a Business Combination or (ii) one year from the date of this Prospectus and ending on , 2002 [six years after the effective date of the Registration Statement (as hereinafter defined)]. The Class A Warrants and the Class B Warrants are redeemable, each as a class, in whole and not in part, at the option of the Company and with the consent of the Underwriter, at a price of $.05 per Warrant at any time after the Warrants become exercisable upon not less than 30 days' prior written notice, provided that the last reported bid price of the Common Stock equals or exceeds $8.50 per share, with respect to the Class A Warrants, and $10.50 per share, with respect to the Class B Warrants, for the 20 consecutive trading days ending on the third day prior to the notice of redemption. See "Description of Securities." Prior to this offering, there has been no public market for the Units, the shares of Common Stock or the Warrants and there can be no assurance that such a market will develop after the completion of this offering. For information regarding the factors considered in determining the initial public offering price of the Units and the exercise price of the Warrants, see "Underwriting." The Company anticipates that the Units will be quoted on the OTC Bulletin Board under the symbol "UFACU" upon completion of this offering. THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND ARE NOT SUBJECT TO THE PROTECTIONS OF THE RULES UNDER THE SECURITIES ACT OF 1933 RELATING TO "BLANK CHECK" OFFERINGS. SEE "RISK FACTORS" ON PAGE 12. 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. - -------------------------------------------------------------------- UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) - -------------------------------------------------------------------- Per Unit.... $6.00 $0.48 $5.52 - -------------------------------------------------------------------- Total(3).... $7,500,000 $600,000 $ 6,900,000 - -------------------------------------------------------------------- - --------- (1) Does not include a 3% non-accountable expense allowance which the Company has agreed to pay to the Underwriter. The Company has also agreed to sell to the Underwriter an option ("Unit Purchase Option") to purchase up to 125,000 Units and to indemnify the Underwriter against certain liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting estimated expenses payable by the Company, including the Underwriter's non-accountable expense allowance in the amount of $225,000 ($258,750 if the Underwriter's over-allotment option is exercised in full), estimated at $450,000. (3) The Company has granted the Underwriter a 45-day option to purchase up to 187,500 additional Units upon the same terms and conditions as set forth above, solely to cover over-allotments, if any. If such over-allotment option is exercised in full, the total Price to Public, Underwriting Discounts and Proceeds to Company will be $8,625,000, $690,000 and $7,935,000, respectively. See "Underwriting." The Units are offered, subject to prior sale, when, as and if delivered to and accepted by the Underwriter and subject to approval of certain legal matters by counsel and certain other conditions. The Underwriter reserves the right to withdraw, cancel or modify this offering and to reject any order in whole or in part. It is expected that delivery of certificates will be made against payment therefor on or about , 1996, at the offices of the Underwriter in New York City. 2 GKN SECURITIES , 1996 3 STATE BLUE SKY INFORMATION The Units will only be offered and sold by the Company in the States of Delaware, District of Columbia, Florida, Hawaii, Illinois, Maryland, New York and West Virginia (the "Primary Distribution States"). In addition, such securities will be immediately eligible for resale in the secondary market in each of the Primary Distribution States and in the States of [Iowa and Pennsylvania]. Purchasers of such securities either in this offering or in any subsequent trading market which may develop must be residents of such states. The Company will amend this prospectus for the purpose of disclosing additional states, if any, in which the Company's securities will be eligible for resale in the secondary trading market. --------------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. --------------------- FURTHER INFORMATION The Company intends to furnish to its stockholders annual reports containing financial statements audited and reported upon by its independent public accounting firm and such other reports as the Company may determine to be appropriate or as may be required by law. 4 SUMMARY THE FOLLOWING IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS DOES NOT GIVE EFFECT TO THE EXERCISE OF THE UNDERWRITER'S OVER-ALLOTMENT OPTION, THE UNIT PURCHASE OPTION AND THE WARRANTS. THE COMPANY BUSINESS OBJECTIVE Unity First Acquisition Corp. ("Company") was formed on May 30, 1996 to serve as a vehicle to effect a merger, exchange of capital stock, asset acquisition or other similar business combination (a "Business Combination") with an operating business (a "Target Business") which the Company believes has significant growth potential. The Company intends to utilize cash (to be derived from the proceeds of this offering), equity, debt or a combination thereof in effecting a Business Combination. The Company's efforts in identifying a prospective Target Business will be limited to the following industries: (i) the manufacture of analytical and controlling equipment, chemicals and allied products, electronic equipment and medical instrumentation; (ii) health services (including HMOs, laboratories and nursing homes); (iii) environmental services and products; (iv) engineering and construction; (v) wholesale and retail distribution (including discount operations) of home furnishings, office supplies, computers and related products, medical equipment and supplies, apparel and accessories, automotive parts and supplies and food and beverage products; (vi) internet and other new media products and services; and (vii) communications and entertainment ("Target Industries"). While the Company may, under certain circumstances, seek to effect Business Combinations with more than one Target Business, its initial Business Combination must be with a Target Business whose fair market value is at least equal to 80% of the net assets of the Company at the time of such acquisition. Consequently, it is likely that the Company will have the ability to effect only a single Business Combination. PRIOR INVOLVEMENT OF PRINCIPALS IN "BLANK CHECK" COMPANIES The officers and directors of the Company (other than Mr. Norman Leben) have held similar positions in seven other "blank 5 check" companies (i.e, a development stage company that has no specific business plan or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company), each of which has consummated a Business Combination as of the date of this Prospectus. Certain information with respect to each such Business Combination is set forth below: TRADING DATE OF MARKET AND NAME OF TARGET BUSINESS TICKER BUSINESS COMBINATION NATURE OF BUSINESS SYMBOL - -------------- ----------- ------------------ ------ Bloc Development March 1988 Software development NYSE Corp.(1) (GML) Polyvision April 1990 Manufacture and AMEX (PLI) Corporation sale of vision projec- tion systems, architectural building panels, modular partitions and catalog office products T-HQ Inc. August 1991 Design and market- OTC Bulletin ing of Nintendo and Board (TOYH) SEGA games SubMicron Systems August 1993 Semi-conductor capital NASDAQ-NMS equipment manufacturer (SUBM) Alliance November 1993 Distributor of pre- NYSE Entertainment Corp. recorded music, (CDS) accessories and entertainment related products USCI Inc. May 1995 Centralized auto- NASDAQ-NMS mated computer- (USCM) based cellular telephone activation systems Brazil Fast Food Corp. March 1996 Owner and operator NASDAQ of hamburger fast food SmallCap restaurants (BOBS) in Brazil - -------------------- (1) Bloc Development Corp. was acquired by Global Direct Mail Corp. in 1995. 6 There can be no assurance that the Company will be able to effect a Business Combination or that the type of business or the performance of the Target Business, if any, will be similar to that of these other "blank check" companies. See "Management." OFFERING PROCEEDS HELD IN TRUST The proceeds of this offering, after payment of underwriting discounts and the Underwriter's non-accountable expense allowance, will be $6,675,000 ($7,676,250 if the Underwriter's over-allotment option is exercised in full). Ninety percent (90%) of such amount, or $6,007,500 ($6,908,625 if the Underwriter's over-allotment option is exercised in full), will be placed in a trust account (the "Trust Fund"), and invested in United States government securities. The Trust Fund will not be released until the earlier of the consummation of a Business Combination or the liquidation of the Company, which may not occur until 24 months from the consummation of this offering. Therefore, unless and until a Business Combination is consummated, the proceeds held in the Trust Fund will not be available for use by the Company for any expenses related to this offering or expenses which may be incurred by the Company related to the investigation and selection of a Target Business and the negotiation of an agreement to acquire a Target Business. Such expenses may be paid from the net proceeds not held in the Trust Fund (approximately $667,500 or $767,625 if the Underwriter's over-allotment option is exercised in full). See "Use of Proceeds." FAIR MARKET VALUE OF TARGET BUSINESS The Company will not acquire a Target Business unless the fair market value of such business, as determined by the Board of Directors of the Company based upon standards generally accepted by the financial community, such as actual and potential sales, earnings and cash flow and book value ("Fair Market Value"), is at least 80% of the net assets of the Company at the time of such acquisition. If the Board of Directors is not able to independently determine that the Target Business has a sufficient Fair Market Value, the Company will obtain an opinion from an unaffiliated, independent investment banking firm which is a member of the National Association of Securities Dealers, Inc. ("NASD") with respect to the satisfaction of such criteria. Since any opinion, if obtained, would merely state that Fair Market Value meets the 80% of net assets threshold, it is not anticipated that copies of such opinion would be distributed to stockholders of the Company, although copies will be provided to stockholders who request it. The Company will not be required to obtain an opinion from an investment banking firm as to Fair Market Value if the Board of Directors determines that the Target Business does have sufficient Fair Market Value. 7 STOCKHOLDER APPROVAL OF BUSINESS COMBINATION The Company, after signing a definitive agreement for the acquisition of a Target Business, but prior to the consummation of any Business Combination, will submit such transaction to the Company's stockholders for their approval, even if the nature of the acquisition is such as would not ordinarily require stockholder approval under applicable state law. All of the Company's stockholders prior to this offering ("Initial Stockholders"), including all of the officers and directors of the Company, have agreed to vote their respective shares of Common Stock owned by them immediately prior to this offering in accordance with the vote of the majority of all the other shares of Common Stock ("Public Shares") voted on any Business Combination. The holders of the Public Shares will be referred to herein as the "Public Stockholders." The Initial Stockholders shall be deemed to be "Public Stockholders" with respect to any Public Shares they acquire. The Company will proceed with the Business Combination only if the holders of at least a majority of the outstanding shares of Common Stock vote in favor of the Business Combination and less than 20% in interest of the Public Stockholders exercise their conversion rights described below. CONVERSION RIGHTS At the time the Company seeks stockholder approval of any Business Combination, the Company will offer each Public Stockholder the right to have his shares of Common Stock converted to cash if such stockholder votes against the Business Combination and the Business Combination is approved and consummated. The per-share conversion price will be equal to the amount in the Trust Fund (inclusive of any interest thereon) as of the record date for determination of stockholders entitled to vote on such Business Combination, divided by the number of Public Shares. Without taking into account interest, if any, earned on the Trust Fund, the per-share conversion price would be $4.81, or $1.19 less than the per-Unit offering price of $6.00. There will be no distribution from the Trust Fund with respect to the Warrants included in the Units. A Public Stockholder may request conversion of his shares at any time prior to the vote taken with respect to a proposed Business Combination at a meeting held for that purpose, but such request will not be granted unless such stockholder votes against the Business Combination and the Business Combination is approved and consummated. It is anticipated that the funds to be distributed to the Public Stockholders who have their shares converted will be distributed promptly after consummation of a Business Combination. The Initial Stockholders will not have any conversion rights with respect to the shares of Common Stock owned by them immediately prior to this offering. The Company will not consummate any Business Combination if 20% or more in interest of the Public Stockholders exercise their conversion rights. 8 ESCROW OF PRINCIPALS' SECURITIES The shares of the Company's Common Stock owned as of the date hereof by all of the executive officers and directors of the Company and their respective affiliates (excluding, however, their respective spouses and adult children) and by all persons owning 5% or more of the currently outstanding shares of Common Stock (collectively, the "Affiliated Initial Stockholders"), representing in the aggregate approximately 49.8% of the outstanding Common Stock as of the date hereof, will be placed in escrow with American Stock Transfer & Trust Company, as escrow agent (the "Escrow Agent"), until the earlier of (i) six months following the consummation of a Business Combination or (ii) the liquidation of the Company. During such escrow period, such persons will not be able to sell their respective shares of Common Stock, but will retain all other rights as stockholders of the Company, including, without limitation, the right to vote such shares of Common Stock. In addition, the Directors' Warrants (as hereinafter defined) will also be deposited with the Escrow Agent, to be released only upon the consummation of a Business Combination. Upon liquidation of the Company, the shares will be cancelled. All other Initial Stockholders ("Non-Affiliated Initial Stockholders") have agreed not to sell their respective shares of Common Stock until the occurrence of a Business Combination. LIQUIDATION IF NO BUSINESS COMBINATION In the event that the Company does not consummate a Business Combination within 18 months from the consummation of this offering, or 24 months from the consummation of this offering if the "Extension Criteria" described below have been satisfied, the Company will be dissolved and will distribute to all Public Stockholders in proportion to their respective equity interests in the Company, an aggregate sum equal to the amount in the Trust Fund, inclusive of any interest thereon, plus any remaining net assets of the Company. The Initial Stockholders have waived their respective rights to participate in any liquidation distribution with respect to the shares of Common Stock owned by them immediately prior to this offering. If the Company were to expend all of the net proceeds of this offering, other than the proceeds deposited in the Trust Fund, and without taking into account interest, if any, earned on the Trust Fund, the per-share liquidation price would be $4.81 or $1.19 less than the per-Unit offering price of $6.00. The proceeds deposited in the Trust Fund could, however, become subject to the claims of creditors of the Company which could be prior to the claims of stockholders of the Company. Accordingly, there can be no assurance that the per-share liquidation price will not be less than $4.81, plus interest. There will be no distribution from the Trust Fund with respect to the Warrants included in the Units. Notwithstanding the Company's commitment to liquidate if it is unable to effect a Business Combination within 18 months from the consummation of this offering, if the Company enters into either a letter of intent, an agreement in principle or a definitive agreement to effectuate a Business Combination prior to the expiration of such 18-month period, but is unable to 9 consummate such Business Combination within such 18-month period ("Extension Criteria"), then the Company will have an additional six months in which to consummate that Business Combination contemplated by such letter of intent or definitive agreement, as applicable. If the Company is unable to do so by the expiration of the 24-month period from the consummation of this offering, it will then liquidate. Upon notice from the Company, the trustee of the Trust Fund will commence liquidating the investments constituting the Trust Fund and will turn over the proceeds to the transfer agent for the Common Stock for distribution to the Public Stockholders. The Company anticipates that its instruction to the Trustee would be given promptly after the expiration of the applicable 18-month or 24-month period. A Public Stockholder shall be entitled to receive funds from the Trust Fund only in the event of a liquidation of the Company or if he seeks to convert his shares into cash in connection with a Business Combination which he voted against and which is actually consummated by the Company. In no other circumstances shall a Public Stockholder have any right or interest of any kind to or in the Trust Fund. THE OFFERING Securities offered 1,250,000 Units, at $6.00 per Unit, each Unit consisting of one share of Common Stock, one Class A Warrant to purchase one share of Common Stock, and one Class B Warrant to purchase one share of Common Stock. The Common Stock and the Warrants will become separable and transferable only upon consummation of a Business Combination. See "Description of Securities" and "Underwriting." Common Stock outstanding 625,000 shares prior to the offering Common Stock to be outstanding after the offering(1) 1,875,000 shares Warrants: Number to be outstanding after the offering(2) 1,350,000 Class A Warrants 1,350,000 Class B Warrants Exercise price The exercise price of each Class A Warrant is $5.50 per share and the 10 exercise price of each Class B Warrant is $7.50 per share, subject to adjustment in certain circumstances. See "Description of Securities." Exercise period The Warrants will become exercisable on the later of (i) the consummation of a Business Combination or (ii) one year from the date of this Prospectus and will expire at 5:00 p.m., New York City time, on , 2002. Redemption The Warrants are redeemable, each as a class, in whole and not in part, at the option of the Company and with the consent of the Underwriter, at a price of $.05 per Warrant at any time after the Warrants become exercisable upon not less than 30 days' prior written notice, provided that the reported closing bid price of the Common Stock equals or exceeds $8.50 per share, with respect to the Class A Warrants, and $10.50 per share, with respect to the Class B Warrants, for the 20 consecutive trading days ending on the third day prior to the notice of redemption. Proposed OTC Bulletin Board Symbol for Units(3) UFACU - -------------------- (1) Does not include (i) 2,700,000 shares of Common Stock reserved for issuance upon the exercise of (A) currently outstanding Directors' Warrants (as hereinafter defined) and (B) the Warrants, (ii) 187,500 shares of Common Stock included in the Units subject to the Underwriter's over-allotment option, (iii) 375,000 shares of Common Stock reserved for issuance upon the exercise of the Warrants included in the Units subject to the Underwriter's over-allotment option, (iv) 125,000 shares of Common Stock included in the Units reserved for issuance upon exercise of the Unit Purchase Options, (v) 250,000 shares of Common Stock reserved for issuance upon the exercise of the Warrants included in the Units reserved for issuance upon exercise of the Unit Purchase Options, or (vi) 187,500 shares of Common Stock reserved for issuance upon exercise of options available for grant under the Company's 1996 Stock Option Plan. See "Management - Stock Option Plan," "Certain Transactions," and "Underwriting." (2) Includes 100,000 Class A Warrants and 100,000 Class B Warrants heretofore issued to the Company's officers and directors 11 (collectively, the "Directors' Warrants"). The Directors' Warrants are identical to the Class A Warrants and the Class B Warrants, respectively, except that the Directors' Warrants are not redeemable and cannot be transferred or exercised until the consummation of a Business Combination. See "Certain Transactions." (3) The inclusion of the Units on the OTC Bulletin Board does not imply that a public trading market will develop therefor or, if developed, that such market will be sustained. USE OF PROCEEDS The Company intends to apply substantially all of the net proceeds of this offering, which are estimated to be approximately $6,450,000 ($7,451,250 if the Underwriter's over-allotment option is exercised in full), to acquire a Target Business, including identifying and evaluating prospective acquisition candidates, selecting a Target Business and structuring, negotiating and consummating the Business Combination. The proceeds of this offering, after payment of underwriting discounts and the Underwriter's non-accountable expense allowance, will be $6,675,000 ($7,676,250 if the Underwriter's over-allotment option is exercised in full). Ninety percent (90%) of such amount, or $6,007,500 ($6,908,625 if the Underwriter's over-allotment option is exercised in full), will be held in a trust account established with The Bank of New York until the earlier of (i) the consummation of a Business Combination or (ii) the liquidation of the Company. That portion of the net proceeds of this offering that will not be held in the Trust Fund, approximately $442,500 ($542,625 if the Underwriter's over- allotment option is exercised in full), will be used for (i) the performance of "due diligence" investigations of prospective acquisition candidates, (ii) legal, accounting and other expenses attendant to such "due diligence" investigations and to structuring, negotiating and consummating a Business Combination, (iii) legal and accounting fees to be incurred in connection with the Company's obligation to file periodic reports, proxy statements and other informational material with the Securities and Exchange Commission and (iv) the Company's general and administrative expenses, including $7,500 per month payable to Unity Venture Capital Associates Ltd., an affiliate of the Company's directors. See "Use of Proceeds", "Proposed Business" and "Certain Transactions." RISK FACTORS The securities offered hereby involve a high degree of risk and are not subject to the protection of the Rules of the 12 Securities Act of 1933 relating to "blank check" offerings. See "Risk Factors." SUMMARY FINANCIAL INFORMATION The following data have been derived from the financial statements of the Company and should be read in conjunction with those statements, which are included in this Prospectus. The "As Adjusted" financial information gives effect to the issuance of the securities in this offering as if such offering had occurred at July 31, 1996. July 31, 1996 ----------------------------- Actual As Adjusted(1) ---------- -------------- Balance Sheet Data: Total assets $250,563 $6,435,063(2) Working capital (deficit) $(14,937) $6,435,063(2) Total liabilities $265,500 $ - Value of Common Stock subject to possible conversion $ - $1,201,899(3) Stockholders' equity (deficit) $(14,937) $6,435,063(3) - -------------------- (1) Gives effect to the sale of the Units offered hereby and the application of the estimated net proceeds therefrom. See "Underwriting." (2) Includes $6,007,500 being held in the Trust Fund which will be available to the Company only upon the consummation of a Business Combination within the time period described in this Prospectus. If a Business Combination is not so consummated, the Company will be dissolved and the proceeds held in the Trust Fund will be distributed to the Public Stockholders. See "Use of Proceeds." (3) In the event the Company consummates a Business Combination, the conversion rights to the Public Stockholders may result in the conversion into cash of up to approximately 19.99% of the aggregate number of Public Shares at a per-share conversion price equal to the amount in the Trust Fund as of the record date for the determination of stockholders entitled to vote on the Business Combination (inclusive of any interest thereon) divided by the number of Public Shares. 13 THE COMPANY BUSINESS OBJECTIVE The Company was formed to serve as a vehicle to effect a merger, exchange of capital stock, asset acquisition or other similar business combination (a "Business Combination") with an operating business (a "Target Business"). The business objective of the Company is to seek to effect a Business Combination with a Target Business which the Company believes has significant growth potential. The Company intends to utilize cash (to be derived from the proceeds of this offering), equity, debt or a combination thereof in effecting a Business Combination. The Company's efforts in identifying a prospective Target Business will be limited to the following industries: (i) the manufacture of analytical and controlling equipment, chemicals and allied products, electronic equipment and medical instrumentation; (ii) health services (including HMOs, laboratories and nursing homes); (iii) environmental services and products; (iv) engineering and construction; (v) wholesale and retail distribution (including discount operations) of home furnishings, office supplies, computes and related products, medical equipment and supplies, apparel and accessories, automotive parts and supplies and food and beverage products; (vi) internet and other new media products and services; and (vii) communications and entertainment (the "Target Industries"). To date, the Company's efforts have been limited to organizational activities. The implementation of the Company's business plans are wholly contingent upon the successful sale of the Units offered hereby. See "Proposed Business." The Company was organized under the laws of the State of Delaware on May 30, 1996. The Company's office is located at 245 Fifth Avenue, Suite 1500, New York, New York 10016, and its telephone number is (212) 696-4282. RISK FACTORS The securities offered hereby involve a high degree of risk, including, but not necessarily limited to, the several factors described below. Each prospective investor should carefully consider the following risk factors inherent in and affecting the business of the Company and this offering before making an investment decision. RECENTLY ORGANIZED COMPANY; LIMITED RESOURCES; NO PRESENT SOURCE OF REVENUES 14 The Company, which was organized on May 30, 1996 and is in the development stage, has not as yet attempted to seek a Business Combination. Although the Company's President and two of its three other directors have had prior experience relating to the identification, evaluation and acquisition of a Target Business, the Company has no such experience and, accordingly, there is only a limited basis upon which to evaluate the Company's prospects for achieving its intended business objectives. To date, the Company's efforts have been limited primarily to organizational activities and this offering. The Company has limited resources and has had no revenues to date. In addition, the Company will not achieve any revenues (other than interest income upon the proceeds of this offering) until, at the earliest, the consummation of a Business Combination. Moreover, there can be no assurance that any Target Business, at the time of the Company's consummation of a Business Combination, or at any time thereafter, will derive any material revenues from its operations or operate on a profitable basis. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." MODIFIED REPORT OF AUDITORS The report of independent public accountants on the Company's financial statements includes an explanatory paragraph with respect to the Company being in its development stage, which raises substantial doubt about its ability to continue as a going concern. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements of the Company included elsewhere in this Prospectus. POSSIBLE LIQUIDATION OF THE COMPANY; PER-SHARE LIQUIDATION PRICE LESS THAN PUBLIC OFFERING PRICE; WARRANTS EXPIRE WORTHLESS IN EVENT OF LIQUIDATION If the Company does not consummate a Business Combination within 18 months from the consummation of this offering, or 24 months from the consummation of this offering if the Extension Criteria have been satisfied, the Company will be dissolved and will distribute to all Public Stockholders in proportion to their respective equity interests in the Company, an aggregate sum equal to the amount in the Trust Fund, inclusive of any interest thereon, plus any remaining net assets of the Company. It is likely that, in the event of any such liquidation, the per-share liquidation distribution will be less than the initial per-share public offering price (assuming no value is attributed to the Warrants included in the Units offered hereby) as a consequence of the expenses of this offering and the anticipated costs which will be incurred by the Company in seeking a Business Combination. If the Company were to expend all of the net proceeds of this offering not 15 held in the Trust Fund prior to liquidation, and without taking into account interest, if any, earned on the Trust Fund, the per-share liquidation price would be $4.81, or $1.19 less than the per-Unit offering price of $6.00. The proceeds deposited in the Trust Fund could, however, become subject to the claims of creditors of the Company which could be prior to the claims of stockholders of the Company. Accordingly, there can be no assurance that the per-share liquidation price will not be less than $4.81, plus interest. There will be no distribution from the Trust Fund with respect to the Warrants included in the Units and, accordingly, the Warrants will expire worthless in the event of a liquidation prior to the consummation of a Business Combination. The Initial Stockholders have waived their respective rights to participate in any liquidation distribution with respect to the shares of Common Stock owned by them immediately prior to this offering. A Public Stockholder shall be entitled to receive funds from the Trust Fund only in the event of a liquidation or in the event he seeks to convert his shares into cash in connection with a Business Combination which he voted against and which is actually consummated by the Company. In no other circumstances shall a Public Stockholder have any right or interest of any kind to and in the Trust Fund. UNSPECIFIED INDUSTRY AND TARGET BUSINESS; UNASCERTAINABLE RISKS To date, the Company has not selected any particular industry from the Target Industries or any Target Business in which to concentrate its search for a Business Combination. Accordingly, there is no current basis for prospective investors to evaluate the possible merits or risks of the Target Business or the particular industry in which the Company may ultimately operate. However, in connection with seeking stockholder approval of a Business Combination, the Company intends to furnish its stockholders with proxy solicitation materials prepared in accordance with the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which, among other matters, will include a description of the operations of the Target Business and audited historical financial statements thereof. To the extent the Company effects a Business Combination with a financially unstable company or an entity in its early stage of development or growth (including entities without established records of sales or earnings), the Company will become subject to numerous risks inherent in the business operations of financially unstable and early stage or potential emerging growth companies. In addition, to the extent that the Company effects a Business Combination with an entity in an industry characterized by a high level of risk, the Company will become subject to the currently unascertainable risks of that industry. An extremely high level of risk frequently characterizes certain industries which experience rapid growth. Although Management will endeavor 16 to evaluate the risks inherent in a particular Target Business or industry, there can be no assurance that the Company will properly ascertain or assess all such significant risk factors. See "Proposed Business - Blank Check Offering." DETERMINATION OF FAIR MARKET VALUE The Fair Market Value of the Target Business will be determined by the Board of Directors of the Company, unless the Board of Directors is not able to independently determine that the Target Business has sufficient Fair Market Value. Therefore, the Board of Directors has significant discretion in determining whether a Target Business is suitable for a proposed Business Combination and, since each of the directors of the Company owns shares of the Company's Common Stock which will be released from escrow only if a Business Combination is successfully consummated, the Board of Directors may have a conflict of interest in determining the Fair Market Value of a Target Business. The Board of Directors, however, has a fiduciary duty under the laws of Delaware to act in the best interests of all of the Company's stockholders, particularly when faced with a conflict of interest. See "Management - Conflicts of Interest." UNCERTAIN STRUCTURE OF BUSINESS COMBINATION; REDUCTION IN STOCKHOLDER EQUITY INTEREST The structure of a Business Combination with a Target Business, which may take the form of a merger, exchange of capital stock or asset acquisition, cannot be presently determined since neither the Company's officers or directors nor their respective affiliates have had any preliminary contacts, discussions or understandings with representatives of any potential Target Business regarding the possibility of a Business Combination. The Company may use the funds held in the Trust Fund as part of the consideration for the Business Combination or may issue additional Shares of Common Stock or shares of Preferred Stock, or incur debt, or any combination thereof. In the event the Company issues capital stock, the current equity interest of the stockholders may be significantly reduced. See "Proposed Business - Selection of Target Business and Structuring a Business Combination." DISCRETIONARY USE OF PROCEEDS; ABSENCE OF CURRENT SUBSTANTIVE DISCLOSURE RELATING TO BUSINESS COMBINATIONS The Company's Management has broad discretion with respect to the specific application of the net proceeds of this offering, although substantially all of the net proceeds of this offering are intended to be generally applied toward effecting a Business Combination, subject to the limitation concerning Target Industries 17 discussed under "The Company - Business Objectives." As of the date of this Prospectus, the Company has not identified a prospective Target Business and, accordingly, investors in this offering do not currently have any substantive information available for consideration of any Business Combination. Notwithstanding the foregoing, in connection with seeking stockholder approval of a Business Combination, the Company intends to furnish its stockholders with proxy solicitation materials prepared in accordance with the Securities Exchange Act of 1934, as amended ("Exchange Act") which will include a description of the operations of the Target Business and audited historical financial statements thereof. Such proxy solicitation materials will be filed with, and be subject to the review of, the Securities and Exchange Commission ("Commission"). See "Use of Proceeds" and "Proposed Business - Blank Check Offering." LIMITED ABILITY TO EVALUATE TARGET BUSINESS MANAGEMENT While the Company's ability to successfully effect a Business Combination will be dependent upon the efforts of its officers and directors, the future role of such persons, if any, in the Target Business cannot presently be stated with any certainty. While it is possible that one or more of these persons will remain associated in some capacity with the Company following a Business Combination, it is unlikely that any of them will devote their full efforts to the affairs of the Company subsequent thereto. Moreover, there can be no assurance that such persons will have significant experience or knowledge relating to the operations of the particular Target Business. Furthermore, although the Company intends to closely scrutinize the management of a prospective Target Business in connection with evaluating the desirability of effecting a Business Combination, there can be no assurance that the Company's assessment of such management will prove to be correct, especially in light of the possible inexperience of the Company's officers and directors in evaluating certain types of businesses. In addition, there can be no assurance that such future management will have the necessary skills, qualifications or abilities to manage a public company intending to embark on a program of business development. The Company may also seek to recruit additional managers to supplement the incumbent management of the Target Business. There can be no assurance that the Company will have the ability to recruit such additional managers, or that such additional managers will have the requisite skills, knowledge or experience necessary to enhance the incumbent management. See "Proposed Business - 'Blank Check' Offering." INVESTOR DOES NOT RECEIVE PROTECTION OF CERTAIN RULES PROMULGATED UNDER THE SECURITIES ACT OF 1933 18 This offering is not being conducted in accordance with Rule 419, promulgated by the Commission under the Securities Act ("Rule 419"), which regulates securities offerings by "blank check" companies. Since the Company's net tangible assets will be in excess of $5,000,000 upon its receipt of the proceeds of this offering (as supported through audited financial statements), the Company is not subject to Rule 419. Rule 419 requires that the securities to be issued and the funds received in a blank check offering be deposited and held in an escrow account until an acquisition meeting specified criteria is completed. Before the acquisition can be completed and before the funds and securities can be released, the blank check company is required to update its registration statement with a post-effective amendment and, after the effective date thereof, the blank check company is required to furnish investors with a prospectus (which forms a part of the post-effective amendment to its registration statement) containing specified information, including a discussion of the business and the audited financial statements of the proposed acquisition candidate. According to Rule 419, the investors must have no less than 20 and no more than 45 days from the effective date of the post-effective amendment to decide whether to remain an investor or require the return of their investment funds. Any investor not making such decision within such 45-day period is automatically entitled to receive a return of his investment funds. Unless a sufficient number of investors elect to remain investors, all of the deposited funds in the escrow account must be returned to all investors and none of the securities will be issued. Rule 419 further provides that if the blank check company does not complete an acquisition meeting the specified criteria within 18 months, all of the deposited funds must be returned to investors. SEEKING TO ACHIEVE PUBLIC TRADING MARKET THROUGH BUSINESS COMBINATION While a prospective Target Business may deem a Business Combination with the Company desirable for diverse reasons, a Business Combination may involve the acquisition of, or merger with, a company which does not need substantial additional capital but which desires to establish a public trading market for its shares, while avoiding what it may deem to be adverse consequences of undertaking a public offering itself, such as time delays, significant expense, loss of voting control and compliance with various Federal and state securities laws. See the risk factors herein entitled "Unspecified Industry and Target Business; Unascertainable Risks" and "No Assurance of Public Market; Arbitrary Determination of Offering Price." PROBABLE LACK OF BUSINESS DIVERSIFICATION 19 While the Company may, under certain circumstances, seek to effect Business Combinations with more than one Target Business, its initial Business Combination must be with a Target Business which satisfies the Fair Market Value criteria at the time of such acquisition. Consequently, it is likely that the Company will have the ability to effect only a single Business Combination. Accordingly, the prospects for the Company's success will be entirely dependent upon the future performance of a single business. Unlike certain entities which have the resources to consummate several Business Combinations of entities operating in multiple industries or multiple areas of a single industry, it is highly likely that the Company will not have the resources to diversify its operations or benefit from the possible spreading of risks or offsetting of losses. The Company's probable lack of diversification may subject the Company to numerous economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact upon the particular industry in which the Company may operate subsequent to a Business Combination. In addition, by consummating a Business Combination with only a single entity, the prospects for the Company's success may become dependent upon the development or market acceptance of a single or limited number of products, processes or services. Consequently, there can be no assurance that the Target Business will prove to be commercially viable. See "Proposed Business - 'Blank Check' Offering." DEPENDENCE UPON KEY PERSONNEL The ability of the Company to successfully effect a Business Combination will be largely dependent upon the efforts of Lawrence Burstein, the Company's President. The Company has not entered into an employment agreement with Mr. Burstein or obtained any "key man" life insurance on his life. The loss of Mr. Burstein's services could have a material adverse effect on the Company's ability to successfully achieve its business objectives. None of the Company's officers and directors are required to commit their full time to the affairs of the Company. Accordingly, conflicts of interest may arise in the allocation of management time among various business activities. In addition, the success of the Company may be dependent upon its ability to retain additional personnel with specific knowledge or skills who may be necessary to assist the Company in evaluating a potential Business Combination. There can be no assurance that the Company will be able to retain such necessary additional personnel. See "Proposed Business - Employees" and "Management - Conflicts of Interest." COMPETITION The Company expects to encounter intense competition from other entities having a business objective similar to that of the 20 Company. Many of these entities are well-established and have extensive experience in connection with identifying and effecting business combinations directly or through affiliates. Many of these competitors possess greater financial, technical, personnel and other resources than the Company and there can be no assurance that the Company will have the ability to compete successfully. The Company's financial resources will be relatively limited when contrasted with those of many of its competitors. This inherent competitive limitation may compel the Company to select certain less attractive Business Combination prospects. See "Proposed Business - Selection of Target Business and Structuring a Business Combination." CONFLICTS OF INTEREST None of the Company's officers and directors are required to commit their full time to the affairs of the Company; therefore, such persons may have conflicts of interest in allocating management time among various business activities. Certain of these persons may in the future become affiliated with entities, including other "blank check" companies, engaged in business activities similar to those intended to be conducted by the Company. Such persons may have conflicts of interest in determining to which entity a particular business opportunity should be presented. In order to reduce potential conflicts of interest, the Company's officers and directors have agreed that they will offer all suitable prospective Target Businesses to the Company before any other company until the earlier of a Business Combination or the liquidation of the Company. In general, officers and directors of a corporation incorporated under the laws of the State of Delaware are required to present certain business opportunities to such corporation. Accordingly, as a result of multiple business affiliations, certain of the Company's officers and directors may have similar legal obligations to present certain business opportunities to multiple entities. Conflicts of interest may also arise between the Company and Unity Venture Capital Associates Ltd. ("Unity"). Pursuant to a general and administrative services agreement, the Company is obligated to pay Unity a monthly fee of $7,500 for general and administrative services, including the use of approximately 500 square feet of office space in premises occupied by Unity. Mr. Burstein is the President and principal shareholder of Unity. Mr. Leben, as well as John Cattier and Barry Ridings, each a director of the Company, are also shareholders of Unity. Dalessio, Millner & Leben ("DML"), an accounting firm of which Mr. Leben is a partner, affords Unity the use of such space at a monthly rental of $2,000. DML which has performed bookkeeping, tax and accounting services for certain of the "blank check" companies of which Messrs. Burstein, Cattier and Ridings, have been directors and shareholders from their inceptions through the consummation of 21 their respective Business Combinations, is expected to perform similar services for the Company at an aggregate cost of approximately $12,000 per annum. DML may also perform financial "due diligence" services for the Company in connection with its evaluation of prospective Target Businesses for a Business Combination. In addition, Unity has made non-interest demand loans aggregating approximately $40,500 to the Company as of the date of this Prospectus to cover expenses related to this offering. The Company intends to repay these loans, as well as both those accrued general and administrative expenses owed to Unity discussed above, out of the proceeds of this offering. See "Management - Conflicts of Interest" and "Certain Transactions." POSSIBLE NEED FOR ADDITIONAL FINANCING The Company has had no revenues to date and is entirely dependent upon the proceeds of this offering to commence operations relating to selection of a prospective Target Business. The Company will not achieve any revenues (other than interest income derived from investment of the net proceeds of this offering) until, at the earliest, the consummation of a Business Combination. Although the Company believes that the proceeds of this offering will be sufficient to effect a Business Combination, inasmuch as the Company has not yet identified any prospective Target Business candidates, the Company cannot ascertain with any degree of certainty the capital requirements for any particular transaction. In the event that the net proceeds of this offering prove to be insufficient for purposes of effecting a Business Combination (because of the size of the Business Combination or the depletion of the net proceeds in search of a Target Business), the Company will be required to seek additional financing. There can be no assurance that such financing would be available on acceptable terms, if at all. To the extent that such additional financing proves to be unavailable when needed to consummate a particular Business Combination, the Company would, in all likelihood, be compelled to restructure the transaction or abandon that particular Business Combination and seek an alternative Target Business candidate. In addition, in the event of the consummation of a Business Combination, the Company may require additional financing to fund the operations or growth of the Target Business. The failure by the Company to secure such additional financing could have a material adverse effect on the continued development or growth of the Target Business. See "Proposed Business - 'Blank Check' Offering - Selection of a Target Business and Structuring of a Business Combination." RISKS OF LEVERAGE The Company may borrow money to consummate the Business Combination or assume or refinance the indebtedness of the Target 22 Business if the Company's management deems it to be beneficial to the Company. There is no legal limit on the amount of leverage that the Company may incur. Among the possible adverse effects of any such leverage are: (i) if the Company's operating revenues after the Business Combination were insufficient to pay debt services, there would be a risk of default and foreclosure on the Company's assets; (ii) if a loan agreement contains covenants that require the maintenance of certain financial ratios or reserves, and any such covenant is breached without a waiver or renegotiation of the terms of that covenant, then the lender could have the right to accelerate the payment of the indebtedness even if the Company has made all principal and interest payments when due; (iii) if the interest rate on a loan fluctuated or the loan was payable on demand, the Company would bear the risk of variations in the interest rate or demand for payment; and (iv) if the terms of a loan did not provide for amortization prior to maturity of the full amount borrowed and the "balloon" payment could not be refinanced at maturity on acceptable terms, the Company might be required to seek additional financing and, to the extent that additional financing were not available on acceptable terms, to liquidate its assets. See "Proposed Business - - Selection of Target Business and Structuring in Business Combination." AUTHORIZATION OF ADDITIONAL SECURITIES The Company's Certificate of Incorporation authorizes the issuance of 20,000,000 shares of Common Stock. Upon completion of this offering (assuming no exercise of the Underwriter's over-allotment option), there will be 14,862,500 authorized but unissued shares of Common Stock available for issuance (after appropriate reservation for the issuance of shares upon full exercise of the Warrants, the Unit Purchase Option and the Directors' Warrants and for future grants under the Company's 1996 Stock Option Plan). The Company's Board of Directors has the power to issue any or all of such authorized but unissued shares without stockholder approval. However, the Underwriting Agreement between the Company and the Underwriter (the "Underwriting Agreement") prohibits the Company from issuing shares of Common Stock prior to a Business Combination other than as described in this Prospectus. Although the Company has no commitments as of the date of this Prospectus to issue any additional shares of Common Stock, the Company will, in all likelihood, issue a substantial number of additional shares in connection with a Business Combination. To the extent that additional shares of Common Stock are issued, dilution to the interests of the Public Stockholders will occur. Additionally, if a substantial number of shares of Common Stock are issued in connection with a Business Combination, a change in control of the Company may occur which may affect, among other things, the Company's ability to utilize its net operating loss carryforwards, if any. Furthermore, the issuance of a substantial number of shares of Common Stock may adversely affect prevailing 23 market prices, if any, for the Common Stock and could impair the Company's ability to raise additional capital through the sale of its equity securities. See "Proposed Business - 'Blank Check' Offering - Selection of a Target Business and Structuring of a Business Combination" and "Description of Securities." The Company's Certificate of Incorporation also authorizes the issuance of 5,000 shares of "blank check" preferred stock ("Preferred Stock") with such designation, 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 dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of the Company's Common Stock, although the Underwriting Agreement prohibits the Company, prior to a Business Combination, from issuing Preferred Stock which participates in any manner in the proceeds of the Trust Fund, or which votes as a class with the Common Stock on a Business Combination. The Company may issue some or all of such shares in connection with a Business Combination. In addition, the Preferred Stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. Although the Company does not currently intend to issue any shares of Preferred Stock, there can be no assurance that the Company will not do so in the future. See "Proposed Business - - 'Blank Check' Offering - Selection of a Target Business and Structuring of a Business Combination" and "Description of Securities." INVESTMENT COMPANY ACT CONSIDERATIONS The regulatory scope of the Investment Company Act of 1940, as amended ("Investment Company Act"), which was enacted principally for the purpose of regulating vehicles for pooled investments in securities, extends generally to companies engaged primarily in the business of investing, reinvesting, owning, holding or trading in securities. The Investment Company Act may, however, also be deemed to be applicable to a company which does not intend to be characterized as an investment company but which, nevertheless, engages in activities which may be deemed to be within the definitional scope of certain provisions of the Investment Company Act. The Company believes that its anticipated principal activities, which will involve acquiring control of an operating company, will not subject the Company to regulation under the Investment Company Act. Nevertheless, there can be no assurance that the Company will not be deemed to be an investment company, especially during the period prior to a Business Combination. In the event the Company is deemed to be an investment company, the Company may become subject to certain restrictions relating to the Company's activities, including restrictions on the nature of its investments and the issuance of securities. In addition, the 24 Investment Company Act imposes certain requirements on companies deemed to be within its regulatory scope, including registration as an investment company, adoption of a specific form of corporate structure and compliance with certain burdensome reporting, recordkeeping, voting, proxy, disclosure and other rules and regulations. In the event of characterization of the Company as an investment company, the failure by the Company to satisfy regulatory requirements, whether on a timely basis or at all, would, under certain circumstances, have a material adverse effect on the Company. See "Proposed Business - Investment Company Act Considerations." TAX CONSIDERATIONS As a general rule, Federal and state tax laws and regulations have a significant impact upon the structuring of business combinations. The Company will evaluate the possible tax consequences of any prospective Business Combination and will endeavor to structure the Business Combination so as to achieve the most favorable tax treatment to the Company, the Target Business and their respective stockholders. There can be no assurance, however, that the Internal Revenue Service (the "IRS") or appropriate state tax authorities will ultimately assent to the Company's tax treatment of a consummated Business Combination. To the extent the IRS or state tax authorities ultimately prevail in recharacterizing the tax treatment of a Business Combination, there may be adverse tax consequences to the Company, the Target Business and their respective stockholders. See "Proposed Business - 'Blank Check' Offering - Selection of a Target Business and Structuring of a Business Combination." DIVIDENDS UNLIKELY The Company has not paid any dividends on its Common Stock to date and does not intend to pay dividends prior to the consummation of a Business Combination. The payment of dividends after any such Business Combination, if any, will be contingent upon the Company's revenues and earnings, if any, capital requirements and general financial condition subsequent to consummation of a Business Combination. The payment of any dividends subsequent to a Business Combination will be within the discretion of the Company's then Board of Directors. It is the present intention of the Board of Directors to retain all earnings, if any, for use in the Company's business operations and, accordingly, the Board does not anticipate declaring any dividends in the foreseeable future. See "Description of Securities - Dividends." CONTROL BY PRESENT STOCKHOLDERS 25 Upon consummation of this offering, Initial Stockholders, including the present management of the Company, will collectively own approximately 33.3% of the then-issued and outstanding shares of Common Stock (assuming no exercise of the Underwriter's over-allotment option). In the election of directors, stockholders are not entitled to cumulate their votes for nominees. Accordingly, it is likely that the Initial Stockholders will be able to elect all of the Company's directors and otherwise direct the affairs of the Company. See "Principal Stockholders," "Certain Transactions" and "Description of Securities." NO ASSURANCE OF PUBLIC MARKET; ARBITRARY DETERMINATION OF OFFERING PRICE Prior to this offering, there has been no public trading market for the Units, Common Stock, Class A Warrants or Class B Warrants. The initial public offering price of the Units and the exercise prices of the Class A Warrants and the Class B Warrants have been arbitrarily determined by negotiations between the Company and the Underwriter, and bear no relationship to such established valuation criteria as assets, book value or prospective earnings. There is no assurance that a regular trading market will develop for the Units after this offering or for the Common Stock and the Warrants subsequent to a Business Combination, or that, if developed, that any such market will be sustained. The Underwriter has advised the Company that it currently intends to serve as a market maker of the Units but is not obligated to do so and any market making may be discontinued at any time. See "Underwriting." OTC BULLETIN BOARD The Units will be traded in the over-the-counter market. It is anticipated that they will be quoted on the OTC Bulletin Board, an NASD sponsored and operated inter-dealer automated quotation system for equity securities not included in The Nasdaq Stock Market, as well as in the NQB Pink Sheets published by National Quotation Bureau Incorporated. The OTC Bulletin Board was introduced as an alternative to "pink sheet" trading of over-the-counter securities. Although the Company believes that the OTC Bulletin Board has been recognized by the brokerage community as an acceptable alternative to the NQB Pink Sheets, there can be no assurance that the liquidity and prices of the Units in the secondary market will not be adversely affected. See "Underwriting." IMMEDIATE DILUTION; DISPARITY OF CONSIDERATION This offering involves an immediate and substantial dilution of $2.57 per share (approximately 43.0% of the public offering price) between the pro forma net tangible book 26 value per share after the offering of $3.43 and the public offering price of $6.00 per share allocable to the share of Common Stock included in the Units (assuming no value is attributed to the Warrants included in the Units). The Initial Stockholders acquired their shares of Common Stock at a nominal price and, accordingly, new investors will bear virtually all of the risks inherent in an investment in the Company. See "Dilution." SHARES ELIGIBLE FOR FUTURE SALE All of the 625,000 shares of Common Stock issued and outstanding as of the date of this Prospectus are "restricted securities," as that term is defined under Rule 144 ("Rule 144"), promulgated by the Commission under the Securities Act. None of such shares will be eligible for sale under Rule 144 prior to May 30, 1998. Notwithstanding such eligibility, the Affiliated Initial Stockholders have agreed not to sell their respective shares of Common Stock prior to six months following the consummation of a Business Combination and the Non- Affiliated Initial Stockholders have agreed not to sell their respective shares of Common Stock, which were acquired prior to the date of this Prospectus, prior to the occurrence of a Business Combination. An additional 200,000 shares of Common Stock, which have been registered pursuant to the Registration Statement of which this Prospectus forms a part, are issuable upon the exercise of the Directors' Warrants. The Directors' Warrants, however, will not be transferable or exercisable until the consummation of a Business Combination. No prediction can be made as to the effect, if any, that sales of such 625,000 restricted shares of Common Stock and such 200,000 registered shares of Common Stock, or the availability of such shares for sale, will have on the market prices prevailing from time to time. Nevertheless, the possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect prevailing market prices for the Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. See "Certain Transactions" and "Shares Eligible for Future Sale." CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED IN CONNECTION WITH EXERCISE OF WARRANTS Beginning on the later of the consummation of a Business Combination or one year from the date of this Prospectus, the Company will be able to issue shares of its Common Stock upon exercise of the Warrants only if there is then a current prospectus relating to the Common Stock issuable upon the exercise of the Warrants under an effective registration statement filed with the 27 Commission, and only if such Common Stock is qualified for sale or exempt from qualification under applicable state securities laws of the jurisdictions in which the various holders of Warrants reside. Although the Company has agreed to use its best efforts to meet such requirements, there can be no assurance that the Company will be able to do so. The Warrants may be deprived of any value and the market for the Warrants may be limited if a then current prospectus covering the Common Stock issuable upon the exercise of the Warrants is not effective pursuant to an effective registration statement or if such Common Stock is not qualified or exempt from qualification in the jurisdictions in which the holders of the Warrants reside. See "Description of Securities." OUTSTANDING WARRANTS In connection with this offering, as part of the Units, the Company will be issuing Warrants to purchase 2,500,000 shares of Common Stock (2,875,000 if the Underwriter's over-allotment option is exercised in full). Additionally, the Company issued Directors' Warrants to purchase 200,000 shares of Common Stock and will issue the Unit Purchase Option entitling the Underwriter to purchase up to 375,000 shares of Common Stock. To the extent shares of Common Stock are to be issued by the Company to effect a Business Combination, the potential for the issuance of substantial numbers of additional shares upon exercise of these warrants could increase the cost to the Company of the Target Business (in terms of number of shares required to be issued). See "Description of Securities - -Warrants." POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS The Warrants may be redeemed by the Company, at a price of $.05 per Warrant, at any time they are exercisable, subject to not less than 30 days prior written notice to the holders thereof, provided that the last sale price of the Common Stock had been at least $8.50 per share for the redemption of the Class A Warrants and at least $10.50 per share for the redemption of the Class B Warrants, respectively, for the 20 consecutive trading days ending on the third day prior to the day on which notice is given. Notice of the redemption of the Warrants could force the holders thereof to exercise the Warrants and pay the exercise price at a time when it may be disadvantageous for them to do so to sell the Warrants, or accept the redemption price which is likely to be substantially less than the market value of the Warrants at the time of redemption. See "Description of Securities - Warrants." USE OF PROCEEDS 28 The net proceeds to the Company, after offering expenses and underwriting discounts of approximately $1,050,000 ($1,173,750 if the Underwriter's over-allotment option is exercised in full), from the sale of the Units offered hereby are estimated to be $6,450,000 ($7,451,250 if the Underwriter's over-allotment option is exercised in full). The Company will use substantially all of the net proceeds of this offering to acquire a Target Business, including identifying and evaluating prospective acquisition candidates, selecting the Target Business, and structuring, negotiating and consummating the Business Combination. The Company will not acquire a Target Business unless it satisfies the Minimum Valuation Standard at the time of such acquisition. To the extent that securities of the Company are used in whole or in part as consideration to effect a Business Combination, the balance of the net proceeds of this offering not theretofore expended will be used to finance the operations of the Target Business. The proceeds of this offering, after payment of underwriting discounts and the Underwriter's non-accountable expense allowance, will be $6,675,000 ($7,676,250 if the Underwriter's over-allotment option is exercised in full). Ninety percent (90%) of such amount, or $6,007,500 ($6,908,625 if the Underwriter's over-allotment option is exercised in full), will be placed in the Trust Fund to be maintained by , , New York, New York , as trustee, until the earlier of (i) the consummation of a Business Combination or (ii) the liquidation of the Company. Therefore, unless and until a Business Combination is consummated, the proceeds held in the Trust Fund will not be available for use by the Company for any expenses related to this offering or expenses which may be incurred by the Company related to the investigation and selection of a Target Business and the negotiation of an agreement to acquire the Target Business. The trustee of the Trust Fund is only authorized to invest the funds in certain government, quasi-government and investment grade debt securities and to disburse the funds as indicated above; it has no other duties or obligations. Approximately $50,000 as of the date of this Prospectus has been advanced by Unity on a non-interest bearing demand basis, for payment on the Company's behalf of certain expenses of this offering. Such advances will be repaid out of the gross proceeds of this offering. The net proceeds not held in the Trust Fund, approximately $442,500 ($542,625 if the Underwriter's over-allotment option is exercised in full), will be used for, or in connection with (i) the performance of "due diligence" investigations of prospective acquisition candidates, (ii) legal, accounting and other expenses attendant to such "due diligence" investigations and to structuring, negotiating and consummating a Business Combination, and (iii) legal and accounting fees to be incurred in connection with the Company's obligation to file periodic reports, proxy statements and other informational material with the Securities and Exchange Commission. In addition, the Company has been obligated to pay to Unity, since June 1, 1996, a monthly fee of $7,500 for general and administrative expenses. Such general and administrative expenses have been accrued and will be paid to Unity 29 out of that portion of the net proceeds not held in the Trust Fund. See "Certain Transactions." Proceeds of this offering not immediately required for the purposes set forth above will be invested in United States Government securities or other high-quality, short-term interest-bearing investments, provided, however, that the Company will attempt to invest the net proceeds in a manner which does not result in the Company being deemed to be an investment company under the Investment Company Act. The Company believes that, in the event a Business Combination is not effected during the 18-month period from the date of the consummation of this offering, unless extended to 24 months as discussed elsewhere herein, and to the extent that a significant portion of the net proceeds is not used in evaluating various prospective Target Businesses, the interest income derived from investment of the net proceeds during such period will be sufficient to defray continuing general and administrative expenses, as well as costs relating to compliance with securities laws and regulations (including associated professional fees). A Public Stockholder shall be entitled to receive funds from the Trust Fund only in the event of a liquidation or if he seeks to convert his shares into cash in connection with a Business Combination which he voted against and which is actually consummated by the Company. In no other circumstances shall a Public Stockholder have any right or interest of any kind or in the Trust Fund. 30 DILUTION The difference between the public offering price per share of Common Stock (assuming no value is attributed to the Warrants included in the Units) and the pro forma net tangible book value per share of Common Stock of the Company after this offering constitutes the dilution to investors in this offering. Net tangible book value per share is determined by dividing the net tangible book value of the Company (total tangible assets less total liabilities) by the number of outstanding shares of Common Stock. At July 31, 1996, the net tangible book value of the Company was $(264,937), or $(.42) per share of Common Stock. After giving effect to the sale of 1,250,000 shares of Common Stock included in the Units offered hereby and the application of the estimated net proceeds therefrom, the pro forma net tangible book value of the Company at July 31, 1996 would have been $6,435,063, or $3.43 per share of Common Stock, representing an immediate increase in net tangible book value of $3.85 per share to existing stockholders and an immediate dilution of $2.57 per share to new investors. The following table illustrates the foregoing information with respect to dilution to new investors on a per-share basis (assuming no value is attributed to the Warrants included in the Units): Public offering price per share of Common Stock $6.00 Net tangible book value before this offering $( .42) Increase attributable to new investors 3.85 ----- Pro forma net tangible book value after this offering 3.43 ------ Dilution to new investors $2.57 ------ ------ The following table sets forth, with respect to Initial Stockholders and new investors, a comparison of the number of shares of Common Stock acquired from the Company, the percentage ownership of such shares, the total consideration paid, the percentage of total consideration paid and the average price per share: 31 SHARES PURCHASED (1) TOTAL CONSIDERATION AVERAGE -------------------- ------------------- PRICE AMOUNT PERCENTAGE AMOUNT PERCENTAGE PER SHARE ------ ---------- ------ ---------- --------- Initial Stockholders 625,000 33.3% $ 125 - % $ .0001 New Investors 1,250,000 66.7% $7,500,000 100.0% $6.00 --------- ----- ---------- ----- TOTAL 1,875,000 100.0% $7,500,125 100.0% --------- ----- ---------- ----- --------- ----- ---------- ----- - -------------------- (1) The above table assumes no exercise of the Underwriter's over-allotment option. If the Underwriter's over-allotment option is exercised in full, the new investors will have paid $8,625,000 for 1,437,500 shares of Common Stock, representing virtually 100.0% of the total consideration for approximately 69.7% of the total number of shares of Common Stock then outstanding. See "Underwriting." 32 CAPITALIZATION The following table sets forth the capitalization of the Company at July 31, 1996 and as adjusted to give effect to the sale of the Units being offered hereby and the application of the estimated net proceeds therefrom: AS ACTUAL ADJUSTED ------ -------- Stockholders' equity: Common Stock, subject to possible conversion, 249,875 shares at conversion value $ - $1,201,899 Preferred Stock, $.01 par value, 5,000 shares authorized; none issued - - Common Stock, $.0001 par value, 20,000,000 shares authorized; 625,000 shares issued and outstanding; 1,625,125 shares issued and outstanding (excluding 249,875 shares subject to possible conversion), as adjusted 63 163 Capital in excess of par value - 5,248,001 Deficit accumulated during (15,000) (15,000) development stage ------ --------- Total stockholders' equity $(14,937) $6,435,063 ------ --------- ------ --------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company, a development stage entity, was formed on May 30, 1996 to serve as a vehicle to effect a merger, exchange of capital stock, asset acquisition or other similar business combination (a "Business Combination") with an operating business (a "Target Business") which the Company believes has significant growth potential. The Company intends to utilize cash (to be derived from the proceeds of this offering), equity, debt or a combination thereof in effecting a Business Combination. The Company's efforts in identifying a prospective Target Business will be limited to the following industries: (i) the manufacture of analytical and controlling equipment, chemicals and allied products, electronic equipment and medical instrumentation; (ii) health services (including HMOs, laboratories and nursing homes); (iii) environmental services and products; (iv) engineering and construction; (v) wholesale and retail distribution (including discount operations) of home furnishings, office supplies, computers and related products, medical equipment and supplies, apparel and accessories, automotive parts and supplies and food and beverage products; (vi) internet and other new media products and services; and (vii) communications and entertainment. It has neither engaged in any operations nor generated any revenues to date. The Company's entire activity since its inception has been to prepare for its proposed fundraising through an offering of equity securities as contemplated by this Prospectus. The Company's expenses of $15,000 through July 31, 1996 all relate to general and administrative expenses provided by Unity. In addition, since May 1996, $40,500 has been advanced by Unity, on a non-interest bearing basis, for payment on the Company's behalf of certain expenses of this offering. Such amounts will be paid to Unity out of that portion of the net proceeds not held in the Trust Fund. The net proceeds to the Company, after offering expenses and underwriting discounts of approximately $1,050,000 ($1,173,750 if the Underwriter's over-allotment option is exercised in full), from the sale of the Units offered hereby are estimated to be $6,450,000 ($7,451,250 if the Underwriter's over-allotment option is exercised in full). The Company will use substantially all of the net proceeds of this offering to acquire a Target Business, including identifying and evaluating prospective acquisition candidates, selecting the Target Business, and structuring, negotiating and consummating the Business Combination. The Company will not acquire a Target Business unless it satisfies the Fair Market Value criteria at the time of such acquisition. To the extent that securities of the Company are used in whole or in part as consideration to effect a Business Combination, the balance of the net proceeds of this offering not theretofore expended will be used to finance the operations of the Target Business. The net proceeds not held in the Trust Fund, approximately $442,500 ($542,625 if the Underwriter's over-allotment option is exercised in full), will be used for, or in connection with (i) the performance of "due diligence" investigations of prospective acquisition candidates, (ii) legal, accounting and other expenses attendant to such "due diligence" investigations and to structuring, negotiating and consummating a Business Combination, and (iii) legal and accounting fees to be incurred in connection with the Company's obligation to file periodic reports, proxy statements and other informational material with the Securities and Exchange Commission. In addition, the Company has been obligated to pay to Unity, since June 1, 1996, a monthly fee of $7,500 for general and administrative expenses. Such general and administrative expenses have been accrued and will be paid to Unity out of that portion of the net proceeds not held in the Trust Fund. See "Certain Transactions." 33 The report of independent public accountants on the Company's financial statements includes an explanatory paragraph with respect to the Company being in its development stage, which raises substantial doubt about its ability to continue as a going concern. 34 PROPOSED BUSINESS INTRODUCTION The Company was formed to serve as a vehicle for the acquisition of a Target Business which the Company believes has significant growth potential. The Company intends to utilize cash (derived from the proceeds of this offering), equity, debt or a combination of these in effecting a Business Combination. The Company's efforts in identifying a prospective Target Business will be limited to the Target Industries. While the Company may, under certain circumstances, seek to effect Business Combinations with more than one Target Business, the Company will, in all likelihood, have the ability, as a result of its limited resources, to effect only a single Business Combination. The Company may effect a Business Combination with a Target Business which may be financially unstable or in its early stages of development or growth. "BLANK CHECK" OFFERING BACKGROUND. As a result of Management's broad discretion with respect to the specific application of the net proceeds of this offering, this offering can be characterized as a "blank check" offering. Although substantially all of the net proceeds of this offering are intended to be generally applied toward effecting a Business Combination, subject to the limitation concerning Target Industries discussed under "- Introduction", such proceeds are not otherwise being designated for any more specific purposes. Accordingly, prospective investors will invest in the Company without an opportunity to evaluate the specific merits or risks of any one or more Business Combinations. A Business Combination may involve the acquisition of, or merger with, a company which does not need substantial additional capital but which desires to establish a public trading market for its shares, while avoiding what it may deem to be adverse consequences of undertaking a public offering itself, such as time delays, significant expense, loss of voting control and compliance with various Federal and state securities laws. UNSPECIFIED INDUSTRY AND TARGET BUSINESS. To date, the Company has not selected any particular industry from the Target Industries or any Target Business in which to concentrate its search for a Business Combination. Accordingly, there is no basis for investors in this offering to evaluate the possible merits or risks of the Target Business or the particular industry in which the Company may ultimately operate. To the extent the Company effects a Business Combination with a financially unstable company or an entity in its early stage of development or growth (including entities without established records of sales or earnings), the Company will become subject to numerous risks inherent in the 35 business and operations of financially unstable and early stage or potential emerging growth companies. In addition, to the extent that the Company effects a Business Combination with an entity in an industry characterized by a high level of risk, the Company will become subject to the currently unascertainable risks of that industry. An extremely high level of risk frequently characterizes certain industries which experience rapid growth. In addition, although Management will endeavor to evaluate the risks inherent in a particular industry or Target Business, there can be no assurance that the Company will properly ascertain or assess all significant risk factors. PROBABLE LACK OF BUSINESS DIVERSIFICATION. While the Company may, under certain circumstances, seek to effect Business Combinations with more than one Target Business, its initial Business Combination must be with a Target Business which satisfies the Minimum Valuation Standard at the time of such acquisition. Consequently, it is likely that the Company will have the ability to effect only a single Business Combination. Accordingly, the prospects for the Company's success will be entirely dependent upon the future performance of a single business. Unlike certain entities which have the resources to consummate several Business Combinations of entities operating in multiple industries or multiple areas of a single industry, it is highly likely that the Company will not have the resources to diversify its operations or benefit from the possible spreading of risks or offsetting of losses. The Company's probable lack of diversification may subject the Company to numerous economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact upon the particular industry in which the Company may operate subsequent to a Business Combination. In addition, by consummating a Business Combination with only a single entity, the prospects for the Company's success may become dependent upon the development or market acceptance of a single or limited number of products, processes or services. Accordingly, notwithstanding the possibility of capital investment in and management assistance to the Target Business by the Company, there can be no assurance that the Target Business will prove to be commercially viable. Prior to the consummation of a Business Combination, the Company has no intention of either loaning any of the proceeds of this offering to any company or purchasing a minority equity interest in any company. OPPORTUNITY FOR STOCKHOLDER EVALUATION OR APPROVAL OF BUSINESS COMBINATIONS. The investors in this offering will, in all likelihood, neither receive nor otherwise have the opportunity to evaluate any financial or other information which will be made available to the Company in connection with selecting a potential Business Combination until after the Company has entered into an agreement to effectuate a Business Combination. Such agreement to effectuate a Business Combination, however, will be subject to stockholder approval as discussed elsewhere herein. As a result, 36 investors in this offering will be almost entirely dependent on the judgment of Management in connection with the selection and ultimate consummation of a Business Combination. In connection with seeking stockholder approval of a Business Combination, the Company intends to furnish its stockholders with proxy solicitation materials prepared in accordance with the Exchange Act, which, among other matters, will include a description of the operations of the Target Business and audited historical financial statements thereof. Under the Delaware Business Corporation Act, various forms of Business Combinations can be effected without stockholder approval. In addition, the form of Business Combination will have an impact upon the availability of dissenters' rights (i.e., the right to receive fair payment with respect to the Company's Common Stock) to stockholders disapproving the proposed Business Combination. Under current applicable laws, only a merger, consolidation or share exchange may give rise to a stockholder vote and to dissenters' rights. Nevertheless, the Company will afford to investors in this offering the right to approve any Business Combination, irrespective of whether such approval would be required under applicable Delaware law. In the event, however, that 20% or more in interest of Public Stockholders vote against approval of any Business Combination, the Company will not consummate such Business Combination. All of the Initial Stockholders, including all of the officers and directors of the Company, have agreed to vote their respective shares of Common Stock in accordance with the vote of the majority in interest of all Public Stockholders with respect to any Business Combination. LIMITED ABILITY TO EVALUATE TARGET BUSINESS' MANAGEMENT. While the Company's ability to successfully effect a Business Combination will be dependent upon the efforts of its officers and directors, the future role of such persons, if any, in the Target Business cannot presently be stated with any certainty. While it is possible that one or more of these persons will remain associated in some capacity with the Company following a Business Combination, it is unlikely that any of them will devote their full efforts to the affairs of the Company subsequent thereto. Moreover, there can be no assurance that such persons will have significant experience or knowledge relating to the operations of the particular Target Business. Furthermore, although the Company intends to closely scrutinize the management of a prospective Target Business in connection with evaluating the desirability of effecting a Business Combination, there can be no assurance that the Company's assessment of such management will prove to be correct, especially in light of the possible inexperience of the Company's officers and directors in evaluating certain types of businesses. In addition, there can be no assurance that such future management will have the necessary skills, qualifications or abilities to manage a public company intending to embark on a program of business development. The Company may also seek to recruit additional managers to 37 supplement the incumbent management of the Target Business. There can be no assurance that the Company will have the ability to recruit such additional managers, or that such additional managers will have the requisite skills, knowledge or experience necessary to enhance the incumbent management. SELECTION OF A TARGET BUSINESS AND STRUCTURING OF A TARGET COMBINATION. Subject to the limitation that a Target Business be within the Target Industries, Management of the Company will have virtually unrestricted flexibility in identifying and selecting a prospective Target Business. In evaluating a prospective Target Business, Management will consider, among other factors, the following: - financial condition and results of operation; - growth potential; - experience and skill of management and availability of additional personnel; - capital requirements; - competitive position; - stage of development of the products, processes or services; - degree of current or potential market acceptance of the products, processes or services; - proprietary features and degree of intellectual property or other protection of the products, processes or services; - regulatory environment of the industry; and - costs associated with effecting the Business Combination. The foregoing criteria are not intended to be exhaustive; any evaluation relating to the merits of a particular Business Combination will be based, to the extent relevant, on the above factors as well as other considerations deemed relevant by Management in connection with effecting a Business Combination consistent with the Company's business objective. In connection with its evaluation of a prospective Target Business, Management anticipates that it will conduct an extensive due diligence review which will encompass, among other things, meetings with incumbent management and inspection of facilities, as well as review of financial or other information which will be made available to the Company. 38 The time and costs required to select and evaluate a Target Business (including conducting a due diligence review) and to structure and consummate the Business Combination (including negotiating relevant agreements and preparing requisite documents for filing pursuant to applicable securities laws and state corporation laws) cannot presently be ascertained with any degree of certainty. Mr. Burstein, the Company's President and principal stockholder, intends to devote approximately 30% of his time to the affairs of the Company and, accordingly, consummation of a Business Combination may require a greater period of time than if such persons devoted their full time to the Company's affairs. Any costs incurred in connection with the identification and evaluation of a prospective Target Business with which a Business Combination is not ultimately consummated will result in a loss to the Company and reduce the amount of capital available to otherwise complete a Business Combination. PRIOR INVOLVEMENT OF PRINCIPALS IN "BLANK CHECK" COMPANIES The officers and directors of the Company (other than Mr. Norman Leben) have held similar positions in seven other "blank check" companies, each of which has consummated a Business Combination as of the date of this Prospectus. Certain information with respect to each such Business Combination is set forth below: TRADING DATE OF MARKET AND NAME OF TARGET BUSINESS TICKER BUSINESS COMBINATION NATURE OF BUSINESS SYMBOL - ---------------- ----------- ------------------ ------ Bloc Development NYSE Corp.(1) March 1988 Software development (GML) Polyvision Corporation April 1990 Manufacture and AMEX (PLI) sale of vision projec- tion systems, architectural building panels, modular partitions and catalog office products T-HQ Inc. August 1991 Design and market- OTC Bulle-tin ing of Nintendo and Board SEGA games (TOYH) SubMicron Systems August 1993 Semi-conductor capital NASDAQ-NMS equipment manufacturer (SUBM) 39 Alliance Entertainment Corp. November 1993 Distributor of pre- NYSE recorded music, (CDS) accessories and entertainment related products USCI Inc. May 1995 Centralized auto- NASDAQ-NMS mated computer- (USCM) based cellular telephone activation systems Brazil Fast Food Corp. March 1996 Owner and operator NASDAQ of hamburger fast food SmallCap restaurants (BOBS) in Brazil - ------------ (1) Bloc Development Corp. was acquired by Global Direct Mail Corp. in 1995. SOURCES OF TARGET BUSINESSES The Company anticipates that various Target Business candidates will be brought to its attention from various unaffiliated sources, including securities broker-dealers, investment bankers, venture capitalists, bankers, other members of the financial community, and affiliated sources, including, possibly, the Company's officers, directors and their affiliates, who may present solicited or unsolicited proposals. While the Company does not presently anticipate engaging the services of professional firms that specialize in business acquisitions on any formal basis, the Company may engage such firms in the future, in which event the Company may pay a finder's fee or other compensation. In no event, however, will the Company pay a finder's fee or commission to officers or directors of the Company or any entity with which they are affiliated for such service. See "Management - Conflicts of Interest." COMPETITION In identifying, evaluating and selecting a Target Business, the Company expects to encounter intense competition from other entities having a business objective similar to that of the Company. Many of these entities are well established and have extensive experience in connection with identifying and effecting business combinations directly or through affiliates. Many of these competitors possess greater technical, human and/or other resources than the Company and the Company's financial resources will be relatively limited when contrasted with those of many of these competitors. This inherent competitive limitation may give others an advantage in pursuing the acquisition of certain Target 40 Businesses. Further, the Company's obligation to seek stockholder approval of a Business Combination may delay the consummation of a transaction; and the Company's obligation in certain circumstances to convert into cash shares of Common Stock held by Public Stockholders may reduce the resources available to the Company for a Business Combination or for other corporate purposes. Either of these obligations may place the Company at a competitive disadvantage in successfully negotiating a Business Combination. Management believes, however, that the Company's status as a public entity and its potential access to the United States public equity markets may give the Company a competitive advantage over privately-held entities having a similar business objective to that of the Company in acquiring a Target Business with significant growth potential on favorable terms. UNCERTAINTY OF COMPETITIVE ENVIRONMENT OF TARGET BUSINESS In the event that the Company succeeds in effecting a Business Combination, the Company will, in all likelihood, become subject to intense competition from competitors of the Target Business. In particular, certain industries which experience rapid growth frequently attract an increasingly larger number of competitors, including competitors with increasingly greater financial, marketing, technical and other resources than the initial competitors in the industry. The degree of competition characterizing the industry of any prospective Target Business cannot presently be ascertained. There can be no assurance that, subsequent to a Business Combination, the Company will have the resources to compete effectively, especially to the extent that the Target Business is in a high-growth industry. FACILITIES The Company presently occupies approximately 500 square feet of office space in premises occupied by Unity. The cost for such space is included in a $7,500-per-month fee charged by Unity for general and administrative services. The Company believes, based upon rents and fees for similar services in the New York City metropolitan area, that the fee charged by Unity is at least as favorable as it could have obtained from an unaffiliated person. See "Certain Transactions." EMPLOYEES As of the date of this Prospectus, the Company, in addition to its two officers, has one part-time employee who is employed in an administrative capacity. 41 PERIODIC REPORTING AND AUDITED FINANCIAL STATEMENTS The Company has registered its securities under the Exchange Act and therefore has certain reporting obligations, including the requirement that it file annual and quarterly reports with the Commission. In accordance with the requirements of the Exchange Act, the Company intends to furnish to its stockholders Annual Reports containing financial statements audited and reported on by its independent accountants. The Company will not acquire a Target Business if audited financial statements cannot be obtained for such Target Business. Additionally, management will provide the Public Stockholders with audited financial statements (prepared in accordance with generally accepted accounting principles) of the prospective Target Business as part of the proxy solicitation materials sent to the Public Stockholders to assist them in assessing the Target Business. Management believes that the requirement of having available audited financial statements for the Target Business will not materially limit the pool of potential Target Businesses available for acquisition. 42 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The current directors and officers of the Company are as follows: NAME AGE POSITION ---- --- -------- Lawrence Burstein 53 President, Treasurer and Director John Cattier 62 Director Barry Ridings 43 Director Norman Leben 36 Secretary and Director LAWRENCE BURSTEIN has been President, Treasurer and a director of the Company since its inception. Since March 1996, Mr. Burstein has been Chairman of the Board and a principal shareholder of Unity. Mr. Burstein is a director of five public companies, being, respectively, TOYH, USCM, BOBS, CAS Medical Systems, Inc., engaged in the manufacture and marketing of blood pressure monitors and other medical products principally for the neonatal market, and The MNI Group Inc., engaged in the marketing of specially formulated medical foods. Mr. Burstein received an L.L.B. from Columbia Law School. JOHN CATTIER has been a director of the Company since its inception. Since May 1996, Mr. Cattier has been a director and a shareholder of Unity. Mr. Cattier has been an independent consultant since January 1985. From 1957 to December 1984, Mr. Cattier was associated with White Weld & Co., investment bankers, serving as a general partner, and with Credit Suisse White Weld (which subsequently became Credit Suisse First Boston), investment bankers, in various capacities. Mr. Cattier is a director of Pacific Assets Trust PLC, a United Kingdom investment trust, and Chairman of the Board of Directors of Heptagon Investments Limited, an investment company ("Heptagon"). Mr. Cattier received a B.A. from Yale University. BARRY RIDINGS has been a director of the Company since its inception. Since March 1990, Mr. Ridings has been a Managing Director of Alex Brown & Sons, investment bankers. From June 1986 to March 1990, Mr. Ridings was a Managing Director of Drexel Burnham Lambert, investment bankers. Mr. Ridings is a director of SubMicron Systems Corporation, a company engaged in the design, manufacture and marketing of advanced processing systems sold primarily to manufacturers of semiconductor chips, Transcor Waste 43 Services Corp., a waste management company, Leaseway Transportation Corp., a trucking company, Rax Restaurants Inc., a restaurant chain and Norex America Inc., a shipping company. Mr. Ridings received an M.B.A. from Cornell University. NORMAN LEBEN has been Secretary and a director of the Company since its inception. Mr. Leben is, and since 1988 has been, a partner of DML, certified public accountants. Prior thereto and from 1985, Mr. Leben was engaged in the acquisition, management, syndication and operation of real estate and other emerging marketing businesses. Prior to 1985, Mr. Leben was employed by Laventhol & Horwath. Mr. Leben received a B.B.A. from George Washington University. All directors hold office until the next annual meeting of stockholders and the election and qualification of their successors. Directors receive no compensation for serving on the Board of Directors other than reimbursement of reasonable expenses incurred in attending meetings. Officers are elected annually by the Board of Directors and serve at the discretion of the Board. Mr. Burstein intends to devote approximately 30% of his time to the affairs of the Company. The Company has not entered into employment agreements with any of its officers. EXECUTIVE COMPENSATION No officer has received any cash compensation from the Company since inception for services rendered. Other than the $7,500 monthly administrative fee, no compensation of any kind (including finders and consulting fees) will be paid to any Initial Stockholder, or any affiliate thereof for services rendered to the Company prior to or in connection with the Business Combination; provided, however, that such persons shall be entitled to receive, upon consummation of the Business Combination, commissions for monies raised by them for the Company in connection with the Business Combination, at rates that are no less favorable to the Company than those which the Company would pay to unaffiliated third parties. In addition, the Affiliated Initial Stockholders will receive reimbursement for any out-of-pocket expenses incurred in connection with activities on behalf of the Company. There is no limit on the amount of such reimbursable expenses and there will be no review of the reasonableness of such expenses by anyone other than the Board of Directors which includes two members who are officers and who may seek reimbursement. STOCK OPTION PLAN The Company's 1996 Stock Option Plan ("1996 Plan") was adopted by both the Board of Directors and a majority in interest of the stockholders of the Company on May 30, 1996. The 1996 Plan provides for the granting of options which are intended to qualify either as 44 incentive stock options ("Incentive Stock Options") within the meaning of Section 422 of the Internal Revenue Code of 1986 or as options which are not intended to meet the requirements of such section ("Nonstatutory Stock Options"). The total number of shares of Common Stock reserved for issuance under the 1996 Plan is 187,500. Options to purchase shares may be granted under the 1996 Plan to persons who, in the case of Incentive Stock Options, are employees (including officers) of the Company, or, in the case of Nonstatutory Stock Options, are employees (including officers) or non-employee directors of the Company. The 1996 Plan provides for its administration by the Board of Directors or a committee chosen by the Board of Directors, which has discretionary authority, subject to certain restrictions, to determine the number of shares issued pursuant to Incentive Stock Options and Nonstatutory Stock Options and the individuals to whom, the times at which and the exercise price for which options will be granted. The exercise price of all Incentive Stock Options granted under the 1996 Plan must be at least equal to the fair market value of such shares on the date of the grant or, in the case of Incentive Stock Options granted to the holder of more than 10% of the Company's Common Stock, at least 110% of the fair market value of such shares on the date of the grant. The maximum exercise period for which Incentive stock Options may be granted is ten years from the date of grant (five years in the case of an individual owning more than 10% of the Company's Common Stock). The aggregate fair market value (determined at the date of the option grant) of shares with respect to which Incentive Stock Options are exercisable for the first time by the holder of the option during any calendar year shall not exceed $100,000. No options may be granted under the 1996 Plan prior to the consummation of a Business Combination. CONFLICTS OF INTEREST None of the Company's officers and directors are required to commit their full time to the affairs of the Company and, accordingly, such persons may have conflicts of interest in allocating management time among various business activities. Certain of these persons may in the future become affiliated with entities, including other "blank check" companies, engaged in business activities similar to those intended to be conducted by the Company. Messrs. Burstein, Leben and Cattier are each directors and, together with Mr. Ridings, shareholders of Unity, which is engaged principally in making investments in privately held companies. Mr. Burstein and each of the other directors of the Company also serve as directors of various private companies and are engaged in various other business activities. In the course of 45 their other business activities, certain of the Company's officers and directors may become aware of investment and business opportunities which may be appropriate for presentation to the Company as well as the other entities with which they are affiliated. Such persons may have conflicts of interest in determining to which entity a particular business opportunity should be presented. In order to reduce potential conflicts of interest, the Company's officers and directors have agreed that they will offer all suitable prospective Target Businesses to the Company before any other company until the earlier of a Business Combination or the liquidation of the Company. In general, officers and directors of a corporation incorporated under the laws of the State of Delaware are required to present certain business opportunities to such corporation. Under Delaware law, officers and directors generally are required to bring business opportunities to the attention of such corporation if: such corporation could financially undertake the opportunity; the opportunity is within the corporation's line of business; and it would not be fair to the corporation and its stockholders for the opportunity not to be brought to the attention of such corporation. Accordingly, as a result of multiple business affiliations, certain of the Company's officers and directors may have similar legal obligations relating to presenting certain business opportunities to multiple entities. In addition, conflicts of interest may arise in connection with evaluations of a particular business opportunity by the Board of Directors with respect to the foregoing criteria. There can be no assurance that any of the foregoing conflicts will be resolved in favor of the Company. See "Proposed Business - 'Blank Check' Offering - Selection of a Target Business and Structuring of a Business Combination." In order to minimize potential conflicts of interest which may arise from multiple corporate affiliations, each of Messrs. Burstein, Leben and Cattier have agreed in principle to present to the Company for its consideration, prior to presentation to any other entity, any business opportunity which, under Delaware law, may reasonably be required to be presented to the Company. To further minimize potential conflicts of interest, the Company is restricted from pursuing any transactions with entities affiliated with an officer or director of the Company without the prior approval of a majority of its disinterested directors. In connection with any stockholder vote relating to approval of a Business Combination, all of the Initial Stockholders, including all of the officers and directors of the Company, have agreed to vote their respective shares of Common Stock in accordance with the vote of the majority in interest of the Public Stockholders. In addition, the Initial Stockholders have agreed to waive their respective rights to participate in any liquidation distribution but only with respect to those shares of Common Stock acquired by such persons prior to this offering. 46 PRINCIPAL STOCKHOLDERS The following table sets forth information as of July 31, 1996 and as adjusted to reflect the sale of the shares of Common Stock included in the Units offered hereby, based on information obtained from the persons named below, with respect to the beneficial ownership of shares of Common Stock by (i) each person known by the Company to be the owner of more than 5% of the outstanding shares of Common Stock, (ii) each director of the Company and (iii) all officers and directors of the Company as a group: AMOUNT AND PERCENTAGE OF NATURE OF OUTSTANDING SHARES ------------------------ BENEFICIAL BEFORE AFTER OWNERSHIP(1)(2) OFFERING OFFERING --------------- -------- -------- Lawrence Burstein 175,000(3) 28.0% 9.33% 245 Fifth Avenue New York, NY 10016 John Cattier 140,500(3)(4) 22.48% 7.49% Achlain Invermoriston Invernesshire IV3 6YN, United Kingdom Barry Ridings 6,000 0.01% - % 16 Erwin Park Montclair, NJ 07902 Norman Leben 40,000(3) 6.40% 2.13% 245 Fifth Avenue New York, NY 10016 All officers and directors as a group (4 persons) 311,500(3)(4) 49.84% 16.61% - ---------- (1) Unless otherwise noted, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. (2) Does not include shares issuable upon exercise of the Directors' Warrants which are beneficially owned by each of the persons named in the above table but which are not exercisable until the consummation of a Business Combination. (3) Includes 25,000 shares of Common Stock owned by Unity, over which shares Messrs. Burstein, Leben and Cattier share voting and investment power. (4) Includes (i) 75,000 shares held by Heptagon and (ii) 1,500 shares held by an affiliate of Heptagon. Mr. Cattier is Chairman of Heptagon's board of directors and exercises voting and dispositive control over approximately 4.5% of Heptagon's shares of capital stock. Mr. Cattier disclaims any voting or dispositive power over these shares. Also includes 39,000 shares owned by Cricket Services, Ltd. ("Cricket"), over which shares Mr. Cattier exercises voting and dispositive control. The shares of the Company's Common Stock owned as of the date hereof by all of the officers and directors of the Company and by all persons owning more than 5% of the currently outstanding shares 47 of Common Stock will be placed in escrow with American Stock Transfer & Trust Company, as escrow agent, until the earlier of (i) six months following the consummation of a Business Combination or (ii) the liquidation of the Company. During such escrow period, such persons will not be able to sell their respective shares of Common Stock, but will retain all other rights as stockholders of the Company, including, without limitation, the right to vote such shares of Common Stock. Messrs. Burstein, Leben and Cattier, as well as Unity, may be deemed to be "parents" and "promoters" of the Company, as such terms are defined under the Federal securities laws. CERTAIN TRANSACTIONS In June 1996, the Company issued an aggregate of 625,000 shares of Common Stock at a purchase price of $.0001 per share, as follows: 25,000 shares to Unity; 150,000 shares to Mr. Burstein; 15,000 shares to Mr. Leben; an aggregate of 76,500 shares to Heptagon and its affiliate; 39,000 shares to Cricket; 6,000 shares to Barry Ridings; and 313,500 shares to 24 other persons. In June 1996, the Company issued 58,334, 58,333, 58,333 and 25,000 Class A and Class B Warrants to each of, respectively, Messrs. Burstein, Leben, Cattier and Ridings ("collectively, the "Directors' Warrants"), in consideration for future services to be rendered by such persons on behalf of the Company. The Directors' Warrants and the Common Stock underlying such warrants have been registered pursuant to the Registration Statement of which this Prospectus forms a part. The Directors' Warrants are identical to the Warrants offered hereby but are not redeemable by the Company and may not be transferred or exercised until the consummation of a Business Combination. The Company has been obligated to pay Unity, since June 1, 1996, a monthly fee of $7,500 for general and administrative services pursuant to an agreement which may be canceled by either party upon 30 days' prior written notice. Such fee includes the use of approximately 500 square feet of office space in premises occupied by Unity. An accounting firm which is an affiliate of Mr. Leben affords Unity the use of such space at a monthly rental of $2,000. Messrs. Burstein, Leben and Cattier are each directors and shareholders of Unity. Unity has made non-interest demand loans aggregating approximately $50,000 to the Company as of the date of this Prospectus to cover expenses related to this offering. The Company intends to repay these loans, as well as those accrued general and administrative expenses owed to Unity discussed above, out of the proceeds of this offering not held in the Trust Fund. 48 DML has performed bookkeeping, tax and accounting services for certain of the "blank check" companies of which Messrs. Burstein, Cattier and Ridings, have been directors and shareholders from their dates of inceptions through the consummation of their respective Business Combinations and is expected to perform similar services for the Company at an aggregate cost of approximately $12,000 per annum. DML may also be paid to engage in financial "due diligence" activities for the Company in connection with its evaluation of prospective Target Companies for a Business Combination. Other than the $7,500 monthly administrative fee, no compensation of any kind (including finders and consulting fees) will be paid to any Initial Stockholder, or any affiliate thereof for services rendered to the Company prior to or in connection with the Business Combination; provided, however, that such persons shall be entitled to receive, upon consummation of the Business Combination, commissions for monies raised by them for the Company in connection with the Business Combination, at rates that are no less favorable to the Company than those which the Company would pay to unaffiliated third parties. All ongoing transactions between the Company and any of the Affiliated Initial Stockholders or their respective affiliates, as well as any future transactions, will be on terms believed by the Company to be no less favorable than are available from unaffiliated third parties and will be subject to prior approval in each instance by a majority of the members of the Company's Board of Directors who do not have an interest in the transaction. DESCRIPTION OF SECURITIES GENERAL The Company is authorized to issue 20,000,000 shares of Common Stock, par value $.0001 per share, and 5,000 shares of Preferred Stock, par value $.01 per share. As of the date of this Prospectus, 625,000 shares of Common Stock are outstanding, held of record by 31 persons. No shares of Preferred Stock are currently outstanding. UNITS Each Unit consists of one share of Common Stock, one Class A Warrant and one Class B Warrant, each Warrant entitling the holder to purchase one share of Common Stock. The Common Stock and Warrants will become separable and transferable upon consummation of a Business Combination. COMMON STOCK The holders of Common Stock are entitled to one vote for each share held of record on all matters to be voted on by stockholders. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voted for the election of directors can elect all of the directors. The holders of Common Stock are entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available therefore. In the event of liquidation, 49 dissolution or winding up of the Company, the holders of Common Stock (except for the Affiliated Initial Stockholders who have agreed to waive their rights and the Non-Affiliated Initial Stockholders who have agreed to waive certain of their rights to share in any distribution relating to a liquidation of the Company due to the failure of the Company to effect a Business Combination within 18 or 24 months, as the case may be, from the date of consummation of this offering) are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities and after provision has been made for each class of stock, if any, having preference over the Common Stock. Holders of shares of Common Stock, as such, have no conversion, preemptive or other subscription rights, and, except as noted below, there are no redemption provisions applicable to the Common Stock. All of the outstanding shares of Common Stock are, and the shares of Common Stock included in the Units, when issued and paid for as set forth in this Prospectus, will be, fully paid and nonassessable. PREFERRED STOCK The Company's Certificate of Incorporation authorizes the issuance of 5,000 shares of a "blank check" preferred stock (the "Preferred Stock") with such designation, 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 dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of the Company's Common Stock, although the Underwriting Agreement prohibits the Company, prior to a Business Combination, from issuing Preferred Stock which participates in any manner in the proceeds of the Trust Fund, or which votes as a class with the Common Stock on a Business Combination. The Company may issue some or all of such shares in connection with a Business Combination. In addition, the Preferred Stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. Although the Company does not currently intend to issue any shares of Preferred Stock, there can be no assurance that the Company will not do so in the future. WARRANTS Each Class A Warrant entitles the registered holder to purchase one share of Common Stock of the Company at a price of $5.50 per share, subject to adjustment in certain circumstances, at any time commencing on the later of (i) the consummation of a Business Combination or (ii) one year from the date of this Prospectus and ending at 5:00 p.m., New York City time, on , 2002, at which time the Class A Warrants will expire. Each Class B Warrant entitles the registered holder to purchase one share of 50 the Company's Common Stock at a price of $7.50 per share, subject to adjustment in certain circumstances, at any time commencing on the later of (i) the consummation of a Business Combination or (ii) one year from the date of this Prospectus and ending at 5:00 p.m., New York City time, on , 2002, at which time the Class B Warrants will expire. The Company may call the Class A Warrants and the Class B Warrants for redemption, each as a class, in whole and not in part, at the option of the Company and with the consent of the Underwriter, at a price of $.05 per Warrant at any time after the Warrants become exercisable upon not less than 30 days' prior written notice, provided that the reported closing bid price of the Common Stock equals or exceeds $8.50 per share, with respect to the Class A Warrants, and $10.50 per share, with respect to the Class B Warrants, for the 20 consecutive trading days ending on the third day prior to the notice of redemption to warrantholders. The warrantholders shall have exercise rights until the close of business on the date fixed for redemption. The Warrants will be issued in registered form under a Warrant Agreement between the Company and American Stock Transfer & Trust Company, as Warrant Agent. Reference is made to said Warrant Agreement (which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part) for a complete description of the terms and conditions applicable to the Warrants (the description herein contained being qualified in its entirety by reference to such Warrant Agreement). The exercise price and number of shares of Common Stock issuable on exercise of the Warrants are subject to adjustment in certain circumstances including in the event of a stock dividend, recapitalization, reorganization, merger or consolidation of the Company. However, the Warrants are not subject to adjustment for issuances of Common Stock at a price below their respective exercise prices. The Company has the right, in its sole discretion, to decrease the exercise price of the Warrants for a period of not less than 30 days on not less than 30 days' prior written notice to the warrantholders. In addition, the Company has the right, in its sole discretion, to extend the expiration date of the Warrants on five business days' prior written notice to the warrantholders. The Warrants may be exercised upon surrender of the Warrant Certificate on or prior to the expiration date at the offices of the Warrant Agent, with the exercise form on the reverse side of the Warrant Certificate completed and executed as indicated, accompanied by full payments of the exercise price (by certified check, payable to the Company) to the Warrant Agent for the number of Warrants being exercised. The warrantholders do not have the rights or privileges of holders of Common Stock. 51 No Warrants will be exercisable unless at the time of exercise the Company has filed with the Commission a current prospectus covering the shares of Common Stock issuable upon exercise of such Warrants and such shares have been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of such Warrants. The Company will use its best efforts to have all shares so registered or qualified on or before the exercise date and to maintain a current prospectus relating thereto until the expiration of the Warrants, subject to the terms of the Warrant Agreement. While it is the Company's intention to do so, there is no assurance that it will be able to do so. See "Risk Factors - Risks Relating to the Offering -Current Prospectus and State Blue Sky Registration Required in Connection with Exercise of 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, the Company will pay to such warrantholder, in lieu of the issuance of any fractional share which is otherwise issuable to such warrantholder, an amount in cash based on the market value of the Common Stock on the last trading day prior to the exercise date. DIVIDENDS The Company has not paid any dividends on its Common Stock to date and does not intend to pay dividends prior to the consummation of a Business Combination. The payment of dividends in the future, if any, will be contingent upon the Company's revenues and earnings, if any, capital requirements and general financial condition subsequent to consummation of a Business Combination. The payment of any dividends subsequent to a Business Combination will be within the discretion of the Company's then Board of Directors. It is the present intention of the Board of Directors to retain all earnings, if any, for use in the Company's business operations and, accordingly, the Board does not anticipate declaring any dividends in the foreseeable future. TRANSFER AGENT The transfer agent for the Company's securities is American Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005. SHARES ELIGIBLE FOR FUTURE SALE Upon the consummation of this offering, the Company will have 1,875,000 shares of Common Stock outstanding (2,062,500 shares if the Underwriter's over-allotment option is exercised in full). Of 52 these shares, the 1,250,000 shares sold in this offering (1,437,500 shares in the event of the exercise of the over-allotment option) will be freely tradeable without restriction or further registration under the Securities Act, except for any shares purchased by an "affiliate" of the Company (in general, a person who has a control relationship with the Company) which will be subject to limitations of Rule 144. All of the remaining 625,000 shares are deemed to be "restricted securities", as that term is defined under Rule 144, in that such shares were issued in private transactions not involving a public offering. None of such shares will be eligible for sale under Rule 144 prior to May 30, 1998. Notwithstanding this, the Affiliated Initial Stockholders have agreed not to sell their respective shares of Common Stock prior to six months following the consummation of a Business Combination and the Non-Affiliated Initial Stockholders have agreed not to sell their respective shares of Common Stock, which were acquired prior to the date of this Prospectus, prior to the occurrence of a Business Combination. In general, under Rule 144 as currently in effect, subject to the satisfaction of certain other conditions, a person, including an affiliate of the Company (or persons whose shares are aggregated), who has owned restricted shares of Common Stock beneficially for at least two years is entitled to sell, 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 Stock Market, the average weekly trading volume during the four calendar weeks preceding the sale. A person who has not been an affiliate of the Company for at least the three months immediately preceding the sale and who has beneficially owned shares of Common Stock for at least three years is entitled to sell such shares under Rule 144 without regard to any of the limitations described above. An additional 200,000 shares of Common Stock, which have been registered pursuant to the Registration Statement of which this Prospectus forms a part, are issuable upon the exercise of the Directors' Warrants issued to Messrs. Burstein, Leben, Cattier and Ridings. The Directors' Warrants are identical to the Warrants offered hereby but are not redeemable by the Company and may not be exercised until the consummation of a Business Combination. Prior to this offering, there has been no market for the Common Stock and no prediction can be made as to the effect, if any, that market sales of restricted shares of Common Stock or the availability of such shares for sale will have on the market prices prevailing from time to time. Nevertheless, the possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect prevailing market prices for the Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. 53 STATE BLUE SKY INFORMATION The Units will only be offered and sold by the Company in the States of Delaware, District of Columbia, Florida, Hawaii, Illinois, Maryland, New York and West Virginia (the "Primary Distribution States"). In addition, such securities will be immediately eligible for resale in the secondary market in each of the Primary Distribution States and in the States of Iowa and Pennsylvania. Purchasers of such securities either in this offering or in any subsequent trading market which may develop must be residents of such states. The Company will amend this prospectus for the purpose of disclosing additional states, if any, in which the Company's securities will be eligible for resale in the secondary trading market. UNDERWRITING GKN Securities Corp. has agreed, subject to the terms and conditions of the Underwriting Agreement, to purchase from the Company a total of 1,250,000 Units. The Underwriting Agreement provides that the obligations of the Underwriter are subject to approval of certain legal matters by counsel and various other conditions precedent, and that the Underwriter is obligated to purchase all of the Units offered by this Prospectus (other than the Units covered by the over- allotment option described below), if any are purchased. The Company has been advised by the Underwriter that it proposes to offer the Units to the public at the initial offering price set forth on the cover page of this Prospectus and to certain dealers at that price less a concession not in excess of $ per Unit. The Underwriter may allow, and such dealers may reallow, a concession not in excess of $ per Unit to certain other dealers. After the initial public offering, the offering price and other selling terms may be changed by the Underwriter. The Company has granted to the Underwriter an option, exercisable during the 45-day period after the date of this Prospectus, to purchase from the Company at the offering price, less underwriting discounts and the non-accountable expense allowance, up to an aggregate of 187,500 additional Units for the sole purpose of covering over-allotments, if any. The Company has agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act. The Company has also agreed to pay to the Underwriter an expense allowance on a non-accountable basis equal to 3% of the gross proceeds derived from the sale of the Units underwritten ($225,000 if the Underwriter's over-allotment option is not exercised and $258,750 if the Underwriter's over-allotment option is exercised in full), $25,000 of which has been paid to date. 54 The Company has granted the Underwriter for a period of three years from the date hereof the right to have the Underwriter's designee present at all meetings of the Company's Board of Directors. Such designee will be entitled to the same notices and communications sent by the Company to its directors and to attend directors' meetings, but will not be entitled to vote thereat. The Underwriter has not named such designee as of the date of this Prospectus. The Company has engaged GKN, on a non-exclusive basis, as its agent for the solicitation of the exercise of the Warrants. To the extent not inconsistent with the guidelines of the NASD and the rules and regulations of the Commission, the Company has agreed to pay GKN for bona fide services rendered a commission equal to 5% of the exercise price for each Warrant exercised more than one year after the date of this Prospectus if the exercise was solicited by GKN. In addition to soliciting, either orally or in writing, the exercise of the Warrants, such services may also include disseminating information, either orally or in writing, to warrantholders about the Company or the market for the Company's securities, and assisting in the processing of the exercise of Warrants. No compensation will be paid to GKN in connection with the exercise of the Warrants if the market price of the underlying shares of Common Stock is lower than the exercise price, the holder of the Warrants has not confirmed in writing that GKN solicited such exercise, the Warrants are held in a discretionary account, the Warrants are exercised in an unsolicited transaction or the arrangement to pay the commission is not disclosed in the prospectus provided to warrantholders at the time of exercise. In addition, unless granted an exemption by the Commission from Rule 10b-6 under the Exchange Act, while it is soliciting exercise of the Warrants, GKN will be prohibited from engaging in any market making activities or solicited brokerage activities with regard to the Company's securities unless GKN has waived its right to receive a fee for the exercise of the Warrants. In connection with this offering, the Company has agreed to sell to the Underwriter, for nominal consideration, an option ("Unit Purchase Option") to purchase up to an aggregate of 125,000 Units. The Units issuable upon exercise of the Unit Purchase Option are identical to those offered hereby except that the Warrants contained therein expire five years from the date hereof. The Unit Purchase Option is exercisable initially at $6.60 per Unit for a period of four years commencing one year from the date hereof. The Unit Purchase Option may not be transferred, sold, assigned or hypothecated during the one-year period following the date of this Prospectus, except to members of the selected dealers and officers and partners of the Underwriter or the selected dealers. The Unit Purchase Option grants to the holders thereof certain demand and "piggy back" rights for periods of five and seven years, respectively, from the date of this Prospectus with 55 respect to the registration under the Securities Act of the securities directly and indirectly issuable upon exercise of the Unit Purchase Option. Prior to this offering there has been no public market for any of the Company's securities. Accordingly, the offering price of the Units offered hereby and the terms of the Warrants were determined by negotiation between the Company and the Underwriter and do not necessarily bear any relation to established valuation criteria. Factors considered in determining such prices and terms, in addition to prevailing market conditions, included the history of and the prospects for the industry in which the Company competes, an assessment of the Company's Management, the prospects of the Company, its capital structure and such other factors as were deemed relevant. Although it is not obligated to do so, the Underwriter may introduce the Company to potential Target Businesses or assist the Company in raising additional capital, as needs may arise in the future. The Company is not under any contractual obligation with the Underwriter to engage it to provide any services for the Company after consummation of this offering, but if it does, it may pay the Underwriter a finder's fee or other compensation. LEGAL MATTERS The legality of the securities offered hereby will be passed upon for the Company by Parker Duryee Rosoff & Haft A Professional Corporation, New York, New York. Graubard Mollen & Miller, New York, New York, has acted as counsel for the Underwriter in connection with this offering. A member of Parker Duryee Rosoff & Haft beneficially owns 6,000 shares of the Company's Common Stock. EXPERTS The financial statements included in this Prospectus have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said report. Reference is made to said report which includes an explanatory paragraph with regard to the Company being in its development stage, which raises substantial doubt about its ability to continue as a going concern. 56 ADDITIONAL INFORMATION The Company has filed with the Commission in Washington, D.C., a Registration Statement ("Registration Statement") under the Securities Act with respect to the Units, the Common Stock and the Warrants offered by this Prospectus. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and this offering, reference is made to the Registration Statement, including the exhibits filed therewith, copies of which may be obtained at prescribed rates from the Commission at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street N.W., Washington, D.C. 20549, and at the following regional offices: 7 World Trade Center, New York, New York 10048, and Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60611. In addition, all reports filed by the Company via the Commission's Electronic Data Gathering and Retrieval System (EDGAR) can be obtained from the Commission's Internet web set located at www.sec.gov. Descriptions contained in this Prospectus as to the contents of any contract or other document filed as an exhibit to the Registration Statement are not necessarily complete and each such description is qualified by reference to such contract or document. 57 UNITY FIRST ACQUISITION CORP. (A DEVELOPMENT STAGE ENTITY) INDEX TO FINANCIAL STATEMENTS PAGE ---- Report of Independent Public Accountants . . . . . . . . . . . . F-2 Financial Statements Balance Sheet - July 31, 1996. . . . . . . . . . . . . . . . . F-3 Statement of Operations for the period May 30, 1996 (Date of Inception) Through July 31, 1996 . . . . . . . . . . . . . . . . . . . F-4 Statement of Changes in Shareholders' Equity for the period May 30, 1996 (Date of Inception) Through July 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . F-5 Statement of Cash Flows for the period May 30, 1996 (Date of Inception) Through July 31, 1996 . . . . . . . . . . . . . . . . . . . F-6 Notes to Financial Statements. . . . . . . . . . . . . . . . . .F-7 to F-14 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Unity First Acquisition Corp.: We have audited the accompanying balance sheet of Unity First Acquisition Corp. (a Delaware corporation in the development stage) as of July 31, 1996, and the related statements of operations, changes in shareholders' equity (deficit) and cash flows for the period from inception (May 30, 1996) to July 31, 1996. 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 audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Unity First Acquisition Corp. as of July 31, 1996, and the results of its operations and its cash flows for the period from inception (May 30, 1996) to July 31, 1996, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company is a development stage enterprise with no significant operating results to date. The factors discussed in Note 1 to the financial statements raise a substantial doubt about the ability of the Company to continue as a going concern. Management's plans in regards to those matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/Arthur Andersen LLP ARTHUR ANDERSEN LLP New York, New York August 16, 1996 F-2 UNITY FIRST ACQUISITION CORP. (a development stage entity) BALANCE SHEET JULY 31, 1996 - ----------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash $ 563 -------- DEFERRED REGISTRATION COSTS 250,000 -------- TOTAL ASSETS $250,563 -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accrued registration costs $225,000 Advances from affiliate 40,500 -------- TOTAL CURRENT LIABILITIES 265,500 -------- COMMITMENTS AND CONTINGENCIES (Note 6) SHAREHOLDERS' EQUITY (DEFICIT): Preferred stock, $.01 par value, 5,000 shares authorized, no shares issued - Common stock, $.0001 par value, 20,000,000 shares authorized, 625,000 shares issued and outstanding 63 Additional paid-in-capital - Deficit accumulated during the development stage (15,000) -------- TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (14,937) -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $250,563 -------- -------- See Accompanying Notes to Financial Statements F-3 UNITY FIRST ACQUISITION CORP. (a development stage entity) STATEMENT OF OPERATIONS FOR THE PERIOD MAY 30, 1996 (DATE OF INCEPTION) THROUGH JULY 31, 1996 - ----------------------------------------------------------------------------- REVENUES $ - --------- EXPENSES: General and administrative 15,000 --------- TOTAL EXPENSES 15,000 --------- NET LOSS $ (15,000) --------- --------- NET LOSS PER COMMON SHARE ($.02) --------- --------- WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 625,000 --------- --------- See Accompanying Notes to Financial Statements F-4 UNITY FIRST ACQUISITION CORP. (a development stage entity) STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) FOR THE PERIOD MAY 30, 1996 (DATE OF INCEPTION) THROUGH JULY 31, 1996 - -----------------------------------------------------------------------------
Deficit Common Stock Additional Accumulated During ------------ Paid-In the Development Shares Par Value Capital Stage Total ------ --------- ---------- ------------------- --------- Issuance of stock to original founders for cash, at par value 625,000 $63 $ - $ - $ 63 Net loss for the period May 30, 1996 (date of inception) through July 31, 1996 - - - (15,000) (15,000) ------- --------- ---------- ------------------- ---------- Balance, July 31, 1996 625,000 $63 $ - $(15,000) $(14,937) ------- --------- ---------- ------------------- ---------- ------- --------- ---------- ------------------- ----------
See Accompanying Notes to Financial Statements F-5 UNITY FIRST ACQUISITION CORP. (a development stage entity) STATEMENT OF CASH FLOWS FOR THE PERIOD MAY 30, 1996 (DATE OF INCEPTION) THROUGH JULY 31, 1996 - ----------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(15,000) NET CASH USED IN OPERATING ACTIVITIES (15,000) -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 63 Advance from affiliate 40,500 Deferred registration costs (25,000) -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 15,563 -------- NET INCREASE IN CASH 563 CASH, beginning of period - -------- CASH, end of period $ 563 -------- -------- See Accompanying Notes to Financial Statements F-6 UNITY FIRST ACQUISITION CORP. (a development stage entity) NOTES TO FINANCIAL STATEMENTS - ----------------------------------------------------------------------------- NOTE 1. ORGANIZATION AND OPERATIONS Unity First Acquisition Corp. (the "Company") was incorporated in the State of Delaware on May 30, 1996, for the purpose of raising capital which is to be used to effect a business combination (the "Business Combination"). The Company is currently in the development stage. All activity of the Company to date relates to its formation and proposed fund raising. Management has elected a July 31 fiscal year-end for the Company. The Company's ability to commence operations is contingent upon obtaining financing through a public offering (the "Proposed Offering") of the Company's common stock (the "Common Stock"). Note 2 discusses the details of the Proposed Offering. The Proposed Offering can be considered a "blind pool." Blind pool offerings are inherently characterized by an absence of substantive disclosures relating to the use of the net proceeds of the offering. Consequently, although substantially all of the proceeds of the Proposed Offering are intended to be utilized to effect a Business Combination, the proceeds are not specifically designated for this purpose. Upon completion of this Proposed Offering, 90% of the net proceeds, after payment of underwriting discounts and commissions and the underwriter's non- accountable expense allowance, will be held in an interest-bearing trust account ("Trust Account") until the earlier of (1) written notification by the Company of its need for all or substantially all of such net proceeds for the purpose of implementing a Business Combination, or (2) the liquidation of the Company in the event that the Company does not effect a Business Combination within 18 months from the consummation of the offering. Notwithstanding the foregoing, if the Company enters into a letter of intent, an agreement in principle or a definitive agreement to effectuate a Business Combination prior to the expiration of such 18-month period, the Company's Certificate of Incorporation provides that the Company will be afforded up to an additional 6 months following the expiration of the initial 18-month period to consummate such Business Transaction. Moreover, since the Company has not yet identified an acquisition target (the "Target") investors in the Proposed Offering will have virtually no substantive information available for advance consideration of any specified Business Combination. F-7 UNITY FIRST ACQUISITION CORP. (a development stage entity) NOTES TO FINANCIAL STATEMENTS - ----------------------------------------------------------------------------- NOTE 1. ORGANIZATION AND OPERATIONS (CONT'D) The Proposed Offering is not being conducted in accordance with Rule 419 which was adopted by the Securities and Exchange Commission (the "Commission") to strengthen the regulation of securities offered by "blank check" companies. A blank check company is defined as (a) a development stage company that has no specific business plan or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company and (b) a company which issues securities that, among other things, (i) are not quoted in the NASDAQ system, or, (ii) in the case of a company which has been in continuous operation for less than three years, has net tangible assets of less than $5,000,000. Although the Company is a "blank check" company, it does not believe that Rule 419 will be applicable to it in view of the fact that upon its receipt of the net proceeds of this offering, the Company's net tangible assets will exceed $5,000,000. Accordingly, investors in this offering will not receive the substantive protection provided by Rule 419. Additionally, there can be no assurances that the United States Congress will not enact legislation which will prohibit or restrict the sale of securities of "blank check" companies. As a result of its limited resources, the Company will, in all likelihood, have the ability to effect only a single Business Combination. Accordingly, the prospects for the Company's success will be entirely dependent upon the future performance of a single business. The Company will not effect a Business Combination unless the fair market value of the Target, as determined by the Board of Directors of the Company in its sole discretion, based upon valuation standards generally accepted by the financial community including, among others, book value, cash flow, and both actual and potential earnings, is at least equal to 80% of the net assets (assets less liabilities) of the Company at the time of such acquisition. Upon the completion of this offering, the Company will not satisfy the criteria for qualifying its securities in the NASDAQ system. The Company's securities will be traded in the over-the-counter market. It is anticipated that they will be quoted on the OTC Bulletin Board, an NASD sponsored and operated inter-dealer automated quotation system for equity securities not included in The NASDAQ Stock Market, as well as in the NQB Pink Sheets published by National Quotation Bureau Incorporated. The OTC Bulletin Board was introduced as an alternative to "pink sheet" trading of over-the-counter securities. Although the Company believes that the OTC Bulletin Board has been recognized by the brokerage community as an acceptable alternative to the NQB Pink Sheets, there can be no assurance that the liquidity and prices of the Units in the secondary market will not be adversely affected. F-8 UNITY FIRST ACQUISITION CORP. (a development stage entity) NOTES TO FINANCIAL STATEMENTS - ----------------------------------------------------------------------------- NOTE 1. ORGANIZATION AND OPERATIONS (CONT'D) Furthermore, there is no assurance that the Company will be able to successfully effect a Business Combination. As discussed previously, if the Company is unable to effect a Business Combination within 24 months of the consummation of the Proposed Offering, the Company's Certificate of Incorporation provides for the Company's automatic liquidation. In the event of liquidation, the per share value of the residual assets remaining available for distribution may be less than the initial public offer price per share in the Proposed Offering. In no event, however, will the Company's liquidation value be less than the amount in the Trust Account, inclusive of any net interest income thereon. Moreover, all of the Company's present stockholders have agreed to waive their respective rights to participate in any such liquidation distribution on shares owned prior to the Proposed Offering. If the Company is unable to acquire control of an operating business or businesses, it may be required to register as an investment company under the Investment Company Act of 1940, as amended (the "Act"). The Company is unable to predict what effect registration under such Act would have, but it believes that its ability to pursue its current business plan could be adversely affected as a result. The most significant difference with respect to financial statement presentation and disclosure requirements for companies registered under the Act would require the investments held by the Company to be adjusted to market value at the balance sheet date. The Company believes that its anticipated principal activities, which will involve acquiring control of an operating company, will not subject the Company to regulation under the Act. F-9 UNITY FIRST ACQUISITION CORP. (a development stage entity) NOTES TO FINANCIAL STATEMENTS - ----------------------------------------------------------------------------- NOTE 2. PROPOSED PUBLIC OFFERING OF SECURITIES The Proposed Offering calls for the Company to offer for public sale up to 1,250,000 units (the "Units") at a price of $6.00 per Unit. Each Unit consists of one share of the Company's Common Stock, $.0001 par value, one Class A Redeemable Warrant and one Class B Redeemable Warrant. Each Class A Redeemable Warrant and Class B Redeemable Warrant entitles the holder to purchase from the Company one share of Common Stock at an exercise price of $5.50 and $7.50, respectively, commencing on the later of (i) the consummation of a Business Combination, or (ii) one year from the effective date of the Prospectus and ending six years after the effective date of the Proposed Offering (the "Effective Date"). The Class A Redeemable Warrants and Class B Redeemable Warrants will be redeemable at the option of the Company, and with the consent of the underwriter of the Proposed Offering (the "Underwriter") each as a class, in whole and not in part, upon 30 days' notice at any time after the Redeemable Warrants become exercisable, only in the event that the closing bid price of the Common Stock is at least $8.50 per share with respect to the Class A Redeemable Warrant(s), and $10.50 with respect to the Class B Redeemable Warrants for 20 consecutive trading days immediately prior to notice of redemption, at a price of $.05 per Class A Redeemable Warrant or Class B Redeemable Warrant. The warrants will become separable and transferable only upon consummation of a Business Combination. F-10 UNITY FIRST ACQUISITION CORP. (a development stage entity) NOTES TO FINANCIAL STATEMENTS - ----------------------------------------------------------------------------- NOTE 2. PROPOSED PUBLIC OFFERING OF SECURITIES (CONT'D) The Company has granted the Underwriter an option, exercisable within 45 business days from the Effective Date, to purchase up to 187,500 additional Units at $6.00 per Unit. This option is solely for the purpose of covering over-allotments. In connection with the Proposed Offering, the Company will sell to the Underwriter and its designees, for nominal consideration, Unit Purchase Option(s) (the "Underwriter's UPO") to purchase up to 125,000 Units at an exercise price of $6.60 per Unit. The Underwriter's UPO's will be exercisable for a period of four years commencing one year from the Effective Date. The Company has granted its executive officers and directors 200,000 warrants (50% Class A Warrants and 50% Class B Warrants, collectively the "Directors' Warrants") to purchase Common Stock at $5.50 and $7.50, respectively, per share in consideration of future services to be rendered on behalf of the Company. The Directors' Warrants are not exercisable until the consummation by the Company of a Business Combination and are not redeemable by the Company. All of the Company's present stockholders have agreed to vote their respective shares of Common Stock in accordance with the vote of the majority of all nonaffiliated future stockholders of the Company with respect to a Business Combination. In addition, the Common Stock owned by all of the executive officers and directors of the Company, their affiliates and by all persons owning 5% or more of the currently outstanding shares of Common Stock has been placed in escrow until the earlier of (i) the occurrence of a Business Combination, or (ii) the Liquidation Date. During the escrow period, such stockholders will not be able to sell or otherwise transfer their respective shares of Common Stock, but retain all other rights as stockholders of the Company, including, without limitation, the right to vote such shares of Common Stock. As of July 31, 1996, the Company has recorded deferred registration costs of $250,000 relating to various expenses incurred and accrued for in connection with the Proposed Offering. Upon consummation of the Proposed Offering, these costs will be charged to equity. Should the Proposed Offering prove to be unsuccessful, these deferred costs, as well as any other additional expenses that may be incurred, will be charged to operations. F-11 UNITY FIRST ACQUISITION CORP. (a development stage entity) NOTES TO FINANCIAL STATEMENTS - ----------------------------------------------------------------------------- NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES UTILIZATION OF 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 and disclosure of contingent 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. NET INCOME (LOSS) PER COMMON SHARE Net income (loss) per common share is computed based on the weighted average number of common shares outstanding and common stock equivalents, if not anti-dilutive. NOTE 4. CAPITAL STOCK The Company's Certificate of Incorporation authorizes the issuance of 20,000,000 shares of Common Stock. Upon completion of the Proposed Offering (assuming no exercise of the Underwriter's over-allotment option), there will be 14,862,500 authorized but unissued shares of Common Stock available for issuance (after appropriate reserves for the issuance of Common Stock in connection with the Class A Redeemable Warrants and Class B Redeemable Warrants, the Underwriters's UPO's, the executive officers and director Class A Warrants and Class B Warrants, and the future grants under the Company's 1996 Stock Option Plan). The Company's Board of Directors has the power to issue any or all of the future grants under the Company's 1996 Stock Option Plan. The Company's Board of Directors has the power to issue any or all of the authorized but unissued Common Stock without stockholder approval. The Company currently has no commitments to issue any shares of Common Stock other than as described in the Proposed Offering; however, the Company will, in all likelihood, issue a substantial number of additional shares in connection with a Business Combination. To the extent that additional shares of Common Stock are issued, dilution to the interests of the Company's stockholders participating in the Proposed Offering will occur. The Board of Directors of the Company is empowered, without stockholder approval, to issue up to 5,000 shares of "blank check" preferred stock (the "Preferred Stock") with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of the Company's Common Stock. F-12 UNITY FIRST ACQUISITION CORP. (a development stage entity) NOTES TO FINANCIAL STATEMENTS - ----------------------------------------------------------------------------- NOTE 5. RELATED PARTY TRANSACTIONS The Chairman of the Board of Directors and the President of the Company are principal shareholders, officers and directors of Unity Venture Capital Associates Ltd. ("Unity") which owns shares in the Company. Beginning June 1, 1996, commensurate with the Company's activities primarily related to the Proposed Offering, the Company will be obligated to pay Unity a monthly fee of $7,500 for general and administrative services, including the use of office space in premises occupied by Unity. At July 31, 1996, the Company owed $15,000 (included in advances from affiliate on the balance sheet) to Unity for administrative services. Through July 31, 1996, the Company has obtained advances totaling $25,500 from Unity to cover expenses related to the Proposed Offering which are included in advances from affiliate on the balance sheet. These advances are due on demand and are expected to be repaid out of the proceeds of the Proposed Offering. At July 31, 1996, a member of the Company's legal counsel owned 6,000 shares of the Company's Common Stock. NOTE 6. STOCK OPTION PLAN On May 30, 1996, the Company's Board of Directors approved a stock option plan (the "Plan"). The Plan, which is subject to shareholder approval, provides for issuance of up to 187,500 options (the "Options") to acquire shares of the Company's Common Stock. The Options are intended to qualify either as incentive stock options ("Incentive Stock Options") within the meaning of Section 422 of the Internal Revenue Code of 1986 or as options which are not intended to meet the requirements of such section ("Nonstatutory Stock Options"). The Options may be granted under the Plan to persons who, in the case of Incentive Stock Options, are key employees (including officers) of the Company, or, in the case of Nonstatutory Stock Options, are key employees (including officers) and nonemployee directors of the Company, except that Nonstatutory Stock Options may not be granted to a holder of more than 10% of the total voting power of the Company. F-13 UNITY FIRST ACQUISITION CORP. (a development stage entity) NOTES TO FINANCIAL STATEMENTS - ----------------------------------------------------------------------------- NOTE 6. STOCK OPTION PLAN (CONT'D) The exercise price of all Incentive Stock Options granted under the Plan must be at least equal to the fair market value of such shares on the date of grant or, in the case of Incentive Stock Options granted to the holder of 10% or more of the Company's Common Stock, at least 110% of the fair market value of such shares on the date of grant. The exercise price of all Nonstatutory Stock Options granted under the Plan shall be determined by the Board of Directors of the Company at the time of grant. The maximum exercise period for which the Options may be granted is ten years from the date of grant (five years in the case of Incentive Stock Options granted to an individual owning more than 10% of the Company's Common Stock). The aggregate fair market value (determined at the date of the option grant) of such shares with respect to which Incentive Stock Options are exercisable for the first time by the holder of the option during any calendar year shall not exceed $100,000. The FASB issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"), which will require companies either to reflect in their financial statements or reflect as supplemental disclosure the impact on earnings and earnings per share of the fair value of stock based compensation using certain pricing models for the option component of stock option plans. As of July 31, 1996, no options have been granted under the Plan. Disclosure, as required by SFAS 123, will be made upon the issuance of options. NOTE 7. INCOME TAXES Income taxes are accounted for in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under this method, deferred income taxes are determined based on differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end, and are measured based on enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. NOTE 8. CONTINGENCY The Company has agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act. The Company has also agreed to pay to the Underwriter an expense allowance on a non- accountable basis equal to 3% of the gross proceeds derived from the sale of the Units underwritten (including the sale of any Units subject to the Underwriter's over-allotment option). F-14 No dealer, salesperson or any other person has been authorized to give any information or to make any representations other than those contained in this Prospectus, and, if given or made, such information or representations must not be relied on as having been authorized by the Company or by the Underwriter. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy the Units offered hereby by anyone in any jurisdiction in which such offer or solicitation is not authorized or is unlawful. The delivery of this Prospectus shall not, under any circumstances create any implication that the information herein is correct as of any time subsequent to the date of the Prospectus. ____________________ TABLE OF CONTENTS Page ---- Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . Proposed Business. . . . . . . . . . . . . . . . . . . . . . . . . . . Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . Description of Securities. . . . . . . . . . . . . . . . . . . . . . . Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional Information . . . . . . . . . . . . . . . . . . . . . . . . Index to Financial Statements. . . . . . . . . . . . . . . . . . . . F-1 -------------------- Until , 1996, all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligations of dealers to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. 1,250,000 Units UNITY FIRST ACQUISITION CORP. ____________________ PROSPECTUS ____________________ GKN SECURITIES , 1996 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. . . . . . . . . . Other Expenses of Issuance and Distribution The following table sets forth various expenses, other than underwriting discounts, which will be incurred in connection with the offering. Other than the SEC registration fee, NASD filing fee and the non-accountable expense allowance of GKN Securities Corp. (the "Underwriter"), amounts set forth below are estimates: SEC registration fee.............................................. $ 10,711 NASD filing fee .................................................. 3,606 Underwriter's nonaccountable expense allowance . ........................................ 225,000* Blue sky fees and expenses........................................ 25,000 Printing and engraving expenses................................... 75,000 Legal fees and expenses........................................... 65,000 Accounting fees and expenses...................................... 42,000 Transfer and Warrant Agent fees................................... 3,500 Miscellaneous expenses............................................ 183 --------- $450,000 --------- --------- - -------- * Assumes no exercise of the Underwriter's over-allotment option. Item 14. Indemnification of Directors and Officers Article SEVENTH of the Certificate of Incorporation of Unity First Acquisition Corp. ("Registrant") provides with respect to the indemnification of directors and officers that Registrant shall indemnify to the fullest extent permitted by Sections 102(b)(7) and 145 of the Delaware General Corporation Law, as amended from time to time, each person that such Sections grant Registrant the power to indemnify. Article SEVENTH of the Certificate of Incorporation of Registrant also provides that no director shall be liable to the corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except with respect to (1) a breach of the director's duty of loyalty to the corporation or its stockholders, (2) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) liability under Section 174 of the Delaware General Corporation Law or (4) a transaction from which the director derived an improper personal benefit, it being the intention of the foregoing provision to eliminate the liability of the corporation's directors to the corporation or its stockholders to the fullest extent permitted by Section 102(b)(7) of Delaware General Corporation Law, as amended from time to time. Reference is made to Section 5 of the Underwriting Agreement, which provides for indemnification of the officers and directors of Registrant under certain circumstances. Item 15. Recent Sales of Unregistered Securities The following sets forth information relating to all securities of Registrant sold by it since May 30, 1996, the date of Registrant's inception: CONSIDE- DATE OF NUMBER OF RATION NAME ISSUANCE SHARES PER SHARE - ---- -------- ---------- --------- Lawrence Burstein May 30,1996 150,000 $.0001 Unity Venture Capital Associates Ltd. May 30, 1996 25,000 $.0001 Cowen & Co., as Custodian for Stanley Hollander IRA May 30, 1996 30,000 $.0001 Jerome Baron May 30, 1996 12,000 $.0001 Murdoch & Company May 30, 1996 30,000 $.0001 Cricket Services Ltd. May 30, 1996 39,000 $.0001 Richard Kress & Cheryl Kress JTWROS May 30, 1996 4,500 $.0001 Stephen Verchick May 30, 1996 31,000 $.0001 Richard Braver May 30, 1996 4,500 $.0001 Dan Brecher IRA/RO May 30, 1996 10,500 $.0001 Barry Ridings May 30, 1996 6,000 $.0001 Carl L. Norton May 30, 1996 9,000 $.0001 Financiera e Inversionista Salles, S.A. May 30, 1996 12,000 $.0001 II-2 Ian Barnett May 30, 1996 4,500 $.0001 Henry Rothman May 30, 1996 6,000 $.0001 Donald Rabinovitch May 30, 1996 5,250 $.0001 David Vozick May 30, 1996 5,250 $.0001 Tarzana Associates May 30, 1996 5,000 $.0001 Jonathan Rothschild May 30, 1996 1,500 $.0001 Equity Interest Inc. May 30, 1996 1,500 $.0001 Domaco Venture Capital Fund May 30, 1996 1,500 $.0001 KGM Associates May 30, 1996 7,000 $.0001 Sagres Group Ltd. May 30, 1996 6,000 $.0001 Ronald Koenig May 30, 1996 30,000 $.0001 Heptagon Investments Ltd. May 30, 1996 75,000 $.0001 Jay M. Haft May 30, 1996 10,500 $.0001 Ira Roxland May 30, 1996 6,000 $.0001 Denis Frelinghuysen May 30, 1996 3,000 $.0001 Steven Millner May 30, 1996 15,000 $.0001 Norman Leben May 30, 1996 15,000 $.0001 Heptagon Capital Management, Inc. May 30, 1996 1,500 $.0001 Michael Karfunkel May 30, 1996 31,000 $.0001 George Karfunkel May 30, 1996 31,000 $.0001 On May 30, 1996, Registrant issued 58,334, 58,333, 58,333 and 25,000 Class A and Class B Warrants to Lawrence Burstein, Norman Leben, John Cattier and Barry Ridings, respectively, in consideration for future services to be rendered by such persons on behalf of Registrant. Exemption from registration under the Securities Act of 1933, as amended (the "Securities Act"), is claimed for the sales of Common Stock referred to above in reliance upon the exemption afforded by Section 4(2) of the Securities Act for transactions not II-3 involving a public offering. Each certificate evidencing such shares of Common Stock bears an appropriate restrictive legend and "stop transfer" orders are maintained on Registrant's stock transfer records thereagainst. None of these sales involved participation by an underwriter or a broker-dealer. Item 16. Exhibits and Financial Statement Schedules (a) The following is a list of Exhibits filed herewith as part of the Registration Statement: 1.1 Form of Underwriting Agreement between Registrant and the Underwriter 3.1 Certificate of Incorporation of Registrant 3.2 By-laws of Registrant 4.1* Form of certificate evidencing shares of Common Stock 4.2* Form of certificate evidencing Class A Warrants 4.3* Form of certificate evidencing Class B Warrants 4.4 Form of Unit Purchase Option between Registrant and the Underwriter 4.5 Form of Warrant Agreement between Registrant and American Stock Transfer & Trust Company, as escrow agent 5.1* Opinion of Parker Duryee Rosoff & Haft A Professional Corporation 10.1 1996 Stock Option Plan 10.2* Form of Trust Agreement by and between Registrant and [ ] 10.3 Form of Insider's Letter 10.4 Form of Escrow Agreement by and among Registrant, Lawrence Burstein, John Cattier, Cricket Services, Ltd., Barry Ridings, Norman Leben, Unity Venture Capital Associates Ltd. ("Unity") and American Stock Transfer & Trust Company II-4 10.5 General and Administrative Services Agreement, dated as of May 30, 1996, by and between Registrant and Unity 23.1 Consent of Arthur Andersen LLP 23.2* Consent of Parker Duryee Rosoff & Haft (to be included in Exhibit 5.1) 24.1 Power of Attorney (included on the signature page of Part II of this Registration Statement) - ----------- * To be filed by Amendment to this Registration Statement. (b) Financial Statement Schedules. Financial statement schedules are omitted because the conditions requiring their filing do not exist or the information required thereby is included in the financial statements filed, including the notes thereto. Item 17. Undertakings Registrant hereby undertakes: (1) That for purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by 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. (2) That for the purpose of determining any liability under the Securities Act, 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. (3) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (a) To include any Prospectus required by Section II-5 10(a)(3) of the Securities Act; (b) 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; (c) 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. (4) 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. (5) To provide to the Representative at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Representative to permit prompt delivery to each purchaser. (6) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of Registrant pursuant to Item 14 of this Part II to the Registration Statement, or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a director, officer or controlling person of Registrant 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, Registrant 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 the public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 29th day of August, 1996. UNITY FIRST ACQUISITION CORP. By: /s/ LAWERENCE BURSTEIN ------------------------ Lawrence Burstein President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Lawrence Burstein and Norman Leben, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. __________________ Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated: SIGNATURE TITLE DATE --------- ----- ---- /s/ LAWERENCE BURSTEIN President, Director, - ---------------------- Principal Executive Lawrence Burstein Officer August 29, 1996 Secretary, Director, Principal Financial /s/ NORMAN LEBEN and Accounting Officer August 29, 1996 - ---------------------- Norman Leben - ---------------------- John Cattier Director /s/ BARRY RIDINGS - ---------------------- Director August 29, 1996 Barry Ridings EX-1.1 2 EXHIBIT 1.1 UNITY FIRST ACQUISITION CORP. UNDERWRITING AGREEMENT New York, New York ___________, 1996 GKN Securities Corp. 61 Broadway New York, New York 10006 Dear Sirs: The undersigned, Unity First Acquisition Corp., a Delaware corporation ("Company"), hereby confirms its agreement with GKN Securities Corp. ("Underwriter") as follows: 1. PURCHASE AND SALE OF SECURITIES. 1.1 FIRM SECURITIES. 1.1.1 PURCHASE OF FIRM SECURITIES. On the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the Underwriter and the Underwriter agrees to purchase 1,250,000 units ("Firm Units"); at a purchase price of $5.52 per Unit. Each Firm Unit consists of one share of the Company's common stock, par value $.0001 per share ("Common Stock"), and one Class A Redeemable Common Stock Purchase Warrant ("Class A Warrants") and one Class B Redeemable Common Stock Purchase Warrant ("Class B Warrants"), referred to together as the "Warrants." The shares of Common Stock and the Warrants included in the Firm Units will not be separately transferable until the consummation of a Business Combination. "Business Combination" shall have the meaning ascribed to it in the Registration Statement (as defined in Section 2.1.1. hereof). One Class A Warrant and one Class B Warrant each entitle the holder to exercise it to purchase one share of Common Stock for $5.50 and $7.50, respectively, commencing on the later of (i) the consummation by the Company of a Business Combination, or (ii) one year from the effective date ("Effective Date") of the Registration Statement and terminating on the six-year anniversary of the Effective Date. 1.1.2 PAYMENT AND DELIVERY. Delivery and payment for the Firm Units shall be made at 10:00 A.M., New York time, on or before the third business day following the Effective Date or at such earlier time as the Underwriter shall determine, or at such other time as shall be agreed upon by the Underwriter and the Company at the offices of Underwriter or at such other place as shall be agreed upon by the Underwriter and the Company. The hour and date of delivery and payment for the Firm Units are called "Closing Date." Payment for the Firm Units shall be made on the Closing Date at the Underwriter's election by certified or bank cashier's check(s) in New York Clearing House funds, payable as follows: 90% of the proceeds received by the Company for the Firm Units (after deduction of the underwriting discounts and commissions and the Underwriter's nonaccountable expense allowance) shall be deposited in the trust fund established by the Company for the benefit of the public stockholders as described in the Registration Statement ("Trust Fund") pursuant to the terms of an Investment Management Trust Agreement ("Trust Agreement") and the remaining proceeds shall be paid to the order of the Company upon delivery to you of certificates (in form and substance satisfactory to the Underwriter) representing the Firm Units for the account of the Underwriter. The Firm Units shall be registered in such name or names and in such authorized denominations as the Underwriter may request in writing at least two full business days prior to the Closing Date. The Company will permit the Underwriter to examine and package the Firm Units for delivery, at least one full business day prior to the Closing Date. The Company shall not be obligated to sell or deliver the Firm Units except upon tender of payment by the Underwriter for all the Firm Units. 1.2 OVER-ALLOTMENT OPTION. 1.2.1 OPTION UNITS. For the purposes of covering any over- allotments in connection with the distribution and sale of the Firm Units, the Underwriter is hereby granted an option to purchase up to an additional 187,500 Firm Units from the Company ("Over-allotment Option"). Such additional 187,500 units are hereinafter referred to as "Option Units." The Firm Units and the Option Units are hereinafter collectively referred to as "Units," and the Units, the shares of Common Stock and the Warrants included in the Units and the shares of Common Stock issuable upon exercise of the Warrants are hereinafter referred to collectively as "Public Securities." The purchase price to be paid for the Option Units will be the same price per Option Unit as the price per Unit set forth in Section 1.1.1 hereof. 1.2.2 EXERCISE OF OPTION. The Over-allotment Option granted pursuant to Section 1.2.1 hereof may be exercised by the Underwriter as to all (at any time) or any part (from time to time) of the Option Units within 45 days after the Effective Date. The Underwriter will not be under any obligation to purchase any Option Units prior to the exercise of the Over-allotment Option. The Over-allotment Option granted hereby may be exercised by the giving of oral notice to the Company from Underwriter, which must be confirmed by a letter or telecopy setting forth the number of Option Units to be purchased and the date and time for delivery of and payment for the Option Units. If such notice is given two full business days prior to the Closing Date, the date set forth therein for such delivery and payment will be the Closing Date. If such notice is given thereafter, the date set forth therein for such delivery and payment will not be earlier than five full business days after the date of the notice. If such delivery and payment for the Option Units does not occur on the Closing Date, the date and time of the closing for such Option Units will be as set forth in the notice (hereinafter "Option Closing Date"). Upon exercise of the Over-allotment Option, the Company will become obligated to convey to the Underwriter, and, subject to the terms and conditions set forth herein, the Underwriter will become obligated to purchase, the number of Option Units specified in such notice. 1.2.3 PAYMENT AND DELIVERY. Payment for the Option Units will be at the Underwriter's election by certified or bank cashier's check(s) in New York Clearing House funds, payable to the Trust Fund and to the Company in the same manner as set forth in Section 1.1.2 hereof at the offices of Underwriter or at such other place as shall be agreed upon by the Underwriter and the Company upon delivery to you of certificates representing such securities for the account of the Underwriter. The certificates representing the Option Units to be delivered will be in such denominations and registered in such names as the Underwriter request not less than two full business days prior to the Closing Date or the Option Closing Date, as the case may be, and will be made available to the Underwriter for inspection, checking and packaging at the aforesaid office of the Company's transfer agent or correspondent not less than one full business day prior to such Closing Date. 2 1.3 UNDERWRITER'S PURCHASE OPTION. 1.3.1 PURCHASE OPTION. The Company hereby agrees to issue and sell to the Underwriter (and/or its designees) on the Effective Date an option ("Underwriter's Purchase Option") for the purchase of an aggregate of 125,000 units ("Underwriter's Units") for an aggregate purchase price of $100. Each of the Underwriter's Units is identical to the Units except that the Warrants included in the Underwriter's Units ("Underwriter's Warrants") expire five years from the Effective Date. The Underwriter's Purchase Option, the Underwriter's Units, the Underwriter's Warrants and the shares of Common Stock issuable upon exercise of the Underwriter's Warrants are hereinafter referred to collectively as "Underwriter's Securities." The Public Securities and the Underwriter's Securities are hereinafter referred to collectively as "Securities." 1.3.2 PAYMENT AND DELIVERY. Delivery and payment for the Underwriter's Purchase Option shall be made on the Closing Date. The Company shall deliver to the Underwriter, upon payment therefor, certificates for the Underwriter's Purchase Option in the name or names and in such authorized denominations as the Underwriter may request. The Underwriter's Purchase Option shall be exercisable for a period of four years commencing one year from the Effective Date at an initial exercise price per Underwriter's Unit of $6.60, which is equal to one hundred and ten percent (110%) of the initial public offering price of a Unit. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Underwriter as follows: 2.1 FILING OF REGISTRATION STATEMENT. 2.1.1 PURSUANT TO THE ACT. The Company has filed with the Securities and Exchange Commission ("Commission") a registration statement and an amendment or amendments thereto, on Form S-1 (File No. 33-_______), including any related preliminary prospectus ("Preliminary Prospectus"), for the registration of the Public Securities under the Securities Act of 1933, as amended ("Act"), which registration statement and amendment or amendments have been prepared by the Company in conformity with the requirements of the Act, and the rules and regulations ("Regulations") of the Commission under the Act. Except as the context may otherwise require, such registration statement, as amended, on file with the Commission at the time the registration statement becomes effective (including the prospectus, financial statements, schedules, exhibits and all other documents filed as a part thereof or incorporated therein and all information deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule 430A of the Regulations), is hereinafter called "Registration Statement," and the form of the final prospectus dated the Effective Date included in the Registration Statement (or, if applicable, the form of final prospectus filed with the Commission pursuant to Rule 424 of the Regulations), is hereinafter called "Prospectus." The Registration Statement has been declared effective by the Commission on the date hereof. 2.1.2 PURSUANT TO THE EXCHANGE ACT. The Company has filed with the Commission a Form 8-A (File Number 0-_______) providing for the registration under the Securities Exchange Act of 1934, as amended ("Exchange Act"), of the Units, the Common Stock and the Warrants. The registration of the Units, Common Stock and Warrants under the Exchange Act has been declared effective by the Commission on the date hereof. 3 2.2 NO STOP ORDERS, ETC. Neither the Commission nor, to the best of the Company's knowledge, any state regulatory authority has issued any order preventing or suspending the use of any Preliminary Prospectus or has instituted or, to the best of the Company's knowledge, threatened to institute any proceedings with respect to such an order. 2.3 DISCLOSURES IN REGISTRATION STATEMENT. 2.3.1 SECURITIES ACT AND EXCHANGE ACT REPRESENTATION. At the time the Registration Statement became effective and at all times subsequent thereto up to and including the Closing Date and the Option Closing Date, if any, the Registration Statement and the Prospectus and any amendment or supplement thereto contained and will contain all material statements which are required to be stated therein in accordance with the Act and the Regulations, and conformed and will conform in all material respects to the requirements of the Act and the Regulations; neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, during such time period and on such dates, contained or will contain any untrue statement of a material fact or omitted or will omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, nor did they or will they contain any untrue statement of a material fact or did they or will they omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. When any Preliminary Prospectus was first filed with the Commission (whether filed as part of the Registration Statement for the registration of the Securities or any amendment thereto or pursuant to Rule 424(a) of the Regulations) and when any amendment thereof or supplement thereto was first filed with the Commission, such Preliminary Prospectus and any amendments thereof and supplements thereto at the time such filing was made complied in all material respects with the applicable provisions of the Act and the Regulations. The representation and warranty made in this Section 2.3.1 does not apply to statements made or statements omitted in reliance upon and in conformity with written information furnished to the Company with respect to the Underwriters by the Underwriter expressly for use in the Registration Statement or Prospectus or any amendment thereof or supplement thereto. 2.3.2 DISCLOSURE OF AGREEMENTS. The contracts and other documents described in the Registration Statement and the Prospectus conform to the descriptions thereof contained therein and there are no agreements or other documents required to be described in the Registration Statement or the Prospectus or to be filed with the Commission as exhibits to the Registration Statement, which have not been so described or filed. Each contract or other instrument (however characterized or described) to which the Company is a party or by which its property or business is or may be bound or affected and (i) which is referred to in the Prospectus, or (ii) is material to the Company's business, has been duly and validly executed by the Company, is in full force and effect in all material respects and is enforceable against the Company and, to the Company's knowledge, the other parties thereto, in accordance with its terms, except (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally, (ii) as enforceability of any indemnification provision may be limited under the federal and state securities laws, and (iii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought, and none of such contracts or instruments has been assigned by the Company, and neither the Company nor, to the best of the Company's knowledge, any other party is in default thereunder and no event has occurred which, with the lapse of time or the giving of notice, or both, would constitute a default thereunder. The performance by the Company of the material provisions of such contracts or instruments will not result in a violation of any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court having jurisdiction over the Company or any 4 of its assets or businesses, including, without limitation, those relating to environmental laws and regulations. 2.3.3 PRIOR SECURITIES TRANSACTIONS. No securities of the Company have been sold by the Company or by or on behalf of, or for the benefit of, any person or persons controlling, controlled by, or under common control with the Company within the three years prior to the date hereof, except as disclosed in the Registration Statement. 2.4 CHANGES AFTER DATES IN REGISTRATION STATEMENT. 2.4.1 NO MATERIAL ADVERSE CHANGE. Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise specifically stated therein, (i) there has been no material adverse change in the condition, financial or otherwise, or business prospects of the Company, (ii) there have been no material transactions entered into by the Company, other than as contemplated pursuant to this Agreement, and (iii) no member of the Company's management has resigned from any position with the Company. 2.4.2 RECENT SECURITIES TRANSACTIONS, ETC. Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, and except as may otherwise be indicated or contemplated herein or therein, the Company has not (i) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money; or (ii) declared or paid any dividend or made any other distribution on or in respect to its capital stock. 2.5 INDEPENDENT ACCOUNTANTS. Arthur Andersen & Co. LLP, whose report is filed with the Commission as part of the Registration Statement, are independent accountants as required by the Act and the Regulations. 2.6 FINANCIAL STATEMENTS. The financial statements, including the notes thereto and supporting schedules included in the Registration Statement and Prospectus fairly present the financial position and the results of operations of the Company at the dates and for the periods to which they apply; and such financial statements have been prepared in conformity with generally accepted accounting principles, consistently applied throughout the periods involved; and the supporting schedules included in the Registration Statement present fairly the information required to be stated therein. 2.7 AUTHORIZED CAPITAL; OPTIONS; ETC. The Company had at the date or dates indicated in the Prospectus duly authorized, issued and outstanding capitalization as set forth in the Registration Statement and the Prospectus. Based on the assumptions stated in the Registration Statement and the Prospectus, the Company will have on the Closing Date the adjusted stock capitalization set forth therein. Except as set forth in, or contemplated by, the Registration Statement and the Prospectus, on the Effective Date and on the Closing Date, there will be no options, warrants, or other rights to purchase or otherwise acquire any authorized but unissued shares of Common Stock of the Company or any security convertible into shares of Common Stock of the Company, or any contracts or commitments to issue or sell shares of Common Stock or any such options, warrants, rights or convertible securities. 2.8 VALID ISSUANCE OF SECURITIES; ETC. 2.8.1 OUTSTANDING SECURITIES. All issued and outstanding securities of the Company have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no rights of rescission with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the 5 preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company. The outstanding warrants to purchase shares of Common Stock constitute the valid and binding obligations of the Company, enforceable in accordance with their terms, except (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally, (ii) as enforceability of any indemnification provision may be limited under the federal and state securities laws, and (iii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. The authorized Common Stock and outstanding warrants to purchase shares of Common Stock conform to all statements relating thereto contained in the Registration Statement and the Prospectus. The offers and sales of the outstanding Common Stock and warrants to purchase shares of Common Stock were at all relevant times either registered under the Act and the applicable state securities or Blue Sky Laws or, based in part on the representations and warranties of the purchasers of such shares of Common Stock and warrants, exempt from such registration requirements. 2.8.2 SECURITIES SOLD PURSUANT TO THIS AGREEMENT. The Securities have been duly authorized and, when issued and paid for, will be validly issued, fully paid and non-assessable; the holders thereof are not and will not be subject to personal liability by reason of being such holders; the Securities are not and will not be subject to the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company; and all corporate action required to be taken for the authorization, issuance and sale of the Securities has been duly and validly taken. When issued, the Underwriter's Purchase Option, the Underwriter's Warrants and the Warrants will constitute valid and binding obligations of the Company to issue and sell, upon exercise thereof and payment therefor, the number and type of securities of the Company called for thereby in accordance with the terms thereof and such Underwriter's Purchase Option, the Underwriter's Warrants and the Warrants are enforceable against the Company in accordance with their respective terms, except (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally, (ii) as enforceability of any indemnification provision may be limited under the federal and state securities laws, and (iii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. 2.9 REGISTRATION RIGHTS OF THIRD PARTIES. Except as set forth in the Prospectus, no holders of any securities of the Company or any rights exercisable for or convertible or exchangeable into securities of the Company have the right to require the Company to register any such securities of the Company under the Act or to include any such securities in a registration statement to be filed by the Company. 2.10 VALIDITY AND BINDING EFFECT OF AGREEMENTS. This Agreement, the Warrant Agreement (as defined in Section 2.24 hereof), the Trust Agreement and the Escrow Agreement (as defined in Section 2.25.2 hereof) have been duly and validly authorized by the Company and constitute the valid and binding agreements of the Company, enforceable against the Company in accordance with their respective terms, except (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally, (ii) as enforceability of any indemnification provision may be limited under the federal and state securities laws, and (iii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. 6 2.11 NO CONFLICTS, ETC. The execution, delivery, and performance by the Company of this Agreement, the Warrant Agreement (as defined in Section 2.24 hereof), the Trust Agreement and the Escrow Agreement (as defined in Section 2.25.2 hereof) the consummation by the Company of the transactions herein and therein contemplated and the compliance by the Company with the terms hereof and thereof have been duly authorized by all necessary corporate action and do not and will not, with or without the giving of notice or the lapse of time or both (i) result in a breach of, or conflict with any of the terms and provisions of, or constitute a default under, or result in the creation, modification, termination or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to the terms of any agreement or instrument to which the Company is a party except pursuant to the Trust Agreement referred to in Section 2.27 hereof; (ii) result in any violation of the provisions of the Certificate of Incorporation or the By-Laws of the Company; or (iii) violate any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court, domestic or foreign, having jurisdiction over the Company or any of its properties or business. 2.12 NO DEFAULTS; VIOLATIONS. The Company is not in default in the due performance and observance of any term or condition of any material contract or other agreement to which the Company is a party. The Company is not in violation of any term or provision of its Certificate of Incorporation or By- Laws. 2.13 CORPORATE POWER; LICENSES; CONSENTS. 2.13.1 CONDUCT OF BUSINESS. The Company has all requisite corporate power and authority, and has all necessary authorizations, approvals, orders, licenses, certificates and permits of and from all governmental regulatory officials and bodies which it needs as of the date hereof to conduct its business purpose as described in the Prospectus. 2.13.2 TRANSACTIONS CONTEMPLATED HEREIN. The Company has all corporate power and authority to enter into this Agreement and to carry out the provisions and conditions hereof, and all consents, authorizations, approvals and orders required in connection therewith have been obtained. No consent, authorization or order of, and no filing with, any court, government agency or other body is required for the valid issuance, sale and delivery, of the Securities pursuant to this Agreement, the Warrant Agreement (as hereinafter defined) and the Underwriter's Purchase Option, and as contemplated by the Prospectus, except with respect to applicable federal and state securities laws. 2.14 D&O QUESTIONNAIRES. To the best of the Company's knowledge, all information contained in the Questionnaire completed by each Initial Stockholder and provided to the Underwriter as an exhibit to his Insider Letter (as defined in Section 2.25.1) is true and correct and the Company has not become aware of any information which would cause the information disclosed in the questionnaires completed by each Initial Stockholder to become inaccurate and incorrect. 2.15 LITIGATION; GOVERNMENTAL PROCEEDINGS. There is no action, suit, proceeding, inquiry, arbitration, investigation, litigation or governmental proceeding pending or threatened against, or involving the Company or, to the best of the Company's knowledge, any Initial Stockholder which has not been disclosed in the Registration Statement or the Questionnaires. 2.16 GOOD STANDING. The Company has been duly organized and is validly existing as a corporation and is in good standing under the laws of its state of incorporation. The Company is qualified to do business and is in good standing under the laws of each state in which it is 7 currently required to be so qualified, except where the failure to qualify would not have a material adverse effect on the Company. 2.17 [Reserved] 2.18 STOP ORDERS. The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus or Prospectus or any part thereof. 2.19 TRANSACTIONS AFFECTING DISCLOSURE TO NASD. 2.19.1 FINDER'S FEES. Except as described in the Prospectus, there are no claims, payments, issuances, arrangements, agreements or understandings for services in the nature of a finder's or origination fee by the Company or any Initial Stockholder with respect to the sale of the Securities hereunder or any other arrangements, agreements or understandings with respect to the Company or, to the best of the Company's knowledge, any Initial Stockholder that may affect the Underwriter's compensation, as determined by the National Association of Securities Dealers, Inc. ("NASD"). 2.19.2 PAYMENTS WITHIN TWELVE MONTHS. The Company has not made any direct or indirect payments (in cash, securities or otherwise) to (i) any person, as a finder's fee, consulting fee or otherwise, in consideration of such person raising capital for the Company or introducing to the Company persons who raised or provided capital to the Company, (ii) to any NASD member or (iii) to any person or entity that has any direct or indirect affiliation or association with any NASD member, within the twelve months prior to the date on which the Registration Statement was filed with the Commission or thereafter other than payments to Underwriter. 2.19.3 USE OF PROCEEDS. None of the net proceeds of the offering will be paid by the Company to any participating NASD member or any affiliate or associate of any NASD member, except as specifically authorized herein and except as may be paid in connection with a Business Combination as contemplated by the Prospectus. 2.19.4 INSIDERS' NASD AFFILIATION. Based on questionnaires distributed to such persons, except as set forth on Schedule 2.19.4, no officer, director or any beneficial owner of the Company's unregistered securities has any direct or indirect affiliation or association with any NASD member. 2.20 [Reserved] 2.21 [Reserved] 2.22 [Reserved] 2.23 [Reserved] 2.24 OFFICERS' CERTIFICATE. Any certificate signed by any duly authorized officer of the Company and delivered to you or to your counsel shall be deemed a representation and warranty by the Company to the Underwriter as to the matters covered thereby. 2.25 WARRANT AGREEMENT. The Company has entered into a warrant agreement with respect to the Warrants and the Underwriter's Warrants with American Stock Transfer & Trust Company substantially in the form filed as an exhibit to the Registration Statement ("Warrant 8 Agreement"), providing for, among other things, the payment of a warrant solicitation fee as contemplated by Section 3.10 hereof. 2.26 AGREEMENTS WITH INITIAL STOCKHOLDERS. 2.26.1 INSIDER LETTERS. The Company has caused to be duly executed a legally binding and enforceable agreement (except (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally, (ii) as enforceability of any indemnification or noncompete provision may be limited under the federal and state securities laws, and (iii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought) annexed as EXHIBIT 10.2 to the Registration Statement ("Insider Letter"), pursuant to which all of the Initial Stockholders of the Company agree to certain matters. 2.26.2 ESCROW AGREEMENT. The Company has caused the Initial Stockholders to enter into an escrow agreement ("Escrow Agreement") with American Stock Transfer & Trust Company ("Escrow Agent") in form and substance satisfactory to the Underwriter, whereby the Common Stock owned by the Initial Stockholders will be held in escrow by the Escrow Agent, until after a Business Combination (or six months thereafter in certain instances). During such escrow period, the Initial Stockholders shall be prohibited from selling or otherwise transferring such shares (except to spouses and children of Initial Stockholders and trusts established for their benefit) but will retain the right to vote such shares. The Escrow Agreement shall not be amended, modified or otherwise changed without the prior written consent of Underwriter. 2.27 INVESTMENT MANAGEMENT TRUST AGREEMENT. The Company has entered into the Trust Agreement with respect to certain proceeds of the offering in form and substance satisfactory to the Underwriter. 2.28 UNDERWRITER'S PURCHASE OPTION. The Company has executed and delivered the Underwriter's Purchase Option substantially in the form filed as an exhibit to the Registration Statement. 2.29 COVENANTS NOT TO COMPETE. No Initial Stockholder of the Company is subject to any non-competition agreement with any employer or prior employer which could materially affect his ability to be an Initial Stockholder, employee, officer and/or director of the Company. 3. COVENANTS OF THE COMPANY. The Company covenants and agrees as follows: 3.1 AMENDMENTS TO REGISTRATION STATEMENT. The Company will deliver to the Underwriter, prior to filing, any amendment or supplement to the Registration Statement or Prospectus proposed to be filed after the Effective Date and not file any such amendment or supplement to which the Underwriter shall reasonably object in writing. 3.2 FEDERAL SECURITIES LAWS. 3.2.1 COMPLIANCE. During the time when a Prospectus is required to be delivered under the Act, the Company will use all reasonable efforts to comply with all requirements imposed upon it by the Act, the Regulations and the Exchange Act and by the regulations under the Exchange Act, as from time to time in force, so far as necessary to permit the continuance of sales of or dealings in the Public Securities in accordance with the provisions hereof and the Prospectus. If at any time when a Prospectus relating to the Public Securities is required to be delivered under 9 the Act, any event shall have occurred as a result of which, in the opinion of counsel for the Company or counsel for the Underwriter, the Prospectus, as then amended or supplemented, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus to comply with the Act, the Company will notify the Underwriter promptly and prepare and file with the Commission, subject to Section 3.1 hereof, an appropriate amendment or supplement in accordance with Section 10 of the Act. 3.2.2 FILING OF FINAL PROSPECTUS. The Company will file the Prospectus (in form and substance satisfactory to the Underwriter) with the Commission pursuant to the requirements of Rule 424 of the Regulations. 3.2.3 EXCHANGE ACT REGISTRATION. For a period of five years from the Effective Date, or until such earlier time upon which the Company is required to be liquidated, the Company will use its best efforts to maintain the registration of the Units, Common Stock and Warrants under the provisions of the Exchange Act. 3.3 BLUE SKY FILING. The Company will endeavor in good faith, in cooperation with the Underwriter, at or prior to the time the Registration Statement becomes effective, to qualify the Public Securities for offering and sale under the securities laws of such jurisdictions as the Underwriter may reasonably designate, provided that no such qualification shall be required in any jurisdiction where, as a result thereof, the Company would be subject to service of general process or to taxation as a foreign corporation doing business in such jurisdiction. In each jurisdiction where such qualification shall be effected, the Company will, unless the Underwriter agrees that such action is not at the time necessary or advisable, use all reasonable efforts to file and make such statements or reports at such times as are or may be required by the laws of such jurisdiction. 3.4 DELIVERY TO UNDERWRITER OF PROSPECTUSES. The Company will deliver to the Underwriter, without charge, from time to time during the period when the Prospectus is required to be delivered under the Act or the Exchange Act such number of copies of each Preliminary Prospectus and the Prospectus as the Underwriter may reasonably request and, as soon as the Registration Statement or any amendment or supplement thereto becomes effective, deliver to you two original executed Registration Statements, including exhibits, and all post- effective amendments thereto and copies of all exhibits filed therewith or incorporated therein by reference and all original executed consents of certified experts. 3.5 EFFECTIVENESS AND EVENTS REQUIRING NOTICE TO UNDERWRITER. The Company will use its best efforts to cause the Registration Statement to remain effective and will notify the Underwriter immediately and confirm the notice in writing (i) of the effectiveness of the Registration Statement and any amendment thereto, (ii) of the issuance by the Commission of any stop order or of the initiation, or the threatening, of any proceeding for that purpose, (iii) of the issuance by any state securities commission of any proceedings for the suspension of the qualification of the Public Securities for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose, (iv) of the mailing and delivery to the Commission for filing of any amendment or supplement to the Registration Statement or Prospectus, (v) of the receipt of any comments or request for any additional information from the Commission, and (vi) of the happening of any event during the period described in Section 3.4 hereof which, in the judgment of the Company, makes any statement of a material fact made in the Registration Statement or the Prospectus untrue or which requires the making of any changes in the Registration Statement or the Prospectus in order to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Commission or any state securities commission shall enter 10 a stop order or suspend such qualification at any time, the Company will make every reasonable effort to obtain promptly the lifting of such order. 3.6 REVIEW OF FINANCIAL STATEMENTS. For a period of five years from the Effective Date, or until such earlier upon which the Company is required to be liquidated, the Company, at its expense, shall cause its regularly engaged independent certified public accountants to review (but not audit) the Company's financial statements for each of the first three fiscal quarters prior to the announcement of quarterly financial information, the filing of the Company's Form 10-Q quarterly report and the mailing of quarterly financial information to stockholders. 3.7 AFFILIATED TRANSACTIONS. The Company will not consummate a Business Combination (as defined in the Registration Statement) with any entity which is affiliated with any Initial Stockholder. 3.8 SECONDARY MARKET TRADING AND STANDARD & POOR'S. The Company will apply to be included in Standard and Poor's Daily News and Corporation Records Corporate Descriptions for a period of five years from the consummation of a Business Combination. Promptly after the consummation of the offering, the Company shall take such steps as may be necessary to obtain a secondary market trading exemption for the Company's securities in the State of California. The Company shall also take such other action as may be reasonably requested by the Underwriter to obtain a secondary market trading exemption in such other states as may be requested by the Underwriter. 3.9 NASDAQ MAINTENANCE. The Company will use its reasonable best efforts to have the Public Securities quoted on the Nasdaq SmallCap or National Market and will follow the Underwriter's reasonable instructions in that regard. In the event that the Units, Common Stock and Warrants are quoted on Nasdaq, the Company will use its best efforts to maintain such quotation by Nasdaq of the Units, the Common Stock and, if outstanding, the Warrants and, if the Company satisfies the initial listing standards for inclusion on the Nasdaq National Market ("NM"), to apply for and maintain quotations by the NM of such securities until ______________ or such earlier time upon which the Company is required to be liquidated. 3.10 WARRANT SOLICITATION FEES. The Company hereby engages the Underwriter, on a non-exclusive basis, as its agent for the solicitation of the exercise of the Warrants. The Company, at its cost, will (i) assist the Underwriter with respect to such solicitation, if requested by the Underwriter, and (ii) at the Underwriter's request, provide the Underwriter, and direct the Company's transfer and warrant agent to provide to the Underwriter, at the Company's cost, lists of the record and, to the extent known, beneficial owners of, the Warrants. Commencing one year from the Effective Date, the Company will pay Underwriter a commission of five percent of the exercise price of the Warrants for each Warrant exercised, payable on the date of such exercise, on the terms provided for in the Warrant Agreement, only if permitted under the rules and regulations of the NASD and only if the Underwriter has provided bona- fide services to the Company in connection with the exercise of Warrants. The Underwriter may engage sub-agents in its solicitation efforts. The Company agrees to disclose the arrangement to pay such solicitation fees to Underwriter in any prospectus used by the Company in connection with the registration of the shares of Common Stock underlying the Warrants. 3.11 [Reserved] 11 3.12 REPORTS TO THE UNDERWRITER. 3.12.1 PERIODIC REPORTS, ETC. For a period of five years from the Effective Date or until such earlier time upon which the Company is required to be liquidated, the Company will furnish to Underwriter (Attn: Deborah Schondorf Novick, Senior Vice President, Investment Banking) and its counsel copies of such financial statements and other periodic and special reports as the Company from time to time furnishes generally to holders of any class of its securities, and promptly furnish to Underwriter (i) a copy of each periodic report the Company shall be required to file with the Commission, (ii) a copy of every press release and every news item and article with respect to the Company or its affairs which was released by the Company, (iii) copies of each Form SR, (iv) a copy of each Form 8-K or Schedules 13D, 13G, 14D-1 or 13E-4 received or prepared by the Company, (v) five copies of each Registration Statement, (vi) a copy of monthly statements, if any, setting forth such information regarding the Company's results of operations and financial position (including balance sheet, profit and loss statements and data regarding outstanding purchase orders) as is regularly prepared by management of the Company and (vii) such additional documents and information with respect to the Company and the affairs of any future subsidiaries of the Company as Underwriter may from time to time reasonably request. 3.12.2 TRANSFER SHEETS. For a period of five years from the Closing Date or until such earlier time upon which the Company is required to be liquidated, the Company shall retain a transfer and warrant agent acceptable to the Underwriter ("Transfer Agent") and will furnish to the Underwriter at the Company's sole expense such transfer sheets of the Company's securities as the Underwriter may request, including the daily and monthly consolidated transfer sheets of the Transfer Agent and Depository Trust Co. 3.12.3 SECONDARY MARKET TRADING SURVEY. Until such time as the Public Securities are listed or quoted, as the case may be, on the NYSE, the AMEX or NM, or until such earlier time upon which the Company is required to be liquidated, the Company shall engage Graubard Mollen & Miller, for a one-time fee of $5,000 payable on the Closing Date referred to below, to update and deliver to the Underwriter on a timely basis, but in any event at the beginning of each fiscal quarter, a written report detailing those states in which the Public Securities may be traded in non-issuer transaction under the Blue Sky laws of the fifty States ("Secondary Market Trading Survey"). 3.13 OTC REPORTS. During such time as the Public Securities are quoted on the OTC Bulletin Board and no other automated quotation system, the Company shall provide to the Underwriter, at its expense, such reports published by the NASD relating to price trading of the Public Securities, as the Underwriter shall reasonably request. 3.14 DISQUALIFICATION OF FORM S-1. For a period equal to seven years from the date hereof, the Company will not take any action or actions which may prevent or disqualify the Company's use of Form S-1 (or other appropriate form) for the registration of the Warrants and the Underwriter's Warrants under the Act. 3.15 PAYMENT OF EXPENSES. 3.15.1 GENERAL EXPENSES RELATED TO THE OFFERING. The Company hereby agrees to pay on each of the Closing Date and the Option Closing Date, if any, to the extent not paid at Closing Date, all expenses incident to the performance of the obligations of the Company under this Agreement, including but not limited to (i) the preparation, printing, filing, delivery and mailing (including the payment of postage with respect to such mailing) of the Registration Statement, the Prospectus and the Preliminary Prospectuses and the printing and mailing of this Agreement, the Underwriter's Memorandum and related documents, including the cost of all copies thereof and any 12 amendments thereof or supplements thereto supplied to the Underwriter in quantities as may be required by the Underwriter, (ii) the printing, engraving, issuance and delivery of the Units, the shares of Common Stock and the Warrants included in the Units and the Underwriter's Purchase Option, including any transfer or other taxes payable thereon, (iii) the qualification of the Public Securities under state or foreign securities or Blue Sky laws, including the filing fees under such Blue Sky laws, the costs of printing and mailing "Preliminary Blue Sky Memorandum," and all amendments and supplements thereto, fees and disbursements for the Underwriter's counsel and fees and disbursements of local counsel, if any, retained for such purpose (such fees shall be capped at $20,000 in the aggregate (of which $10,000 has previously been paid)), and a one-time fee of $5,000 payable to Underwriter's counsel for the preparation of the Secondary Market Trading Survey, (iv) filing fees, costs and expenses (including fees of $5,000 and disbursements for the Underwriter's counsel) incurred in registering the offering with the NASD, (v) costs of placing "tombstone" advertisements in THE WALL STREET JOURNAL, THE NEW YORK TIMES and a third publication to be selected by the Underwriter, (vi) fees and disbursements of the transfer and warrant agent, (vii) the preparation, binding and delivery of six transaction "bibles", in form and style reasonably satisfactory to the Underwriter and transaction lucite cubes or similar commemorative items in a style and quantity as reasonably requested by the Underwriter, (viii) the Company's expenses associated with "due diligence" meetings arranged by the Underwriter, (ix) any listing of the Public Securities on Nasdaq, and (x) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section 3.15.1. The Underwriter may deduct from the net proceeds of the offering payable to the Company on the Closing Date, or the Option Closing Date, if any, the expenses set forth herein to be paid by the Company to the Underwriter and/or to third parties. 3.15.2 NONACCOUNTABLE EXPENSES. The Company further agrees that, in addition to the expenses payable pursuant to Section 3.15.1, it will pay to the Underwriter a nonaccountable expense allowance equal to three percent (3%) of the gross proceeds received by the Company from the sale of the Public Securities, of which $25,000 has been paid to date, and the Company will pay the balance on the Closing Date and any additional balance on the Option Closing Date by certified or bank cashier's check or, at the election of the Underwriter, by deduction from the proceeds of the offering contemplated herein. If the offering contemplated by this Agreement is not consummated for any reason whatsoever then the Company's liability for payment to the Underwriter of the nonaccountable expense allowance shall be equal to the sum of the Underwriter's actual out-of-pocket expenses (including, but not limited to, counsel fees, "road-show" and due diligence expenses). The "road-show" and due diligence expenses incurred by the Underwriter are only payable out of the Underwriter's non-accountable expense allowance. The Underwriter shall retain such part of the nonaccountable expense allowance previously paid as shall equal such actual out-of-pocket expenses and refund the balance. If the amount previously paid is insufficient to cover such actual out-of-pocket expenses, the Company shall remain liable for and promptly pay any other actual out-of-pocket expenses. 3.15.3 EXPENSES RELATED TO BUSINESS COMBINATION. The Company further agrees that, in the event the Underwriter assist the Company in trying to obtain approval of a proposed Business Combination, the Company agrees to reimburse the Underwriter for all out-of-pocket expenses, including, but not limited to, "road-show" expenses. 3.16 APPLICATION OF NET PROCEEDS. The Company will apply the net proceeds from the offering received by it in a manner consistent with the application described under the caption "USE OF PROCEEDS" in the Prospectus. 13 3.17 DELIVERY OF EARNINGS STATEMENTS TO SECURITY HOLDERS. The Company will make generally available to its security holders as soon as practicable, but not later than the first day of the fifteenth full calendar month following the Effective Date, an earnings statement (which need not be certified by independent public or independent certified public accountants unless required by the Act or the Regulations, but which shall satisfy the provisions of Rule 158(a) under Section 11(a) of the Act) covering a period of at least twelve consecutive months beginning after the Effective Date. 3.18 NOTICE TO NASD. In the event any person or entity (regardless of any NASD affiliation or association) is engaged to assist the Company in its search for a merger candidate or to provide any other merger and acquisition services, the Company will provide the following to the NASD prior to the consummation of the Business Combination: (i) complete details of all services and copies of agreements governing such services; and (ii) justification as to why the person or entity providing the merger and acquisition services should not be considered an "underwriter and related person" with respect to the Company's initial public offering, as such term is defined in Part III, Section 44 of the Rules of Fair Practice. The Company also agrees that proper disclosure of such arrangement or potential arrangement will be made in the proxy statement which the Company will file for purposes of soliciting stockholder approval for the Business Combination. 3.19 STABILIZATION. Neither the Company, nor, to its knowledge, any of its employees, directors or stockholders (without the consent of Underwriter) has taken or will take, directly or indirectly, any action designed to or which has constituted or which might reasonably be expected to cause or result in, under the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Units. 3.20 INTERNAL CONTROLS. The Company will maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management's general or specific authorization, (ii) transactions are recorded as necessary in order to permit preparation of financial statements in accordance with generally accepted accounting principles and to maintain accountability for assets, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 3.21 ACCOUNTANTS. For a period of five years from the Effective Date or until such earlier time upon which the Company is required to be liquidated, the Company shall retain Arthur Andersen & Co. LLP, any "Big 6" accounting firm, or other independent public accountants reasonably acceptable to Underwriter. 3.22 [Reserved] 3.23 [Reserved] 3.24 FORM 8-K. The Company shall, on the date hereof, retain its independent public accountants to audit the financial statements of the Company as of the Closing Date ("Audited Financial Statements") reflecting the receipt by the Company of the proceeds of the initial public offering. As soon as the Audited Financial Statements become available, the Company shall immediately file a Current Report on Form 8-K with the Commission, which Report shall contain the Company's Audited Financial Statements. Additionally, the Company shall, within 15 days of the execution of a letter of intent for a Business Combination, file a Form 8-K reflecting the terms of such transaction and shall as promptly as possible thereafter, file such pro forma financial statements as may be required by the Exchange Act. 14 3.25 NASD. The Company shall advise the NASD if it is aware that any 5% or greater stockholder of the Company becomes an affiliate or associated person of an NASD member participating in the distribution of the Company's Public Securities. 4. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The obligations of the Underwriter to purchase and pay for the Units, as provided herein, shall be subject to the continuing accuracy of the representations and warranties of the Company as of the date hereof and as of each of the Closing Date and the Option Closing Date, if any, to the accuracy of the statements of officers of the Company made pursuant to the provisions hereof and to the performance by the Company of its obligations hereunder and to the following conditions: 4.1 REGULATORY MATTERS. 4.1.1 EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement shall have become effective not later than 5:00 P.M., New York time, on the date of this Agreement or such later date and time as shall be consented to in writing by you, and, at each of the Closing Date and the Option Closing Date, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for the purpose shall have been instituted or shall be pending or contemplated by the Commission and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of Graubard Mollen & Miller, counsel to the Underwriter. 4.1.2 NASD CLEARANCE. By the Effective Date, the Underwriter shall have received clearance from the NASD as to the amount of compensation allowable or payable to the Underwriter as described in the Registration Statement. 4.1.3 NO BLUE SKY STOP ORDERS. No order suspending the sale of the Securities in any jurisdiction designated by you pursuant to Section 3.3 hereof shall have been issued on either on the Closing Date or the Option Closing Date, and no proceedings for that purpose shall have been instituted or shall be contemplated. 4.2 COMPANY COUNSEL MATTERS. 4.2.1 EFFECTIVE DATE OPINION OF COUNSEL. On the Effective Date, the Underwriter shall have received the favorable opinion of Parker Duryee Rosoff & Haft, counsel to the Company, dated the Effective Date, addressed to the Underwriter and in form and substance satisfactory to Graubard Mollen & Miller, counsel to the Underwriter, to the effect that: (i) The Company has been duly organized and is validly existing as a corporation and is in good standing under the laws of its state of incorporation. The Company is duly qualified and licensed and in good standing as a foreign corporation in each jurisdiction in which its ownership or leasing of any properties or the character of its operations requires such qualification or licensing, except where the failure to qualify would not have a material adverse effect on the Company. (ii) All issued and outstanding securities of the Company have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no rights of rescission with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company. The outstanding options and warrants to purchase shares of Common Stock constitute the valid and binding obligations of the Company, enforceable in accordance with their terms. The authorized 15 capital stock and outstanding options and warrants to purchase shares of Common Stock conform to all statements relating thereto contained in the Registration Statement and the Prospectus. The offers and sales of the outstanding Common Stock and options and warrants to purchase shares of Common Stock were at all relevant times either registered under the Act and the applicable state securities or Blue Sky Laws or exempt from such registration requirements. The authorized and outstanding capital stock of the Company is as set forth in the Prospectus. (iii) The Securities have been duly authorized and, when issued and paid for, will be validly issued, fully paid and non-assessable; the holders thereof are not and will not be subject to personal liability by reason of being such holders. The Securities are not and will not be subject to the preemptive rights of any holders of any security of the Company or, to the best of such counsel's knowledge after due inquiry, similar contractual rights granted by the Company. All corporate action required to be taken for the authorization, issuance and sale of the Securities has been duly and validly taken. When issued, the Underwriter's Purchase Option, the Underwriter's Warrants and the Warrants will constitute valid and binding obligations of the Company to issue and sell, upon exercise thereof and payment therefor, the number and type of securities of the Company called for thereby and such Warrants, the Underwriter's Purchase Option, and the Underwriter's Warrants, when issued, in each case, are enforceable against the Company in accordance with their respective terms, except (a) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally, (b) as enforceability of any indemnification provision may be limited under the federal and state securities laws, and (c) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. The certificates representing the Securities are in due and proper form. (iv) To the best of such counsel's knowledge, after due inquiry, except as set forth in the Prospectus, no holders of any securities of the Company or of any options, warrants or securities of the Company exercisable for or convertible or exchangeable into securities of the Company have the right to require the Company to register any such securities of the Company under the Act or to include any such securities in a registration statement to be filed by the Company. (v) This Agreement, the Warrant Agreement, the Underwriter's Purchase Option, the Trust Agreement and the Escrow Agreement have each been duly and validly authorized and, when executed and delivered by the Company, constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, and, to such counsel's knowledge, the Insider Letters have each been duly and validly executed and constitute the valid and binding obligations of the individual signatories thereto, enforceable against the Initial Stockholder in accordance with its respective terms, except (a) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally, (b) as enforceability of any indemnification provisions may be limited under the federal and state securities laws, and (c) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (vi) The execution, delivery and performance of this Agreement, the Underwriter's Purchase Option, the Warrant Agreement, the Escrow Agreement, and the Trust Agreement, the issuance and sale of the Securities, the consummation of the transactions contemplated hereby and thereby, and compliance by the Company with the terms and provisions hereof and thereof, do not and will not, with or without the giving of notice or the lapse of time, or both, (a) to the best of such counsel's knowledge, conflict with, or result in a breach of, any of the 16 terms or provisions of, or constitute a default under, or result in the creation or modification of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company pursuant to the terms of, any material mortgage, deed of trust, note, indenture, loan, contract, commitment or other material agreement or instrument, to which the Company is a party or by which the Company or any of its properties or assets may be bound, (b) result in any violation of the provisions of the Certificate of Incorporation or the By- Laws of the Company, or (c) to the best of such counsel's knowledge, violate any statute or any judgment, order or decree, rule or regulation applicable to the Company of any court, domestic or foreign, or of any federal, state or other regulatory authority or other governmental body having jurisdiction over the Company, its properties or assets. (vii) The Registration Statement, each Preliminary Prospectus and the Prospectus and any post-effective amendments or supplements thereto (other than the financial statements included therein, as to which no opinion need be rendered) comply as to form in all material respects with the requirements of the Act and Regulations. The Securities and all other securities issued or issuable by the Company conform in all material respects to the description thereof contained in the Registration Statement and the Prospectus. No statute or regulation or legal or governmental proceeding required to be described in the Prospectus is not described as required, nor are any contracts or documents of a character required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement not so described or filed as required. (viii) Counsel has participated in conferences with officers and other representatives of the Company, representatives of the independent public accountants for the Company and representatives of the Underwriter at which the contents of the Registration Statement, the Prospectus and related matters were discussed and although such counsel is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement and Prospectus (except as otherwise set forth in this opinion), no facts have come to the attention of such counsel which lead them to believe that either the Registration Statement or the Prospectus or any amendment or supplement thereto, as of the date of such opinion contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no opinion with respect to the financial statements and schedules and other financial and statistical data included in the Registration Statement or Prospectus). (ix) The Registration Statement is effective under the Act, and, to the best of such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and proceedings for that purpose have been instituted or are pending or threatened under the Act or applicable state securities laws. (x) To the best of such counsel's knowledge, there is no action, suit or proceeding before or by any court of governmental agency or body, domestic or foreign, now pending, or threatened against the Company, which might result in any material and adverse change in the condition (financial or otherwise), business or prospects of the Company, or might materially and adversely affect the properties or assets thereof. 4.2.2 CLOSING DATE AND OPTION CLOSING DATE OPINION OF COUNSEL. On each of the Closing Date and the Option Closing Date, if any, the Underwriter shall have received the favorable opinion of Parker Duryee Rosoff & Haft, counsel to the Company, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriter and in form and substance reasonably satisfactory to Graubard Mollen & Miller, counsel to the Underwriter, confirming as of 17 the Closing Date and, if applicable, the Option Closing Date, the statements made by Parker Duryee Rosoff & Haft, in their opinion delivered on the Effective Date. 4.2.3 RELIANCE. In rendering such opinion, such counsel may rely (i) as to matters involving the application of laws other than the laws of the United States and jurisdictions in which they are admitted, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to Underwriter's counsel) of other counsel reasonably acceptable to Underwriter's counsel, familiar with the applicable laws, and (ii) as to matters of fact, to the extent they deem proper, on certificates or other written statements of officers of the Company and officers of departments of various jurisdiction having custody of documents respecting the corporate existence or good standing of the Company, provided that copies of any such statements or certificates shall be delivered to Underwriter's counsel if requested. The opinion of counsel for the Company and any opinion relied upon by such counsel for the Company shall include a statement to the effect that it may be relied upon by counsel for the Underwriter in its opinion delivered to the Underwriter. 4.3 COLD COMFORT LETTER. At the time this Agreement is executed, and at each of the Closing Date and the Option Closing Date, if any, you shall have received a letter, addressed to the Underwriter and in form and substance satisfactory in all respects (including the non-material nature of the changes or decreases, if any, referred to in clause (iii) below) to you and to Graubard Mollen & Miller, counsel for the Underwriter, from Arthur Andersen & Co., LLP dated, respectively, as of the date of this Agreement and as of the Closing Date and the Option Closing Date, if any: (i) Confirming that they are independent accountants with respect to the Company within the meaning of the Act and the applicable Regulations; (ii) Stating that in their opinion the financial statements of the Company included in the Registration Statement and Prospectus comply as to form in all material respects with the applicable accounting requirements of the Act and the published Regulations thereunder; (iii) Stating that, on the basis of a limited review which included a reading of the latest available unaudited interim financial statements of the Company (with an indication of the date of the latest available unaudited interim financial statements), a reading of the latest available minutes of the stockholders and board of directors and the various committees of the board of directors, consultations with officers and other employees of the Company responsible for financial and accounting matters and other specified procedures and inquiries, nothing has come to their attention which would lead them to believe that (a) the unaudited financial statements of the Company included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the Act and the Regulations or are not fairly presented in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements of the Company included in the Registration Statement, (b) at a date not later than five days prior to the Effective Date, Closing Date or Option Closing Date, as the case may be, there was any change in the capital stock or long-term debt of the Company, or any decrease in the stockholders' equity of the Company as compared with amounts shown in the June 30, 1996 balance sheet included in the Registration Statement, other than as set forth in or contemplated by the Registration Statement, or, if there was any decrease, setting forth the amount of such decrease, and (c) during the period from June 30, 1996 to a specified date not later than five days prior to the Effective Date, Closing Date or Option Closing Date, as the case may be, there was any decrease in revenues, net earnings or net earnings per share of Common Stock, in each case as compared with the corresponding period in the preceding year and as compared with the corresponding period in the preceding quarter, 18 other than as set forth in or contemplated by the Registration Statement, or, if there was any such decrease, setting forth the amount of such decrease; (iv) Setting forth, at a date not later than five days prior to the Effective Date, the amount of liabilities of the Company (including a break-down of commercial papers and notes payable to banks); (v) Stating that they have compared specific dollar amounts, numbers of shares, percentages of revenues and earnings, statements and other financial information pertaining to the Company set forth in the Prospectus in each case to the extent that such amounts, numbers, percentages, statements and information may be derived from the general accounting records, including work sheets, of the Company and excluding any questions requiring an interpretation by legal counsel, with the results obtained from the application of specified readings, inquiries and other appropriate procedures (which procedures do not constitute an examination in accordance with generally accepted auditing standards) set forth in the letter and found them to be in agreement; (vi) Stating that they have not during the immediately preceding five year period brought to the attention of the Company's management any reportable condition related to internal structure, design or operation as defined in the Statement on Auditing Standards No. 60 -- "Communication of Internal Control Structure Related Matters Noted in an Audit," in the Company's internal controls; and (vii) Statements as to such other matters incident to the transaction contemplated hereby as you may reasonably request. 4.4 OFFICERS' CERTIFICATES. 4.4.1 OFFICERS' CERTIFICATE. At each of the Closing Date and the Option Closing Date, if any, the Underwriter shall have received a certificate of the Company signed by the Chairman of the Board or the President and the Secretary of the Company, dated the Closing Date or the Option Closing Date, as the case may be, respectively, to the effect that the Company has performed all covenants and complied with all conditions required by this Agreement to be performed or complied with by the Company prior to and as of the Closing Date, or the Option Closing Date, as the case may be, and that the conditions set forth in Section 4.5 hereof have been satisfied as of such date and that, as of Closing Date and the Option Closing Date, as the case may be, the representations and warranties of the Company set forth in Section 2 hereof are true and correct. In addition, the Underwriter will have received such other and further certificates of officers of the Company as the Underwriter may reasonably request. 4.4.2 SECRETARY'S CERTIFICATE. At each of the Closing Date and the Option Closing Date, if any, the Underwriter shall have received a certificate of the Company signed by the Secretary of the Company, dated the Closing Date or the Option Date, as the case may be, respectively, certifying (i) that the By-Laws and Certificate of Incorporation, as amended, of the Company are true and complete, have not been modified and are in full force and effect, (ii) that the resolutions relating to the public offering contemplated by this Agreement are in full force and effect and have not been modified, (iii) all correspondence between the Company or its counsel and the Commission, and (iv) as to the incumbency of the officers of the Company. The documents referred to in such certificate shall be attached to such certificate. 4.5 NO MATERIAL CHANGES. Prior to and on each of the Closing Date and the Option Closing Date, if any, (i) there shall have been no material adverse change or development involving 19 a prospective material adverse change in the condition or prospects or the business activities, financial or otherwise, of the Company from the latest dates as of which such condition is set forth in the Registration Statement and Prospectus, (ii) no action suit or proceeding, at law or in equity, shall have been pending or threatened against the Company or any Initial Stockholder before or by any court or federal or state commission, board or other administrative agency wherein an unfavorable decision, ruling or finding may materially adversely affect the business, operations, prospects or financial condition or income of the Company, except as set forth in the Registration Statement and Prospectus, (iii) no stop order shall have been issued under the Act and no proceedings therefor shall have been initiated or threatened by the Commission, and (iv) the Registration Statement and the Prospectus and any amendments or supplements thereto shall contain all material statements which are required to be stated therein in accordance with the Act and the Regulations and shall conform in all material respects to the requirements of the Act and the Regulations, and neither the Registration Statement nor the Prospectus nor any amendment or supplement thereto shall contain any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 4.6 DELIVERY OF AGREEMENTS. On the Effective Date, the Company shall have delivered to the Underwriter executed copies of the Underwriter's Purchase Option, the Escrow Agreement and the Trust Agreement. 4.7 OPINION OF COUNSEL FOR THE UNDERWRITER. All proceedings taken in connection with the authorization, issuance or sale of the Securities as herein contemplated shall be reasonably satisfactory in form and substance to you and to Graubard Mollen & Miller, counsel to the Underwriter, and you shall have received from such counsel a favorable opinion, dated the Closing Date and the Option Closing Date, if any, with respect to such of these proceedings as you may reasonably require. On or prior to the Effective Date, the Closing Date and the Option Closing Date, as the case may be, counsel for the Underwriter shall have been furnished such documents, certificates and opinions as they may reasonably require for the purpose of enabling them to review or pass upon the matters referred to in this Section 4.7, or in order to evidence the accuracy, completeness or satisfaction of any of the representations, warranties or conditions herein contained. 4.8 SECONDARY MARKET TRADING SURVEY. On the Effective Date, the Underwriter shall have received the Secondary Market Trading Survey from Graubard Mollen & Miller. 5. INDEMNIFICATION. 5.1 INDEMNIFICATION OF THE UNDERWRITER. 5.1.1 GENERAL. Subject to the conditions set forth below, the Company agrees to indemnify and hold harmless the Underwriter, its directors, officers, agents and employees and each person, if any, who controls the Underwriter ("controlling person") within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against any and all loss, liability, claim, damage and expense whatsoever (including but not limited to any and all legal or other expenses reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, whether arising out of any action between the Underwriter and the Company or between the Underwriter and any third party or otherwise) to which they or any of them may become subject under the Act, the Exchange Act or any other statute or at common law or otherwise or under the laws of foreign countries, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in (i) any Preliminary Prospectus, the Registration Statement or the Prospectus (as from time to time each may be 20 amended and supplemented); (ii) in any post-effective amendment or amendments or any new registration statement and prospectus in which is included securities of the Company issued or issuable upon exercise of the Underwriter's Purchase Option; or (iii) any application or other document or written communication (in this Section 5 collectively called "application") executed by the Company or based upon written information furnished by the Company in any jurisdiction in order to qualify the Securities under the securities laws thereof or filed with the Commission, any state securities commission or agency, Nasdaq or any securities exchange; or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, unless such statement or omission was made in reliance upon and in conformity with written information furnished to the Company with respect to the Underwriter by or on behalf of the Underwriter expressly for use in any Preliminary Prospectus, the Registration Statement or Prospectus, or any amendment or supplement thereof, or in any application, as the case may be. The Company agrees promptly to notify the Underwriter of the commencement of any litigation or proceedings against the Company or any of its officers, directors or controlling persons in connection with the issue and sale of the Securities or in connection with the Registration Statement or Prospectus. 5.1.2 PROCEDURE. If any action is brought against the Underwriter or controlling person in respect of which indemnity may be sought against the Company pursuant to Section 5.1.1, such Underwriter shall promptly notify the Company in writing of the institution of such action and the Company shall assume the defense of such action, including the employment and fees of counsel (subject to the reasonable approval of the Underwriter) and payment of actual expenses. The Underwriter or controlling person shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the Underwriter or such controlling person unless (i) the employment of such counsel at the expense of the Company shall have been authorized in writing by the Company in connection with the defense of such action, or (ii) the Company shall not have employed counsel to have charge of the defense of such action, or (iii) such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to the Company (in which case the Company shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events the reasonable fees and expenses of not more than one additional firm of attorneys selected by the Underwriter and/or controlling person shall be borne by the Company. Notwithstanding anything to the contrary contained herein, if the Underwriter or controlling person shall assume the defense of such action as provided above, the Company shall have the right to approve the terms of any settlement of such action which approval shall not be unreasonably withheld. 5.2 INDEMNIFICATION OF THE COMPANY. The Underwriter agrees to indemnify and hold harmless the Company, its directors, officers and employees and agents who control the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act against any and all loss, liability, claim, damage and expense described in the foregoing indemnity from the Company to the Underwriter, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions directly relating to the transactions effected by the Underwriter in connection with this Offering made in any Preliminary Prospectus, the Registration Statement or Prospectus or any amendment or supplement thereto or in any application, in reliance upon, and in strict conformity with, written information furnished to the Company with respect to the Underwriter by or on behalf of the Underwriter expressly for use in such Preliminary Prospectus, the Registration Statement or Prospectus or any amendment or supplement thereto or in any such application. In case any action shall be brought against the Company or any other person so indemnified based on any Preliminary Prospectus, the Registration Statement or Prospectus or any amendment or supplement thereto or any application, and in respect of which indemnity may be 21 sought against the Underwriter, such Underwriter shall have the rights and duties given to the Company, and the Company and each other person so indemnified shall have the rights and duties given to the Underwriter by the provisions of Section 5.1.2. 5.3 CONTRIBUTION. 5.3.1 CONTRIBUTION RIGHTS. In order to provide for just and equitable contribution under the Act in any case in which (i) any person entitled to indemnification under this Section 5 makes claim for indemnification pursuant hereto but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 5 provides for indemnification in such case, or (ii) contribution under the Act, the Exchange Act or otherwise may be required on the part of any such person in circumstances for which indemnification is provided under this Section 5, then, and in each such case, the Company and the Underwriter shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by said indemnity agreement incurred by the Company and the Underwriter, as incurred, in such proportions that the Underwriter is responsible for that portion represented by the percentage that the underwriting discount appearing on the cover page of the Prospectus bears to the initial offering price appearing thereon and the Company is responsible for the balance; provided, that, no person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding the provisions of this Section 5.3, the Underwriter shall not be required to contribute any amount in excess of the amount by which the total price at which the Public Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which Underwriter has otherwise been required to pay in respect of such losses, liabilities, claims, damages and expenses. For purposes of this Section, each director, officer and employee of an Underwriter or the Company, as applicable, and each person, if any, who controls the Underwriter or the Company, as applicable, within the meaning of Section 15 of the Act shall have the same rights to contribution as the Underwriter or the Company, as applicable. 5.3.2 CONTRIBUTION PROCEDURE. Within fifteen days after receipt by any party to this Agreement (or its representative) of notice of the commencement of any action, suit or proceeding, such party will, if a claim for contribution in respect thereof is to be made against another party ("contributing party"), notify the contributing party of the commencement thereof, but the omission to so notify the contributing party will not relieve it from any liability which it may have to any other party other than for contribution hereunder. In case any such action, suit or proceeding is brought against any party, and such party notifies a contributing party or its representative of the commencement thereof within the aforesaid fifteen days, the contributing party will be entitled to participate therein with the notifying party and any other contributing party similarly notified. Any such contributing party shall not be liable to any party seeking contribution on account of any settlement of any claim, action or proceeding which was effected by such party seeking contribution on account of any settlement of any claim, action or proceeding effected by such party seeking contribution without the written consent of such contributing party. The contribution provisions contained in this Section are intended to supersede, to the extent permitted by law, any right to contribution under the Act, the Exchange Act or otherwise available. 6. [Reserved] 22 7. ADDITIONAL COVENANTS. 7.1 ATTENDANCE AT BOARD MEETINGS. For a period of three years from the Effective Date, the Underwriter shall be permitted to select a designee to attend all meetings of the Board of Directors, but who will not be entitled to vote at such meetings. The Company agrees to give the Underwriter written notice of each such meeting and to provide to the Underwriter with an agenda and minutes of the meeting no later than it gives such notice and provides such items to the other directors. The Company shall reimburse the designee of the Underwriter for its out-of-pocket expenses incurred in connection with its attendance at the Company's Board meetings, including, but not limited to, food, lodging, transportation and any fees paid to directors for attending such meetings. 7.2 ADDITIONAL SHARES OR OPTIONS. The Company hereby agrees that until the Company consummates a Business Combination (as such term is defined in the Registration Statement), it shall not issue any shares of Common Stock or any options or other securities convertible into Common Stock, or any shares of Preferred Stock which participate in any manner in the Trust Fund or which vote as a class with the Common Stock on a Business Combination. 7.3 TRUST FUND WAIVER LETTERS. The Company hereby agrees that it will not commence its due dilligence investigation of any Target Business (as such term is defined in the Registration Statement) or obtain the services of any vendor unless and until the Target Business or the vendor executes a waiver letter in the form attached hereto as Exhibit A and B, respectively. Furthermore, each officer and director of the Company shall execute a waiver letter in the form attached hereto as EXHIBIT C. 7.4 INSIDER LETTERS. The Company shall not take any action or omit to take any action which would cause a breach of any of the Insider Letters executed between each Initial Stockholder and Underwriter. 7.5 CERTIFICATE OF INCORPORATION AND BY-LAWS. The Company shall not take any action or omit to take any action which would cause the Company to be in breach or violation of its Certificate of Incorporation or By-Laws. 7.6 BLUE SKY REQUIREMENTS. The Company shall provide counsel to the Underwriter with ten copies of all proxy information and all related material filed with the Commission in connection with a Business Combination concurrently with such filing with the Commission. In addition, the Company shall furnish any other state in which its initial public offering was registered, such information as may be requested by such state. 7.7 FINDER'S FEES AND OTHER COMPENSATION. Except as provided in the Prospectus, the Company shall not pay any of the Initial Stockholders or their affiliates a finder's fee or other compensation in consideration of originating a Business Combination. In addition, the Company will not remit to any Initial Stockholder or its affiliates any compensation at any time for services rendered to the Company prior to or concurrently with the consummation of a Business Combination. 8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. Except as the context otherwise requires, all representations, warranties and agreements contained in this Agreement shall be deemed to be representations, warranties and agreements at the Closing Dates and such representations, warranties and agreements of the Underwriter and Company, including the indemnity agreements contained in Section 5 hereof, shall remain operative and in full force and 23 effect regardless of any investigation made by or on behalf of the Underwriter, the Company or any controlling person, and shall survive termination of this Agreement or the issuance and delivery of the Units to the Underwriter until the earlier of the expiration of any applicable statute of limitations and the seventh anniversary of the later of the Closing Date or the Option Closing Date, if any, at which time the representations, warranties and agreements shall terminate and be of no further force and effect. 9. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF. 9.1 EFFECTIVE DATE. This Agreement shall become effective on the Effective Date at the time the Registration Statement is declared effective by the Commission. 9.2 TERMINATION. You shall have the right to terminate this Agreement at any time prior to any Closing Date, (i) if any domestic or international event or act or occurrence has materially disrupted, or in your opinion will in the immediate future materially disrupt, general securities markets in the United States; or (ii) if trading on the New York Stock Exchange, the American Stock Exchange, the Boston Stock Exchange or in the over-the-counter market shall have been suspended, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been fixed, or maximum ranges for prices for securities shall have been required on the over-the- counter market by the NASD or by order of the Commission or any other government authority having jurisdiction, or (iii) if the United States shall have become involved in a war or major hostilities, or (iv) if a banking moratorium has been declared by a New York State or federal authority, or (v) if a moratorium on foreign exchange trading has been declared which materially adversely impacts the United States securities market, or (vi) if the Company shall have sustained a material loss by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act which, whether or not such loss shall have been insured, will, in your opinion, make it inadvisable to proceed with the delivery of the Securities, or (vii) if Lawrence Burstein shall no longer serve the Company in his present capacity, or (viii) if any of the Company's representations, warranties or covenants hereunder are breached, or (ix) if Underwriter shall have become aware after the date hereof of such a material adverse change in the conditions or prospects of the Company, or such adverse material change in general market conditions as in the Underwriter's judgment would make it impracticable to proceed with the offering, sale and/or delivery of the Securities or to enforce contracts made by the Underwriter for the sale of the Securities. 9.3 EXPENSES. In the event that this Agreement shall not be carried out for any reason whatsoever, within the time specified herein or any extensions thereof pursuant to the terms herein, the obligations of the Company to pay the expenses related to the transactions contemplated herein shall be governed by Section 3.15 hereof. 9.4 INDEMNIFICATION. Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement, and whether or not this Agreement is otherwise carried out, the provisions of Section 5 shall not be in any way affected by, such election or termination or failure to carry out the terms of this Agreement or any part hereof. 10. MISCELLANEOUS. 10.1 NOTICES. All communications hereunder, except as herein otherwise specifically provided, shall be in writing and shall be mailed, delivered or telecopied and confirmed and shall be deemed given when so delivered or telecopied and confirmed or if mailed, two days after such mailing: 24 If to the Underwriter: GKN Securities Corp. 61 Broadway, 12th Floor New York, New York 10006 Attn: David M. Nussbaum, Chairman Copy to: Graubard Mollen & Miller 600 Third Avenue New York, New York 10016 Attn: David Alan Miller, Esq. If to the Company: Unity First Acquisition Corp. 245 Fifth Avenue, Suite 1500 New York, New York 10016 Attn: Lawrence Burstein, President Copy to: Parker Duryee Rosoff & Haft 529 Fifth Avenue New York, New York 10017 Attn: Ira I. Roxland, Esq. 10.2 HEADINGS. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement. 10.3 AMENDMENT. This Agreement may only be amended by a written instrument executed by each of the parties hereto. 10.4 ENTIRE AGREEMENT. This Agreement (together with the other agreements and documents being delivered pursuant to or in connection with this Agreement) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and thereof, and supersede all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof. 10.5 BINDING EFFECT. This Agreement shall inure solely to the benefit of and shall be binding upon the Underwriter, the Company and the controlling persons, directors and officers referred to in Section 5 hereof, and their respective successors, legal representatives and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provisions herein contained. 10.6 GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws. The Company hereby agrees that any action, proceeding or claim against it arising out of, relating in any way to this Agreement shall be brought and enforced in the courts of the State of New York of the United States of America for the Southern District of New York, and irrevocably submits to 25 such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any such process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 10 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company agrees that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys' fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. 10.7 EXECUTION IN COUNTERPARTS. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. 10.8 WAIVER, ETC. The failure of any of the parties hereto to at any time enforce any of the provisions of this Agreement shall not be deemed or construed to be a waiver of any such provision, nor to in any way effect the validity of this Agreement or any provision hereof or the right of any of the parties hereto to thereafter enforce each and every provision of this Agreement. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Agreement shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment. If the foregoing correctly sets forth the understanding between the Underwriter and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between us. Very truly yours, UNITY FIRST ACQUISITION CORP. By: ------------------------------- Lawrence Burstein President Accepted on the date first above written. GKN SECURITIES CORP. By: -------------------------------------- Deborah L. Schondorf Senior Vice President 26 EXHIBIT A TO UNDERWRITING AGREEMENT Unity First Acquisition Corp. 245 Fifth Avenue, Suite 1502 New York, New York 10016 Attn: Lawrence Burstein President Gentlemen: Reference is made to the Final Prospectus of Unity First Acquisition Corp. ("Unity"), dated _____________, 1996 ("Prospectus"). Capitalized terms used and not otherwise defined herein shall have the meanings assigned to them in Prospectus. We have read the Prospectus and understand that Unity has established the Trust Fund, initially in an amount of $___________ for the benefit of the Public Stockholders and that Unity may disburse monies from the Trust Fund only (i) to the Public Stockholders in the event of the redemption of their shares or the liquidation of Unity or (ii) to Unity after it consummates a Business Combination. For and in consideration of Unity agreeing to evaluate the undersigned for purposes of consummating a Business Combination with it, the undersigned hereby agrees that it does not have any right, title, interest or claim of any kind in or to any monies in the Trust Fund ("Claim") and hereby waives any Claim it may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with Unity and will not seek recourse against the Trust Fund for any reason whatsoever. --------------------------------------- Print Name of Target Business --------------------------------------- Authorized Signature of Target Business EXHIBIT B TO UNDERWRITING AGREEMENT Unity First Acquisition Corp. 245 Fifth Avenue, Suite 1502 New York, New York 10016 Attn: Lawrence Burstein President Gentlemen: Reference is made to the Final Prospectus of Unity First Acquisition Corp. ("Unity"), dated __________, 1996 ("Prospectus"). Capitalized terms used and not otherwise defined herein shall have the meanings assigned to them in Prospectus. We have read the Prospectus and understand that Unity has established the Trust Fund, initially in an amount of $__________ for the benefit of the Public Stockholders and that Unity may disburse monies from the Trust Fund only (i) to the Public Stockholders in the event of the redemption of their shares or the liquidation of Unity or (ii) to Unity after it consummates a Business Combination. For and in consideration of Unity engaging the services of the undersigned, the undersigned hereby agrees that it does not have any right, title, interest or claim of any kind in or to any monies in the Trust Fund ("Claim") and hereby waives any Claim it may have in the future as a result of, or arising out of, any contracts or agreements with Unity and will not seek recourse against the Trust Fund for any reason whatsoever. ---------------------------------- Print Name of Vendor ---------------------------------- Authorized Signature of Vendor EXHIBIT C TO UNDERWRITING AGREEMENT Unity First Acquisition Corp. 245 Fifth Avenue, Suite 1502 New York, New York 10016 Attn: Lawrence Burstein President Gentlemen: The undersigned officer or director of Unity First Acquisition Corp. ("Unity") hereby acknowledges that Unity has established the Trust Fund, initially in an amount of $________ for the benefit of the Public Stockholders and that Unity may disburse monies from the Trust Fund only (i) to the Public Stockholders in the event of the redemption of their shares or the liquidation of Unity or (ii) to Unity after it consummates a Business Combination. The undersigned hereby agrees that it does not have any right, title, interest or claim of any kind in or to any monies in the Trust Fund ("Claim") and hereby waives any Claim it may have in the future as a result of, or arising out of, any contracts or agreements with Unity and will not seek recourse against the Trust Fund for any reason whatsoever. Notwithstanding the foregoing, such waiver shall not apply to any shares acquired by the undersigned in the public market. __________________________________ Print Name of Officer/Director __________________________________ Authorized Signature of Officer/Director EX-3.1 3 EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF UNITY FIRST ACQUISITION CORP. The undersigned, being of legal age, in order to form a corporation under and pursuant to the laws of the State of Delaware, do hereby set forth as follows: FIRST: The name of the corporation is UNITY FIRST ACQUISITION CORP. SECOND: The address of the initial registered and principal office of this corporation is this state is c/o United Corporate Services, Inc., 15 East North Street, in the City of Dover, County of Kent, State of Delaware 19901 and the name of the registered agent at said address is United Corporate Services, Inc. THIRD: The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the corporation laws of the State of Delaware. FOURTH: a) The corporation shall be authorized to issue the following shares: CLASS NUMBER OF SHARES PAR VALUE Common 20,000,000 .0001 Preferred 5,000 . 01 b) The designations and the powers, preferences and rights, and the qualifications or restrictions thereof are as follows: The Preferred shares shall be issued from time to time in one or more series, with such distinctive serial designations as shall be stated and expressed in the resolution or resolutions providing for the issue of such shares from time to time adopted by the Board of Directors; and in such resolution or resolutions providing for the issue of shares of each particular series, the Board of Directors is expressly authorized to fix the annual rate or rates of dividends for the particular series; the dividend payment dates for the particular series and the date from which dividends on all shares of such series issued prior to the record date for the first dividend payment date shall be cumulative; the redemption price or prices for the particular series; the voting powers for the particular series; the rights, if any, of holders of the shares of the particular series to convert the same into shares of any other series or class or other securities of the corporation, with any provisions for the subsequent adjustment of such conversion rights; and to classify or reclassify any unissued preferred shares by fixing or altering from time to time any of the foregoing rights, privileges and qualifications. All the Preferred shares of any one series shall be identical with each other in all respects, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall be cumulative; and all Preferred shares shall be of equal rank, regardless of series, and shall be identical in all respects except as to the particulars fixed by the Board as hereinabove provided or as fixed herein. FIFTH: The name and address of the incorporator are as follows: NAME ADDRESS Ira Roxland 529 Fifth Avenue New York, New York 10017 SIXTH: The following provisions are inserted for the management of the business and for the conduct of the affairs of the corporation, and for further definition, limitation and 2 regulation of the powers of the corporation and of its directors and stockholders: (1) The number of directors of the corporation shall be such as from time to time shall be fixed by, or in the manner provided in the by-laws. Election of directors need not be by ballot unless the by-laws so provide. (2) The Board of Directors shall have power without the assent or vote of the stockholders: (a) To make, alter, amend, change, add to or repeal the by-laws of the corporation; to fix and vary the amount to be reserved for any proper purpose; to authorize and cause to be executed mortgages and liens upon all or any part of the property of the corporation; to determine the use and disposition of any surplus or net profits; and to fix the times for the declaration and payment of dividends. (b) To determine from time to time whether, and to what times and places and under what conditions the accounts and books of the corporation (other than the stock ledger) or any of them, shall be open to the inspection of the stockholders. (3) The directors in their discretion may submit any contract or act for approval or ratification at any annual meeting of the stockholders or at any meeting of the stockholders called for the purpose of considering any such act or contract, and any contract or act that shall be approved or be ratified by the vote of the holders of a majority of the stock of the corporation which is represented in person or by proxy at such meeting and entitled to vote thereat (provided that a lawful quorum of stockholders be there represented in person or by proxy) shall be as valid and as binding upon the corporation and upon all the stockholders as though it had been approved or ratified by every stockholder of the corporation, whether or not the contract or act would otherwise be open to legal attack because of directors' interest, or for any other reason. (4) In addition to the powers and authorities hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the corporation; subject, nevertheless, to the provisions of the 3 statutes of Delaware, of this certificate, and to any by-laws from time to time made by the stockholders; provided, however, that no by-laws so made shall invalidate any prior act of the directors which would have been valid if such by-law had not been made. SEVENTH: No director shall be liable to the corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except with respect to (1) a breach of the director's duty of loyalty to the corporation or its stockholders, (2) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) liability under Section 174 of the Delaware General Corporation Law or (4) a transaction from which the director derived an improper personal benefit, it being the intention of the foregoing provision to eliminate the liability of the corporation's directors to the corporation or its stockholders to the fullest extent permitted by Section 102(b)(7) of the Delaware General Corporation Law, as amended from time to time. The corporation shall indemnify to the fullest extent permitted by Sections 102(b)(7) and 145 of the Delaware General Corporation Law, as amended from time to time, each person that such Sections grant the corporation the power to indemnify. EIGHTH: Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware, may, on the application in a summary way of this corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or 4 of any receiver or receivers appointed for this corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths (3/4) in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation. NINTH: The corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation in the manner now or hereafter prescribed by law, and all rights and powers conferred herein on stockholders, directors and officers are subject to this reserved power. IN WITNESS WHEREOF, the undersigned hereby executes this document and affirms that the facts set forth herein are true under the penalties of perjury this 28th day of May, 1996. /s/ Ira I. Roxland ------------------------------------ Ira I. Roxland, Incorporator 5 EX-3.2 4 EXHIBIT 3.2 BY-LAWS UNITY FIRST ACQUISITION CORP. ARTICLE I MEETINGS OF STOCKHOLDERS SECTION 1. ANNUAL MEETING. A meeting of stockholders shall be held annually for the election of directors and the transaction of such other business as is related to the purpose or purposes set forth in the notice of meeting on such date as may be fixed by the Board of Directors, or if no date is so fixed on the third Tuesday in December in each and every year, unless such day shall fall on a legal holiday, in which case such meeting shall be held on the next succeeding business day, at such time and at such place as may be fixed by the Board of Directors. SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders for any purpose may be called by the Board of Directors, the Chairman of the Board, the President or the Secretary, and shall be called by the Chairman of the Board, the President or the Secretary at the written request of the holders of record of a majority of the outstanding shares of the Corporation entitled to vote at such meeting. Special meetings shall be held at such time as may be fixed in the call and stated in the notices of meeting or waiver thereof. At any special meeting only such business may be transacted as is related to the purpose or purposes for which the meeting is convened. SECTION 3. PLACE OF MEETINGS. Meetings of stockholders shall be held at such place, within or without the State of Delaware or the United States of America, as may be fixed in the call and stated in the notice of meeting or waiver thereof. SECTION 4. NOTICE OF MEETINGS: ADJOURNED MEETINGS. Notice of each meeting of stockholders shall be given in writing and shall state the place, date and hour of the meeting. The purpose or purposes for which the meeting is called shall be stated in the notices of each special meeting and of each annual meeting at which any business other than the election of directors is to be transacted. A copy of the notice of any meeting shall be given, personally or by mail, not less then ten (10) nor more than sixty (60) days before the date of the meeting, to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed given when deposited in the United States mail, with postage thereon prepaid, directed to the stockholder at his address as it appears on the record of stockholders. When a meeting is adjourned for less than thirty (30) days in any one adjournment, it shall not be necessary to give any notice of the adjourned meeting if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken, and at the adjourned meeting any business may be transacted that might have been transacted on the original date of the meeting. When a meeting is adjourned for thirty (30) days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. SECTION 5. WAIVER OF NOTICE. The transactions of any meeting of stockholders, however called and with whatever notice, if any, are as valid as though had at a meeting duly held after regular call and notice, if: (a) all the stockholders entitled to vote are present in person or by proxy and no objection to holding the meeting is made by anyone so present, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signed a written waiver of notice, or a consent to the holding of the meeting, or an approval of the action taken as shown by the minutes thereof. Whenever notice is required to be given to any stockholder, a written waiver thereof signed by such stockholder, whether before or after the time thereon stated, shall be deemed equivalent to such notice. Attendance of a person at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when such stockholder attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of any meeting of stockholders need be specified in any written waiver of notice thereof. SECTION 6. QUALIFICATION OF VOTERS. Except as may be otherwise provided in the Certificate of Incorporation, every stockholder of record shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders for every share standing in his name on the record of stockholders. SECTION 7. QUORUM. At any meeting of the stockholders the presence, in person or by proxy, of the holders of a majority of the shares entitled to vote thereat shall constitute a quorum for the transaction of any business. When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any stockholders. The stockholders present may adjourn the meeting despite the absence of a quorum. SECTION 8. PROXIES. Every stockholder entitled to vote at a meeting of stockholders or to express consent or dissent without 2 a meeting may authorize another person or persons to act for him by proxy. Every proxy must be executed by the stockholder or his attorney-in-fact. No proxy shall be valid after the expiration of three (3) years from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the stockholder executing it, except as otherwise provided therein and as permitted by law. Except as otherwise provided in the proxy, any proxy holder may appoint in writing a substitute to act in his place. SECTION 9. VOTING. Except as otherwise required by law, directors shall be elected by a plurality of the votes cast at a meeting of stockholders by the holders of shares entitled to vote in the election. Whenever any corporate action, other than the election of directors, is to be taken by vote of the stockholders at a meeting, it shall, except as otherwise required by law or the Certificate of Incorporation, be authorized by a majority of the votes cast thereat, in person or by proxy. SECTION 10. ACTION WITHOUT A MEETING. Whenever stockholders are required or permitted to take any action at a meeting or by vote, such action may be taken without a meeting, without prior notice and without a vote, by consent in writing setting forth the action so taken, signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. SECTION 11. RECORD DATE. The Board of Directors is authorized to fix a day not more than sixty (60) days nor less than ten (10) days prior to the day of holding any meeting of stockholders as the day as of which stockholders entitled to notice of and to vote at such meeting shall be determined; and only stockholders of record on such day shall be entitled to notice or to vote at such meeting. SECTION 12. INSPECTORS OF ELECTION. The Chairman of any meeting of the stockholders may appoint one or more Inspectors of Election and of Stockholders' Votes. Any Inspector so appointed to act at any meeting of the stockholders, before entering upon the discharge of his or her duties, shall be sworn faithfully to execute the duties of an Inspector at such meeting with strict impartiality, and according to the best of his or her ability. 3 ARTICLE II BOARD OF DIRECTORS SECTION 1. POWER OF BOARD AND QUALIFICATION OF DIRECTORS. The business and affairs of the Corporation shall be managed by the Board of Directors. SECTION 2. NUMBER OF DIRECTORS. The number of directors constituting the entire Board of Directors shall be such number not less than three (3) nor more than fifteen (15) as may be fixed from time to time by resolution adopted by the stockholders or by the Board. SECTION 3. ELECTION AND TERM OF DIRECTORS. At each annual meeting of stockholders, directors shall be elected to serve until the next annual meeting. SECTION 4. RESIGNATIONS. Any director of the Corporation may resign at any time by giving written notice to the Board of Directors, the Chairman of the Board, the President or the Secretary of the Corporation. Such resignation shall take effect at the time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 5. REMOVAL OF DIRECTORS. Any or all of the directors may be removed with or without cause by vote of the stockholders. SECTION 6. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Newly created directorships resulting from an increase in the number of directors and vacancies occurring in the Board of Directors for any reason except the removal of directors by stockholders without cause may be filled by vote of a majority of the directors then in office, although less than a quorum exists, or may be filled by the stockholders. Vacancies occurring as a result of the removal of directors by stockholders, without cause, shall be filled by the stockholders. A director elected to fill a vacancy or a newly created directorship shall be elected to hold office until the next annual meeting of stockholders. SECTION 7. EXECUTIVE AND OTHER COMMITTEE OF DIRECTORS. The Board of Directors, by resolution adopted by a majority of the entire Board, may designate from among its members an executive committee and other committees, each consisting of one or more directors, and each of which, to the extent provided in the resolution, shall have all the authority of the Board to the full extent authorized by law and including the power and authority to declare a dividend or to authorize the issuance of stock. 4 The Board of Directors may designate one or more directors as alternate members of any such committee, who may replace any absent member or members at any meeting of such committee. SECTION 8. COMPENSATION OF DIRECTORS. The Board of Directors shall have authority to fix the compensation of directors for services in any capacity, or to allow a fixed sum plus expenses, if any, for attendance at meetings of the Board or of committees designated thereby. SECTION 9. INTEREST OF DIRECTOR IN A TRANSACTION. (a) No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof which authorized the contract or transaction, or solely because his or their votes are counted for such purpose, if: (1) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee, in good faith, authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than as quorum; or (2) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved, in good faith, by vote of the stockholders; or (3) The contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. (b) Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorized the contract or transaction. ARTICLE III MEETINGS OF THE BOARD SECTION 1. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice at such time and 5 places, within or without the State of Delaware, or the United States of America, as may from time to time be fixed by the Board. SECTION 2. SPECIAL MEETINGS; NOTICE; WAIVER. Special meetings of the Board of Directors may be held at any time, place, within or without the State of Delaware or the United States of America, upon the call of the Chairman of the Board, the President or the Secretary, by oral, telegraphic or written notice, duly given to or sent or mailed to each director not less than two (2) days before such meeting. Special meetings shall be called by the Chairman of the Board, the President or the Secretary on the written request of any two directors. Notice of a special meeting need not be given to any director who submits a signed waiver or notice whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to him. A notice, or waiver of notice, need not specify the purpose of any special meeting of the Board of Directors. SECTION 3. QUORUM; ACTION BY THE BOARD; ADJOURNMENT. At all meetings of the Board of Directors, a majority of the whole Board shall constitute a quorum for the transaction of business, except that when the number of directors constituting the whole Board shall be an even number, one-half of that number shall constitute a quorum. The vote of a majority of the directors present at the time of the vote, if a quorum is present at such time, shall be the act of the Board, except as may be otherwise specifically provided by law or by the Certificate of Incorporation or by these By-Laws. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. SECTION 4. ACTION WITHOUT A MEETING. Any action required or permitted to be taken at any meeting of the Board, or any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes or proceedings of the Board or committee, whether done before or after the action so taken. SECTION 5. ACTION TAKEN BY CONFERENCE TELEPHONE. Members of the Board of Directors or any committee thereof may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. 6 ARTICLE IV OFFICERS SECTION 1. OFFICERS. The Board of Directors shall elect a President, one or more Vice Presidents, a Secretary and a Treasurer of the Corporation and from time to time may elect or appoint such other officers as it may determine. Any two or more offices may be held by the same person. Securities of other corporations held by the corporation may be voted by any officer designated by the Board and, in the absence of any such designation, by the President, any Vice President, the Secretary, or the Treasurer. The Board may require any officer to give security for the faithful performance of his duties. SECTION 2. PRESIDENT. The President shall be the chief executive and chief operating officer of the Corporation with all the rights and powers incident to that position. SECTION 3. VICE PRESIDENT. The Vice Presidents shall perform such duties as may be prescribed or assigned to them by the Board of Directors, the Chairman of the Board or President. In the absence of the President the first-elected Vice President shall perform the duties of the President. In the event of the refusal or incapacity of the President to function as such, the first-elected Vice President shall perform the duties of the President until such time as the Board of Directors elects a new President. In the event of the absence, refusal or incapacity of the first-elected Vice President, the other Vice Presidents, in order of their rank, shall so perform the duties of the President; and the order of rank of such other Vice Presidents shall be determined by the designated rank of their offices or, in the absence of such designation, by seniority in the office of Vice President; provided that said order or rank may be established otherwise by action of the Board of Directors. SECTION 4. TREASURER. The Treasurer shall perform all the duties customary to that office, and shall have the care and custody of the funds and securities of the Corporation. He shall at all reasonable times exhibit his books and accounts to any director upon application, and shall give such bond or bonds for the faithful performance of his duties with such surety or sureties as the Board of Directors from time to time may determine. SECTION 5. SECRETARY. The Secretary shall act as secretary of and shall keep the minutes of the Board of Directors and of the stockholders, have the custody of the seal of the 7 Corporation and perform all of the other duties usual to that office. SECTION 6. ASSISTANT TREASURER AND ASSISTANT SECRETARY. Any Assistant Treasurer or Assistant Secretary shall perform such duties as may be prescribed or assigned to him by the Board of Directors, the Chairman of the Board, or the President. An Assistant Treasurer shall give such bond or bonds for the faithful performance of his duties with such surety or sureties as the Board of Directors from time to time may determine. SECTION 7. TERM OF OFFICE: REMOVAL. Each officer shall hold office for such term as may be prescribed by the Board. Any officer may be removed at any time by the Board with or without cause. The removal of an officer without cause shall be without prejudice to his contract rights, if any. The election or appointment of an officer shall not, of itself, create contract rights. SECTION 8. COMPENSATION. The compensation of all officers of the Corporation shall be fixed by the Board of Directors. ARTICLE V SHARE CERTIFICATES SECTION 1. FORM OF SHARE CERTIFICATES. The shares of the Corporation shall be represented by certificates, in such form as the Board of Directors may from time to time prescribe, signed by the Chairman of the Board, the President, or a Vice President, and by the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer, and shall be sealed with the seal of the Corporation or a facsimile thereof. The signatures of the officers upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation or its employees. In case any such officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of issue. SECTION 2. LOST CERTIFICATES. In case of the loss, theft, mutilation or destruction of a stock certificate, a duplicate certificate will be issued by the Corporation upon notification thereof and receipt of such proper indemnity or assurances as the Board of Directors may require. SECTION 3. TRANSFER OF SHARES. Transfers of shares of stock shall be made upon the books of the Corporation by the registered holder in person or by duly authorized attorney, upon 8 surrender of the certificate or certificates for such shares properly endorsed. SECTION 4. REGISTERED STOCKHOLDERS. Except as otherwise provided by law, the Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends or other distributions and to vote as such owner, and to hold such person liable for calls and assessments, and shall not be bound to recognize any equitable or legal claim to or interest in such shares on the part of any other person. ARTICLE VI INDEMNIFICATION SECTION 1. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. Any person made a party to an action by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he, his testator or intestate, is or was a Director or officer of the Corporation shall be indemnified by the Corporation against the reasonable expenses, including attorneys fees, actually and necessarily incurred by him in connection with the defense of such action or in connection with an appeal therein, to the fullest extent permitted by the General Corporation Law or any successor thereto. SECTION 2. ACTION OR PROCEEDING OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. Any person made or threatened to be made a party to an action or proceeding other than one by or in the right of the Corporation to procure a judgment in its favor, whether civil or criminal, including an action by or in the right of any other corporation of any type or kind, domestic or foreign, which any Director or officer of the Corporation served in any capacity at the request of the Corporation, by reason of the fact that he, his testator or intestate, was a Director or officer of the Corporation, or served such other corporation in any capacity, shall be indemnified by the Corporation against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys fees actually and necessarily incurred as a result of such action or proceeding, or any appeal therein, if such Director or officer acted in good faith for a purpose which he reasonably believed to be in the best interests of the Corporation and, in criminal actions or proceedings, in which he had no reasonable cause to believe that his conduct was unlawful. The termination of any such civil or criminal action or proceeding by judgment, settlement, conviction or upon a plea of NOLO CONTENDERE, or its equivalent, shall not in itself create a presumption that any such Director or officer did not act in good faith for a purpose which he reasonably believed to be in the best interests of the 9 Corporation or that he had reasonable cause to believe that his conduct was unlawful. SECTION 3. OPINION OF THE COUNSEL. In taking any action or making any determination pursuant to this Article, the Board of Directors and each Director, officer or employee, whether or not interested in any such action or determination, may rely upon an opinion of counsel selected by the Board. SECTION 4. OTHER INDEMNIFICATION; LIMITATION. The Corporation's obligations under this Article shall not be exclusive or in limitation of but shall be in addition to any other rights to which any such person may be entitled under any other provision of these By-Laws, or by contract, or as a matter of law, or otherwise. All of the provisions of this Article VI of the By-Laws shall be valid only to the extent permitted by the Certificate of Incorporation and the laws of the State of Delaware. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 1. CORPORATE SEAL. The corporate seal shall have inscribed thereon the name of the Corporation and shall be in such form as the Board of Directors may from time to time determine. SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be the twelve month period prescribed by the Board of Directors. SECTION 3. CHECKS AND NOTES. All checks and demands for money and notes or other instrument evidencing indebtedness or obligations of the Corporation shall be signed by such officer or officers or other person or persons as shall be authorized from time to time by the Board of Directors. ARTICLE VIII AMENDMENTS SECTION 1. POWER TO AMEND. By-Laws of the Corporation may be adopted, amended or repealed by the Board of Directors, subject to amendment or repeal by the stockholders entitled to vote thereon. 10 EX-4.4 5 EXHIBIT 4.4 THE REGISTERED HOLDER OF THIS PURCHASE OPTION BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE OPTION EXCEPT AS HEREIN PROVIDED. NOT EXERCISABLE PRIOR TO ___________, 1997. VOID AFTER 5:00 P.M. EASTERN TIME, ___________, 2002. UNIT PURCHASE OPTION FOR THE PURCHASE OF 125,000 UNITS OF UNITY FIRST ACQUISITION CORP. 1. PURCHASE OPTION. THIS CERTIFIES THAT, in consideration of $.0008 per option duly paid by or on behalf of ____________________ ("Holder"), as registered owner of this Purchase Option, to Unity First Acquisition Corp. ("Company"), Holder is entitled, at any time or from time to time at or after ________, 1997 ("Commencement Date"), and at or before 5:00 p.m., Eastern Time, ________, 2002 ("Expiration Date"), but not thereafter, to subscribe for, purchase and receive, in whole or in part, up to One Hundred Twenty-Five Thousand (125,000) units ("Units") of the Company, each Unit consisting of one share of common stock of the Company, $.0001 par value per share ("Common Stock"), and one Class A redeemable common stock purchase warrant and Class B redeemable common stock purchase warrant (collectively, "Warrants") expiring five years from the effective date ("Effective Date") of the registration statement ("Registration Statement") pursuant to which Units are offered for sale to the public ("Offering"). Each Warrant is the same as the warrants included in the Units being registered for sale to the public by way of the Registration Statement ("Public Warrants"), except that it expires five years from the Effective Date. If the Expiration Date is a day on which banking institutions are authorized by law to close, then this Purchase Option may be exercised on the next succeeding day which is not such a day in accordance with the terms herein. During the period ending on the Expiration Date, the Company agrees not to take any action that would terminate the Purchase Option. This Purchase Option is initially exercisable at $6.60 per Unit so purchased; provided, however, that upon the occurrence of any of the events specified in Section 6 hereof, the rights granted by this Purchase Option, including the exercise price per Unit and the number of Units (and shares of Common Stock and Warrants) to be received upon such exercise, shall be adjusted as therein specified. The term "Exercise Price" shall mean the initial exercise price or the adjusted exercise price, depending on the context. 2. EXERCISE. 2.1 EXERCISE FORM. In order to exercise this Purchase Option, the exercise form attached hereto must be duly executed and completed and delivered to the Company, together with this Purchase Option and payment of the Exercise Price for the Units being purchased payable in cash. If the subscription rights represented hereby shall not be exercised at or before 5:00 p.m., Eastern time, on the Expiration Date this Purchase Option shall become and be void without further force or effect, and all rights represented hereby shall cease and expire. 2.2 LEGEND. Each certificate for the securities purchased under this Purchase Option shall bear a legend as follows unless such securities have been registered under the Act: "The securities represented by this certificate have not been registered under the Securities Act of 1933 ("Act") or applicable state law. The securities may not be offered for sale, sold or otherwise transferred except pursuant to an effective registration statement under the Act, or pursuant to an exemption from registration under the Act and applicable state law." 2.3 CASHLESS EXERCISE. 2.3.1 DETERMINATION OF AMOUNT. In lieu of the payment of the Exercise Price in the manner required by Section 2.1, the Holder shall have the right (but not the obligation) to pay the Exercise Price for the Securities being purchased with this Purchase Option upon exercise by the surrender to the Company of any exercisable but unexercised portion of this Purchase Option having a "Value" (as defined below), at the close of trading on the last trading day immediately preceding the exercise of this Purchase Option, equal to the Exercise Price multiplied by the number of Units being purchased upon exercise ("Cashless Exercise Right"). The sum of (a) the number of Units being purchased upon exercise of the non-surrendered portion of this Purchase Option pursuant to this Cashless Exercise Right and (b) the number of Units underlying the portion of this Purchase Option being surrendered, shall not in any event be greater than the total number of Units purchasable upon the complete exercise of this Purchase Option if the Exercise Price were paid in cash. The "Value" of the portion of the Purchase Option being surrendered shall equal the remainder derived from subtracting (a) the Exercise Price multiplied by the number of Units underlying the portion of this Purchase Option being surrendered from (b) the Market Price of the Units multiplied by the number of Units underlying the portion of this Purchase Option being surrendered. As used herein, the term "Market Price" at any date shall be deemed to be the last reported sale price of the Units on such date, or, in case no such reported sale takes place on such day, the average of the last reported sale prices for the immediately preceding three trading days, in either case as officially reported by the principal securities exchange on which the Units are listed or admitted to trading, or, if the Units are not listed or admitted to trading on any national securities exchange or if any such exchange on which the Units are listed is not its principal trading market, the last reported sale price as furnished by the NASD through the Nasdaq National Market or SmallCap Market, or, if applicable, the OTC Bulletin Board, or if the Units are not listed or admitted to trading on any of the foregoing, as determined in good faith by resolution of the Board of Directors of the Company, based on the best information available to it; provided, however, that if the Units are no longer quoted on the principal trading market that the Common Stock is traded on, the Market Price of the Units shall be equal to the last reported sale price of the Common Stock added to the last reported sale price of the Public Warrants, as quoted on the principal trading market for such securities determined as described above. 2 2.3.2 MECHANICS OF CASHLESS EXERCISE. The Cashless Exercise Right may be exercised by the Holder on any business day on or after the Commencement Date and not later than the Expiration Date by delivering the Purchase Option with a duly executed exercise form attached hereto with the cashless exercise section completed to the Company, exercising the Cashless Exercise Right and specifying the total number of Units the Holder will purchase pursuant to such Cashless Exercise Right. 3. TRANSFER. 3.1 GENERAL RESTRICTIONS. The registered Holder of this Purchase Option, by its acceptance hereof, agrees that it will not sell, transfer or assign or hypothecate this Purchase Option prior to the Commencement Date to anyone other than (i) an officer or director of GKN Securities Corp. ("GKN") or Selected Dealer in connection with the Offering, or (ii) any such Selected Dealer. On and after the Commencement Date, transfers to others may be made subject to compliance with or exemptions from applicable securities laws. In order to make any permitted assignment, the Holder must deliver to the Company the assignment form attached hereto duly executed and completed, together with the Purchase Option and payment of all transfer taxes, if any, payable in connection therewith. The Company shall immediately transfer this Purchase Option on the books of the Company and shall execute and deliver a new Purchase Option or Purchase Options of like tenor to the appropriate assignee(s) expressly evidencing the right to purchase the number of Units purchasable hereunder or such portion of such number as shall be contemplated by any such assignment. 3.2 RESTRICTIONS IMPOSED BY THE ACT. The securities evidenced by this Purchase Option shall not be transferred unless and until (i) the Company has received the opinion of counsel for the Holder that the securities may be sold pursuant to an exemption from registration under the Securities Act of 1933, as amended ("Act"), the availability of which is established to the reasonable satisfaction of the Company, or (ii) a registration statement or a post- effective amendment to the Registration Statement relating to such securities has been filed by the Company and declared effective by the Securities and Exchange Commission. 4. NEW PURCHASE OPTIONS TO BE ISSUED. 4.1 PARTIAL EXERCISE OR TRANSFER. Subject to the restrictions in Section 3 hereof, this Purchase Option may be exercised or assigned in whole or in part. In the event of the exercise or assignment hereof in part only, upon surrender of this Purchase Option for cancellation, together with the duly executed exercise or assignment form and funds sufficient to pay any transfer tax, the Company shall cause to be delivered to the Holder without charge a new Purchase Option of like tenor to this Purchase Option in the name of the Holder evidencing the right of the Holder to purchase the number of Units purchasable hereunder as to which this Purchase Option has not been exercised or assigned. 4.2 LOST CERTIFICATE. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Purchase Option and of reasonably satisfactory indemnification, the Company shall execute and deliver a new Purchase Option of like tenor and date. Any such new Purchase Option executed and delivered as a result of such loss, theft, mutilation or destruction shall constitute an additional contractual obligation on the part of the Company. 3 5. REGISTRATION RIGHTS. 5.1 DEMAND REGISTRATION. 5.1.1 GRANT OF RIGHT. The Company, upon written demand ("Initial Demand Notice") of the Holder(s) of at least 51% of the Purchase Options and/or the underlying Units and/or the underlying securities ("Majority Holders"), agrees to register on one occasion, all or any portion of the Purchase Options requested by the Majority Holders in the Initial Demand Notice and all of the securities underlying such Purchase Options, including the Common Stock, the Warrants and the Common Stock underlying the Warrants (collectively, the "Registrable Securities"). On such occasion, the Company will file a registration statement or a post-effective amendment to the Registration Statement covering the Registrable Securities within sixty days after receipt of the Initial Demand Notice and use its best efforts to have such registration statement or post-effective amendment declared effective as soon as possible thereafter. Should this registration or the effectiveness thereof be delayed by the Company, the exercisability of the Purchase Options shall be extended for a period of time equal to the delay in registering the Registrable Securities; provided, however, that such extension date shall not extend beyond five years from the Effective Date. Moreover, if the Company willfully fails to comply with the provisions of this Section 5.1.1, the Company shall, in addition to any other equitable or other relief available to the Holder(s), be liable for any and all incidental, special and consequential damages sustained by the Holder(s). The demand for registration may be made at any time during a period of four years beginning one year from the Effective Date. The Company covenants and agrees to give written notice of its receipt of any Initial Demand Notice by any Holder(s) to all other registered Holders of the Purchase Options and/or the Registerable Securities within ten days from the date of the receipt of any such Initial Demand Notice. 5.1.2 TERMS. The Company shall bear all fees and expenses attendant to registering the Registrable Securities, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. The Company agrees to use its reasonable best efforts to qualify or register the Registrable Securities in such States as are reasonably requested by the Majority Holder(s); provided, however, that in no event shall the Company be required to register the Registrable Securities in a State in which such registration would cause (i) the Company to be obligated to qualify to do business in such State, or would subject the Company to taxation as a foreign corporation doing business in such jurisdiction or (ii) the principal stockholders of the Company to be obligated to escrow their shares of capital stock of the Company. The Company shall cause any registration statement or post-effective amendment filed pursuant to the demand rights granted under Section 5.1.1 to remain effective for a period of nine consecutive months from the effective date of such registration statement or post-effective amendment. 5.2 "PIGGY-BACK" REGISTRATION. 5.2.1 GRANT OF RIGHT. In addition to the demand right of registration, the Holders of the Purchase Options shall have the right for a period of six years commencing one year from the Effective Date, to include the Registrable Securities as part of any other registration of securities filed by the Company (other than in connection with a transaction contemplated by Rule 145(a) promulgated under the Act or pursuant to Form S-8). 4 5.2.2 TERMS. The Company shall bear all fees and expenses attendant to registering the Registrable Securities, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. In the event of such a proposed registration, the Company shall furnish the then Holders of outstanding Registrable Securities with not less than fifteen days written notice prior to the proposed date of filing of such registration statement. Such notice to the Holders shall continue to be given for each applicable registration statement filed (during the period in which the Purchase Option is exercisable) by the Company until such time as all of the Registrable Securities have been registered and sold. The holders of the Registrable Securities shall exercise the "piggy-back" rights provided for herein by giving written notice, within ten days of the receipt of the Company's notice of its intention to file a registration statement. The Company shall cause any registration statement filed pursuant to the above "piggyback" rights to remain effective for at least nine months from the date that the Holders of the Registrable Securities are first given the opportunity to sell all of such securities. 5.3 GENERAL TERMS. 5.3.1 INDEMNIFICATION. The Company shall indemnify the Holder(s) of the Registrable Securities to be sold pursuant to any registration statement hereunder 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 ("Exchange Act"), against all loss, claim, damage, expense or liability (including all reasonable attorneys' fees and other expenses reasonably incurred in investigating, preparing or defending against litigation, commenced or threatened, or any claim whatsoever whether arising out of any action between the Underwriter and the Company or between the Underwriter and any third party or otherwise) 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 Underwriter contained in Section 5 of the Underwriting Agreement. The Holder(s) of the Registrable Securities to be sold pursuant to such registration statement, and their successors and assigns, shall severally, and not jointly, 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, expense or liability (including all reasonable attorneys' fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) 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, in writing, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in Section 5 of the Underwriting Agreement pursuant to which the Underwriter has agreed to indemnify the Company. 5.3.2 EXERCISE OF WARRANTS. Nothing contained in this Purchase Option shall be construed as requiring the Holder(s) to exercise their Purchase Options or Warrants prior to or after the initial filing of any registration statement or the effectiveness thereof. 5.3.3 EXCLUSIVITY. The Company shall not permit the inclusion of any securities other than the Registrable Securities to be included in any registration statement filed pursuant to Section 5.1 hereof without the prior written consent of the Majority Holders of the Registrable Securities. 5 5.3.4 DOCUMENTS DELIVERED TO HOLDERS. The Company shall furnish GKN, as representative of the Holders participating in any of the foregoing offerings, a signed counterpart, addressed to the participating Holders, 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 any underwriting agreement related thereto), and (ii) a "cold comfort" letter dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the underwriting agreement) signed by the independent public accountants who have 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' letter, 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 underwriter in underwritten public offerings of securities. The Company shall also deliver promptly to GKN, as representative of the Holders participating in the offering, the correspondence and memoranda described below and copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit GKN, as representative of the Holders, 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 GKN, as representative of the Holders, shall reasonably request. The Company shall not be required to disclose any confidential information or other records to GKN, as representative of the Holders, or to any other person, until and unless such persons shall have entered into reasonable confidentiality agreements (in form and substance reasonably satisfactory to the Company, with the Company with respect thereto. 5.3.5 UNDERWRITING AGREEMENT. The Company shall enter into an underwriting agreement with the managing underwriter, if any, selected by any Holders whose Registrable Securities are being registered pursuant to this Section 5, which managing underwriter shall be reasonably acceptable to the Company. Such agreement shall be reasonably satisfactory in form and substance to the Company, each Holder and such 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 Registrable 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 underwriter 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 underwriter except as they may relate to such Holders and their intended methods of distribution. Such Holders, however, shall agree to such covenants and indemnification and contribution obligations for selling stockholders as are customarily contained in agreements of that type used by the managing underwriter. Further, such Holders shall execute appropriate custody agreements and otherwise cooperate fully in the preparation of the registration statement and other documents relating to any offering in which they include securities pursuant to this Section 5. Each Holder shall also furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of 6 disposition of such securities as shall be reasonably required to effect the registration of the Registrable Securities. 5.3.6 RULE 144 SALE. Notwithstanding anything contained in this Section 5 to the contrary, the Company shall have no obligation pursuant to Sections 5.1 or 5.2 for the registration of Registrable Securities held by any Holder (i) where such Holder would then be entitled to sell under Rule 144 within any three-month period (or such other period prescribed under Rule 144 as may be provided by amendment thereof) all of the Registrable Securities then held by such Holder, and (ii) where the number of Registrable Securities held by such Holder is within the volume limitations under paragraph (e) of Rule 144 (calculated as if such Holder were an affiliate within the meaning of Rule 144). 5.3.7 SUPPLEMENTAL PROSPECTUS. Each Holder agrees, that upon receipt of any notice from the Company of the happening of any event as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, such Holder will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Holder's receipt of the copies of a supplemental or amended prospectus, and, if so desired by the Company, such Holder shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of such destruction) all copies, other than permanent file copies then in such Holder's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. 6. ADJUSTMENTS. 6.1 ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES. The Exercise Price and the number of Units underlying the Purchase Option shall be subject to adjustment from time to time as hereinafter set forth: 6.1.1 STOCK DIVIDENDS - SPLIT-UPS. If after the date hereof, and subject to the provisions of Section 6.4 below, the number of outstanding shares of Common Stock is increased by a stock dividend payable in shares of Common Stock or by a split-up of shares of Common Stock or other similar event, then, on the effective day thereof, the number of securities issuable on exercise of each Unit shall be increased in proportion to such increase in outstanding shares. 6.1.2 AGGREGATION OF SHARES. If after the date hereof, and subject to the provisions of Section 6.4, the number of outstanding shares of Common Stock is decreased by a consolidation, combination or reclassification of shares of Common Stock or other similar event, then, on the effective date thereof, the number of securities issuable on exercise of each Unit shall be decreased in proportion to such decrease in outstanding shares. 6.1.3 ADJUSTMENTS IN EXERCISE PRICE. Whenever the number of Units purchasable upon the exercise of this Purchase Option is adjusted, as provided in this Section 6.1, the Exercise Price shall be adjusted (to the nearest cent) by multiplying such Exercise Price immediately prior to such adjustment by a fraction (x) the numerator of which shall be the number of Units purchasable upon the exercise of this Purchase Option immediately prior to such adjustment, and (y) the denominator of which shall be the number of Units so purchasable immediately thereafter. 7 6.1.4 REORGANIZATIONS, ETC. If after the date hereof, any capital reorganization or reclassification of the Common Stock of the Company, or consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation or other similar event shall be effected, then, as a condition of such reorganization, reclassification, consolidation, merger, or sale, lawful and fair provision shall be made whereby the Holders shall thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in the Unit Purchase Option and in lieu of the securities of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented thereby, such shares of stock, securities, or assets as may be issued or payable with respect to or in exchange for the number of securities equal to the number of securities immediately theretofore purchasable and receivable upon the exercise of the rights represented by the Unit Purchase Option, had such reorganization, reclassification, consolidation, merger, or sale not taken place and in such event, appropriate provision shall be made with respect to the rights and interests of the Holders to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Exercise Price and of the number of securities purchasable upon the exercise of the Unit Purchase Option) shall thereafter be applicable, as nearly as may be, to any share of stock, securities, or assets thereafter deliverable upon the exercise hereof. The Company shall not effect any such consolidation, merger, or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or merger, or the corporation purchasing such assets, shall assume, by written instrument executed and delivered to the Holders its obligation to deliver such shares of stock, securities, or assets which, in accordance with the foregoing provisions, such Holders may be entitled to purchase. 6.1.5 CHANGES IN FORM OF PURCHASE OPTION. This form of Purchase Option need not be changed because of any change pursuant to this Section, and Purchase Options issued after such change may state the same Exercise Price and the same number of Units as are stated in the Purchase Options initially issued pursuant to this Agreement. The acceptance by any Holder of the issuance of new Purchase Options reflecting a required or permissive change shall not be deemed to waive any rights to an adjustment occurring after the Commencement Date or the computation thereof. 6.2 [Intentionally Omitted] 6.3 SUBSTITUTE PURCHASE OPTION. 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 which does not result in any reclassification or change of the outstanding Common Stock), the corporation formed by such consolidation or merger shall execute and deliver to the Holder a supplemental Purchase Option providing that the holder of each Purchase Option then outstanding or to be outstanding shall have the right thereafter (until the stated expiration of such Purchase Option) to receive, upon exercise of such Purchase Option, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or merger, by a holder of the number of shares of Common Stock of the Company for which such Purchase Option might have been exercised immediately prior to such consolidation, merger, sale or transfer. Such supplemental Purchase Option shall provide for adjustments which shall be identical to the adjustments provided in Section 6. The above provision of this Section shall similarly apply to successive consolidations or mergers. 6.4 ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be required to issue certificates representing fractions of shares of Common Stock or Warrants upon the exercise of 8 the Purchase Option, nor shall it be required to issue scrip or pay cash in lieu of any fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up to the nearest whole number of Warrants, shares of Common Stock or other securities, properties or rights. 7. RESERVATION AND LISTING. 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 exercise of the Purchase Options or the Warrants, such number of shares of Common Stock or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Purchase Options and payment of the Exercise Price therefor, all shares of Common Stock and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any stockholder. The Company further covenants and agrees that upon exercise of the Warrants underlying the Purchase Options and payment of the respective Warrant exercise price therefor, all shares of Common Stock and other securities issuable upon such exercises shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any stockholder. As long as the Purchase Options shall be outstanding, the Company shall use its best efforts to cause all (i) shares of Common Stock issuable upon exercise of the Purchase Options and the Warrants, and (ii) the Warrants underlying the Purchase Options to be listed (subject to official notice of issuance) on all securities exchanges (or, if applicable on the Nasdaq National Market or SmallCap Market) on which the Common Stock or the Public Warrants issued to the public in connection herewith may then be listed and/or quoted. 8. CERTAIN NOTICE REQUIREMENTS. 8.1 HOLDER'S RIGHT TO RECEIVE NOTICE. Nothing herein shall be construed as conferring upon the Holders the right to vote or consent or to receive notice as a stockholder for the election of 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 Purchase Options and their exercise, any of the events described in Section 8.2 shall occur, then, in one or more of said events, the Company shall give written notice of such event at least fifteen 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, conversion or exchange of 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 the closing of the transfer books, as the case may be. 8.2 EVENTS REQUIRING NOTICE. The Company shall be required to give the notice described in this Section 8 upon one or more of the following events: (i) if 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 retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company, or (ii) 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 (iii) 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 shall be proposed. 9 8.3 NOTICE OF CHANGE IN EXERCISE PRICE. The Company shall, promptly after an event requiring a change in the Exercise Price pursuant to Section 6 hereof, send notice to the Holders of such event and change ("Price Notice"). The Price Notice shall describe the event causing the change and the method of calculating same and shall be certified as being true and accurate by the Company's President and Chief Financial Officer. 8.4 TRANSMITTAL OF NOTICES. All notices, requests, consents and other communications under this Purchase Option shall be in writing and shall be deemed to have been duly made when hand delivered, or mailed by express mail or overnight courier service: (i) if to the registered Holder of the Purchase Option, to the address of such Holder as shown on the books of the Company, or (ii) if to the Company, to following address or to such other address as the Company may designate by notice to the Holders: Unity First Acquisition Corp. 245 Fifth Avenue, Suite 1502 New York, New York 10016 Attn: Lawrence Burstein, President 9. MISCELLANEOUS. 9.1 AMENDMENTS. The Company and GKN may from time to time supplement or amend this Purchase Option without the approval of any of the Holders in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and GKN may deem necessary or desirable and which the Company and GKN deem shall not adversely affect the interest of the Holders. All other modifications or amendments shall require the written consent of and be signed by the party against whom enforcement of the modification or amendment is sought. 9.2 HEADINGS. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Purchase Option. 10. ENTIRE AGREEMENT. This Purchase Option (together with the other agreements and documents being delivered pursuant to or in connection with this Purchase Option) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof. 10.1 BINDING EFFECT. This Purchase Option shall inure solely to the benefit of and shall be binding upon, the Holder and the Company and their permitted assignees, respective successors, legal representative and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Purchase Option or any provisions herein contained. 10.2 GOVERNING LAW; SUBMISSION TO JURISDICTION. This Purchase Option shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Purchase Option shall be brought and enforced in the 10 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 hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 8 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company and the Holder agree that the prevailing party(ies) in any such action shall be entitled to recover form the other party(ies) all of its reasonable attorneys' fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. 10.3 WAIVER, ETC. The failure of the Company or the Holder to at any time enforce any of the provisions of this Purchase Option shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Purchase Option or any provision hereof or the right of the Company or any Holder to thereafter enforce each and every provision of this Purchase Option. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Purchase Option shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment. 10.4 EXECUTION IN COUNTERPARTS. This Purchase Option may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. IN WITNESS WHEREOF, the Company has caused this Purchase Option to be signed by its duly authorized officer as of the _____th day of ________, 1996. UNITY FIRST ACQUISITION CORP. By: ____________________________ Lawrence Burstein President 11 Form to be used to exercise Purchase Option: Unity First Acquisition Corp. 245 Fifth Avenue, Suite 1502 New York, New York 10016 Attn: Lawrence Burstein, President Date:_________________, 199_ The undersigned hereby elects irrevocably to exercise the within Purchase Option and to purchase ____ Units of Unity First Acquisition Corp. and hereby makes payment of $____________ (at the rate of $_________ per Unit) in payment of the Exercise Price pursuant thereto. Please issue the Common Stock and Warrants as to which this Purchase Option is exercised in accordance with the instructions given below. OR The undersigned hereby elects irrevocably to convert _________ of the Units purchasable under the within Purchase Option into _________ shares of Common Stock and ________ Warrants of Unity First Acquisition Corp. (based on a "Market Price" of $___________). Please issue the Common Stock and Warrants in accordance with the instructions given below. ______________________________ Signature ______________________________ Print Name INSTRUCTIONS FOR REGISTRATION OF SECURITIES Name _____________________________________________________________ (Print in Block Letters) Address __________________________________________________________ NOTICE: THE SIGNATURE TO THIS FORM MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE WITHIN PURCHASE OPTION IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER. Form to be used to assign Purchase Option: ASSIGNMENT (To be executed by the registered Holder to effect a transfer of the within Purchase Option): FOR VALUE RECEIVED,______________________________________________ does hereby sell, assign and transfer unto ____________________________________ the right to purchase __________ Units of Unity First Acquisition Corp. ("Company") evidenced by the within Purchase Option and does hereby authorize the Company to transfer such right on the books of the Company. Dated: ___________________, 199_ ______________________________ Signature ______________________________ Print Name NOTICE: THE SIGNATURE TO THIS FORM MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE WITHIN PURCHASE OPTION IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER. EX-4.5 6 EXHIBIT 4.5 WARRANT AGREEMENT Agreement made as of ___________, 1996, between Unity First Acquisition Corp., a Delaware corporation, with offices at 245 Fifth Avenue, Suite 1500, New York, New York 10016 ("Company"), and American Stock Transfer & Trust Company, a New York corporation, with offices at 40 Wall Street, New York, New York 10005 (herein called "Warrant Agent"). WHEREAS, the Company has determined to issue and deliver up to (i) 1,437,500 Class A Redeemable Common Stock Purchase Warrants ("Class A Warrants") and 1,437,500 Class B Redeemable Warrants ("Class B Warrants," together with the Class A Warrants, the "Redeemable Warrants"), (ii) 100,000 non-redeemable Class A warrants and 100,000 non-redeemable Class B warrants to the officers and directors ("Directors' Warrants") and (iii) 125,000 redeemable Class A warrants and 125,000 redeemable Class B warrants issued to GKN Securities Corp. ("Underwriter") or its designees ("Underwriter's Warrants," together with the Redeemable Warrants and the Directors' Warrants, "Warrants") evidencing the right of the holders thereof to purchase an aggregate of 3,325,000 shares of common stock of the Company, $.0001 par value per share ("Common Stock"), which Warrants are to be issued and delivered as part of units ("Units") as described in the Company's Registration Statement on Form S-1, No. 333-__________, declared effective __________, 1996 ("Registration Statement"); 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, redemption and exercise of the Warrants; and WHEREAS, the Company desires to provide for the form and provisions of the Warrants, the terms upon which they shall be issued and exercised, and the respective rights, limitation of rights, and immunities of the Company, the Warrant Agent, and the holders of the Warrants; and WHEREAS, all acts and things have been done and performed which are necessary to make the Warrants, when executed on behalf of the Company and countersigned by or on behalf of the Warrant Agent, as provided herein, the valid, binding and legal obligations of the Company, and to authorize the execution and delivery of this Agreement. NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto agree as follows: 1. APPOINTMENT OF WARRANT AGENT. The Company hereby appoints the Warrant Agent to act as agent for the Company for the Warrants, and the Warrant Agent hereby accepts such appointment and agrees to perform the same in accordance with the terms and conditions set forth in this Agreement. 2. WARRANTS. 2.1. FORM OF WARRANT. Each Class A Warrant and Class B Warrant, respectively, shall be issued in registered form only, shall be in substantially the forms of Exhibit A and Exhibit B hereto, shall be signed by, or bear the facsimile signature of, the Chairman of the Board or President and Secretary or Assistant Secretary of the Company and shall bear a facsimile of the Company's seal. In the event the person whose facsimile signature has been placed upon any Warrant shall have ceased to serve in the capacity in which such person signed the Warrant before such Warrant is issued, it may be issued with the same effect as if he had not ceased to be such at the date of issuance. No Warrant may be exercised until it has been countersigned by the Warrant Agent as provided in Section 2.3 hereof. 2.2. EFFECT OF COUNTERSIGNATURE. Unless and until countersigned by the Warrant Agent pursuant to this Agreement, a Warrant shall be invalid and of no effect. 2.3. EVENTS FOR COUNTERSIGNATURE. The Warrant Agent shall countersign a Warrant only upon the occurrence of either of the following events: (i) if the Warrant is to be issued in exchange or substitution for one or more previously countersigned Warrants, as hereinafter provided, or (ii) if the Company instructs the Warrant Agent to do so. 2.4. REGISTRATION. 2.4.1. WARRANT REGISTER. The Warrant Agent shall maintain books ("Warrant Register"), for the registration of original issuance and the registration of transfer of the Warrants. Upon the initial issuance of the Warrants, the Warrant Agent shall issue and register the Warrants in the names of the respective holders thereof in such denominations and otherwise in accordance with instructions delivered to the Warrant Agent by the Company. 2.4.2. REGISTERED HOLDER. Prior to due presentment for registration of transfer of any Warrant, the Company and the Warrant Agent may deem and treat the person in whose name such 2 Warrant shall be registered upon the Warrant Register ("registered holder"), as the absolute owner of such Warrant and of each Warrant represented thereby (notwithstanding any notation of ownership or other writing on the Warrant Certificate made by anyone other than the Company or the Warrant Agent), for the purpose of any exercise thereof, and for all other purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary. 2.5. DETACHABILITY OF WARRANTS. The securities comprising the Units will not be separately transferable until the consummation of a Business Combination. "Business Combination" shall have the meaning ascribed to it in the Registration Statement (as defined in Section 2.1.1. hereof). 3. TERMS AND EXERCISE OF REDEEMABLE WARRANTS 3.1. WARRANT PRICE. Each Class A Warrant and Class B Warrant shall, when countersigned by the Warrant Agent, entitle the registered holder thereof, subject to the provisions of such Warrant and of this Warrant Agreement, to purchase from the Company the number of shares of Common Stock stated therein, at the price of $5.50 and $7.50 per whole share, respectively, subject to the adjustments provided in Section 4 hereof. The term "Warrant Price" as used in this Warrant Agreement refers to the price per share at which Common Stock may be purchased at the time a Warrant is exercised. 3.2. DURATION OF WARRANTS. A Warrant may be exercised only during the period ("Exercise Period") commencing on the later of the consummation by the Company of a Business Combination (as defined in the Company's Registration Statement) or _________, 1997, and terminating on the earlier to occur of (i) _________, 2002 or (ii) the date fixed for redemption of such Warrant as provided in Section 6 of this Agreement. Each Warrant not exercised on or before the Expiration Date shall become void, and all rights thereunder and all rights in respect thereof under this Agreement shall cease at the close of business on the Expiration Date. The Company in its sole discretion may extend the duration of the Warrants by delaying the Expiration Date. 3.3. EXERCISE OF WARRANTS. 3.3.1. PAYMENT. A Warrant, when countersigned by the Warrant Agent, may be exercised by the registered holder thereof by surrendering it, at the office of the Warrant Agent, or at the office of its successor as Warrant Agent, in the Borough of Manhattan, City and State of New York, with the subscription form, as set forth in the Warrant and in substantially the forms of Exhibit A and 3 Exhibit B hereto, duly executed, and by paying in full, in lawful money of the United States, in cash, good certified check or good bank draft payable to the order of the Company, the Warrant Price for each full share of Common Stock as to which the Warrant is exercised and any and all applicable taxes due in connection with the exercise of the Warrant, the exchange of the Warrant for the Common Stock, and the issuance of the Common Stock. 3.3.2. ISSUANCE OF CERTIFICATES. As soon as practicable after the exercise of any Warrant, the Company shall issue to the registered holder of such Warrant a certificate or certificates for the number of full shares of Common Stock to which he is entitled, registered in such name or names as may be directed by him, and if such Warrant shall not have been exercised in full, a new countersigned Warrant for the number of shares as to which such Warrant shall not have been exercised. Notwithstanding the foregoing, the Company shall not be obligated to deliver any securities pursuant to the exercise of a Warrant unless a registration statement under the Securities Act of 1933 with respect to the securities is then currently effective. Warrants may not be exercised by, or securities issued to, any registered holder in any state in which such exercise would be unlawful. 3.3.3. VALID ISSUANCE. All shares of Common Stock issued upon the proper exercise of a Warrant in conformity with this Agreement shall be validly issued. 3.3.4. DATE OF ISSUANCE. Each person in whose name any such certificate for shares of Common Stock is issued shall for all purposes be deemed to have become the holder of record of such shares on the date on which the Warrant was surrendered and payment of the Warrant Price was made, irrespective of the date of delivery of such certificate, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open. 3.3.5. WARRANT SOLICITATION FEE. (a) The Company has engaged the Underwriter as the exclusive agent for the solicitation of the exercise of the Warrants. The Company has also agreed to (i) assist the Underwriter with respect to such solicitation, if requested by the Underwriter, and (ii) at the Underwriter's request, provide the Underwriter and direct the Company's transfer and warrant agent to deliver to the Underwriter, at the Company's cost, lists of the record and, to the extent known, beneficial owners of, the Company's Warrants. Accordingly, the Company hereby instructs the Warrant Agent to cooperate 4 with the Underwriter in every respect in connection with the Underwriter's solicitation activities, including but not limited to providing to the Underwriter, at the Company's cost, a list of record and beneficial holders of the Warrants. (b) If, upon the exercise of any Warrant (i) the market price of the Company's Common Stock is greater than the then Warrant Price, (ii) the exercise of the Warrant was solicited by the Underwriter, and (iii) the Warrant was not held in a discretionary account, 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 5% of the Warrant Price to the Underwriter. The Underwriter and the Company may at any time during business hours, examine the records of the Warrant Agent, including its ledger of original Warrants certificates returned to the Warrant Agent upon exercise of Warrants. (c) The provisions of this Section 3.3.5. may not be modified, amended or deleted without the prior written consent of the Underwriter. 3.3.6. DIRECTORS' WARRANTS. In connection with certain services to be performed for the Company, the Company issued, in June 1996, 100,000 Class A warrants and 100,000 Class B warrants which are identical to the Class A Warrants and the Class B Warrants covered by this Agreement except that they are non-redeemable and cannot be transferred or exercised until the consummation of a Business Combination (as such term is defined in the Registration Statement). Notwithstanding anything else to the contrary herein, the Directors' Warrants may only be exercised after the consummation by the Company of a Business Combination. 4. ADJUSTMENTS. 4.1. STOCK DIVIDENDS - SPLIT-UPS. If after the date hereof, and subject to the provisions of Section 4.5 below, the number of outstanding shares of Common Stock is increased by a stock dividend payable in shares of Common Stock or by a split-up of shares of Common Stock or other similar event, then, on the effective day thereof, such stock dividend or split-up, the number of shares issuable on exercise of each Warrant shall be increased in proportion to such increase in outstanding shares and the then applicable Warrant Price shall be correspondingly decreased. 4.2. AGGREGATION OF SHARES. If after the date hereof, and subject to the provisions of Section 4.5, the number of outstanding shares of Common Stock is decreased by a consolidation, combination 5 or reclassification of shares of Common Stock or other similar event, then, after the effective date of such consolidation, combination or reclassification, the number of shares issuable on exercise of each Warrant shall be decreased in proportion to such decrease in outstanding shares and the then applicable Warrant Price shall be correspondingly increased. 4.3. REORGANIZATION, ETC. If after the date hereof any capital reorganization or reclassification of the Common Stock of the Company, or consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation or other similar event shall be effected, then, as a condition of such reorganization, reclassification, consolidation, merger, or sale, lawful and fair provision shall be made whereby the Warrant holders shall thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in the Warrants and in lieu of the shares of Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented thereby, such shares of stock, securities, or assets as may be issued or payable with respect to or in exchange for the number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented by the Warrants, had such reorganization, reclassification, consolidation, merger, or sale not taken place and in such event appropriate provision shall be made with respect to the rights and interests of the Warrant holders to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Warrant Price and of the number of shares purchasable upon the exercise of the Warrants) shall thereafter be applicable, as nearly as may be in relation to any share of stock, securities, or assets thereafter deliverable upon the exercise hereof. The Company shall not effect any such consolidation, merger, or sale unless prior to the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger, or the corporation purchasing such assets, shall assume by written instrument executed and delivered to the Warrant Agent the obligation to deliver to the Warrant holders such shares of stock, securities, or assets as, in accordance with the foregoing provisions, such holders may be entitled to purchase. 4.4. NOTICES OF CHANGES IN WARRANT. Upon every adjustment of the Warrant Price or the number of shares issuable on exercise of a Warrant, the Company shall give written notice thereof to the Warrant Agent, which notice shall state the Warrant Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of a Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Upon the occurrence of any event specified in Sections 4.1., 4.2., or 4.3., then, in 6 any such event, the Company shall give written notice in the manner set forth above of the record date for such dividend, distribution, or subscription rights, or the effective date of such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding up or issuance. Such notice shall also specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution, or subscription rights, or shall be entitled to exchange their Common Stock for stock, securities, or other assets deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding up or issuance. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such event. 4.5. NO FRACTIONAL SHARES. Notwithstanding any provision contained in this Warrant Agreement to the contrary, the Company shall not issue fractional shares upon exercise of Warrants. If, by reason of any adjustment made pursuant to this Section 4, the holder of any Warrant would be entitled, upon the exercise of such Warrant, to receive a fractional interest in a share, the Company shall, upon such exercise, purchase such fractional interest, 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 or Nasdaq SmallCap Market or the OTC Bulletin Board, 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 this 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 this 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 not be an amount determined in such reasonable manner as may be prescribed by the Board of Directors of the Company. 4.6. FORM OF WARRANT. The form of Warrant need not be changed because of any adjustment pursuant to this Section 4, and Warrants issued after such adjustment may state the same Warrant Price and the same number of shares as is stated in the Warrants initially issued pursuant to this Agreement. However, the Company may at any time in its sole discretion make any change in the form of Warrant that the Company may deem appropriate and that does not affect the substance thereof, and any Warrant thereafter issued or countersigned, whether in exchange or substitution for an outstanding Warrant or otherwise, may be in the form as so changed. 7 5. TRANSFER AND EXCHANGE OF WARRANTS. 5.1. REGISTRATION OF TRANSFER. The Warrant Agent shall register the transfer, from time to time, of any outstanding Warrant upon the Warrant Register, upon surrender of such Warrant for transfer, properly endorsed with signatures properly guaranteed and accompanied by appropriate instructions for transfer. Upon any such transfer, a new Warrant representing an equal aggregate number of Warrants shall be issued and the old Warrant shall be cancelled by the Warrant Agent. The Warrant so cancelled shall be delivered by the Warrant Agent to the Company from time to time upon request. 5.2. PROCEDURE FOR SURRENDER OF WARRANTS. Warrants may be surrendered to the Warrant Agent, together with a written request for exchange or transfer, and thereupon the Warrant Agent shall issue in exchange therefor one or more new Warrants as requested by the registered holder of the Warrants so surrendered, representing an equal aggregate number of Warrants; provided, however, that in the event that a Warrant surrendered for transfer bears a restrictive legend, the Warrant Agent shall not cancel such Warrant and issue new Warrants in exchange therefor until the Warrant Agent has received an opinion of counsel for the Company stating that such transfer may be made and indicating whether the new Warrants must also bear a restrictive legend. 5.3. FRACTIONAL WARRANTS. The Warrant Agent shall not be required to effect any registration of transfer or exchange which will result in the issuance of a warrant certificate for a fraction of a warrant. 5.4. SERVICE CHARGES. No service charge shall be made for any exchange or registration of transfer of Warrants. 5.5. WARRANT EXECUTION AND COUNTERSIGNATURE. The Warrant Agent is hereby authorized to countersign and to deliver, in accordance with the terms of this Agreement, the Warrants required to be issued pursuant to the provisions hereof, and the Company, whenever required by the Warrant Agent, will supply the Warrant Agent with Warrants duly executed on behalf of the Company for such purpose. 8 6. REDEMPTION. 6.1. REDEMPTION. Subject to Section 3.3.6 hereof, each of the Class A Warrants and Class B Warrants may be redeemed, at the option of the Company, as a whole and not in part, after they become exercisable and prior to their expiration, at the office of the Warrant Agent, upon the notice referred to in Section 6.2., at the price of $.05 per Warrant ("Redemption Price"), provided that the reported high bid price of the Common Stock if the Common Stock is quoted on the OTC Bulletin Board (or the last sales price of the Common Stock is quoted on the National Association of Securities Dealers Quotation System or principally quoted on a securities exchange) has been at least $8.50 with respect to the Class A Warrants and $10.50 with respect to the Class B Warrants on each of the twenty (20) consecutive trading days ending on the third business day prior to the date on which notice of redemption is given. Notwithstanding the foregoing, the Company may not call the Redeemable Warrants for redemption without the Underwriter's prior written consent. The provisions of this Section 6.1 may not be modified, amended or deleted without the prior written consent of the Underwriter. 6.2. DATE FIXED FOR, AND NOTICE OF, REDEMPTION. In the event the Company shall elect to redeem all or any part of the Redeemable Warrants, the Company shall fix a date for the redemption. Notice of redemption shall be mailed by first class mail, postage prepaid, by the Company not less than 30 days from the date fixed for redemption to the registered holders of the Warrants to be redeemed at their last address as they shall appear on the registration books. Any notice mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the registered holder received such notice. 6.3. EXERCISE AFTER NOTICE OF REDEMPTION. The Redeemable Warrants may be exercised in accordance with Section 3 of this Agreement at any time after notice of redemption shall have been given by the Company pursuant to Section 6.2. hereof and prior to the time and date fixed for redemption. On and after the redemption date, the record holder of the Redeemable Warrants shall have no further rights except to receive, upon surrender of the Redeemable Warrants, the redemption price. 7. OTHER PROVISIONS RELATING TO RIGHTS OF HOLDERS OF WARRANTS. 7.1. NO RIGHTS AS STOCKHOLDER. A Warrant does not entitle the registered holder thereof to any of the rights of a stockholder of the Company, including, without limitation, the right to receive 9 dividends, or other distributions, exercise any preemptive rights to vote or to consent or to receive notice as stockholders in respect of the meetings of stockholders or the election of directors of the Company or any other matter. 7.2. LOST, STOLEN, MUTILATED, OR DESTROYED WARRANTS. If any Warrant is lost, stolen, mutilated, or destroyed, the Company and the Warrant Agent may on such terms as to indemnity or otherwise as they may in their discretion impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination, tenor, and date as the Warrant so lost, stolen, mutilated, or destroyed. Any such new Warrant shall constitute a substitute contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated, or destroyed Warrant shall be at any time enforceable by anyone. 7.3. RESERVATION OF COMMON STOCK. The Company shall at all times reserve and keep available a number of its authorized but unissued shares of Common Stock that will be sufficient to permit the exercise in full of all outstanding Warrants issued pursuant to this Agreement. 7.4. REGISTRATION STATEMENT. The Company has filed with the Securities and Exchange Commission the Registration Statement for the registration, under the Securities Act of 1933, of, among others, the Warrants and the Common Stock issuable upon exercise of the Warrants. 7.5. REGISTRATION OF COMMON STOCK. The Company agrees that prior to the commencement of the Exercise Period, it shall file with the Securities and Exchange Commission a post-effective amendment to the Registration Statement, or a new registration statement, for the registration, under the Securities Act of 1933, of the Common Stock issuable upon exercise of the Warrants. In either case, the Company will use its best efforts to cause the same to become effective and to maintain the effectiveness of such registration statement until the expiration of the Warrants in accordance with the provisions of this Agreement. In connection with the filing of such registration statement, the Company shall disclose in such amendment or new registration statement the warrant solicitation fee payable to the Underwriter. 8. CONCERNING THE WARRANT AGENT AND OTHER MATTERS. 8.1. PAYMENT OF TAXES. The Company will from time to time promptly pay all taxes and charges that may be imposed upon the Company or the Warrant Agent in respect of the issuance or 10 delivery of shares of Common Stock upon the exercise of Warrants, but the Company shall not be obligated to pay any transfer taxes in respect of the Warrants or such shares. 8.2. RESIGNATION, CONSOLIDATION, OR MERGER OF WARRANT AGENT. 8.2.1. APPOINTMENT OF SUCCESSOR WARRANT AGENT. The Warrant Agent, or any successor to it hereafter appointed, may resign its duties and be discharged from all further duties and liabilities hereunder after giving sixty (60) days' notice in writing to the Company. If the office of the Warrant Agent becomes vacant by resignation or incapacity to act or otherwise, the Company shall appoint in writing a successor Warrant Agent in place of the Warrant Agent. If the Company shall fail to make such appointment within a period of 30 days after it has been notified in writing of such resignation or incapacity by the Warrant Agent or by the holder of the Warrant (who shall, with such notice, submit his Warrant for inspection by the Company), then the holder of any Warrant may apply to the Supreme Court of the State of New York for the County of New York for the appointment of a successor Warrant Agent. Any successor Warrant Agent, whether appointed by the Company or by such court, shall be a corporation organized and existing or qualified to do business under the laws of the State of New York, in good standing and having its principal office in the Borough of Manhattan, City and State of New York, and authorized under such laws to exercise corporate trust powers and subject to supervision or examination by federal or state authority. After appointment, any successor Warrant Agent shall be vested with all the authority, powers, rights, immunities, duties, and obligations of its predecessor Warrant Agent with like effect as if originally named as Warrant Agent hereunder, without any further act or deed; but if for any reason it becomes necessary or appropriate, the predecessor Warrant Agent shall execute and deliver, at the expense of the Company, an instrument transferring to such successor Warrant Agent all the authority, powers, and rights of such predecessor Warrant Agent hereunder; and upon request of any successor Warrant Agent the Company shall make, execute, acknowledge, and deliver any and all instruments in writing for more fully and effectually vesting in and confirming to such successor Warrant Agent all such authority, powers, rights, immunities, duties, and obligations. 8.2.2. NOTICE OF SUCCESSOR WARRANT AGENT. In the event a successor Warrant Agent shall be appointed, the Company shall give notice thereof to the predecessor Warrant Agent and the transfer agent for the Common Stock not later than the effective date of any such appointment. 11 8.2.3. MERGER OR CONSOLIDATION OF WARRANT AGENT. Any corporation into which the Warrant Agent may be merged or with which it may be consolidated or any corporation resulting from any merger or consolidation to which the Warrant Agent shall be a party shall be the successor Warrant Agent under this Agreement without any further act. 8.3. FEES AND EXPENSES OF WARRANT AGENT. 8.3.1. REMUNERATION. The Company agrees to pay the Warrant Agent reasonable remuneration for its services as such Warrant Agent hereunder and will reimburse the Warrant Agent upon demand for all expenditures that the Warrant Agent may reasonably incur in the execution of its duties hereunder. 8.3.2. FURTHER ASSURANCES. The Company and the Warrant Agent agree to perform, execute, acknowledge, and deliver or cause to be performed, executed, acknowledged, and delivered all such further and other acts, instruments, and assurances as may reasonably be required by the Warrant Agent or the Company for the carrying out or performing of the provisions of this Agreement. 8.4. LIABILITY OF WARRANT AGENT. 8.4.1. RELIANCE ON COMPANY STATEMENT. Whenever in the performance of its duties under this Warrant Agreement, the Warrant Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a statement signed by the President of the Company and delivered to the Warrant Agent. The Warrant Agent may rely upon such statement for any action taken or suffered in good faith by it pursuant to the provisions of this Agreement. 8.4.2. INDEMNITY. The Warrant Agent shall be liable hereunder only for its own negligence or willful misconduct or any actions taken in bad faith. The Company agrees to indemnify the Warrant Agent and save it harmless against any and all liabilities, including judgments, costs and reasonable counsel fees, for anything done or omitted by the Warrant Agent in the execution of this Agreement except as a result of the Warrant Agent's negligence, willful misconduct, or bad faith. 12 8.4.3. EXCLUSIONS. The Warrant Agent shall have no responsibility with respect to the validity of this Agreement or with respect to the validity or execution of any Warrant (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Warrant; nor shall it be responsible to make any adjustments required under the provisions of Section 4. hereof or responsible for the manner, method, or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment; nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common Stock to be issued pursuant to this Agreement or any Warrant or as to whether any shares of Common Stock will when issued be valid and fully paid and nonassessable. 8.5. ACCEPTANCE OF AGENCY. The Warrant Agent hereby accepts the agency established by this Agreement and agrees to perform the same upon the terms and conditions herein set forth and among other things, shall account promptly to the Company with respect to Warrants exercised and concurrently account for, and pay to the Company, all moneys received by the Warrant Agent for the purchase of shares of the Company's Common Stock through the exercise of Warrants. 9. MISCELLANEOUS PROVISIONS. 9.1. SUCCESSORS. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Warrant Agent shall bind and inure to the benefit of their respective successors and assigns. 9.2. NOTICES. Any notice, statement or demand authorized by this Warrant Agreement to be given or made by the Warrant Agent or by the holder of any Warrant to or by the Company shall be sufficiently given or made if sent by certified mail, or private courier service, postage prepaid, addressed (until another address is filed in writing by the Company with the Warrant Agent), as follows: Unity First Acquisition Corp. 245 Fifth Avenue, Suite 1500 New York, New York 10016 Attn: Lawrence Burstein, President 13 with a copy to: Parker Duryee Rosoff & Haft 529 Fifth Avenue New York, New York 10017 Attn: Ira I. Roxland, Esq. - and - Graubard Mollen & Miller 600 Third Avenue New York, New York 10016 Attn: David Alan Miller, Esq. Any notice, statement or demand authorized by this Agreement to be given or made by the holder of any Warrant or by the Company to or on the Warrant Agent shall be sufficiently given or made if sent by certified mail or private courier service, postage prepaid, addressed (until another address is filed in writing by the Warrant Agent with the Company), as follows: American Stock Transfer & Trust Company 40 Wall Street New York, New York 10006 Attn: Compliance Department 9.3. APPLICABLE LAW. The validity, interpretation, and performance of this Agreement and of the Warrants shall be governed in all respects by the laws of the State of New York, without giving effect to conflict of laws. Each of the Company and the Warrant Agent hereby agrees that any action, proceeding or claim against it arising out of, relating in any way to this Agreement shall be brought and enforced in the courts of the State of New York of the United States of America for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. Each of the Company and the Warrant Agent hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any such process or summons to be served upon the Company or the Warrant Agent 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 9.2 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon each of the Company and the Warrant Agent in any action, proceeding or claim. Each of the Company and the Warrant Agent agrees that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys' fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. 14 9.4. PERSONS HAVING RIGHTS UNDER THIS AGREEMENT. Nothing in this Agreement expressed and nothing that may be implied from any of the provisions hereof is intended, or shall be construed, to confer upon, or give to, any person or corporation other than the parties hereto and the registered holders of the Warrants and, for the purposes of Sections 3.3.5 and 6.1 hereof, the Underwriter, any right, remedy, or claim under or by reason of this Warrant Agreement or of any covenant, condition, stipulation, promise, or agreement hereof. All covenants, conditions, stipulations, promises, and agreements contained in this Warrant Agreement shall be for the sole and exclusive benefit of the parties hereto and their successors and assigns and of the registered holders of the Warrants. The parties hereto agree that the Underwriter is intended to be a third-party beneficiary with respect to Sections 3.3.5 and 6.1, with all legal rights and remedies available to it as fully as if it were a party hereto. 9.5. EXAMINATION OF THE WARRANT AGREEMENT. A copy of this Agreement shall be available at all reasonable times at the office of the Warrant Agent in the Borough of Manhattan, City and State of New York, for inspection by the registered holder of any Warrant. The Warrant Agent may require any such holder to submit his Warrant for inspection by it. 9.6. 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 all such counterparts shall together constitute but one and the same instrument. 9.7. EFFECT OF HEADINGS. The Section headings herein are for convenience only and are not part of this Warrant Agreement and shall not affect the interpretation thereof. 15 IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto under their respective corporate seals as of the day and year first above written. Attest: UNITY FIRST ACQUISITION CORP. By: - ---------------------- --------------------------- Lawrence Burstein President Corporate Seal AMERICAN STOCK TRANSFER & Attest: TRUST COMPANY By: - ----------------------- -------------------------- George Karfunkel Executive Vice President 16 EX-10.1 7 EXHIBIT 10.1 UNITY FIRST ACQUISITION CORP. 1996 STOCK OPTION PLAN 1. PURPOSE. The purpose of the Unity First Acquisition Corp. 1996 Stock Option Plan (the "Plan") is to encourage key employees of Unity First Acquisition Corp. (the "Company") and of any present or future parent or subsidiary of the Company (collectively, "Related Corporations") and other individuals who render services to the Company or a Related Corporation, by providing opportunities to participate in the ownership of the Company and its future growth through (a) the grant of options which qualify as "incentive stock options" ("ISOs") under Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"); and (b) the grant of options which do not qualify as ISOs ("Non-Qualified Options"). Both ISOs and Non-Qualified Options are referred to hereafter individually as an "Option" and collectively as "Options." As used herein, the terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary corporation," respectively, as those terms are defined in Section 424 of the Code. 2. ADMINISTRATION OF THE PLAN. (a) BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be administered by the Board of Directors of the Company (the "Board") or by a committee appointed by the Board (the "Committee"); provided that the Plan shall be administered: (i) to the extent required by applicable regulations under Section 162(m) of the Code, by two or more "outside directors" (as defined in applicable regulations thereunder) and (ii) to the extent required by Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, or any successor provision ("Rule 16b-3"), by a disinte-rested administrator or administrators within the meaning of Rule 16b-3. All references in this Plan to the "Committee" shall mean the Board if no Committee has been appointed. Subject to ratification of the grant or authorization of each Option by the Board (if so required by applicable state law), and subject to the terms of the Plan, the Committee shall have the authority to (i) determine to whom (from among the class of employees eligible under paragraph 3 to receive ISOs) ISOs shall be granted, and to whom (from among the class of individuals and entities eligible under paragraph 3 to receive Non-Qualified Options) Non-Qualified Options may be granted; (ii) determine the time or times at which Options shall be granted; (iii) determine the purchase price of shares subject to each Option, which prices shall not be less than the minimum price specified in paragraph 6; (iv) determine whether each Option granted shall be an ISO or a Non-Qualified Option; (v) determine (subject to paragraph 7) the time or times when each Option shall become exercisable and the duration of the exercise period; (vi) extend the period during which outstanding Options may be exercised; (vii) determine whether restrictions are to be imposed on shares subject to Options and the nature of such restrictions, if any, and (viii) interpret the Plan and prescribe and rescind rules and regulations relating to it. If the Committee determines to issue a Non-Qualified Option, it shall take whatever actions it deems necessary, under Section 422 of the Code and the regulations promulgated thereunder, to ensure that such Option is not treated as an ISO. The interpretation and construction by the Committee of any provisions of the Plan or of any Option granted under it shall be final unless otherwise determined by the Board. The Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may deem advisable. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted under it. (b) COMMITTEE ACTIONS. The Committee may select one of its members as its chairman, and shall hold meetings at such time and places as it may determine. A majority of the Committee shall constitute a quorum and acts of a majority of the members of the Committee at a meeting at which a quorum is present, or acts reduced to or approved in writing by all the members of the Committee (if consistent with applicable state law), shall be the valid acts of the Committee. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused, or remove all members of the Committee and thereafter directly administer the Plan. (c) GRANT OF OPTIONS TO BOARD MEMBERS. Subject to the provisions of the first sentence of paragraph 2(a) above, if applicable, Options may be granted to members of the Board. All grants of Options to members of the Board shall in all other respects be made in accordance with the provisions of this Plan applicable to other eligible persons. Consistent with the provisions of the first sentence of Paragraph 2(a) above, members of the Board who either (i) are eligible to receive grants of Options pursuant to the Plan or (ii) have been granted Options may vote on any matters affecting the administration of the Plan or the grant of any Options pursuant to the Plan, except that no such member shall act upon the granting to himself or herself of Options, but any such member may be counted in determining the existence of a quorum at any meeting of the Board during which action is taken with respect to the granting to such member of Options. (d) EXCULPATION. No member of the Board shall be personally liable for monetary damages for any action taken or any failure to take any action in connection with the administration of 2 the Plan or the granting of Options under the Plan, provided that this subparagraph 3(c) shall apply to (i) any breach of such member's duty of loyalty to the Company or its stockholders, (ii) acts or omissions not in good faith or involving intentional misconduct or a knowing violation of law, (iii) acts or omissions that would result in liability under Section 174 of the General Corporation Law of the State of Delaware, as amended, and (iv) any transaction from which the member derived an improper personal benefit. (e) INDEMNIFICATION. Service on the Committee shall constitute service as a member of the Board. Each member of the Committee shall be entitled without further act on his or her part to indemnity from the Company to the fullest extent provided by applicable law and the Company's Certificate of Incorporation and/or By-laws in connection with or arising out of any action, suit or proceeding with respect to the administration of the Plan or the granting of Options thereunder in which he or she may be involved by reason of his or her being or having been a member of the Committee, whether or not he or she continues to be a member of the Committee at the time of the action, suit or proceeding. 3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted only to employees of the Company or any Related Corporation. Non-Qualified Options may be granted to any employee, officer or director (whether or not also an employee) or consultant of the Company or any Related Corporation. The Committee may take into consideration a recipient's individual circumstances in determining whether to grant an Option. The granting of any Option to any individual or entity shall neither entitle that individual or entity to, nor disqualify such individual or entity from, participation in any other grant of Options. 4. STOCK. The stock subject to Options shall be authorized but unissued shares of Common Stock of the Company, par value $.0001 per share (the "Common Stock"), or shares of Common Stock reacquired by the Company in any manner. The aggregate number of shares which may be issued pursuant to the Plan is 187,500, subject to adjustment as provided in paragraph 13. If 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 shares of Common Stock subject to such Option shall again be available for grants of Options under the Plan. 5. GRANTING OF OPTIONS. Options may be granted under the Plan at any time on or after May 30, 1996 and prior to May 30, 2006. The date of grant of an Option under the Plan will be the date specified by the Committee at the time it grants the Option; provided, however, that such date shall not be prior to the date on 3 which the Committee acts to approve the grant. Options granted under the Plan are intended to qualify as performance based compensation to the extent required under proposed Treasury Regulation Section 1.162-27. 6. MINIMUM OPTION PRICE; ISO LIMITATIONS. (a) PRICE FOR NON-QUALIFIED OPTIONS. The exercise price per share specified in the agreement relating to each Non-Qualified Option granted under the Plan shall in no event be less than the minimum legal consideration required therefor under the laws of any jurisdiction in which the Company or its successors in interest may be organized. Non-Qualified Options granted under the Plan, with an exercise price less than the fair market value per share of Common Stock on the date of grant, are intended to qualify as performancebased compensation under Section 162(m) of the Code and any applicable regulations thereunder. Any such Non-Qualified Options granted under the Plan shall be exercisable only upon the attainment of a preestablished, objective performance goal established by the Committee. (b) PRICE FOR ISOS. The exercise price per share specified in the agreement relating to each ISO granted under the Plan shall not be less than the fair market value per share of Common Stock on the date of such grant. In the case of an ISO to be granted to an employee owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Related Corporation, the price per share specified in the agreement relating to such ISO shall not be less than one hundred ten percent (110%) of the fair market value per share of Common Stock on the date of grant. For purposes of determining stock ownership under this paragraph, the rules of Section 424(d) of the Code shall apply. (c) $100,000 ANNUAL LIMITATION ON ISO VESTING. Each eligible employee may be granted Options treated as ISOs only to the extent that, in the aggregate under this Plan and all incentive stock option plans of the Company and any Related Corporation, ISOs do not become exercisable for the first time by such employee during any calendar year with respect to stock having a fair market value (determined at the time the ISOs were granted) in excess of $1 00,000. The Company intends to designate any Options granted in excess of such limitation as Non-Qualified Options. (d) DETERMINATION OF FAIR MARKET VALUE. If, at the time an Option is granted under the Plan, the Company's Common Stock is publicly traded, "fair market value" shall be determined as of the date of grant or, if the prices or quotes discussed in this sentence are unavailable for such date, the last business day for which such prices or quotes are available prior to the date of grant and shall mean (i) the average (on that date) of the high and 4 low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Common Stock on the Nasdaq National Market, if the Common Stock is not then traded on a national securities exchange; or (iii) the closing bid price (or average of bid prices) last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not reported on the Nasdaq National Market. If the Common Stock is not publicly traded at the time an Option is granted under the Plan, "fair market value" shall mean the fair value of the Common Stock as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm's length. 7. OPTION DURATION. Subject to earlier termination as provided in paragraphs 9 and 10 or in the agreement relating to such Option, each Option shall expire on the date specified by the Committee, but not more than (i) ten years from the date of grant in the case of Options generally and (ii) five years from the date of grant in the case of ISOs granted to an employee owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Related Corporation, as determined under paragraph 6(b). Subject to earlier termination as provided in paragraphs 9 and 10, the term of each ISO shall be the term set forth in the original instrument granting such ISO, except with respect to any part of such ISO that is converted into a Non-Qualified Option pursuant to paragraph 16. 8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9 through 12, each Option granted under the Plan shall be exercisable as follows: (a) VESTING. The Option shall either be fully exercisable on the date of grant or shall become exercisable thereafter in such installments as the Committee may specify. (b) FULL VESTING OF INSTALLMENTS. Once an installment becomes exercisable, it shall remain exercisable until expiration or termination of the Option, unless otherwise specified by the Committee. (c) PARTIAL EXERCISE. Each Option or installment may be exercised at any time or from time to time, in whole or in part, for up to the total number of shares with respect to which it is then exercisable. (d) ACCELERATION OF VESTING. The Committee shall have the right to accelerate the date that any installment of any Option 5 becomes exercisable; provided that the Committee shall not, without the consent of an optionee, accelerate the permitted exercise date of any installment of any Option granted to any employee as an ISO (and not previously converted into a Non-Qualified Option pursuant to paragraph 16) if such acceleration would violate the annual vesting limitation contained in Section 422(d) of the Code, as described in paragraph 6(c). 9. TERMINATION OF EMPLOYMENT. Unless otherwise specified in the agreement relating to such ISO, if an ISO optionee ceases to be employed by the Company and all Related Corporations other than by reason of death or disability or as otherwise specified in paragraph 10, no further installments of his or her ISOs shall become exercisable, and his or her ISOs shall terminate on the earlier of (a) ninety (90) days after the date of termination of his or her employment, or (b) their specified expiration dates, except to the extent that such ISOs (or unexercised installments thereof) have been converted into Non-Qualified Options pursuant to paragraph 16. For purposes of this paragraph 9, employment shall be considered as continuing uninterrupted during any BONA FIDE leave of absence (such as those attributable to illness, military obligations or governmental service) provided that the period of such leave does not exceed 90 days or, if longer, any period during which such optionee's right to reemployment is guaranteed by statute. A BONA FIDE leave of absence with the written approval of the Committee shall not be considered an interruption of employment under this paragraph 9, provided that such written approval contractually obligates the Company or any Related Corporation to continue the employment of the optionee after the approved period of absence. ISOs granted under the Plan shall not be affected by any change of employment within or among the Company and Related Corporations, so long as the optionee continues to be an employee of the Company or any Related Corporation. Nothing in the Plan shall be deemed to give any grantee of any Option the right to be retained in employment or other service by the Company or any Related Corporation for any period of time. 10. DEATH; DISABILITY; BREACH. (a) DEATH. If an ISO optionee ceases to be employed by the Company and all Related Corporations by reason of his or her death, any ISO owned by such optionee may be exercised, to the extent otherwise exercisable on the date of death, by the estate, personal representative or beneficiary who has acquired the ISO by will or by the laws of descent and distribution, until the earlier of (i) the specified expiration date of the ISO or (ii) one (1) year from the date of the optionee's death. (b) DISABILITY. If an ISO optionee ceases to be employed by the Company and all Related Corporations by reason of his or her 6 disability, such optionee shall have the right to exercise any ISO held by him or her on the date of termination of employment, for the number of shares for which he or she could have exercised it on that date, until the earlier of (i) the specified expiration date of the ISO or (ii) one (1) year from the date of the termination of the optionee's employment. For the purposes of the Plan, the term "disability" shall mean "permanent and total disability" as defined in Section 22(e)(3) of the Code or any successor statute. (c) BREACH. If an ISO optionee ceases to be employed by the Company and all Related Corporation by reason of a finding by the Committee, after full consideration of the facts presented on behalf of both the Company and the Optionee, that the ISO optionee has breached his or her employment or service contract with the Company or any Related Corporation, or has been engaged in disloyalty to the Company or any Related Corporation, then, in such event, in addition to immediate termination of the Option, the ISO optionee shall automatically forfeit all shares for which the Company has not yet delivered share certificates upon refund by the Company of the exercise price of such Option. Notwithstanding anything herein to the contrary, the Company may withhold delivery of share certificates pending the resolution of any inquiry that could lead to a finding resulting in a forfeiture. 11. ASSIGNABILITY. No Option shall be assignable or transferable by the grantee except by will, by the laws of descent and distribution or, in the case of Non-Qualified Options only, pursuant to a valid domestic relations order. Except as set forth in the previous sentence, during the lifetime of a grantee each Option shall be exercisable only by such grantee. 12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by instruments (which need not be identical) in such forms as the Committee may from time to time approve. Such instruments shall conform to the terms and conditions set forth in paragraphs 6 through 11 hereof and may contain such other provisions as the Committee deems advisable which are not inconsistent with the Plan, including restrictions applicable to shares of Common Stock issuable upon exercise of Options. The Committee may specify that any Non-Qualified Option shall be subject to the restrictions set forth herein with respect to ISOs, or to such other termination and cancellation provisions as the Committee may determine. The Committee may from time to time confer authority and responsibility on one or more of its own members and/or one or more officers of the Company to execute and deliver such instruments. The proper officers of the Company are authorized and directed to take any and all action necessary or advisable from time to time to carry out the terms of such instruments. 7 13. ADJUSTMENTS. Upon the occurrence of any of the following events, an optionee's rights with respect to Options granted to such optionee hereunder shall be adjusted as hereinafter provided, unless otherwise specifically provided in the written agreement between the optionee and the Company relating to such Option: (a) STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the number of shares of Common Stock deliverable upon the exercise of Options shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or stock dividend. (b) CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated with or acquired by another entity in a merger, sale of all or substantially all of the Company's assets or otherwise (an "Acquisition"), the Committee or the board of directors of any entity assuming the obligations of the Company hereunder (the "Successor Board"), shall, as to outstanding Options, either (i) make appropriate provision for the continuation of such Options by substituting on an equitable basis for the shares then subject to such Options either (A) the consideration payable with respect to the outstanding shares of Common Stock in connection with the Acquisition, (B) shares of stock of the surviving corporation or (C) such other securities as the Successor Board deems appropriate, the fair market value of which shall approximate the fair market value of the shares of Common Stock subject to such Options immediately preceding the Acquisition; or (ii) upon written notice to the optionees, provide that all Options must be exercised, to the extent then exercisable, within a specified number of days of the date of such notice, at the end of which period the Options shall terminate; or (iii) terminate all Options in exchange for a cash payment equal to the excess of the fair market value of the shares subject to such Options (to the extent then exercisable) over the exercise price thereof. (c) RECAPITALIZATION OR REORGANIZATION. In the event of a recapitalization or reorganization of the Company (other than a transaction described in subparagraph (c) above) pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, an optionee upon exercising an Option shall be entitled to receive for the purchase price paid upon such exercise the securities he or she would have received if he or she had exercised such Option prior to such recapitalization or reorganization. (d) MODIFICATION OF ISOS. Notwithstanding the foregoing, any adjustments made pursuant to subparagraphs (a), (b) or (c) with respect to ISOs shall be made only after the Committee, after 8 consulting with counsel for the Company, determines whether such adjustments would constitute a "modification" of such ISOs (as that term is defined in Section 424 of the Code) or would cause any adverse tax consequences for the holders of such ISOs. If the Committee determines that such adjustments made with respect to ISOs would constitute a modification of such ISOs or would cause adverse tax consequences to the holders, it may refrain from making such adjustments. (e) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, each Option will terminate immediately prior to the consummation of such proposed action or at such other time and subject to such other conditions as shall be determined by the Committee. (f) ISSUANCES OF SECURITIES. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to Options. No adjustments shall be made for dividends paid in cash or in property other than securities of the Company. (g) FRACTIONAL SHARES. No fractional shares shall be issued under the Plan and the optionee shall receive from the Company cash in lieu of such fractional shares. (h) ADJUSTMENTS. Upon the happening of any of the events described in subparagraphs (a), (b) or (c) above, the class and aggregate number of shares set forth in paragraph 4 hereof that are subject to Options which previously have been or subsequently may be granted under the Plan shall also be appropriately adjusted to reflect the events described in such subparagraphs. The Committee or the Successor Board shall determine the specific adjustments to be made under this paragraph 13 and, subject to paragraph 2, its determination shall be conclusive. 14. MEANS OF EXERCISING OPTIONS. An Option (or any part or installment thereof) shall be exercised by giving written notice to the Company at its principal office address, or to such transfer agent as the Company shall designate. Such notice shall identify the Option being exercised and specify the number of shares as to which such Option is being exercised, accompanied by full payment of the purchase price therefor either (a) in United States dollars in cash or by check, (b) at the discretion of the Committee, through delivery of shares of Common Stock having a fair market value equal as of the date of the exercise to the cash exercise price of the Option, (c) at the discretion of the Committee, by delivery of the grantee's personal recourse note bearing interest payable not less than annually at no less than 100% of the lowest applicable Federal rate, as defined in Section 1274(d) of the Code, 9 (d) at the discretion of the Committee and consistent with applicable law, through the delivery of an assignment to the Company of a sufficient amount of the proceeds from the sale of the Common Stock acquired upon exercise of the Option and an authorization to the broker or selling agent to pay that amount to the Company, which sale shall be at the participant's direction at the time of exercise, or (e) at the discretion of the Committee, by any combination of (a), (b), (c) and (d) above. If the Committee exercises its discretion to permit payment of the exercise price of an ISO by means of the methods set forth in clauses (b), (c), (d) or (e) of the preceding sentence, such discretion shall be exercised in writing at the time of the grant of the ISO in question. The holder of an Option shall not have the rights of a shareholder with respect to the shares covered by such Option until the date of issuance of a stock certificate to such holder for such shares. Except as expressly provided above in paragraph 13 with respect to changes in capitalization and stock dividends, no adjustment shall be made for dividends or similar rights for which the record date is before the date such stock certificate is issued. 15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on May 30, 1996, subject, with respect to the validation of ISOs granted under the Plan, to approval of the Plan by the stockholders of the Company at the next Meeting of Stockholders or, in lieu thereof, by written consent. If the approval of stockholders is not obtained on or prior to May 30, 1997, any grants of ISOs under the Plan made prior to that date will be rescinded. The Plan shall expire at the end of the day on May 30, 2006 (except as to Options outstanding on that date). Subject to the provisions of paragraph 5 above, Options may be granted under the Plan prior to the date of stockholder approval of the Plan. The Board may terminate or amend the Plan in any respect at any time, except that, without the approval of the stockholders obtained within 12 months before or after the Board adopts a resolution authorizing any of the following actions: (a) the total number of shares that may be issued under the Plan may not be increased (except by adjustment pursuant to paragraph 13); (b) the benefits accruing to participants under the Plan may not be materially increased; (c) the requirements as to eligibility for participation in the Plan may not be materially modified; (d) the provisions of paragraph 3 regarding eligibility for grants of ISOs may not be modified; (e) the provisions of paragraph 6(b) regarding the exercise price at which shares may be offered pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph 13); (f) the expiration date of the Plan may not be extended; and (g) the Board may not take any action which would cause the Plan to fail to comply with Rule 16b-3. Except as otherwise provided in this paragraph 15, in no event may action of the Board or stockholders alter or impair the rights of a grantee, without such grantee's consent, under any Option previously granted to such 10 grantee. 16. APPLICATION OF FUNDS. The proceeds received by the Company from the sale of shares pursuant to Options granted and Purchases authorized under the Plan shall be used for general corporate purposes. 17. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By accepting an ISO granted under the Plan, each optionee agrees to notify the Company in writing immediately after such optionee makes a Disqualifying Disposition (as described in Sections 421, 422 and 424 of the Code and regulations thereunder) of any stock acquired pursuant to the exercise of ISOs granted under the Plan. A Disqualifying Disposition is generally any disposition occurring on or before the later of (a) the date two years following the date the ISO was granted or (b) the date one year following the date the ISO was exercised. 18. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a Non- Qualified Option, the grant of an Award, the making of a Purchase of Common Stock for less than its fair market value, the making of a Disqualifying Disposition (as defined in paragraph 18), the vesting or transfer of restricted stock or securities acquired on the exercise of an Option hereunder, or the making of a distribution or other payment with respect to such stock or securities, the Company may withhold taxes in respect of amounts that constitute compensation includible in gross income. The Committee in its discretion may condition (i) the exercise of an Option, (ii) the grant of an Award, (iii) the making of a Purchase of Common Stock for less than its fair market value, or (iv) the vesting or transferability of restricted stock or securities acquired by exercising an Option, on the grantee's making satisfactory arrangement for such withholding. Such arrangement may include payment by the grantee in cash or by check of the amount of the withholding taxes or, at the discretion of the Committee, by the grantee's delivery of previously held shares of Common Stock or the withholding from the shares of Common Stock otherwise deliverable upon exercise of a Option shares having an aggregate fair market value equal to the amount of such withholding taxes. 19. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver shares of the Common Stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares. Government regulations may impose reporting or other obligations on the Company with respect to the Plan. For example, 11 the Company may be required to send tax information statements to employees and former employees that exercise ISOs under the Plan, and the Company may be required to file tax information returns reporting the income received by grantees of Options in connection with the Plan. 20. GOVERNING LAW. The validity and construction of the Plan and the instruments evidencing Options shall be governed by the laws of Delaware. 12 EX-10.4 8 EXHIBIT 10.4 ESCROW AGREEMENT dated as of the day of , 1996 (the "Agreement") by and among UNITY FIRST ACQUISITION CORP., a Delaware corporation (the "Company"), LAWRENCE BURSTEIN, NORMAN LEBEN, JOHN CATTIER, CRICKET SERVICES, LTD., BARRY RIDINGS and UNITY VENTURE CAPITAL ASSOCIATES LTD. (collectively, the "Company Principals") and AMERICAN STOCK TRANSFER & TRUST COMPANY, a New York limited purpose trust company (the "Escrow Agent"). ----------------------------- The Company has entered into an Underwriting Agreement dated , 1996 (the "Underwriting Agreement") with GKN Securities Corp. (the "Underwriter"), pursuant to which, among other matters, the Underwriter has agreed to purchase from the Company up to an aggregate of 1,437,500 units, including 187,500 units subject to the Underwriters' over-allotment option (the "Units"), each Unit to consist of (i) one (1) share of the Company's Common Stock, par value $.0001 per share, (ii) one (1) Class A Redeemable Common Stock Purchase Warrant and (iii) one (1) Class B Redeemable Common Stock Purchase Warrant, all as more fully described in the Company's definitive Prospectus dated , 1996 comprising part of the Company's Registration Statement on Form S-1 under the Securities Act of 1933, as amended (File No. 33- ), declared effective on , 1996 (the "Prospectus"). The Company Principals have agreed as a condition of the consummation of the sale of the Units to deposit their shares of Common Stock of the Company, as set forth opposite their respective names in Exhibit A attached hereto (collectively the "Escrow Shares"), in escrow as hereinafter provided. The Company and the Company Principals desire that the Escrow Agent accept the Escrow Shares, in escrow, to be held and disbursed as hereinafter provided. NOW, THEREFORE, in consideration of the premises and mutual covenants hereinafter set forth, the parties hereto agree as follows: 1. APPOINTMENT OF ESCROW AGENT. The Company and the Company Principals hereby appoint the Escrow Agent to act in accordance with and subject to the terms of this Agreement, and the Escrow Agent hereby accepts such appointment and agrees to act in accordance with and subject to such terms. 2. DEPOSIT OF ESCROW SHARES. On or before the Closing Date of the sale of the Units (as defined in the Underwriting Agreement), each of the Company Principals shall deliver to the Escrow Agent certificates, either endorsed in blank or accompanied by stock powers endorsed in blank, in either instance with signatures guaranteed by a commercial bank or a member of the New York Stock Exchange, Inc. representing his respective Escrow Shares, to be held and disbursed subject to the terms and condi- tions of this Agreement. 3. DISBURSEMENT OF THE ESCROW ACCOUNT. Upon the earlier of (i) written notification from the Company to the Escrow Agent of the occurrence of a Business Combination (as such term is defined in the Prospectus) or (ii) the liquidation of the Company, the Escrow Agent shall disburse the Escrow Shares to the Company Principals in accordance with their respective interests therein as set forth upon the aforementioned Exhibit A, whereupon the Escrow Agent shall be released form further liability hereunder. 4. RIGHTS OF COMPANY PRINCIPALS IN ESCROW SHARES. The Company Principals shall retain all of their rights as stockholders of the Company during such period as the Escrow Shares shall be retained by the Escrow Agent pursuant to this Agreement including, without limitation, the right to vote such shares and to receive cash dividends payable thereon, if any. No sale, transfer or other disposition may be made of any or all of such shares, except by gift to a member of Company Principal's immediate family; by transfer to a trust, IRA or 401(k) plan, as defined under ERISA, whereby the beneficiary is the Company Principal or a member of Company Principal's immediate family; by virtue of the laws of descent and distribution upon death of any Company Principal; or pursuant to a qualified domestic relations order; PROVIDED, HOWEVER, that such permissive transfers may be implemented only upon the respective transferees' written agreement to be likewise bound by the terms and conditions of this Agreement. 5. CONCERNING THE ESCROW AGENT. 5.1 The Escrow Agent shall not be liable for any action taken or omitted by it, or any action suffered by it to be taken or omitted, in good faith and in the exercise of its own best judgment, and may rely conclusively and shall be protected in acting upon any order, notice, demand, certificate, opinion or advice of counsel (including counsel chosen by the Escrow Agent), statement, instrument, report or other paper or document (not only as to its due execution and the validity and effectiveness of its provisions, but also as to the truth and acceptability of any information therein contained) which is believed by the Escrow Agent to be genuine and to be signed or presented by the proper 2 person or persons. The Escrow Agent shall not be bound by any notice or demand, or any waiver, modification, termination or rescission of this Agreement unless evidenced by a writing delivered to the Escrow Agent signed by the proper party or parties and, if the duties or rights of the Escrow Agent are affected, unless it shall have given its prior written consent thereto. 5.2 The Escrow Agent shall not be responsible for the sufficiency or accuracy, the form of, or the execution, validity, value or genuineness of, any document or property received, held or delivered by it hereunder, or of any signature or endorsement thereon, or for any lack of endorsement thereon, or for any description therein, nor shall the Escrow Agent be responsible or liable in any respect on account of the identity, authority or rights of the persons executing or delivering or purporting to execute or deliver any document or property paid or delivered by the Escrow Agent pursuant to the provisions hereof. The Escrow Agent shall not be liable for any loss which may be incurred by reason of any investment of any monies or properties which it holds hereunder. 5.3 The Escrow Agent shall have the right to assume in the absence of written notice to the contrary from the proper person or persons that a fact or an event by reason of which an action would or might be taken by the Escrow Agent does not exist or has not occurred, without incurring liability for any action taken or omitted, in good faith and in the exercise of its own best judgment, in reliance upon such assumption. 5.4 The Escrow Agent shall be indemnified and held harmless by the Company and the Company Principals, jointly and severally, from and against any expenses, including counsel fees and disbursements, or loss suffered by the Escrow Agent in connection with any action, suit or other proceeding involving any claim, or in connection with any claim or demand, which in any way directly or indirectly, arises out of or relates to this Agreement, the services of the Escrow Agent hereunder, the monies or other property held by it hereunder or any such expense or loss. Promptly after the receipt by the Escrow Agent of notice of any demand or claim or the commencement of any action, suit or proceeding, the Escrow Agent shall, if a claim in respect thereof shall be made against the other parties hereto, notify such parties thereof in writing; but the failure by the Escrow Agent to give such notice shall not relieve any party from any liability which such party may have to the Escrow Agent hereunder. In the event of the receipt of such notice, the Escrow Agent, in its sole discre- tion, may commence an action in the nature of interpleader in an appropriate court to determine ownership or disposition of the Escrow Shares or it may deposit the Escrow Shares with the clerk of any appropriate court or it may retain the Escrow Shares pending receipt of a final, non-appealable order of a court having jurisdiction over all of the parties hereto directing to whom and 3 under what circumstances the Escrow Shares are to be disbursed and delivered. 5.5 Notwithstanding any obligation to make payments and deliveries hereunder, the Escrow Agent may retain and hold for such time as it deems necessary such amount of monies or property as it shall from time to time in its sole discretion deem sufficient to indemnify itself for any loss or expense or for any amounts due it. For the purposes hereof, the term "expense or loss" shall include all amounts paid or payable to satisfy any claim, demand or liability, or in settlement of any claim, demand, action, suit or proceeding settled with the express written consent of the Escrow Agent, and all costs and expenses, including but not limited to, counsel fees and disbursements paid or incurred in investigating or defending any such claim, demand, action, suit or proceeding. 5.6 The Escrow Agent shall be entitled to reasonable compensation from the Company for all services rendered by it hereunder. The Escrow Agent shall also be entitled to reimburse- ment from the Company for all expenses paid or incurred by it in the administration of its duties hereunder including, but not limited to, all counsel, advisors' and agents' fees and disburse- ments and all taxes or other governmental charges. 5.7 From time to time on and after the date hereof, the Company and the Company Principals shall deliver or cause to be delivered to the Escrow Agent such further documents and instru- ments and shall do or cause to be done such further acts as the Escrow Agent shall reasonably request (it being understood that the Escrow Agent shall have no obligation to make such request) to carry out more effectively the provisions and purposes of this Agreement, to evidence compliance herewith or to assure itself that it is protected in acting hereunder. 5.8 The Escrow Agent may resign at any time and be discharged from its duties as escrow agent hereunder by its giving the other parties hereto at least thirty (30) days prior written notice thereof. As soon as practicable after its resignation, the Escrow Agent shall turn over to a successor escrow agent appointed by the other parties hereto, jointly, all monies and property held hereunder (less such amount as the Escrow Agent is entitled to retain pursuant to Paragraph 5.5) upon presentation of the document appointing the new escrow agent and its acceptance thereof. If no new agent is so appointed within the sixty (60) day period follow-ing the giving of such notice of resignation, the Escrow Agent may deposit the Escrow Shares with any court it deems appropriate. 5.9 The Escrow Agent shall resign and be discharged from its duties as escrow agent hereunder if so requested in writing at anytime by the other parties hereto, jointly, provided, however, that such resignation shall become effective only upon acceptance of appointment by a successor escrow agent as provided in paragraph 4 5.8. 5.10 Notwithstanding anything herein to the contrary, the Escrow Agent shall not be relieved from liability hereunder for its own gross negligence or its own willful misconduct. 6. MISCELLANEOUS. 6.1 This Agreement shall for all purposes be deemed to be made under and shall be construed in accordance with the laws of the State of New York. 6.2 This Agreement contains the entire agreement of the parties hereto with respect to the subject matter hereof and, except as expressly provided herein, may not be changed or modified except by an instrument in writing signed by the party to the charged. 6.3 The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation thereof. 6.4 This Agreement shall be binding upon and inure to the benefit of the respective parties hereto and their legal representatives, successors and assigns. 6.5 Any notice or other communication required or which may be given hereunder shall be in writing and either be delivered personally or be mailed, certified or registered mail, return receipt requested, postage prepaid, and shall be deemed given when so delivered personally or, if mailed, two (2) days after the date of mailing, as follows: If to the Company, to: Unity First Acquisition Corp. 245 Fifth Avenue, Suite 1500 New York, New York 10016 Attn: Lawrence Burstein, President with a copy to: Parker Duryee Rosoff & Haft A Professional Corporation 529 Fifth Avenue New York, New York 10017 Attn: Ira I. Roxland, Esq. 5 If to the Company Principals, to each as follows: (i) Lawrence Burstein 245 Fifth Avenue, Suite 1500 New York, New York 10016 (ii) Norman Leben 245 Fifth Avenue, Suite 1500 New York, New York 10016 (iii) John Cattier Achlain Invermoriston Invernesshire IV3 6YN, United Kingdom (iv) Barry Ridings 16 Erwin Park Montclair, New Jersey 07402 (v) Unity Venture Capital Associates Ltd. 245 Fifth Avenue, Suite 1500 New York, New York 10016 and if to the Escrow Agent, to: American Stock Transfer & Trust Company 40 Wall Street New York, New York 10005 Attention: President The parties may change the persons and addresses to which the notices or other communications are to be sent by giving written notice to any such change in the manner provided herein for giving notice. WITNESS the execution of this Agreement as of the date first above written. UNITY FIRST ACQUISITION CORP. By: ------------------------------------- Lawrence Burstein, President --------------------------------------- Lawrence Burstein 6 ---------------------------------------- Norman Leben ---------------------------------------- John Cattier CRICKET SERVICES, LTD. By: -------------------------------------- John Cattier, President ---------------------------------------- Barry Ridings UNITY VENTURE CAPITAL ASSOCIATES LTD. By: ------------------------------------- Lawrence Burstein, President AMERICAN STOCK TRANSFER & TRUST COMPANY, as Escrow Agent By: ------------------------------------- 7 EXHIBIT A NUMBER OF SHARES NAME OF COMMON STOCK Lawrence Burstein 150,000 Norman Leben 15,000 John Cattier 39,000(1) Cricket Services, Ltd. 39,000 Barry Ridings 6,000 Unity Venture Capital Associates Ltd. 25,000 - -------------- (1) Represents shares owned of record by Cricket Services, Ltd. Name: _____________________ _______________, 1996 Unity First Acquisition Corp. 245 Fifth Avenue, Suite 1500 New York, New York 10016 GKN Securities Corp. 61 Broadway, 12th Floor New York, New York 10006 Re: Initial Public Offering ----------------------- Gentlemen: The undersigned stockholder, officer and/or director of Unity First Acquisition corp. ("Unity"), in consideration of GKN Securities Corp. ("GKN") entering into a letter of intent ("Letter of Intent") to underwrite an initial public offering of Unity, hereby agrees as follows (certain capitalized terms used herein are defined in paragraph 10 hereof): 1. If Unity solicits approval of its stockholders of a Business Combination, the undersigned will vote all of the shares of Common Stock of Unity owned by him in accordance with the majority of the votes cast by the Public Stockholders. 2. In the event that Unity fails to consummate a Business Combination within 18 months from the effective date ("Effective Date") of the registration statement relating to the IPO (or 24 months under the circumstances described in the prospectus relating to the IPO), the undersigned will use its best efforts to cause Unity to liquidate. The undersigned waives any and all rights he may have to receive any distribution of cash, property or other assets as a result of such liquidation. 3. The undersigned hereby agrees that it does not have any right, title, interest or claim of any kind in or to any monies in the Trust Fund ("Claim") and hereby waives any Claim it may have in the future as a result of, or arising out of, any contracts or agreements with Unity and will not seek recourse against the Trust Fund for any reason whatsoever. 4. In order to minimize potential conflicts of interest which may arise from multiple affiliations, the undersigned agrees to present to Unity for its consideration, prior to presentation to any other person or company, any suitable opportunity to acquire an operating business in the Target Industry. 5. The undersigned will not submit to Unity for consideration, or vote for the approval of, any Business Combination which involves a company which is affiliated with the undersigned. Entertainment/Media Acquisition Corporation GKN Securities Corp. _____________, 1996 Page 2 6. The undersigned will not be entitled to receive and will not accept a finder's fee or any other compensation in the event the undersigned originates a Business Combination. 7. The undersigned will escrow his shares of Common Stock of Unity for the three-year period commencing on the Effective Date. The escrow agent shall be American Stock Transfer & Trust Co. 8. The undersigned will not be entitled to receive and will not accept any compensation for services rendered to Unity prior to the consummation of the Business Combination; provided that, commencing on the Effective Date, Unity Venture Capital Associated Ltd. ("UVCA") shall be allowed to charge Unity $7,500 per month, to compensate it for Unity's use of UVCA's offices, utilities and personnel. The undersigned shall also be entitled to reimbursement from Unity for their out-of-pocket expenses incurred in connection with seeking and consummating a Business Combination. 9. I have full right and power, without violating any agreement by which I am bound, to enter into this letter agreement and to serve as a Director of Unity. 10. As used herein, (i) a "Business Combination" shall mean an acquisition by merger, exchange of capital stock, asset or stock acquisition, reorganization or otherwise, of an operating business in the Target Industry; (ii) "Insiders" shall mean all officers, directors and stockholders of Unity immediately prior to the IPO; (iii) "Public Stockholders" shall mean all common stockholders of Unity other than the Insiders; and (iv) "Target Industry" shall mean the entertainment and/or media industry. ------------------------------------ Print Name of Insider ------------------------------------ Signature EX-10.5 9 EXHIBIT 10.5 May 30, 1996 Unity First Acquisition Corp. 245 Fifth Avenue, Suite 1500 New York, New York 10016 Gentlemen: This letter, when signed by you where indicated below, will confirm our agreement whereby Unity Venture Capital Associates Ltd. ("Capital") shall furnish Unity First Acquisition Corp. ("Unity") with secretarial and other administrative services, together with approximately 500 square feet of office space situated at 245 Fifth Avenue, New York, New York 10016, Suite 1500. In exchange therefor, Unity shall pay Capital the sum of $7,500 per month. Either party hereto may cancel this agreement upon 30 days' prior written notice to such effect. Very truly yours, UNITY VENTURE CAPITAL ASSOCIATES LTD. By:/s/ Lawrence Burstein ---------------------------------- Lawrence Burstein, President Agreed to and Accepted by: UNITY FIRST ACQUISITION CORP. By:/s/ Norman Leben -------------------------- Norman Leben, Secretary EX-23.1 10 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report (and to all references to our Firm) included in or made a part of this registration statement. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP New York, New York August 26, 1996 -----END PRIVACY-ENHANCED MESSAGE-----