SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of March 19,
1998, by and among Certified Diabetic Services, Inc., a Delaware corporation,
with headquarters located at 0000 Xxxxxxxxx Xxxxx Xxxxx, Xxxxxx, Xxxxxxx 00000
(the "Company"), and the investors listed on the Schedule of Buyers attached
hereto (individually, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company, and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act");
B. The Company has authorized (i) the following new series of its
Preferred Stock, par value $.01 per share (the "Preferred Stock"): the Company's
Series A Convertible Preferred Stock (the "Preferred Shares") which shall be
convertible into shares of the Company's Common Stock, par value $.01 per share
(the "Common Stock") (as converted, the "Conversion Shares"), in accordance with
the terms of the Company's Certificate of Designation substantially in the form
attached hereto as Exhibit A (the "Certificate of Designation") and (ii) the
issuance of warrants (the "Warrants"), substantially in the form attached hereto
as Exhibit B, to purchase shares of Common Stock (the "Warrant Shares");
C. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, an aggregate of 3,000 of the Preferred Shares and Warrants to
purchase an aggregate of 70,000 shares of Common Stock, at the rate of one
Preferred Share and a Warrant to purchase 23 1/3 shares of Common Stock for each
$1,000 to be invested by such Buyer as set forth opposite each Buyer's name on
the Schedule of Buyers;
D. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit C (the "Registration Rights
Agreement") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Buyers hereby agree as follows:
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1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
a. Purchase of Preferred Shares and Warrants. Subject to
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7, the
Company shall issue and sell to the Buyers and the Buyers severally shall
purchase from the Company an aggregate of 3,000 Preferred Shares and Warrants to
purchase an aggregate of 70,000 shares of Common Stock at the rate of one
Preferred Share and a Warrant to purchase 23 1/3 shares of Common Stock for each
$1,000 to be invested by such Buyer, as set forth opposite each Buyer's name on
the Schedule of Buyers (the "Closing").
b. The Closing Date. The date and time of the Closing (the
"Closing Date") shall be 10:00 a.m. Eastern Time, within two (2) business days
following the date hereof, subject to satisfaction (or waiver) of the conditions
to the Closing set forth in Sections 6 and 7 (or such later date as is mutually
agreed to by the Company and the Buyers); provided, however, that the Company
may extend the Closing for up to two (2) additional business days if needed to
obtain confirmation of the filing of the Certificate of Designation, but any
such additional days shall not be included in any time frame contained in any
Transaction Document which runs from the Closing Date. The Closing shall occur
on the Closing Date at the offices of Kramer, Levin, Naftalis & Xxxxxxx, 000
Xxxxx Xxxxxx, Xxx Xxxx, XX 00000 (or such other place as is mutually agreed to
by the Company and the Buyers).
c. Form of Payment. On the Closing Date, (i) each Buyer shall
pay the amount set forth opposite its name on the Schedule of Buyers to the
Company for the Preferred Shares and Warrants to be issued and sold to such
Buyer at the Closing, by wire transfer of immediately available funds in
accordance with the Company's written wire instructions, and (ii) the Company
shall deliver to each Buyer (x) stock certificates (in the denominations such
Buyer shall request) representing such number of the Preferred Shares and (y)
certificates (in the denominations such Buyer shall request) representing such
number of Warrants which such Buyer is then purchasing (as indicated opposite
such Buyer's name on the Schedule of Buyers), each duly executed on behalf of
the Company and registered in the name of such Buyer or its designee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only
itself that:
a. Investment Purpose. Such Buyer (i) is acquiring the
Preferred Shares and the Warrants, (ii) upon conversion of the Preferred Shares,
will acquire the Conversion Shares then issuable and (iii) upon exercise of the
Warrants, will acquire the Warrant Shares then issuable (the Preferred Shares,
the Conversion Shares, the Warrants and the Warrant Shares are collectively
referred to herein as the "Securities"), for its own account for investment only
and not with a view towards, or for resale in connection with, the public sale
or distribution thereof, except pursuant to sales registered or exempted under
the 1933 Act; provided, however, that by making the representations herein, such
Buyer, subject to Section 2(f), does not agree to hold any of the Securities for
any minimum or other specific term and reserves the right to dispose of
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the Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D under the
1933 Act.
c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such Securities.
d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to review materials and to ask questions of
the Company and have reviewed materials and asked questions of the Company to
the extent such Buyer and its advisors, if any, deem appropriate. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Section 3. Such Buyer understands that its investment in the Securities
involves a high degree of risk. Such Buyer has sought such accounting, legal and
tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Securities. Such Buyer
acknowledges that it has sufficient experience in financial and business matters
to be capable of evaluating the merits and risks of the prospective investment
in Preferred Shares.
e. No Government Review. Such Buyer understands that no United
States federal or state agency or any other governmental agency has passed on or
made any recommendation or endorsement of the Securities or the fairness or
suitability of the investment in the Securities nor have such authorities passed
upon or endorsed the merits of the offering of the Securities.
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
Securities can be sold, assigned or transferred pursuant to Rule 144 promulgated
under the 1933 Act (or a successor rule thereto) ("Rule 144"); (ii) any sale of
the Securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
the Securities under circumstances in which the seller (or the person through
whom the sale is made) may be
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deemed to be an underwriter (as the term is defined in the 0000 Xxx) may require
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder.
g. Legends. Such Buyer understands that the certificates or
other instruments representing the Preferred Shares and the Warrants and, until
such time as the sale of the Conversion Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped if, unless otherwise required by state securities laws, (i) such
Securities are registered for sale under the 1933 Act, (ii) in connection with a
sale transaction, such holder provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale, assignment or
transfer of such Securities may be made without registration under the 1933 Act,
or (iii) such Securities can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date that
can then be immediately sold. Each Buyer acknowledges, covenants and agrees to
sell the Securities represented by a certificate(s) from which the legend has
been removed, only pursuant to (i) a registration statement effective under the
1933 Act, or (ii) advice of counsel that such sale is exempt from registration
required by Section 5 of the 1933 Act.
h. Authorization; Enforcement. This Agreement has been duly
and validly authorized, executed and delivered on behalf of such Buyer and is a
valid and binding agreement of such Buyer enforceable against such Buyer in
accordance with its terms, subject as to enforceability to general principles of
equity and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
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i. Residency. Such Buyer is a resident of that country
specified in the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers
that:
a. Organization and Qualification. The Company and each of its
subsidiaries (a complete list of which is set forth in Schedule 3(a)) are
corporations duly organized and validly existing in good standing under the laws
of the jurisdictions in which they are incorporated, and have the requisite
corporate power to own their properties and to carry on their respective
businesses as now being conducted. The Company and each of its subsidiaries are
duly qualified as foreign corporations to do business and are in good standing
in every jurisdiction in which the nature of the business conducted by them
makes such qualification necessary, except to the extent that the failure to be
qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, "Material Adverse Effect" means any material adverse
effect on the business, properties, assets, operations, liabilities, financial
condition or prospects of the Company and its subsidiaries, if any, taken as a
whole, or on the transactions contemplated hereby or by the agreements and
instruments to be entered into in connection herewith.
b. Authorization; Enforcement; Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform this Agreement, the Registration Rights Agreement, the
Warrants, the Irrevocable Transfer Agent Instructions (as defined in Section 5)
and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (collectively,
the "Transaction Documents"), and to issue the Securities in accordance with the
terms hereof and thereof, (ii) the execution and delivery of the Transaction
Documents and the Certificate of Designation by the Company and the consummation
by it of the transactions contemplated thereby, including without limitation the
issuance of the Preferred Shares, the issuance of the Conversion Shares upon
conversion thereof, the issuance of the Warrants and the issuance of the Warrant
Shares upon exercise thereof have been duly authorized by the Company's Board of
Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders, (iii) the Transaction Documents and
the Certificate of Designation have been duly executed and delivered by the
Company, (iv) each of the Transaction Documents constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the enforcement
of creditors' rights and remedies, and (v) prior to the Closing Date, the
Certificate of Designation will be filed with the Secretary of State of the
State of Delaware and will be in full force and effect, enforceable against the
Company in accordance with its terms.
c. Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 25,000,000 shares of Common Stock,
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of which 10,825,000 shares are issued and outstanding, 8,000,000 shares are
reserved and available for issuance pursuant to the Company's stock option
and purchase plans, 7,000,000 shares are reserved and available for issuance
pursuant to outstanding options, warrants, and other securities convertible into
or exchangeable for Common Stock set forth in Schedule 3(c), and no shares are
reserved for issuance pursuant to securities (other than the Preferred Shares,
the Warrants, and the securities listed on Schedule 3(c)) exercisable or
exchangeable for, or convertible into, shares of Common Stock and (ii) 5,000,000
shares of Preferred Stock, none of which are issued or outstanding or reserved
for issuance. All of such outstanding shares have been, or upon issuance will
be, validly issued and are fully paid and nonassessable. Except as disclosed in
Schedule 3(c), no shares of Common Stock or Preferred Stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company or were issued in violation of the 1933 Act
or applicable state, provincial or municipal securities laws. Except as
disclosed in Schedule 3(c), as of the date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, any shares of capital stock of the Company
or any of its subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, any shares of capital stock of the Company
or any of its subsidiaries, (ii) there are no outstanding debt securities, (iii)
there are no agreements or arrangements under which the Company or any of its
subsidiaries is obligated to register the sale of any of their securities under
the 1933 Act (except the Registration Rights Agreement) and (iv) there are no
outstanding securities of the Company or any of its subsidiaries which contain
any redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its subsidiaries
is or may become bound to redeem or purchase a security of the Company or any of
its subsidiaries. Except as disclosed in Schedule 3(c), there are no securities
or instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities pursuant to this Agreement, the
Certificate of Designation or the Warrants. The Company has furnished to the
Buyers true and correct copies of the Company's Certificate of Incorporation, as
amended and as in effect on the date hereof (the "Certificate of
Incorporation"), and the Company's By-laws, as in effect on the date hereof (the
"By-laws"), and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.
d. Issuance of Securities. The Preferred Shares are duly
authorized for issuance and sale to the Buyers by the Company pursuant hereto
and, upon issuance in accordance with the terms hereof, shall be (i) validly
issued, fully paid and non-assessable, (ii) free from all taxes, liens and
charges with respect to the issue thereof and (iii) entitled to the rights and
preferences set forth in the Certificate of Designation. 2,000,000 shares of
Common Stock (subject to adjustment pursuant to the Company's covenant set forth
in Section 4(f)) have been duly authorized and reserved for issuance upon
conversion of the Preferred Shares. Upon conversion in accordance with the terms
and conditions of the Certificate of Designation, the Conversion Shares will be
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof with the holders being entitled to all
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rights accorded to a holder of Common Stock. The Warrants are duly authorized
for issuance and sale to the Buyers by the Company pursuant hereto and, upon
issuance in accordance with the terms hereof, shall be valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms. 105,000 shares of Common Stock (subject to adjustment pursuant to
the Company's covenant set forth in Section 4(f)) have been duly authorized and
reserved for issuance upon exercise of the Warrants. Upon exercise in accordance
with the terms and conditions of the Warrants, the Warrant Shares will be
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof with the holders being entitled to all
rights accorded to a holder of Common Stock. The issuance by the Company of the
Securities is exempt from registration under the 1933 Act.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated thereby
(including, without limitation, the reservation for issuance and issuance of the
Conversion Shares and the Warrant Shares) will not (i) result in a violation of
the Certificate of Incorporation or the By-laws, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or (iii)
result in a violation of any law, rule, regulation, by-law, directive, order,
judgment or decree (including federal, state, provincial and municipal
securities laws and regulations and the rules and regulations of the principal
market or exchange on which the Common Stock is traded or listed) applicable to
the Company or any of its subsidiaries or by which any property or asset of the
Company or any of its subsidiaries is bound or affected, except to the extent
that matters within clauses (ii) and (iii) immediately above would not have a
Material Adverse Effect. Except as disclosed in Schedule 3(e), neither the
Company nor its subsidiaries is in violation of any term of or in default under
(i) the Certificate of Incorporation or the By-laws or their organizational
charter or by-laws, respectively, or (ii) any contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any statute,
rule or regulation applicable to the Company or its subsidiaries, except to the
extent that such violation or default would not have a Material Adverse Effect.
The business of the Company and its subsidiaries is not being conducted, and
shall not be conducted, in violation of any law, ordinance, rule, or regulation
of any governmental entity. Except as specifically contemplated by this
Agreement and as required under the 1933 Act, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under or contemplated by the
Transaction Documents or the Certificate of Designation in accordance with the
terms hereof or thereof. Except as disclosed in Schedule 3(e), all consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company and its subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.
f. Financial Statements. The draft audited consolidated
balance sheet of the Company and its subsidiaries as of October 31, 1997 and
related statement of income, retained earnings and cash flow for the period then
ended and the notes thereto have been prepared in
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accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except as may be otherwise indicated in such
financial statements or the notes thereto) and fairly present in all material
respects the consolidated financial position of the Company and its subsidiaries
as of the date thereof and the consolidated results of their operations and cash
flows for the period then ended. The draft unaudited consolidated balance sheet
of the Company and its subsidiaries as of December 31, 1997 and related
statement of income, retained earnings and cash flow for the period then ended
and the notes thereto have been prepared in accordance with generally accepted
accounting principles, consistently applied, during the periods involved (except
to the extent they may exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the consolidated
financial position of the Company and its subsidiaries as of the date thereof
and the consolidated results of their operations and cash flows for the period
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments). No other information provided in writing by or at the
direction of the Company to the Buyers, including, without limitation,
information referred to in Section 2(d), contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstance under which they are or
were made, not misleading. Neither the Company nor any of its subsidiaries or
any of their officers, directors, employees or agents has provided the Buyers
with any material, nonpublic information (other than information which shall be
disclosed in the Registration Statement (as defined in the Registration Rights
Agreement) on the effective date of such Registration Statement). No stop order
suspending the effectiveness of any registration statement of the Company filed
under the 1933 Act has been issued by the SEC under the 1933 Act and no
proceedings therefore have been initiated or, to the best knowledge of the
Company, threatened by the SEC.
g. Absence of Certain Changes. Except as disclosed in Schedule
3(g), since October 31, 1997 there has been no Material Adverse Effect. The
Company has not taken any steps, and does not currently expect to take any
steps, to seek protection pursuant to any bankruptcy law nor does the Company or
any of its subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
affecting the Company or any of its subsidiaries or any properties or rights of
the Company or any of its subsidiaries, the Common Stock or any of the Company's
or its subsidiaries' officers or directors in their capacities as such, except
as expressly set forth in Schedule 3(h).
i. Acknowledgment Regarding Buyers' Purchase of Preferred
Shares and Warrants. The Company acknowledges and agrees that each of the Buyers
is acting solely in the capacity of arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated thereby. The Company
further acknowledges that each Buyer is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated thereby and any advice
given by any of the Buyers or any of their respective representatives or agents
in connection with
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the Transaction Documents and the transactions contemplated thereby is merely
incidental to such Buyer's purchase of the Securities. The Company further
represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
j. No Undisclosed Liabilities. As of the date of the most
recent balance sheet provided in Section 3(f), the Company had no material
liabilities, except for liabilities which are reflected or reserved for on such
balance sheet in accordance with generally accepted accounting principles. Since
the date of the most recent balance sheet, the Company has operated in the
ordinary course of business, consistent with past practices, and has not
incurred or become subject to, or agreed to incur or become subject to, any
material liability, except in the ordinary course of business, consistent with
past practice.
k. No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 0000 Xxx) in connection with the offer or sale of the
Securities.
l. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause the offering of the Securities
pursuant to this Agreement to be integrated with prior offerings by the Company
for purposes of the 1933 Act or any applicable stockholder approval provisions,
nor will the Company or any of its subsidiaries take any action or steps that
would require registration of the Securities under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings.
m. Employee Relations. Neither the Company nor any of its
subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. Neither the
Company nor any of its subsidiaries is a party to a collective bargaining
agreement, and the Company and its subsidiaries believe that relations with
their employees are good. Each of the Company and its subsidiaries is in
compliance in all material respects with the applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
regulations and published interpretations thereunder. None of the following
events has occurred or is reasonably expected to occur that when taken together
with all other such events could reasonably be expected to result in a Material
Adverse Effect: (i) any "reportable event," as defined in Section 4043 of ERISA
or the regulations issued thereunder, with respect to any "employee pension
benefit plan" as such term is defined in Section 3 of ERISA (other than a
Multiemployer Plan (as defined below)) subject to the provisions of Title IV of
ERISA or Section 412 of the Internal Revenue Code of 1986, as amended (the
"Code"), or Section 302 of ERISA (a "Plan"); (ii) the adoption of any amendment
to a Plan that would require the provision of security pursuant to Section
401(a)(29) of the Code or Section 307 of ERISA; (iii) the existence with respect
to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of
the Code or Section 302 of ERISA), whether or not waived; (iv) the filing
pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect
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to any Plan; (v) the incurrence of any liability under Title IV of ERISA with
respect to the termination of any Plan or the withdrawal or partial withdrawal
of the Company or any of its subsidiaries from any Plan or "multiemployer plan"
as defined in Section 4001(a)(3) of ERISA ("Multiemployer Plan"); (vi) the
receipt by the Company or any of its subsidiaries from the Pension Benefit
Guaranty Corporation or a plan administrator of any notice relating to the
intention to terminate any Plan or Plans or to appoint a trustee to administer
any Plan; (vii) the receipt by the Company or any of its subsidiaries of any
notice concerning the imposition of liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA or of a
determination that a Multiemployer Plan is, or is expected to be, insolvent or
in reorganization, within the meaning of Title IV of ERISA; and (viii) the
occurrence of a "prohibited transaction" with respect to which the Company or
any of its subsidiaries is a "disqualified person" (within the meaning of
Section 4975 of the Code) and with respect to which the Company or such
subsidiary would be liable for the payment of an excise tax.
n. Intellectual Property Rights. To the knowledge of the
Company, the Company and its subsidiaries own or possess adequate rights or
licenses to use all trademarks, trade names, service marks, service xxxx
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets and rights to
conduct their respective businesses as now conducted, except to the extent that
the failure to possess such rights or licenses would not have a Material Adverse
Effect. The Company and its subsidiaries do not have any knowledge of any
infringement by the Company or its subsidiaries of any trademarks, trade name
rights, patents, patent rights, copyrights, inventions, licenses, service names,
service marks, service xxxx registrations, trade secret or other similar rights
of others, and, except as set forth on Schedule 3(n), there is no claim, action
or proceeding being made or brought against, or to the Company's knowledge,
being threatened against, the Company or any of its subsidiaries regarding any
trademarks, trade names, patents, patent rights, invention, copyright, license,
service names, service marks, service xxxx registrations, trade secret or other
infringement; and the Company and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing, except for such
facts and circumstances which would not have a Material Adverse Effect.
o. Environmental Laws. (i) The Company and its subsidiaries
(x) are in compliance with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health and safety
or emissions, discharges, releases, threatened releases, removal, remediation or
abatement of pollutants, contaminants, chemicals or industrial, hazardous or
toxic substances or wastes into or in the environment (including without
limitation air, surface water, ground water or land), or otherwise used in
connection with the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants, hazardous
or toxic substances or wastes, as defined under such applicable laws
("Environmental Laws"), (y) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses and (z) are in compliance with all terms and conditions of
any such permit, license or approval, except to the extent that the matters
within clauses (x), (y) or (z) above would not have a Material Adverse Effect.
- 10 -
(ii) There is no substance designated a "hazardous substance"
by any Environmental Law, including asbestos, petroleum, urea formaldehyde
insulation and petroleum by-products ("Hazardous Substance") present at any of
the real property currently owned or leased by the Company or any of its
subsidiaries, except to the extent that such presence could not reasonably be
expected to have a Material Adverse Effect; and with respect to such real
property, there has not occurred (x) any release or, to the knowledge of the
Company, any threatened release of a Hazardous Substance or (y) any discharge
or, to the knowledge of the Company, threatened discharge of any Hazardous
Substance into the ground, surface or navigable waters which discharge or
threatened discharge violates any federal, state, local, provincial, municipal
or foreign laws, rules or regulations concerning water pollution.
(iii) None of the Company or any of its subsidiaries has
disposed of, transported, or arranged for the transportation or disposal of any
Hazardous Substance where such disposal, transportation or arrangement would
give rise to liability pursuant to any Environmental Law other than any such
liabilities that could not reasonably be expected to have a Material Adverse
Effect.
(iv) There are no underground storage tanks,
asbestos-containing materials, polychlorinated biphenyls or urea formaldehyde
insulation at any of the real property currently owned or leased by the Company
or any of its subsidiaries in violation of any Environmental Law.
p. Title. The Company and its subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them, except to the extent that the
failure to have good and marketable title would not have a Material Adverse
Effect, in each case free and clear of all liens, encumbrances and defects
except such as are described in Schedule 3(p) or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company or any of its subsidiaries.
Any real property and facilities held under lease by the Company or any of its
subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
subsidiaries.
q. Insurance. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any of its subsidiaries has
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect.
r. Regulatory Permits. The Company and its subsidiaries
possess all certificates, authorizations, approvals, licenses, easements,
rights-of-way, orders and permits ("Permits") issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, except to the extent that the failure to possess such certificates,
authorizations and permits would not have a Material Adverse Effect; and neither
- 11 -
the Company nor any such subsidiary has received any notice of proceedings
relating to the revocation or modification of any such Permit.
s. Compliance With Law. Except as set forth on Schedule 3(s),
each of the Company and its subsidiaries has complied with, has not received any
notice of violation of, and has no knowledge of any facts which with or without
notice could reasonably be expected to constitute a violation of, any laws,
ordinances, rules, regulations, orders, judgment, injunctions, awards or decrees
of any governmental entity applicable to the Company and its subsidiaries and
their properties, except for any violation or failure so to comply which could
not reasonably be expected to have a Material Adverse Effect.
t. Internal Accounting Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (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 the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
u. No Materially Adverse Contracts, Etc. Neither the Company
nor any of its subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
reasonable judgment of the Company's officers has or is expected in the future
to have a Material Adverse Effect.
v. Tax Status. Except as set forth on Schedule 3(v), the
Company and each of its subsidiaries have made or filed all federal, state and
local income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
w. Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Preferred
Shares and the number of Warrant Shares issuable upon exercise of the Warrants
will increase in certain circumstances. The Company further acknowledges that
its obligations to issue Conversion Shares upon conversion of the Preferred
Shares and to issue Warrant Shares upon exercise of the Warrants in accordance
with this Agreement, the Preferred Shares and the Warrants, as the case may be,
are absolute and unconditional regardless of the dilutive effect that such
issuances may have on the ownership interests of other stockholders of the
Company.
- 12 -
x. No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.
y. No Material Misstatement. None of the representations or
warranties of the Company contained herein and none of the information contained
in the Schedules hereto furnished by the Company is false or misleading in any
material respect or omits to state a material fact necessary to make the
statements herein or therein not misleading in any material respect.
z. No Broker or Finder. Except for Jesup & Xxxxxx Securities
Corporation, no broker or finder has been engaged by the Company in connection
with the transactions contemplated by the Transaction Documents and no
commission, finder's fees or similar compensation or remuneration is payable to
any entity engaged by the Company, except for Jesup & Xxxxxx Securities
Corporation, as a result of the Company's or the Buyers' actions in connection
with the execution and delivery of the Transaction Documents and the
consummation of the transactions contemplated hereby.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts timely
to satisfy each of the conditions to be satisfied by it as provided in Sections
6 and 7 of this Agreement.
b. Form D. The Company agrees to file a Form D with respect to
the Securities as required under Regulation D and to provide a copy thereof to
each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for, or obtain exemption for the Securities
for, sale to the Buyers at the Closing pursuant to this Agreement under
applicable securities or "Blue Sky" laws of the states of the United States, and
shall provide evidence of any such action so taken to the Buyers on or prior to
the Closing Date.
c. Reporting Status. Beginning at such time, if any, as the
Company becomes an issuer required to file reports under the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and until the date on which (A) the
Investors shall have sold all of the Conversion Shares and all of the Warrant
Shares and (B) none of the Preferred Shares and Warrants is outstanding (the
"Registration Period"), the Company shall file all reports required to be filed
with the SEC pursuant to the 1934 Act, and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would otherwise permit such
termination.
d. Use of Proceeds. The Company will use the proceeds from the
sale of the Preferred Shares and the Warrants for substantially the same
purposes and in substantially the same amounts as indicated in Schedule 4(d).
e. Financial Information.
- 13 -
(i) The Company agrees to send the following to each
Investor (as that term is defined in the Registration Rights Agreement)
during the Registration Period: (i) within two (2) days after the
filing thereof with the SEC, a copy of its Annual Reports on Form 10-K,
its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and
any registration statements or amendments filed pursuant to the 1933
Act; (ii) on the same day as the release thereof, facsimile copies of
all press releases issued by the Company or any of its subsidiaries and
(iii) copies of any notices and other information made available or
given to the stockholders of the Company generally, contemporaneously
with the making available or giving thereof to the stockholders.
(ii) From and after 120 days after the Closing Date,
if the Company is not required to file any reports with the SEC
pursuant to the 1934 Act, the Company shall generally make available to
the public until such time as it is required to file any reports with
the SEC pursuant to the 1934 Act, (i) all quarterly and annual
financial information that would be required to be contained in a
filing with the SEC on Forms 10- Q and 10-K if the Company were
required to file such forms, including, with respect to the annual
information only, a report thereon by the Company's certified
independent accountants, and (ii) all current reports that would be
required to be filed with the SEC on Form 8-K if the Company were
required to file such reports. From and after 120 days after the
Closing Date and provided that the Preferred Shares and the Warrants
are outstanding, the Company shall furnish to the Investors, and
generally make available to the public, the information required to be
delivered pursuant to Rule 144(c) under the 1933 Act.
f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 150% of the number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares and the Warrant Shares.
g. Right of First Refusal. So long as at least an aggregate of
10% of the Preferred Shares issued at the Closing remain outstanding, but
subject to the exceptions described below, the Company shall not enter into a
binding agreement or otherwise agree with any party for any equity financing
(including any debt financing with an equity component) or issue any equity
securities of the Company or securities convertible or exchangeable into or for
equity securities of the Company (including debt securities with an equity
component) in any form ("Future Offerings") during the period beginning on the
Closing Date and ending on and including the date which is 365 days after the
Closing Date, unless it shall have first delivered to each Buyer or a designee
appointed by such Buyer written notice (the "Future Offering Notice") describing
the proposed Future Offering, including the terms and conditions thereof, and
providing each Buyer an option to purchase up to its Aggregate Percentage (as
defined below), as of the date of delivery of the Future Offering Notice, in the
Future Offering on the same terms and conditions set forth in the Future
Offering Notice (the limitations referred to in this sentence are collectively
referred to as the "Capital Raising Limitation"). For purposes of this Section
4(g), "Aggregate Percentage" at any time with respect to any Buyer shall mean
the percentage obtained by dividing (i) the aggregate number of Preferred Shares
issued to such Buyer at the Closing by (ii) the aggregate number of Preferred
Shares issued to all of the Buyers
- 14 -
at the Closing. A Buyer can exercise its option to participate in a Future
Offering by delivering written notice thereof to participate to the Company
within ten (10) business days of receipt of a Future Offering Notice, which
notice shall state the quantity of securities being offered in the Future
Offering that such Buyer will purchase, up to its Aggregate Percentage, and that
number of securities it is willing to purchase in excess of its Aggregate
Percentage. In the event that one or more Buyers fail to elect to purchase up to
each such Buyer's Aggregate Percentage then each Buyer which has indicated that
it is willing to purchase a number of securities in excess of its Aggregate
Percentage shall be entitled to purchase its pro rata portion (based on the
relation of (i) the aggregate number of Conversion Shares issued or issuable, as
if a conversion occurred on such date, upon conversion of the Preferred Shares
held by such Buyer (without giving effect to the limitations on conversion
contained herein or in the Certificate of Designation) and Warrant Shares issued
or issuable, as if exercise occurred on such date, upon exercise of the Warrants
held by such Buyer (without giving effect to the limitations on exercise
contained herein or in the Warrants) to (ii) the aggregate number of Conversion
Shares issued or issuable, as if a conversion occurred on such date, upon
conversion of the Preferred Shares held by all of the Buyers which are
participating in the Future Offering and Warrant Shares issued or issuable, as
if exercise occurred on such date, upon exercise of the Warrants held by all of
the Buyers which are participating in the Future Offering) of the securities in
the Future Offering which one or more Buyers have not elected to purchase. In
the event the Buyers fail to elect to fully participate in the Future Offering
within the periods described in this Section 4(g), the Company shall have 30
days thereafter to sell the securities of the Future Offering respecting which
such Buyer's rights were not exercised upon terms and conditions no more
favorable to the purchasers thereof than the terms and conditions specified in
the Future Offering Notice. In the event the Company has not sold such
securities of the Future Offering within such 30 day period, the Company shall
not thereafter issue or sell such securities without first offering such
securities to the Buyers in the manner provided in this Section 4(g). The
Capital Raising Limitation shall not apply to (i) a loan from a commercial bank,
(ii) any transaction involving the Company's issuances of securities (A) as
consideration in a merger or consolidation, (B) in connection with any strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or (C) as consideration for the acquisition of a business,
product or license by the Company, (iii) the issuance of Common Stock in an
underwritten public offering, (iv) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof, or (v) the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option or restricted stock plan for the benefit of the Company's employees,
directors or consultants. The Buyers shall not be required to participate or
exercise their right of first refusal with respect to a particular Future
Offering in order to exercise their right of first refusal with respect to later
Future Offerings.
h. Listing.
(i) The Company shall promptly secure the quotation
of all of the Registrable Securities (as defined in the Registration
Rights Agreement) upon the OTC Board or the Nasdaq SmallCap Market, as
applicable, upon which shares of Common Stock are listed (subject to
official notice of issuance) and shall maintain, so long as any other
shares of Common Stock shall be so quoted, such quotation of all
Registrable
- 15 -
Securities from time to time issuable under the terms of the
Transaction Documents. Neither the Company nor any of its subsidiaries
shall take any action which may result in the delisting or suspension
of the Common Stock on the OTC Board or the Nasdaq SmallCap Market, as
applicable (other than any action which the Company takes in order to
secure the quotation or listing of the Registrable Securities on a
nationally recognized exchange or market). The Company shall comply in
all respects with the reporting requirements of the OTC Board. The
Company shall promptly provide to each Buyer copies of any notices it
receives from the OTC Board or the Nasdaq SmallCap Market, as
applicable, regarding the continued eligibility of the Common Stock for
listing on such market or automated quotation system. The Company shall
pay all fees and expenses in connection with satisfying its obligations
under this Section 4(h).
(ii) The Company shall use its best efforts to list
the Common Stock on the Nasdaq SmallCap Market and thereafter to
maintain the Common Stock's authorization for quotation on the Nasdaq
SmallCap Market. If pursuant to this Section 4(h) the Common Stock is
not listed on the Nasdaq SmallCap Market within 120 days after the
Closing Date, the Company shall pay to each Investor liquidated damages
("Liquidated Damages") in an amount equal to two percent (2%) of the
stated value of the Preferred Shares outstanding per month. All accrued
Liquidated Damages shall be paid to the affected Investors by the
Company, at its option, by certified check or wire transfer of
immediately available funds. Once the Common Stock is so listed, the
accrual of Liquidated Damages will cease. If pursuant to this Section
4(h) the Common Stock is not listed on the Nasdaq SmallCap Market
within 180 days after the Closing Date, the amount of Liquidated
Damages to be paid by the Company to each Investor shall increase to
four percent (4%) of the stated value of the Preferred Shares
outstanding per month. Notwithstanding the foregoing, in the event that
at any time the Company would be required to pay both Liquidated
Damages under this Section 4(h)(ii) and liquidated damages under
Section 2(f) of the Registration Rights Agreement (the "Registration
Liquidated Damages"), the Company shall only be required to pay the
greater of (x) the Liquidated Damages and (y) the Registration
Liquidated Damages; provided that, if at such time the Liquidated
Damages equal the Registration Liquidated Damages, the Company shall
only be required to pay either the Liquidated Damages or the
Registration Liquidated Damages.
i. Expenses. Subject to Section 9(l), following the Closing,
the Company shall reimburse the Buyers for the Buyers' reasonable expenses
(including attorneys fees and expenses) in connection with negotiating and
preparing the Transaction Documents and consummating the transactions
contemplated thereby up to an aggregate of $20,000.
j. Intentionally omitted.
k. Sale Restrictions. As long as the Buyers hold Preferred
Shares, the Buyers agree not to enter into, directly or indirectly, or solicit,
induce or collaborate with any other person to enter into, any short position
involving the Common Stock (including by selling put equivalent positions as
that term has meaning under the rules promulgated by the SEC under Section 16(a)
of the 1934 Act).
- 16 -
l. Underwriting Lock-Up Agreements. At any time after 90 days
after the Closing Date, the Company may require that all, but not less than all,
of the holders of the Preferred Shares and the Warrants agree to sign a
"lock-up" agreement with the underwriters of a public offering of the Common
Stock pursuant to which the holders would agree not to sell any Conversion
Shares issued to the holders pursuant to a Conversion Notice delivered to the
Company or any Warrant Shares issued to the holders upon exercise of the
Warrants during the period beginning on the date designated by the Company,
which date shall be not less than 10 days after the holders' receipt of such
notice, and ending on the date which is 60 days after the beginning of the
lock-up period as designated by the Company (the "Underwriting Lock-Up Period").
The Company shall exercise this right by delivering written notice (the "Lock-Up
Request Notice") of such request to all of the holders of the Preferred Shares
and Warrants then outstanding at least 10 days prior to the date on which the
Underwriting Lock-Up Period will begin, but in no event prior to the filing of
the registration statement for such proposed offering. The Lock-up Request
Notice shall state (i) that the underwriters of such offering have requested
that the holders of the Preferred Shares and the Warrants enter into "lock-up"
agreements, (ii) the date on which the Underwriting Lock-Up Period will begin
and (iii) the name of the managing underwriters of the proposed offering.
Notwithstanding the foregoing, the Company shall not be entitled to require the
holders to enter into lock-up agreements unless (A) the Underwriting Lock-Up
Period is not more than 60 days, (B) the Underwriting Lock-Up Period shall
terminate immediately upon the termination or abandonment or indefinite delay of
the underwritten offering, (C) the managing underwriters for such proposed
offering are included on the Schedule of Underwriters attached to this Agreement
or have a minimum capital of $5,000,000, (D) the preliminary prospectus for such
underwritten public offering reflects a price per share to the public of not
less than $4.00 per share and an aggregate gross proceeds to the Company of at
least $5,000,000, (E) there has been no other Underwriting Lock-Up Period in the
365 days prior to the date of the Lock-Up Request Notice, and (F) there has been
no Grace Period (as defined in the Registration Rights Agreement) during the
period beginning on and including the date which is ten days prior to the filing
of the registration statement for the proposed offering and ending on and
including the first day of the Underwriting Lock-Up Period. If the Company
delivers a Lock-Up Request Notice and the underwritten public offering is not
consummated within 90 days of the first day of the Underwriting Lock-Up Period,
then the Company may not require any additional Underwriting Lock-Up Period
pursuant to this Section 4(l). The Mandatory Conversion Date (as defined in the
Certificate of Designation) shall be extended by one and one-half times the
aggregate number of days of all Underwriting Lock-Up Periods.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Buyer or its respective nominee(s) otherwise
permitted hereunder, for (i) the Conversion Shares in such amounts as specified
from time to time by each Buyer to the Company upon conversion of the Preferred
Shares and (ii) the Warrant Shares in such amounts as specified from time to
time by each Buyer to the Company upon exercise of the Warrants (the
"Irrevocable Transfer Agent Instructions"). Prior to registration of the
Conversion Shares and the Warrant Shares under the
- 17 -
1933 Act, all such certificates shall bear the restrictive legend specified in
Section 2(g). The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop
transfer instructions to give effect to Section 2(f) (prior to registration of
the Conversion Shares and Warrant Shares under the 0000 Xxx) or Sections 4 or 12
of the Certificate of Designation, will be given by the Company to its transfer
agent and that the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement
and the Registration Rights Agreement. Nothing in this Section 5 shall affect in
any way each Buyer's obligations and agreements set forth in Section 2(g) to
comply with all applicable prospectus delivery requirements, if any, upon resale
of the Conversion Shares or the Warrant Shares. If a Buyer provides the Company
with an opinion of counsel, reasonably satisfactory in form and substance to the
Company, that registration of a resale by such Buyer of any of such Securities
is not required under the 1933 Act, the Company shall permit the transfer, and
promptly instruct its transfer agent to issue one or more certificates in such
name and in such denominations as specified by such Buyer and without any
restrictive legends. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 5, that the
Buyers shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Preferred Shares and Warrants to each Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with written notice thereof:
(i) Such Buyer shall have executed this Agreement and the
Registration Rights Agreement and delivered the same to the Company.
(ii) Such Buyer shall have delivered to the Company the
purchase price for the Preferred Shares and Warrants being purchased by
such Buyer at the Closing by wire transfer of immediately available
funds pursuant to the wire instructions provided by the Company.
(iii) The representations and warranties of such Buyer in this
Agreement shall be true and correct in all material respects as of the
date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a fixed
date), and such Buyer shall have performed, satisfied and complied in
all material respects with the covenants, agreements and conditions
- 18 -
required by the Transaction Documents to be performed, satisfied or
complied with by such Buyer at or prior to the Closing Date.
(iv) No suit, action or other proceeding shall have been
commenced (and be pending) which seeks to restrain or prohibit or
questions the validity or legality of the transactions contemplated by
the Transaction Documents, nor shall any such suit, action or
proceeding be threatened.
(v) All consents, Permits, authorizations, approvals, waivers
and amendments required for the consummation of the transactions
contemplated by the Transaction Documents shall have been obtained.
(vi) The Buyers shall have delivered to the Company such other
documents relating to the transactions contemplated by the Transaction
Documents as the Company or its counsel may reasonably request.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the
Preferred Shares and Warrants at the Closing is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions, provided that
these conditions are for each Buyer's sole benefit and may be waived by such
Buyer at any time in its sole discretion by providing the Company with written
notice thereof:
(i) The Company shall have executed each of the Transaction
Documents, and delivered the same to such Buyer.
(ii) The Certificate of Designation shall have been filed with
the Secretary of State of the State of Delaware, and a copy thereof
certified by such Secretary of State shall have been delivered to
counsel for such Buyer.
(iii) The Common Stock shall be authorized for quotation on
the OTC Board or the Nasdaq SmallCap Market, as applicable, and trading
in the Common Stock on the OTC Board or the Nasdaq SmallCap Market, as
applicable, shall not have been suspended by the SEC or The Nasdaq
Stock Market, Inc.
(iv) The representations and warranties of the Company in this
Agreement shall be true and correct in all material respects (except to
the extent that any of such representations and warranties is already
qualified as to materiality in Section 3, in which case, such
representations and warranties shall be true and correct without
further qualification) as of the date when made and as of the Closing
Date as though made at that time and the Company shall have performed,
satisfied and complied in all material respects with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Company at or prior to the
Closing Date. Such Buyer shall have received a certificate, executed by
the Chief Executive Officer of the Company, dated as of the Closing
Date, to the foregoing effect
- 19 -
and as to such other matters as may be reasonably requested by such
Buyer including, without limitation, an update as of the Closing Date
regarding the representation contained in Section 3(c).
(v) Such Buyer shall have received the opinion of the
Company's counsel dated as of the Closing Date, in form, scope and
substance reasonably satisfactory to such Buyer and in substantially
the form of Exhibit D attached hereto.
(vi) The Company shall have executed and delivered to such
Buyer the Preferred Shares and the Warrants (in such denominations as
such Buyer shall request) being purchased by such Buyer at the Closing.
(vii) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) and in a form reasonably
acceptable to such Buyer (the "Resolutions").
(viii) As of the Closing Date, the Company shall have reserved
out of its authorized and unissued Common Stock, solely for the purpose
of effecting the conversion of the Preferred Shares and the exercise of
the Warrants, a number of shares of Common Stock equal to at least 150%
of the number of shares of Common Stock which would be issuable upon
conversion of the Preferred Shares and upon exercise of the Warrants.
(ix) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each subsidiary in such corporation's jurisdiction of
incorporation issued by the Secretary of State of such jurisdiction of
incorporation as of a date within 10 days of the Closing.
(x) The Company shall have delivered to such Buyer a
secretary's certificate certifying as to (a) the Resolutions, (b) the
Certificate of Incorporation and (c) Bylaws, each as in effect at the
Closing.
(xi) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by the Transaction
Documents as such Buyer or its counsel may reasonably request.
(xii) No suit, action or other proceeding shall have been
commenced (and be pending) which seeks to restrain or prohibit or
questions the validity or legality of the transactions contemplated by
the Transaction Documents, nor shall any such suit, action or
proceeding be threatened.
(xiii) All consents, Permits, authorizations, approvals,
waivers and amendments required for the consummation of the
transactions contemplated by the Transaction Documents shall have been
obtained.
- 20 -
8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of the Securities and all of their officers,
directors, employees and agents (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents, the
Certificate of Designation or any certificate, instrument or document delivered
pursuant thereto, (b) any breach of any covenant, agreement or obligation of the
Company contained in the Transaction Documents, the Certificate of Designation
or any certificate, instrument or document delivered pursuant thereto, or (c)
any cause of action, suit or claim brought or made against such Indemnitee and
arising out of or resulting from the execution, delivery, performance or
enforcement of any of the Transaction Documents by any of the Indemnitees
(except (i) to the extent that such cause of action, suit or claim arises out of
a breach of the Transaction Documents by the Indemnities or (ii) any cause of
action, suit or claim for which indemnification is available pursuant to Section
6 of the Registration Rights Agreement), any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of the
issuance of the Securities or the status of such Buyer or holder of the
Securities as an investor in the Company. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York without regard
to the principles of conflict of laws. Each party hereby irrevocably submits to
the non-exclusive jurisdiction of the state and federal courts sitting the City
of New York, borough of Manhattan, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
- 21 -
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between or among the Buyers, the Company,
their affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered therein and, except as specifically set forth therein, neither the
Company nor any Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
amended other than by an instrument in writing signed by the Company and the
holders of at least two-thirds (2/3) of the Preferred Shares then outstanding,
and no provision hereof may be waived other than by an instrument in writing
signed by the party against whom enforcement is sought. No such amendment shall
be effective to the extent that it applies to less than all of the holders of
the Preferred Shares then outstanding.
f. Notices. Any notices consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically generated and kept on
file by the sending party); (iii) three (3) days after being sent by U.S.
certified mail, return receipt requested, or (iv) one (1) day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
Certified Diabetic Services, Inc.
0000 Xxxxxxxxx Xxxxx Xxxxx
Xxxxxx, Xxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxxxxxx
- 22 -
With a copy to:
Xxxxx Xxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxxxx
If to the Transfer Agent:
American Stock Transfer & Trust Co., Inc.
0000 00xx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx Xxxxxx
If to a Buyer, to its address and facsimile number on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers.
Each party shall provide five (5) days' prior written notice to the
other party of any change in address or facsimile number or person to whose
attention notices shall be given.
g. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Preferred Shares or the Warrants. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the holders of two-thirds (2/3) of the
Preferred Shares then outstanding, except pursuant to a Major Transaction (as
defined in Section 3(c) of the Certificate of Designation) in compliance with
Section 3 of the Certificate of Designation. A Buyer may assign some or all of
its rights hereunder to affiliates or associates of such Buyer, without the
consent of the Company, and to others, with the consent of the Company;
provided, however, that any such assignment shall not release such Buyer from
its obligations hereunder unless such obligations are assumed by such assignee
and the Company has consented to such assignment and assumption.
h. No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Survival. Unless this Agreement is terminated under Section
9(l), the representations and warranties of the Company and the Buyers contained
in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and
9, and the indemnification provisions set forth in Section 8, shall survive the
Closing. Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
- 23 -
j. Publicity. The Company and one representative selected by
the Buyers shall have the right to approve before issuance any press releases or
any other public statements with respect to the transactions contemplated
hereby; provided, however, that the Company shall be entitled, without the prior
approval of any Buyer, to make any press release or other public disclosure with
respect to such transactions as is required by applicable law and regulations
(although each Buyer shall be consulted by the Company in connection with any
such press release or other public disclosure prior to its release and shall be
provided with a copy thereof).
k. Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Closing shall not have
occurred with respect to a Buyer on or before three (3) business days from the
date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated pursuant to
this Section 9(l), the Company shall remain obligated to reimburse the
non-breaching Buyers for the expenses described in Section 4(i) above.
m. Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party. Unless
the context otherwise requires: (a) words in the singular include the plural and
in the plural include the singular; (b) "or" is disjunctive but not exclusive;
(c) "including" means "including, without limitation,"; (d) masculine pronouns
include the feminine pronouns and feminine pronouns include the masculine
pronouns; and all references herein to Sections or Exhibits are references to
Sections of or Exhibits to this Agreement unless otherwise specified.
- 24 -
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
CERTIFIED DIABETIC SERVICES, XXXXXXXX, L.P.
INC. By: Xxxxxx, Xxxxxx & Co., L.P.
Its: General Partner
By: /s/ Xxxxx X. Xxxxxxxxxx
__________________________
Xxxxx X. Xxxxxxxxxx
Name: ________________________ By: _____________________________
Name: Xxxxxxx X. Xxxxxx
Chief Financial Officer Its: Chief Operating Officer
Its: ________________________
GAM ARBITRAGE INVESTMENTS, INC.
By: Xxxxxx, Xxxxxx & Co., L.P.
Its: Investment Advisor
By: _____________________________
Name: Xxxxxxx X. Xxxxxx
Its: Chief Operating Officer
AG SUPER FUND INTERNATIONAL
PARTNERS, L.P.
By: Xxxxxx, Xxxxxx & Co., L.P.
Its: General Partner
By: _____________________________
Name: Xxxxxxx X. Xxxxxx
Its: Chief Operating Officer
RAPHAEL, L.P.
By: _____________________________
Name: Xxxxxxx X. Xxxxxx
Its: Chief Operating Officer
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
CERTIFIED DIABETIC SERVICES, XXXXXXXX, L.P.
INC. By: Xxxxxx, Xxxxxx & Co., L.P.
Its: General Partner
By: __________________________
Name: ________________________ By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------
Its: ________________________ Name: Xxxxxxx X. Xxxxxx
Its: Chief Operating Officer
GAM ARBITRAGE INVESTMENTS, INC.
By: Xxxxxx, Xxxxxx & Co., L.P.
Its: Investment Advisor
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------
Name: Xxxxxxx X. Xxxxxx
Its: Chief Operating Officer
AG SUPER FUND INTERNATIONAL
PARTNERS, L.P.
By: Xxxxxx, Xxxxxx & Co., L.P.
Its: General Partner
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------
Name: Xxxxxxx X. Xxxxxx
Its: Chief Operating Officer
RAPHAEL, L.P.
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------
Name: Xxxxxxx X. Xxxxxx
Its: Chief Operating Officer
RAMIUS FUND, LTD.
By: AG Ramius Partners, L.L.C.
Its: Investment Advisor
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------
Name: Xxxxxxx X. Xxxxxx
Its: Managing Officer
AGR HALIFAX FUND, LTD.
By: AG Ramius Partners, L.L.C.
Its: Investment Advisor
By: _____________________________
Name:
Its: Managing Officer
AMRO INTERNATIONAL, S.A.
By: _____________________________
Name: X. X. Xxxxxxxx
Its: Director
RAMIUS FUND, LTD.
By: AG Ramius Partners, L.L.C.
Its: Investment Advisor
By:
-----------------------------
Name: Xxxxxxx X. Xxxxxx
Its: Managing Officer
AGR HALIFAX FUND, LTD.
By: AG Ramius Partners, L.L.C.
Its: Investment Advisor
By: /s/ Xxxxx X. Xxxxx
------------------------------
Name: Xxxxx X. Xxxxx
Its: Managing Officer
AMRO INTERNATIONAL, S.A.
By: _____________________________
Name:
Its:
RAMIUS FUND, LTD.
By: AG Ramius Partners, L.L.C.
Its: Investment Advisor
By:
-----------------------------
Name: Xxxxxxx X. Xxxxxx
Its: Managing Officer
AGR HALIFAX FUND, LTD.
By: AG Ramius Partners, L.L.C.
Its: Investment Advisor
By:
------------------------------
Name:
Its: Managing Officer
AMRO INTERNATIONAL, S.A.
By: /s/ Xxxxxxx Xxxx
-----------------------------
Name: Xxxxxxx Xxxx
Its:
SCHEDULE OF BUYERS
Number of
Investor Address Purchase Preferred
Investor Name and Facsimile Number Price Shares Number of Warrants
------------- -------------------- ----- ------ ------------------
Xxxxxxxx, L.P. c/o Xxxxxx, Xxxxxx & Co., L.P. $750,000 750 17,500.00
000 Xxxx Xxxxxx - 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxx Xxxx
Facsimile: 000-000-0000
GAM Arbitrage c/o Xxxxxx, Xxxxxx & Co., L.P. $100,000 100 2,333.33
Investments, Inc. 000 Xxxx Xxxxxx - 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxx Xxxx
Facsimile: 000-000-0000
AG Super Fund c/o Xxxxxx, Xxxxxx & Co., L.P. $100,000 100 2,333.33
International Partners, 000 Xxxx Xxxxxx - 00xx Xxxxx
X.X. Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxx Xxxx
Facsimile: 000-000-0000
Raphael, L.P. c/o Xxxxxx, Xxxxxx & Co., L.P. $100,000 100 2,333.33
000 Xxxx Xxxxxx - 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxx Xxxx
Facsimile: 000-000-0000
Ramius Fund, Ltd. c/o Xxxxxx, Xxxxxx & Co., L.P. $200,000 200 4,666.67
000 Xxxx Xxxxxx - 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxx Xxxx
Facsimile: 000-000-0000
AGR Halifax Fund, Ltd. c/o CITCO Fund Services (Cayman $1,250,000 1,250 29,166.67
Islands), Ltd.
Corporate Center, West Bay Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands,
B.W.I.
Attn: Xxxxxxx Xxxxxxx
Facsimile: (000) 000-0000
Notice address:
A.G. Ramius Partners, L.L.C.
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxx X. Xxxxxxx
Facsimile: 000-000-0000
Amro International, S.A. c/o Ultra Finance, Ltd. $500,000 500 11,666.67
Xxxxxxxxxxxxxxxxx 00
X.X. Xxx 0000
Xxxxxx, Xxxxxxxxxxx CH-8022
Attn: X.X. Xxxxxxxx
Facsimile: 000-000-000-0000
Notice address:
c/o Jesup & Xxxxxx Securities Corp.
000 Xxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx Xxxxxx
Facsimile: 000-000-0000
SCHEDULE OF UNDERWRITERS
X.X. Xxxxxxx & Sons Inc.
Bancamerica Xxxxxxxxx Xxxxxxxx
XX Xxxx Xxxxx
Xxxxx & Co.
Cruttendon Xxxx Incorporated
CS First Boston
Xxxx Xxxxxxxx Incorporated
Deutsche Xxxxxx Xxxxxxxx
Xxxxxxxxx Lufkin & Xxxxxxxx Securities Corporation
Xxxxxxxxxx & Co., Inc.
Xxxxxx Xxxx Incorporated
Genesis Merchant Securities
Xxxxxxx Sachs & Co.
Xxxxxxxxx & Xxxxx
Invermed Associates
X.X. Xxxxxx & Company
Jesup & Xxxxxx Securities Corporation
Xxxxxx Brothers Inc.
Xxxxxxx Xxxxx & Co.
Xxxxxx Xxxxxxx, Xxxx Xxxxxx, Discover & Co.
NationsBank Xxxxxxxxxx Securities
Xxxxxxx & Company, Inc.
Xxxxxxxxxxx & Co.
Pacific Growth Equities Inc.
Xxxxx Xxxxxx
Xxxxx Jaffray Inc.
Prudential Bache Securities
Punk Xxxxxx & Xxxxx
Xxxxxxx Xxxxx & Associates, Inc.
Xxxxx Xxxxxx Salomon Inc
SBC Warburg/Xxxxxx Read
UBS Securities, Inc.
Vector Securities
Wedbush Xxxxxx Securities
