<PAGE>
As filed with the Securities and Exchange Commission on April 23, 1998
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CERTIFIED DIABETIC SERVICES, INC.
(Exact name of registrant as specified in its charter)
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<CAPTION>
<S> <C> <C>
Delaware 8099 65-0765452
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
</TABLE>
2373 Horseshoe Drive South
Naples, Florida 34104
(941) 430-5000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Frederick J. Roberts
President and Chief Operating Officer
Certified Diabetic Services, Inc.
2373 Horseshoe Drive South
Naples, Florida 34104
(941) 430-5000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of all correspondence to:
Stephan J. Mallenbaum, Esq.
Jonathan H. Spanbock, Esq.
Bryan Cave LLP
245 Park Avenue
New York, New York 10167
(212) 692-1800
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, 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. / /
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<PAGE>
CALCULATION OF REGISTRATION FEE
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=========================================================================================================================
Proposed Proposed
Maximum Maximum
Title of Each Class of Securities Amount to be Offering Price Aggregate Amount of
to be Registered Registered(5) per Share Offering Price Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value (the
"Common Stock")(1) ................... 957,500 $ 4.03125(2) $ 3,859,921.88(2) $ 1,139
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Common Stock issuable upon exercise
of Investor Warrants, each to purchase
one share of Common Stock (3) ........ 70,000 $ 4.77 (4) $ 333,900(4) $ 99
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Total ............................................................................................ $ 1,238
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</TABLE>
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(1) Includes (i) 20,000 shares of Common Stock issued to the Registrant's
private placement agent in connection with the Registrant's 1998 private
placement (the "Private Placement"), and (ii) 937,500 shares of Common
Stock issuable to the investors in the Private Placement upon conversion,
if any, of the shares of Series A Convertible Preferred Stock of the
Registrant, par value $.01 per share (the "Series A Preferred Stock").
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) using the average of the bid and asked prices reported on
the OTC Bulletin Board for the Common Stock as of April 21, 1998.
(3) This Common Stock is issuable upon exercise of certain warrants issued to
the investors in the Private Placement (the "Investor Warrants"),
entitling the investors to purchase up to an aggregate of 70,000 shares of
Common Stock at an exercise price of $4.77 per share.
(4) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(g).
(5) Pursuant to Rule 416 under the Securities Act, this Registration Statement
also covers such indeterminate number of shares of Common Stock as may be
issuable by reason of the anti-dilution provisions contained in the
Investor Warrants and applicable to the Series A Preferred Stock.
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, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange 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.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to completion, dated April 23, 1998
1,027,500 Shares
[GRAPHIC OMITTED]
CERTIFIED DIABETIC SERVICES, INC.
Common Stock
This Prospectus relates to an offering (the "Offering") of 1,027,500
shares of Common Stock, par value $.01 per share (the "Common Stock") of
Certified Diabetic Services, Inc., a Delaware corporation ("Certified" or,
individually or with one or more of its operating subsidiaries and/or their
predecessor corporations, the "Company"). All of the shares of Common Stock
offered hereby are to be sold by persons who are existing stockholders of the
Company (the "Selling Stockholders") named herein under "Selling Stockholders".
Of the shares offered hereby, (i) 20,000 are issued and outstanding shares of
Common Stock of the Company issued to the Company's private placement agent in
connection with the Company's 1998 private placement (the "Private Placement"),
(ii) 70,000 are shares issuable upon exercise of certain warrants issued to the
investors in the Private Placement (the "Investor Warrants"), which warrants
have an exercise price of $4.77 per share, and (iii) 937,500 are shares
issuable to the investors in the Private Placement upon conversion, if any, of
the shares of Series A Convertible Preferred Stock of the Company, par value
$.01 per share (the "Series A Preferred Stock"), which shares of Series A
Preferred Stock are convertible into shares of Common Stock at a rate equal to
the lower of (a) $6.50 per share of Common Stock, or (b) 80% of the average of
the two lowest closing bid prices of the Common Stock for the fifteen
consecutive trading days prior to the day on which the notice of conversion is
transmitted by the holders of the Series A Preferred Stock, subject to
adjustment in order to prevent dilution and in the case of any
recapitalization, consolidation, merger and certain other events. See "Selling
Stockholders" and "Description of Securities." The Company will not receive any
proceeds from the sale of the shares of Common Stock by the Selling
Stockholders but will receive up to an aggregate of approximately $333,900 upon
exercise of the Investor Warrants.
The Selling Stockholders have advised the Company that they may from time
to time sell all or a portion of the shares offered hereby in one or more
transactions in the over-the-counter market, on the Nasdaq SmallCap Market
("NASDAQ SmallCap") or on any other exchange on which the Common Stock may then
be listed, in privately negotiated transactions or otherwise, or a combination
of such methods of sale, at market prices prevailing at the time of sale or
prices related to such prevailing market prices or at negotiated prices. The
Selling Stockholders may effect such transactions by selling the shares to or
through broker-dealers, and such broker-dealers may receive compensation in the
form of underwriting discounts, concessions or commissions from the Selling
Stockholders and/or purchasers of the shares for whom they may act as agent
(which compensation may be in excess of customary commissions). The Selling
Stockholders and any participating broker-dealers may be deemed to be
"Underwriters" as defined in the Securities Act of 1933, as amended (the
"Securities Act"). Neither the Company nor the Selling Stockholders can
estimate at the present time the amount of commissions or discounts, if any,
that will be paid by the Selling Stockholders on account of their sales of the
shares from time to time. The Company has agreed to indemnify the Selling
Stockholders against certain liabilities, including certain liabilities under
the Securities Act. See "Plan of Distribution."
Prior to this Offering, shares of the Common Stock have been traded, and
the price of such shares has been quoted, pursuant to Rule 15c2-11 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), on the "OTC
Electronic Bulletin Board" of the National Association of Securities Dealers,
Inc. ("NASD") under the symbol CDIP. On April 21, 1998, the last reported sale
price of the Common Stock on the OTC Electronic Bulletin Board was $4.00 per
share. The Company has filed an application for the Common Stock to be quoted
on NASDAQ SmallCap under the symbol "CDIP." There can be no assurance that the
application will be accepted.
These securities are highly speculative and involve a high degree of risk
and immediate and substantial dilution. See "Risk Factors" beginning on page 7
and "Dilution" on page 19.
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.
The date of this Prospectus is , 1998
<PAGE>
The Company intends to furnish its stockholders with annual reports containing
audited financial statements, quarterly reports containing unaudited interim
financial information for the first three quarters of each fiscal year of the
Company, and such other periodic reports as the Company deems appropriate or as
may be required by law.
This Prospectus contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Prospectus, the words
"anticipate," "believe," "estimate," "expect" and similar expressions as they
relate to the Company or its management are intended to identify such forward
looking statements. The Company's actual results, performance or achievements
could differ materially from those expressed in, or implied by, these
forward-looking statements as a result of, among other things, the factors set
forth in the section entitled "Risk Factors."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and must be read in
conjunction with, 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.
Investors should carefully consider the information set forth under the heading
"Risk Factors."
The Company
Certified Diabetic Services, Inc. ("Certified" or, individually or with
one or more of its operating subsidiaries and/or their predecessor
corporations, the "Company") markets and sells by mail order products and
services for diabetic retail customers throughout the United States. These
products include home blood glucose monitors ("meters"), test strips, control
solution, lancets and lancing devices (the meters and such other products
referred to, collectively, as "test products") used for testing the blood sugar
levels of diabetics, as well as insulin and syringes. The Company's sales
revenues are primarily generated from reimbursements by Medicare and private
insurance carriers on behalf of the diabetic retail customers. As of January
1998, the Company estimates that it had in excess of 8,000 active customers (a
customer generally being considered active if he or she has placed and paid for
orders in the last 90 days).
Persons suffering from diabetes, a chronic disease for which no cure
presently exists, must manage their disease by maintaining their blood sugar
levels as close to normal as possible. Blood testing permits diabetics to
monitor their blood sugar levels on a regular basis so that other treatment
steps, particularly the use of insulin and/or other medication, can be
administered effectively, in the appropriate dosages and at the appropriate
time intervals. Diabetics are generally advised to test their blood one to
three times per day, every day, from the time of diagnosis for the duration of
their lives, although compliance levels vary greatly among diabetics. The
Centers for Disease Control and Prevention (the "CDC") estimates that, as of
1995, 16,000,000 Americans had diabetes, of whom approximately 8,000,000 had
actually been diagnosed as suffering from the disease. The CDC estimates that
of these diagnosed diabetics, up to 10%, or 800,000 Americans, suffer from Type
I insulin dependent diabetes ("IDDM") and require daily injections of insulin.
The remaining number of diabetics suffer from Type II non-insulin dependent
diabetes ("NIDDM"). Current estimates are that more than 600,000 new cases of
diabetes are diagnosed annually in the United States.
The Company is developing its business in order to capitalize on the
continuing regulatory and marketplace changes occurring in the healthcare
industry and the opportunities presented thereby. Since inception, the Company
has primarily focused on obtaining individual IDDM customers, covered by
Medicare and private insurance. These customers have been generated through a
nationwide media advertising program. Presently the Company receives
approximately 59% of its sales revenues from Medicare reimbursement and
substantially all of its remaining sales revenues from private insurance
reimbursement. At present, substantially all of the Company's customers are
IDDM customers.
During the second half of 1997, the Company implemented a new business
strategy seeking increased numbers of additional customers through contracts
with preferred provider organizations ("PPOs"), third party health plan
administrators ("TPAs"), self-insured plans, managed care programs and other
similar groups (all referred to, collectively, as "Groups"). Pursuant to these
contracts, the Company provides diabetes test products to participants in or
enrollees or members of Groups ("Group participants") at a specified price or
reimbursement formula. The success of this strategy depends both on the
Company's ability to enter into provider contracts with Groups and, after
entering into such contracts, to attract participants in the contracting Groups
to become customers of the Company. The sale of products to Group participants
tends to be more profitable to the Company than sales to customers attracted by
the Company's traditional media advertising programs ("media customers")
because reimbursement rates for test products sold to Group participants are
generally higher than those for sales to the Medicare participants who make up
a substantial portion of the Company's media customers. Management also
believes that provider contracts offer a more precisely targeted marketing
opportunity for the Company to obtain substantial blocks
3
<PAGE>
of customers as compared to television advertising which tends to be more
diffuse and to require increasing financial expenditures over an indefinite
period of time. To date, the Company has entered into four provider contracts
with Groups and is actively negotiating a number of additional contracts. The
Company intends to continue its efforts to seek additional provider contracts
and to attract Group participants as customers.
Effective July 1, 1998, sales of test products to such NIDDMs become
eligible for Medicare reimbursement in accordance with a provision (the "NIDDM
Provision") of the Balanced Budget Act of 1997 (the "Balanced Budget Act").
Whereas, previously, Medicare only provided reimbursement for IDDM customers,
the NIDDM Provision expands coverage to all diabetics. Accordingly, the Company
is also implementing a new media advertising program intended to capitalize on
the change in the law effected by the NIDDM Provision. The new advertising
campaign is designed to capture substantial numbers of additional customers who
are non-insulin dependent, although there can be no assurance of the Company's
ability to do so in view of the fact that the NIDDM market is a new and
untested market for the Company, and that the level of usage of test kits and
other supplies by non-insulin dependent diabetics may be substantially lower.
Non-insulin dependent diabetics do not generally purchase insulin.
Private Placement
On March 19, 1998, in order to fund its continuing operations, the Company
completed a private placement of its securities (the "Private Placement"). In
connection with the Private Placement, the company issued (i) an aggregate of
3,000 shares of the Series A Preferred Stock, with an initial stated value of
$1,000 per share (the "Stated Value"), which stock bears dividends at the rate
of 5.0% per annum on the Stated Value and (ii) the Investor Warrants giving the
investors in the Private Placement the right to purchase an aggregate of 70,000
shares of the Company's Common Stock, at a price of $4.77 per share (the
"Exercise Price"), which Investor Warrants are exercisable for a period of five
years from the date of issuance. The Series A Preferred Stock is convertible
into shares of the Common Stock at a rate (the "Conversion Rate") equal to the
Stated Value plus accrued but unpaid dividends divided by the lower of (a)
$6.50 per share, or (b) 80% of the average of the two lowest closing bid prices
of the Common Stock for the fifteen consecutive trading days prior to the day
on which the notice of conversion is transmitted by a holder thereof (the
"Conversion Price"), subject to adjustment in order to prevent dilution and in
the case of any recapitalization, consolidation, merger and certain other
events. The investors in the Series A Preferred Stock are permitted to convert
(a) up to one-third of their Series A Preferred Stock within thirty days after
the earlier of (i) the date on which the Registration Statement of which this
Prospectus forms a part is declared effective by the SEC (the "Effective Date")
and (ii) 120 days after the date of issuance of the Series A Preferred Stock
(the "Scheduled Effective Date"), (b) up to two-thirds of their Series A
Preferred Stock within sixty days after the earlier of the Effective Date and
the Scheduled Effective Date, and (c) all of their Series A Preferred Stock at
any time thereafter. The Series A Preferred Stock will automatically convert
into shares of the Common Stock on March 31, 2002, subject to extension under
various circumstances.
The Series A Preferred Stock shall be senior in rank to the Common Stock
in respect of the preferences as to distributions and payments upon the
liquidation, dissolution and winding up of the Company and the rights of the
Common Stock shall be subject to the preferences and relative rights of the
Series A Preferred Stock. The Company has agreed that it will not issue
additional or other capital stock that is of senior rank to the Series A
Preferred Stock in respect of the preferences as to distributions and payments
upon the liquidation, dissolution and winding up of the Company without the
prior written consent of the holders of not less than two-thirds (2/3) of the
then outstanding Series A Preferred Stock. The Company has also agreed not to
amend its Certificate of Incorporation or by-laws in a manner which would
adversely affect or otherwise impair the rights or relative priority of the
Series A Preferred Stock relative to any other class of capital stock without
the prior written consent of the holders of not less than two-thirds (2/3) of
the then outstanding Series A Preferred Stock.
The Company has agreed to register, and is registering pursuant to the
Registration Statement of which this prospectus forms a part, the shares of
Common Stock issuable upon conversion of the Series
4
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A Preferred Stock and exercise of the Investor Warrants as well as such
indeterminable number of additional shares of Common Stock as may become
issuable upon conversion of the Series A Preferred Stock and upon exercise of
the Investor Warrants (i) to prevent dilution resulting from stock splits,
stock dividends or similar transactions and (ii) by reason of changes in the
Conversion price or Conversion Rate of the Series A Preferred Stock and the
Exercise Price of the Investor Warrants in accordance with the terms thereof.
The Company has agreed to cause a registration statement covering such
securities to become effective and to cause the Company to be listed on NASDAQ
SmallCap within 120 days after the Closing of the Private Placement. In the
event the Company is unable to comply with these provisions, it will be subject
to a substantial monetary penalty to the investors. See "Risk Factors --
Eligibility for Listing; Effect of Failure to Achieve Listing."
In connection with the Private Placement, Jesup & Lamont Securities
Corporation (the "Placement Agent") acted as placement agent. In consideration
of these services, the Company paid to the Placement Agent a fee equal to
$210,000, a non-accountable expense allowance of $30,000 and 20,000 shares of
the Company's Common Stock, which shares are also included in the Registration
Statement of which this Prospectus forms a part.
The Offering
Common Stock offered by the
Selling Stockholders(1)......... 1,027,500 shares.
Common Stock outstanding before
the Offering(2)................ 10,845,000 shares.
Series A Preferred Stock
outstanding before the
Offering(3)................... 3,000 shares
Common Stock to be outstanding
after the Offering(4)........ 11,852,500 shares.
Risk Factors
and Dilution.................. The purchase of shares of Common Stock offered
hereby involves a high degree of risk and
immediate and substantial dilution. Prospective
purchasers should review and carefully consider
the information set forth under "Risk Factors"
and "Dilution."
Current NASD Trading
Symbol(5).................... CDIP
Proposed NASDAQ Symbol........ CDIP
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(1) Comprised of (a) 20,000 issued and outstanding shares of Common Stock of
the Company issued to the Company's Placement Agent in connection with the
Private Placement, (b) 70,000 shares of Common Stock issuable upon
exercise of the Investor Warrants, which warrants have an exercise price
of $4.77 per share, and (c) 937,500 shares of Common Stock issuable to the
investors in the Private Placement upon conversion, if any, of the Series
A Preferred Stock, which Series A Preferred Stock is convertible into
Common Stock at a price equal to the lower of (i) $6.50 per share of
Common Stock, or (ii) 80% of the average of the two lowest closing bid
prices of the Common Stock for the fifteen consecutive trading days prior
to the day on which the notice of conversion is transmitted by the holders
of the Series A Preferred Stock, subject to adjustment in order to prevent
dilution and in the case of any recapitalization, consolidation, merger
and certain other events. See "Selling Stockholders" and "Description of
Securities."
(2) Includes 20,000 issued and outstanding shares of Common Stock issued to the
Company's Placement Agent in connection with the Private Placement.
5
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(3) The Company's Series A Preferred Stock has an initial stated value of
$1,000 per share, and bears dividends at the rate of 5.0% per annum on the
stated value.
(4) Excludes 8,000,000 shares of Common Stock reserved for issuance under the
Company's 1997 Stock Option Plan (the "Plan"), of which options to
purchase 7,000,000 shares have been granted and are outstanding as of
April 1, 1998. Of these outstanding options, 300,000 will expire, before
vesting, on June 9, 1998. See "Management -- Benefit Plans" and
"Description of Capital Stock."
(5) The NASD has assigned the trading symbol CDIP to Certified. However, the
Common Stock has been traded, and the price of such shares has been quoted
on the OTC Electronic Bulletin Board, under the symbol CDSP which was
assigned to the Company's predecessor corporation, Certified Diabetic
Supplies Inc., a Florida corporation. See "The Company".
Summary Financial Information
(in thousands)
The summary financial information set forth below is derived from the
financial statements appearing elsewhere in this Prospectus. Such information
should be read in conjunction with such financial statements, including the
notes thereto.
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For the
Period from
September Quarter Ended
28, 1995 Year Ended January 31,
(Inception) to October 31, -----------------------
October 31, 1996 1997 1997 1998
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(Unaudited)
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Statement of Income Data:
Net sales .............................. $ 2,588 $ 6,726 $ 1,278 $ 1,981
Net income (loss) ...................... 62 766 61 (384)
Net income (loss) per share
Basic ............................... 0.01 0.07 0.01 (0.04)
Diluted ............................. 0.01 0.06 0.01 (0.04)
Weighted average number of common shares
outstanding
Basic ............................... 7,854 10,535 8,143 10,535
Diluted ............................. 7,854 13,212 8,143 10,535
</TABLE>
Balance Sheet Data:
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January 31, 1998
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Actual Pro Forma(1) As Adjusted(2)
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(Unaudited)
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Working capital (deficiency) ......... $ (954) $1,806 $2,140
Total assets ......................... 6,837 8,942 9,276
Total liabilities .................... 5,268 4,613 4,613
Shareholders' equity ................. 1,569 4,329 4,663
</TABLE>
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(1) Gives pro forma effect to the receipt of proceeds from the private
placement offering of 3,000 shares of preferred stock at $1,000 per share,
net of offering costs paid of $240,000 and $73,000 which is the market
value on the date of issuance of 20,000 common shares to the private
placement agent, of which $300,000 was used to repay a second mortgage
loan and $355,000 was used to repay loans payable to officers.
(2) As adjusted to give effect to the exercise of warrants to acquire 70,000
shares and the application of the estimated net proceeds ($334,000)
therefrom. See "Use of Proceeds" and "Capitalization".
6
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THE COMPANY
Certified is a non-operating holding company which wholly owns the
following operating subsidiaries: (i) Certified Diabetic Supplies, Inc.
("Delaware Supplies"), a Delaware corporation; (ii) CDS Medical Supplies, Inc.
("Medicalco"), a Delaware corporation; and (iii) CDS Health Management, Inc.
("Healthco"), a Delaware corporation. The Company's business was commenced in
November 1995 by Certified Diabetic Supplies, Inc., a Florida corporation
("Florida Supplies") which was the predecessor corporation to Delaware
Supplies. Florida Supplies was incorporated in Florida on September 28, 1995,
under the name Diabetic Supplies of Collier, Inc., and adopted the name
Certified Diabetic Supplies, Inc. on October 12, 1995. Florida Supplies made
its first shipments of medical products to customers on November 1, 1995. On
November 28, 1995, Florida Supplies became a registered Medicare supplier of
durable medical equipment, eligible to take assignments of customers' rights to
reimbursement, to invoice Medicare directly, and to receive payments for
eligible products shipped.
Business operations consisting of the marketing, sale and shipping of
medical products for diabetics continued to be conducted through Florida
Supplies until August 12, 1997. On August 12, 1997, Florida Supplies was merged
with and into Delaware Supplies (the "Merger") as part of a general
reorganization of the Company in which the Company changed its state of
incorporation from Florida to Delaware and adopted its current holding
company/operating subsidiary structure. Existing shareholders of Florida
Supplies received an equivalent number of shares in Certified. The Merger did
not effect any change in the ownership of the Company or the conduct of its
business. Delaware Supplies continues to conduct, as a registered Medicare
supplier (and as a subsidiary of Certified), the business previously conducted
by Florida Supplies.
The Company's Medicalco subsidiary seeks to enter into provider contracts
with Groups. Healthco processes certain types of private insurance claims.
The Company's principal executive offices are located at 2373 Horseshoe
Drive South, Naples, Florida 34104, and its telephone number is 941-430-5000.
The Company's Internet web site is located at http://www.cdiabetic.com.
Information contained in the Company's web site shall not be deemed to be part
of this Prospectus.
RISK FACTORS
The shares offered hereby are speculative and involve a high degree of
risk. In addition to the other information in this Prospectus, the following
factors should be considered carefully by prospective purchasers in evaluating
the Company before purchasing the Common Stock offered hereby. This Prospectus
contains forward-looking statements that involve risks and uncertainties.
Actual results could differ from those discussed in the forward-looking
statements as a result of certain factors, including those set forth below and
elsewhere in this Prospectus.
Limited Operating Experience
The Company has conducted operations only since late 1995. Its business --
the sale of supplies for diabetics -- is evolving, with the Company's initial
contracts to provide diabetic products to participants in Groups having been
signed in May and June 1997 and with the impact of the change in law effected
by the NIDDM Provision still to be determined. Thus, the Company's business, in
its current form, has only minimal operating history upon which investors may
base an evaluation as to likely future performance. Investors should consider
the Company's likelihood of success in light of the expenses, difficulties and
delays frequently encountered in developing and establishing new businesses,
and in light of the possibility that the Company may not succeed in penetrating
the managed care market for Groups. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Need for Additional Financing
The Company will not receive any proceeds from the sale of the shares of
Common Stock by the Selling Stockholders (although it will receive up to an
aggregate of approximately $333,900 upon exercise of the Investor Warrants, if
any). The Company believes the net proceeds from the Private Placement of
Series A Preferred Stock and the Investor Warrants, (upon conversion and
exercise of which, respectively, the shares of Common
7
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Stock which are the subject of this Prospectus are issuable), together with
cash on hand, the proceeds from the exercise of the Investor Warrants, if any,
and cash expected to be generated from operations, will be adequate to satisfy
its capital requirements for at least 12 months from the date hereof. However,
if the Company's plans relating to the implementation of its business strategy
change or the Company's assumptions regarding the implementation of its
business strategy prove to be inaccurate (due to a number of factors including,
without limitation, unanticipated expenses, difficulties, delays or otherwise)
or the proceeds of the Private Placement otherwise prove to be insufficient to
fund the implementation of the Company's business strategy and working capital
requirements, the Company could be required to seek additional financing. Such
financing could involve the issuance of additional debt or equity securities or
borrowings from banks or other sources. The Company's ability to obtain
additional financing may be limited for a number of reasons, including the
then-current levels of existing indebtedness, restrictive covenants under the
then-existing credit agreements and the agreements associated with the Private
Placement, and the fact that a substantial portion of the Company's assets may
then be subject to existing liens and encumbrances. There can be no assurance
that any additional financing will be available to the Company, when needed, on
commercially reasonable terms, or at all. Any inability to obtain additional
financing when needed would have a material adverse effect on the Company. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations -- Liquidity and Capital Resources." In addition, any additional
financing may result in further dilution to Company stockholders resulting from
the issuance of Common Stock or securities exercisable for or convertible into
Common Stock. See "Dilution."
Significant Outstanding Indebtedness
The Company has incurred significant indebtedness in connection with the
development of its business including, without limitation, its relocation to
new facilities, its investment in required physical assets including
information systems and its hiring of additional personnel. Of the Company's
total indebtedness, $2,525,000 was incurred in connection with the Company's
acquisition of its current facilities, in the form of a first mortgage loan
from First National Bank of Naples (Florida) ("FNB") secured by a first
mortgage on the Company's current facilities and guaranteed by each of Peter J.
Fiscina, Albert R. Ayala and Myron M. Blumenthal, in their personal capacities.
Additionally, the Company as of the date hereof has borrowed the full amount of
a $1,000,000 line of credit provided by FNB, which is secured by a security
interest in certain of the Company's assets including receivables, inventory
and equipment and guaranteed by each of Peter J. Fiscina and Albert R. Ayala in
their personal capacities. Although the Company anticipates that it will repay
its outstanding indebtedness out of cash flow from operations, existing cash
resources, the proceeds from the exercise of the Investor Warrants, if any,
future debt or equity financings, or a combination thereof, there can be no
assurance that the Company will have the financial resources to repay such
amounts when due or that the Company will be able to raise additional capital
to satisfy its outstanding indebtedness. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," "Business -- Properties," and "Certain Relationships and
Related Transaction -- Ronald L. Rucker."
Dependence on Reimbursement by Third Party Payors
The levels of revenues and profitability of the Company, like those of
other healthcare providers, are affected by the continuing efforts of third
party payors to contain or reduce the costs of healthcare by lowering
reimbursement rates, increasing case management review of services, and
negotiating reduced-rate contract pricing. As the Company received
approximately 59% of its revenues from Medicare reimbursement in the 12 months
ended October 31, 1997, any reduction in Medicare reimbursement rates will
reduce the Company's sales revenues by a corresponding amount without the
Company obtaining a corresponding reduction in its costs for the products that
it sells. The result would be a reduction in the Company's overall profit
margin on its product sales. There have been, and management expects that there
will continue to be, proposals to limit Medicare reimbursement for healthcare
products and services by an increasing emphasis on managed care systems and
other means. The Company cannot predict whether any of these proposals will be
adopted, but if adopted and implemented, such proposals could have a material
adverse effect upon the Company's business and financial condition and results
of operations by reducing the Company's profit margins on the products that it
sells. The Company is attempting to address these risks, in part, by
emphasizing the addition of customers who maintain private insurance and/or who
are participants in Groups serviced by the Company pursuant to provider
contracts. However, the Company cannot predict the degree of success, if any,
it will have in such efforts. Moreover, significant changes in the terms of
private insurance coverage, contractual arrangements with Groups, or Medicare
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coverage for the products sold by the Company, could also have a material
adverse effect on the Company's business and financial condition and results of
operations. Additionally, the Company does not presently and has no plans to
sell its products to that portion of the population enrolled in health
maintenance organizations ("HMOs"). See "Business -- Shipping, Billing and
Payment Procedures" and "Business -- Reimbursement."
To the extent it seeks full payment from customers without supplementary
insurance coverage (beyond the primary coverage provided by Medicare or private
insurers), the Company must collect directly from the customers a portion of
the purchase price of products sold and is subject to a credit risk on such
amounts. See "Business -- Shipping, Billing and Payment Procedures" and
"Business -- Reimbursement."
The Company May Not Be Successful in Penetrating Managed Care Market
A key component of the Company's business strategy is to attract as
customers substantial numbers of participants in Groups with whom the Company
has entered contracts to provide its products. The success of this component of
the Company's business strategy depends on the Company's ability both to enter
into such contracts and to induce participants in contracting Groups to become
customers for the Company's products.
Although the Company has entered into four contracts with Groups of
varying sizes, such contracts are generally for limited initial terms (although
some contain automatic renewal provisions), may be subject to early termination
by the contracting Groups, and may, in any event, not be renewed at the
conclusion of the initial term. Competition to enter into provider contracts
with Groups is intense, and there can be no assurance that the Company will
maintain existing contracts or obtain additional contracts. Additionally, the
Company, in order to obtain such provider contracts, has, and may be required
in the future to offer Groups terms and pricing for its products which are
competitive with those of other vendors competing for the same contracts, thus
reducing margins for the Company's products.
The Company entered into its initial two provider contracts in May and
June of 1997, and obtained two additional contracts in January 1998. To date,
however, none of such contracts has yielded a significant number of customers,
and there can be no assurance that they will in the future.
Generally, provider contracts are non-exclusive, meaning that other
vendors of diabetes test products may enter into similar contracts with the
same Groups with whom the Company contracts. In such event, participants in
such Groups will have the option of purchasing required products from either
the Company or other contracting vendors and the Company will face stiffer
competition to induce such participants to become customers of the Company.
Furthermore, Group participants will, in all cases, retain the option of
purchasing products from pharmacies. In order to attract Group participants as
customers, the Company will be required to conduct extensive marketing efforts
directed at Group participants. In connection with these marketing efforts, the
Company will be required to allocate substantial human and financial resources,
and there can be no assurance that such marketing efforts will be successful.
See "Business -- Provider Contracts," "Business -- Business Strategy and Plan,"
and "Business -- Competition."
Difficulty of Maintaining Profit Margins
Reimbursements for test products sold by the Company are made pursuant to
Medicare and private insurance fee schedules. Because the Health Care Financing
Administration ("HCFA") and private insurers determine the reimbursement
levels, the Company cannot increase its revenues by raising the price of the
test products it sells. Accordingly, the only means by which the Company can
maintain or expand profit margins is to contain its own costs and expenses.
The Company expends substantial efforts to contain its operating costs and
to purchase products for sale to its customers at the lowest possible prices.
However, as increases in its own expenses cannot generally be passed along to
customers, such increases can lead to reductions in profit margins, and could
have a material adverse effect on the Company's business and financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Results of Operations."
Dependence on Suppliers of the Company's Products
The medical equipment and products sold by the Company to its customers
are purchased by the Company from manufacturers of such products. The Company
seeks to purchase such products from manufacturers in sufficient commercial
quantities and at commercially reasonable prices to service the demand of its
customers and
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to generate sufficient profit margins. The Company has neither the facilities
nor the capability to manufacture any of such products. The Company has never
experienced an availability shortage of the products it sells or an inability
to fill customers' orders. The Company believes that it will continue to be
able to purchase the products it requires, at commercially acceptable prices,
from a variety of manufacturers and suppliers, even as the need for such
products grows in conjunction with the growth in the size of the Company's
customer list. However, there can be no assurance that the Company will be able
to purchase its products in sufficient quantities and at commercially favorable
costs. Were such products to be unavailable, or available only at significantly
higher prices, even for a temporary period, such shortage or price increase
could have a material adverse effect on the Company's business and financial
condition and results of operations. See "Business -- Suppliers."
Changes in Government Regulation May Have an Effect on Operations
Healthcare is an area of extensive and dynamic regulation, and the
Company, as a supplier of medical equipment to beneficiaries of governmental
health insurance programs, is subject to certain government regulation. Changes
in laws or regulations or new interpretations of existing laws or regulations
can have a material effect on methods of doing business, costs of doing
business and levels of reimbursement by government and private third party
payors, and the Company cannot predict what changes in or new interpretations
of existing laws or regulations may occur. Any such changes could have a
material adverse effect on the Company's business and financial condition and
results of operations. See "Business -- Government Regulatory Matters."
The Company May Not Successfully Implement Its Business Strategy
The long-term success of the Company's business is dependent on the
Company's ability to implement successfully the key elements in its business
strategy, including without limitation (i) increasing the numbers of customers
serviced and (ii) broadening the target audience for the Company's products.
There can be no assurance that the Company will be able to implement
successfully its business strategy. In particular the sale of diabetic test
kits to non-insulin dependent diabetics covered by Medicare reimbursement is an
untested market. A failure to effect successfully significant portions of the
business strategy could result in the Company's inability to grow or to achieve
the types of operating efficiencies which management believes are required in
order to participate successfully in a competitive market. See "Business --
Business Strategy and Plan."
Risks Associated With Managing Growth
The Company's growth has been rapid to date and management believes such
growth will continue. Such continued growth could place a significant strain on
the Company's management, human, physical, operational and other resources. In
particular, continued and accelerating growth has necessitated the hiring by
the Company of additional management personnel. The Company may continue to
expand its labor force, including both management and other personnel. There
can be no assurance that the Company will be able to identify, attract or
retain qualified management or other personnel. Furthermore, expansion of the
Company's labor force has, and will continue to, significantly increase the
Company's expenses.
The Company's ability to manage its growth will require it to continue to
invest in its operational, financial, and information systems, and to attract,
retain, motivate, and effectively manage its employees. The inability of the
Company's management to manage growth effectively would have a material adverse
effect on the Company's business and financial condition and results of
operations. See "Business -- Business Strategy and Plan."
Competition
The market for the Company's products is geographically dispersed and
fragmented. The Company has numerous competitors, including local pharmacies,
mail order catalogue businesses and many large nationwide retail chains.
Competitors are located in all markets in which the Company's customers and
potential customers are located. Some of the Company's competitors are
substantially larger than the Company and have substantially greater resources
than the Company. Furthermore, the barriers to entry into the Company's
business are relatively low. See "Business -- Competition."
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The key competitive factors for the Company and other vendors of diabetic
products are the quality of service to customers, the scope and effectiveness
of marketing efforts, including media advertising campaigns and, increasingly,
the ability to develop new sources of customers through such means as obtaining
and servicing provider contracts with Groups.
The Company will face significant competition in obtaining provider
contracts with Groups. The Company believes that its efforts to date to obtain
provider contracts with Groups have been successful, and the Company intends to
continue, and to intensify, these efforts. However, management believes that
competitors of the Company may be conducting similar efforts to enter into
provider contracts. To the extent the provider contracts yield significant
numbers of new customers, competitors of the Company are likely to intensify
their own efforts to obtain such provider contracts.
In order to maintain and improve the quality of its service, the Company
has made, and will continue to make, significant capital investments in such
areas as personnel, training, systems (including telecommunications and
information systems), and physical facilities. The continuing need to make such
capital investments and to incur costs in maintaining and improving service can
reduce profit margins on the sale of products.
Management believes that the success of its television and radio
advertising efforts have, recently, prompted competitors to initiate
substantial television and radio advertising campaigns, some of which are
significantly larger and more aggressive than that of the Company. Successful
advertising campaigns conducted by competitors of the Company may have an
adverse impact on the Company's ability to retain existing customers and
attract new ones, and may also make it necessary for the Company to increase
the scope of its own advertising. The Company could be forced to purchase
greater amounts of media time, some or all of such time at more expensive
rates, and to incur additional costs in the production of advertisements.
Greater investment in advertising could have the effect of significantly
increasing the cost of the Company's sales.
Certain of the Company's competitors are larger and may have substantially
greater capital and human resources than the Company, making them better able
to pursue and capitalize on provider contracts with Groups, to make capital
investments and incur costs associated with maintaining and improving the
quality of service, and to conduct and absorb the costs associated with more
extensive advertising campaigns.
Dependence on Key Personnel
The Company's business is directed by a small number of executive and
management personnel, the loss of certain of whom could have a material adverse
effect on the Company. The Company believes that its ability to manage its
planned growth successfully will depend in large part on its continued ability
to attract and retain highly skilled and qualified personnel.
Although the Company has written employment agreements with its Chairman
and Chief Executive Officer, Peter J. Fiscina, its President and Chief
Operating Officer, Frederick J. Roberts, its Treasurer and Chief Financial
Officer, Myron M. Blumenthal, and its Vice Chairman, Albert R. Ayala, there can
be no assurance that any of such persons will remain available to the Company.
The unavailability of any of Messrs. Fiscina, Roberts, Blumenthal and Ayala
would have a material adverse effect upon the Company.
Furthermore, the Company also employs a number of key executives and
managers in marketing and sales, client services, finance and information
systems. These key managers are charged with the responsibility of implementing
the Company's business strategy. Although these persons are employed pursuant
to written employment agreements, there can be no assurance that they will
remain available to the Company or, if any were to become unavailable, that
suitable and effective replacements could be identified and engaged. The
unavailability of any of these key members of the Company's management team and
the inability of the Company to identify and engage suitable replacements would
have a material adverse effect on the Company. See "Management."
Control By Principal Stockholders
As of the date hereof, Messrs. Fiscina, Ayala and Blumenthal will
beneficially own approximately 23.2%, 21.3%, and 11.1% of the outstanding
Common Stock of the Company, respectively. Were the holders of the
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Series A Preferred Stock and the Investor Warrants issued in the Private
Placement to exercise fully their conversion and warrant rights, Messrs.
Fiscina, Ayala and Blumenthal would beneficially own approximately 21.2%, 19.5%
and 10.2% of the outstanding Common Stock of the Company, respectively
(assuming for this purpose that conversion of the Series A Preferred Stock was
based on a conversion rate of $3.20 per share). Furthermore, if all of the
outstanding options to purchase Common Stock in the Company held by such
individuals were to vest, and such individuals were to exercise all such
options, and the Company made no further issuances of its voting securities,
such individuals would own approximately 30.7%, 19.0%, and 17.9%, respectively,
of the outstanding voting securities of the Company. In any of such events,
Messrs. Fiscina, Ayala, and Blumenthal, collectively, will have, as a practical
matter, the ability to exercise effective control over the election of the
Company's Board of Directors and the outcome of corporate actions requiring
stockholder approval. See "Management" and "Principal Stockholders."
Product Liability; Adequacy of Insurance
While the Company does not manufacture the products it sells to its
customers, a purchaser of products distributed by the Company believing that an
injury suffered by him or her resulted from a defect in one of such products
could seek to impose liability upon the Company in respect of such injury, and
the Company could be found liable as the provider of such product. As of the
date of this Prospectus, the Company maintains product liability insurance in
the amount of $1,000,000 and has been unable to obtain additional amounts of
such insurance. Management believes that insurance companies generally will not
sell distributors such as the Company product liability insurance in excess of
$1,000,000.
The Company has never been the subject of a material product liability
claim made, nor has it been made aware of any material product liability claim
against it based upon the use or failure of the products it sells to customers.
There can be no assurance, however, that the Company will not be subject to
such claims, that any claim will be successfully defended, that the available
insurance will be sufficient to fund the defense of such claim or a
corresponding counterclaim against a manufacturer or other party, or that if
the Company is found liable, the claim and liability will not exceed the limits
of the Company's insurance. There is also no assurance that the Company will be
able to continue to obtain product liability insurance on acceptable terms. Any
product liability claims could have a material adverse effect on the Company's
business and financial condition and results of operations. See "Business --
Product Liability and Insurance."
Dividends
The Company has not paid any dividends on its Common Stock and does not
expect to pay any such dividends in the foreseeable future. Instead, the
Company intends to retain earnings, if any, to finance the development and
expansion of its business. See "Dividend Policy."
Blank Check Preferred Stock
The Company's Board of Directors has the authority to issue up to
5,000,000 shares of Preferred Stock and to determine the price, rights,
preferences and privileges of those shares without any further vote or action
by the stockholders. To date, the Board of Directors has authorized the
designation of the Series A Preferred Stock and the issuance of 3,000 shares of
such series. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the Series A Preferred Stock and
the holders of any Preferred Stock that may be issued in the future. The
issuance of shares of Preferred Stock, while potentially providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, including additional capital raising, could have the effect of making
it more difficult for a third party to acquire a majority of the outstanding
voting stock of the Company. The Company has no present intention to issue
additional shares of Preferred Stock.
Immediate and Substantial Dilution
Purchasers of the shares of Common Stock offered hereby will suffer an
immediate and substantial dilution of approximately $3.68 per share, in the pro
forma net tangible book value per share of the Common Stock as
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of January 31, 1998, from the assumed public offering price of $4.00 per share.
Furthermore, options to purchase 7,000,000 shares of the Common Stock at
exercise prices ranging from $1.00 per share to $9.00 per share are currently
outstanding (although none of such options are currently exercisable, and
300,000 of such options will expire, before vesting, on June 9, 1998). The
exercise of such options or of the Investor Warrants will result in further
dilution in such pro forma net tangible book value per share from the public
offering price. See "Dilution" and "Management -- Benefit Plans."
Prior Rule 504 Offering and Secondary Trading in "Free Trading" Securities
In December 1996, Florida Supplies, the Company's predecessor, completed
the private placement of 2,000,000 shares of its Common Stock (the
"Unrestricted Shares") to subscribers in an offering exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act") pursuant to Rule 504 of Regulation D promulgated under the
Securities Act. In accordance with the provisions of Regulation D, the shares
issued to the subscribers in such offering are deemed to be "free trading"
shares of stock.
The Company understands that on or about April 1, 1997, The Hamilton-Shea
Group ("HSG") commenced market making activities with respect to the
Unrestricted Shares pursuant to Rule 15c2-11 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Pursuant to Rule
15c2-11, broker-dealers are permitted to publish a quotation for a security, or
submit such a quotation for publication, in a "quotation medium" (as defined in
such Rule) provided the broker-dealer maintains in its records certain
specified documents and information concerning the company whose stock is being
quoted, and makes such documents and information available to persons
expressing an interest in effecting a transaction in such security, in
accordance with the provisions of such rule. The Company further understands
that in addition to HSG, other broker-dealers (collectively, with HSG, "Market
Makers") have similarly conducted market making activities in the Unrestricted
Shares and caused trading in such shares to be conducted through, and the price
of the shares to be quoted on, the "OTC Electronic Bulletin Board" of the NASD.
These market making activities have continued from April 1997 through the date
hereof. The Company also understands that the secondary trading in the
Company's shares conducted by the Market Makers is subject to regulation under
the state securities "blue sky" laws of the states in which transactions in the
Company's shares have either occurred or been proposed.
The market in securities traded and quoted pursuant to Rule 15c2-11 is not
regulated to the same extent as NASDAQ SmallCap. Furthermore, the Company is
not currently obligated to file periodic reports with the United States
Securities and Exchange Commission (the "Commission") or any state securities
commission or otherwise to disseminate current public information. The Company
has no control over the activities of the Market Makers and has not monitored,
and does not believe it is under any obligation to monitor, the activities of
the Market Makers. Nevertheless, in the event of any violations or possible
violations by the Market Makers, the Company could be exposed to inquiries,
investigations, actions and penalties based on or arising out of such
violations or possible violations. The Company would vigorously contest any
claims against it arising out of the Market Makers' activities. Nevertheless,
any such inquiries, investigations, actions or penalties could have a material
adverse effect on the liquidity of the Common Stock, and/or the Company and its
business and financial condition and results of operations.
Prior Activities of Peter Fiscina
From December 1994 through August 1995, Peter J. Fiscina, the co-founder,
chairman, chief executive officer and a director of the Company, was a
principal in a business engaged in the sale and distribution of diabetic
supplies similar to those marketed by the Company to retail customers, pursuant
to a franchise agreement with a franchisor/supplier of such products. This
business ceased operations in August 1995 following the franchisor/supplier's
failure to supply the products necessary for distribution to customers. The
company through which Mr. Fiscina conducted this earlier business was dissolved
in August 1995, and Mr. Fiscina has had no communications with the
franchisor/supplier since April 1996. The Company believes that there are
presently no claims or liabilities against or involving Mr. Fiscina or his
company arising out of or otherwise related to Mr. Fiscina's earlier business
including confidentiality and non-competition agreements included in the
franchise agreement. The Company has had no connection with the activities
conducted by Mr. Fiscina and his prior company. Were any third party to assert
any claims against Mr. Fiscina or his company arising out of or in connection
with the activities carried out by either, it is possible that such party might
also seek to make claims against
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the Company by reason of Mr. Fiscina's positions and involvement with the
Company. The Company does not believe that any grounds exist for a claim
against Mr. Fiscina or his prior company in connection with the earlier
business and, further, that no grounds exist for any claim against the Company
in connection with Mr. Fiscina's earlier business. However, were any party to
press such a claim against the Company, the Company would be forced to defend
itself, and could incur significant legal and other expenses in connection
therewith, and no assurance can be given as to the ultimate resolution of any
such claim.
Prior to his association with diabetes supply businesses, Mr. Fiscina was,
from 1965 through 1990, the President and sole stockholder of Peters Best Beef
Products Ltd. of Farmingdale, New York, a company engaged in the manufacture
and wholesaling of meat products. In August 1989, Peters Best Beef Products
Ltd. filed for protection under Chapter XI of the federal bankruptcy laws, and
in June 1990, it filed for liquidation under Chapter VII of the federal
bankruptcy laws.
Shares Eligible for Future Sale; Possible Adverse Effect on Future Market
Prices
As of the date hereof, the Company has 10,845,000 shares of Common Stock
issued and outstanding. Of these, Peter J. Fiscina, Albert R. Ayala and Myron
M. Blumenthal, all of whom are officers and directors of the Company, hold, in
the aggregate, 6,025,000 shares or approximately 55.6% of the total number of
shares of Common Stock issued and outstanding. Affiliates of the Company (all
officers, directors and 5% or greater stockholders) own, in the aggregate,
6,032,000 shares or approximately 55.6% of the total number of shares of Common
Stock issued and outstanding (the shares held by all such persons are referred
to as the "Preexisting Affiliate Shares"). Since the Preexisting Affiliate
Shares have been held by the owners thereof for more than two years, the
Preexisting Affiliate Shares are presently eligible for sale to the public,
subject to the volume and other limitations of Rule 144 of the Act. See
"Principal Stockholders."
An additional 2,800,000 shares of Common Stock, initially owned by
approximately 25 other persons, all of whom the Company believes are
non-affiliates, have been held for more than two years; the Company believes
such shares became eligible for sale without regard to the volume and other
limitations of Rule 144 late in 1997.
The shares of Common Stock which are the subject of this Prospectus are
issuable upon conversion of the Series A Preferred Stock and exercise of the
Investor Warrants issued by the Company in the Private Placement. (An
additional 20,000 shares of Common Stock which are included in this Offering
were issued to the Company's Placement Agent in connection with the Private
Placement.) Pursuant to the terms of the Securities Purchase Agreement and
other agreements executed in connection with the Private Placement, the Company
is obligated to register (and maintain the registration of) such shares of
Common Stock. See "Prospectus Summary -- Private Placement," "Selling
Stockholders" and "Shares Eligible for Future Sales."
Messrs. Fiscina, Ayala and Blumenthal presently hold options to purchase
an aggregate of 6,100,000 shares of Common Stock, which options vest and become
exercisable at various prices ranging from $1.00 to $8.75 per share between
2003 and 2005, provided, however, that all of such options shall vest and
become immediately exercisable upon determination by the Company's Board of
Directors that the Company has, in any year, achieved certain revenue and
earnings targets. Furthermore, Frederick J. Roberts, the President and Chief
Operating Officer of the Company, presently holds options to purchase an
aggregate of 500,000 shares of Common Stock, which options vest and become
exerciseable at prices ranging from $4.00 to $4.1875 per share in increments of
50,000 to 80,000 options, between December 1998 and April 2006. Should such
options vest and become immediately exercisable, Messrs. Fiscina, Ayala,
Blumenthal and Roberts could exercise such options in whole or in part and
could seek to register and sell in the public market any shares of Common Stock
issued upon such exercise. See "Management -- Benefit Plans" and "Principal
Stockholders."
Sales of substantial amounts of Common Stock in the public market, and
knowledge of the possibility that substantial amounts of Common Stock may be
sold in the public market, may adversely affect the market price of the Common
Stock and could adversely affect the Company's ability to raise capital through
the sale of its equity securities.
Effect of Outstanding Warrants and Convertible Securities
As of the date of this prospectus, the Company has outstanding warrants to
purchase an aggregate of 70,000 shares of Common Stock (in the form of the
Investor Warrants), and the Series A Preferred Stock convertible
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into 937,500 shares of Common Stock (assuming for this purpose that conversion
was based on a conversion rate of $3.20 per share). As long as such warrants
and convertible securities remain unexercised or are not converted, as the case
may be, the terms under which the Company could obtain additional capital may
be adversely affected. Moreover, the holders of the Investor Warrants and
Series A Preferred Stock may be expected to exercise or convert them at a time
when the Company would, in all likelihood, be able to obtain any needed capital
by a new offering of its securities on terms more favorable than those provided
by such securities.
Eligibility for Listing; Effect of Failure To Achieve Listing
In order to qualify for initial listing on NASDAQ SmallCap, a company
must, among other requirements, have at least $4,000,000 in net tangible assets
(as defined), a market capitalization of at least $50,000,000 or net income in
the latest fiscal year or two of the last three fiscal years of at least
$750,000, as well as a minimum bid price for its common stock of $4.00 per
share. The Company has applied to have its Common Stock listed on NASDAQ
SmallCap, and while it is presently expected that the Company's Common Stock
will be so listed, there can be no assurance that this will actually occur. In
addition, even if the Company is listed on NASDAQ SmallCap, there can be no
assurance that the Company will meet the criteria for continued listing of
securities on NASDAQ SmallCap. These continued listing criteria include a
minimum of $2,000,000 in net tangible assets, $35,000,000 in market
capitalization or $500,000 in annual net income, as well as a minimum bid price
of $1.00 per share of common stock, a public float market value of at least
$1,000,000 and capital and surplus of at least $2,000,000. If the Company is
unable to meet the initial or continued listing criteria of NASDAQ SmallCap,
trading, if any, in the Common Stock would be conducted in the over-the-counter
market in the so-called "pink sheets", or, if available, the NASD's "OTC
Electronic Bulletin Board". In such event, stockholders may find it more
difficult to dispose of, or to obtain accurate quotations as to the value of,
the Company's securities.
Furthermore, in connection with the Private Placement, the Company has
contractually committed to listing its Common Stock on NASDAQ SmallCap not
later than July 17, 1998. Failure to achieve such listing would expose the
Company to substantial contractual penalties equal to 2% per month of the face
value of the outstanding shares of Series A Preferred Stock (up to $60,000 per
month) until the Common Stock is so listed (4% of the face value or $120,000
per month after September 15, 1998). Liability for such penalties would have a
material adverse effect on the Company's business and financial condition and
results of operations. See "Prospectus Summary -- Private Placement."
No Assurance of Public Market; Possible Volatility of Market Price of Common
Stock
Although shares of Common Stock have been traded through, and the price
thereafter has been quoted on, the "OTC Electronic Bulletin Board" of the NASD
since approximately April 1997, there can be no assurance that a regular
trading market for the Common Stock will develop in the future or that, if
developed, will be sustained. The market price of the Common Stock may be
highly volatile for the foreseeable future, as has been the case with the
securities of other emerging companies. Factors such as the Company's operating
results, announcements by the Company or its competitors and various factors
affecting the healthcare and medical equipment industries generally may have a
significant impact on the market price of the Common Stock. In addition, in
recent years, the stock market has experienced a high level of price and volume
volatility and market prices for the stock of many companies have experienced
wide price fluctuations which have not necessarily been related to the
operating performance of such companies.
Risk of Low-Priced Stocks, "Penny Stock" Regulations
If the Common Stock were to become delisted from trading on NASDAQ
SmallCap and the trading price of the Common Stock were to fall below $5.00 per
share on the date the Company's securities were delisted, trading in such
securities would also be subject to the requirements of certain rules
promulgated under the Exchange Act, which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any equity security that is not listed on a national
security exchange or the NASDAQ National Market System or NASDAQ SmallCap and
has a market price of less than $5.00 per share, subject to certain
exceptions). Such rules require the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith, and impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established
customers
15
<PAGE>
and accredited investors (generally institutions). For these types of
transactions, the broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to sale. The additional burdens imposed upon broker-dealers
by such requirements may discourage broker-dealers from effecting transactions
in the Company's securities, which could severely limit the market price and
liquidity of such securities and the ability of owners of the Company's Common
Stock to sell their securities of the Company in the secondary market.
Certain Obligations to Selling Stockholders
The Company has undertaken to maintain a current registration statement
with regard to the shares of Common Stock being offered hereby from the date of
this Prospectus until the earlier of (i) the date as of which all such shares
may be sold without restriction pursuant to Rule 144(k) promulgated under the
Securities Exchange Act of 1934, (ii) the date on which (A) all such shares
have been sold by the Selling Stockholders and (B) none of the shares of Series
A Preferred Stock and Investor Warrants issued to the Selling Stockholders is
outstanding or (iii) the third anniversary of the date of issuance of the
shares of Series A Preferred Stock and the Investor Warrants to the Selling
Stockholders. The obligation to maintain a current registration statement may
impose a financial burden on the Company, create a contractual liability of the
Company to the Selling Stockholders and adversely affect the Company's ability
to successfully complete acquisitions, investments in, and strategic alliances
with, entities that complement or expand the Company's current business.
Investor Warrants; Future Financings
The holders of the Investor Warrants will have the opportunity to profit
from a rise in the price of the Common Stock. The existence of these Investor
Warrants may adversely affect the terms on which the Company can obtain
additional equity financing in the future and the holders can be expected to
exercise them when the Company would, in all likelihood, be able to obtain
additional capital by offering additional shares of its unissued Common Stock
on terms more favorable to the Company than the terms provided by these
Investor Warrants. See "Prospectus Summary -- Private Placement" and "Selling
Stockholders."
Forward-Looking Information May Prove Inaccurate
This Prospectus contains various forward-looking statements and
information that are based on management's beliefs, as well as assumptions
based upon information currently available to management. When used in the
Prospectus, the words "expect," "anticipate," "estimate," and similar
expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks, uncertainties and assumptions
including those identified above. Should one or more of these risks or
circumstances materialize, or should underly-ing assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has traded on the OTC Electronic Bulletin Board
under the symbol "CDSP" from March 31, 1997 through January 7, 1997, and
commencing January 8, 1998, under the symbol "CDIP." The Company has filed an
application for the Common Stock to be quoted on NASDAQ SmallCap under the
symbol "CDIP."
The following table sets forth the high and low bid prices for the Common
Stock on the OTC Electronic Bulletin Board for the periods indicated.
<TABLE>
<CAPTION>
High Low
------------ ----------
<S> <C> <C>
Fiscal Year Ending October 31, 1997
Third Quarter ................................. $ 10.00 $ 7.00
Fourth Quarter ................................ 9.25 6.00
Fiscal Year Ending October 31, 1998
First Quarter ................................. $ 5.6875 $ 3.50
Second Quarter through April 21, 1998 ......... 5.00 3.5625
</TABLE>
16
<PAGE>
On April 21, 1998, the closing bid price of the common Stock on the OTC
Electronic Bulletin Board was $4.00. As of March 10, 1998, the number of record
holders of the Company's Common Stock was approximately 70 and the number of
beneficial holders was approximately 520.
USE OF PROCEEDS
The Company will receive no proceeds from the sale of any of or all the
shares of Common Stock being offered by the Selling Stockholders hereunder, but
may receive an aggregate of approximately $333,900 upon exercise of all of the
Investor Warrants. Such proceeds, if any, will be used for working capital and
other corporate purposes.
Expenses expected to be incurred by the Company in connection with the
registration of the shares of Common Stock included in the Offering are
estimated at approximately $230,000.
The Company believes the net proceeds from the Private Placement, together
with cash on hand, the proceeds from the exercise of the Investor Warrants, if
any, and cash expected to be generated from operations, will be adequate to
satisfy its capital requirements for a period of at least 12 months from the
date of this Prospectus. However, if the Company's plans relating to the
implementation of its business strategy change, or the Company's assumptions
regarding the implementation of its business strategy prove to be inaccurate or
the proceeds of the Private Placement prove to be insufficient to fund the
implementation of the Company's business strategy and working capital
requirements, the Company could be forced to seek additional financing. There
can be no assurance that additional financing could be obtained on acceptable
terms, if at all. If such additional financing were not available, the
Company's business would be materially and adversely affected. Also, if the
Company expands its business or seeks acquisitions or new product lines, it may
be necessary to seek additional financing. Such additional financing, if any,
may be either debt, equity or a combination of debt and equity. An equity
financing could result in dilution in the Company's net tangible book value per
share of Common Stock. There can be no assurance that the Company will be able
to secure additional debt or equity financing or that such financing will be
available on favorable terms. See "Risk Factors -- Need for Additional
Financing."
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
January 31, 1998, and on a pro forma basis to give effect to the pro forma
adjustments relating to the receipt of proceeds from the private placement
offering of 3,000 shares of preferred stock at $1,000 per share, net of
offering costs of $313,000 including $73,000 related to the issuance of 20,000
common shares to the private placement agent, and the application of estimated
net proceeds therefrom (of which $300,000 was used to repay a second mortgage
loan and $355,000 was used to repay loans payable to officers) and as adjusted
to give effect to the issuance, upon assumed conversion of preferred stock at
$3.20 per share (80% X $4.00) and exercise of warrants, of 1,007,500 shares of
Common Stock offered hereby and the receipt of $334,000 of estimated net
proceeds therefrom.
This table should be read in conjunction with the financial statements and
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
As of January 31, 1998
--------------------------------------------
Actual Pro Forma As Adjusted
------------- ------------- ------------
<S> <C> <C> <C>
Total short-term debt ...................................... $1,896,000 $1,241,000 $1,241,000
Total long-term debt ....................................... 2,474,000 2,474,000 2,474,000
Shareholders' equity
Preferred stock 5,000,000 shares authorized; Series A
Convertible Preferred Stock -- stated value $1,000
per share; 3,000 shares issued and outstanding ......... -- 3,000,000 --
Common stock - 25,000,000 shares authorized; par
value $.01 per share; 10,825,000 shares issued and
outstanding, actual; 10,845,000 shares issued and
outstanding, proforma; 11,852,500 shares issued
and outstanding, as adjusted ........................... 108,000 108,000 118,000
Additional paid-in capital ................................. 1,017,000 777,000 4,101,000
Retained earnings .......................................... 444,000 444,000 444,000
---------- ---------- ----------
Total shareholders' equity .............................. 1,569,000 4,329,000 4,663,000
---------- ---------- ----------
Total capitalization .................................... $5,939,000 $8,044,000 $8,378,000
========== ========== ==========
</TABLE>
DIVIDEND POLICY
The Company has not paid any cash dividends and does not anticipate that
it will do so in the foreseeable future. The Company currently intends to
retain future earnings, if any, to provide funds for the growth and development
of the Company's business.
18
<PAGE>
DILUTION
The difference between the public offering price per share of Common Stock
and the net tangible book value per share after the offering constitutes the
dilution to investors in this offering. Net tangible book value 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,
including common shares issued upon conversion of preferred stock and exercise
of warrants which shares are being registered in this offering
At January 31, 1998, the pro forma net tangible book value of the Company,
assuming (1) sale of preferred stock and receipt of net proceeds of $2,760,000,
and (2) conversion of the preferred stock at $3.20 per share into 937,500
common shares was $3,480,000, or approximately $.30 per share of Common Stock.
After giving effect to the exercise of warrants and receipt of net proceeds of
$334,000, the net tangible book value of the Company at January 31, 1998 would
have been $3,814,000, or approximately $.32 per share, representing an
immediate increase in net tangible book value of $.02 per share to existing
stockholders and an immediate dilution of $3.68 per share to new investors.
The following table illustrates the foregoing information with respect to
dilution to new investors on a per share basis:
<TABLE>
<S> <C> <C>
Assumed public offering price per share (1) .......................... $ 4.00
Net pro forma tangible book value before offering ................. $ 0.30
Increase attributable to exercise of warrants ..................... 0.02
------
Net pro forma tangible book value after offering ..................... 0.32
======
Net pro forma tangible book value dilution per share to new investors $ 3.68
======
</TABLE>
The following table sets forth, with respect to existing stockholders who
are officers and directors and new investors, a comparison of the number of
shares of Common Stock acquired, the percentage ownership of such shares, the
total consideration paid, the percentage of total consideration paid and the
average price per share.
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration
----------------------- ------------------------- Price Per
Number Percent Amount Percent Share
----------- --------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Officers and Directors ......... 6,032,000 85% $1,026,000 20% $ 0.17
New Investors .................. 1,027,500 15% 4,110,000 80% $ 4.00
--------- -- ---------- --
Total .......................... 7,059,500 100% $5,136,000 100%
--------- --- ---------- ---
</TABLE>
- ------------
(1) Based on an assumed public offering price per share which is an estimate
for illustrative purposes only; there can be no assurance as to the actual
market price at the time of the offering.
19
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for the period September 28, 1995
(inception) to October 31, 1996, for the fiscal year ended October 31, 1997,
and for the quarters ended January 31, 1998 and 1997 has been derived from the
Company's financial statements included elsewhere in this Prospectus and should
be read in conjunction with the financial statements and the notes thereto.
<TABLE>
<CAPTION>
For the Period from Quarter Ended
September 28, 1995 Year Ended January 31,
(Inception) to October 31, -------------------------
October 31, 1996 1997 1997 1998
-------------------- ------------- ----------- -----------
(Unaudited)
-------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Income Data:
Net sales ...................................... $ 2,588 $ 6,726 $ 1,278 $1,981
Cost of sales .................................. 814 2,495 448 805
------- -------- ------- ------
Gross profit ................................... 1,774 4,231 830 1,176
Operating expenses ............................. 1,679 2,941 738 1,063
------- -------- ------- ------
Income from operations ......................... 95 1,290 92 113
Interest expense ............................... 21 48 12 62
------- -------- ------- ------
74 1,242 80 51
Costs of uncompleted offering .................. 676
------
Income (loss) before income taxes .............. 74 1,242 80 (625)
Provision for income taxes (benefit) ........... 12 476 19 (241)
------- -------- ------- ------
NET INCOME (LOSS) .............................. $ 62 $ 766 $ 61 ($ 384)
------- -------- ------- ------
Basic net income (loss) per share ........... $ 0.01 $ 0.07 $ 0.01 $ 0.04)
Diluted net income (loss) per share ......... $ 0.01 $ 0.06 $ 0.01 $ 0.04)
Weighted average number of common shares
outstanding
Basic ....................................... 7,854 10,535 8,143 10,535
Diluted ..................................... 7,854 13,212 8,143 10,535
Balance Sheet Data:
</TABLE>
<TABLE>
<CAPTION>
October 31, 1996 October 31, 1997 January 31, 1998
------------------ ------------------ -------------------------
(Unaudited)
-------------------------
Historical Pro Forma
------------ ----------
(in thousands)
<S> <C> <C> <C> <C>
Cash ................................. 167 $ 171 $ 266 $ 2,371
Working capital (deficiency) ......... 43 (234) (954) 1,806
Total assets ......................... 1,196 4,323 6,837 8,942
Total liabilities .................... 1,023 2,370 5,268 4,613
Total stockholders' equity ........... 173 1,953 1,569 4,329
</TABLE>
- ------------
(1) Gives pro forma effect to the receipt of proceeds from the private
placement offering of 3,000 shares of preferred stock at $1,000 per share,
net of offering costs paid of $240,000 and $73,000 which is the market
value on the date of issuance of 20,000 common shares to the private
placement agent of which $300,000 was used to repay a second mortgage loan
and $355,000 was used to repay loans payable to officers.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's financial statements and the notes thereto. The discussion of
results, causes and trends should not be construed to imply that such results
or trends will necessarily continue in the future. It should be noted that the
following discussion and analysis compares the twelve months ended October 31,
1997 ("1997 Year") to the thirteen-month period from September 28, 1995
(Inception) to October 31, 1996 ("1996 Year"), but that no significant
activities occurred prior to November 1, 1995. This discussion contains
forward-looking statements that involve risks and uncertainties. Actual results
could differ from those discussed in the forward-looking statements as a result
of certain factors, including those set forth in the section entitled "Risk
Factors" and elsewhere in the Prospectus.
Results of Operations
Comparison of the Fiscal Year Ended October 31, 1997 to the Fiscal Year Ended
October 31, 1996.
Net sales increased by approximately $4,138,000 or 160% to $6,726,000 for
the 1997 Year from $2,588,000 for the 1996 Year. This increase was primarily
due to an increased advertising and marketing campaign leading to an increased
customer base. Management expects further increases in its customer base as a
result of continuing marketing efforts, including marketing efforts to attract
non-insulin dependent diabetics as customers from and after July 1, 1998, the
date when such customers' purchases of diabetes test products become eligible
for Medicare reimbursement in accordance with changes in law included in the
Balanced Budget Act of 1997. The Company has also entered into four provider
contracts with Groups (including PPOs, TPAs and/or other similar groups), and
is currently conducting field implementation marketing efforts with respect to
such contracts. Based on such marketing efforts, and changes in reimbursement
eligibility, the Company believes that increasing numbers of participants in
such Groups will be attracted as new customers.
Cost of net sales increased by approximately $1,681,000 to $2,495,000 for
the 1997 Year from $814,000 for the 1996 Year. Cost of sales percentage
increased to 37.1% for the 1997 Year from 31.5% for the 1996 Year (gross profit
percentage of 62.9% and 68.5%, respectively). The increase in the cost of sales
was due primarily to increases in costs of test products purchased from various
manufacturers. Management believes that as its sales increase, its inventory
purchasing power will grow correspondingly, and it will be able to negotiate
more favorable and stable price terms with its suppliers. The Company currently
has supply contracts with two manufacturers and is negotiating contracts with
two others. Management believes the cost of sales will stabilize as a result of
such agreements with the manufacturers.
Selling and shipping expenses increased by approximately $170,000 to
$551,000 for the 1997 Year from $381,000 for the 1996 Year but decreased as a
percent of net sales to 8.2% from 14.7%. The decrease in selling expenses as a
percentage of net sales is primarily due to the Company's eligibility,
commencing in November 1996, to capitalize direct-response advertising costs
and amortize such costs on a declining balance basis over a period which
matches the expected future stream of revenues generated from new customers
obtained as a result of the Company's various media advertising campaigns. The
Company's business strategy includes the continued increase of direct-response
advertising expenditures over the next 12 months as a means of attracting new
customers.
General and administrative expenses increased by $662,000 to $1,177,000 in
the 1997 Year from $515,000 in the 1996 Year but decreased as a percent of net
sales to 17.5% from 19.9%. The decrease in general and administrative expenses
as a percentage of net sales was primarily due to fixed expenses increasing at
a lower rate than net sales as a result of increased economics of scale. This
increase in dollar amounts was a result of hiring personnel to support the
growth of the Company's sales. Officers' compensation increased by $381,000 to
$1,150,000 in the 1997 Year from $769,000 in the 1996 Year. The increase was
due to the officers' annual incentive bonuses which are based on the Company's
achievements of specified annual sales and consolidated earnings from
operations before interest, taxes, depreciation, and amortization but without
deductions for officers' salaries. While management expects such expenses to
continue to increase in connection with the anticipated increase in sales
volume, management believes that these expenses as a percentage of net sales
will not increase significantly due to management's implementation of computer
automation and other cost saving measures.
21
<PAGE>
Income from operations increased by $1,195,000 to $1,290,000 in the 1997
Year from $95,000 in the 1996 Year. This is mainly attributable to the
Company's significant increase in sales without a corresponding increase in
certain operating costs.
Interest expense increased by $27,000 to $48,000 for the 1997 Year from
$21,000 for the 1996 Year. This was due to an increase in outstanding
indebtedness.
The Company's effective income tax rate was approximately 38.3% for the
1997 Year and 16.2% for the 1996 Year, due to the increase in taxable income
and the resultant increase in federal marginal income tax rates.
Comparison of the Quarter Ended January 31, 1998 to the Quarter Ended January
31, 1997
Costs of goods sold increased by $357,000 from $448,000 in the quarter
ended January 31, 1997 (the "1997 quarter") to $805,000 in the quarter ended
January 31, 1998 (the "1998 quarter").
The gross profit percentage declined to 59.36% in the 1998 quarter from
64.95% in the 1997 quarter. This was due to the purchase and sale by the
Company of a diversified line of products, including certain lower margin
products. The Company has entered into two contracts with its suppliers which
management expects will continue to stabilize the cost of sales. Management
anticipates the Company's gross profit percentage to remain constant at
approximately 60%.
Selling expenses remained constant between the quarters but decreased as a
percentage of sales by 4.23% from 16.2% in the 1997 quarter to 11.96% in the
1998 quarter.
General and administrative expenses have increased 2 1/2 times from
$206,000 in the 1997 quarter to $684,000 in the 1998 quarter. Management has
invested in personnel, training for personnel and other items intended to
develop the infrastructure required to meet the demands of anticipated
increases in customers and sales arising out of provider contracts with Groups
and pending changes in the law regarding reimbursement for supplies sold to
diabetics.
Officers' compensation decreased during the 1998 quarter as compared to
the 1997 quarter due to a decline in EBITDA which resulted in a decrease in
EBITDA-based bonus payments to officers. The decrease in EBITDA arose primarily
from the write-off of costs associated with a prior uncompleted public offering
and additional depreciation expenses due to the capital expenditures on the new
land, building and building improvements.
As a result of the development of the Company's infrastructure, the
Company had a net loss of ($384,000) for the 1998 quarter as compared to income
of $61,000 in the 1997 quarter.
Liquidity and Capital Resources
The Company's primary cash requirements have been to fund increased levels
of inventories and accounts receivable. The Company has funded its operations
and capital expenditures primarily through capital contributions, stockholders'
loans, income from operations and to a lesser extent, by utilizing vendor
credit and third party borrowing. At October 31, 1997, the Company had a
working capital deficiency of approximately ($234,000) compared to working
capital of approximately $43,000 at October 31, 1996.
Net cash provided by operating activities was approximately $579,000 for
the twelve months ended October 31, 1997, as compared to net cash provided by
operating activities of approximately $125,000 for the period from September
28, 1995 (inception) to October 31, 1996. The increase in cash provided by
operating activities was primarily attributable to the increase in net income,
depreciation, accounts payable, deferred income tax liability and income tax
payable offset by the increase in accounts receivable and direct advertising
costs. The Company generally pays its vendors within 30 days and has been able
to purchase inventory as required. Net cash used in investing activities was
approximately $1,149,000 for the twelve months ended October 31, 1997, as
compared to net cash used in investing activities of approximately $392,000 for
the period from September 28, 1995 (inception) to October 31, 1996. The cash
used in investing activities was attributable to the acquisition of property
and computer equipment. Net cash provided by financing activities was
approximately $574,000
22
<PAGE>
for the twelve months ended October 31, 1997 as compared to approximately
$434,000 for the period from September 28, 1995 (inception) to October 31,
1996. The increase was attributable to the proceeds of advances from
officers/stockholders and proceeds from borrowings evidenced by notes,
decreased by certain offering costs incurred and deferred. At October 31, 1997,
the Company had cash on hand of approximately $171,000.
On May 31, 1996, in connection with the acquisition of the land and
building owned by the Company and housing its offices and inventory to October
1997, the Company obtained a mortgage loan from a bank, payable in thirty
monthly installments of $2,400, including interest at 9.75% per annum, with a
principal payment of $239,000 at maturity on December 30, 1998. This mortgage
is collateralized by the land, building and substantially all the assets of the
Company. In April 1998, the Company entered into a contract for sale of such
property. Upon the closing of such sale, the Company expects to utilize the
proceeds to pay off such mortgage.
In July 1997, the Company entered into the Line of Credit agreement with
FNB which expires in July 1998 and provides for borrowings up to a maximum of
$1,000,000. As of April 1998, the Company had borrowed the full amount
available under the Line of Credit. The Company has used portions of the Line
of Credit to fund its physical and labor force expansion.
The loan is evidenced by the Company's promissory note and secured by
UCC-1 filings giving FNB a first lien position covering all accounts
receivable, inventory, and equipment. In addition, the Company is prohibited
from pledging or encumbering the business assets or personal property securing
this loan in any manner whatsoever without the prior written consent of FNB,
except for trade indebtedness. Such indebtedness could, under certain
circumstances, limit the Company's ability to expand its operations.
Peter J. Fiscina, Chairman and Chief Executive Officer and Albert R.
Ayala, Vice Chairman of the Company have personally guaranteed the Line of
Credit indebtedness to FNB. Such guarantees will be released upon the Company's
registration statement becoming effective in connection with the Offering and
the Company's Common Stock being approved for listing and commencing to trade
on NASDAQ SmallCap. There can be no assurance that any such guarantee will be
available to the Company in the future or that the Company's securities will be
listed on NASDAQ SmallCap.
In March 1998, the Company completed an offering of its Series A Preferred
Stock which resulted in net proceeds to the Company of $2,760,000. See
"Prospectus Summary -- Private Placement" and "Description of Capital Stock."
The Company's accounts receivable at October 31, 1997 were approximately
$1,051,000 as compared to approximately $488,000 at October 31, 1996. The
Company's present customer base is composed of approximately 24% of customers
with Medicare coverage only, 37% of customers with Medicare and supplementary
insurance coverage and 39% of customers with primary coverage by private
insurers. Medicare usually makes reimbursement payments within 15 to 30 days
while private insurance companies make reimbursement payments within 30 to 45
days. However, in certain cases if the invoice is not reimbursed upon initial
submission, reimbursement payments may take 120 days. Sales to Group
participants are invoiced -- generally monthly -- directly to the Group rather
than the ultimate insurer, and Groups generally pay such invoices within 30
days of the invoice date. A small amount of accounts receivable prove to be
uncollectible for a variety of reasons.
A key component of the Company's business strategy is to expand its
customer base by entering into provider contracts with Groups including PPOs,
TPAs, self-insured plans, managed care programs and other similar groups.
Through January 1998, the Company has entered into four provider contracts with
Groups. The Company is currently conducting field implementation marketing
efforts with respect to such contracts. Based on such marketing efforts, and
changes in reimbursement eligibility, the Company believes that increasing
numbers of Group participants will be attracted as new customers. In order to
support this expanding customer base, the Company has purchased and moved to a
larger facility, and has and will continue to hire additional personnel and
increase its inventory level. See "Business--Properties" and
"Business--Employees." The Company has also installed computer hardware and
software upgrades which, by integrating the Company's billing and collecting
departments (as well as insurance verification and other departments) permit
the Company to identify outstanding accounts receivable at earlier stages and,
accordingly, to implement collections efforts at an earlier stage, will permit
accelerated collections of accounts receivable and, management believes,
maintain collections within 90 days or less. The Company expects a shift in its
customer base from a concentration of customers with Medicare coverage to a
customer base including a greater proportion of customers with private
insurance.
23
<PAGE>
The Company anticipates, based on currently proposed plans and assumptions
relating to its operations, that the net proceeds from the Private Placement,
together with cash on hand, the proceeds from the exercise of the Investor
Warrants, if any, cash expected to be generated from operations, and other
available capital resources, including the Line of Credit, will be sufficient
to satisfy its contemplated cash requirements for at least 12 months from the
date of the Prospectus. However, if the Company's plans relating to the
implementation of its business strategy change, or the Company's assumptions
regarding the implementation of its business strategy prove to be inaccurate or
the proceeds of the Private Placement prove to be insufficient to fund the
implementation of the Company's business strategy and working capital
requirements, the Company could be forced to seek additional financing. There
can be no assurance that additional financing could be obtained on acceptable
terms, if at all.
Inflation
The Company does not anticipate that inflation will have a material effect
on the Company's operations.
Year 2000 Compliance
The Company relies significantly on computer technology throughout its
business to effectively carry out its day-to-day operations. As the millennium
approaches, the Company is assessing all of its computer systems to ensure that
they are "Year 2000" compliant. In this process the Company may replace or
upgrade certain systems which are not Year 2000 compliant, in order to meet its
internal needs and those of its customers. The Company expects its Year 2000
project to be completed on a timely basis. However, there can be no assurance
that the systems of other companies on which the Company may rely also will be
timely converted or that such failure to convert by another company would not
have an adverse effect on the Company's systems. The cost to the Company of
such changes are difficult to estimate but are not expected to have a material
financial impact. Actual results could differ materially from the Company's
expectations due to unanticipated technological difficulties, vendor delays,
and vendor cost overruns.
24
<PAGE>
BUSINESS
Overview
The Company markets and sells by mail order products and services for
diabetic retail customers throughout the United States. These products include
home blood glucose monitors, test strips, control solution, lancets and lancing
devices used for testing the blood sugar levels of diabetics, as well as
insulin and syringes. The Company's sales revenues are primarily generated from
reimbursements by Medicare and private insurance carriers on behalf of the
diabetic retail customers. As of January 1998, the Company estimates that it
had in excess of 8,000 active customers (a customer generally being considered
active if he or she has placed and paid for orders in the last 90 days).
Persons suffering from diabetes, a chronic disease for which no cure
presently exists, must manage their disease by maintaining their blood sugar
levels as close to normal as possible. Blood testing permits diabetics to
monitor their blood sugar levels on a regular basis so that other treatment
steps, particularly the use of insulin and/or other medication, can be
administered effectively, in the appropriate dosages and at the appropriate
time intervals. Diabetics are generally advised to test their blood one to
three times per day, every day, from the time of diagnosis for the duration of
their lives, although compliance levels vary greatly among diabetics. The CDC
estimates that, as of 1995, 16,000,000 Americans had diabetes, of whom
approximately 8,000,000 had actually been diagnosed as suffering from the
disease. The CDC estimates that of these diagnosed diabetics, up to 10%, or
800,000 Americans, suffer from Type I insulin dependent diabetes ("IDDM") and
require daily injections of insulin. The remaining number of diabetics suffer
from Type II non-insulin dependent diabetes ("NIDDM"). Current estimates are
that more than 600,000 new cases of diabetes are diagnosed annually in the
United States.
The Company is developing its business in order to capitalize on the
continuing regulatory and marketplace changes occurring in the healthcare
industry and the opportunities presented thereby. Since inception, the Company
has primarily focused on obtaining individual IDDM customers, covered by
Medicare and private insurance. These customers have been generated through a
nationwide media advertising program. Presently the Company receives
approximately 59% of its sales revenues from Medicare reimbursement and
substantially all of its remaining sales revenues from private insurance
reimbursement. At present, substantialy all of the Company's customers are IDDM
customers.
During the second half of 1997, the Company implemented a new business
strategy seeking increased numbers of additional customers through contracts
with Groups (including PPOs, TPAs, self-insured plans, managed care programs
and other similar groups). Pursuant to these contracts, the Company provides
diabetes test products to Group participants at a specified price or
reimbursement formula. The success of this strategy depends both on the
Company's ability to enter into provider contracts with Groups and, after
entering into such contracts, to attract participants in the contracting Groups
to become customers of the Company. The sale of products to Group participants
tends to be more profitable to the Company than sales to media customers
because reimbursement rates for test products sold to Group participants are
generally higher than those for sales to the Medicare participants who make up
a substantial portion of the Company's media customers. Management also
believes that provider contracts offer a more precisely targeted marketing
opportunity for the Company to obtain substantial blocks of customers as
compared to television advertising which tends to be more diffuse and to
require increasing financial expenditures over an indefinite period of time. To
date, the Company has entered into four provider contracts with Groups and is
actively negotiating a number of additional contracts. The Company intends to
continue its efforts to seek additional provider contracts and to attract Group
participants as customers.
Effective July 1, 1998, sales of test products to such NIDDMs become
eligible for Medicare reimbursement, in accordance with the NIDDM Provision of
the Balanced Budget Act. Whereas, previously, Medicare only provided
reimbursement for IDDM customers, the NIDDM Provision expands coverage to all
diabetics. Accordingly, the Company is also implementing a new media
advertising program intended to capitalize on the change in the law effected by
the NIDDM Provision. The new advertising campaign is designed to capture
substantial numbers of additional customers who are non-insulin dependent,
although there can be no assurance of the
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Company's ability to do so in view of the fact that the NIDDM market is a new
and untested market for the Company, and that the level of usage of test kits
and other supplies by non-insulin dependent diabetics may be substantially
lower. Non-insulin dependent diabetics do not generally purchase insulin.
Diabetes
Diabetes is a chronic disease in which persons suffer from either a
deficiency of insulin, a hormone normally produced by the pancreas, or a
decreased ability to use insulin. Insulin allows glucose (sugar) to enter into
body cells and be converted to energy. Insulin is also needed to synthesize
protein and store fats. In uncontrolled diabetes, glucose and lipids (fats)
remain in the bloodstream and, with time, can damage the body's vital organs,
including eyes, kidneys and blood vessels, can lead to heart disease, stroke,
kidney failure, blindness and nerve damage, and can necessitate the amputation
of the feet and legs. The American Diabetes Association estimates that diabetes
leads, annually, to 54,000 amputations, 12,000-24,000 cases of blindness and
well over 100,000 deaths. The CDC estimates that in 1992, total direct medical
costs associated with diabetes in the United States were $45 billion.
Diabetes is classified into two types: Type I insulin dependent diabetes
or IDDM which is more severe and usually develops in childhood or adolescence,
and Type II non-insulin dependent diabetes or NIDDM which tends to develop
after age 40. Persons suffering from IDDM generally produce little or no
insulin naturally and require daily doses of insulin by injection. Persons
suffering from NIDDM generally produce, but are unable effectively to use,
natural insulin. These persons are more likely than Type I diabetics to be
over-weight and to have high blood pressure and other risk factors linked to
heart disease. Type II diabetics generally are treated with oral medication
which permits more effective use of the naturally produced insulin, insulin
injection, or a combination of both, as well as diet management and exercise
plans. While diabetes is a chronic disease for which no cure exists, the
disease can be controlled and managed.
In June 1997 the American Diabetes Association issued, and federal health
agencies, including the CDC and the National Institute of Diabetes and
Digestive and Kidney Diseases endorsed, new guidelines defining the blood sugar
levels deemed to indicate diabetes and calling for substantially increased
efforts to diagnose and detect diabetes. Under the new guidelines, a blood
sugar level of 126 milligrams per deciliter (rather than 140 milligrams) will
be the basis for a diagnosis of diabetes. The new guidelines are expected to
lead to increased detection and diagnosis of diabetes in the United States.
Both Type I and Type II diabetics must manage their diseases by
maintaining their blood sugar levels as close to normal as possible.
Furthermore, both Type I and Type II diabetics are generally advised to
regularly test their blood. Blood testing permits diabetics to determine their
blood sugar levels on a regular basis so that the effectiveness of behavioral
treatment (e.g., diet management, exercise and weight loss) can be assessed,
and other treatment steps, particularly required insulin doses or medication,
can be administered effectively, in the appropriate dosages and at the
appropriate time intervals. Diabetics are generally advised to test their blood
one to three times per day, every day, from the time of diagnosis for the
duration of their lives.
Business Strategy and Plan
The Company is seeking to establish a multi-faceted business offering a
variety of products specifically targeted to, and desired by, the market
comprised of persons suffering from diabetes. Management believes that
diabetics have a series of unique needs including the types of medical
equipment and products currently being sold by the Company and other items.
Many of the items required by diabetics are available from a variety of
sources. The Company believes, however, that most diabetics currently purchase
products on an item by item basis, from multiple vendors. By positioning itself
as a single convenient source for, and vendor of, a variety of high quality
products, available via telephone order and for reliable, timely home delivery
by mail, the Company believes that it will induce a significant number of
diabetics to become customers, and furthermore, that such customers will, on a
repetitive basis, purchase products offered by the Company.
To accomplish its goals, the Company, which has been operating since
November 1995, has adopted a business strategy (which also constitutes the
Company's plan of operations for the remainder of the current fiscal year
(ending October 31, 1998) and for the first six months of the 1999 fiscal
year), the key elements of which are described below:
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o Increasing the number of active customers by marketing its products and
services to participants in Groups with which the Company has entered into
provider contracts. Success at these marketing efforts will both add
customers and adjust the overall profile of the Company's customer list to
include an increasing percentage of private insurance customers, sales to
whom tend to be more profitable for the Company than sales to customers
with Medicare coverage. The Company will also seek to add customers by
means of continued targeted television and radio advertising.
o Obtaining additional provider contracts with Groups as potential
additional sources of customers.
o Positioning the Company to add as new customers non-insulin dependent
diabetics with Medicare coverage, commencing July 1, 1998, the date
Medicare begins to reimburse such persons for the purchase of test
products under the NIDDM Provision of the Balanced Budget Act.
o Intensifying efforts to penetrate the portion of the diabetic market made
up of persons suffering from NIDDM. These persons represent an estimated
90% or more of the overall diabetic market. The Company will continue its
efforts -- through its advertising campaigns and provider contracts -- to
add non-insulin dependent customers, particularly those with private
insurance.
o Protecting profit margins on sales by negotiating increasingly favorable
supply contracts with product suppliers, as the Company's customer list
grows and, consequently, the Company's purchasing power increases.
o Accommodating the demands of the increased levels of business already
achieved by the Company, and which management anticipates may be achieved
over the next 12 to 18 months, by hiring additional personnel. The Company
presently estimates that over such period, approximately 34 new employees
will be engaged, bringing the total number of employees to approximately
100.
o Investigating the feasibility of developing and offering new product
lines to its customers and of making acquisitions of other companies
engaged in similar businesses or of their customer lists.
Customers
Customers purchasing the Company's products pay for them by assigning to
the Company their rights to reimbursement, by Medicare and/or private insurers,
for the cost of such products. Such reimbursements represent the source of
substantially all payments to the Company for the goods it sells (and,
correspondingly, substantially all of the Company's sales revenues). See "Risk
Factors -- Dependence on Reimbursement by Third Party Payors." The Company will
not accept an order for its products from, or ship products to, a customer,
unless and until the customer has established, to the Company's satisfaction,
that he or she is covered by Medicare or qualifying private insurance and
assigned to the Company his or her right to direct reimbursement by Medicare
and/or the customer's private insurer.
Under currently effective regulations, Medicare reimburses for the cost of
test products purchased by diabetics with IDDM only. Medicare, historically,
has not reimbursed, and currently does not reimburse, for the cost of test
products purchased by diabetics suffering from NIDDM.
As Medicare does not reimburse for the cost of test products purchased by
non-insulin dependent diabetics, the Company, since its inception, has marketed
its products to the estimated 800,000 diabetics suffering from IDDM and has
neither sought, nor attracted customers from the much larger number of
non-insulin dependent diabetics. Initially, the Company primarily attracted
insulin dependent diabetics with Medicare coverage. Over time, the Company also
began to attract and accept orders from increasing numbers of insulin dependent
diabetics with private insurance.
Commencing July 1, 1998, pursuant to the NIDDM Provision included in the
Balanced Budget Act, non-insulin dependent diabetics with Medicare coverage
will qualify for Medicare reimbursement for the purchase of diabetes test
products. An element of the Company's business strategy is to capitalize on
this change in the law by attracting as new customers non-insulin dependent
diabetics with Medicare coverage, although such customers represent an
inherently untested market. To that end, the Company intends to conduct new
marketing
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efforts targeted at this new pool of potential customers. In conjunction with
such efforts, the Company will also seek to attract as new Customers
non-insulin dependent diabetics with private insurance. See "Business--Overview"
and "Business--Business Strategy and Plan."
During the 12 months ended October 31, 1997, the Company received
approximately 30% of its sales revenues from customers with Medicare coverage
only, approximately 37% of its sales revenues from customers with Medicare and
supplemental insurance coverage and approximately 33% of its sales revenues
from customers with private insurance coverage only. The Company's business
strategy is designed to increase the percentage of sales revenues received from
customers with private insurance.
Products--Diabetic Testing Products, Insulin and Syringes
The Company's core business, generating nearly all of the Company's sales
revenues to date, is the sale of products required by diabetics to conduct and
evaluate testing of their blood sugar levels. The blood sugar testing products
consist of a "lancet," used to prick the finger and obtain drops of blood for
analysis, a "lancing device," which houses and fires the lancet into the
finger, a "strip," on which an extracted drop of blood is placed, a "control
solution," placed on the strip to test the meter's accuracy, and a blood
glucose monitor or "meter," which reads the drop of blood on the strip and
provides a blood-sugar level result. All five of these test products are
marketed and sold by the Company. In addition, the Company also markets and
sells insulin and syringes required by diabetics with IDDM. Revenues from the
sale of insulin and syringes, however, represent an insignificant portion of
the Company's total sales revenues.
The Company offers a variety of meters purchased from four major
manufacturers of such devices. Meters generally have a useful life of one to
five years, and some first time customers of the Company who have been
purchasing test products from other vendors choose to continue using the meter
they already own. In many cases, customers requiring new meters purchase a
model recommended by their physicians. In other cases, the Company's customer
service representatives discuss with a customer the available models of meters
and help the customer determine which to purchase.
Each model of meter requires use of a particular "model-unique" test
strip. Manufacturers of meters also manufacture the test strips to be used with
their meters. Test strips and lancets are used only once, and, therefore, are
ordered by customers on a continuing and repetitive basis. The Company sells
test strips and lancets in boxes of 100 each (or, for diabetics requiring less
frequent testing, 50 each).
Customers generally order control solution on an "as needed" basis.
Lancing devices typically have a useful life of approximately six months, and
customers generally replace their lancing devices accordingly.
Order and Purchase Procedures
Prospective customers of the Company, responding to television or radio
advertisements or learning of the Company's products through their Group, are
directed to call a toll-free "800" phone number for information about the
Company's products and to place orders.
Callers speak to trained Company customer service representatives who
complete an information sheet which commences the Company's internal
qualification process. This process must be completed before the customer is
accepted by the Company and test products and/or insulin and syringes can be
shipped. Elements of this process include (i) verification of Medicare and/or
private insurance coverage, including any supplementary coverage, (ii)
verification of the customer's physician's professional identification number,
(iii) receipt from the physician of a certificate of medical necessity and
"doctor's order," and (iv) receipt from the customer of an assignment of
payment form. The "doctor's order" confirms the customer's insulin dependency
(in the cases of customers with Medicare or certain types of private
insurance), ability to use the test products, type and quantity of insulin used
(where applicable) and amount of daily testing required.
The Company's customer list, which as of January 1998 included in excess
of 8,000 active customers, is currently composed almost entirely of insulin
dependent diabetics with Medicare and/or qualifying private insurance. Under
current regulations, non-insulin dependent diabetics with Medicare coverage are
not entitled to
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Medicare reimbursement for diabetes test products. For this reason, the Company
generally has not sold products to persons suffering from NIDDM (although the
Company has sold products, on a very limited basis, to persons with NIDDM who
maintain qualifying private insurance). Additionally, the Company does not
presently and has no plans to sell products to the portion of the population
enrolled in HMOs. Under the NIDDM Provision of the Balanced Budget Act,
effective July 1, 1998, all Medicare recipients diagnosed with diabetes,
whether or not insulin dependent, will qualify for Medicare reimbursements for
diabetes test products. At that time, the Company expects to commence sales of
test products to all diabetics with Medicare coverage.
Once the Company has received the certificate of medical necessity and/or
doctor's order, has verified the customer's insurance coverage, and has
received from the customer a signed assignment of payment form, the Company
will accept the customer's order and ship test products and/or insulin and
syringes. Typically, the time frame from first call by a new customer to
shipment of and billing for such customer's first order is between 14 and 21
days, although this period may be shorter in the case of sales to Group
participants because required verifications and information can generally be
provided by the Group more quickly and efficiently than if the Company is
required to contact a customer's physician and insurer directly. Generally, all
test products are included in the first order (although some first time
customers who have been purchasing test products from other vendors do not
order meters, choosing instead to continue using the meters they already own).
Thereafter, replacement supplies are automatically shipped periodically, based
upon the customer's testing needs.
The Company, at its facility, maintains product inventory in quantities it
believes to be sufficient to meet customer demand. See "Business--Properties."
See also "Risk Factors -- Dependence on Suppliers of the Company's Products."
Historically, the Company has shipped ordered products upon completion of its
internal qualification process and, accordingly, has never experienced any
backlog in filling orders. Orders are filled at and shipped from the Company's
facility. All customer service representatives, marketing and sales personnel,
shipping and receiving personnel, and accounting, billing, management and other
personnel are located at the Company's facility (see "Business--Employees").
Shipping, Billing and Payment Procedures
Upon completion of a customer's file and approval of the customer's order,
the Company ships the products ordered to the customer by U.S. mail. Payment
for supplies shipped to customers covered by Medicare or private insurance is
made pursuant to the customer's assignment to the Company of the customer's
right to Medicare or other insurance reimbursement.
Upon shipment of products to a customer, the charges therefor are entered
into the Company's billing system. Invoices are generated and delivered
promptly upon acceptance of the order and shipment of products. Accepted
Medicare invoices are generally paid within 15 to 30 days of the invoice date,
and most approved private insurance invoices are paid within 30 to 45 days of
the invoice date. Invoices not paid upon initial submission typically require
up to 120 days for collection. A small amount of accounts receivable prove to
be uncollectible for a variety of reasons.
Sales to Group participants are invoiced -- generally monthly -- directly
to the Group rather than the ultimate insurer, and Groups generally pay such
invoices within 30 days of the invoice date.
Reimbursement
Under current regulations, Medicare will reimburse 80% of the "allowable
amount" for the purchase of test products once the customer's annual deductible
has been met. The "allowable amount" is the lower of the submitted charge or
the state fee schedule based upon the beneficiary's state of residence. Under
present rules, the state fee schedules are updated annually by HCFA. Those
Medicare beneficiaries also holding supplementary private insurance pay all or
a portion of the remaining 20% of the "allowable amount" through such
supplementary coverage. Those Medicare beneficiaries without supplementary
coverage are personally responsible for the remaining 20%. Because Medicare
will not reimburse for the cost of insulin and syringes, diabetics purchasing
insulin and syringes from the Company are responsible for payment for these
items, either directly or through private insurance. Sales of insulin and
syringes account for an insignificant portion of the Company's total sales
revenues.
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The terms of private insurance policies vary widely, with differences
existing in such areas as products covered, reimbursement rates and
deductibles. For this reason, the Company carefully examines (using its own
qualification standards) the terms of policies held by prospective customers
for whom private insurance provides the primary reimbursement source. Among
other qualification standards which customers must meet, the Company will only
sell products to persons whose primary source of reimbursement is private
insurance if their deductible is less than a specified amount set from time to
time by Company management (currently $300). Typically, however, qualifying
private insurance reimburses for test products at a rate of 80% of the "usual
and customary" price for the products as determined by such private insurers
pursuant to their own fee schedules. These prices have generally been higher
than the "allowable amount" established by the HCFA fee schedule. Accordingly,
private insurance reimbursements for products sold to private insurance
customers are generally higher than Medicare reimbursements for the same
products, making sales to private insurance customers generally more profitable
to the Company than sales to Medicare customers. For this reason, one component
of the Company's business strategy (see "Business--Business Strategy and Plan")
is to increase the percentage of the Company's total customer list made up of
non-Medicare customers.
Sales and Marketing
The Company, historically, has generated sales of test products and
insulin and syringes by advertising for its products on television and radio
(and, to a much lesser extent, in print media). The advertising, aimed at
individual insulin dependent diabetics with Medicare or qualifying private
insurance, promote the safety and reliability of the products distributed by
the Company, the available automatic re-ordering and shipping of the test
products, the convenient and reliable delivery by mail of the products, and the
Company's services in processing and obtaining insurance reimbursements (thus
relieving customers of this administrative burden). Interested prospective
customers are directed to call a toll-free "800" phone number for more
information. The phone number is staffed with trained Company customer service
representatives who discuss with callers the callers' needs, commence the order
and sale process and/or answer callers' questions, including questions about
the use of purchased products. See "Business--Products--Diabetes Testing
Products, Insulin and Syringes" and "Business--Order and Purchase Procedures."
The Company's advertising campaigns are designed to reach and attract the
interest of audiences likely to include higher concentrations of diabetics. See
"Risk Factors--Competition." The Company also produces and makes available to
current and prospective customers flyers, brochures and other literature
concerning diabetes in general and the specific products sold by the Company.
The Company has entered into four provider contracts with Groups, and
seeks additional contracts with Groups to provide diabetes test products and
insulin and syringes to their participants. See "Business--Provider Contracts."
Upon entry into provider contracts with Groups, the Company conducts a range of
direct marketing efforts, in coordination with the Groups, to promote the
Company's name and products among the Groups' participants, and to attract such
participants to become customers of the Company. Management believes that
because such promotional and marketing efforts can be directed to a
specifically identifiable and accessible group of individuals on a repetitive
basis, they are both cost effective and potentially highly successful. However,
the Company's promotional marketing efforts in this regard are still evolving
and are largely unproven, and there can be no assurance that the Company will
successfully attract significant numbers of Group participants as customers.
See "Risk Factors--The Company May Not Be Successful In Penetrating Managed
Care Market."
The Company's customer service representatives discuss with callers their
diabetes testing needs, answer their questions about insurance reimbursement,
describe the Company's products and services, and direct callers through the
process of ordering supplies, verifying insurance coverage and obtaining
necessary certificates of medical necessity. Additionally, customer support
representatives are available to discuss with customers the manufacturer's
recommended use of products.
The Company does not depend on any one or a limited number of customers
for a material portion of its sales.
Provider Contracts
During 1997, the Company inaugurated efforts to attract additional
customers by entering into provider contracts with Groups and marketing test
products to such Groups' participants. Between May 1997 and January 1998, the
Company entered into provider contracts with four Groups. Pursuant to these
provider contracts,
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the Company is listed as an authorized provider of test products and supplies
for diabetics; participants in the Groups are informed of, and have access to
information about the Company's products, and are assured coverage by their
Groups or insurers for products purchased from authorized providers including
the Company.
Participants in contracting Groups generally can choose from a number of
providers of products for diabetics, and continue to have the option of
purchasing needed goods from pharmacies (rather than the Company or other mail
order or specialty providers). However, management believes that the contracts
it maintains with Groups provides it with a group of potential customers to
whom the Company can target its marketing efforts in an efficient and effective
manner. See "Business--Sales and Marketing."
The provider contracts between the Company and the Groups specify the
price or formula for reimbursement for the test products sold by the Company to
the Groups' participants, as well as the procedure for, and timing of, such
reimbursements. Generally, the Company invoices the respective Groups on a
monthly basis for sales made to their participants and the Groups pay the
invoices within a specified period following invoicing, generally within 30
days.
See "Risk Factors--The Company May Not Be Successful In Penetrating
Managed Care Market."
Suppliers
Because the Company does not manufacture the diabetes test products and
other items it sells, it purchases its inventory from manufacturers of such
goods. Test products are produced by only four manufacturers, and the products
produced by each manufacturer differ from those produced by the others;
diabetes test products are not standardized through the industry. The Company
must maintain in its inventory a full selection of all lines of test products
in order to meet its customers' demands. Customers order specific products,
often based either on a physician's prescription or the particular products
previously used. One manufacturer's products cannot be substituted for those of
another.
During the year ended October 31, 1996, two manufacturers accounted for
62% and 16%, of the Company's purchases. During the year ended October 31,
1997, two manufacturers accounted for 58% and 9%, respectively, of the
Company's purchases.
The Company has never experienced an availability shortage of the products
it sells or an inability to fill customers' orders (although there can be no
assurance that such products will not become unavailable in the future).
However, like many other products sold in the open market, prices for the
products required by the Company fluctuate from time to time. Because the
Company's sales revenues are determined by fixed reimbursement rates, the
Company seeks to maintain and expand margins primarily by controlling its
costs, including the costs of its inventory.
In an effort both to control and predict the costs of inventory, the
Company periodically negotiates price terms with the manufacturers of test
products. Pursuant to agreements produced by such negotiations, the
manufacturers agree to sell the Company its inventory requirements at specified
prices which are tied to the volume of inventory purchased. By negotiating such
price schedules, the Company can purchase inventory at negotiated fixed prices,
and thus, avoid volatile open market purchases. By entering into supply
agreements with the manufacturers, the Company is able to stabilize and better
predict the costs of inventory and, further, to assure its supply of inventory
(although, even in the absence of negotiated sales contracts, the Company has
never experienced a shortage of inventory).
The Company currently has supply contracts with two manufacturers. An
updated agreement (to replace the terms for 1997) is being negotiated with a
third manufacturer. The Company is also engaged in negotiations for a supply
contract with the fourth manufacturer. In general, the Company has sought, and
will continue to seek, to negotiate new supply contracts with all of the
manufacturers periodically as the Company's sales (and corresponding purchases
of inventory) increase. Management believes that as the Company's inventory
purchasing power grows, it will be able to negotiate increasingly favorable
supply agreements and price terms. However, there can be no assurance that the
Company will increase its number of customer or be able to dictate more
favorable supplier pricing terms as a result of any increases in the number of
its customers. See, generally, "Risk Factors -- Dependence on Suppliers of the
Company's Products."
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Competition
Numerous vendors sell products and services to diabetics on a national,
regional and local basis, and the market for the sale of medical products for
diabetics is highly fragmented. Sales are conducted by many different methods,
the nature of the Company's competitors is varied, and the barriers to entry
into the business are low. See "Risk Factors -- Competition."
The test products and insulin and syringes sold by the Company to
diabetics are available for purchase from national retail chain stores and
pharmacies, such as Price Club, K-Mart, Wal-Mart, CVS/Revco and RiteAid, as
well as from regional chains and local pharmacies. Many of the national and
regional chains are, and some of the local pharmacies may be, more
well-established, larger and better financed than the Company, and are able to
use their visibility and substantial marketing resources to attract customers
with diabetes. However, these retail outlets generally do not offer customers
personalized attention in determining their needs. Furthermore, the Company,
unlike most of these retail outlets, accepts assignments of customers' rights
to insurance reimbursement, and processes insurance claims, relieving customers
of the burden of preparing and confirming the documentation needed to obtain
reimbursement. For the same reason, customers of the Company are not required
to make payments out of pocket in order to receive products (other than certain
co-insurance and deductible amounts), unlike customers of retail outlets.
Additionally, because the Company accepts orders for products over the
telephone and delivers them (on an automatic repetitive basis where requested),
by mail, directly to the customer, management believes that the Company also
has important advantages over retail stores in terms of convenience of use by
customers.
The Company also faces competition from other mail order companies and
from home healthcare companies who provide similar products and services to
customers. The Company, as of January 1998, serviced in excess of 8,000 active
customers (a customer generally being considered active if he or she has placed
and paid for orders in the last 90 days). Management believes that a number of
companies serve significantly larger numbers of customers than does the
Company, a greater number of companies serve a similar number of customers, and
the largest number of companies serve a small number of customers. Certain of
the Company's mail order competitors may be better established, larger and
better financed than the Company. Key competitors providing mail order, home
delivery and/or insurance claim processing services include Liberty Medical,
Diabetes Support Services, Universal Self-Care and Transworld Home Healthcare.
Furthermore, a much larger number of vendors engage generally in the sale,
distribution, and delivery of a wide variety of medical products and equipment
and other consumer goods. Many of these vendors may already possess the
facilities, supplier relationships, administrative and management ability,
distribution networks, financial and human resources, and experience to enter
the business of mail order delivery of diabetes test products. Management
believes that competition could become even more vigorous in the future.
Part of the Company's business strategy focuses on the establishment of
contractual relationships with Groups. See "Business--Business Strategy and
Plan" and "Business--Provider Contracts". The Company is aware that competitors
in the industry also are seeking to enter into such contractual relationships.
In many cases, competitors for such contracts may have far greater management,
human, and financial resources than the Company for entering into such
contracts and for attracting Group participants to become customers. See "Risk
Factors--The Company May Not Be Successful in Penetrating Market Managed Care
Market" and "Risk Factors--Competition."
As a general matter, the Company and its competitors have access to and
market the same or similar diabetes test products. Furthermore, since customers
pay for products through insurance reimbursement, and the amounts of such
reimbursements are determined by HCFA and private insurers, the Company and its
competitors sell products at substantially similar prices. Accordingly, the
Company and its competitors do not generally compete with each other based on
the quality of the goods they sell or the prices for which they sell such
goods. Instead, the key competitive factors for the Company and other suppliers
of diabetes products are the quality of service to customers, the scope and
effectiveness of marketing efforts, including media advertising campaigns and,
increasingly, the ability to develop new sources of customers through such
means as obtaining and servicing provider contracts with Groups. See "Risk
Factors -- Competition."
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Employees
At April 1, 1998, the Company employed 63 people. All such employees are
engaged by the Company through an independent contractor providing employee
leasing services to businesses. Of these persons, five are in sales and
marketing, 17 are in customer service and support and insurance verification,
three are in shipping and receiving, 22 are in billing and collections, and 16
are in management, administration and operations. The Company's personnel are
not governed by any collective bargaining agreement and the Company believes
that its relationship with its personnel is good. The Company believes that its
wages and benefits, which reflect local conditions, are competitive with those
provided by major area employers. All of the Company's hourly staff is
currently paid wages on a basis that exceeds the current, and federally
mandated increases in, the minimum wage. The Company believes it would not be
materially impacted by future increases in the minimum wage.
Properties
The Company owns and presently occupies a 35,000 square foot facility (the
"Facility") located at 2373 Horseshoe Drive South, Naples, Florida 34104. Prior
to the purchase of the Facility by the Company, pursuant to a lease agreement,
the Company occupied the Facility for the period commencing on August 26, 1997
and ending on December 15, 1997 for an aggregate rent of $35,000. The Facility
houses the Company's executive offices as well as all of the Company's
operations, inventory and inventory storage facilities. On December 17, 1997,
the Company completed the purchase of the Facility for a purchase price of
$2,800,000. Financing for the acquisition in the amount of $2,525,000 was
provided by First National Bank of Naples ("FNB"). The loan is secured by the
grant of a first mortgage on the Facility in favor of FNB and is guaranteed by
each of Peter J. Fiscina, Albert R. Ayala and Myron M. Blumenthal, in their
personal capacities. The loan bears interest at the rate of 8.875% per annum,
carries a 20 year amortization schedule with a maturity date of December 17,
2002, at which time the balance of the note (plus accrued but unpaid interest)
is due, and is payable until maturity in monthly installments of $22,723.70
(including interest).
At the time of the acquisition, FNB also provided the Company with an
additional $300,000 second mortgage loan secured by a second mortgage of the
Facility. The Company repaid the second mortgage loan with a portion of the
proceeds from the Private Placement, and the second mortgage was released.
Ronald L. Rucker, an officer of FNB, is also a director of the Company.
See "Management--Directors and Executive Officers" and "Certain Relationships
and Related Transactions -- Ronald L. Rucker." See also "Risk Factors --
Significant Outstanding Indebtedness."
The Company has also conducted extensive renovations of the Facility in an
aggregate amount of approximately $700,000, all of which has been paid. The
Company may conduct additional renovations of the Facility during 1998.
Prior to occupying the Facility, the Company operated from a 5,000 square
foot building (the "Former Premises") located at 1951 J&C Boulevard, Naples,
Florida 34109-6215. The Company purchased the Former Premises from Two Oaks
Realty ("Two Oaks"), a partnership owned by Peter J. Fiscina and Albert R.
Ayala, both officers, directors and principal stockholders of the Company. See
"Certain Relationships and Related Transactions -- Two Oaks Realty." The
Company acquired the Former Premises from Two Oaks in May 1996 for $320,000,
the amount of the original purchase price paid by Two Oaks plus the costs of
renovations of the Former Premises incurred by Two Oaks.
In connection with the purchase of the Former Premises, the Company
obtained a mortgage loan in the amount of $250,000, secured by a lien on the
Former Premises and other assets of the Company. The loan is payable in monthly
installments of $2,400, including interest at 9.75% per annum with a principal
payment of $239,000 at maturity on December 30, 1998. In April 1998, the
Company entered into a contract to sell the Former Premises for a price
exceeding the outstanding amount of the mortgage loan.
Tradenames
The Company has applied for federal trademark protection for the name
Certified Diabetic Supplies and for its logo.
33
<PAGE>
Government Regulatory Matters
The healthcare industry is subject to governmental regulation. See "Risk
Factors--Changes in Government Regulation May Have an Adverse Effect on
Operations."
Third-Party Reimbursement. Medicare is a government funded health
insurance program which provides federally-funded health insurance coverage for
persons age 65 or older and for certain disabled persons. Medicare Part B
provides reimbursement for certain of the services, supplies and items provided
by the Company. Reimbursement for the cost of the services and supplies which
the Company provides is subject to extensive regulation. The level of
reimbursement paid or payments made by Medicare is often lower than the level
of reimbursement paid by other third-party payors, such as traditional
indemnity insurance companies. See "Risk Factors--Dependence on Reimbursement
by Third Party Payors."
The Company accepts assignment of Medicare benefits, as well as
assignments of benefits with respect to other third-party payors, on behalf of
its customers whenever the customers' coverage is adequate to ensure payment of
the customers' obligations. The Company processes its customers' claims,
accepts payment at scheduled rates, and assumes the risks of delay or
nonpayment for inadequately documented sales or services which are determined
by the third-party payor as being medically unnecessary. The Company employs
the administrative personnel necessary to transmit claims for reimbursements
directly to private health insurance carriers, and seeks payment for any
unreimbursed costs (e.g. copayments and deductibles) directly from customers.
No assurance can be given that a significant number of future requests for
reimbursement will not be denied, although the Company believes that its
policies, procedures, and prices currently minimize this risk.
Like other healthcare suppliers, the Company's sales revenues and
profitability are adversely affected by the continuing efforts of third-party
payors (including Medicare and managed care companies) to contain or reduce the
costs of healthcare by lowering reimbursement rates, increasing case management
review of bills for services and negotiating reduced contract pricing. As
expenditures in the home healthcare market continue to grow, initiatives aimed
at reducing the costs of products and services in that market are increasing.
See "Risk Factors--Changes in Governmental Regulation May Have an Effect on
Operations" and "Risk Factors--Dependence on Reimbursement by Third Party
Payors."
Medicare Program. The Company is a certified Medicare Part B supplier. As
a Medicare supplier, the Company can provide equipment and supplies to Medicare
beneficiaries, and obtain reimbursement directly from the Durable Medical
Equipment Regional Carriers. HCFA sets guidelines for the types and quantities
of equipment and supplies, the costs of which are reimbursable under the
Medicare program. Customers are personally responsible for uncovered amounts,
including deductibles and co-payments, either through supplementary private
insurance coverage or otherwise.
Product Liability and Insurance
The Company maintains insurance coverage which it generally believes to be
adequate. However, the nature of the Company's business may subject it to
product liability lawsuits. The Company maintains product liability insurance
in the amount of $1,000,000. To the extent that the Company is subject to
claims which exceed its liability insurance coverage, such suits could have a
material adverse effect on the Company. No such lawsuits are pending or, to the
Company's knowledge, threatened against the Company and the Company has not
experienced any material losses from such lawsuits in the past. See "Risk
Factors--Product Liability; Adequacy of Insurance."
Legal Proceedings
The Company is a defendant in an action filed in the United States
District Court, Southern District of Florida, by Diabetic Supply Foundation,
Inc., for federal copyright infringement and unfair competition. The basis of
the claim is the apparent similarity of a flyer inserted by the Company in
product shipments to customers, to a flyer, purportedly copyrighted and used by
the plaintiff. The flyer is of a type commonly used by suppliers in the
Company's market segment. The flyer has not been used by the Company for more
than one year. The Company will attempt to dispose of the suit as expeditiously
as possible and in any event management does not believe that the claim will
have any material adverse effect on the Company or its operations.
34
<PAGE>
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ------------------------------- ----- --------------------------------------------------------
<S> <C> <C>
Peter J. Fiscina .............. 63 Chairman, Chief Executive Officer, Director
Albert R. Ayala ............... 56 Vice Chairman, Director
Myron M. Blumenthal ........... 66 Treasurer, Chief Financial Officer, Secretary, Director
Frederick J. Roberts .......... 39 President, Chief Operating Officer
Stanley Bloom, M.D. ........... 67 Director
Ronald L. Rucker .............. 55 Director
</TABLE>
Peter J. Fiscina. Mr. Fiscina is a co-founder of the Company and has
served as its Chief Executive Officer, and as a director since its inception in
September 1995. He also was President of the Company from inception through
December 1997 when he became Chairman. From July 1994 to September 1995 Mr.
Fiscina served as President of PF Development of Collier, Inc., a diabetic
supply business similar to that of the Company. From February 1992 to December
1994, Mr. Fiscina served as the President of PF Development of Southwest
Florida, Inc., a sub-franchisor for Country Kitchen Restaurants in Southwest
Florida. From 1965 to 1990 Mr. Fiscina was the President and sole stockholder
of Peters Best Beef Products Ltd., of Farmingdale, New York, a company engaged
in the manufacture and wholesaling of meat products. In August 1989, Peters
Best Beef Products Ltd. filed for protection under Chapter XI of the federal
bankruptcy laws, and in June 1990, it filed for liquidation under Chapter VII
of the federal bankruptcy laws. Mr. Fiscina is also a principal shareholder in
and the President of Coastline Media, Inc. See "Risk Factors -- Prior
Activities of Peter Fiscina" and "Certain Relationships and Related
Transactions -- Coastline Media, Inc."
Albert R. Ayala. Mr. Ayala is a co-founder of the Company and has served
as a director since its inception in September 1995. From September 1995
through December 1997 he was a Vice President of the Company. In December 1997
he became Vice Chairman of the Company. From July 1994 to September 1995, Mr.
Ayala served as Vice President in charge of sales and shipping for PF
Development of Collier, Inc. From 1985 to July 1994, Mr. Ayala was the owner,
and served as President of Ayala Companies, Inc. d/b/a Electro-Bake Auto
Painting, Inc., custom auto paint shops located in Southwest Florida.
Myron M. Blumenthal. Mr. Blumenthal has served as the Company's Treasurer,
Chief Financial Officer, and as a director since October 1995. Mr. Blumenthal
is a Certified Public Accountant and was engaged in private practice from 1965
through 1995. Since 1986, Mr. Blumenthal has served as Chairman of the Board of
Select Resources, PLC, a British company that, between 1988 and 1992, sought to
invest in oil and gas properties in the United States. Conduct of such
activities was contingent upon raising sufficient capital pursuant to a
securities offering. The offering was never completed, and the Company has been
inactive since 1992. Mr. Blumenthal is also a principal shareholder in and
officer of Coastline Media, Inc. See "Certain Relationships and Related
Transactions -- Coastline Media, Inc."
Frederick J. Roberts. Mr. Roberts has served as the Company's President
and Chief Operating Officer (as well as President of the Company's operating
subsidiaries) since December 1997. Mr. Roberts formerly was Executive Vice
President and General Manager of Allen Systems Group, an international computer
software organization, responsible for daily global operations including sales
and marketing. He concurrently served as Chief Financial Officer, responsible
for the organization's financial management and investor relations. Mr. Roberts
began his tenure at Allen Systems Group in 1992.
Stanley Bloom, M.D. Dr. Bloom, a medical doctor, has been a director of
the Company since October, 1997. Dr. Bloom is a partner in Physicians in
Urology, P.A. of Livingston, New Jersey and has been engaged in
35
<PAGE>
private practice in the field of urology since 1970. He is currently affiliated
with the University of Medicine and Dentistry, Newark, New Jersey, St. Barnabus
Medical Center, Livingston, New Jersey, and Overlook Hospital, Summit, New
Jersey. Dr. Bloom is a member of the American Association of Diabetic
Educators, and has lectured extensively, particularly in the area of diabetes
and sexual dysfunction. Dr. Bloom is married to Mr. Fiscina's sister-in-law.
Ronald L. Rucker. Mr. Rucker has served as a director of the Company since
October 1997. Mr. Rucker, since 1994, has been Senior Vice President,
Commercial Lending, for First National Bank of Naples. From 1989 through 1994,
Mr. Rucker was Vice President, Commercial Lending, for the same bank. First
National Bank of Naples has provided the Company with a mortgage loan in
connection with the Company's purchase of its Facility, as well as a line of
credit. See "Business -- Properties" and "Certain Relationships and Related
Transactions -- Ronald L. Rucker."
Audit Committee
The Board of Directors has established an audit committee comprised of
three members, two of whom are required to be independent. The current members
of the audit committee are Messrs. Rucker, Bloom and Blumenthal. The audit
committee is to be responsible for making recommendations concerning the
engagement of the independent public accountants, approving professional
services provided by the independent public accountants and reviewing the
adequacy of the Company's internal accounting controls.
Executive Compensation
The following table sets forth the compensation paid to the Chief
Executive Officer and the two other executive officers whose annual salary and
bonus exceeded $100,000 for services rendered in all capacities to the Company
for the fiscal years ended October 31, 1996 and October 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------ -------------
Other Annual Securities All Other
Name and Principal Fiscal Compensation Underlying Compensation
Position Year Salary($) Bonus($) $(1) Options(#) ($)
- --------------------- -------- ----------- ---------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter J. Fiscina 1997 150,000 350,000 -- 1,000,000 --
Chairman, Chief 1996 150,000 207,000 -- 2,000,000 --
Exective Officer
Albert R. Ayala 1997 100,000 225,000 -- 100,000 --
Vice Chairman 1996 100,000 106,000 -- 1,000,000 --
Myron M. Blumenthal 1997 100,000 225,000 -- 1,000,000 --
Treasurer, Chief 1996 100,000 106,000 -- 1,000,000 --
Financial Officer
</TABLE>
- ------------
(1) Other annual compensation in the form of perquisites and other personal
benefits has been omitted because the value of such perquisites and other
personal benefits provided by the Company did not exceed the lesser of
$50,000 or 10% of the total of annual salary and bonus for the named
executive officer for such year.
Employment Contracts and Termination of Employment
Messrs. Fiscina, Ayala and Blumenthal
Peter J. Fiscina, Albert R. Ayala and Myron M. Blumenthal (each of Mr.
Fiscina, Mr. Ayala and Mr. Blumenthal are, for purposes of this discussion,
referred to as "Executive") are employed under five-year employment agreements
with the Company, each terminating on October 31, 2000.
The employment agreements require the Executives to devote their entire
time, energy and skill to the Company, while acknowledging that the Executives
have other business interests and serve as directors of other
36
<PAGE>
businesses, and confirming that such activities shall be permitted. Each of the
Executives has, since the Company's inception, devoted substantially all of
their business time and efforts to the Company and the Company believes they
will continue to do so for the indefinite future. Each of the Executives also
agrees, while an employee of the Company and for two years thereafter, not to
compete with the Company, not to solicit customers and clients of and other
persons with relationships with the Company, and not to solicit any employees,
agents or representatives of the Company in an effort to cause such persons to
become employees, agents or representatives of any competitor of the Company.
There can be no assurance that a court would enforce such restrictive
covenants.
The employment agreements provide for the payment to Messrs. Fiscina,
Ayala and Blumenthal of annual base salaries of $150,000, $100,000 and
$100,000, respectively. Each executive is also entitled to receive annual
incentive bonuses based upon the Company's achievement in any year of specified
incremental levels of annual sales and consolidated earnings from continuing
operations before interest, taxes, depreciation and amortization ("EBITDA")
(but without deduction for officers' salaries). The annual sales levels range
from $2,500,000 to $10,000,000, and the EBITDA levels range from $750,000 to
$3,000,000. Achievement of targets entitles Mr. Fiscina to incentive bonuses
ranging from $150,000 to $500,000, and entitles Messrs. Ayala and Blumenthal to
incentive bonuses ranging from $100,000 to $300,000 each, depending on the
target levels reached. The employment agreements also state that each executive
may receive other cash bonuses as determined by the Board of Directors from
time to time in its discretion based on the growth and success of the Company.
To date, the Board of Directors has not awarded any such discretionary bonuses.
If, at the conclusion of the five-year terms, the agreements are not
extended or replaced with new agreements solely because the Company has failed
to negotiate to do so in good faith, the Executive is entitled, for a period of
one year following termination, to receive an amount equal to his highest
annual compensation (including all bonus compensation), payable in the same
manner his salary was paid to him while he was employed.
If, within three years after a change of control, any of the Executives
determines that his employment status or responsibilities have been materially
and adversely affected and terminates his employment, or his employment is
terminated by the Company, the Executive is entitled to receive three times his
base compensation for the year in which the termination occurs plus three times
the average bonus or incentive compensation paid to him for the previous three
financial years. In such event, the Executive will also be entitled to continue
to receive benefits for up to three years, and all options granted to him will
become, and for one year remain, exercisable.
In the event of the Executive's death, the Executive's heirs, personal
representatives or estate are entitled to receive his salary for a period of
one year after death, accrued benefits and bonuses up to the date of
termination, and any benefits which, in accordance with the terms of the
corresponding benefit plans, would continue to be paid following termination.
Upon the Executive's continuing disability (for more than three
consecutive months or for periods aggregating four months during any six month
period), the Company may terminate the employment agreement, and the Executive
will be entitled to receive, for one year following the onset of the
disability, base salary less any disability insurance proceeds received from
any disability plan provided by the Company, as well as any accrued benefits
and bonuses up to the date of termination, and any benefits which, in
accordance with the terms of the corresponding benefit plans, would continue to
be paid following termination. If the Company terminates the agreement with the
Executive for cause, the Executive will be entitled to receive two weeks'
salary as severance.
If the Company terminates the Executive for reasons other than death,
disability or cause, the Executive is entitled to receive the balance of the
compensation otherwise due under the employment agreement, but in no event less
than an amount equal to two years' compensation as provided in the employment
agreement, plus one year of severance pay in an amount equal to his highest
annual compensation, including all bonus compensation.
37
<PAGE>
Frederick J. Roberts
Frederick Roberts is employed under a three year employment agreement
terminating on December 22, 2000.
The employment agreement requires Mr. Roberts to devote his entire time,
energy and skill to the Company, while acknowledging that Mr. Roberts serves as
a director of another company and confirming that such other activity does not
constitute a breach of the employment agreement. Since he joined the Company,
Mr. Roberts has devoted substantially all of his business time and efforts to
the Company and the Company believes he will continue to do so for the balance
of the term of his employment agreement. Mr. Roberts also agrees, while an
employee of the Company and for two years thereafter, not to compete with the
Company, not to solicit customers, advertisers, agencies, developers,
operators, owners or clients who had a relationship with the Company during the
preceding two years, and not to solicit any person or entity who was an
employee, salesman, contractor, agent or representative of the Company in an
effort to obtain such person as an employee of a competitor. Mr. Roberts
further agrees not to disclose any confidential information relating to the
Company while an employee of the Company and for two years thereafter. There
can be no assurance that a court would enforce such restrictive covenant and
confidentiality agreement.
The employment agreement provides for the payment to Mr. Roberts of an
annual base salary of $150,000. The base salary will be reviewed by the Board
of Directors on an annual basis and may be increased. Mr. Roberts is also
entitled to receive annual incentive bonuses based upon the Company's
achievement in any year of specified incremental levels of consolidated
earnings from continuing operations before interest, taxes, depreciation and
amortization ("EBITDA") (but without deductions for officers' salaries). The
EBITDA levels range from $2,000,000 to $6,000,000. Achievement of targets
entitles Mr. Roberts to incentive bonuses ranging from $150,000 to $400,000,
depending on the target levels reached. The employment agreement also states
that Mr. Roberts may receive other cash bonuses as determined by the Board of
Directors from time to time in its discretion based on the growth and success
of the Company. To date, the Board of Directors has not awarded any such
discretionary bonuses.
Simultaneously with the entry into the employment agreement, the Company
granted Mr. Roberts options to purchase 240,000 shares of Common Stock. The
options, which are exercisable at the price of $4.00 per share, vest over three
years in annual one-third increments, commencing on December 22, 1998, provided
that at the time of vesting, Mr. Roberts is still employed by the Company. On
April 1, 1998, the Company granted Mr. Roberts additional options to purchase
260,000 shares of Common Stock. These options, which are exercisable at the
price of $4.1875 per share, vest over five years in annual increments of 60,000
in the first year and 50,000 in each of the next four years, commencing on
April 1, 2002, provided that at the time of vesting, Mr. Roberts is still
employed by the Company. Pursuant to the terms of the stock option agreements
between Mr. Roberts and the Company, Mr. Roberts' rights to the options, to the
extent not exercised, terminate on the tenth anniversary of the date of grant,
or, if sooner, three months after Mr. Roberts' termination as an employee of
the Company for any reason (but one year following termination by reason of
death or disability).
If, at the conclusion of the three year term the agreement is not extended
or replaced with a new agreement solely because the Company failed to negotiate
to do so in good faith, Mr. Roberts is entitled, for a period of one year
following termination, to receive an amount equal to his highest annual
compensation (including all bonus compensation), payable in the same manner as
his salary was paid to him while he was employed by the Company.
If, within three years after a change of control, Mr. Roberts determines
that his employment status or responsibilities have been materially and
adversely affected and terminates his employment, or his employment is
terminated by the Company, Mr. Roberts is entitled to receive three times his
base compensation for the year in which the termination occurs plus three times
the average bonus or incentive compensation paid to him for the previous three
financial years. In such event, Mr. Roberts will also be entitled to continue
to receive benefits for up to three years, and all options granted to him will
become, and for one year remain, exercisable.
In the event of Mr. Roberts' death, Mr. Robert's heirs, personal
representatives or estate are entitled to receive his base salary for a period
of one year after death, accrued benefits and bonuses through the date of
death, and certain other benefits.
38
<PAGE>
In the event of Mr. Roberts' continuing disability (for more than three
consecutive months or for periods aggregating four months during any six month
period), the Company may terminate Mr. Roberts' employment, and Mr. Roberts
will be entitled to receive his base salary, less the amount of any disability
insurance proceeds received from any Company funded disability policy, for a
period of one year from the date of the disability's onset, plus any accrued
benefits and bonuses through the date of termination, and certain other
benefits.
If the Company terminates Mr. Roberts for any reason other than death,
disability or cause, Mr. Roberts is entitled to receive the balance of the
compensation otherwise due under the employment agreement, but in no event less
than an amount equal to two years compensation and benefits, plus, for one year
following termination, an amount equal to Mr. Roberts' highest annual
compensation (including all bonus compensation).
Benefit Plans
The Company adopted the 1997 Stock Option Plan (the "Plan") in June 1997.
(The Plan, when adopted, was identical in all respects to the 1995 Stock Option
Plan (the "Florida Supplies Plan") adopted by Florida Supplies, the predecessor
to the Company, in November 1995. In connection with the reorganization of the
Company completed in August 1997, pursuant to which the Company changed its
state of incorporation from Florida to Delaware and adopted its present holding
company structure, optionees under the Florida Supplies Plan received, in
substitution for their options thereunder, an identical number of options, with
identical terms, under the Plan. See "Business--Business Background"). The Plan
was amended in September 1997, after completion of the reorganization, to
increase the number of shares of Common Stock reserved for issuance thereunder
from 5,000,000 to 8,000,000.
Under the Plan, as amended, 8,000,000 shares of Common Stock are reserved
for issuance to employees, officers, key executives, directors, consultants or
advisors of the Company. The Plan is administered by the Compensation Committee
of the Board of Directors.
As of April 1, 1998, options for an aggregate of 4,000,000 shares at $1.00
per share, 240,000 shares at $4.00 per share, 260,000 shares at $4.1875 per
share, 100,000 shares at $4.375 per share, 150,000 shares at $5.00 per share,
2,100,000 shares at $8.75 per share, and 150,000 shares at $9.00 per share were
outstanding. (The 150,000 options at $5.00 per share, and the 150,000 options
at $9.00 per share will terminate, before vesting, on June 9, 1998). Options
held by the chief executive officer and each of the other executive officers
named in the Summary Compensation Table are as follows: Mr. Fiscina - 2,000,000
shares at $1.00, 1,000,000 shares at $8.75; Mr. Blumenthal - 1,000,000 shares
at $1.00, 1,000,000 shares at $8.75; Mr. Ayala - 1,000,000 shares at $1.00,
100,000 shares at $8.75.
The following table sets forth certain information concerning stock
options granted to the Chief Executive Officer and each of the other named
executive officers during fiscal year 1997. The exercise price for all of the
grants to such named persons was the fair market value of the shares of Common
Stock on the date of the grant, determined by reference to the closing price as
quoted on the OTC Electronic Bulletin Board on such date.
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value of Assumed Annual
Rates
of Stock Price Appreciation for Option
Individual Grants(1) Term(2)
----------------------------------------------- -------------------------------------------
Number of
Securities Percent of Total
Underlying Options Granted Exercise
Options Granted to Employees in Price Expiration 5% 10%
Name (#) Fiscal Year ($/sh) Date(3) ($) ($)
- ------------------------- ----------------- ----------------- --------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Peter J. Fiscina ........ 1,000,000 39.2% $ 8.75 9/2/05 $5,510,000 $13,950,000
Myron M. Blumenthal ..... 1,000,000 39.2% $ 8.75 9/2/05 $5,510,000 $13,950,000
Albert R. Ayala ......... 100,000 3.92% $ 8.75 9/2/05 $ 510,000 $ 1,395,000
</TABLE>
- ------------
(1) Does not include options to purchase 300,000 shares of Common Stock granted
during fiscal year 1997 to two former employees of the Company. Such
former employees have become consultants to the Company and, accordingly,
such options expire, before vesting, on June 9, 1998, pursuant to the
terms of the options.
39
<PAGE>
(2) The dollar amounts under the 5% and 10% columns are the result of
calculations required by the rules of the Securities and Exchange
Commission and, therefore, are not intended to forecast possible future
appreciation, if any, of the Common Stock price. The amounts shown reflect
the difference between the appreciation and the exercise price, at the
assumed annual rates of appreciation through the tenth anniversary of the
dates of grant.
(3) The options vest in their entirety on the earlier to occur of (a) the
eighth anniversary of the date of grant, or (b) the date, if any, that the
Board of Directors, in consultation with the Company's independent
auditors, determines that, with respect to the Company's fiscal year then
ended, the Company has achieved gross revenues of not less than
$10,000,000 and adjusted earnings before income taxes, depreciation and
amortization of not less than $3,000,000, provided the optionee is then
employed by the Company. The rights of the optionee in the options, to the
extent not exercised, terminate on the tenth anniversary of the date of
grant or, if sooner, three months after optionee's termination as an
employee of the Company for any reason (but one year following termination
by reason of death or disability).
The following table sets forth certain information with respect to the
Chief Executive Officer and the other named executive officers regarding the
value of their unexercised options held as of October 31, 1997. No options were
exercised (or exercisable) during fiscal year 1997.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercisable Options at In-The-Money
October 31, 1997 Options at October 31, 1997 (1)
------------------------------- -------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Peter J. Fiscina ............ -0- 3,000,000 -0- $ 12,000,000
Myron M. Blumenthal ......... -0- 2,000,000 -0- $ 6,000,000
Albert R. Ayala ............. -0- 1,100,000 -0- $ 6,000,000
</TABLE>
- ------------
(1) Reflects the difference between the exercise price and $7.00 per share (the
closing market price of the Common Stock, as reported on the OTC
Electronic Bulletin Board on October 1, 1997).
Compensation Committee Interlocks and Insider Participation
The Company did not have a compensation committee or other board committee
performing equivalent functions during the fiscal year ended October 31, 1997.
The Board of Directors of the Company, consisting of Messrs. Fiscina,
Blumenthal and Ayala, made all decisions relating to executive officer
compensation during fiscal year 1997.
Messrs. Fiscina and Blumenthal are the sole directors and the executive
officers, as well as the owners, in the aggregate, of 90% of the outstanding
capital stock of Coastline Media, Inc. ("Coastline"). The Company, through
December 1997, engaged Coastline to design and implement its television and
radio advertising campaigns, including the purchase of advertising time and the
placement of television and radio advertisements. The Company paid Coastline a
gross fee for its services out of which Coastline paid its expenses, including
the costs of time purchased on behalf of the Company. During the twelve months
ended October 31, 1997, the Company paid Coastline approximately $814,000 for
its services. Management believes that the cost of the time purchased by
Coastline on behalf of the Company during such period was approximately
$692,000. As of January 1, 1998, Coastline ceased conducting business; the
services formerly provided to the Company by Coastline are now performed by the
Company on its own behalf. See "Certain Relationships and Related
Transactions--Coastline Media Inc."
The Board of Directors has established a compensation committee comprised
of three members, two of whom are required to be independent. The current
members of the compensation committee are Messrs. Rucker, Bloom and Blumenthal.
The compensation committee is responsible for all decisions relating to
compensation for officers, directors and employees of the Company, as well as
for administration of the Company's benefit plans.
40
<PAGE>
Indemnification of Officers and Directors
The Certificate of Incorporation and By-Laws of the Registrant provide
that the Company shall indemnify any person to the full extent permitted by the
Delaware General Corporation Law (the "GCL"). Section 145 of the GCL, relating
to indemnification, is hereby incorporated herein by reference.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to Directors, officers or controlling persons of the Company pursuant
to the Company's By-laws and the Delaware General Corporation Law, the Company
has been informed 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.
The Company's Certificate of Incorporation includes certain provisions
permitted pursuant to Delaware law whereby officers and Directors of the
Company are to be indemnified against certain liabilities. The Company's
Certificate of Incorporation limits, to the fullest extent permitted by
Delaware law, a director's liability for monetary damages for breach of
fiduciary duty, including gross negligence, except liability for (i) breach of
the director's duty of loyalty, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, (iii)
the unlawful payment of a dividend or unlawful stock purchase or redemption and
(iv) any transaction from which the director derives an improper personal
benefit. Delaware law does not eliminate a director's duty of care and this
provision has no effect on the availability of equitable remedies such as
injunction or rescission based upon a director's breach of the duty of care. In
addition, the Company has obtained an insurance policy providing coverage for
certain liabilities of its officers and Directors.
In accordance with Section 102(a)(7) of the GCL, the Certificate of
Incorporation of the Registrant eliminates the personal liability of directors
to the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director with certain limited exceptions set forth in Section
102(a)(7).
41
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's outstanding Common Stock as of April 1,
1998, as adjusted to reflect the sale of shares offered hereby, for (i) each
person known to the Company to own beneficially 5% or more of the outstanding
shares of Common Stock, (ii) the Company's directors and named executive
officers, and (iii) all of the Company's directors and executive officers as a
group. Except as otherwise noted in the footnotes to this table, the named
beneficial owner has sole voting and investment power.
<TABLE>
<CAPTION>
Percentage of Shares
Name and Address of Number of Shares Beneficially Owned(1)
Beneficial Owners Beneficially Owned Before Offering
- ------------------------------------ -------------------- ----------------------
<S> <C> <C>
Peter J. Fiscina(2) ................ 2,512,500 23.2%
2373 Horseshoe Drive South
Naples, Florida 34104
Albert R. Ayala(3) ................. 2,306,250 21.3%
2373 Horseshoe Drive South
Naples, Florida 34104
Myron M. Blumenthal(4)(5) .......... 1,206,250 11.1%
2373 Horseshoe Drive South
Naples, Florida 34104
Stanley Bloom, M.D.(6) ............. 4,500 *
16 Dominick Court
Short Hills, New Jersey 07078
Ronald L. Rucker(7) ................ 2,500 *
72 Cypress Point Drive
Naples, Florida 34105
Frederick J. Roberts(8) ............ -0- -0-
2373 Horseshoe Drive South
Naples, Florida 34104
All directors and executive officers
as a group (6 persons) ............ 6,032,000 55.6%
</TABLE>
- ------------
* Less than 1%.
(1) Assumes 10,845,000 shares of Common Stock outstanding prior to this
Offering.
(2) Does not include options to purchase 3,000,000 shares of Common Stock not
exercisable within 60 days of the date hereof. Mr. Fiscina is the
Chairman, Chief Executive Officer and a director of the Company.
(3) Does not include options to purchase 1,100,000 shares of Common Stock not
exercisable within 60 days of the date hereof. Mr. Ayala is Vice Chairman
and a director of the Company.
(4) Does not include options to purchase 2,000,000 shares of Common Stock not
exercisable within 60 days of the date hereof. Mr. Blumenthal is the
Treasurer, Chief Financial Officer and a director of the Company.
(5) A judgment has been obtained against Mr. Blumenthal in the amount of
approximately $1.3 million by the New York State Department of
Environmental Conservation ("NYDEC") in connection with the failure by a
company of which Mr. Blumenthal was previously a director to timely effect
certain environmental clean-up activities. Mr. Blumenthal has advised the
Company that he is currently engaged in negotiations with NYDEC in an
effort to settle such judgment, and that such settlement could involve the
transfer, sale or pledge of a portion of Mr. Blumenthal's shares in the
Company. In the event that such negotiations are unsuccessful, it is
possible that NYDEC could, by exercising its rights as a judgment
creditor, cause the involuntary transfer of a portion of the shares of the
Company owned by Mr. Blumenthal.
(6) Dr. Bloom is a director of the Company. Represents 4,000 shares of Common
Stock owned by Dr. Bloom's wife. Also includes 500 shares of Common Stock
owned by a pension plan administered by Dr. Bloom for his benefit.
(7) Mr. Rucker is a director of the Company.
(8) Does not include options to purchase 500,000 shares of Common Stock not
exerciseable within 60 days of the date hereof. Mr. Roberts is President
and Chief Operating Officer of the Company.
42
<PAGE>
SELLING STOCKHOLDERS
None of the Selling Stockholders has or had a position, office or other
material relationship with the Company or any of its affiliates within the past
three years. Unless otherwise indicated, the following table sets forth certain
information with respect to the ownership of the Company's Series A Preferred
Stock and the Company's Common Stock by each Selling Stockholder as of the date
of this Prospectus.
<TABLE>
<CAPTION>
Ownership of Shares of Capital Stock
Prior to Offering
---------------------------------------------------
Series A
Preferred Stock(1) Common Stock(2)
---------------------- ---------------------------
Name and Address of
Selling Stockholder Shares Percentage Shares Percentage
- --------------------------------- -------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Leonardo, L.P. 750 25.0% 17,500 *
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Fl.
New York, NY 10167
GAM Arbitrage 100 3.33% 2,333.33 *
Investments, Inc.
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Fl.
New York, NY 10167
AG Super Fund 100 3.33% 2,333.33 *
International Partners, L.P.
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Fl.
New York, NY 10167
Raphael, L.P. 100 3.33% 2,333.33 *
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Fl.
New York, NY 10167
Ramius Fund, Ltd. 200 6.67% 4,666.67 *
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Fl.
New York, NY 10167
AGR Halifax Fund, Ltd. 1,250 41.67% 29,166.67 *
c/o CITCO Fund Services
(Cayman Islands), Ltd.
Corporate Center, West Bay Road
P.O. Box 31106 SMB
Grand Cayman,
Cayman Islands B.W.I.
Amro International, S.A. 500 16.67% 11,666.67 *
c/o Ultra Finance, Ltd.
Grossmunsterplatz 26
P.O. Box 4401
Zurich, Switzerland CH-8022
Jesup & Lamont Securities Corp. -- -- 20,000 *
650 Fifth Avenue, 3rd Floor
New York, NY 10019
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Ownership of
Shares of Common Stock
Prior to Offering(2)(3) Number of
---------------------------- Shares
of Common
Stock Offered
Name and Address of Hereby
Selling Stockholder Shares Percentage (3)(4)
- --------------------------------- -------------- ------------ --------------
<S> <C> <C> <C>
Leonardo, L.P. 251,875 2.27% 251,875
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Fl.
New York, NY 10167
GAM Arbitrage 33,583.33 * 33,583.33
Investments, Inc.
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Fl.
New York, NY 10167
AG Super Fund 33,583.33 * 33,583.33
International Partners, L.P.
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Fl.
New York, NY 10167
Raphael, L.P. 33,583.33 * 33,583.33
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Fl.
New York, NY 10167
Ramius Fund, Ltd. 67,166.67 * 67,166.67
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Fl.
New York, NY 10167
AGR Halifax Fund, Ltd. 419,791.67 3.73% 419,791.67
c/o CITCO Fund Services
(Cayman Islands), Ltd.
Corporate Center, West Bay Road
P.O. Box 31106 SMB
Grand Cayman,
Cayman Islands B.W.I.
Amro International, S.A. 167,916.67 1.52% 167,916.67
c/o Ultra Finance, Ltd.
Grossmunsterplatz 26
P.O. Box 4401
Zurich, Switzerland CH-8022
Jesup & Lamont Securities Corp. 20,000 * 20,000
650 Fifth Avenue, 3rd Floor
New York, NY 10019
</TABLE>
- ------------
*Less than 1%.
(1) The shares of Series A Preferred Stock have an initial stated value of
$1,000 per share and are convertible into shares of Common Stock at a
price equal to the lower of (a) $6.50 per share of Common Stock, or (b)
80% of the average of the two lowest closing bid prices of the Common
Stock for the fifteen consecutive trading days prior to the day on which
the notice of conversion is transmitted by the holders of the Series A
Preferred Stock, subject to adjustment in order to prevent dilution and in
the case of any recapitalization, consolidation, merger and certain other
events. See "Description of Securities."
43
<PAGE>
(2) Includes shares of Common Stock issuable upon exercise of the Investor
Warrants which entitle the Selling Stockholders to purchase in the
aggregate 70,000 shares of Common Stock, except with respect to Jesup &
Lamont Securities Corp. which owns 20,000 shares of Common Stock. See
"Description of Securities."
(3) Calculation assumes conversion of the shares of Series A Preferred Stock
based on a conversion rate of $3.20 per share.
(4) After completion of this Offering, none of the Selling Stockholders are
expected to own any shares of the Company's capital stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Coastline Media, Inc.
Peter J. Fiscina and Myron M. Blumenthal, both officers, directors and
principal stockholders of the Company, own an aggregate of 90% of the
outstanding common stock of Coastline. Coastline, which conducted operations
from July 1996 through December 1997, was engaged in the business of designing
and implementing advertising campaigns on television and radio and in other
media. Coastline, on behalf of the Company and other third party clients,
purchased advertising time and placed advertisements.
The Company, which since inception has conducted television and radio
advertising campaigns for its products and services, engaged Coastline, through
December 1997, to design and implement its television and radio advertising
campaigns, including purchasing time and placing advertisements, as well as
overseeing production of advertisements. Coastline charged its clients,
including the Company, a gross fee for its services and was responsible for
purchasing time and placing advertising. The Company's management believes that
the cost of advertising placed by Coastline averaged approximately 85% of the
gross fees paid by the Company, and that such a 15% gross margin was in
accordance with industry standards.
During the twelve months ended October 31, 1997, the Company paid
Coastline aggregate gross fees of approximately $814,000 for services rendered.
Based on the foregoing assumption as to the cost of advertising, the Company's
management believes that the costs of the advertising time purchased by
Coastline for the Company were approximately $692,000.
During the period of its operations, Coastline employed one person (who
was the holder of the 10% of Coastline's capital stock not owned by Mr. Fiscina
or Mr. Blumenthal). Upon cessation of Coastline's activities, the employee of
Coastline became an employee of the Company. Management expects that in such
capacity, he will continue to perform for the Company the services he
previously performed as an employee of Coastline.
Two Oaks Realty
Prior to occupying its new Facility, the Company occupied the Former
Premises owned by it located at 1951 J&C Boulevard, Naples, Florida 34109-6215.
Two Oaks, a partnership owned by Peter J. Fiscina and Albert R. Ayala, both
officers, directors and principal stockholders of the Company, acquired the
Former Premises in a foreclosure sale. Two Oaks subsequently financed the costs
of certain renovations at the Former Premises. In May 1996, the Company
acquired the Former Premises from Two Oaks for $320,000 which amount
represented the original purchase price paid by Two Oaks for the Former
Premises plus the costs of the renovations of the Former Premises incurred by
Two Oaks. Two Oaks does not retain any interest in the Former Premises. In
April 1998, the Company entered into a contract to sell the Former Premises.
See "Business--Properties."
Share Issuances
At its inception, in September 1995, the Company issued to Peter J.
Fiscina and Albert R. Ayala, both officers, directors and principal
stockholders of the Company, an aggregate of 200 shares of common stock for
$100 per share (which shares, following a 20,000 for 1 stock split effected in
July 1996, represented 4,000,000 shares of Common Stock). In October 1995, the
Company also issued to Messrs. Fiscina and Ayala, and to Myron M. Blumenthal,
also an officer, director and stockholder of the Company, an aggregate of 60
shares of Common Stock in full payment for services rendered valued, in the
aggregate, at $6,000 ($100 per share) (which shares, following the stock split,
represented 1,200,000 shares of Common Stock).
44
<PAGE>
In November 1995, the Company issued an aggregate of 70 shares of Common
Stock to Messrs. Fiscina and Blumenthal (which shares, following the stock
split, represented 1,400,000 shares of Common Stock) in payment for consulting
services rendered to the Company and valued, in the aggregate, at $7,000.
The Board of Directors of the Company awarded bonuses to Messrs. Fiscina,
Ayala and Blumenthal, in accordance with their employment agreements, in the
aggregate amount of $419,000 in respect of the fiscal year ended October 31,
1996, and in the additional aggregate amount of $200,000 in respect of the
quarter ended January 31, 1997. Such bonus amounts, together with accrued
salaries in the aggregate amount of $181,000, were simultaneously lent to the
Company by the three officers. On February 20, 1997, these loans were converted
into shares of Common Stock at the price of $1.00 per share. Based on the
foregoing, the Company issued to the three officers an aggregate of 800,000
shares of Common Stock on February 20, 1997.
In May 1997, the Board of Directors awarded bonuses to Messrs. Fiscina,
Ayala and Blumenthal, in accordance with their employment agreements, in the
aggregate amount of $200,000 in respect of the quarter ended April 30, 1997.
The Board further authorized the payment of such bonuses, the simultaneous loan
of such bonus amounts by the three officers back to the Company, and the
simultaneous conversion of such loans into shares of Common Stock at the price
of $8.00 per share, which price represented the share price quoted on the "OTC
Electronic Bulletin Board" of the NASD on the date of the award. Based on the
foregoing, the Company issued to the three officers an aggregate of 25,000
shares of Common Stock on May 16, 1997.
Repayment of Loans by Officers
During January 1998, the Company paid bonuses in the aggregate amount of
approximately $355,000 to Peter J. Fiscina, Albert R. Ayala and Myron M.
Blumenthal, all officers, directors and principal stockholders in the Company.
Messrs. Fiscina, Ayala and Blumenthal immediately loaned the full amount of
such bonuses to the Company. The loans, which were unsecured and payable on
demand, accrued interest at the rate of 10% per annum. The Company used the
proceeds of such loans for working capital needs. Upon completion of the
Private Placement, a portion of the proceeds therefrom, representing the
aggregate outstanding principal balance of such loans plus accrued interest in
the aggregate amount of approximately $7,000, was paid to Messrs. Fiscina,
Ayala and Blumenthal in full satisfaction of such loans. See "Private
Placement" and "Management -- Employment Contracts and Termination of
Employment -- Messrs. Fiscina, Ayala and Blumenthal."
Ronald L. Rucker
Ronald L. Rucker, a director of the Company, is an officer of FNB. The
Company has borrowed the full amount of a $1,000,000 Line of Credit provided by
FNB. FNB also made a $2,525,000 first mortgage loan to the Company to finance
the Company's acquisition of the Facility, and holds a first mortgage on the
Facility securing the mortgage loan. FNB also made a $300,000 second mortgage
loan to the Company, secured by a second mortgage on the Facility. The second
mortgage loans was repaid with a portion of the proceeds from the Private
Placement and the Second mortgage was released. See "Business--Properties."
On-going and future transactions between the Company and its officers,
directors, principal stockholders or other affiliates will be on terms no less
favorable to the Company than could be obtained from unaffiliated third parties
on an arm's-length basis, and will be approved by a majority of the Company's
independent and disinterested directors.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to completion of the Private Placement, the Company had outstanding
10,845,000 shares of Common Stock. Of these, 6,032,000 are owned by members of
management who are also affiliates of the Company, and are deemed "restricted
securities" as defined by Rule 144 of the Securities Act. Under certain
circumstances, these shares may be sold without registration pursuant to the
provisions of Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an Affiliate of the Company or other person (or
persons whose shares are aggregated) who has satisfied a one-year holding
period, may sell in any three-month period a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of the Company's
Common Stock or (ii) the average weekly trading volume of the Company's Common
Stock during the four calendar weeks immediately preceding the date on which
45
<PAGE>
notice of the sale is filed with the Commission. Sales pursuant to Rule 144 are
subject to certain requirements relating to manner of sale, notice and
availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed to have been an
Affiliate of the Company at any time during the 90 days immediately preceding
the sale and who has satisfied a two year holding period may sell such shares
pursuant to Rule 144(k) without regard to the limitations described above.
In addition to the shares held by Affiliates referred to above, the
2,000,000 Unrestricted Shares issued by the predecessor to the Company (see
"The Company"), in December 1996 in connection with an offering exempt from the
requirements of the Act pursuant to Rule 504 of Regulation D promulgated under
the Securities Act, are deemed to be "free trading" shares which have been, and
will continue to be, eligible for resale in the public market without
restriction under the Securities Act, except for any shares purchased by an
Affiliate of the Company, which will be subject to the resale limitations of
Rule 144.
Furthermore, an additional 2,800,000 shares of Common Stock were issued in
November 1995 to individuals including both Affiliates and non-Affiliates. The
Company believes that all such shares have been held by non-Affiliates for more
than two years and, accordingly, are eligible for sale in accordance with Rule
144.
Unregistered shares may also be resold (i) to a person whom the seller
reasonably believes is a qualified institutional buyer within the meaning of
Rule 144A under the Securities Act purchasing for its own account or for the
account of a qualified institutional buyer in a transaction meeting the
requirements of Rule 144A and (ii) in an off-shore transaction complying with
Rules 903 or 904 of Regulation S under the Securities Act.
An employee of the Company who purchased shares or was awarded options to
purchase shares pursuant to a written compensatory plan or contract meeting the
requirements of Rule 701 under the Securities Act is entitled to rely on the
resale provisions of Rule 701 under the Securities Act which permits Affiliates
and non-Affiliates to sell their Rule 701 shares without having to comply with
the holding period restrictions of Rule 144, in each case commencing 90 days
after the date of this Prospectus. In addition, non-Affiliates may sell Rule
701 shares without complying with the public information, volume and notice
provisions of Rule 144.
See "Risk Factors--Shares Eligible for Future Sale; Possible Adverse
Effect on Future Market Prices."
DESCRIPTION OF CAPITAL STOCK
Authorized Capital Stock
The Company's Articles of Incorporation (the "Articles") provide for
authorized capital stock to consist of 25,000,000 shares of common stock $.01
par value (the "Common Stock") and 5,000,000 shares of preferred stock $.01 par
value (the "Preferred Stock"). As of April 1, 1998, the Company had outstanding
10,845,000 shares of Common Stock and 3,000 shares of Series A Preferred Stock.
Common Stock
Holders of shares of Common Stock are entitled to one vote per share on
all matters to be voted upon by the shareholders, including the election of
directors. Holders of Common Stock do not have cumulative voting rights in the
election of directors or preemptive rights to purchase or subscribe for any
stock or other securities. Subject to the prior rights of the holders of any
shares of Preferred Stock, if any, which subsequently may be issued and
outstanding, holders of Common Stock are entitled to receive dividends as and
when declared by the Board of Directors out of funds legally available for the
purpose. Such dividends shall not be cumulative. The holders of Common Stock
shall share ratably in all assets remaining after payment of liabilities.
Additional shares of authorized Common Stock may be issued without shareholder
approval. All of the shares of Common Stock are, and the shares to be sold in
the Offering will be, upon issuance and payment therefor, fully paid and
non-assessable.
Series A Preferred Stock
In connection with a private placement (the "Private Placement") in March
1998 (see "Prospectus Summary -- Private Placement"), the Company issued 3,000
shares of Series A Convertible Preferred Stock, par value $.01 per share, with
an initial stated value of $1,000 per share (the "Stated Value"). The Series A
Preferred Stock
46
<PAGE>
is convertible into shares of the Common Stock at a rate (the "Conversion
Rate") equal to the Stated Value divided by the lower of (a) $6.50 per share,
or (b) 80% of the average of the two lowest closing bid prices of the Common
Stock for the fifteen consecutive trading days prior to the day on which the
notice of conversion is transmitted by a holder thereof (the "Conversion
Price"), subject to adjustment in order to prevent dilution and in the case of
any recapitalization, consolidation, merger and certain other events; provided,
however, that in no event may any holder convert shares of Series A Preferred
Stock in excess of that number of shares of Series A Preferred Stock which,
upon giving effect to such conversion, would cause the aggregate number of
shares of Common Stock beneficially owned by the holder and its affiliates to
exceed 4.9% of the outstanding shares of the Common Stock following such
conversion. Without the prior written consent of the Company, holders of Series
A Preferred Stock are not entitled to convert shares in excess of (a) one-third
of such holder's shares of Series A Preferred Stock within 30 days after the
earlier of (i) the date on which the Registration Statement of which this
Prospectus forms a part is declared effective by the SEC (the "Effective Date")
and (ii) 120 days after the date of issuance of the Series A Preferred Stock
(the "Scheduled Effective Date"), and (b) two-thirds of such holder's shares of
Series A Preferred Stock within 60 days after the earlier of the Effective Date
and the Scheduled Effective Date; provided, however, that the foregoing
restrictions do not apply in the event of certain transactions. At any time
beginning on 61 days after the Effective Date, a holder is entitled to convert
all of such holder's shares of Series A Preferred Stock. The shares of Series A
Preferred Stock will automatically convert into shares of the Common Stock on
March 31, 2002, subject to extension under certain circumstances.
Each share of Series A Preferred Stock bears dividends at the rate of 5.0%
per annum on the Stated Value. Such dividends are due and payable semi-annually
in arrears on the first day of March and September of each year (each,
"Dividend Payment Date"), with the first such payment due on September 1, 1998.
Dividends will accrue daily on each share of Series A Preferred Stock from the
date of issuance, whether or not earned or declared, until converted or
redeemed. To the extent dividends are not paid on the applicable Dividend
Payment Date, such dividends are cumulative and will compound semi-annually
until the date of payment of such dividend.
The Company at any time may, in its sole discretion, redeem any or all of
the outstanding shares of Series A Preferred Stock at a price per share equal
to 125% of the Stated Value plus any accrued and unpaid dividends.
In the event the Company grants, issues or sells any stock options,
convertible securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
"Purchase Rights"), each holder of Series A Preferred Stock is entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Common Stock acquirable upon complete conversion of the
shares of Series A Preferred Stock.
Holders of Series A Preferred Stock are not entitled to vote, except as
required by law and as expressly provided in the Company's Certificate of
Designations. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, holders of Series A Preferred Stock
are entitled to receive in cash out of the Company's assets an amount per share
equal to the Stated Value plus accrued and unpaid dividends, before any amounts
are paid to holders of any class of the Company's capital stock that is junior
in rank to the Series A Preferred Stock. Without the prior written consent of
not less than two-thirds of the then outstanding shares of Series A Preferred
Stock, the Company has agreed (i) not to issue additional or other capital
stock that is of senior rank to the Series A Preferred Stock in respect of the
preferences as to distributions and payments upon the liquidation, dissolution
or winding up of the Company, (ii) not to amend its Certificate of
Incorporation or by-laws in a manner which would adversely affect or otherwise
impair the rights or relative priority of the Series A Preferred Stock relative
to any other class of capital stock of the Company, and (iii) not to redeem, or
declare or pay any cash dividend or distribution on, its Common Stock until all
of the shares of Series A Preferred Stock have been converted or redeemed.
Registration Rights of Certain Holders
Pursuant to a Registration Rights Agreement, dated as of March 19, 1998,
among the Company and the undersigned Buyers (the "Investors"), the Investors
who own 3,000 shares of Series A Preferred Stock, which are convertible into
shares of the Company's Common Stock (as converted, the "Conversion Shares"),
and Investor Warrants to purchase shares of the Company's Common Stock (the
"Warrant Shares") (the Conversion Shares and the Warrant Shares are referred to
herein as the "Registrable Securities"), are entitled to registration
47
<PAGE>
rights with respect to the Registrable Securities at any time prior to 45 days
after the date of issuance of the Preferred Shares and Investor Warrants. The
registration statement must cover the resale of all of the Registrable
Securities, as well as such number of additional shares of Common Stock as may
become issuable upon conversion of the Preferred Shares and upon exercise of
the Investor Warrants (i) to prevent dilution resulting from stock splits,
stock dividends or similar transactions and (ii) by reason of changes in the
conversion price or conversion rate of the Preferred Shares and the exercise
price of the Investor Warrants in accordance with the terms thereof.
Investor Warrants
In connection with the Private Placement (See "Prospectus Summary --
Private Placement"), the Company issued Investor Warrants giving the investors
in the Private Placement the right to purchase an aggregate of 70,000 shares of
the Company's Common Stock, at a price of $4.77 per share (the "Exercise
Price"), subject to adjustment under the terms of the Investor Warrants. The
Investor Warrants are exercisable for a period of five years and expire on
March 19, 2003.
The Investor Warrants contain provisions that protect the holders against
dilution by adjustment of the number of shares that may be purchased by the
holders. Such adjustment will occur in the event, among others, that the
Company declares a dividend on the outstanding Common Stock or effects a stock
split or combination with respect to its Common Stock.
Certain Effects of Authorized but Unissued Stock
Upon completion of this Offering, there will be 5,747,500 shares of Common
Stock and 4,997,000 shares of Preferred Stock available for future issuance
without stockholder approval, taking into consideration the 8,000,000 shares of
Common Stock reserved for issuance pursuant to the Company's 1997 Stock Option
Plan, upon exercise of outstanding options and the 70,000 shares of Common
Stock reserved for issuance upon exercise of the Investor Warrants and the
937,500 shares reserved for issuance upon conversion of the Series A Preferred
Stock. These additional shares may be issued for a variety of proper corporate
purposes, including raising additional capital, corporate acquisitions and
employee benefit plans. Except as contemplated by the 1997 Stock Option Plan
and other possible employee benefit or stock purchase plans, the Company does
not currently have any plans to issue additional shares of Common Stock or
Preferred Stock.
One of the effects of the existence of unissued and unreserved Common
Stock and Preferred Stock may be to enable the Board of Directors to issue
shares to persons friendly to current management, which could render more
difficult or discourage an attempt to obtain control of the Company by means of
a merger, tender offer, proxy contest, or otherwise, and thereby protect the
continuity of the Company's management and possibly deprive the stockholders of
opportunities to sell their shares of Common Stock at prices higher than the
prevailing market prices. Such additional shares also could be used to dilute
the stock ownership of persons seeking to obtain control of the Company
pursuant to the operation of the 1997 Stock Option Plan, or otherwise.
Certain Anti-Takeover Provisions
Section 203 of the Delaware General Corporation Law prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless (i)
prior to the date of the business combination, the transaction is approved by
the board of directors of the corporation, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock; or (iii) on or after such date the business combination is
approved by the board of directors and by the affirmative vote of at least 66
2/3% of the outstanding voting stock that is not owned by the interested
stockholder. A "business combination" includes mergers, asset acquisitions,
sales and other transactions resulting in a financial benefit to the
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock.
48
<PAGE>
In connection with the Private Placement, pursuant to a letter agreement
between the Company and certain stockholders of the Company, who in the
aggregate own more than 50% of the issued and outstanding Common Stock of the
Company at such time, such stockholders agreed to vote their shares solely in
accordance with the recommendation of the Board of Directors in the event of an
unsolicited tender offer of the Company's capital stock.
Transfer Agent and Registrar
The transfer agent and registrar for the Company's Common Stock is
American Stock Transfer & Trust Co., Inc.
PLAN OF DISTRIBUTION
The Selling Stockholders have advised the Company that they may from time
to time sell all or a portion of the shares (the "Shares") of Common Stock
offered hereby in one or more transactions in the over-the-counter market, on
the Nasdaq SmallCap Market, or on any other exchange on which the Common Stock
may then be listed, in privately negotiated transactions or otherwise, or a
combination of such methods of sale, at market prices prevailing at the time of
sale or prices related to such prevailing market prices or at negotiated
prices. The Selling Stockholders may effect such transactions by selling the
Shares to or through broker-dealers, and such broker-dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Stockholders and/or purchasers of the shares for whom they may
act as agent (which compensation may be in excess of customary commissions).
The Company will not pay any such compensation. In connection with such sales,
the Selling Stockholders and any participating broker-dealers may be deemed to
be "underwriters" as such term is defined in the Securities Act. At the present
time, no estimate can be made as to the amount of commissions or discounts, if
any, that will be paid by the Selling Stockholders on account of their sales of
the Shares from time to time.
Under the securities laws of certain states, the Shares may be sold in
such states only through registered or licensed broker-dealers or pursuant to
available exemptions from such requirements. In addition, in certain states the
Shares may not be sold therein unless the Shares have been registered or
qualified for sale in such state or an exemption from such requirement is
available and is complied with.
The Company will pay certain expenses in connection with this Offering,
estimated to be approximately $230,000 but will not pay for any underwriting
commissions and discounts, if any. The Company has agreed to indemnify the
Selling Stockholders, their directors, officers, agents and representatives,
and any underwriters, against certain liabilities, including certain
liabilities under the Securities Act. The Selling Stockholders have also agreed
to indemnify the Company, its directors, officers, agents and representatives
against certain liabilities, including certain liabilities under the Securities
Act.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby has been passed
upon for the Company by Bryan Cave LLP, New York, New York.
EXPERTS
The Financial Statements of the Company at October 31, 1997, October 31,
1996, and the periods then ended, included in this Prospectus and elsewhere in
the Registration Statement have been audited by Richard A. Eisner & Company,
LLP, independent auditors, as indicated in their report with respect thereto,
and are included herein in reliance upon their report given upon the authority
of such firm as experts in accounting and auditing.
49
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission, a Registration Statement (the
"Registration Statement") on Form S-1 under the Securities Act, with respects
to the Common Stock offered hereby. This Prospectus, which constitutes part of
the Registration Statement, omits certain of the information contained in the
Registration Statement and the exhibits and schedules thereto on file with the
Commission pursuant to the Act and the rules and regulations of the Commission
thereunder. The Registration Statement, including exhibits and schedules
thereto, may be inspected at the principal offices of the Commission at 450
Fifth Street, N.W., Washington, D.C., 20549, and at its regional offices at
Citicorp Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661,
and at Seven World Trade Center, Suite 1300, New York,, New York 10048, and
copies may be obtained at the prescribed rates from the Public Reference
Section of the Commission at its principal office in Washington, D.C. The
Commission maintains an Internet Web site (http://www.sec.gov.) that contains
such documents filed electronically by the Company with the Commission through
its Electronic Gathering, Analysis and Retrieval System (EDGAR) filing system.
Statements contained in this Prospectus as to the contents of any contract,
agreement or other document referred to herein are not necessarily complete and
in each instance reference is made to the copy of such contract, agreement or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
50
<PAGE>
CERTIFIED DIABETIC SERVICES,INC.
(formerly Certified Diabetic Supplies, Inc.)
Contents
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Financial Statements
Independent auditors' report ............................................................ F-2
Consolidated balance sheets as of October 31, 1996 and 1997 (audited) and January 31,
1998
(unaudited) ........................................................................... F-3
Consolidated statements of income for the period from September 28, 1995 (inception) to
October
31, 1996 (audited) and the year ended October 31, 1997 (audited) and the quarters
ended Janu-
ary 31, 1997 and 1998 (unaudited) ..................................................... F-4
Consolidated statements of changes in stockholder's equity for the period from September
28,
1995 (inception) to October 31, 1996 (audited) and the year ended October 31, 1997
(audited)
and the quarter ended January 31, 1998 (unaudited) .................................... F-5
Consolidated statements of cash flows for the period from September 28, 1995 (inception)
to
October 31, 1996 (audited) and the year ended October 31, 1997 (audited) and the
quarters
ended January 31, 1997 and 1998 (unaudited) ........................................... F-6
Note to financial statements ............................................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Certified Diabetic Services, Inc.
We have audited the accompanying consolidated balance sheets of Certified
Diabetic Services, Inc. and subsidiaries, formerly Certified Diabetic Supplies
Inc. (see Note A), as of October 31, 1997 and 1996 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
year ended October 31, 1997 and for the period from September 28, 1995
(inception) to October 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the consolidated financial position of Certified
Diabetic Services, Inc. and subsidiaries as of October 31, 1997 and 1996 and
the consolidated results of their operations and their consolidated cash flows
for the year ended October 31, 1997 and for the period from September 28, 1995
(inception) to October 31, 1996 in conformity with generally accepted
accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
November 21, 1997
With respect to Note B[7]
January 31, 1998
With respect to Note N
March 19, 1998
F-2
<PAGE>
CERTIFIED DIABETIC SERVICES, INC. AND SUBSIDIARIES
(formerly Certified Diabetic Supplies Inc.)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
October 31,
------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
ASSETS (NOTES E AND F)
Current assets:
Cash (Note I[1]) ................................. $ 167,000 $ 171,000
Accounts receivable .............................. 488,000 1,051,000
Inventories (Note B[4]) .......................... 160,000 190,000
Prepaid expenses and other current assets ........ 3,000 202,000
Due from officers -- stockholders (Note H)........
Total current assets ........................... 818,000 1,614,000
Property and equipment, net (Notes B[5] and C) 44,000 879,000
Land and building held for sale (Notes B[5] and
D) ............................................... 334,000 306,000
Other .............................................
Deposit (Note J[3]) ............................... 280,000
Capitalized direct-response advertising costs
(Notes B[6] and L) ............................... 653,000
Deferred offering costs (Note M) .................. 591,000
-----------
$ 1,196,000 $ 4,323,000
=========== ===========
LIABILITIES
Current liabilities:
Current portion of mortgage payable (Note E) $ 4,000 $ 5,000
Note payable -- bank (Note F) .................... 75,000 550,000
Accounts payable and accrued expenses ............ 76,000 756,000
Income tax payable ............................... 182,000
Due to officers -- stockholders (Note H) ......... 620,000 355,000
----------- -----------
Total current liabilities ....................... 775,000 1,848,000
Deferred income tax liability (Note G) ............ 4,000 283,000
Mortgages payable (Note E) ........................ 244,000 239,000
----------- -----------
1,023,000 2,370,000
----------- -----------
Commitments and contingencies (Notes I[2],
J and K)
STOCKHOLDERS' EQUITY (Note A)
Preferred stock, par value $.01 per share, autho-
rized 5,000,000 shares:
Series A convertible preferred stock, stated
value $1,000 per share; authorized,
issued and outstanding 3,000 shares (Pro
forma) (Notes N and O) .........................
Common stock, par value -- 1996 $.001 per
share, 1997 and 1998 $.01 per share, autho-
rized 25,000,000 shares issued and outstand-
ing -- 1996, 8,000,000 shares, 1997 and
1998, 10,825,000 shares, 10,845,000 (Pro
forma) (Notes I[1] and N) ........................ 8,000 108,000
Additional paid-in capital (Notes I[1] and N) ..... 17,000 1,017,000
Subscribed capital stock .......................... 86,000
Retained earnings ................................. 62,000 828,000
----------- -----------
Total stockholders' equity ...................... 173,000 1,953,000
----------- -----------
$ 1,196,000 $ 4,323,000
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
January 31,
1998 Pro forma
Historical Adjustments Pro forma
------------- --------------- --------------
(Unaudited) (Unaudited -- see Note P)
<S> <C> <C> <C>
ASSETS (NOTES E AND F)
Current assets:
Cash (Note I[1]) ................................. $ 266,000 $ 2,105,000 $ 2,371,000
Accounts receivable .............................. 1,130,000 1,130,000
Inventories (Note B[4]) .......................... 160,000 160,000
Prepaid expenses and other current assets ........ 199,000 199,000
Due from officers -- stockholders (Note H)........ 43,000 43,000
----------- -----------
Total current assets ........................... 1,798,000 2,105,000 3,903,000
Property and equipment, net (Notes B[5] and C) 3,786,000 3,786,000
Land and building held for sale (Notes B[5] and
D) ............................................... 306,000 306,000
Other ............................................. 98,000 98,000
Deposit (Note J[3]) ...............................
Capitalized direct-response advertising costs
(Notes B[6] and L) ............................... 849,000 849,000
Deferred offering costs (Note M) ..................
$ 6,837,000 $ 2,105,000 $ 8,942,000
=========== =========== ===========
LIABILITIES
Current liabilities:
Current portion of mortgage payable (Note E) $ 591,000 $ (300,000) $ 291,000
Note payable -- bank (Note F) .................... 950,000 950,000
Accounts payable and accrued expenses ............ 683,000 683,000
Income tax payable ............................... 173,000 173,000
Due to officers -- stockholders (Note H) ......... 355,000 (355,000) 0
----------- ----------- -----------
Total current liabilities ....................... 2,752,000 (655,000) 2,097,000
Deferred income tax liability (Note G) ............ 42,000 42,000
Mortgages payable (Note E) ........................ 2,474,000 2,474,000
----------- -----------
5,268,000 (655,000) 4,613,000
----------- ----------- -----------
Commitments and contingencies (Notes I[2],
J and K)
STOCKHOLDERS' EQUITY (Note A)
Preferred stock, par value $.01 per share, autho-
rized 5,000,000 shares:
Series A convertible preferred stock, stated
value $1,000 per share; authorized,
issued and outstanding 3,000 shares (Pro
forma) (Notes N and O) ......................... 3,000,000 3,000,000
Common stock, par value -- 1996 $.001 per
share, 1997 and 1998 $.01 per share, autho-
rized 25,000,000 shares issued and outstand-
ing -- 1996, 8,000,000 shares, 1997 and
1998, 10,825,000 shares, 10,845,000 (Pro
forma) (Notes I[1] and N) ........................ 108,000 108,000
Additional paid-in capital (Notes I[1] and N) ..... 1,017,000 (240,000) 777,000
Subscribed capital stock ..........................
Retained earnings ................................. 444,000 444,000
----------- -----------
Total stockholders' equity ...................... 1,569,000 2,760,000 4,329,000
----------- ----------- -----------
$ 6,837,000 $ 2,105,000 $ 8,942,000
=========== =========== ===========
</TABLE>
See notes to financial statements
F-3
<PAGE>
CERTIFIED DIABETIC SERVICES, INC. AND SUBSIDIARIES
(formerly Certified Diabetic Supplies Inc.)
Consolidated Statements of Income
<TABLE>
<CAPTION>
For the
Period From
September 28, 1995 Quarter Ended
(Inception) to Year Ended January 31,
October 31, October 31, ---------------------------------
1996 1997 1997 1998
------------------- ---------------- ---------------- --------------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales ......................................... $ 2,588,000 $ 6,726,000 $ 1,278,000 $ 1,981,000
Cost of sales ..................................... 814,000 2,495,000 448,000 805,000
------------ ------------ ------------ -----------
Gross profit ...................................... 1,774,000 4,231,000 830,000 1,176,000
------------ ------------ ------------ -----------
Operating expenses:
Selling and shipping (Note L) .................... 381,000 551,000 207,000 237,000
General and administrative ....................... 515,000 1,177,000 206,000 684,000
Officers' compensation (Note J[1]) ............... 769,000 1,150,000 313,000 87,000
Depreciation ..................................... 14,000 63,000 12,000 55,000
------------ ------------ ------------ -----------
1,679,000 2,941,000 738,000 1,063,000
------------ ------------ ------------ -----------
Income from operations ............................ 95,000 1,290,000 92,000 113,000
Interest expense .................................. 21,000 48,000 12,000 62,000
------------ ------------ ------------ -----------
Income before costs of uncompleted offering
and income taxes ................................. 74,000 1,242,000 80,000 51,000
Costs of uncompleted offering (Note M) ............ 676,000
-----------
Income (loss) before income taxes ................. 74,000 1,242,000 80,000 (625,000)
------------ ------------ ------------ -----------
Provision for income taxes (benefit) (Note G):
Current .......................................... 8,000 197,000 14,000
Deferred ......................................... 4,000 279,000 5,000 (241,000)
------------ ------------ ------------ -----------
12,000 476,000 19,000 (241,000)
------------ ------------ ------------ -----------
Net income (loss) ................................. $ 62,000 $ 766,000 $ 61,000 $ (384,000)
============ ============ ============ ===========
Basic income (loss) per share ..................... $ 0.01 $ 0.07 $ 0.01 $ (0.04)
============ ============ ============ ===========
Diluted income (loss) per share ................... $ 0.01 $ 0.06 $ 0.01 $ (0.04)
============ ============ ============ ===========
Weighted average shares outstanding - basic
income (loss) per share .......................... 7,854,247 10,534,534 8,143,043 10,534,534
Effect of dilutive employee stock options ......... 2,677,686
------------
Weighted average common shares outstanding
- diluted income (loss) per share ................ 7,854,247 13,212,220 8,143,043 10,534,534
============ ============ ============ ===========
</TABLE>
See notes to financial statements
F-4
<PAGE>
CERTIFIED DIABETIC SERVICES, INC. AND SUBSIDIARIES
(formerly Certified Diabetic Supplies Inc.)
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Additional Subscribed
Common Stock
--------------------------- Paid-in Common Retained
Shares Amount Capital Stock Earnings Total
------------ ------------ --------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Common stock issued; $1.00
per share ................... 200 $ 20,000 $ 20,000
Shares issued for
compensation and
consulting services ......... 200 20,000 20,000
20,000 for 1 stock split ..... 7,999,600 $ 8,000 (8,000) 0
Private placement offering
subscriptions received ...... $ 86,000 86,000
Private placement
offering costs .............. (15,000) (15,000)
Net income ................... $ 62,000 62,000
---------- -----------
Balance at October 31, 1996 8,000,000 8,000 17,000 86,000 62,000 173,000
Private placement offering
subscriptions received ...... 14,000 14,000
Common stock issued; $0.05
per share ................... 2,000,000 2,000 98,000 (100,000) 0
Conversion of debt to
common stock (Note H) ....... 825,000 1,000 999,000 1,000,000
Reorganization with $.01
par value (Note A) .......... 97,000 (97,000) 0
Net income ................... 766,000 766,000
---------- -----------
Balance at October 31, 1997 10,825,000 108,000 1,017,000 0 828,000 1,953,000
Net loss ..................... (384,000) (384,000)
---------- -----------
Balance at January 31, 1998
(Unaudited) ................. 10,825,000 $ 108,000 $ 1,017,000 $ 0 $ 444,000 $ 1,569,000
========== ========= =========== ========== ========== ===========
</TABLE>
F-5
<PAGE>
CERTIFIED DIABETIC SERVICES, INC. AND SUBSIDIARIES
(formerly Certified Diabetic Supplies Inc.)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the
Period From
September 28, 1995 Quarter Ended
(Inception) to Year Ended January 31,
October 31, October 31, ------------------------------
1996 1997 1997 1998
------------------- --------------- ------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................... $ 62,000 $ 766,000 $ 61,000 $ (384,000)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization ..................... 14,000 179,000 12,000 140,000
Deferred offering costs written off ............... 676,000
Noncash compensation and consulting fees .......... 20,000
Changes in:
Accounts receivable ............................. (488,000) (563,000) (138,000) (79,000)
Inventories ..................................... (160,000) (30,000) (79,000) 30,000
Prepaid expenses ................................ (3,000) (199,000) (14,000) 3,000
Other assets .................................... (98,000)
Direct-response advertising ..................... (770,000) (282,000)
Accounts payable and accrued expenses ........... 76,000 680,000 20,000 (73,000)
Income tax payable .............................. 182,000 (9,000)
Deferred income tax liability ................... 4,000 279,000 5,000 (241,000)
Accrued officers' compensation .................. 600,000 55,000 (380,000) (43,000)
---------- ------------ ---------- -----------
Net cash provided by (used in) operating
activities ................................... 125,000 579,000 (513,000) (360,000)
---------- ------------ ---------- -----------
Cash flows from investing activities:
Acquisition of property and equipment ................ (392,000) (869,000) (19,000) (436,000)
Deposit .............................................. (280,000) 280,000
------------ -----------
Net cash used in investing activities ........... (392,000) (1,149,000) (19,000) (156,000)
---------- ------------ ---------- -----------
Cash flows from financing activities:
Proceeds from note payable ........................... 75,000 550,000 300,000 400,000
Payment of note payable .............................. (75,000) (75,000)
Proceeds from mortgages payable ...................... 250,000 300,000
Payment of mortgage payable .......................... (2,000) (4,000) (1,000) (4,000)
Proceeds from issuance of common stock ............... 20,000
Advances from officer - stockholders ................. 20,000 700,000 600,000 355,000
Payment to officers .................................. (20,000) (20,000) (355,000)
Proceeds from subscriptions of common stock .......... 86,000 14,000 14,000
Private placement offering costs ..................... (15,000)
Deferred offering costs .............................. (591,000) (85,000)
------------ -----------
Net cash provided by financing activities ....... 434,000 574,000 818,000 611,000
---------- ------------ ---------- -----------
Net increase in cash .................................. 167,000 4,000 286,000 95,000
Cash - beginning of period ............................ 167,000 167,000 171,000
------------ ---------- -----------
Cash - end of period .................................. $ 167,000 $ 171,000 $ 453,000 $ 266,000
========== ============ ========== ===========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest ........................................... $ 18,000 $ 63,000 $ 8,000 $ 47,000
Income taxes ....................................... $ 23,000 $ 11,000 $ 8,000
Supplemental disclosures of noncash financing
activities:
Conversion of debt to common stock ................... $ 1,000,000
Mortgage payable to finance property acquisitions $ 2,525,000
</TABLE>
See notes to financial statements
F-6
<PAGE>
CERTIFIED DIABETIC SERVICES, INC. AND SUBSIDIARIES
(formerly Certified Diabetic Supplies Inc.)
Notes to Financial Statements
(Unaudited with respect to data as of January 31, 1998
and for the three months ended January 31, 1998 and January 31, 1997)
NOTE A -- THE COMPANY
In August 1997, a corporate reorganization was consummated whereby
Certified Diabetic Supplies Inc. ("Florida Supplies") was merged with and into
Certified Diabetic Supplies, Inc. ("Delaware Supplies"), a Delaware corporation
incorporated in May 1997 and a wholly-owned subsidiary of Certified Diabetic
Services, Inc. ("Certified" or the "Company"), also a Delaware corporation
incorporated in May 1997. As part of its general reorganization, the Company
changed its state of incorporation from Florida to Delaware and adopted its
current holding company/operating subsidiary structure. Existing shareholders
of Florida Supplies received an equivalent number of shares in Certified. The
merger did not change the ownership of the Company or the conduct of its
business, with Delaware Supplies, as a Registered Supplier (and as a subsidiary
of Certified), continuing to conduct the business previously conducted by
Florida Supplies.
Florida Supplies was incorporated under the laws of the State of Florida
on September 28, 1995 (inception) under the name Diabetic Supplies of Collier,
Inc. It adopted its name on October 12, 1995, and commenced operations in
November 1995. No significant activities occurred prior to November 1, 1995.
Since November 1995 Florida Supplies was engaged in the marketing and mail
order sale of durable medical equipment, primarily diabetic supplies. As a
Registered Supplier, Florida Supplies is permitted to invoice Medicare directly
for diabetic supplies shipped to Medicare patients. Florida Supplies also
accepts Medicaid and private insurance payments. For the year ended October 31,
1997 and the quarter ended January 31, 1998, respectively, reimbursements for
goods purchased by customers were derived from the following sources: a) 30%
and 24% Medicare only; b) 37% and 37% Medicare and supplementary insurance; and
c) 33% and 39% primary coverage by private insurers.
The Company has three other wholly-owned subsidiaries namely; (1) CDS
Medical Supplies, Inc. ("Medicalco"), a Delaware corporation formed in April
1997; (2) CDS Health Management, Inc. ("Healthco") a Delaware corporation
formed in April 1997; and (3) CDS Insurance Products, Inc. ("Insuranceco"), a
Delaware corporation formed in April 1997. Medicalco was formed for the purpose
of entering into contracts with preferred provider organizations, third party
health plan administrators, self-insured plans, managed care programs and other
similar groups, pursuant to which Medicalco would receive the right to supply
(in some cases on an exclusive or preferred basis) medical equipment and
products of the types sold by the Company to participants in such programs or
groups. Healthco was formed for the purpose of supplying customers covered by
health insurance with Blue Cross and Blue Shield with medical supplies.
Insuranceco is inactive. Medicalco has not commenced significant operating
activities as of October 31, 1997 or January 31, 1998. Healthco commenced
operations during August 1997.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] Basis of presentation:
The financial statements present the consolidated financial position,
results of operations and cash flows of the Company and its subsidiaries
subsequent to the reorganization in August 1997 and of Florida Supplies prior
thereto. All intercompany balances and transactions have been eliminated in
consolidation.
[2] Use 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.
F-7
<PAGE>
CERTIFIED DIABETIC SERVICES, INC. AND SUBSIDIARIES
(formerly Certified Diabetic Supplies Inc.)
Notes to Financial Statements -- (Continued)
(Unaudited with respect to data as of January 31, 1998
and for the three months ended January 31, 1998 and January 31, 1997)
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
[3] Revenue recognition:
Revenue is recognized at the time the products are shipped. Medicare and
Medicaid reimbursements ("Third Party") are based on allowable charges. The
difference between the Company's established billing rates and contracted or
anticipated reimbursement rates is recorded as a contractual allowance and
offset against net sales.
[4] Inventories:
Inventories consisting of durable medical equipment, primarily diabetic
supplies, are stated at the lower of cost (first-in, first-out) or market.
[5] Property and equipment:
Property and equipment are stated at cost net of accumulated depreciation
and amortization. Depreciation is calculated using the straight-line method
over the estimated useful life of the assets as follows: building, thirty nine
years; building improvements, five years, and office and computer equipment,
three years. The purchased computer software with integrated order, billing,
inventory and accounting components designed specifically for the Durable
Medical Equipment industry, has been customized for the Company and is being
depreciated on the straight-line method over 3 years.
[6] Direct-response advertising costs:
Direct-response advertising costs beginning November 1, 1996 are being
capitalized and amortized on a declining balance basis over a period which
matches the expected future stream of revenues generated from new customers as
a result of this advertising. Prior to November 1, 1996, such costs were
expensed as incurred since criteria for capitalization had not been met.
Currently, the Company's period of amortization is three years since its
operating history cannot presently demonstrate that future benefits are
expected over a longer period. However, industry information indicates an
amortization period of greater than three years.
Management assesses its estimate of amounts of future net revenues and the
amortization period at each reporting date. If the carrying amounts of
unamortized direct-response advertising costs exceed estimated future net
revenues to be realized therefrom, the excess is charged to advertising
expense.
[7] Per share data:
The Company adopted SFAS No. 128 "Earnings per Share" in the period ended
January 31, 1998 and has retroactively applied the effects thereof for all
periods presented. SFAS 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. Diluted earnings per share reflects the assumed exercise of options
using the treasury stock method. No such exercise is assumed for the quarters
ended January 31, 1998 and 1997 or for the period from September 28, 1995 to
October 31, 1996 as the result would be antidilutive.
[8] Concentration of risks:
The Company is dependent on reimbursements from Medicare and the rules and
regulations governing Medicare Providers. Management believes that it is in
full compliance with these regulations.
F-8
<PAGE>
CERTIFIED DIABETIC SERVICES, INC. AND SUBSIDIARIES
(formerly Certified Diabetic Supplies Inc.)
Notes to Financial Statements -- (Continued)
(Unaudited with respect to data as of January 31, 1998
and for the three months ended January 31, 1998 and January 31, 1997)
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
The Company maintains substantially all of its cash in one commercial
bank.
[9] Fair values of financial instruments:
The estimated fair value of financial instruments has been determined
based on available market information and appropriate valuation methodologies.
The carrying amounts of cash, accounts receivable, accounts payable, accrued
expenses, and due to officers approximate fair value at October 31, 1997 and
January 31, 1998 because of the short maturity of these financial instruments.
The estimated carrying value of the note payable and the mortgage payable for
financial statement purposes at October 31, 1997 and January 31, 1998
approximate fair value because the interest rates on these instruments
approximate the market rates at October 31, 1997 and January 31, 1998. The fair
value estimates were based on information available to management as of October
31, 1997 and January 31, 1998.
[10] Long-lived assets:
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of", the Company records impairment losses on long-lived assets
used in operations, when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amounts of those assets. Impairment
loss on such assets as well as long-lived assets held for sale are based on the
fair value of the assets. No such losses have been recorded.
[11] Stock-based compensation:
The Company accounts for employee stock option grants under Accounting
Principles Board Opinion No. 25. In fiscal 1997 the Company adopted the
"disclosures only" alternative available under Financial Accounting Standards
Board No. 123 ("FAS 123") for its employee stock option grants. See Note I[2].
[12] Unaudited interim financial statements:
In the opinion of management, the unaudited financial statements include
all adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the Company's financial position at January 31, 1998 and
results of operations and cash flows for the quarters ended January 31, 1998
and 1997. The results of operations for the quarter ended January 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ending October 31, 1998.
NOTE C -- PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
October 31, January 31,
1997 1998
------------- --------------
<S> <C> <C>
Land .............................................. $ 315,000
Building .......................................... 2,498,000
Building improvements ............................. $213,000 236,000
Furniture and fixtures ............................ 419,000 507,000
Office and computer equipment ..................... 212,000 242,000
Computer software ................................. 79,000 86,000
-------- -----------
923,000 3,884,000
Accumulated depreciation and amortization ......... 44,000 98,000
-------- -----------
$879,000 $ 3,786,000
======== ===========
</TABLE>
See Note J[3].
F-9
<PAGE>
CERTIFIED DIABETIC SERVICES, INC. AND SUBSIDIARIES
(formerly Certified Diabetic Supplies Inc.)
Notes to Financial Statements -- (Continued)
(Unaudited with respect to data as of January 31, 1998
and for the three months ended January 31, 1998 and January 31, 1997)
NOTE D -- LAND AND BUILDING HELD FOR SALE
On April 6, 1998, the Company entered into a contract to sell its former
premise for $440,000 which exceeds its carrying value by approximately
$134,000.
NOTE E -- MORTGAGES PAYABLE
On December 18, 1997, the Company purchased land and building located in
Naples, FL for $2,800,000. The Company obtained a mortgage loan in the amount
of $2,525,000 from a bank, payable in sixty monthly installments of $22,724
including interest at 8.875% per annum until final maturity on December 17,
2002 at which time a balloon payment of $2,245,951 is due. In addition, the
Company obtained a second mortgage from a bank in the amount of $300,000,
payable at the earlier of four months or the date of completion of any private
placement or any Initial Public Offering of the Company. The mortgage is
collateralized by the land, building and substantially all the assets of the
Company and guaranteed by three principal stockholders of the Company.
On May 31, 1996, in connection with the acquisition of the land and
building described in Note D which is under contract for sale, the Company
obtained a mortgage loan from a bank, payable in thirty monthly installments of
$2,400 including interest at 9.75% per annum until final maturity on December
30, 1998 at which time a balloon payment of $239,000 will be due. The Company
intends to use the proceeds from the sale of the former premise to pay the
mortgage loan. This mortgage is collateralized by the land, building and
substantially all the assets of the Company.
The scheduled principal payments of the mortgages payable are as follows:
Twelve Months
Ending
January 31,
- ----------------
1999 ......... $ 591,000
2000 ......... 52,000
2001 ......... 57,000
2002 ......... 62,000
2003 ......... 2,303,000
During July and August 1997, the Company paid $280,000 in nonrefundable
deposits pursuant to a purchase agreement to purchase the land and building.
The Company also entered into a lease agreement to occupy the property prior to
the closing date. The term of the lease was for a period commencing on August
26, 1997 and ending on December 15, 1997 with an aggregate rent of $35,000.
NOTE F -- NOTE PAYABLE -- BANK
In July 1997, the Company entered into a revolving line of credit
agreement with a bank, which expires on July 31, 1998 and provides for
borrowings of up to a maximum of $1,000,000. Borrowings under the agreement
bear interest (9 1/4% at January 31, 1998) at 3/4% over the Banker's Trust
Prime Rate . The line of credit is collateralized by all of the Company's
business assets. The revolving line of credit is guaranteed by two principal
stockholders of the Company.
F-10
<PAGE>
CERTIFIED DIABETIC SERVICES, INC. AND SUBSIDIARIES
(formerly Certified Diabetic Supplies Inc.)
Notes to Financial Statements -- (Continued)
(Unaudited with respect to data as of January 31, 1998
and for the three months ended January 31, 1998 and January 31, 1997)
NOTE G -- INCOME TAXES
The Company accounts for income taxes under the provision of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires the Company to recognize deferred tax assets and liabilities for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases.
The difference between income taxes at the statutory Federal income tax
rate and income taxes reported in the statements of income is as follows:
<TABLE>
<CAPTION>
For the Period Ended
--------------------------------------------------------
October 31, January 31,
------------------------- ----------------------------
1996 1997 1997 1998
---------- ------------ ---------- ---------------
<S> <C> <C> <C> <C>
Income taxes at the federal statutory rate $11,000 $ 422,000 $19,000 $ (208,000)
State income taxes, net of federal tax
benefit ..................................... 50,000 (23,000)
Tax effect of nondeductible expenses ......... 1,000 4,000 4,000
Other ........................................ (14,000)
-----------
$12,000 $ 476,000 $19,000 $ (241,000)
======= ========= ======= ===========
</TABLE>
Components of the deferred tax asset and liabilities are as follows:
<TABLE>
<CAPTION>
October 31, October 31, January 31,
1996 1997 1998
------------- --------------- --------------
<S> <C> <C> <C>
Deferred tax asset:
Net operating loss carry-back ............................. $ 327,000
----------
Deferred tax liabilities:
Capitalized advertising costs ............................. $ (256,000) (323,000)
Excess of tax depreciation over book depreciation ......... $ (4,000) (27,000) (46,000)
-------- ----------- ----------
(4,000) (283,000) (369,000)
-------- ----------- ----------
Net deferred tax liability ................................. $ (4,000) $ (283,000) $ (42,000)
======== =========== ==========
</TABLE>
NOTE H -- DUE TO OFFICERS -- STOCKHOLDERS
This consists of the following:
<TABLE>
<CAPTION>
October 31, January 31,
1997 1998
------------- ------------
<S> <C> <C>
Accrued officers' salaries and bonuses for the period ......... $355,000
Notes payable ................................................. $ 355,000
---------
$355,000 $ 355,000
======== =========
</TABLE>
The outstanding balance of accrued officers' salaries and bonuses as of
October 31, 1997 was paid by the Company in January 1998. The entire amount was
loaned back to the Company and converted to demand notes which bear interest at
10% per annum.
F-11
<PAGE>
CERTIFIED DIABETIC SERVICES, INC. AND SUBSIDIARIES
(formerly Certified Diabetic Supplies Inc.)
Notes to Financial Statements -- (Continued)
(Unaudited with respect to data as of January 31, 1998
and for the three months ended January 31, 1998 and January 31, 1997)
NOTE I -- STOCKHOLDERS' EQUITY
[1] Common stock:
At its inception in September 1995, the Company issued an aggregate of 200
shares of its common stock to its two principal stockholders and co-founders
for $100 per share. The Company also issued an aggregate of 60 shares to its
three officers in full payment for services rendered valued at $6,000 ($100 per
share) and an aggregate of 140 shares of its common stock to various
consultants for services rendered to the Company valued at $14,000.
In July 1996, the Company effected a 20,000 for 1 stock split.
In August 1996, the Company conducted a private placement offering of
2,000,000 common shares at an offering price of $.05 per share pursuant to Rule
504 of the Securities Act of 1933. As of October 31, 1996, the Company received
proceeds of $86,000 for subscriptions to 1,720,000 shares of its common stock.
In November 1996, the Company received proceeds of $14,000 for subscriptions to
280,000 shares of its common stock. Such proceeds were held in a segregated
cash account until December 1996.
In December 1996, the 2,000,000 shares of common stock subscribed were
issued.
During February 1997, $600,000 of the notes payable to officers were
converted into 600,000 shares of common stock and bonuses payable to officers
of $200,000 were converted into 200,000 shares of common stock. Management
believes that the conversion price represented the estimated fair value of the
common stock.
In May 1997, additional bonuses payable to officers of $200,000 were
converted into 25,000 shares of common stock. The conversion rate was based on
the then current market price.
See Note A for details of the Company's restructuring.
See Note N for subsequent private placement of preferred stock.
[2] Stock option plan:
The Company adopted its 1995 Incentive Program (the "Program") which, upon
completion of the Company's 20,000 for 1 stock split effected in June 1996
provided for grants of up to 5,000,000 shares of common stock to employees,
officers, directors and consultants. The grants may consist of incentive stock
options ("ISOs"), nonqualified stock options, stock appreciation rights and
restrictive stock grants. Incentive and nonqualified stock options may not be
granted at prices less than fair market value at the date of grant as
determined by the Board of Directors. On November 2, 1995 the Company granted
nonqualified stock options which are expressed in post split shares for the
purchase of 4,000,000 shares of common stock at $1.00 per share which vest in
their entirety upon the earlier of the achievement of gross revenues of not
less than $10,000,000 within a fiscal year and income before income taxes of
not less than $3,000,000, computed without regard to (a) depreciation or
amortization expense, (b) direct or indirect compensation to officers or
directors of the Company, or (c) write-offs and adjustments to accounts
receivable, (the "benchmarks") or November 2003, provided the optionee is still
employed by the Company.
On February 14, 1997 the Company granted nonqualified stock options for
the purchase of 300,000 shares of common stock at $5.00 per share. Options
granted are exercisable as to 20% of the total number of shares of stock
covered thereby on each anniversary of the grant of such option, provided that
the optionee is still employed by the Company. On July 15, 1997 an employee who
was granted 150,000 stock options resigned from the Company and accordingly,
the options expired 90 days after resignation in accordance with their terms.
F-12
<PAGE>
CERTIFIED DIABETIC SERVICES, INC. AND SUBSIDIARIES
(formerly Certified Diabetic Supplies Inc.)
Notes to Financial Statements -- (Continued)
(Unaudited with respect to data as of January 31, 1998
and for the three months ended January 31, 1998 and January 31, 1997)
NOTE I -- STOCKHOLDERS' EQUITY -- (Continued)
[2] Stock Option Plan: -- (Continued)
On June 25, 1997 Certified adopted the 1997 stock option plan (the "Plan")
which was identical in all respects to the 1995 Incentive Program of Florida
Supplies. In connection with the reorganization of Certified, completed in
August 1997, the optionees under the Florida Supplies Plan received, in
substitution for their options thereunder, an identical number of options, with
identical terms under the Plan. The Plan was amended September 2, 1997 to
increase the number of shares of common stock reserved for issuance thereunder
from 5,000,000 to 8,000,000.
On September 2, 1997 Certified granted nonqualified stock options for the
purchase of 2,100,000 shares of common stock at $8.75 per share which vest in
their entirety upon the earlier of the achievement of the benchmarks or
November 2005, provided the optionee is still employed.
On September 15, 1997 Certified granted nonqualified stock options to the
President of Healthco for the purchase of 150,000 shares of common stock at
$9.00 per share. The options vest in their entirety in 2002 or over three years
if certain customer thresholds are achieved.
From December 22, 1997 through April 1, 1998, Certified granted
nonqualified stock options to officers and employees for the purchase of
600,000 shares of common stock at exercise prices ranging from $4.00 to $4.375
per share. The options vest in one-third increments, commencing on the first
anniversary of the date of grants and annually thereafter, provided that on
each such anniversary, the optionee is still employed.
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
Period Ended Year Ended Quarter Ended
October 31, 1996 October 31, 1997 January 31, 1998
----------------------- ------------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------- ---------- ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning
of the period ................................. 4,000,000 $ 1.00 6,400,000 $ 3.73
Granted ........................................ 4,000,000 $ 1.00 2,550,000 8.32 240,000 4.00
Expired ........................................ (150,000) 5.00
--------- -------
Options outstanding at end of the period ....... 4,000,000 1.00 6,400,000 3.73 6,640,000 3.83
========= ========= =========
Options exercisable at end of the period ....... None None None
</TABLE>
The following table presents information relating to stock options
outstanding at October 31, 1997 and January 31, 1998:
<TABLE>
<CAPTION>
October 31, 1997 January 31, 1998
- ------------------------------------------ -----------------------------------------
Weighted Weighted
Average Average
Exercise Remaining Exercise Remaining
Shares Price Life in Years Shares Price Life in Years
- ----------- ---------- --------------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C>
4,000,000 $ 1.00 6.00 4,000,000 $ 1.00 5.75
150,000 5.00 4.25 240,000 4.00 9.88
2,100,000 8.75 6.83 150,000 5.00 4.00
150,000 9.00 4.88 2,100,000 8.75 6.58
- --------- ----
150,000 9.00 4.63
---------- ----
6,400,000 6.21 6,640,000 5.84
========= ==== ========== ====
</TABLE>
F-13
<PAGE>
CERTIFIED DIABETIC SERVICES, INC. AND SUBSIDIARIES
(formerly Certified Diabetic Supplies Inc.)
Notes to Financial Statements -- (Continued)
(Unaudited with respect to data as of January 31, 1998
and for the three months ended January 31, 1998 and January 31, 1997)
NOTE I -- STOCKHOLDERS' EQUITY -- (Continued)
[2] Stock Option Plan: -- (Continued)
The weighted average fair value at date of grant for options granted
during the periods ended October 31, 1996, October 31, 1997 and January 31,
1998 was $0, $0 and $2.28 per option, respectively. The fair value of the
options at the date of grant was estimated using the Black-Scholes option
pricing model utilizing the following assumptions:
<TABLE>
<CAPTION>
Period Ended Period Ended Period Ended
October 31, October 31, January 31,
1996 1997 1998
-------------- -------------- -------------
<S> <C> <C> <C>
Risk free interest rates ................ 5.53% 6.43 5.74%
Expected option life in years ........... 8 10 10
Expected stock price volatility ......... 0.1% 0.1% 60%
Expected dividend yield ................. 0% 0% 0%
</TABLE>
Had the Company elected to recognize compensation cost based on the fair
value of the options at the date of grant as prescribed by SFAS No. 123, net
income (loss) for the periods ended October 31, 1996, October 31, 1997 and
January 31, 1998 would have been $62,000, $766,000 and $(406,000) or $0.01,
$0.07 and $(0.04) per share respectively.
NOTE J -- COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
[1] Employment agreements and officers' salaries:
During the period from September 28, 1995 (inception) to October 31, 1996,
the year ended October 31, 1997 and the quarters ended January 31, 1998 and
1997 officers' salaries and bonuses based on operating results amounted to
$769,000, $1,150,000, $87,000 and $313,000, respectively.
The Company has employment agreements with its three officers for a
five-year term commencing in November 1995, providing for minimum annual
aggregate compensation of $700,000 and the granting of options to purchase
4,000,000 shares of common stock (see Note I[2]).
The Company also has employment agreements with two employees for one-year
terms effective February 14, 1997 which terms are renewable to successive
additional periods of one year unless either party shall have delivered to the
other notice of its intention not to renew. The agreements provide for an
aggregate minimum annual compensation of $130,000 plus commissions based on
customers obtained by the Company arising from provider contracts procured by
the employees. As of October 31, 1997, no commissions have been earned arising
from this agreement. On July 15, 1997 an employee with an annual compensation
of $65,000 resigned from the Company. These employees have options to purchase
300,000 shares of common stock (see Note I[2]).
During September 1997 the Company signed an agreement with the President
of Healthco for a three year term. The agreement provides for a minimum annual
compensation of $250,000 plus annual incentive bonus compensation based upon
certain targets for procurement of new customers. The employee has options to
purchase 150,000 shares of common stock (see Note I[2]).
During December 1997, the Company signed an agreement with its President
and Chief Operating Officer for a three year term. The agreement provides for a
minimum annual compensation of $150,000 and the granting of options to purchase
240,000 shares of common stock (see Note I[2]).
F-14
<PAGE>
CERTIFIED DIABETIC SERVICES, INC. AND SUBSIDIARIES
(formerly Certified Diabetic Supplies Inc.)
Notes to Financial Statements -- (Continued)
(Unaudited with respect to data as of January 31, 1998
and for the three months ended January 31, 1998 and January 31, 1997)
NOTE J -- COMMITMENTS, CONTINGENCIES AND OTHER MATTERS -- (Continued)
[2] Concentration of suppliers: (Continued)
The Company is dependent on third-party manufacturers and distributors for
all of its diabetic supplies. Two suppliers accounted for 62% and 16% of the
Company's purchases during the period ended October 31, 1996. One supplier
accounted for 58% of the Company's purchases during the year ended October 31,
1997. Five suppliers accounted for 44%, 14%, 12%, 11% and 10% of the Company's
purchases during the quarter ended January 31, 1998. Three suppliers accounted
for 70%, 11% and 10% of the Company's purchases during the quarter ended
January 31, 1997.
NOTE K -- RELATED PARTY TRANSACTIONS
[1] On May 1996, the Company purchased the land and building held for sale for
$320,000 from a partnership owned by the two principal stockholders of the
Company. The Company paid $50,000 cash, obtained a $250,000 first mortgage from
a bank and a $20,000 loan from the seller. An independent appraisal was
performed at the time of purchase which appraised the land and building at a
market value in excess of the purchase price.
[2] The Company's advertising function is handled by Coastline Media, Inc.
("Coastline"), a corporation 90% owned by two principal stockholders of the
Company. Disbursements to this corporation amounted to $131,000, $814,000,
$222,000 and $122,000, (which accounts for 71%, 100%, 74% and 100% of the
Company's advertising cost) respectively, during the period ended October 31,
1996, the year ended October 31, 1997 and the quarters ended January 31, 1998
and 1997.
As of January 1, 1998, Coastline ceased conducting business; the services
formerly provided to the Company by Coastline are now performed directly by the
Company.
NOTE L -- ADVERTISING COSTS
During the period from September 28, 1995 (inception) to October 31, 1996,
the year ended October 31, 1997 and the quarters ended January 31, 1998 and
1997, advertising costs, including direct-response advertising costs, charged
to expense and reported under selling and shipping expenses in the statements
of income amounted to $185,000, $161,000, $112,000 and $122,000, respectively.
NOTE M -- DEFERRED OFFERING COSTS
The Company had signed a letter of intent with an underwriter with respect
to a proposed initial public offering ("IPO") of the Company's securities. In
connection therewith, $591,000 of costs had been incurred and deferred as of
October 31, 1997. In November 1997, the Company and the underwriter determined
to abort the offering and accordingly, the deferred costs together with
additional costs totalling $676,000 incurred relating to the proposed IPO were
written off as a non-recurring expense in that month.
NOTE N -- PRIVATE PLACEMENT OF PREFERRED STOCK
On March 19, 1998, the Company completed a private placement of its
securities (the "Private Placement") and received proceeds of $2,760,000 net of
expenses. In connection with the Private Placement, the Company issued (i) an
aggregate of 3,000 shares of the Series A convertible preferred stock with an
initial stated value of $1,000 per share (the "Stated Value") and a cumulative
dividend rate of 5.0% per annum and (ii) warrants giving the investors in the
Private Placement the right to purchase an aggregate of 70,000 shares of the
Company's common stock at a price of $4.77 per share (the "Exercise Price"),
which warrants are exercisable for a period of five years from the date of
issuance. The Series A preferred stock is convertible into shares of common
stock at a rate (the "Conversion Rate") equal to the Stated Value divided by
the lower of (a) $6.50 per share, or (b)
F-15
<PAGE>
CERTIFIED DIABETIC SERVICES, INC. AND SUBSIDIARIES
(formerly Certified Diabetic Supplies Inc.)
Notes to Financial Statements -- (Continued)
(Unaudited with respect to data as of January 31, 1998
and for the three months ended January 31, 1998 and January 31, 1997)
NOTE N -- PRIVATE PLACEMENT OF PREFERRED STOCK -- (Continued)
80% of the average of the two lowest closing bid prices of the common stock for
the fifteen consecutive trading days prior to the day on which the notice of
conversion is transmitted by a holder thereof (the "Conversion Price," subject
to adjustment). The investors in the Series A preferred stock are permitted to
convert (a) up to one-third of their Series A preferred stock within thirty
days and up to two-thirds within sixty days after the earlier of (i) the date
the shares are registered (the "Effective Date") and (ii) July 18, 1998, and
(b) all of their Series A preferred stock at any time thereafter. The Series A
preferred stock will automatically convert into shares of common stock on March
31, 2002, subject to extension under various circumstances. The Company at any
time may redeem any or all outstanding shares of preferred stock at a price per
share equal to 125% of the stated value plus any accrued and unpaid dividends.
The Company has agreed to register the shares of the common stock issuable
upon conversion of the Series A preferred stock and exercise of the warrants
and to cause the Company to be listed on NASDAQ SmallCap within 120 days after
the closing of the Private Placement. In the event the Company is unable to
comply with these provisions, it will be subject to a substantial monetary
penalty to the investors.
A portion of the proceeds of the Private Placement were used to repay a
second mortgage loan with an outstanding balance of $300,000 and to repay loans
payable to officers aggregating $355,000.
In connection with the Private Placement, the Company issued 20,000 shares
of its common stock to the placement agent.
NOTE O -- LITIGATION
On March 14, 1998 the Company has been named in an action filed in the
United States District Court, Southern District of Florida, by Diabetic Supply
Foundation, Inc., for federal copyright infringement and unfair competition.
The basis of the claim is the apparent similarity of a flyer inserted by the
Company in product shipments to customers, to a flyer, purportedly copyrighted
and used by the plaintiff. The flyer is of a type commonly used by suppliers in
the Company's market segment. The flyer has not been used by the Company for
more than one year. The Company will attempt to dispose of the suit as
expeditiously as possible and in any event management does not believe that the
claim will have any material adverse effect on the Company or its operations.
NOTE P -- PRO FORMA (UNAUDITED)
A pro forma balance sheet is presented to reflect the following
transactions as if they had occurred on January 31, 1998:
[1] The receipt of proceeds from the private placement offering of 3,000 shares
of preferred stock at $1,000 per share, net of offering costs paid of $240,000
and $73,000 which is the market value on the date of issuance of 20,000 common
shares to the private placement agent.
[2] The payment of the second mortgage loan payable of $300,000.
[3] The payment of officers' loan payable amounting to $355,000.
F-16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
---------
Prospectus Summary ........................... 3
The Company .................................. 7
Risk Factors ................................. 7
Price Range of Common Stock .................. 16
Use of Proceeds .............................. 17
Capitalization ............................... 18
Dividend Policy .............................. 18
Dilution ..................................... 19
Selected Financial Data ...................... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ............................. 21
Business ..................................... 25
Management ................................... 35
Principal Stockholders ....................... 42
Selling Stockholders ......................... 43
Certain Relationships and Related Transactions 44
Shares Eligible for Future Sale .............. 45
Description of Capital Stock ................. 46
Plan of Distribution ......................... 49
Legal Matters ................................ 49
Experts ...................................... 49
Additional Information ....................... 50
Index to Financial Statements ................ F-1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-------------------
1,027,500 Shares
[GRAPHIC OMITTED]
CERTIFIED DIABETIC
SERVICES, INC.
Common Stock
---------------
PROSPECTUS
---------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Expenses of the Registrant in connection with the issuance and
distribution of the securities being registered, other than underwriting
discounts and commissions, are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee ............ $ 1,238
NASD Filing Fee ................................................ -0-
NASDAQ Filing Fee .............................................. 10,000
Blue Sky Fees and Expenses (including attorneys' fees) ......... 40,000
Printing and Engraving Expenses ................................ *
Legal Fees and Expenses ........................................ 100,000
Accounting Fees and Expenses ................................... 50,000
Transfer Agent and Registrar Fees and Expenses ................. *
Miscellaneous .................................................. *
--------
Total ........................................................ *
========
</TABLE>
- ------------
* To be filed by amendment. All expenses listed above are estimates, except for
the Commission and NASDAQ fees.
Item 14. Indemnification of Officers and Directors
The Certificate of Incorporation and By-Laws of the Registrant provides
that the Company shall indemnify any person to the full extent permitted by the
Delaware General Corporation Law (the "GCL"). Section 145 of the GCL, relating
to indemnification, and is hereby incorporated herein by reference.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to Directors, officers or controlling persons of the Company pursuant
to the Company's By-laws and the Delaware General Corporation Law, the Company
has been informed 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.
The Company's Certificate of Incorporation includes certain provisions
permitted pursuant to Delaware law whereby officers and Directors of the
Company are to be indemnified against certain liabilities. The Company's
Certificate of Incorporation limits, to the fullest extent permitted by
Delaware law, a director's liability for monetary damages for breach of
fiduciary duty, including gross negligence, except liability for (i) breach of
the director's duty of loyalty, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, (iii)
the unlawful payment of a dividend or unlawful stock purchase or redemption and
(iv) any transaction from which the director derives an improper personal
benefit. Delaware law does not eliminate a director's duty of care and this
provision has no effect on the availability of equitable remedies such as
injunction or rescission based upon a director's breach of the duty of care. In
addition, the Company has obtained an insurance policy providing coverage for
certain liabilities of its officers and Directors.
In accordance with Section 102(a)(7) of the GCL, the Certificate of
Incorporation of the Registrant eliminates the personal liability of directors
to the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director with certain limited exceptions set forth in Section
102(a)(7).
Item 15. Recent Sales of Unregistered Securities
In March 1998, the Company completed the private placement to seven
institutional investors of 3,000 shares of its Convertible Series A Preferred
Stock, with an initial stated value of $1,000 per share (the "Stated Value"),
which bears dividends at the rate of 5.0% per annum on the Stated Value. The
shares of Series A Preferred Stock are convertible into shares of Common Stock
at a rate equal to the lower of (a) $6.50 per share of Common Stock, or (b) 80%
of the average of the two lowest closing bid prices for the Common Stock for
the
II-1
<PAGE>
fifteen consecutive trading days prior to the day on which the notice of
conversion is transmitted, subject to adjustment. In connection with this
private placement, the Company issued warrants (the "Investor Warrants") giving
the investors in the private placement the right to purchase an aggregate of
70,000 shares of the Company's Common Stock, at a price of $4.77 per share (the
"Exercise Price"), which Investor Warrants are exercisable for a period of five
years from the date of issuance. The investors in the private placement are the
Selling Stockholders set forth in the section entitled "Selling Stockholders"
of the Prospectus. The shares of Series A Preferred Stock and the Investor
Warrants were issued by the Company to the Selling Stockholders pursuant to the
exemption for transactions not involving a public offering provided in Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act") and in
accordance with Regulation D of the Securities Act.
The Board of Directors of the Company awarded bonuses to Messrs. Peter J.
Fiscina, Albert R. Ayala and Myron M. Blumenthal, in accordance with their
employment agreements, in the aggregate amount of $419,000 in respect of the
fiscal year ended October 31, 1996, and in the additional aggregate amount of
$200,000 in respect of the quarter ended January 31, 1997. Such bonus amounts,
together with accrued salaries in the aggregate amount of $181,000, were
simultaneously lent to the Company by the three officers. On February 20, 1997,
these loans were converted into shares of Common Stock at the price of $1.00
per share. Based on the foregoing, the Company issued to the three officers an
aggregate of 800,000 shares of Common Stock on February 20, 1997. Such shares
were issued by the Company pursuant to the exemption for transactions not
involving a public offering provided in Section 4(2) of the Securities Act and
pursuant to the exemption provided in Section 701 of the Securities Act.
In May 1997, the Board of Directors awarded bonuses to Messrs. Fiscina,
Ayala and Blumenthal, in accordance with their employment agreements, in the
aggregate amount of $200,000 in respect of the quarter ended April 30, 1997.
The Board further authorized the payment of such bonuses, the simultaneous loan
of such bonus amounts by the three officers back to the Company, and the
simultaneous conversion of such loans into shares of Common Stock at the price
of $8.00 per share, which price represented the share price quoted on the "OTC
Electronic Bulletin Board of the NASD" on the date of the award. Based on the
foregoing, the Company issued to the three officers an aggregate of 25,000
shares of Common Stock on May 16, 1997. Such shares were issued by the Company
pursuant to the exemption for transactions not involving a public offering
provided in Section 4(2) of the Securities Act and pursuant to the exemption
provided in Section 701 of the Securities Act.
In December 1996, the Company completed the private placement of 2,000,000
shares of its Common Stock, for an aggregate purchase price of $100,000, to
subscribers in an offering exempt from the registration requirements of the
Securities Act of 1933, as amended. The shares of Common Stock were sold
directly through the Company's officers and directors without payment to them
of commissions or any form of remuneration. Since April 1997, certain
broker-dealers have, pursuant to Rule 15c2-11 under the Exchange Act, made a
market for such shares and traded such shares through, and quoted the price
therefor on, the "OTC Bulletin Board" of NAD. Such shares were issued by the
Company in accordance with Section 504 under Regulation D.
In November 1995, the Company issued an aggregate of 70 shares of its
Common Stock to Messrs. Fiscina and Blumenthal, and an aggregate of an
additional 70 shares of its Common Stock to two other persons (which shares,
following a 20,000 for 1 stock split effected in July 1996, represented, in the
aggregate, 2,800,000 shares of Common Stock) in payment for consulting services
rendered to the Company and valued, in the aggregate, at $14,000. Such shares
were issued by the Company pursuant to the exemption for transactions not
involving a public offering provided in Section 4(2) of the Securities Act and
pursuant to the exemption provided in Section 701 of the Securities Act.
At its inception, in September 1995, the Company issued to Messrs. Fiscina
and Ayala an aggregate of 200 shares of common stock for $100 per share (which
shares, following a 20,000 for 1 stock split effected in July 1996, represented
4,000,000 shares of Common Stock). In October 1995, the Company also issued to
Messrs. Fiscina, Ayala and Blumenthal an aggregate of 60 shares of Common Stock
in full payment for services rendered valued in the aggregate at $6,000 ($100
per share). Such shares were issued by the Company pursuant to the exemption
for transactions not involving a public offering provided in Section 4(2) of
the Securities Act and pursuant to the exemption provided in Section 701 of the
Securities Act.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- ---------------------------------------------------------------------------------------------
<S> <C>
3.1 Certificate of Incorporation, filed May 29, 1997.
3.2 Certificate of Amendment of Certificate of Incorporation, filed September 17, 1997.
3.3 Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock
of Certified Diabetic Services, Inc. filed March 17, 1998.
3.4 By-Laws.
4.1 Form of Certificate of Common Stock.
4.2 Form of Certificate of Series A Convertible Preferred Stock.
4.3 Form of Warrant.
5.1 Opinion of Bryan Cave LLP.*
10.1 Certified Diabetic Services, Inc. 1997 Incentive Program, as amended.
10.2 Stock Option Agreement between Certified Diabetic Services Inc., and Myron M.
Blumenthal dated August 12, 1997.
10.3 Stock Option Agreement between Certified Diabetic Services Inc., and Myron M.
Blumenthal dated September 2, 1997.
10.4 Stock Option Agreement between Certified Diabetic Services Inc., and Peter J. Fiscina dated
August 12, 1997.
10.5 Stock Option Agreement between Certified Diabetic Services Inc., and Peter J. Fiscina dated
September 2, 1997.
10.6 Stock Option Agreement between Certified Diabetic Services Inc., and Albert R. Ayala dated
August 12, 1997
10.7 Stock Option Agreement between Certified Diabetic Services Inc., and Albert R. Ayala dated
September 2, 1997.
10.8 Stock Option Agreement between Certified Diabetic Services Inc., and Frederick J. Roberts,
dated December 22, 1997.
10.9 Stock Option Agreement between Certified Diabetic Services Inc., and Frederick J. Roberts,
dated April 1, 1998.
10.10 Employment Agreement between Certified Diabetic Supplies Inc. and Peter J. Fiscina, dated
November 2, 1995.
10.11 Employment Agreement between Certified Diabetic Supplies Inc. and Myron M. Blumenthal,
dated November 2, 1995.
10.12 Employment Agreement between Certified Diabetic Supplies Inc. and Albert R. Ayala, dated
November 2, 1995.
10.13 Employment Agreement between Certified Diabetic Services Inc. and Frederick J. Roberts,
dated as of December 22, 1997.
10.14 Form of Executive Agreement between Certified Diabetic Services Inc. and the senior
executives of Certified Diabetic Services Inc.
10.15 Commitment Letter between First National Bank of Naples and Certified Diabetic Supplies
Inc., dated June 26, 1997.
10.16 Commercial Security Agreement between First National Bank of Naples and Certified
Diabetic Supplies, Inc., dated July 31, 1997.
10.17 Promissory Note issued by First National Bank of Naples to Certified Diabetic Supplies Inc.,
dated July 31, 1997.
10.18 Mortgage and Security Agreement between First National Bank of Naples and Certified
Diabetic Supplies Inc., dated May 31, 1996.
10.19 Sales Contract between Certified Diabetic Services, Inc. and The Harvest Corporation, dated
April 6, 1998.
10.20 Purchase and Sale Agreement between Barnett Bank, N.A. and Certified Diabetic Services,
Inc., as amended on July 31, 1997, August 15, 1997, August 18, 1997 and December 15,
1997.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ----------- --------------------------------------------------------------------------------------------
<S> <C>
10.21 Promissory Note issued by First National Bank of Naples to Certified Diabetic Services,
Inc., dated December 17, 1997.
10.22 Mortgage and Security Agreement between First National Bank of Naples and Certified
Diabetic Services, Inc., dated December 17, 1997.
10.23 Securities Purchase Agreement between Certified Diabetic Services, Inc. and Leonardo, L.P.,
GAM Arbitrage Investments, Inc., AG Super Fund International Partners, L.P., Raphael, L.P.,
Ramius Fund, Ltd., AGR Halifax Fund, Ltd., and Amro International, S.A., dated March 19,
1997.
10.24 Registration Rights Agreement between Certified Diabetic Services, Inc. and Leonardo, L.P.,
GAM Arbitrage Investments, Inc., AG Super Fund International Partners, L.P., Raphael, L.P.,
Ramius Fund, Ltd., AGR Halifax Fund, Ltd., and Amro International, S.A., dated March 19,
1997.
10.25 Participating Facility Agreement between Multiplan, Inc. and Certified Diabetic Services
Inc., dated May 20, 1997.**
10.26 Diabetic Supplies Agreement between Certified Medical Supplies, Inc., Certified Diabetic
Services Inc., and Benefit Plan Administrator, Inc., dated July 2, 1997.**
10.27 Letter of Agreement between Island Group Administrator, Inc., and Certified Diabetic
Services Health Management Inc., dated January 1, 1998.**
10.28 Ancillary Provider Agreement between Heritage New York Medical Group and Certified
Diabetic Services, Inc. dated January 15, 1998.**
10.29 Purchasing Agreement Contract for Medicare Distributors Pilot Program between Lifescan
Inc. and Certified Diabetic Services Inc., dated June 2, 1997.**
10.30 Medicare/Medicaid Strip Rebate Credit Purchasing Agreement between Boehringer
Mannheim Corporation and Certified Diabetic Services Inc., dated May 22, 1997.**
10.31 Agreement for Services between Professional Employee Management, Inc. and Certified
Diabetic Supplies Inc., dated June 9, 1997.
10.32 Form of Letter Agreement dated as of March 19, 1998 among the Company and certain
stockholders of the Company.
21.1 List of Subsidiaries
23.1. Consent of Richard A. Eisner & Company, LLP
23.2 Consent of Bryan Cave, LLP (appears in Exhibit 5.1).*
24 Power of Attorney (included on signature page).
</TABLE>
- ------------
* To be filed by amendment.
** Confidential treatment requested. Portions of this document have been
omitted by blocking out the relevant text pursuant to an Application for
Confidential Treatment. Such blocked out omissions have been filed
separately with the Securities and Exchange Commission. The Registrant
shall furnish all omitted schedules and exhibits to this document upon the
request of the Securities and Exchange Commission.
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the
II-4
<PAGE>
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant tot Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, 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 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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions described
above in Item 15, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the 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, the
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 public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Naples, State of
Florida, on April 23, 1998.
CERTIFIED DIABETIC SERVICES, INC.
By: /s/ Peter J. Fiscina
--------------------------------
Name: Peter J. Fiscina
Title: Chairman and Chief
Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Peter J. Fiscina and Myron M. Blumenthal and any of them (with full power to
each of them to act alone) the true and lawful attorneys-in-fact and agents of
the undersigned, with full power of substitution and resubstitution, for and in
the name, place and stead of the undersigned, in any and all capacities, to
sign any and all amendments (including post-effective amendments) to this
Registration Statement, including any filings pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission (or any other government or regulatory authority), and
hereby grants to such attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done, as fully to all intents and purposes as the
undersigned 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.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------------------------- ------------------------------------- ---------------
<S> <C> <C>
/s/ Peter J. Fiscina Chairman, Chief Executive Officer, April 23, 1998
- ---------------------------- Director
Peter J. Fiscina
/s/ Albert J. Ayala Vice Chairman, Director April 23, 1998
- ----------------------------
Albert J. Ayala
/s/ Myron M. Blumenthal Treasurer, Chief Financial Officer, April 23, 1998
- ----------------------------- Director
Myron M. Blumenthal
/s/ Stanley Bloom Director April 23, 1998
- -----------------------------
Stanley Bloom, M.D.
/s/ Ronald L. Rucker Director April 23, 1998
- -----------------------------
Ronald L. Rucker
</TABLE>
II-6
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
EXHIBITS
filed with
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
CERTIFIED DIABETIC SERVICES, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- ---------------------------------------------------------------------------------------------
<S> <C>
3.1 Certificate of Incorporation, filed May 29, 1997.
3.2 Certificate of Amendment of Certificate of Incorporation, filed September 17, 1997.
3.3 Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock
of Certified Diabetic Services, Inc. filed March 17, 1998.
3.4 By-Laws.
4.1 Form of Certificate of Common Stock.
4.2 Form of Certificate of Series A Convertible Preferred Stock.
4.3 Form of Warrant.
5.1 Opinion of Bryan Cave LLP.*
10.1 Certified Diabetic Services, Inc. 1997 Incentive Program, as amended.
10.2 Stock Option Agreement between Certified Diabetic Services Inc., and Myron M.
Blumenthal dated August 12, 1997.
10.3 Stock Option Agreement between Certified Diabetic Services Inc., and Myron M.
Blumenthal dated September 2, 1997.
10.4 Stock Option Agreement between Certified Diabetic Services Inc., and Peter J. Fiscina dated
August 12, 1997.
10.5 Stock Option Agreement between Certified Diabetic Services Inc., and Peter J. Fiscina dated
September 2, 1997.
10.6 Stock Option Agreement between Certified Diabetic Services Inc., and Albert R. Ayala dated
August 12, 1997
10.7 Stock Option Agreement between Certified Diabetic Services Inc., and Albert R. Ayala dated
September 2, 1997.
10.8 Stock Option Agreement between Certified Diabetic Services Inc., and Frederick J. Roberts,
dated December 22, 1997.
10.9 Stock Option Agreement between Certified Diabetic Services Inc., and Frederick J. Roberts,
dated April 1, 1998.
10.10 Employment Agreement between Certified Diabetic Supplies Inc. and Peter J. Fiscina, dated
November 2, 1995.
10.11 Employment Agreement between Certified Diabetic Supplies Inc. and Myron M. Blumenthal,
dated November 2, 1995.
10.12 Employment Agreement between Certified Diabetic Supplies Inc. and Albert R. Ayala, dated
November 2, 1995.
10.13 Employment Agreement between Certified Diabetic Services Inc. and Frederick J. Roberts,
dated as of December 22, 1997.
10.14 Form of Executive Agreement between Certified Diabetic Services Inc. and the senior
executives of Certified Diabetic Services Inc.
10.15 Commitment Letter between First National Bank of Naples and Certified Diabetic Supplies
Inc., dated June 26, 1997.
10.16 Commercial Security Agreement between First National Bank of Naples and Certified
Diabetic Supplies, Inc., dated July 31, 1997.
10.17 Promissory Note issued by First National Bank of Naples to Certified Diabetic Supplies Inc.,
dated July 31, 1997.
10.18 Mortgage and Security Agreement between First National Bank of Naples and Certified
Diabetic Supplies Inc., dated May 31, 1996.
10.19 Sales Contract between Certified Diabetic Services, Inc. and The Harvest Corporation, dated
April 6, 1998.
10.20 Purchase and Sale Agreement between Barnett Bank, N.A. and Certified Diabetic Services,
Inc., as amended on July 31, 1997, August 15, 1997, August 18, 1997 and December 15,
1997.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ----------- --------------------------------------------------------------------------------------------
<S> <C>
10.21 Promissory Note issued by First National Bank of Naples to Certified Diabetic Services,
Inc., dated December 17, 1997.
10.22 Mortgage and Security Agreement between First National Bank of Naples and Certified
Diabetic Services, Inc., dated December 17, 1997.
10.23 Securities Purchase Agreement between Certified Diabetic Services, Inc. and Leonardo, L.P.,
GAM Arbitrage Investments, Inc., AG Super Fund International Partners, L.P., Raphael, L.P.,
Ramius Fund, Ltd., AGR Halifax Fund, Ltd., and Amro International, S.A., dated March 19,
1997.
10.24 Registration Rights Agreement between Certified Diabetic Services, Inc. and Leonardo, L.P.,
GAM Arbitrage Investments, Inc., AG Super Fund International Partners, L.P., Raphael, L.P.,
Ramius Fund, Ltd., AGR Halifax Fund, Ltd., and Amro International, S.A., dated March 19,
1997.
10.25 Participating Facility Agreement between Multiplan, Inc. and Certified Diabetic Services
Inc., dated May 20, 1997.**
10.26 Diabetic Supplies Agreement between Certified Medical Supplies, Inc., Certified Diabetic
Services Inc., and Benefit Plan Administrator, Inc., dated July 2, 1997.**
10.27 Letter of Agreement between Island Group Administrator, Inc., and Certified Diabetic
Services Health Management Inc., dated January 1, 1998.**
10.28 Ancillary Provider Agreement between Heritage New York Medical Group and Certified
Diabetic Services, Inc. dated January 15, 1998.**
10.29 Purchasing Agreement Contract for Medicare Distributors Pilot Program between Lifescan
Inc. and Certified Diabetic Services Inc., dated June 2, 1997.**
10.30 Medicare/Medicaid Strip Rebate Credit Purchasing Agreement between Boehringer
Mannheim Corporation and Certified Diabetic Services Inc., dated May 22, 1997.**
10.31 Agreement for Services between Professional Employee Management, Inc. and Certified
Diabetic Supplies Inc., dated June 9, 1997.
10.32 Form of Letter Agreement dated as of March 19, 1998 among the Company and certain
stockholders of the Company.
21.1 List of Subsidiaries
23.1. Consent of Richard A. Eisner & Company, LLP
23.2 Consent of Bryan Cave, LLP (appears in Exhibit 5.1).*
24 Power of Attorney (included on signature page).
</TABLE>
- ------------
* To be filed by amendment.
** Confidential treatment requested. Portions of this document have been
omitted by blocking out the relevant text pursuant to an Application for
Confidential Treatment. Such blocked out omissions have been filed
separately with the Securities and Exchange Commission. The Registrant
shall furnish all omitted schedules and exhibits to this document upon the
request of the Securities and Exchange Commission.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
CERTIFIED DIABETIC SERVICES, INC.
THE UNDERSIGNED, in order to form a corporation for the
purposes herein stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, hereby certifies as follows:
FIRST: The name of this Corporation shall be:
CERTIFIED DIABETIC SERVICES, INC.
SECOND: The registered office of the Corporation is to be
located at 9 East Loockerman Street, in the City of Dover, in the County of
Kent, in the State of Delaware 19901. The name of its registered agent at that
address is National Corporate Research, Ltd.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares which the Corporation shall
have authority to issue is Twenty-Five Million (25,000,000) shares of common
stock, par value $.01 per share, which shall be documented fully paid and
non-assessable.
FIFTH: The name and mailing address of the incorporator is:
Thomas P. Orfanos, c/o Bryan Cave LLP, 245 Park Avenue, New York 10167-0034.
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: The power to adopt, alter, amend or repeal by-laws
shall be vested in the Board of Directors and Stockholders.
EIGHTH: This Corporation reserves the right to amend or repeal
any provisions contained in this Certificate of Incorporation, or any amendment
to it.
I, the undersigned, being the sole incorporator, for the
purpose of forming a corporation under the laws of the State of Delaware do
make, file and record this Certificate of Incorporation, do certify that the
facts herein stated are true, and accordingly, have hereto set my hand and seal
this 29th day of May, 1997.
/s/ Thomas P. Orfanos
-------------------------------
Thomas P. Orfanos, Incorporator
c/o Bryan Cave LLP
245 Park Avenue
New York, New York 10167-0034
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CERTIFIED DIABETIC SERVICES, INC.
Certified Diabetic Services, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by the
unanimous written consent of its members, filed with the minutes of the Board,
adopted a resolution proposing and declaring advisable the following amendment
to the Certificate of Incorporation of said corporation:
RESOLVED, that subject to the approval of the
stockholders of the Corporation, Article Fourth of the
Certificate of Incorporation be amended to read in its
entirety as follows:
"FOURTH: The aggregate number of shares of
capital stock which the Corporation shall be
authorized to issue shall be Thirty Million
(30,000,000) shares of which Twenty-Five Million
(25,000,000) shares are Common Stock, $.01 par value
per share (the "Common Stock"), and Five Million
(5,000,000) shares are Preferred Stock, par value
$.01 per share (the "Preferred Stock"). The Board of
Directors of the Corporation is expressly authorized
at any time, and from time to time, to provide for
the issuance of shares of Preferred Stock in one or
more series, with such designations, preferences and
relative, participating, optional or other special
rights, and qualifications, limitations, or
restrictions thereof, as shall be stated and
expressed in the resolution or resolutions providing
for the issue thereof adopted by the Board of
Directors."; and further
RESOLVED, that subject to the approval of the
stockholders of the Corporation, the Certificate of
Incorporation be amended to include the following provisions:
<PAGE>
"NINTH: The election of directors need not
be by written ballot unless the by-laws so provide.
TENTH: 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 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 the
stockholders or class of stockholders of the
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 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 the 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.
ELEVENTH: Anything to the contrary in this
Certificate of Incorporation notwithstanding, no
director shall be liable personally to the
Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, provided
however, that nothing in this paragraph shall
eliminate or limit the liability of a director (i)
for any breach of such director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or
2
<PAGE>
omissions not in good faith or which involve
intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation
Law of the State of Delaware, or (iv) for any
transaction from which such director derived an
improper personal benefit. The modification or repeal
of this Article Eleventh shall not affect the
restriction hereunder of a director's personal
liability for any act or omission occurring prior to
such modification or repeal."
SECOND: That in lieu of a meeting and vote of stockholders,
the stockholders have given their written consent to said amendment in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware and written notice of the adoption of the amendment has
been given as provided in Section 228 of the General Corporation Law of the
State of Delaware to every stockholder entitled to such notice.
THIRD: That the aforesaid amendment was duly adopted in
accordance with the applicable provisions of Sections 242 and 228 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Certified Diabetic Services, Inc. has
caused this Certificate to be signed by Myron M. Blumenthal, its Treasurer, this
3rd day of September, 1997.
CERTIFIED DIABETIC SERVICES, INC.
By: /s/ Myron M. Blumenthal
-------------------------
Name: Myron M. Blumenthal
Title: Treasurer
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATION'S
Filed 5:00 P.M. 3/17/1998
981102307-2750644
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK
OF
CERTIFIED DIABETIC SERVICES, INC.
Certified Diabetic Services, Inc. (the "Company"), a corporation organized
and existing under the General Corporation Law of the State of Delaware, does
hereby certify that, pursuant to authority conferred upon the Board of Directors
of the Company by the Certificate of Incorporation, as amended, of the Company,
and pursuant to Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Company at a meeting duly held, adopted
resolutions (i) authorizing a series of the Company's previously authorized
preferred stock, par value $.01 per share, and (ii) providing for the
designations, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, of Three Thousand
(3,000) shares of Series A Convertible Preferred Stock of the Company, as
follows:
RESOLVED, that the Company is authorized to issue 3,000 shares of
Series A Convertible Preferred Stock (the "Preferred Shares"), par value
$.01 per share, with an initial stated value of $1,000 per share (the
"Stated Value") which shall have the following powers, designations,
preferences and other special rights:
(1) Dividends.
(a) Each share of Preferred Shares shall bear dividends at the rate
of 5.0% per annum on the Stated Value thereof. Such dividends
shall be due and payable semi-annually in arrears on the first
day of March and September of each year (each of "Dividend
Payment Date"), with the first such payment due on September 1,
1998. Dividends shall accrue daily on each share of Preferred
Shares from the Issuance Date, whether or not earned or declared,
until such share of Preferred Shares has been converted or
redeemed as herein provided. To the extent dividends are not paid
on the applicable Dividend Payment Date, such dividends shall be
cumulative and shall compound semi-annually until the date of
payment of such dividend. The dividends so payable will be paid
to the person in whose name the applicable shares of Preferred
Shares (or one or more predecessor shares) is registered on the
records of the Company regarding registration and transfers of
the Preferred Shares (the "Preferred Share Register"); provided,
however, that the Company's obligation to a transferee of a share
of Preferred Shares arises only if such transfer, sale or other
disposition is made in accordance with the terms and conditions
hereof and the Securities Purchase Agreement
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between the Company and the initial holders of the Preferred
Shares (the "Securities Purchase Agreement").
(b) The dividends are payable in such coin or currency of the United
States of America as of the time of payment is legal tender to
the person in whose name the applicable share(s) of Preferred
Shares is duly registered on the Preferred Share Register on the
tenth day prior to the applicable Dividend Payment Date and at
the address last appearing on the Preferred Share Register as
designated in writing by such holder thereof from time to time;
provided, however, that in lieu of paying such dividends in coin
or currency, the Company may at its option, in full or in part,
pay dividends on the shares of Preferred Shares on any Dividend
Payment Date by increasing the Stated Value of the Preferred
Shares by the amount of such dividend such that the sum of (i)
the amount of such increase in the Stated Value and (ii) the
amount of cash dividend paid in part, if any, is equal to the
amount of the cash dividend which would otherwise be paid on such
Dividend Payment Date if such dividend were paid entirely in
cash. Any such increase in the Stated Value (plus the amount of
cash dividend, if any, paid together therewith) shall constitute
full payment of such dividend. When any dividend is added to the
Stated Value, such dividend shall, for all purposes of the
Preferred Shares, be deemed to be part of the Stated Value for
purposes of determining dividends thereafter payable hereunder
and amounts thereafter convertible into Common Stock hereunder,
and all references herein to the Stated Value shall mean the
Stated Value, as adjusted pursuant to these provisions.
(c) If the Company shall elect to pay any part of a dividend by
increasing the Stated Value as described in Paragraph 2(b), the
Company will provide a notice in the form of Exhibit II setting
forth the new Stated Value to each holder (a "Dividend Notice")
on or prior to the applicable Dividend Payment Date.
(d) If the cash dividends due hereunder are not paid or the Dividend
Notice is not delivered to each holder within ten calendar days
after the applicable Dividend Payment Date, the Company shall no
longer have the right to choose the method by which dividends are
paid and each holder may elect either cash dividends or dividends
payable by increasing the Stated Value.
(e) Except as specifically provided herein, an election by the
Company to pay dividends, in full or in part, in cash on any
Dividend Payment Date shall not preclude the Company from
electing any other available alternative in respect of all or any
portion of any subsequent dividend.
(2) Holder's Conversion of Preferred Shares. A holder of Preferred
Shares shall have the right, at such holder's option, to convert the
Preferred Shares into shares of the Company's common stock, $.01 par value
per share (the "Common Stock"), on the following terms and conditions:
(a) Conversion Right. Subject to the provisions of Section 2(j)
below, at any time or times on or after the Issuance Date (as
defined below), any holder of Preferred Shares shall be entitled
to convert any whole number of Preferred Shares into fully paid
and nonassesable shares (rounded to the nearest whole share in
accordance with
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Section 2(h) below) of Common Stock, at the Conversion Rate (as
defined below); provided, however, that in no event shall any
holder be entitled to convert Preferred Shares in excess of that
number of Preferred Shares which, upon giving effect to such
conversion, would cause the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates to
exceed 4.9% of the outstanding shares of the Common Stock
following such conversion. For purposes of the foregoing proviso,
the aggregate number of shares of Common Stock beneficially owned
by the holder and its affiliates shall include the number of
shares of Common Stock issuable upon conversion of the Preferred
Shares with respect to which the determination of such proviso is
being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (i) conversion of the
remaining, nonconverted Preferred Shares beneficially owned by
the holder and its affiliates and (ii) exercise of conversion of
the unexercised or unconverted portion of any other securities of
the Company (including, without limitation, any warrants) subject
to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the holder and
its affiliates. Except as set forth in the preceding sentence,
for purposes of this paragraph, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. The holder may waive the
foregoing limitations by written notice to the Company upon not
less than 61 days prior notice (with such waiver taking effect
only upon the expiration of such 61 day notice period).
(b) Conversion Rate. The number of shares of Common Stock issuable
upon conversion of each of the Preferred Shares pursuant to
Sections (2)(a) and 2(g) shall be determined according to the
following formula (the "Conversion Rate"):
Stated Value + D
----------------
Conversion Price
For purposes of this Certificate of Designations, the following terms shall
have the following meanings:
(i) "Closing Bid Price" means, for any security as of any date, the last
closing bid price for such security on the Nasdaq SmallCap Market as
reported by Bloomberg Financial Markets ("Bloomberg"), or, if the
Nasdaq SmallCap Market is not the principal trading market for such
security, the last closing bid price of such security on the principal
securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the
last closing bid price of such security in the over-the-counter market
or the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price is reported for such security
by Bloomberg, the last closing trade price of such security as
reported by Bloomberg, or, if no last closing trade price is reported
for such security by Bloomberg, the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by
the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date shall be the fair market
value as mutually determined by the Company and the holders of
Preferred Shares. If the Company and the holders of Preferred Shares
are unable to agree upon the fair market value of the Common Stock,
then such dispute shall be resolved pursuant to Section 2(f)(iii)
below with the term
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"Closing Bid Price" being substituted for the term "Market Price." (All
such determinations to be appropriately adjusted for any stock dividend,
stock, split or other similar transaction during such period).
(ii) "Conversion Notice" means the notice of conversion in form attached
hereto as Exhibit I.
(iii) "Conversion Price" means, as of any Conversion Date (as defined below) or
other date of determination, the lower of the Fixed Conversion Price and
the Floating Conversion Price, each in effect as of such date and subject
to adjustment as provided herein.
(iv) "D" means the accrued but unpaid dividends (whether or not earned or
declared) for each share of Preferred Shares; provided, however, that if
the Company elects to pay such accrued but unpaid dividends in cash on
the date of conversion of the Preferred Shares, then, only for the
purposes of calculating the Conversion Rate, "D" shall equal zero.
(v) "Fixed Conversion Price" means $6.50 per share of Preferred Shares;
(vi) "Floating Conversion Price" means 80% of the Market Price on the date on
which the Conversion Notice is delivered to the Company.
(vii) "Issuance Date" means, with respect to each Preferred Share, the date of
issuance of the applicable Preferred Share.
(viii) "Market Price" means, with respect to any security for any date, the
average of the two lowest Closing Bid Prices for such security during the
fifteen consecutive trading days immediately preceding such date.
(ix) "Person" shall mean an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(c) Intentionally Omitted.
(d) Adjustment to Conversion Price - Dilution and Other Events. In order to
prevent dilution of the rights granted under this Certificate of
Designations, the Conversion Price will be subject to adjustment from
time to time as provided in this Section 2(d).
(i) Adjustment of Fixed Conversion Price upon Issuance of Common Stock. If
and whenever on or after the date of issuance of the Preferred Shares,
the Company issues or sells, or is deemed to have issued or sold, any
shares of Common Stock (other than shares of Common Stock deemed to have
been issued by the Company in connection with the Warrants (as defined in
the Securities Purchase Agreement), an Approved Stock Plan (as defined
below) or an Excluded Issuance (as defined below)) for a consideration
per share (the "Applicable Price") less than the Fixed Conversion Price
in effect immediately prior to such time, then immediately after such
issue or sale, the Fixed Conversion Price shall be reduced to an amount
equal to the Applicable Price. For purposes of determining the adjusted
Fixed Conversion Price under this Section 2(d)(i), the following shall be
applicable:
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(A) Issuance of Options. As used herein, "Options" means any grants in any
manner by the Company of any rights or options to subscribe for or to
purchase Common Stock (other than pursuant to an Approved Stock Plan
or upon conversion of the Preferred Shares or exercise of the
Warrants) or any stock or other securities convertible into or
exchangeable for Common Stock. Such convertible or exchangeable stock
or securities are referred to herein as "Convertible Securities." For
purposes of this Section 2(d)(i), the "price per share for which
Common Stock is issuable upon exercise of such Options or upon
conversion or exchange of such Convertible Securities" is determined
by dividing (I) the total amount, if any, received or receivable by
the Company as consideration for the granting of such Options, plus
the minimum aggregate amount of additional consideration payable to
the Company upon the exercise of all such Options, plus in the case of
such Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable to the
Company upon the issuance or sale of such Convertible Securities and
the conversion or exchange thereof, by (II) the total maximum number
of shares of Common Stock issuable upon exercise of such Options or
upon the Conversion or exchange of all such Convertible Securities
isssable upon the exercise of such Options. No adjustment of the Fixed
Conversion Price shall be made upon the accrual issuance of such
Common Stock or of such Convertible Securities upon the exercise of
such Options or upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(B) Issuance of Convertible Securities. For purposes of this Section
2(d)(i), the "price per share for which Common Stock is issuable upon
the conversion or exchange of any Convertible Securities" is
determined by dividing (I) the total amount received or receivable by
the Company as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or
exchange thereof, by (II) the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of all such Convertible
Securities. No adjustment of the Fixed Conversion price shall be made
upon the actual issue of such Common Stock upon conversion or exchange
of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which
adjustment of the Fixed Conversion Price had been or are to be made
pursuant to other provisions of this Section 2(d)(i), no further
adjustment of the Fixed Conversion Price shall be made by reason of
such issue or sale.
(C) Change in Option Price or Rate of Conversion. If the purchase price
provided for in any Options, the additional consideration, if any,
payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are
convertible into to exchangeable for Common Stock change at any time,
the Fixed Conversion Price in effect at the time of such change shall
be readjusted to the Fixed Conversion Price which would have been in
effect at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the
time initially granted, issued or sold; provided that no adjustment
shall be
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<PAGE>
made if such adjustment would result in an increase of the Fixed
Conversion Price then in effect. Nothing in this Section 2(d)(i)(C)
shall be construed to require any readjustment to the Fixed Conversion
Price where the Board of Directors of the Company votes to reprice at
fair market value any rights or options to subscribe for or to
purchase Common Stock granted pursuant to an Approved Stock Plan in
order to provide appropriate employee incentives.
(D) Certain Definitions. For purposes of determining the adjusted Fixed
Conversion Price under this Section 2(d)(i), the following terms have meanings
set forth below:
(I) "Approved Stock Plan" shall mean any contract, plan or agreement which
has been approved by the Board of Directors of the Company, pursuant
to which the Company's securities may be issued to any employee,
officer, director, consultant or other service provider.
(II) "Excluded Issuance" shall mean (i) any underwritten public offering by
the Company consisting solely of Common Stock, (ii) any transaction
involving the Company's issuance of securities in connection with an
acquisition (the primary purpose of which is not to raise equity
capital): (iii) any transaction involving the Company's issuance of
securities in connection with any strategic partnership or joint
venture (the primary purpose of which is not to raise equity capital),
and (iv) any issuance of securities by the Company as consideration
for the acquisition of a license by the Company; provided that a
transaction or issuance of securities shall not constitute an Excluded
Issuance pursuant to clause (ii), (iii) or (iv) of this Section
2(d)(i)(D)(II) unless the securities issued in connection with the
acquisition, joint venture or partnership, as the case may be, cannot
be transferred for a period of 180 days from the date of consummation
of such acquisition, joint venture or partnership.
(E) Effect on Fixed Conversion Price of Certain Events. For purposes of
determining the adjusted Fixed Conversion Price under this Section 2(d)(i), the
following provisions shall also be applicable:
(I) Calculation of Consideration Received. If any Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the net amount received by the Company will
be deemed to be the consideration received by the Company therefor. In
case any Common Stock, Options or Convertible Securities are issued or
sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company will be the fair
value of such consideration, except where such consideration consists
of securities, in which case the amount of consideration received by
the Company will be the arithmetic average of the Closing Bid Prices
on the twenty (20) consecutive trading days immediately preceding the
date of receipt. In case any Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving
entity the amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Options
or Convertible Securities, as the case may be. The fair value of any
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<PAGE>
consideration other than cash or securities will be determined jointly
by the Company and the holders of a majority of the Preferred Shares
then outstanding. If such parties are unable to reach agreement within
ten (10) days after the occurrence of an event requiring valuation
(the "Valuation Event"), the fair value of such consideration will be
determined within forty-eight (48) hours of tenth (10th) day following
the Valuation Event by an independent, reputable appraiser selected by
the Company. The determination of such appraiser shall be binding upon
all parties absent manifest error and the cost of such appraiser shall
be shared equally by the Company, on the one hand, and the holders of
Preferred Shares, on the other hand.
(II) Integrated Transactions. In case any Options or Convertible Securities
are issued or granted in connection with the issue or sale of Common
Stock of the Company, together comprising one integrated transaction
in which no specific consideration is allocated between such Options
or Convertible Securities and Common Stock, then, for purposes of
determining the adjusted Fixed Conversion Price under this Section
2(d)(i), the Company shall be deemed to have received a per share
consideration for such Common Stock equal to the quotient of (i)(A)
the value of the consideration received by the Company in the
integrated transaction minus (B) the value of the consideration
received by the Company attributable to the Options or Convertible
Securities as determined by the Black-Scholes valuation formula,
divided by (ii) the sum of the total number of shares of Common Stock
issued in such transaction. If the Company and the holders of a
majority of the Preferred Shares then outstanding are unable to reach
agreement within ten (10) days after the occurrence of an event
requiring a Black-Scholes valuation as described in the preceding
sentence (the "Integrated Valuation Event"), then such valuation will
be determined within forty-eight (48) hours of the tenth (10th) day
following the Integrated Valuation Event by an independent, reputable
appraiser selected by the Company. The determination of such appraiser
shall be binding upon all parties absent manifest error and the cost
of such appraiser shall be shared equally by the Company, on the one
hand, and the holders of Preferred Shares, on the other hand.
(III) Treasury Shares. The number of shares of Common Stock outstanding at
any given time does not include shares owned or held by or for the
account of the Company, and the disposition of any shares so owned or
held will be considered an issue or sale of Common Stock.
(IV) Record Date. If the Company takes a record of the holders of Common
Stock for the purpose of entitling them (1) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible
Securities or (2) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be
the date of the issue or sale of the shares of Common Stock to have
been issued or sold upon the declaration of such dividend or the
making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
(ii) Adjustment of Conversion Price upon Subdivision or Combination of
Common Stock. If the Company at any time subdivides (by any stock split,
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stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company at any time combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination will be proportionately increased.
(iii) Adjustment of Floating Conversion Price Upon Issuance of Convertible
Securities. If the Company in any manner issues or sells Convertible Securities
that are convertible into Common Stock at a price which varies with the market
price of the Common Stock (the formulation for such variable price being herein
referred to as, the "Variable Price") and such Variable Price is not calculated
using the same formula used to calculate the Floating Conversion Price in effect
immediately prior to the time of such issue or sale, the Company shall provide
written notice thereof via facsimile and overnight courier to each holder of the
Preferred Shares ("Variable Price Notice") on the date of issuance of such
Convertible Securities. If the holders of Preferred Shares representing at least
two-thirds (2/3) of the Preferred Shares then outstanding provide written notice
via facsimile and overnight courier (the "Variable Price Election Notice") to
the Company within five (5) business days of receiving a Variable Price Notice
that such holders desire to replace the Floating Conversion Price then in effect
with the Variable Price described in such Variable Price Notice, the Company
shall prepare and deliver to each holder of the Preferred Shares via facsimile
and overnight courier a copy of an amendment to this Certificate of Designations
(the "Variable Price Amendment") that substitutes the Variable Price for the
Floating Conversion Price (together with such modifications to this Certificate
of Designations as may be required to give full effect to the substitution of
the Variable Price for the Floating Conversion Price) within five (5) business
days after receipt of the requisite number of Variable Price Election Notices
set forth above. The Company shall file such Variable Price Amendment with the
Secretary of State of the State of Delaware within five (5) business days after
delivery of the Variable Price Amendment to the holders of the Preferred Shares;
provided that in the event that the Company receives a notice prior to the
filing of the Variable Price Amendment from any holder who has delivered a
Variable Price Election Notice in connection with such Variable Price Amendment
that such holder objects to the form of the Variable Price Amendment, the
Company shall not file such Variable Price Amendment until such time as the
Variable Price Amendment has been revised to the reasonable satisfaction of such
holder and approved in writing by the holders of the Preferred Shares
representing at least two-thirds (2/3) of the Preferred Shares then outstanding.
Except as provided in the preceding priviso, a holder's delivery of a Variable
Price Election Notice shall serve as the consent required to amend this
Certificate of Designations pursuant to Section 13 below.
(iv) Reorganization, Reclassification, Consolidation, Merger or Sale. Any
recapitalization, reorganization, reclassification, consolidation, merger, sale
of all or substantially all of the Company's assets to another Person (as
defined below), purchase, tender or exchange offer made to and accepted by the
holders of more than 50% of the outstanding shares of Common Stock or other
transaction which is effected in such a way that holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock, or the
fixing of a
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record date by the Company for the declaration of a distribution or
dividend, whether payable in cash, securities or assets (other than shares of
Common Stock), is referred to herein as an "Organic Change." If at any time
there occurs an Organic Change, then each holder of Preferred Shares, at such
holder's option, may (a) participate in any such Organic Change as a class with
common stockholders on the same basis as if the Preferred Shares had been
converted one day prior to the announcement of such transaction or (b) require
that the Company redeem such holder's Preferred Shares pursuant to Section 3(a)
hereof. Notice of the holder's election under this Section 2(d)(iv) shall be
given not less than five (5) days prior to the consummation of such Organic
Change.
(v) Certain Events. If any event occurs of the type contemplated b the
provisions of this Section 2(d) but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of the Preferred
Shares; provided that no such adjustment will increase the Conversion Price as
otherwise determined pursuant to this Section 2(d).
(vi) Notices.
(A) As soon as practicable, upon any adjustment of the Conversion
Price, the Company will give written notice thereof to each holder of
Preferred Shares, setting forth in reasonable detail and certifying
the calculation of such adjustment.
(B) The Company will give written notice to each holder of Preferred
Shares at least twenty (20) days prior to the date on which the
Company closes its books or takes a record (I) with respect to any
dividend or distribution upon the Common Stock, (II) with respect to
any pro rata subscription offer to holders of Common Stock or (III)
for determining rights to vote with respect to any Organic Change,
dissolution or liquidation and in no event shall such notice be
provided to such holder prior to such information being made known to
the public.
(C) The Company will also give written notice to each holder of
Preferred Shares at least twenty (20) days prior to the date on which
any Organic Change, dissolution or liquidation will take place and in
no event shall such notice be provided to such holder prior to such
information being made known to the public.
(e) Purchase Rights. In addition to any adjustments of the Conversion Price
pursuant to Section 2(d) above, if at any time the Company grants, issues or
sells any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then each holder of Preferred Shares will
be entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such holder could have acquired if such holder
had held the number of shares of Common Stock acquirable upon complete
conversion of the Preferred Shares (without taking into account any limitations
or restrictions on the timing or amount of conversions) immediately before the
date on which a record is taken for the grant, issuance or sale of
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such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.
(f) Mechanics of Conversion. Subject to the Company's inability to fully
satisfy its obligations under a Conversion Notice (as defined below) as provided
for in Section 4 below:
(i) Holder's Delivery Requirements. To convert Preferred Shares into full
shares of Common Stock on any date (the "Conversion Date"), the holder
thereof shall (A) transmit by facsimile (or otherwise deliver), for
receipt on or prior to 11:59 p.m., Central Time on such date, a fully
executed Conversion Notice to the Company or its designated transfer
agent (the "Transfer Agent"), and (B) surrender to a common carrier
for delivery to the Company or the Transfer Agent as soon as
practicable following such date, the original certificates
representing the Preferred Shares being converted (or an
indemnification undertaking with respect to such shares in the case of
their loss, theft or destruction) (the "Preferred Stock Certificates")
and the originally executed Conversion Notice.
(ii) Company's Response. Upon receipt by the Company of a facsimile copy of
a Conversion Notice, the Company shall immediately send, via
facsimile, a confirmation of receipt of such Conversion Notice to such
holder. Upon receipt by the Company of the Transfer Agent of the
Preferred Stock Certificates to be converted pursuant to a Conversion
Notice (or an indemnification undertaking with respect to such shares
in the case of their loss, theft or destruction), together with the
originally executed Conversion Notice, the Company or the Transfer
Agent (as applicable) shall, on the next business day following the
date of receipt, (A)(I) issue and surrender to a common carrier for
overnight delivery to the address as specified in the Conversion
Notice, a certificate, registered in the name of the holder or its
designee, for the number of shares of Common Stock to which the holder
shall be entitled, or (II) credit such aggregate number of shares of
Common Stock to which the holder shall be entitled to the holder's or
its designee's balance account with The Depository Trust Company and
(B) in the event that the Company elects to pay all accrued but unpaid
dividends with respect to the Preferred Shares on the date of
conversion instead of including such dividends in the calculation of
the Conversion Rate, pay by wire transfer to the holders of the
Preferred Shares all such accrued but unpaid dividends. If the number
of Preferred Shares represented by the Preferred Stock Certificate(s)
submitted for conversion is greater than the number of Preferred
Shares being converted, then the Company or Transfer Agent, as the
case may be, shall, as soon as practicable and in no event later than
two business days after receipt of the Preferred Stock Certificate(s)
and at its own expense, issue and deliver to the holder a new
Preferred Stock Certificate representing the number of Preferred
Shares not converted.
(iii) Dispute Resolution. In the case of a dispute as to the determination
of the Market Price or the arithmetic calculation of the Conversion
Rate, the Company shall promptly issue to the holder the number of
shares of Common Stock that is not disputed and shall submit the
disputed determinations or arithmetic calculations to the holder via
facsimile as soon as possible, but in no event later than two (2)
business days after receipt of such holder's Conversion Notice. If
such holder and the Company are unable to agree upon the determination
of the Market Price or arithmetic calculation of the Conversion Rate
within one (I)
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business day of such disputed determination or arithmetic calculation
being submitted to the holder, then the Company shall within one (1)
business day submit via facsimile (A) the disputed determination of
the Market Price to an independent, reputable investment bank or (B)
the disputed arithmetic calculation of the Conversion Rate to its
independent, outside accountant. The Company shall cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the holder
of the results no later than forty-eight (48) hours from the time it
receives the disputed determinations or calculations. Such investment
bank's or accountant's determination or calculation, as the case may
be, shall be binding upon all parties absent manifest error.
(iv) Record Holder. The person or persons entitled to receive the shares of
Common Stock issuable upon a conversion of Preferred Shares shall be
treated for all purposes as the record holder or holders of such
shares of Common Stock on the Conversion Date.
(v) Company's Failure to Timely Convert. If within ten (10) business days
of the Company's or the Transfer Agent's receipt of the Preferred
Stock Certificates to be converted and the originally executed
Conversion Notice the Company shall fail to issue a certificate to a
holder or credit the holder's balance account with The Depository
Trust Company for the number of shares of Common Stock to which such
holder is entitled upon such holder's conversion of Preferred Shares
or to issue a new Preferred Stock Certificate representing the number
of Preferred Shares to which such holder is entitled pursuant to
Section 2(f)(ii), in addition to all other available remedies which
such holder may pursue hereunder and under the Securities Purchase
Agreement (including indemnification pursuant to Section 8 thereof),
the Company shall pay additional damages to such holder on each date
on and after such tenth (10th) business day in an amount equal to 0.5%
of the Stated Value of the Preferred Shares to be converted.
(g) Mandatory Conversion. If any Preferred Shares remain outstanding
on the Mandatory Conversion Date (as defined below), then all
such Preferred Shares shall be converted as of such date in
accordance with this Section 2 as if the holders of such
Preferred Shares had given the Conversion Notice on the Mandatory
Conversion Date. All holders of Preferred Shares shall thereupon
surrender all Preferred Stock Certificates, duly endorsed in
blank, to the Company or the Transfer Agent. "Mandatory
Conversion Date" means March 31, 2002, unless extended pursuant
to Section 4(1) of the Securities Purchase Agreement or Section
3(f) of the Registration Rights Agreement, which extension shall
be equal to one and one-half times the aggregate number of days
of all Underwriting Lock-Up Periods (as defined in Section 4(1)
of the Securities Purchase Agreement) and Grace Periods (as
defined in Section 3(f) of the Registration Rights Agreement.
(h) Fractional Shares. The Company shall not issue any fraction of a
share of Common Stock upon any conversion. All shares of Common
Stock (including fractions thereof) issuable upon conversion of
more than one Preferred Share by a holder thereof shall be
aggregated for purposes of determining whether the conversion
would result in the issuance of a fraction of a share of Common
Stock. If, after the aforementioned aggregation, the issuance
would result in the issuance of a fraction of a
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share of Common Stock, the Company shall round such fraction of a
share of Common Stock up or down to the nearest whole share.
(i) Taxes. The Company shall pay any and all taxes which may be
imposed upon it with respect to the issuance and delivery of
Common Stock upon the conversion of the Preferred Shares.
(j) Conversion Restrictions. The right of a holder of Preferred
Shares to convert Preferred Shares pursuant to this Section 2
shall be limited as set forth below. Without the prior consent of
the Company, a holder of Preferred Shares shall not be entitled
to convert an aggregate number of Preferred Shares in excess of
the number of Preferred Shares which when divided by the number
of Preferred Shares held by such holder would exceed (i) 0.33 for
the period beginning on the earlier of (x) the effective date
(the "Effective Date") of the registration statement covering the
resale of the shares of Common Stock issuable upon conversion of
the Preferred Shares and required to be filed by the Company
pursuant to the Registration Rights Agreement between the Company
and the Buyers refereed to therein and (y) 120 days after the
Issuance Date for any Preferred Shares (the "Scheduled Effective
Date") and ending on and including the date which is 30 days
after the earlier of the Effective Date and the Scheduled
Effective Date, (ii) 0.67 for the period beginning on and
including the date which is 31 days after the earlier of the
Effective Date and the Scheduled Effective Date and ending on and
including the date which is 60 days after the earlier of the
Effective Date and the Scheduled Effective Date, and (iii) 1.00
for the period beginning on and including the date which is 61
days after the earlier of the Effective Date and the Scheduled
Effective Date and ending on and including the Mandatory
Conversion Date. Notwithstanding the foregoing, the conversion
restriction set forth in this Section 2(j) shall not apply if an
event constituting a Major Transaction (as defined in Section
3(c) below) or a Triggering Event (as defined in Section 3(d)
below) shall have occurred or been publicly announced.
(k) Adjustment of Conversion Restrictions upon Issuance of
Convertible Securities. If the Company in any manner issues or
sells Convertible Securities that are convertible into Common
Stock and are subject to (i) restrictions on the amount of shares
that can be converted, or (ii) no restrictions on the amount of
shares that can be converted (the restriction on conversions or
lack thereof being herein referred to as the "Conversion
Restriction"), and such Conversion Restriction is not formulated
with using the same time periods and percentages used in Section
2(j), then the Company shall provide written notice thereof via
facsimile and overnight courier to each holder of the Preferred
Share ("Conversion Restriction Notice") on the date of issuance
of such Convertible Securities. If the holders of Preferred
Shares representing at least two-thirds (2/3) of the Preferred
Shares then outstanding which remain subject to the restrictions
in Section 2(j) provide written notice via facsimile and
overnight courier (the "Conversion Restriction Election Notice")
to the Company within five (5) business days of receiving a
Conversion Restriction Notice that such holders desire to replace
the conversion restrictions set forth in Section 2(j) then in
effect with the Conversion Restriction described in such
Conversion Restriction Notice, the Company shall prepare and
deliver to each holder of the Preferred Shares via facsimile and
overnight courier a copy of an
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amendment to this Certificate of Designations (the "Conversion
Restriction Amendment") that substitutes the Conversion
Restriction for conversion restrictions set forth in Section 2(j)
(together with such modifications to this Certificate of
Designations as may be required to give full effect to the
substitution of the Conversion Restriction for the conversion
restrictions set forth in Section 2(j) within five (5) business
days after receipt of the requisite number of Conversion
Restriction Election Notices set forth above. The Company shall
file such Conversion Restriction Amendment with the Secretary of
State of the State of Delaware within five (5) business days
after delivery of the Conversion Restriction Amendment to the
holders of the Preferred Shares; provided that in the event that
the Company receives a notice prior to the filing of the
Conversion Restriction Amendment from any holder who has
delivered a Conversion Restriction Election Notice in connection
with such Conversion Restriction Amendment that such holder
object to the form of the Conversion Restriction Amendment, the
Company shall not file such Conversion Restriction Amendment
until such time as the Conversion Restriction Amendment has been
revised to the reasonable satisfaction of such holder and
approved in writing by the holders of the Preferred Shares
representing at least two-thirds (2/3) of the Preferred Shares
then outstanding. Except as provided in the preceding proviso, a
holder's delivery of a Conversion Restriction Election Notice
shall serve as the consent required to amend this Certificate of
Designations pursuant to Section 13 below.
(3) Redemption at Option of Holders.
(a) Redemption Option Upon Major Transaction. In addition to all other
rights of the holders of Preferred Shares contained herein,
simultaneously with or at any time after the occurrence of a Major
Transaction (as defined below), each holder of Preferred Shares shall
have the right, at such holder's option, to require the Company to
redeem all or a portion of such holder's Preferred Shares at a price
per Preferred Share equal to 125% of the Stated Value plus accrued but
unpaid dividends ("Major Transaction Redemption Price").
(b) Redemption Options Upon Triggering Event. In addition to all other
rights of the holders of Preferred Shares contained herein, at any
time after a Triggering Event (as defined below), each holder of
Preferred Shares shall have the right, at such holder's option, to
require the Company to redeem all or a portion of such holder's
Preferred Shares at a price per Preferred Share equal to 135% of the
Stated Value plus accrued but unpaid dividends ("Triggering Event
Redemption Price" and, collectively with "Major Transaction Redemption
Price," the "Redemption Price").
(c) "Major Transaction." A "Major Transaction" shall be deemed to have
occurred at such time as any of the following events:
(i) the consolidation, merger or other business combination of the
Company with or into another Person (other than pursuant to a
migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company);
(ii) the sale or transfer of all or substantially all of the Company's
assets; or
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<PAGE>
(iii) a purchase, tender or exchange offer made to and accepted by the
holders of more then 50% of the outstanding shares of Common
Stock.
(d) "Triggering Event". A "Triggering Event" shall be deemed to have
occurred (i) at such time as the Company's notice to any holder of
Preferred Shares, including by way of public announcement, at any
time, of its intention not to comply with proper requests for
conversion of any Preferred Shares into shares of Common Stock (other
than as provided in clause (ii) of this Section 3(d)), including if
the Company fails to convert Preferred Shares pursuant to Section 2,
or (ii) at such time as a holder shall be permitted to require the
Company to redeem such holder's Preferred Shares pursuant to Section
4(a).
(e) Mechanics of Redemption at Option of Buyer Upon Major Transaction.
Simultaneously with the public announcement of a Major Transaction,
but in no event later than 20 days prior to the consummation of such
Major Transaction, the Company shall deliver written notice thereof
via facsimile and overnight courier ("Notice of Major Transaction") to
each holder of Preferred Shares. At any time after receipt of a Notice
of Major Transaction, the holders of at least two-thirds (2/3) of the
Preferred Shares then outstanding may require the Company to redeem
all of the holders' Preferred Shares then outstanding by delivering
written notice thereof via facsimile and overnight courier ("Notice of
Redemption at Option of Buyer Upon Major Transaction") to the Company,
which Notice of Redemption at Option of Buyer Upon Major Transaction
shall indicate (i) the number of Preferred Shares that such holders
are voting in favor of redemption and (ii) the applicable Major
Transaction Redemption Price, as calculated pursuant to Section 3(a)
above.
(f) Mechanics of Redemption at Option of Buyer Upon Triggering Event.
Within one (1) day after the occurrence of a Triggering Event, the
Company shall deliver written notice thereof via facsimile and
overnight courier ("Notice of Triggering Event") to each holder of
Preferred Shares. At any time after the earlier of (x) the receipt of
a Notice of Triggering Event or (y) a holder having knowledge of any
Triggering Event, any holder of the Preferred Shares then on may
require the Company to redeem all or any portion of the Preferred
Shares held by such holder by delivering written notice thereof via
facsimile and overnight courier ("Notice of Redemption at Option of
Buyer Upon Triggering Event") to the Company, which Notice of
Redemption at Option of Buyer Upon Triggering Event shall indicate (i)
the number of Preferred Shares that such holder is submitting for
redemption and (ii) the applicable Triggering Event Redemption Price,
as calculated pursuant to Section 3(b) above. Each holder shall be
entitled to receive, following a Triggering Event but prior to
delivery of a Notice of Redemption at Option of Buyer Upon Triggering
Event, interest in the amount of 2.0% of the Stated Value plus all
accrued but unpaid dividends of the then outstanding Preferred Shares
held by such holder.
(g) Payment of Redemption Price. Upon the Company's receipt of a
Notice(s)of Redemption at Option of Buyer Upon Major Transaction from
the holders of at least two-thirds (2/3) of the Preferred Shares then
outstanding the Company shall immediately notify each holder by
facsimile of the Company's receipt of such requisite
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<PAGE>
notice(s) necessary to effect a redemption and each holder of
Preferred Shares shall thereafter promptly send such holder's
Preferred Stock Certificates to be redeemed to the Company or its
Transfer Agent. Upon the Company's receipt of a Notice(s) of
Redemption at Option of Buyer Upon Triggering Event from any holder of
Preferred Shares, the Company shall immediately notify each holder of
Preferred Shares by facsimile of the Company's receipt of such
Notice(s) of Redemption at Option of Buyer Upon Triggering Event and
each holder which has sent such a notice shall promptly submit to the
Company or its Transfer Agent such holder's Preferred Stock
Certificates which such holder has elected to have redeemed. The
Company shall deliver the applicable Redemption Price to such holder
within ten business days after the Company's receipt of the requisite
notices required to effect a redemption; provided that a holder's
Preferred Stock Certificates shall have been so delivered to the
Company or its Transfer Agent; provided further that if the Company is
unable to redeem all of the Preferred Shares to be redeemed, the
Company shall redeem an amount from each holder of Preferred Shares
being redeemed equal to such holder's pro-rata amount (based on the
number of Preferred Shares held by such holder relative to the number
of Preferred Shares outstanding) of all Preferred Shares being
redeemed. If the Company shall fail to redeem all of the Preferred
Shares submitted for redemption (other than pursuant to a dispute as
to the arithmetic calculation of the Redemption Price), in addition to
any remedy such holder of Preferred Shares may have under this
Certificate of Designations and the Securities Purchase Agreement, the
applicable Redemption Price payable in respect of such unredeemed
Preferred Shares shall bear interest at the rate of 2.0% per month
(prorated for partial months) until paid in full. Until the Company
pays such unpaid applicable Redemption Price in full to a holder of
Preferred Shares submitted for redemption, such holder shall have the
option, in the case of a Notice of Redemption at Option of Buyer Upon
Major Transaction, the holders of at least two-thirds (2/3) of the
Preferred Shares then outstanding (including Preferred Shares
submitted for redemption pursuant to this Section 3 and for which the
applicable Redemption Price has not been paid) shall have the option
(the "Void Optional Redemption Option") to, in lieu of redemption,
require the Company to promptly return to such holder(s) all of the
Preferred Shares that were submitted for redemption by such holder(s)
under this Section 3 and for which the applicable Redemption Price has
not been paid, by sending written notice thereof to the Company via
facsimile (the "Void Optional Redemption Notice"). Upon the Company's
receipt of such Void Optional Redemption Notice(s) and prior to
payment of the full applicable Redemption Price to such holder, (i)
the Notice(s) of Redemption at Option of Buyer Upon Triggering Event
or the Notice(s) of Redemption at Option of Buyer Upon Major
Transaction, as the case may be, shall be null and void with respect
to those Preferred Shares submitted for redemption and for which the
applicable Redemption Price has not been paid, (ii) the Company shall
immediately return any Preferred Shares submitted to the Company be
each holder for redemption under this Section 3(g) and for which the
applicable Redemption Price has not been paid, and (iii) the Fixed
Conversion Price of such returned Preferred Shares shall be adjusted
to the lesser of (A) the Fixed Conversion Price as in effect on the
date on which the Void Optional Redemption Notice(s) is delivered to
the Company and (B) the lowest Closing Bid Price during the period
beginning on the date on with the Notice(s) of Redemption of
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<PAGE>
Option of Buyer Upon Major Transaction or the Notice(s) of Redemption
at Option Buyer Upon Triggering event, as the case may be, is
delivered to the Company and ending on the date on which the Void
Optional Redemption Notice(s) is delivered to the Company; provided
that no adjustment shall be made if such adjustment would result in an
increase of the Fixed Conversion Price then in effect. Notwithstanding
the foregoing, in the event of a dispute as to the determination of
the Closing Bid Price or the arithmetic calculation of the Redemption
Price, such dispute shall be resolved pursuant to Section 2(f)(iii)
above with the term "Closing Bid Price" being substituted for the term
"Average Market Price" and the term "Redemption Price" being submitted
for the term "Conversion Rate". Payments provided for in this Section
3 shall have priority to payments to other stockholders in connection
with a Major Transaction unless such agreement contains provisions
according such priority in payment to the holders of the Preferred
Shares.
(4) Inability to Fully Convert.
(a) Holder's Option if Company Cannot Fully Convert. If, upon the
Company's receipt of a Conversion Notice, the Company cannot or does
not issue shares of Common Stock registered for resale under the
Registration Statement for any reason, including, without limitation,
because the Company (x) does not have a sufficient number of shares of
Common Stock authorized and available, (y) is otherwise prohibited by
applicable law or by the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or its Securities, including
without limitation the Exchange Cap (as defined in Section 12 below),
from issuing all of the Common Stock which is to be issued to a holder
of Preferred Shares pursuant to a Conversion Notice or (z) fails to
have a sufficient member of shares of Common Stock registered for
resale under the Registration Statement, then the Company shall issue
as many shares of Common Stock as it is able to issue in accordance
with such holder's Conversion Notice and pursuant to Section 2(f)
above and, with respect to the unconverted Preferred Shares, the
holder, solely at such holder's option, may elect to:
(i) if the Company's inability to fully convert Preferred Shares into
registered shares of Common Stock is pursuant to clause (z) of
Section 4(a) above and the Company has not filed an amendment to
the Registration Statement within three days after receipt of the
Conversion Notice giving rise to such inability so as to cover
all of the Registrable Securities, require the Company to redeem
from such holder those Preferred Shares for which the Company is
unable to issue Common Stock in accordance with such holder's
Conversion Notice ("Mandatory Redemption") at a price per
Preferred Share (the "Mandatory Redemption Price") equal to the
Redemption Price as of such Conversion Date;
(ii) if the Company's inability to fully convert Preferred Shares into
registered shares of Common Stock is pursuant to clause (z) of
Section 4(a) above, require the Company to issue restricted
shares of Common Stock in accordance with such holder's
Conversion Notice and pursuant to Section 2(f) above;
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<PAGE>
(iii) void its Conversion Notice and retain or have returned, as the
case may be, the nonconverted Preferred Shares that were to be
converted pursuant to such holder's Conversion Notice;
(iv) if the Company's inability to fully convert Preferred Shares into
registered shares of Common Stock is pursuant to clause (x) or
pursuant to the Exchange Cap described in clause (y) of Section
4(a) above, require the Company to pay to each holder of
Preferred Shares liquidated damages in an amount equal to four
percent (4%) of the stated value of the Preferred Shares held by
such holder per month until such time as the Company has obtained
the approval of its stockholders (A) to increase the authorized
number of shares of Common Stock of the Company or (B) to allow
for the issuance of shares of Common Stock in excess of the
Exchange Cap, as the case may be; provided that, the Company
shall use its best efforts to obtain such stockholder approval as
promptly as possible and, if the Company has not filed a proxy
statement for purposes of obtaining the applicable stockholder
approval within 30 days after the Company's receipt of the
Conversion Notice which gave rise to the Company's inability to
fully convert, then each holder of Preferred Shares shall be
permitted to effect a Mandatory Redemption of such holder's
Preferred Shares at the Mandatory Redemption Price; or
(v) if the Company's inability to fully convert Preferred Shares into
registered shares of Common Stock is pursuant to clause (y) of
Section 4(a) above (other than pursuant to the Exchange Cap),
require the Company to pay to each holder of Preferred Shares
liquidated damages in an amount equal to four percent (4%) of the
stated value of the Preferred Shares held by such holder per
month.
(b) Mechanics of Fulfilling Holder's Election. The Company shall
immediately send via facsimile to a holder of Preferred Shares, upon
receipt of a facsimile copy of a Conversion Notice from such holder
which cannot be fully satisfied as described in Section 4(a) above, a
notice of the Company's inability to fully satisfy such holder's
Conversion Notice (the "Inability to Fully Convert Notice"). Such
Inability to Fully Convert Notice shall indicate (i) the reason why
the Company is unable to fully satisfy such holder's Conversion
Notice, (ii) the number of Preferred Shares which cannot be converted
as requested and (iii) the applicable Mandatory Redemption Price. Such
holder shall within ten (10) business days of receipt of such
Inability to Fully Convert Notice deliver written notice via facsimile
to the Company ("Notice in Response to Inability to Convert") of its
election pursuant to Section 4(a) above; provided, however, that a
failure by the holder to specify its election shall be without
prejudice to any other rights such holder may have by reason of the
Company's inability to fully convert.
(c) Payment of Redemption Price. If such holder shall elect to have its
shares redeemed pursuant to Section 4(a)(i) above, the Company shall
pay the Mandatory Redemption Price in cash to such holder within ten
(10) days of the Company's receipt of the holder's Notice in Response
to Inability to Convert. If the Company shall fail to pay the
applicable Mandatory Redemption Price to such holder on a timely basis
as described in this Section 4(c) (other than pursuant to a dispute as
to the determination of the arithmetic calculation of the Redemption
Price), in addition to any remedy such holder of
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Preferred Shares may have under this Certificate of Designations and
the Securities Purchase Agreement, such unpaid amount shall bear
interest at the rate of 2.0% per month (prorated for partial months)
until paid in full. Until the full Mandatory Redemption Price is paid
in full to such holder, such holder may void the Mandatory Redemption
with respect to those Preferred Shares for which the full Mandatory
Redemption Price has not been paid and receive back such Preferred
Shares. Notwithstanding the foregoing, if the Company fails to pay the
applicable Mandatory Redemption Price within such ten (10) days time
period due to a dispute as to the determination of the arithmetic
calculation of the Redemption Rate, such dispute shall be resolved
pursuant to Section 2(f)(iii) above with the term "Redemption Price"
being substituted for the term "Conversion Rate".
(d) Pro-rata Conversion and Redemption. The Company shall comply with
Conversion Notices in the order in which received; provided, however,
that in the event the Company receives a Conversion Notice from more
than one holder of Preferred Shares on the same day and the Company
can convert and redeem some, but not all, of such Preferred Shares
pursuant to this Section 4, the Company shall convert and redeem from
each such holder of Preferred Shares electing to have Preferred Shares
converted and redeemed such holder's pro-rata amount of Preferred
Shares (based on the number of Preferred Shares held by such holder
relative to the number of Preferred Shares being converted and
redeemed as of such date).
(5) Redemption at Option of the Company. By notice given ("Notice of
Redemption at Company's Election") at any time or times, the Company shall have
the right, in its sole discretion, to redeem any or all of the outstanding
Preferred Shares at a price per share equal to 125% of the Stated Value of such
Preferred Shares plus all accrued and unpaid dividends thereon (the "Company
Redemption Price"). If less than all outstanding Preferred Shares are to be
redeemed, the Company shall redeem from each holder his pro rata portion (based
on the number of Preferred Shares held by such holder relative to all
outstanding Preferred Shares). Notice of Redemption at Company's Election shall
be given by facsimile (to the extent the Company has been provided a facsimile
number by the holder of the Preferred Shares being redeemed) and overnight
courier, not less than 30 days prior to the date fixed for redemption (the
"Company Redemption Date") to each holder of record of Preferred Shares to be
redeemed; but neither the failure to give any such notice to one or more such
holders nor any defect in any notice given shall affect the sufficiency of the
proceedings for redemption as to other holders. Each such notice shall state the
Company Redemption Date, the number of Preferred Shares to be redeemed, and, if
less than all the Preferred Shares held by such holder are to be redeemed, the
number of Preferred Shares to be redeemed from such holder, the Company
Redemption Price and the place or places where such Preferred Shares are to be
surrendered for payment of the Company Redemption Price. Notice having been
mailed as aforesaid, from and after the Company Redemption Date (unless default
shall be made by the Company in providing money for the payment of the Company
Redemption Price), the Preferred Shares called for redemption shall no longer be
deemed to be outstanding, all rights of the holders thereof as shareholders of
the Company shall cease and terminate except for the right to receive the
Company Redemption Price and any right of conversion or exchange which may be
exercisable (to the extent then exercisable) up to the close of business on the
Company Redemption Date.
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Upon surrender of the certificates evidencing the Preferred Shares called for
redemption in accordance with said notice, the Company shall make payment of the
Company Redemption Price with respect thereto.
(6) Reissuance of Certificates. In the event of a conversion or redemption
pursuant to this Certificate of Designations of less than all of the Preferred
Shares represented by a particular Preferred Stock Certificate, the Company
shall promptly cause to be issued and delivered to the holder of such Preferred
Shares a preferred stock certificate representing the remaining Preferred Shares
which have not been so converted or redeemed. No Preferred Shares acquired by
the Company by reason of redemption, purchase, conversion or otherwise shall be
reissued and all such Preferred Shares shall be retired.
(7) Reservation of Shares. The Company shall, so long as any of the
Preferred Shares are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of offering the
conversion of the Preferred Shares, such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all of the
Preferred Shares then outstanding provided that the number of shares of Common
Stock so reserved shall at not time be less than 150% of the number of shares of
Common Stock for which the Preferred Shares are at any time convertible;
provided further that if for any reason, the number of shares of Common Stock
reserved shall prove to be insufficient such shares of Common Stock so reserved
shall be allocated for issuance upon conversion of Preferred Shares pro rata
among the holders of Preferred Shares based on the number of Preferred Shares
held by such holder relative to the total number of authorized Preferred Shares.
(8) Voting Rights. Holders of Preferred Shares shall have no voting rights,
except as required by law, including but not limited to the General Corporation
Law of the State of Delaware, and as expressly provided in this Certificate of
Designations.
(9) Liquidation, Dissolution, Winding-Up. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company, the holders
of the Preferred Shares shall be entitled to receive in cash out of the assets
of the Company, whether from capital or from earnings available for distribution
to its stockholders (the "Preferred Funds"), before any amount shall be paid to
the holders of any of the capital stock of the Company of any class junior in
rank to the Preferred Shares in respect of the preferences as to the
distributions and payments on the liquidation, dissolution and winding up of the
Company, an amount per Preferred Share equal to the Stated Value plus accrued
and unpaid dividends (such sum being referred to as the "Liquidation Value");
provided that, if the Preferred Funds are insufficient to pay the full amount
due to the holders of Preferred Shares and holders of shares of other classes or
series of preferred stock of the Company that are of equal rank with the
Preferred Shares as to payments of Preferred Funds (the "Pari Passu Shares"),
then each holder of Preferred Shares and Pari Passu Shares shall receive a
percentage of the Preferred Funds shall receive a percentage of the Preferred
Funds available for distribution equal to the full amount of Preferred Funds
payable to such holders as a liquidation preference, in accordance with their
respective Certificate of Designations, Preferences and Rights, as a percentage
of the full amount of Preferred Funds payable to all holders of the Preferred
Shares and Pari Passu Shares. The purchase or redemption by the Company of stock
of any class, in any manner permitted by law, shall not, for the purposes
hereof, be regarded as a liquidation, dissolution or winding up of the
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Company. Neither the consolidation or merger of the Company with or into any
other Person, nor the sale or transfer by the Company of less than substantially
all of its assets, shall, for the purposes hereof, be deemed to be a
liquidation, or winding up of the Company. No holder of Preferred Shares shall
be entitled to receive any amounts with respect thereto upon any liquidation,
dissolution or winding up of the Company other than the amounts provided for
herein.
(10) Preferred Rank. All shares of Common Stock shall be of junior rank to
all Preferred Shares in respect to the preferences as to distributions and
payments upon the liquidation, dissolution and winding up of the Company. The
rights of the shares of Common Stock shall be subject to the preferences and
relative rights of the Preferred Shares. Without the prior express written
consent of the holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares, the Company shall not hereafter authorize or issue additional
or other capital stock that is of senior rank to the Preferred Shares in respect
of the preferences as to distributions and payments upon the liquidation,
dissolution and winding up of the Company. Without the prior express written
consent of the holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares, the Company shall not hereafter authorize or make any
amendment to the Company's Certificate of Incorporation or bylaws, or file any
resolution of the board of directors of the Company with the Delaware Secretary
of State containing any provisions, which would adversely affect or otherwise
impair the rights or relative priority of the holders of the Preferred Shares
relative to the holders of the Common Stock or the holders of any other class of
capital stock. In the event of the merger or consolidation of the Company with
or into another corporation, the Preferred Shares shall maintain their relative
powers, designations and preferences provided for herein and no merger shall
result inconsistent therewith.
(11) Restriction on Redemption and Cash Dividends with respect to Other
Capital Stock. Until all of the Preferred Shares have been converted or redeemed
as provided herein, the Company shall not, directly or indirectly, redeem, or
declare or pay any cash dividend or distribution on, its Common Stock without
the prior express written consent of the holders of not less than two-thirds
(2/3) of the then outstanding Preferred Shares.
(12) Limitation on Number of Conversion Shares. The Company shall not be
obligated to issue upon conversion of the Preferred Shares, in the aggregate,
more than a number of shares of Common Stock equal to 19.99% of the number of
shares of Common Stock outstanding on the Issuance Date (such amount to be
proportionately and equitably adjusted from time to time in the event of stock
splits, stock dividends, combinations, reverse stock splits, reclassification,
capital reorganizations and similar events relating to the Common Stock) (the
"Exchange Cap"), if issuance of a larger number of shares of Common Stock would
constitute a breach of the Company's obligations under the rules or regulations
of The Nasdaq Stock Marker, Inc. or any other principal securities exchange or
market upon which the Common Stock is or becomes traded. The Exchange Cap shall
be allocated among the Preferred Shares pro rata based on the total number of
authorized Preferred Shares.
(13) Vote to Change the Terms of or Issue Preferred Shares. The affirmative
vote at a meeting duly called for such purpose or the written consent without a
meeting, of the holders of not less than two-thirds (2/3) of the then
outstanding Preferred Shares, shall be required for (i) any change to this
Certificate of Designation or the Company's Certificate of Incorporation
-20-
<PAGE>
which would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Preferred Shares, or (ii) any issuance of
Preferred Shares other than as expressly provided herein.
(14) Lost or Stolen Certificates. Upon receipt by the Company of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing the Preferred Shares, and, in the case
of loss, theft or destruction, of any indemnification undertaking by the holder
to the Company and, in the case of mutilation, upon surrender and cancellation
of the Preferred Stock Certificate(s), the Company shall execute and deliver new
preferred stock certificate(s) of like tenor and date; provided, however, the
Company shall not be obligated to re-issue preferred stock certificates if the
holder contemporaneously requests the Company to convert such Preferred Shares
into Common Stock.
IN WITNESS WHEREOF, the Company has caused this Certificate of Designations
to be signed as of the 17th day of March, 1998.
----
CERTIFIED DIABETIC SERVICES, INC.
By: /s/ Myron M. Blumenthal
-------------------------------------
Name: Myron M. Blumenthal
Its: Chief Financial Officer
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<PAGE>
EXHIBIT I
CERTIFIED DIABETIC SERVICES, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights
of Series A Convertible Preferred Stock (the "Certificate of Designations").
In accordance with and pursuant to the Certificate of Designations, the
undersigned hereby elects to convert the number of shares of Series A
Convertible Preferred Stock, par value $.01 per share (the "Preferred
Shares"), of Certified Diabetic Services, Inc., a Delaware corporation (the
"Company"), indicated below into shares of Common Stock, par value $.01 per
share (the "Common Stock"), of the Company, by tendering the stock
certificate(s) representing the share(s) of Preferred Shares specified below
as of the date specified below.
Date of Conversion: ________________________________________________________
Number of Preferred Shares to be converted:_________________________________
Stock certificate no(s). of Preferred Shares to be converted: ______________
Please confirm the following information:
Conversion Price: __________________________________________________________
Number of shares of Common Stock to be issued: _____________________________
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to: _______________________________________
_______________________________________
_______________________________________
_______________________________________
Facsimile Number: _______________________________________
Authorization: _______________________________________
By: ___________________________________
Title: ________________________________
Dated: _______________________________________
Account Number:
(if electronic book entry transfer): _______________________________________
Transaction Code Number:
(if electronic book entry transfer) _______________________________________
-22-
<PAGE>
EXHIBIT II
DIVIDEND NOTICE
Date: _______________
To: [Name of Holder of Series A Convertible Preferred Stock]
Re: Series A Convertible Preferred Stock (the "Preferred Shares") of Certified
Diabetic Services, Inc. (the "Company")
In lieu of paying dividends on the above-referenced Preferred Shares in
coin or currency, the Company hereby elects to pay dividends on the Preferred
Shares for the Dividend Payment Date indicated below by having the amount of
such dividends added to the Stated Value of the Preferred Shares. The Company
hereby certifies to the holder, its successors and assigns that the Stated Value
of the Preferred Shares after delivery of this notice equals the amount
indicated below. Capitalized terms used in this Dividend Notice and not
otherwise defined shall have the meaning ascribed thereto in the Certificate of
Designations for the Preferred Shares.
Dividend Payment Date:____________
Stated Value prior to issuance of this notice: $___________
Dividend: $___________
Stated Value after issuance of this notice: $___________
IN WITNESS WHEREOF, this Dividend Notice has been duly executed and
delivered on the date first written above.
CERTIFIED DIABETIC SERVICES, INC.
By:______________________
Name:
Title:
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<PAGE>
BY-LAWS
OF
CERTIFIED DIABETIC SERVICES, INC.
ARTICLE I
OFFICES
-------
SECTION 1. Principal Office. The registered office of the
Corporation shall be located in such place as may be provided from time to time
in the Certificate of Incorporation.
SECTION 2. Other Offices. The Corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
STOCKHOLDERS
------------
SECTION 1. Annual Meetings. The annual meeting of the
stockholders of the Corporation shall be held at such place, within or without
the State of Delaware, on such date and at such time as may be determined by the
Board of Directors and as shall be designated in the notice of said meeting.
SECTION 2. Special Meetings. Special meetings of the
stockholders for any purpose or purposes, unless otherwise prescribed by statute
or by the Certificate of Incorporation, may be held at any place, within or
without the State of Delaware, and may be called by resolution of the Board of
Directors, or by the Chairman or the President, or by the holders of not less
than one-quarter of all of the shares entitled to vote at the meeting.
SECTION 3. Notice and Purpose of Meetings. Written or printed
notice of the meeting stating the place, day and hour of the meeting and, in
case of a special meeting, stating the purpose or purposes for which the meeting
is called, shall be delivered not less than ten nor more than sixty days before
the date of the meeting, either personally or by mail, by or at the direction of
the Chairman or the President, the Secretary, or the persons calling the
meeting, to each stockholder of record entitled to vote at such meeting.
SECTION 4. Quorum. The holders of a majority of the shares of
capital stock issued and outstanding and entitled to vote, represented in person
or by proxy, shall constitute a quorum
<PAGE>
at all meetings of the stockholders for the transaction of business, except as
otherwise provided by statute or by the Certificate of Incorporation. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders present in person or represented by proxy shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented any
business may be transacted which might have been transacted at the meeting as
originally notified.
SECTION 5. Voting Process. If a quorum is present or
represented, the affirmative vote of a majority of the shares of stock present
or represented at the meeting shall be the act of the stockholders unless the
vote of a greater number of shares of stock is required by law, by the
Certificate of Incorporation or by these By-Laws. Each outstanding share of
stock having voting power, shall be entitled to one vote on each matter
submitted to a vote at a meeting of stockholders. A stockholder may vote either
in person or by proxy executed in writing by the stockholder or by his or her
duly authorized attorney-in-fact. The term, validity and enforceability of any
proxy shall be determined in accordance with the General Corporation Law of the
State of Delaware.
SECTION 6. Written Consent of Stockholders Without a Meeting.
Whenever the stockholders are required or permitted to take any action by vote,
such action may be taken without a meeting, without prior notice and without a
vote, if a written consent, setting forth the action so taken, shall be signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting
called for such purpose.
ARTICLE III
DIRECTORS
---------
SECTION 1. Powers. The business affairs of the Corporation
shall be managed by its Board of Directors, which may exercise all such powers
of the Corporation and do all such lawful acts and things as are not by statute
or by the Certificate of Incorporation or by these By-Laws directed or required
to be exercised or done by the stockholders. The Board of Directors may adopt
such rules and regulations, not inconsistent with the Certificate of
Incorporation or these By-Laws or applicable laws, as it may deem proper for the
conduct of its meetings and the management of the Corporation.
SECTION 2. Number, Qualifications, Term. The Board of
Directors shall consist of three or more members. The number of directors shall
be fixed initially by the Incorporator and may thereafter be changed from time
to time by resolution of the Board of Directors or of the stockholders.
Directors need not be
2
<PAGE>
residents of the State of Delaware nor stockholders of the Corporation. The
directors shall be elected at the annual meeting of the stockholders, and each
director elected shall serve until the next succeeding annual meeting and until
his or her successor shall have been elected and qualified.
SECTION 3. Vacancies. Vacancies and newly created
directorships resulting from any increase in the number of directors may be
filled by a majority of the directors then in office, though less than a quorum,
and the directors so chosen shall hold office until the next annual election and
until their successors are duly elected and shall qualify. A vacancy created by
the removal of a director by the stockholders may be filled by the stockholders.
SECTION 4. Place of Meetings. Meetings of the Board of
Directors, regular or special, may be held either within or without the State of
Delaware.
SECTION 5. First Meeting. The first meeting of each newly
elected Board of Directors shall be held immediately following and at the place
of the annual meeting of stockholders and no other notice of such meeting shall
be necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present, or it may convene at such place and
time as shall be fixed by the consent in writing of all the directors.
SECTION 6. Regular Meetings. Regular meetings of the Board of
Directors may be held upon such notice, or without notice, and at such time and
at such place as shall from time to time be determined by the Board.
SECTION 7. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman or the President or by the number of
directors who then legally constitute a quorum. Notice of each special meeting
shall, if mailed, be addressed to each director at or his or her last known
address at least four (4) days prior to the date on which the meeting is to be
held; or such notice shall be sent to each director at such address by telegram,
telex, or facsimile, or be delivered to him or her personally, not later than
one full day before the date on which such meeting is to be held.
SECTION 8. Notice; Waiver. Attendance of a director at any
meeting shall constitute a waiver of notice of such meeting, except where a
director attends for the express purpose of objecting 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 regular or special meeting
of the Board of Directors need be specified in the notice or waiver of notice of
such meeting.
3
<PAGE>
SECTION 9. Quorum. A majority of the directors then in office
shall constitute a quorum for the transaction of business unless a greater
number is required by law, by the Certificate of Incorporation or by these
By-Laws. If a quorum shall not be present at any meeting of directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
SECTION 10. Action Without A Meeting. Any action required or
permitted to be taken at a meeting of the directors may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors entitled to vote with respect to the subject
matter thereof. In addition, meetings of the Board may be held by means of
conference telephone as permitted by the General Corporation Law of the State of
Delaware.
SECTION 11. Action. Except as otherwise provided by law or in
the Certificate of Incorporation or these By-Laws, if a quorum is present, the
affirmative vote of a majority of the members of the Board of Directors will be
required for any action.
SECTION 12. Removal of Directors. Subject to any provisions of
applicable law, any or all of the directors may be removed (a) for cause, by
action of stockholders or by action of the remaining members of the Board, and
(b) without cause, by vote of the stockholders.
ARTICLE IV
COMMITTEES
----------
SECTION 1. Executive Committee. The Board may, by resolution
adopted by a majority of the Board, designate one or more of its members to
constitute members or alternate members of an Executive Committee.
SECTION 2. Powers and Authority of Executive Committee. The
Executive Committee shall have and may exercise, between meetings of the Board,
all the powers and authority of the Board in the management of the business and
affairs of the Corporation, including, the right to authorize the purchase of
stock, except that the Executive Committee shall not have such power or
authority in reference to amending the Certificate of Incorporation; adopting an
agreement of merger or consolidation; recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets; recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the By-Laws of the Corporation or
authorizing the declaration of a dividend.
SECTION 3. Other Committees. The Board may, by resolution
adopted by a majority of the Board, designate one or
4
<PAGE>
more other committees, each of which shall, except as otherwise prescribed by
law, have such authority of the Board as shall be specified in the resolution of
the Board designating such committee. A majority of all the members of such
committee may determine its action and fix the time and place of its meeting,
unless the Board shall otherwise provide. The Board shall have the power at any
time to change the membership of, to fill all vacancies in and to discharge any
such committee, either with or without cause.
SECTION 4. Procedure; Meetings; Quorum. Regular meetings of
the Executive Committee or any other committee of the Board, of which no notice
shall be necessary, may be held at such times and places as shall be fixed by
resolution adopted by a majority of the members thereof. Special meetings of the
Executive Committee or any other committee of the Board shall be called at the
request of any member thereof. So far as applicable, the provisions of Article
III of these By-Laws relating to notice, quorum and voting requirements
applicable to meetings of the Board shall govern meetings of the Executive
Committee or any other committee of the Board. The Executive Committee and each
other committee of the Board shall keep written minutes of its proceedings and
circulate summaries of such written minutes to the Board before or at the next
meeting of the Board.
ARTICLE V
OFFICERS
--------
SECTION 1. Number. The Board of Directors at its first meeting
after each annual meeting of stockholders shall choose a President, a Secretary
and a Treasurer, none of whom need be a member of the Board. The Board of
Directors may also choose a Chairman from among the directors, one or more
Executive Vice Presidents, one or more vice presidents, assistant secretaries
and assistant treasurers. The Board of Directors may appoint such other officers
and agents as it shall deem necessary, who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors. More than two offices
may be held by the same person.
SECTION 2. Compensation. The salaries or other compensation of
all officers of the Corporation shall be fixed by the Board of Directors. No
officer shall be prevented from receiving a salary or other compensation by
reason of the fact that he or she is also a director.
SECTION 3. Term; Removal; Vacancy. The officers of the
Corporation shall hold office until their successors are chosen and qualify. Any
officer may be removed at any time, with or without cause, by the affirmative
vote of a majority of the Board of Directors. Any vacancy occurring in any
office of the Corporation shall be filled by the Board of Directors.
5
<PAGE>
SECTION 4. Chairman. The Chairman shall, if one be elected,
preside at all meetings of the Board of Directors.
SECTION 5. President. The President shall be the chief
executive officer of the Corporation, shall preside at all meetings of the
stockholders and the Board of Directors in the absence of the Chairman, shall
have general supervision over the business of the Corporation and shall see that
all directions and resolutions of the Board of Directors are carried into
effect.
SECTION 6. Vice President. The Executive Vice Presidents
shall, if there shall be one or more, in the absence or disability of the
President, perform the duties and exercise the powers of the President and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe. If there shall be more than one Executive Vice
President, the Executive Vice Presidents shall perform such duties and exercise
such powers in the absence or disability of the President, in the order
determined by the Board of Directors. The vice presidents shall, if there shall
be one or more, in the absence or disability of the President and of the
Executive Vice Presidents, perform the duties and exercise the powers of the
President and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe. If there shall be more than
one vice president, the vice presidents shall perform such duties and exercise
such powers in the absence or disability of the President and of the Executive
Vice President, in the order determined by the Board of Directors.
SECTION 7. Secretary. The Secretary shall attend all meetings
of the Board of Directors and all meetings of the stockholders and record all
the proceedings of the meetings of the Corporation and of the Board of Directors
in a book to be kept for that purpose. He or she shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed by
the Board of Directors or President, under whose supervision he or she shall be.
He or she shall have custody of the corporate seal of the Corporation and he or
she, or an assistant secretary, shall have the authority to affix the same to an
instrument requiring it and when so affixed, it may be attested by his or her
signature or by the signature of such assistant secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by his or her signature.
SECTION 8. Assistant Secretary. The assistant secretary, if
there shall be one, or if there shall be more than one, the assistant
secretaries in the order determined by the Board of Directors, shall, in the
absence or disability of the Secretary, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and have such powers
as the Board of Directors may from time to time prescribe.
6
<PAGE>
SECTION 9. Treasurer. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He or she shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Chairman, the President and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all of his or her transactions as Treasurer and of the financial
condition of the Corporation.
SECTION 10. Assistant Treasurer. The assistant treasurer, if
there shall be one, or, if there shall be more than one, the assistant
treasurers in the order determined by the Board of Directors, shall, in the
absence or disability of the Treasurer, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
ARTICLE VI
CAPITAL STOCK
-------------
SECTION 1. Form. The shares of the capital stock of the
Corporation shall be represented by certificates in such form as shall be
approved by the Board of Directors and shall be signed by the Chairman, the
President, an Executive Vice President or a vice president, and by the Treasurer
or an assistant treasurer or the Secretary or an assistant secretary of the
Corporation, and may be sealed with the seal of the Corporation or a facsimile
thereof.
SECTION 2. Lost and Destroyed Certificates. The Board of
Directors may direct a new certificate to be issued in place of any certificate
theretofore issued by the Corporation alleged to have been lost or destroyed.
When authorizing such issue of a new certificate, the Board of Directors, in its
discretion and as a condition precedent to the issuance thereof, may prescribe
such terms and conditions as it deems expedient, and may require such
indemnities as it deems adequate, to protect the Corporation from any claim that
may be made against it with respect to any such certificate alleged to have been
lost or destroyed.
SECTION 3. Transfer of Shares. Upon surrender to the
Corporation or the transfer agent of the Corporation of a certificate
representing shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, a new certificate shall be
issued to the person entitled thereto, and the old certificate cancelled and the
transaction recorded upon the books of the Corporation.
7
<PAGE>
ARTICLE VII
INDEMNIFICATION
---------------
SECTION 1. (a) The Corporation shall indemnify, subject to the
requirements of subsection (d) of this Section, any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he or she is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
limited liability company, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if he or she acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the Corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
or she reasonably believed to be in or not opposed to the best interests of the
Corporation and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
(b) The Corporation shall indemnify, subject to the
requirements of subsection (d) of this Section, any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he or she is or was a director, officer,
employee or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, limited liability company, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection with the defense or settlement of such
action or suit if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to
8
<PAGE>
indemnity for such expenses which the Court of Chancery of the State of Delaware
or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent
of the Corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of this
Section, or in defense of any claim, issue or matter therein, the Corporation
shall indemnify him or her against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this
Section (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
or she has met the applicable standard of conduct set forth in subsections (a)
and (b) of this Section. Such determination shall be made (1) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Expenses incurred by a director, officer, employee or
agent in defending a civil or criminal action, suit or proceeding may be paid by
the Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified by the Corporation as authorized in this
Section. Such expenses incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the Board of Directors deems
appropriate.
(f) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other subsections of this Section shall not
limit the Corporation from providing any other indemnification or advancement of
expenses permitted by law nor shall they be deemed exclusive of any other rights
to which a person seeking indemnification or advancement of expenses may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity and as
to action in another capacity while holding such office.
(g) The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
limited liability company, joint venture, trust or other enterprise against any
liability asserted against him or her and incurred by him or her
9
<PAGE>
in any such capacity, or arising out of his or her status as such, whether or
not the Corporation would have the power to indemnify him or her against such
liability under the provisions of this Section.
(h) For the purposes of this Section, references to "the
Corporation" shall include, in addition to the resulting Corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents, so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, limited liability company, joint venture, trust or
other enterprise, shall stand in the same position under the provisions of this
Section with respect to the resulting or surviving corporation as he or she
would have with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this Section, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to any employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he or she reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Section.
(j) The indemnification and advancement of expenses provided
by, or granted pursuant to, this Section shall, unless otherwise provided when
authorized or ratified by the Board of Directors, continue as to a person who
has ceased to be a director, officer, employee or agent of the Corporation and
shall inure to the benefit of the heirs executors and administrators of such a
person.
ARTICLE VIII
GENERAL PROVISIONS
-------------------
SECTION 1. Checks. All checks or demands for money and notes
of the Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
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<PAGE>
SECTION 2. Fiscal Year. The fiscal year of the Corporation
shall be determined, and may be changed, by resolution of the Board of
Directors.
SECTION 3. Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware." The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in any manner reproduced.
ARTICLE IX
AMENDMENTS
----------
SECTION 1. These By-Laws may be altered, amended, supplemented
or repealed or new By-Laws may be adopted (a) at any regular or special meeting
of stockholders at which a quorum is present or represented, by the affirmative
vote of the holders of a majority of the shares entitled to vote, provided
notice of the proposed alteration, amendment or repeal be contained in the
notice of such meeting, or (b) by a resolution adopted by a majority of the
entire Board of Directors at any regular or special meeting of the Board. The
stockholders shall have authority to change or repeal any By-Laws adopted by the
directors.
<PAGE>
[STOCK CERTIFICATE - FRONT]
COMMON STOCK COMMON STOCK
NUMBER SHARES
____________ ____________
CERTIFIED DIABETIC SERVICES, INC.
INCORPORATED UNDER THE LAWS CUSIP 157012 10 5
OF THE STATE OF DELAWARE SEE REVERSE FOR CERTAIN
ABBREVIATIONS
This Certifies that
SPECIMEN
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01, OF
CERTIFIED DIABETIC SERVICES, INC.
(herein referred to as the "Corporation"), transferable on the books of the
Corporation by the holder hereof in person or by his duly authorized attorney
upon surrender of this Certificate properly endorsed. This Certificate and the
shares represented hereby are issued and shall be subject to all of the terms,
conditions and limitations of the Certificate of Incorporation and Bylaws of the
Corporation, including all amendments heretofore or hereafter made to such
Certificate of Incorporation or Bylaws, to all of which reference is made hereby
and to all of which the holder asserts by acceptance hereof.
This Certificate is not valid unless countersigned by the transfer
agent and registered by the registrar of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused facsimile signatures of
its duly authorized officers and its facsimile seal to be hereunto affixed.
Dated:
[Corporate Seal]
Countersigned and Registered:
AMERICAN STOCK TRANSFER & TRUST COMPANY
Transfer Agent and Registrar
By
Authorized Officer
Peter J. Fiscinia
- ----------------------------------- --------------------------
President and Secretary
Principal Executive Officer
<PAGE>
[STOCK CERTIFICATE - BACK]
CERTIFIED DIABETIC SERVICES, INC.
The Corporation will furnish without charge to each stockholder who so
requests a full statement of the powers, designations, preferences, limitations
and relative rights of each class of stock or series thereof of the Corporation,
and the qualifications, limitations or restrictions of such preferences and/or
rights. Such requests may be made to the Corporation or to the transfer agent.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ____________________________
TEN ENT - as tenants by the (Cust) (Minor)
entireties Under Uniform Gifts to Minors
JT TEN - as joint tenants with Act __________________________
right of survivorship (State)
and not as tenants in common UNIF TRF MIN ACT - __________ Custodian
(Cust) (Minor)
(until age ____) under Uniform
Transfers to Minors Act
______________________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _______________________________________ hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- -------------------------------------- ________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF ASSIGNEE
________________________________________________________________________________
_______________________________________________________________________Shares of
the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________________
to transfer the said Shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated_____________________________
________________________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
SIGNATURE(S) GUARANTEED:
___________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
[STOCK CERTIFICATE - FRONT]
NUMBER SHARES
- --------- ---------
CERTIFIED DIABETIC SERVICES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SERIES A CONVERTIBLE PREFERRED STOCK
SEE REVERSE FOR CERTAIN DEFINITIONS
This Certifies that
SPECIMEN
is owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF SERIES A CONVERTIBLE
PREFERRED STOCK OF $0.01 PAR VALUE EACH OF
CERTIFIED DIABETIC SERVICES, INC.
transferable on the books of the Corporation in person or by attorney upon
surrender of this certificate duly endorsed or assigned. This certificate and
the shares represented hereby are subject to the laws of the State of
Delaware, and to the Certificate of Incorporation and Bylaws of the
Corporation, as now or hereafter amended.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
DATED:
[Corporate Seal]
COMPANY OFFICE
2373 HORSESHOE DR. SO., NAPLES, FL. 34104
TRANSFER AGENT
Myron M. Blumenthal Frederick J. Roberts
- ------------------- --------------------
SECRETARY PRESIDENT
<PAGE>
[STOCK CERTIFICATE - BACK]
CERTIFIED DIABETIC SERVICES, INC.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT- ....Custodian....
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants
in common Act.......
(State)
Additional abbreviations may also be used though not in the above
list.
For Value Received, _____________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------------
- ------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF
ASSIGNEE
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ----------------------------------------------------------------------- Shares
of the stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint_________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ______________________
-----------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
<PAGE>
ENLARGEMENT OR ANY CHANGE
WHATSOEVER
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 CORPORATION WILL FURNISH TO ANY STOCKHOLDER, UPON REQUEST AND WITHOUT
CHARGE, A FULL STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES AND
LIMITATIONS OF THE SHARES OF EACH CLASS AND SERIES AUTHORIZED TO BE ISSUED, SO
FAR AS THE SAME HAVE BEEN DETERMINED, AND OF THE AUTHORITY, IF ANY, OF THE BOARD
TO DIVIDE THE SHARES INTO CLASSES OR SERIES AND TO DETERMINE AND CHANGE THE
RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF ANY CLASS OR SERIES. SUCH
REQUEST MAY BE MADE TO THE SECRETARY OF THE CORPORATION OR THE TRANSFER AGENT
NAMED ON THIS CERTIFICATE.
THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE
FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST
COMPANY OR A MEMBER FIRM OF A NATIONAL OR REGIONAL OR OTHER RECOGNIZED STOCK
EXCHANGE IN CONFORMANCE WITH A SIGNATURE GUARANTEE MEDALLION PROGRAM.
<PAGE>
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 TRANSFER OF THIS WARRANT IS
RESTRICTED AS DESCRIBED HEREIN.
CERTIFIED DIABETIC SERVICES, INC.
Warrant for the Purchase of Common Stock,
par value $.01 per share
THIS WARRANT EXPIRES ON March 19, 2003
No. __ ___________ Shares
THIS CERTIFIES that, for value
received _________________________________________with an address
at ___________________________ (including any transferee, the "Holder"), is
entitled to subscribe for and purchase from Certified Diabetic Services, Inc., a
Delaware corporation (the "Company"), upon the terms and conditions set forth
herein, at any time or from time to time before 5:00 P.M. on March 19, 2003, New
York time (the "Exercise Period"), _________ shares of the Company's Common
Stock, par value $.01 per share ("Common Stock"), at a price equal to $4.77 (the
"Exercise Price").
This Warrant is the warrant or one of the warrants
(collectively, including any warrants issued upon the exercise or transfer of
any such warrants in whole or in part, the "Warrants") issued pursuant to the
Securities Purchase Agreement (the "Securities Purchase Agreement") by and among
the Company and the purchasers of the original issue of the Warrants, pursuant
to which the Company has agreed to issue and sell shares of its Series A
Convertible Preferred Stock, par value $.01 per share (the "Preferred Shares")
and warrants to purchase shares of Common Stock. As used herein the term "this
Warrant" shall mean and include this Warrant and any Warrant or Warrants
hereafter issued as a consequence of the exercise or transfer of this Warrant in
whole or in part.
The number of shares of Common Stock issuable upon exercise of
the Warrants (the "Warrant Shares") and the Exercise Price may be adjusted from
time to time as hereinafter set forth.
<PAGE>
1. (a) This Warrant may be exercised during the Exercise
Period, as to the whole or any lesser number of whole Warrant Shares, by the
surrender of this Warrant (with the election at the end hereof duly executed) to
the Company at its office at Certified Diabetic Services, Inc., 2373 Horseshoe
Boulevard South, Naples, Florida 34104, or at such other place as is designated
in writing by the Company. Such executed election must be accompanied by payment
in an amount equal to the Exercise Price multiplied by the number of Warrant
Shares for which this Warrant is being exercised. Such payment may be made by
wire transfer or by certified or bank cashier's check payable to the order of
the Company, or as otherwise provided in Section 1(b) hereof.
(b) All or any part of this Warrant may be exercised on a
"cashless" basis, by stating in the Exercise Notice such intention and either
(x) the maximum number (the "Maximum Number") of shares of Common Stock the
Holder desires to purchase in consideration of cancellation of Warrants in
payment for such exercise, or (y) the amount of then outstanding Preferred
Shares submitted with such Exercise Notice, to be deemed to be prepaid in
payment of such Exercise Price. The number of shares of Common Stock the Holder
shall receive upon such exercise pursuant to clause (x) of this Section 1(b)
shall equal the difference between the Maximum Number and the quotient that is
obtained when the product of the Maximum Number and the then current Exercise
Price is divided by the then Current Market Price per share (as hereinafter
defined). The amount credited toward the payment due from the Holder upon such
exercise in respect of the Preferred Shares pursuant to clause (y) of this
Section 1(b) shall equal the stated value of such Preferred Shares.
2. Upon each exercise of the Holder's rights to purchase
Warrant Shares, the Holder shall be deemed to be the holder of record of the
Warrant Shares issuable upon such exercise, notwithstanding that the transfer
books of the Company shall then be closed or certificates representing such
Warrant Shares shall not then have been actually delivered to the Holder. As
soon as practicable after each such exercise of this Warrant, the Company shall
issue and deliver to the Holder a certificate or certificates for the Warrant
Shares issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a new
Warrant evidencing the right of the Holder to purchase the balance of the
Warrant Shares (or portions thereof) subject to purchase hereunder.
3. (a) Any Warrants issued upon the transfer or exercise in
part of this Warrant shall be numbered and shall be registered in a Warrant
Register as they are issued. The Company shall be entitled to treat the
registered holder of any Warrant on the Warrant Register as the owner in fact
thereof for all purposes and shall not be bound to recognize any equitable
2
<PAGE>
or other claim to or interest in such Warrant on the part of any other person,
and shall not be liable for any registration or transfer of Warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration or transfer, or
with the actual knowledge of such facts that its participation therein amounts
to bad faith. This Warrant shall be transferable only on the books of the
Company upon delivery thereof duly endorsed by the Holder or by his duly
authorized attorney or representative, or accompanied by proper evidence of
succession, assignment, or authority to transfer. In all cases of transfer by an
attorney, executor, administrator, guardian, or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Warrant or Warrants to
the person entitled thereto. This Warrant may be exchanged, at the option of the
Holder thereof, for another Warrant, or other Warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Warrant Shares (or portions thereof), upon surrender
to the Company or its duly authorized agent. Notwithstanding the foregoing, the
Company shall have no obligation to cause Warrants to be transferred on its
books to any person if, in the opinion of counsel to the Company, such transfer
does not comply with the provisions of the Securities Act of 1933, as amended
(the "Act"), and the rules and regulations thereunder. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of a Warrant, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it and
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of the Warrant if mutilated, the Company will
make and deliver a new Warrant of like tenor to the registered owner in lieu of
the Warrant so lost, stolen, destroyed or mutilated.
(b) The Holder acknowledges that he has been advised
by the Company that neither this Warrant nor the Warrant Shares have been
registered under the Act, that this Warrant is being or has been issued and the
Warrant Shares may be issued on the basis of the statutory exemption provided by
Section 4(2) of the Act or Regulation D promulgated thereunder, or both,
relating to transactions by an issuer not involving any public offering, and
that the Company's reliance thereon is based in part upon the representations
made by the original Holder in the Securities Purchase Agreement. The Holder
acknowledges that he has been informed by the Company of, or is otherwise
familiar with, the nature of the limitations imposed by the Act and the rules
and regulations thereunder on the transfer of securities. In particular, the
Holder agrees that no sale, assignment or transfer of this Warrant or the
Warrant Shares issuable upon exercise hereof shall be valid or effective, and
the Company shall not be required to give any effect to any such sale,
assignment or transfer, unless (i) the sale, assignment or transfer of this
Warrant or such Warrant Shares is registered
3
<PAGE>
under the Act, it being understood that neither this Warrant nor such Warrant
Shares are currently registered for sale and that the Company has no obligation
or intention to so register this Warrant or such Warrant Shares except as
specifically provided in the Registration Rights Agreement by and among the
Company and the purchasers of the original issue of the Warrants, or (ii) this
Warrant or such Warrant Shares are sold, assigned or transferred in accordance
with all the requirements and limitations of Rule 144 under the Act, it being
understood that Rule 144 is not available at the time of the original issuance
of this Warrant for the sale of this Warrant or such Warrant Shares and that
there can be no assurance that Rule 144 sales will be available at any
subsequent time, or (iii) such sale, assignment or transfer is otherwise exempt
from registration under the Act.
(c) Following any assignment or other transfer
resulting in the issuance of warrants to purchase Warrant Shares purchasable
hereunder to more than one person or entity, all elections that may be made by
the Holders under such warrants shall be made by written notice of Holders
representing rights to purchase a majority of the Warrant Shares for which such
warrants are then exercisable.
4. The Company shall at all times reserve and keep available
out of its authorized and unissued Common Stock, solely for the purpose of
providing for the exercise of the rights to purchase all Warrant Shares granted
pursuant to the Warrants, such number of shares of Common Stock as shall, from
time to time, be sufficient therefor. The Company covenants that all shares of
Common Stock issuable upon exercise of this Warrant, upon receipt by the Company
of the full Exercise Price therefor, shall be validly issued, fully paid,
nonassessable, and free of preemptive rights. The Company shall provide for and
maintain the listing of the Warrant Shares upon the over-the-counter market (or
any other securities exchange or automated quotation system which is the
principal exchange or system on which the Common Stock is then traded or
listed).
5. (a) In case the Company shall at any time after the date
this Warrant is first issued (i) declare a dividend on the outstanding Common
Stock payable in shares of Common Stock or in rights to acquire shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then, in each such
case, the Exercise Price, and the number of Warrant Shares issuable upon
exercise of this Warrant, in effect at the time of the record date for such
dividend or of the effective date of such subdivision or combination, shall be
proportionately adjusted so that the Holder after such time shall be entitled to
receive the aggregate number and kind of shares for such consideration which, if
such Warrant had been exercised immediately prior to such time at the
then-current exercise price, he would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision or combination. Such
adjustment shall be made successively
4
<PAGE>
whenever any event listed above shall occur.
(b) In case the Company shall issue or fix a record
date for the issuance to all holders of Common Stock of rights, options, or
warrants to subscribe for or purchase Common Stock (or securities convertible
into or exchangeable for Common Stock) at a price per share (or having a
conversion or exchange price per share, if a security convertible into or
exchangeable for Common Stock) less than the Current Market Price per share of
Common Stock on such record date, then, in each case, the Exercise Price shall
be adjusted by multiplying the Exercise Price in effect immediately prior to
such record date by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding on such record date plus the number of shares
of Common Stock which the aggregate offering price of the total number of shares
of Common Stock so to be offered (or the aggregate initial conversion or
exchange price of the convertible or exchangeable securities so to be offered)
would purchase at such Current Market Price and the denominator of which shall
be the number of shares of Common Stock outstanding on such record date plus the
number of additional shares of Common Stock to be offered for subscription or
purchase (or into which the convertible or exchangeable securities so to be
offered are initially convertible or exchangeable); provided, however, that no
such adjustment shall be made which results in an increase in the Exercise
Price. Such adjustment shall become effective at the close of business on such
record date; provided, however, that, to the extent the shares of Common Stock
(or securities convertible into or exchangeable for shares of Common Stock) are
not delivered, or if securities convertible into or exchangeable for shares of
Common Stock are delivered but are not converted into or exchanged for shares of
Common Stock, the Exercise Price shall be readjusted after the expiration of
such rights, options, or warrants (but only with respect to Warrants exercised
after such expiration), to the Exercise Price which would then be in effect had
the adjustments made upon the issuance of such rights, options, or warrants been
made upon the basis of delivery of only the number of shares of Common Stock (or
securities convertible into or exchangeable for shares of Common Stock) actually
issued. In case any subscription price may be paid in a consideration part or
all of which shall be in a form other than cash, the value of such consideration
shall be as determined in good faith by the board of directors of the Company,
whose determination shall be conclusive absent manifest error. Shares of Common
Stock owned by or held for the account of the Company or any majority-owned
subsidiary shall not be deemed outstanding for the purpose of any such
computation.
(c) In case the Company shall issue shares of Common
Stock or rights, options or warrants to subscribe for or purchase Common Stock,
or securities convertible into or exchangeable for Common Stock (excluding
shares, rights, options, warrants or convertible or exchangeable securities
issued or issuable (i) in any of the transactions with respect to which an
adjustment of the Exercise Price is provided
5
<PAGE>
pursuant to Sections 5(a) or 5(b) above, (ii) upon any issuance of securities
pursuant to the Securities Purchase Agreement, (iii) upon exercise of the
Warrants, or (iv) upon conversion of the Preferred Shares) at a price per share
(determined, in the case of such rights, options, warrants or convertible or
exchangeable securities, by dividing (x) the total amount received or receivable
by the Company in consideration of the sale and issuance of such rights,
options, warrants or convertible or exchangeable securities, plus the minimum
aggregate consideration payable to the Company upon exercise, conversion, or
exchange thereof, by (y) the maximum number of shares covered by such rights,
options, warrants or convertible or exchangeable securities) lower than the
Current Market Price per share of Common Stock in effect immediately prior to
such issuance, then the Exercise Price shall be reduced on the date of such
issuance to a price (calculated to the nearest cent) determined by multiplying
the Exercise Price in effect immediately prior to such issuance by a fraction,
(1) the numerator of which shall be an amount equal to the sum of (A) the number
of shares of Common Stock outstanding immediately prior to such issuance plus
(B) the quotient obtained by dividing the consideration received by the Company
upon such issuance by such Current Market Price, and (2) the denominator of
which shall be the total number of shares of Common Stock outstanding
immediately after such issuance; provided, however, that no such adjustment
shall be made which results in an increase in the Exercise Price. For the
purposes of such adjustments, the maximum number of shares which the holders of
any such rights, options, warrants or convertible or exchangeable securities
shall be entitled to initially subscribe for or purchase or convert or exchange
such securities into shall be deemed to be issued and outstanding as of the date
of such issuance, and the consideration received by the Company therefor shall
be deemed to be the net consideration (after expenses) received by the Company
for such rights, options, warrants or convertible or exchangeable securities,
plus the minimum aggregate consideration or premiums stated in such rights,
options, warrants or convertible or exchangeable securities to be paid for the
shares covered thereby. No further adjustment of the Exercise Price shall be
made as a result of the actual issuance of shares of Common Stock on exercise of
such rights, options or warrants or on conversion or exchange of such
convertible or exchangeable securities. On the expiration or the termination of
such rights, options or warrants, or the termination of such right to convert or
exchange, the Exercise Price shall be readjusted (but only with respect to
Warrants exercised after such expiration or termination) to such Exercise Price
as would have obtained had the adjustments made upon the issuance of such
rights, options, warrants or convertible or exchangeable securities been made
upon the basis of the delivery of only the number of shares of Common Stock
actually delivered upon the exercise of such rights, options or warrants or upon
the conversion or exchange of any such convertible or exchangeable securities.
On any change of the number of shares of Common Stock deliverable upon the
exercise of any such rights, options or warrants or
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<PAGE>
conversion or exchange of such convertible or exchangeable securities or any
change in the consideration to be received by the Company upon such exercise,
conversion or exchange, including, without limitation, a change resulting from
the antidilution provisions thereof, the Exercise Price shall be adjusted (but
only with respect to Warrants exercised after such change) to such Exercise
Price as would have been obtained had the adjustments made upon the issuance of
such rights, options, warrants or convertible or exchangeable securities been
made upon the basis of the delivery of the number of shares actually delivered,
or the consideration actually received by the Company, upon the exercise of such
rights, options, warrants or upon the conversion or exchange of any such
securities. In case the Company shall issue shares of Common Stock or any such
rights, options, warrants or convertible or exchangeable securities for a
consideration consisting, in whole or in part, of property other than cash or
its equivalent, then the "price per share" and the "consideration received by
the Company" for purposes of the first sentence of this Section 5(c) shall be as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error. Shares of Common Stock
owned by or held for the account of the Company or any majority-owned subsidiary
shall not be deemed outstanding for the purpose of any such computation.
(d) For the purpose of any computation under this
Section 5 or Section 1, the Current Market Price per share of Common Stock on
any date shall be deemed to be the average of the daily closing prices of the
Common Stock for the five consecutive trading days immediately preceding the
date in question. The closing price for each day shall be the closing bid price
on the principal securities exchange or over-the-counter market (including, for
purposes hereof, the Nasdaq SmallCap Market and the Nasdaq National Market) on
which the Common Stock is listed or admitted to trading or, if the Common Stock
is not listed or admitted to trading on any securities exchange, the highest
reported bid price for the Common Stock as furnished by the National Association
of Securities Dealers, Inc. through Nasdaq or a similar organization if Nasdaq
is no longer reporting such information. If on any such date the Common Stock is
not listed or admitted to trading on any securities exchange and is not quoted
by Nasdaq or any similar organization, the fair value of a share of Common Stock
on such date, as determined in good faith by the board of directors of the
Company, whose determination shall be conclusive absent manifest error, shall be
used.
(e) No adjustment in the Exercise Price shall be
required if such adjustment is less than $.05; provided, however, that any
adjustments which by reason of this Section 5 are not required to be made shall
be carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 5 shall be made to the nearest cent or to the
nearest one-thousandth of a share, as the case may be (with 0.005 being rounded
to 0.01 and 0.0005 being rounded to 0.001).
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<PAGE>
(f) In any case in which this Section 5 shall require
that an adjustment in the Exercise Price be made effective as of a record date
for a specified event, the Company may elect to defer, until the occurrence of
such event, issuing to the Holder, if the Holder exercised this Warrant after
such record date, the shares of Common Stock, if any, issuable upon such
exercise over and above the shares of Common Stock, if any, issuable upon such
exercise on the basis of the Exercise Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to the Holder a due bill or
other appropriate instrument evidencing the Holder's right to receive such
additional shares upon the occurrence of the event requiring such adjustment.
(g) Upon each adjustment of the Exercise Price as a
result of the calculations made in Sections 5(b) or 5(c) hereof, this Warrant
shall thereafter evidence the right to purchase, at the adjusted Exercise Price,
that number of shares (calculated to the nearest thousandth) obtained by
dividing (A) the product obtained by multiplying the number of shares
purchasable upon exercise of this Warrant prior to adjustment of the number of
shares by the Exercise Price in effect prior to adjustment of the Exercise Price
by (B) the Exercise Price in effect after such adjustment of the Exercise Price.
(h) Whenever there shall be an adjustment as provided
in this Section 5, the Company shall promptly cause written notice thereof to be
sent by certified mail, postage prepaid, to the Holder, at its address as it
shall appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares purchasable
upon the exercise of this Warrant and the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment and
the computation thereof, which officer's certificate shall be conclusive
evidence of the correctness of any such adjustment absent manifest error.
(i) The Company shall not be required to issue a
fraction of a share of Common Stock or other capital stock of the Company upon
the exercise of this Warrant. If any fraction of a share would be issuable on
the exercise of this Warrant (or specified portions thereof), the Company shall
purchase such fraction for an amount in cash equal to the same fraction of the
Current Market Price of such share of Common Stock on the date of exercise of
this Warrant.
6. (a) In case of any consolidation with or merger of
the Company with or into another corporation (other than a merger or
consolidation in which the Company is the surviving or continuing corporation),
or in case of any sale, lease or conveyance to another corporation of the
property and assets of any nature of the Company as an entirety or substantially
as an entirety, such successor, leasing or purchasing corporation, as the case
may be, shall (i) execute and deliver to the Holder an agreement providing that
the Holder shall have the right
8
<PAGE>
thereafter to receive upon exercise of this Warrant solely the kind and amount
of shares of stock and other securities, property, cash or any combination
thereof receivable upon such consolidation, merger, sale, lease or conveyance by
a holder of the number of shares of Common Stock for which this Warrant might
have been exercised immediately prior to such consolidation, merger, sale, lease
or conveyance, and (ii) make effective provision in its certificate of
incorporation or otherwise, if necessary, to effect such agreement. Such
agreement shall provide for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 5.
(b) In case of any reclassification or change of the
shares of Common Stock issuable upon exercise of this Warrant (other than a
change in par value or from no par value to a specified par value, or as a
result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), or in case of any consolidation
or merger of another corporation into the Company in which the Company is the
continuing corporation and in which there is a reclassification or change
(including a change to the right to receive shares of stock (other than Common
Stock), other securities, property or cash) of the shares of Common Stock (other
than a change in par value, or from no par value to a specified par value, or as
a result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), the Holder shall have the right
thereafter to receive upon exercise of this Warrant solely the kind and amount
of shares of stock and other securities, property, cash or any combination
thereof receivable upon such reclassification, change, consolidation or merger
by a holder of the number of shares of Common Stock for which this Warrant might
have been exercised immediately prior to such reclassification, change,
consolidation or merger. Thereafter, appropriate provision shall be made for
adjustments which shall be as nearly equivalent as practicable to the
adjustments in Section 5.
(c) The above provisions of this Section 6 shall
similarly apply to successive reclassifications and changes of shares of Common
Stock and to successive consolidations, mergers, sales, leases, or conveyances.
7. In case at any time the Company shall propose to:
(a) pay any dividend or make any distribution on
shares of Common Stock in shares of Common Stock or rights to acquire Common
Stock to all holders of Common Stock; or
(b) issue any rights, warrants, or other securities
to all holders of Common Stock entitling them to purchase any additional shares
of Common Stock or any other rights, warrants, or other securities; or
(c) effect any reclassification or change of
outstanding shares of Common Stock, or any consolidation,
9
<PAGE>
merger, sale, lease, or conveyance of property, described in Section 6 hereof;
or
(d) effect any liquidation, dissolution, or
winding-up of the Company; or
(e) take any other action which would cause an
adjustment to the Exercise Price;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by certified mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution or winding-up, or (iii) the date of such action which would require
an adjustment to the Exercise Price.
8. The issuance of any shares or other securities upon the
exercise of this Warrant, and the delivery of certificates or other instruments
representing such shares or other securities, shall be made without charge to
the Holder for any tax or other charge in respect of such issuance. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of any certificate in a name
other than that of the Holder and the Company shall not be required to issue or
deliver any such certificate unless and until the person or persons requesting
the issue thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
9. Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction, or mutilation of any Warrant (and upon surrender of
any Warrant if mutilated), including an affidavit of the Holder thereof that
this Warrant has been lost, stolen, destroyed or mutilated, together with an
indemnity against any claim that may be made against the Company on account of
such lost, stolen, destroyed or mutilated Warrant, and upon reimbursement of the
Company's reasonable incidental expenses, the Company shall execute and deliver
to the Holder thereof a new Warrant of like date, tenor, and denomination.
10. The Holder of any Warrant shall not have solely on account
of such status, any rights of a stockholder of the Company, either at law or in
equity, or to any notice of
10
<PAGE>
meetings of stockholders or of any other proceedings of the Company, except as
provided in this Warrant.
11. This Warrant shall be construed in accordance with the
laws of the State of New York applicable to contracts made and performed within
such State, without regard to principles governing conflicts of law.
12. The Company irrevocably consents to the jurisdiction of
the courts of the State of New York and of any federal court located in such
State in connection with any action or proceeding arising out of or relating to
this Warrant, any document or instrument delivered pursuant to, in connection
with or simultaneously with this Warrant, or a breach of this Warrant or any
such document or instrument. In any such action or proceeding, the Company
waives personal service of any summons, complaint or other process and agrees
that service thereof may be made in accordance with Section 9 of the Securities
Purchase Agreement.
13. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or by Federal Express, Express Mail or
similar overnight delivery or courier service or delivered (in person or by
telecopy, telex or similar telecommunications equipment) against receipt to the
party to whom it is to be given, (i) if to the Company, at Certified Diabetic
Services, Inc., 2373 Horseshoe Drive South, Naples, Florida 34104, Attention:
Myron M. Blumenthal, Fax No. (941) 403-4306, (ii) if to the Holder, at its
address set forth on the first page hereof, or (iii) in either case, to such
other address or person's attention as the party shall have furnished in writing
in accordance with the provisions of this Section 13. Notice to the estate of
any party shall be sufficient if addressed to the party as provided in this
Section 13. Any notice or other communication given by certified mail shall be
deemed given at the time of certification thereof, except for a notice changing
a party's address which shall be deemed given at the time of receipt thereof.
Any notice given by other means permitted by this Section 13 shall be deemed
given at the time of receipt thereof.
11
<PAGE>
14. No course of dealing and no delay or omission on the part
of the Holder in exercising any right or remedy shall operate as a waiver
thereof or otherwise prejudice the Holder's rights, powers or remedies. No
right, power or remedy conferred by this Warrant upon the Holder shall be
exclusive of any other right, power or remedy referred to herein or now or
hereafter available at law, in equity, by statute or otherwise, and all such
remedies may be exercised singly or concurrently.
15. This Warrant may be amended or any of its provisions
waived only by a written consent or consents executed by the Company and Holders
of Warrants representing a majority of Warrant Shares issuable upon exercise of
the Warrants issued to investors pursuant to the Securities Purchase Agreement.
Any amendment or waiver shall be binding upon all future Holders.
Dated: March __, 1998
CERTIFIED DIABETIC SERVICES, INC.
By: _____________________________
Name:
Title:
______________________________________
Secretary
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<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, _____________________ hereby sells,
assigns and transfers unto _________________ a Warrant to purchase __________
Common Stock, par value $.01 per share, of Certified Diabetic Services, Inc.
(the "Company"), together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint ______________________ attorney to
transfer such Warrant on the books of the Company, with full power of
substitution. Dated: _________________
Signature____________________
_____________________________
Signature Guarantee
NOTICE
The signature on the foregoing Assignment must correspond to
the name as written upon the face of this Warrant in every particular, without
alteration or enlargement or any change whatsoever.
<PAGE>
To: Certified Diabetic Services, Inc.
[address]
[address]
ELECTION TO EXERCISE
The undersigned hereby exercises his, her or its
rights to purchase _______ Warrant Shares covered by the within Warrant, and
tenders payment herewith in the aggregate amount of $________, including (i)
$_______ by certified or bank cashier's check, and/or (ii) cancellation of
Warrants to purchase ___ Warrant Shares based upon a Maximum Number (as therein
defined) of ______, in accordance with the terms thereof, and requests that
certificates for such securities be issued in the name of, and delivered to:
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant and the remaining portion of the within Warrant be
not cancelled in payment of the Exercise Price, that a new Warrant for the
balance of the Warrant Shares covered by the within Warrant be registered in the
name of, and delivered to, the undersigned at the address stated below.
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(Print Name, Address and Social Security
or Tax Identification Number)
Dated: _________________
Name:___________________
(Print)
Address:________________________________________________________
_________________________________________________________
(Signature)
(Signature Guarantee) __________________________________
(Signature Guarantee) __________________________________
<PAGE>
CERTIFIED DIABETIC SERVICES, INC.
1997 INCENTIVE PROGRAM
The 1997 Incentive Program (the "Program") provides for the grant to
officers, directors and employees of Certified Diabetic Services, Inc. and its
direct and indirect subsidiaries (collectively, the "Company"), and certain
consultants to the Company, certain rights to acquire shares of the Company's
common stock, par value $.01 per share (the "Common Stock"). The Company
believes that this Program will cause those persons to contribute materially to
the growth and success of the Company, thereby benefiting its stockholders.
1. Administration.
--------------
The Program shall be administered and interpreted by the Board of
Directors of the Company or by one or more Committees appointed by the Board of
Directors of the Company from among its members (the "Plan Administrator"). The
Board of Directors may appoint different Committees to handle different duties
under the Program. The Plan Administrator's decisions shall be final and
conclusive with respect to the interpretation and administration of the Program
and any Grant made under it.
2. Grants.
------
Incentives under the Program shall consist of incentive stock options,
non-qualified stock options, stock appreciation rights in tandem with stock
options or freestanding, and restricted stock grants (any of the foregoing, in
any combination, collectively, "Grants"). All Grants shall be subject to the
terms and conditions set out herein and to such other terms and conditions
consistent with this Program as the Plan Administrator deems appropriate. The
Plan Administrator shall approve the form and provisions of each Grant. Grants
under a particular section of the Program need not be uniform, and Grants under
two or more sections may be combined in one instrument.
3. Eligibility for Grants.
----------------------
Grants may be made to any employee, officer, key executive, director,
professional or administrative employee, consultant or advisor to the Company or
any subsidiary of the Company selected by the Plan Administrator to receive
Grants under the Program (persons so selected, the "Grantees").
4. Shares Available for Grant.
--------------------------
(a) Shares Subject to Issuance or Transfer. Subject to adjustment as
provided in Section 4(b), the aggregate number of shares of Common Stock (the
"Shares") that may be issued or transferred under the Program is 5,000,000
Shares plus, (i) any Shares which are forfeited under the Program after the
Program becomes effective; plus (ii) any Shares surrendered to the Company in
payment of the exercise price of options issued under the Program. The Shares
may be authorized but unissued Shares or Treasury Shares. The number of Shares
available for Grants at any given time shall be reduced by the aggregate of all
Shares previously issued or transferred pursuant to the Program plus the
aggregate of all Shares which may become subject to issuance or transfer under
then-outstanding and then-currently exercisable Grants.
<PAGE>
(b) Adjustments Upon Changes in Capitalization or Other Events. Upon
changes in the Common Stock of the Company by reason of a stock dividend, stock
split, reverse split, recapitalization, merger, consolidation, combination or
exchange of shares, separation, reorganization or liquidation, the number and
class of Shares available under the Program as to which Grants may be made (both
in the aggregate and to any one Grantee), the number and class of Shares under
each then-outstanding Stock Option and the Option Price per share of such
options, and the terms of stock appreciation rights shall be correspondingly
adjusted by the Plan Administrator, such adjustments to be made in the case of
outstanding Stock Options without change in the total price applicable to such
options. In the event of a merger, consolidation, combination, reorganization or
other transaction in which the Company will not be the surviving corporation, or
in which the Company becomes a wholly-owned subsidiary of the new corporation, a
Grantee of Stock Options under the Program shall be entitled to options on that
number of shares of stock in the new corporation which the Grantee would have
received had the Grantee exercised all of the unexercised options available to
the Grantee under the Program, whether or not then exercisable, at the instant
immediately prior to the effective date of such transaction, and, if such
unexercised options had related stock appreciation rights, the Grantee also will
receive new stock appreciation rights related to the new options. Thereafter,
adjustments as provided above shall relate to the options or stock appreciation
rights of the new corporation. Except as otherwise specifically provided in the
instrument of Grant, in the event of a Change in Control (as defined below),
merger, consolidation, combination, reorganization or other transaction in which
the shareowners of the Company will receive cash or securities (other than
Common Stock) or in the event that an offer is made to the holders of Common
Stock of the Company to sell or exchange such Common Stock for cash, securities
or stock of another corporation and such offer, if accepted, would result in the
offeror becoming the owner of (a) at least 50% of the outstanding Common Stock
of the Company or (b) such lesser percentage of the outstanding Common Stock
which the Plan Administrator in its sole discretion determines will materially
adversely affect the market value of the Common Stock after the tender or
exchange offer, the Plan Administrator shall have the right, but not the
obligation, in the exercise of its business judgment, prior to the shareowners'
vote on such transaction or prior to the expiration date (without extensions) of
the tender or exchange offer, (i) to accelerate the time of exercise so that all
Stock Options and stock appreciation rights which are outstanding shall become
immediately exercisable in full, and all Restricted Stock Grants shall
immediately vest in full, without regard to any limitations of time, performance
or amount otherwise contained in the Program or in the instruments of Grant
and/or (ii) to determine that the options and stock appreciation rights shall be
adjusted and make such adjustments by substituting for Common Stock of the
Company subject to options and stock appreciation rights, common stock of the
surviving corporation or offeror if such stock of such corporation is publicly
traded or, if such stock is not publicly traded, by substituting common stock of
a parent of the surviving corporation or offeror if the stock of such parent is
publicly traded, in which event the aggregate option price shall remain the same
and the number of shares subject to outstanding grants shall be the number of
shares which could have been purchased on the closing day of such transaction or
the expiration date of the offer with the proceeds which would have been
received by the Grantee if the option had been exercised in full prior to such
transaction or expiration date and the Grantee had exchanged all of such shares
in the transaction or sold or exchanged all of such shares pursuant to the
tender or exchange offer, and if any such option has related stock appreciation
rights, the stock appreciation rights shall likewise be adjusted. For purposes
of this Section 4(b), "Change in Control" means (i) any "person", as such term
is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, or
any corporation owned, directly or indirectly, by the shareowners of the Company
in substantially the same proportion as their ownership of stock of the
Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of
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<PAGE>
the Company's then outstanding securities without the approval of the Board of
Directors of the Company; (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board, and any
new director (other than a director designated by a person who has entered into
an agreement with the Company to effect a transaction described in clause (i),
(iii), or (iv) of this sentence) whose election by the Board or nomination for
election by the Company's shareowners was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved cease for any reason to constitute at least a majority
thereof; (iii) the shareowners of the Company approve a merger or consolidation
of the Company with any other company, other than (1) a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 50% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation or (2) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no "person"
(as hereinabove defined) acquires more than 50% of the combined voting power of
the Company's then outstanding securities; or (iv) the shareowners of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or substantially all of the
Company's assets and properties.
5. Stock Options.
-------------
The Plan Administrator may grant options qualifying as incentive stock
options under the Internal Revenue Code of 1986, as amended ("Incentive Stock
Options"), or non-qualified options not entitled to special tax treatment under
Section 422 of the Internal Revenue Code of 1986 (the "Code"), as amended
(collectively, "Stock Options"). The following provisions of this Section 5 are
applicable to Stock Options:
(a) Exercise of Option. A Grantee may exercise a Stock Option by
delivering a notice of exercise to the Company, either with or without
accompanying payment of the option price (the "Option Price"). The notice of
exercise, once delivered, shall be irrevocable.
(b) Satisfaction of Option Price. The Grantee shall pay the Option
Price in cash or by delivering shares of Common Stock which have been owned by
the Grantee for a minimum of six (6) months and which have a Fair Market Value
on the date of exercise equal to the Option Price, or a combination of cash and
Shares. The Grantee shall pay the Option Price not later than thirty (30) days
after the date of a statement from the Company following exercise setting forth
the Option Price, Fair Market Value of Common Stock on the exercise date, the
number of shares of Common Stock that may be delivered in payment of the Option
Price, and the amount of withholding tax due, if any. If the Grantee fails to
pay the Option Price within the thirty (30) day period, the Plan Administrator
shall have the right to take whatever action it deems appropriate, including
voiding the option exercise. The Company shall not issue or transfer shares of
Common Stock upon exercise of a Stock Option until the Option Price is fully
paid.
(c) Share Withholding. With respect to any non-qualified option or SAR
(as defined below), the Plan Administrator may, in its discretion and subject to
such rules as the Plan Administrator may adopt (including, without limitation,
rules relating to minimum holding periods for Common Stock), permit the Grantee
to satisfy, in whole or in part, any withholding tax obligation which may arise
in connection with the exercise of the non-qualified option or SAR by electing
to have the Company withhold shares of Common Stock having a Fair Market Value
equal to the amount of the withholding tax. Notwithstanding the foregoing, as a
condition of the Grant of any Stock Option or
3
<PAGE>
SAR to any officer or director of the Company subject to the reporting
requirements (a "Reporting Person") of Section 16 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Plan
Administrator shall require, upon the exercise of any Stock Option or SAR by any
Reporting Person, at a time when the Company shall be required to file periodic
reports under Section 13 of the Exchange Act, that the number of shares of
Common Stock otherwise issuable upon the exercise of such Stock Option or SAR
shall be reduced by the number of shares of Common Stock having an aggregate
Fair Market Value equal to the amount of the Reporting Person's liability for
any and all taxes required by law to be withheld.
(d) Price and Term. The Option Price per share, term and other
provisions of Stock Options granted under the Program shall be specified by the
Grant, as limited, in the case of Incentive Stock Options, by the provisions of
Section 5(e) below, if granted pursuant to such Section. In addition, the Plan
Administrator may prescribe such other conditions as it may deem appropriate,
which conditions shall be specified in the instrument of Grant.
(e) Limits on Incentive Stock Options. The aggregate fair market value
of the stock covered by Incentive Stock Options granted under the Program or any
other stock option plan of the Company or any subsidiary or parent of the
Company that become exercisable for the first time by any employee in any
calendar year shall not exceed $100,000. The aggregate Fair Market Value will be
determined at the time of grant. The period for exercise of an Incentive Stock
Option shall not exceed ten (10) years from the date of the Grant (or five years
if the Grantee is also a 10% stockholder). The Option Price at which Common
Stock may be purchased by the Grantee under an Incentive Stock Option shall be
the Fair Market Value (or 110% of the Fair Market Value if the Grantee is a 10%
stockholder) of the Common Stock on the date of the Grant. Incentive Stock
Options may only be granted to employees of the Company or any subsidiary or
parent of the Company. Incentive Stock Options by their terms shall not be
transferable by the Grantee other than by the laws of descent and distribution,
and shall be exercisable, during the lifetime of the Grantee, only by the
Grantee.
(f) Restored Options. Stock Options granted under the Program may, with
the Plan Administrator's permission, include the right to acquire a restored
option (a "Restored Option"). If a Stock Option grant contains a Restored Option
feature and if a Grantee pays all or part of the Option Price of such Stock
Option with shares of Common Stock held by the Grantee, then upon exercise of
such Stock Option the Grantee shall be granted a Restored Option to purchase, at
the Fair Market Value of the Common Stock as of the date of the grant of the
Restored Option, the number of shares of Common Stock of the Company equal to
the sum of the number of whole shares used by the Grantee in payment of the
Option Price and the number of whole shares, if any, withheld by the Company as
payment for withholding taxes. A Restored Option may be exercised between the
date of grant and the date of expiration, which will be the same as the date of
expiration of the Stock Option to which such Restored Option is related.
6. Stock Appreciation Right.
------------------------
The Plan Administrator may grant a Stock Appreciation Right ("SAR")
either independently or in conjunction with any Stock Option granted under the
Program. The following provisions are applicable to each SAR:
(a) Options to Which Right Relates. Each SAR which is issued in
conjunction with a Stock Option shall specify the Stock Option to which the SAR
is related, together with the Option Price and number of option shares subject
to the SAR at the time of its grant.
4
<PAGE>
(b) Requirement of Employment. An SAR may be exercised only while the
Grantee is in the employment of the Company, except that the Plan Administrator
may provide for partial or complete exceptions to this requirement as it deems
equitable.
(c) Exercise. A Grantee may exercise an SAR in whole or in part by
delivering a notice of exercise to the Company, except that the Plan
Administrator may provide for partial or complete exceptions to this requirement
as it deems equitable.
(d) Payment and Form of Settlement. If a Grantee exercises an SAR which
is issued in conjunction with a Stock Option, he shall receive the aggregate of
the excess of the fair market value of each share of Common Stock with respect
to which the SAR is being exercised over the Option Price of each such share.
Payment, in any event, may be made in cash, Common Stock which has been held by
the Grantee for at least six (6) months or a combination of the two, in the
discretion of the Plan Administrator. Fair Market Value shall be determined as
of the date of exercise.
(e) Expiration and Termination. Each SAR shall expire on a date
determined by the Plan Administrator at the time of grant. If a Stock Option is
exercised in whole or in part, any SAR related to the Shares purchased in
connection with such exercise shall terminate immediately.
7. Restricted Stock Grants.
-----------------------
The Plan Administrator may issue or transfer shares of Common Stock
("Restricted Stock") to a Grantee under a Restricted Stock Grant. Shares of
Restricted Stock are subject to forfeiture unless and until specified employment
vesting and/or performance vesting conditions are met, as determined by the Plan
Administrator. Until the shares vest or are forfeited, as the case may be, the
Grantee shall be entitled to vote the shares and to receive any dividends paid.
The following provisions are applicable to Restricted Stock Grants:
(a) Requirement of Employment. If the Grantee's employment terminates
prior to the fulfillment of the conditions for vesting of the Restricted Stock,
as set forth in the specific instrument of Grant, all shares of Restricted Stock
held by him or her and still subject to restriction will be forfeited and must
be returned immediately to the Company. However, the Plan Administrator may
provide for partial or complete exceptions to this requirement as it deems
equitable.
(b) Restrictions of Transfer and Legend on Stock Certificate. Prior to
the fulfillment of the conditions for vesting, a Grantee may not sell, assign,
transfer, pledge, or otherwise dispose of the shares of Common Stock except to a
Successor Grantee under Section 9(a). Each certificate for shares issued or
transferred under a Restricted Stock Grant shall contain a legend giving
appropriate notice of the restrictions applicable to the Grant. The Plan
Administrator may, in its sole discretion, require that such certificates be
placed into escrow with the Company until vesting.
(c) Lapse of Restrictions. All restrictions imposed under a Restricted
Stock Grant shall lapse upon the fulfillment of the conditions for vesting set
forth in the instrument of Grant provided that all of the conditions stated in
Sections 7(a) and (b) have been met as of the date of such lapse. The Grantee
shall then be entitled to have the legend removed from the certificate.
8. Amendment and Termination of the Program.
----------------------------------------
(a) Amendment. The Board of Directors of the Company may from time to
time amend, alter, suspend or discontinue the Program, subject to any
requirement of stockholder approval required by applicable law, rule or
regulation, including Section 162(m) of the Code or, if the Common Stock is
5
<PAGE>
then listed or admitted for trading on any United States securities exchange or
on the National Association of Securities Dealers, Inc. Automated Quotation
System ("NASDAQ"), any requirement for stockholder approval required under the
rules of such exchange or NASDAQ, as the case may be; provided, however, that no
amendment shall be made without stockholder approval if such amendment would (1)
increase the maximum number of shares of Common Stock available for issuance
under this Program (subject to Section 4(b)), (2) reduce the minimum Option
Price in the case of an option or the base price in the case of an SAR, (3)
effect any change inconsistent with Section 422 of the Code or (4) extend the
term of this Program
(b) Termination of the Program. The Program shall terminate on the
tenth anniversary of its effective date unless terminated earlier by the Board
or unless extended by the Board.
(c) Termination and Amendment of Outstanding Grants. A termination or
amendment of the Program that occurs after a Grant is made shall not result in
the termination or amendment of the Grant unless the Grantee consents or unless
the Plan Administrator acts under Section 9(d). The termination of the Program
shall not impair the power and authority of the Plan Administrator with respect
to outstanding Grants. Whether or not the Program has terminated, an outstanding
Grant may be terminated or amended under Section 9(d) or may be amended by
agreement of the Company and the Grantee on terms consistent with the Program.
9. General Provisions.
------------------
(a) Prohibitions Against Transfer. Only a Grantee or his or her
authorized representative may exercise rights under a Grant. Such persons may
not transfer those rights, except upon the express written consent of the
Company, which may be granted or denied in the Company's discretion. Except as
otherwise expressly provided herein or in the instrument of grant, when a
Grantee dies, the personal representative or other person entitled under a Grant
under the Program to succeed to the rights of the Grantee ("Successor Grantee")
may exercise the rights. A Successor Grantee must furnish proof satisfactory to
the Plan Administrator of his or her right to receive the Grant under the
Grantee's will or under the applicable laws of descent and distribution.
(b) Suitable Grants. The Plan Administrator may make a Grant to an
employee of another corporation who becomes an Eligible Grantee by reason of a
corporate merger, consolidation, acquisition of stock or property, share
exchange, reorganization or liquidation involving the Company in substitution
for a stock option, stock appreciation right, performance award, or restricted
stock grant previously granted by such corporation (the "Original Incentives").
The terms and conditions of the substitute Grant may vary from the terms and
conditions required by the Program and from those of the Original Incentives.
The Plan Administrator shall prescribe the exact provisions of the substitute
Grants, preserving where possible the provisions of the Original Incentives.
(c) Subsidiaries. The term "subsidiary" means a corporation in which
the Company owns directly or indirectly 50% or more of the voting power.
(d) Compliance with Law. The Program, the exercise of Grants, and the
obligations of the Company to issue or transfer shares of Common Stock under
Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. The Plan Administrator may
revoke any Grant if it is contrary to law or modify a Grant to bring it into
compliance with any valid and mandatory government regulation. The Plan
Administrator may also adopt rules regarding the withholding of taxes on payment
to Grantees.
6
<PAGE>
(e) Ownership of Stock. A Grantee or Successor Grantee shall have no
rights as a stockholder of the Company with respect to any Shares covered by a
Grant until the Shares are issued or transferred to the Grantee or Successor
Grantee on the Company's books.
(f) No Right to Employment. The Program and the Grants under it shall
not confer upon any Grantee the right to continue in the employment of the
Company or affect in any way the right of the Company to terminate the
employment of a Grantee at any time.
(g) Effective Date of the Program. The Program shall become effective
upon its approval by the Company's stockholders.
(h) Fair Market Value. For the purposes of the Program, the term "Fair
Market Value" means, as of any date, the closing price of a share of Common
Stock of the Company on such date. The closing price shall be (i) if the Common
Stock is then listed or admitted for trading on any national securities
exchange, or if not so listed or admitted for trading, is listed or admitted for
trading on NASDAQ, the last sale price of the Common Stock, regular way, or the
mean of the bid and asked prices thereof for any trading day on which no such
sale occurred, in each case as officially reported on the principal securities
exchange on which the Common Stock is listed or admitted for trading or on
NASDAQ, as the case may be, or (ii) if not so listed or admitted for trading on
a national securities exchange or NASDAQ, the mean between the closing high bid
and low asked quotations for the Common Stock in the over-the-counter market as
reported by NASDAQ, or any similar system for the automated dissemination of
securities prices then in common use, if so quoted, as reported by any member
firm of the New York Stock Exchange selected by the Company; provided, however,
that if, by reason of extended or continuous trading hours on any exchange or in
any market or for any other reason, the time, with respect to any trading day,
of the close of trading for the purpose of determining the "last sale price" or
the "closing" bid and asked prices is not objectively determinable, the time on
such trading day used for the purpose of reporting any compilation of last sale
prices or closing bid and asked prices in The Wall Street Journal shall be the
time on such trading day as of which the "last sale price" or "closing" bid and
asked prices are determined for purposes of this definition. If the Common Stock
is quoted on a national securities or central market system in lieu of a market
or quotation system described above, the closing price shall be determined in
the manner set forth in clause (i) of the preceding sentence if actual
transaction are reported, and in the manner set forth in clause (ii) of the
preceding sentence if bid and asked quotations are reported but actual
transactions are not. If on the date in question, there is no exchange or
over-the-counter market for the Common Stock, the "fair market value" of such
Common Stock shall be determined by the Plan Administrator acting in good faith.
(i) Application of Funds. The proceeds received by the Company from the
issuance of Grants pursuant to the Program will be used for general corporate
purposes.
(j) No Obligation to Exercise Option. The granting of an option to any
Grantee under the Program shall impose no obligation upon such Grantee to
exercise such option.
(k) Severability. If any provision of the Program, or any term or
condition of any Grant granted or form executed or to be executed thereunder, or
any application thereof to any person or circumstances is invalid, such
provision, term, condition or application shall to that extent be void (or, in
the discretion of the Plan Administrator, such provision, term or condition may
be amended so as to avoid such invalidity or failure), and shall not affect
other provisions, terms or conditions or applications thereof, and to this
extent such provisions, terms and conditions are severable.
7
<PAGE>
(l) Instrument of Grant. Each Grant under this Program shall be
evidenced by an agreement (i.e., an instrument of Grant) setting forth the terms
and conditions applicable to such Grant. No Grant shall be valid until an
agreement is executed by the Company and the recipient of such award and, upon
execution by each party and delivery of the agreement to the Company, such award
shall be effective as of the effective date set forth in the Agreement.
(m) Restricted Shares. Each award made hereunder shall be subject to
the requirement that if at any time the Company determines that the listing,
registration or qualification of the shares of Common Stock subject to such
award upon any securities exchange or under any law, or the consent or approval
of any governmental body, or the taking of any other action is necessary or
desirable as a condition of, or in connection with, the delivery of shares
thereunder, such shares shall not be delivered unless such listing,
registration, qualification, consent, approval or other action shall have been
effected or obtained, free of any conditions not acceptable to the Company. The
Company may require that certificates evidencing shares of Common Stock
delivered pursuant to any award made hereunder bear a legend indicating that the
sale, transfer or other disposition thereof by the holder is prohibited except
in compliance with the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
(n) Program Controls. In the case of any conflict or inconsistency
between the terms of this Program and the terms of any instrument of Grant, the
terms of this Program will control, unless the instrument of grant expressly
provides that the terms of such instrument of grant will control.
<PAGE>
CERTIFIED DIABETIC SERVICES, INC.
1997 INCENTIVE PROGRAM
AMENDMENT NO. 1
September 2, 1997
The 1997 Incentive Program (the "Program") of Certified Diabetic
Services, Inc., a Delaware corporation, is hereby amended to increase the
aggregate number of shares of Common Stock (the "Shares") that may be issued or
transferred under the Program from 5,000,000 to 8,000,000 Shares effective as of
September 2, 1997.
In connection therewith; Section 4(a) of the Program is amended to read
in its entirety as follows:
"(a) Shares Subject to Issuance or Transfer. Subject to adjustment
as provided in Section 4(b), the aggregate number of shares of
Common Stock (the "Share") that may be issued or transferred under
the Program is 5,000,000 Shares plus, (i) any Shares which are
forfeited under the Program after the Program becomes effective;
plus (ii) any Shares surrendered to the Company in payment of the
exercise price of options issued under the Program. The Shares may
be authorized but unissued Shares or Treasury Shares. The number of
Shares available for Grants at any given time shall be reduced by
the aggregate of all Shares previously issued or transferred
pursuant to the Program plus the aggregate of all Shares which may
become subject to issuance or transfer under then-outstanding and
then-currently exerciseable Grants."
<PAGE>
CERTIFIED DIABETIC SERVICES, INC.
STOCK OPTION AGREEMENT
----------------------
- --------------------------------------------------------------------------------
Optionee Name: Myron M. Blumenthal
Optionee Address: ----------------------------------------------------
----------------------------------------------------
Number of Shares of Exercise Price per
Common Stock: 1,000,000 Share: $1.00
Date of Grant: August 12, 1997
- --------------------------------------------------------------------------------
STOCK OPTION AGREEMENT (this "Agreement") made as of the Date of
Grant set forth above, between CERTIFIED DIABETIC SERVICES, INC., a Delaware
corporation (collectively, with any wholly-owned subsidiaries, the "Company"),
and the Optionee identified above ("Optionee"), residing at the address set
forth above.
WHEREAS, Certified Diabetic Supplies Inc., a Florida corporation
("CDS-Florida"), has, on the Date of Grant, merged with and into Certified
Diabetic Supplies, Inc., a Delaware corporation and subsidiary of the Company
(the "Merger");
WHEREAS, in connection with the Merger, each holder of stock options
granted by CDS-Florida pursuant to its 1995 Incentive Program (the "1995
Options") is to receive from the Company, among other things, in substitution
for each stock option held, one stock option of the Company under its 1997
Incentive Program, bearing terms substantially identical to the stock options
granted by CDS-Florida pursuant to the 1995 Incentive Program.
WHEREAS, pursuant to the Company's 1997 Incentive Program (as
amended, the "Program"), the Company desires to grant stock options to
Optionee, in substitution for the 1995 Options held by Optionee, to purchase
certain shares of its Common Stock, par value $.01 per share (the "Common
Stock") upon the occurrence of certain conditions;
WHEREAS, the stock options being granted by the Company hereunder and
the shares of Common Stock issuable upon the exercise of such Options, if any,
have not been registered under the Securities Act of 1933, as amended (the
"Act"), in reliance on an exemption from registration contained in the Act;
WHEREAS, this Agreement consists of this document and the Program
attached hereto as Exhibit A;
<PAGE>
NOW, THEREFORE, the Company and the Optionee hereby agree as follows:
W I T N E S S E T H:
--------------------
1. Definitions. In this Agreement, except where the context otherwise
indicates, the following definitions apply:
1.1 Terms defined in the Program shall have the same meanings
when used herein as defined therein.
1.2 The term "Optionee" when used herein shall include the
Optionee's legal representative when the context requires.
2. Representations, Warranties and Acknowledgments of the Optionee.
2.1 The Optionee's address set forth above is his or her
true and correct residence.
2.2 The Optionee has had an opportunity to ask questions and
receive answers from the officers and directors of the Company, or a person or
persons acting on its behalf, concerning the terms and conditions of this
Agreement and the business and affairs of the Company. The Optionee has a
sufficient business and personal relationship with one or more of the officers
and directors of the Company, and has sufficient business or financial
experience, so as to be able to protect his or her own interests in connection
with the issuance of the Options (as hereinafter defined) and the issuance of
any Common Stock upon any exercise of the Options.
2.3 The Optionee acknowledges that the Options and the
Common Stock to be issued upon the exercise of the Options, if any, are
speculative investments and involve a substantial degree of risk of loss by
the Optionee. The Optionee represents and warrants to the Company that he or
she is acquiring the Options and the Common Stock to be issued upon the
exercise of the Options (if the Options are exercisable and exercised) solely
for investment purposes and not with a view towards distribution or transfer.
The Optionee acknowledges that the Options may or may not become exercisable,
and accordingly may or may not be of any value, based on numerous
circumstances and conditions, many of which may be beyond the control of
Optionee.
2.4 The Optionee acknowledges that the Options and the
Common Stock to be issued upon the exercise of the Options constitute a part
of the Optionee's compensation arrangement with the Company.
2.5 The Optionee confirms that neither the Company nor any
officer, director or representative thereof has made any representation,
prediction, or forecast as to the value or possible future value of the
Options or the Common Stock. The Optionee has not been induced to accept the
Options by any representation or promise by or on behalf of the Company.
2.6 The Optionee has had an opportunity to consult with his
legal, tax and investment advisors, to the extent the Optionee deems
necessary, concerning the Options.
2.7 This Agreement consists of this document and the terms
and provisions contained in the Program, as it may be amended from time to
<PAGE>
time, which are hereby incorporated by reference herein and made a part
hereof. Unless otherwise expressly stated herein, in the case of any conflict
or inconsistency between the terms of this document and the terms of the
Program, the terms of the Program shall control.
3. Grant of Options. The Company, subject to the terms of the
Program, hereby grants to the Optionee as of the date hereof, as a matter of
separate inducement and agreement and not in lieu of salary or other
compensation for services, incentive stock options (the "Incentive Options" or
the "Options") to purchase the number of shares of the Common Stock of the
Company set forth in the box on the first page hereof (the "Incentive Shares"
or the "Shares").
4. Exercise Price. The exercise price (the "Exercise Price") of the
Options is the amount per share set forth in the box on the front page hereof,
subject to adjustment as provided in Section 4(b) of the Program.
5. Tax Treatment. Optionee understands that the Incentive Options
granted under this Agreement are not expected to qualify for special tax
treatment under Section 422 of the Internal Revenue Code of 1986, as amended
to date and as may be amended from time to time (the "Code"). The Company
makes no representation to Optionee regarding the tax treatment of the
Incentive Options or of the effect of any exercise of the Incentive Options.
6. Options Non-Transferable. The Options shall not be transferable by
the Optionee otherwise than by will, or by the laws of descent and
distribution, and shall be exercised during the lifetime of the Optionee only
by the Optionee. Neither the Options nor any interest therein may be
transferred, sold, assigned, pledged or hypothecated by the Optionee during
the Optionee's lifetime, whether by operation of law or otherwise, or be made
subject to execution, attachment or similar process.
7. Vesting Date of Options. The Options shall be and become
exercisable upon the earlier to occur of (a) November 2, 2003, at which time
the Options shall become exercisable in their entirety, provided that on such
date the Optionee is then employed by the Company, or (b) on such date, if at
all, as it shall have been determined by the Board of Directors of the
Company, in consultation with the independent auditors of the Company, that
with respect to the fiscal year of the Company then ended, the Company shall
have achieved Gross Revenues of not less than $10 Million and Adjusted EBITDA
(as defined below) of not less than $3 Million, at which time the Options
shall become exercisable in their entirety, provided that at such date the
Optionee is then employed by the Company. For purposes hereof "Adjusted
EBITDA" shall mean the Net Income of the Company before income taxes, computed
without regard to (a) depreciation or amortization expense, (b) direct or
indirect compensation to officers or directors of the Company, or (c) such
write-offs and adjustments to accounts receivable as are consistent with
industry practices with regard to third party payment, insurance
reimbursement, and state and federal health and welfare programs.
8. Exercise of Options. The Options may be exercised only in
accordance with the provisions of the Program. The Options may be exercised
before or after the exercise of any other options granted to the Optionee
under the Program or any of the Company's other stock option programs or
compensation plans.
9. Termination of Options. Subject to the terms hereof, all rights of
the Optionee in and to the Options, to the extent that they have not been
<PAGE>
exercised, shall terminate on the date which is the tenth annual anniversary
of the Date of Grant set forth above, or, if sooner, three (3) months after
the Optionee's termination as an employee of the Company for any reason,
including voluntary resignation. Notwithstanding the foregoing, in the event
of the death of Optionee or the termination of his employment by the Company
by reason of disability (within the meaning of Section 22(e)(3) of the Code),
the three (3) month period referenced in the preceding sentence shall be one
(1) year. The Optionee acknowledges that, notwithstanding the provisions of
this paragraph authorizing the Options to be exercised within one (1) year
after death, under applicable laws, regulations and rules now in effect, the
Options shall not qualify for special tax treatment under Section 422 of the
Code if they are exercised later than three (3) months after the termination
of Optionee's employment on account of death.
10. Death of Optionee. Options granted hereunder and outstanding on
the date of Optionee's death may be exercised, to the extent otherwise
exercisable pursuant to Section 7, by Optionee's personal representative or
his or her transferees by will or intestate distribution at any time prior to
the termination of such Options pursuant to Section 9 above. The Plan
Administrator may require an indemnity and/or such evidence or other
assurances as it may deem necessary in connection with an exercise by a legal
representative, guardian, or beneficiary.
11. Fraud, Dishonesty, or Similar Acts. Notwithstanding anything
contained herein to the contrary, if Optionee's employment by the Company is
terminated for cause or it is determined by the Plan Administrator that fraud,
dishonesty, or similar acts were committed by Optionee at any time while in
the employ of the Company, or that an Optionee has at any time disclosed to
any person, firm, corporation or other entity any of the Company's
"proprietary information" (defined below) without the express written consent
of the Board of Directors or except as such disclosure may have been required
in connection with the Optionee's service as an employee of the Company, all
option and other rights with respect to all Options granted to Optionee
hereunder shall immediately terminate and be null and void. For the purposes
of this Section 10, the term "proprietary information" shall mean all
confidential or secret customer lists, prospective customer lists, trade
secrets, processes, computer programs, object codes, source codes, inventions,
improvements, manufacturing or systems techniques, formulas, development or
experimental work, work in process, business, data disclosed to the Company by
or for the benefit of the Company's customers, information relating to the
Company's business contracts (including without limitation contracts with
service providers, medical insurers and claims administrators), marketing and
competitive strategies, and any other secret or confidential matter relating
or pertaining to the products, services, sales or other business of the
Company.
12. Restriction on Exercise After Termination. Notwithstanding
anything herein to the contrary, the exercise of the Options after termination
of employment by Optionee shall be subject to satisfaction of the conditions
precedent that the Optionee neither (1) takes other employment with or renders
services to any business in contravention of any then-applicable
Non-Competition Agreement with the Company or any Affiliate of the Company,
nor (2) conducts himself in a manner adversely affecting the Company.
13. Reserve. The Company shall at all times during the term of the
Options reserve such number of shares of its Common Stock as will be
sufficient to satisfy the requirements of this Agreement.
<PAGE>
14. Withholding Taxes. The Optionee acknowledges that it is a
condition to the obligation of the Company to deliver the Shares, upon the
exercise of the Options, to pay the Company such amount, if any, as may be
requested by the Company for the purpose of satisfying any liability for any
federal, state or local income, or other taxes required by law to be withheld
with respect to such delivery; provided that the Optionee may elect, in
accordance with applicable law, to pay a portion or all of such withholding
taxes in shares of Common Stock held by the Optionee for at least six (6)
months and the Optionee hereby authorizes the Company to withhold and agrees
to surrender back to the Company, on or about the date such withholding tax is
determinable, shares previously owned by the Optionee or a portion of the
shares that were or otherwise would be distributed to the Optionee pursuant
hereto so qualifying and having a fair market value equal to the amount of
such withholding taxes to be paid in shares.
15. No Right to Continued Employment. Nothing contained herein shall
be construed to require the Company to continue to employ the Optionee for any
particular period of time and the Optionee shall not be deemed to have any
right to continued employment or to employment for any particular period of
time by virtue hereof.
16. Governing Law. The Program, this Agreement and all action taken
under each shall be governed, as to construction and administration, by the
laws of the State of Delaware.
17. Restricted Shares. The Optionee acknowledges that the Options and
Shares have not been registered in accordance with the Act or applicable state
Blue Sky laws, and that the Options and Shares may not be sold or transferred
and must be held indefinitely, unless they are subsequently registered under
the Act or an exemption from registration is available. The Optionee
understands and acknowledges that the Company is under no obligation to
register the Options and Shares or to comply with any exemption under the Act
or to supply or file any information which would facilitate sales of the
Shares. The Optionee acknowledges that stop transfer instructions will be
given to the Company's transfer agent(s) with respect to the Shares and that
there will be affixed to the certificates evidencing ownership of the Shares,
or any substitutions therefor, appropriate restrictive legends.
IN WITNESS WHEREOF, the Company and the Optionee have duly executed
this Agreement as of the day and year first above written.
ATTEST: CERTIFIED DIABETIC SERVICES, INC.
/s/ Illegible By: /s/ Peter J. Fiscina
- ------------------------- -----------------------------------
Secretary Name: Peter J. Fiscina
Title: President
ACCEPTED AND AGREED:
/s/ Myron M. Blumenthal
-----------------------------------
Name: Myron M. Blumenthal
<PAGE>
CERTIFIED DIABETIC SERVICES, INC.
STOCK OPTION AGREEMENT
Optionee Name: Myron M. Blumenthal
Optionee Address: ________________________________________
----------------------------------------
Number of Shares of Exercise Price per
Common Stock: 1,000,000 Share: $8.75
Date of Grant: September 2, 1997
STOCK OPTION AGREEMENT (this "Agreement") made as of the Date of Grant
set forth above, between CERTIFIED DIABETIC SERVICES, INC., a Delaware
corporation (collectively, with any wholly-owned subsidiaries, the "Company"),
and the Optionee identified above ("Optionee"), residing at the address set
forth above.
WHEREAS, pursuant to the Company's 1997 Incentive Program (as amended,
the "Program"), the Company desires to grant stock options to Optionee to
purchase certain shares of its Common Stock, par value $.01 per share (the
"Common Stock") upon the occurrence of certain conditions;
WHEREAS, the stock options being granted by the Company hereunder and
the shares of Common Stock issuable upon the exercise of such Options, if any,
have not been registered under the Securities Act of 1933, as amended (the
"Act"), in reliance on an exemption from registration contained in the Act;
WHEREAS, this Agreement consists of this document and the Program
attached hereto as Exhibit A;
NOW, THEREFORE, the Company and the Optionee hereby agree as follows:
W I T N E S S E T H:
1. Definitions. In this Agreement, except where the context otherwise
indicates, the following definitions apply:
1.1 Terms defined in the Program shall have the same meanings when
used herein as defined therein.
1.2 The term "Optionee" when used herein shall include the
Optionee's legal representative when the context requires.
<PAGE>
2. Representations, Warranties and Acknowledgments of the Optionee.
2.1 The Optionee's address set forth above is his or her true and
correct residence.
2.2 The Optionee has had an opportunity to ask questions and
receive answers from the officers and directors of the Company, or a person or
persons acting on its behalf, concerning the terms and conditions of this
Agreement and the business and affairs of the Company. The Optionee has a
sufficient business and personal relationship with one or more of the officers
and directors of the Company, and has sufficient business or financial
experience, so as to be able to protect his or her own interests in connection
with the issuance of the Options (as hereinafter defined) and the issuance of
any Common Stock upon any exercise of the Options.
2.3 The Optionee acknowledges that the Options and the Common Stock
to be issued upon the exercise of the Options, if any, are speculative
investments and involve a substantial degree of risk of loss by the Optionee.
The Optionee represents and warrants to the Company that he or she is acquiring
the Options and the Common Stock to be issued upon the exercise of the Options
(if the Options are exercisable and exercised) solely for investment purposes
and not with a view towards distribution or transfer. The Optionee acknowledges
that the Options may or may not become exercisable, and accordingly may or may
not be of any value, based on numerous circumstances and conditions, many of
which may be beyond the control of Optionee.
2.4 The Optionee acknowledges that the Options and the Common Stock
to be issued upon the exercise of the Options constitute a part of the
Optionee's compensation arrangement with the Company.
2.5 The Optionee confirms that neither the Company nor any officer,
director or representative thereof has made any representation, prediction, or
forecast as to the value or possible future value of the Options or the Common
Stock. The Optionee has not been induced to accept the Options by any
representation or promise by or on behalf of the Company.
2.6 The Optionee has had an opportunity to consult with his legal,
tax and investment advisors, to the extent the Optionee deems necessary,
concerning the Options.
2.7 This Agreement consists of this document and the terms and
provisions contained in the Program, as it may be amended from time to time,
which are hereby incorporated by reference herein and made a part hereof. Unless
otherwise expressly stated herein, in the case of any conflict or inconsistency
between the terms of this document and the terms of the Program, the terms of
the Program shall control.
3. Grant of Options. The Company, subject to the terms of the Program,
hereby grants to the Optionee as of the date hereof, as a matter of separate
inducement and agreement and not in lieu of salary or other compensation for
services, incentive stock options (the "Incentive Options" or the "Options") to
purchase the number of shares of the Common Stock of the Company set forth in
the box on the first page hereof (the "Incentive Shares" or the "Shares").
<PAGE>
4. Exercise Price. The exercise price (the "Exercise Price") of the
Options is the amount per share set forth in the box on the front page hereof,
subject to adjustment as provided in Section 4(b) of the Program.
5. Tax Treatment. Optionee understands that the Incentive Options
granted under this Agreement are not expected to qualify for special tax
treatment under Section 422 of the Internal Revenue Code of 1986, as amended to
date and as may be amended from time to time (the "Code"). The Company makes no
representation to Optionee regarding the tax treatment of the Incentive Options
or of the effect of any exercise of the Incentive Options.
6. Options Non-Transferable. The Options shall not be transferable by
the Optionee otherwise than by will, or by the laws of descent and distribution,
and shall be exercised during the lifetime of the Optionee only by the Optionee.
Neither the Options nor any interest therein may be transferred, sold, assigned,
pledged or hypothecated by the Optionee during the Optionee's lifetime, whether
by operation of law or otherwise, or be made subject to execution, attachment or
similar process.
7. Vesting Date of Options. The Options shall be and become exercisable
upon the earlier to occur of (a) eighth anniversary of date of grant, at which
time the Options shall become exercisable in their entirety, provided that on
such date the Optionee is then employed by the Company, or (b) on such date, if
at all, as it shall have been determined by the Board of Directors of the
Company, in consultation with the independent auditors of the Company, that with
respect to the fiscal year of the Company then ended, the Company shall have
achieved Gross Revenues of not less than $10 Million and Adjusted EBITDA (as
defined below) of not less than $3 Million, at which time the Options shall
become exercisable in their entirety, provided that at such date the Optionee is
then employed by the Company. For purposes hereof "Adjusted EBITDA" shall mean
the Net Income of the Company before income taxes, computed without regard to
(a) depreciation or amortization expense, (b) direct or indirect compensation to
officers or directors of the Company, or (c) such write-offs and adjustments to
accounts receivable as are consistent with industry practices with regard to
third party payment, insurance reimbursement, and state and federal health and
welfare programs.
8. Exercise of Options. The Options may be exercised only in accordance
with the provisions of the Program. The Options may be exercised before or after
the exercise of any other options granted to the Optionee under the Program or
any of the Company's other stock option programs or compensation plans.
9. Termination of Options. Subject to the terms hereof, all rights of
the Optionee in and to the Options, to the extent that they have not been
exercised, shall terminate on the date which is the tenth annual anniversary of
the Date of Grant set forth above, or, if sooner, three (3) months after the
Optionee's termination as an employee of the Company for any reason, including
voluntary resignation. Notwithstanding the foregoing, in the event of the death
of Optionee or the termination of his employment by the Company by reason of
disability (within the meaning of Section 22(e)(3) of the Code), the three (3)
month period referenced in the preceding sentence shall be one (1) year. The
Optionee acknowledges that, notwithstanding the provisions of this paragraph
authorizing the Options to be exercised within one (1) year after death, under
applicable laws, regulations and rules now in effect, the Options shall not
qualify for special tax treatment under Section 422 of the Code if they are
exercised later than three (3) months after the termination of Optionee's
employment on account of death.
<PAGE>
10. Death of Optionee. Options granted hereunder and outstanding on the
date of Optionee's death may be exercised, to the extent otherwise exercisable
pursuant to Section 7, by Optionee's personal representative or his or her
transferees by will or intestate distribution at any time prior to the
termination of such Options pursuant to Section 9 above. The Plan Administrator
may require an indemnity and/or such evidence or other assurances as it may deem
necessary in connection with an exercise by a legal representative, guardian, or
beneficiary.
11. Fraud, Dishonesty, or Similar Acts. Notwithstanding anything
contained herein to the contrary, if Optionee's employment by the Company is
terminated for cause or it is determined by the Plan Administrator that fraud,
dishonesty, or similar acts were committed by Optionee at any time while in the
employ of the Company, or that an Optionee has at any time disclosed to any
person, firm, corporation or other entity any of the Company's "proprietary
information" (defined below) without the express written consent of the Board of
Directors or except as such disclosure may have been required in connection with
the Optionee's service as an employee of the Company, all option and other
rights with respect to all Options granted to Optionee hereunder shall
immediately terminate and be null and void. For the purposes of this Section 10,
the term "proprietary information" shall mean all confidential or secret
customer lists, prospective customer lists, trade secrets, processes, computer
programs, object codes, source codes, inventions, improvements, manufacturing or
systems techniques, formulas, development or experimental work, work in process,
business, data disclosed to the Company by or for the benefit of the Company's
customers, information relating to the Company's business contracts (including
without limitation contracts with service providers, medical insurers and claims
administrators), marketing and competitive strategies, and any other secret or
confidential matter relating or pertaining to the products, services, sales or
other business of the Company.
12. Restriction on Exercise After Termination. Notwithstanding anything
herein to the contrary, the exercise of the Options after termination of
employment by Optionee shall be subject to satisfaction of the conditions
precedent that the Optionee neither (1) takes other employment with or renders
services to any business in contravention of any then-applicable Non-Competition
Agreement with the Company or any Affiliate of the Company, nor (2) conducts
himself in a manner adversely affecting the Company.
13. Reserve. The Company shall at all times during the term of the
Options reserve such number of shares of its Common Stock as will be sufficient
to satisfy the requirements of this Agreement.
14. Withholding Taxes. The Optionee acknowledges that it is a condition
to the obligation of the Company to deliver the Shares, upon the exercise of the
Options, to pay the Company such amount, if any, as may be requested by the
Company for the purpose of satisfying any liability for any federal, state or
local income, or other taxes required by law to be withheld with respect to such
delivery; provided that the Optionee may elect, in accordance with applicable
law, to pay a portion or all of such withholding taxes in shares of Common Stock
held by the Optionee for at least six (6) months and the Optionee hereby
authorizes the Company to withhold and agrees to surrender back to the Company,
on or about the date such withholding tax is determinable, shares previously
owned by the Optionee or a portion of the shares that were or otherwise would be
distributed to the Optionee pursuant hereto so qualifying and having a fair
market value equal to the amount of such withholding taxes to be paid in shares.
<PAGE>
15. No Right to Continued Employment. Nothing contained herein shall be
construed to require the Company to continue to employ the Optionee for any
particular period of time and the Optionee shall not be deemed to have any right
to continued employment or to employment for any particular period of time by
virtue hereof.
16. Governing Law. The Program, this Agreement and all action taken
under each shall be governed, as to construction and administration, by the laws
of the State of Delaware.
17. Restricted Shares. The Optionee acknowledges that the Options and
Shares have not been registered in accordance with the Act or applicable state
Blue Sky laws, and that the Options and Shares may not be sold or transferred
and must be held indefinitely, unless they are subsequently registered under the
Act or an exemption from registration is available. The Optionee understands and
acknowledges that the Company is under no obligation to register the Options and
Shares or to comply with any exemption under the Act or to supply or file any
information which would facilitate sales of the Shares. The Optionee
acknowledges that stop transfer instructions will be given to the Company's
transfer agent(s) with respect to the Shares and that there will be affixed to
the certificates evidencing ownership of the Shares, or any substitutions
therefor, appropriate restrictive legends.
IN WITNESS WHEREOF, the Company and the Optionee have duly executed
this Agreement as of the day and year first above written.
ATTEST: CERTIFIED DIABETIC SERVICES, INC.
/s/ illegible By:/s/Albert R. Ayala
- ------------------------------------- --------------------
Secretary Name: Albert R. Ayala
Title: Vice President
ACCEPTED AND AGREED:
/s/ Myron M. Blumenthal
-----------------------------
Name: Myron M. Blumenthal
<PAGE>
CERTIFIED DIABETIC SERVICES, INC.
STOCK OPTION AGREEMENT
----------------------
Optionee Name: Peter J. Fiscina
Optionee Address: -------------------------------------------
-------------------------------------------
Number of Shares of Exercise Price per
Common Stock: 2,000,000 Share: $1.00
Date of Grant: August 12, 1997
STOCK OPTION AGREEMENT (this "Agreement") made as of the Date of Grant
set forth above, between CERTIFIED DIABETIC SERVICES, INC., a Delaware
corporation (collectively, with any wholly-owned subsidiaries, the "Company"),
and the Optionee identified above ("Optionee"), residing at the address set
forth above.
WHEREAS, Certified Diabetic Supplies Inc., a Florida corporation
("CDS-Florida"), has, on the Date of Grant, merged with and into Certified
Diabetic Supplies, Inc., a Delaware corporation and subsidiary of the Company
(the "Merger");
WHEREAS, in connection with the Merger, each holder of stock options
granted by CDS-Florida pursuant to its 1995 Incentive Program (the "1995
Options") is to receive from the Company, among other things, in substitution
for each stock option held, one stock option of the Company under its 1997
Incentive Program, bearing terms substantially identical to the stock options
granted by CDS-Florida pursuant to the 1995 Incentive Program.
WHEREAS, pursuant to the Company's 1997 Incentive Program (as amended,
the "Program"), the Company desires to grant stock options to Optionee, in
substitution for the 1995 Options held by Optionee, to purchase certain shares
of its Common Stock, par value $.01 per share (the "Common Stock") upon the
occurrence of certain conditions;
WHEREAS, the stock options being granted by the Company hereunder and
the shares of Common Stock issuable upon the exercise of such Options, if any,
have not been registered under the Securities Act of 1933, as amended (the
"Act"), in reliance on an exemption from registration contained in the Act;
WHEREAS, this Agreement consists of this document and the Program
attached hereto as Exhibit A;
NOW, THEREFORE, the Company and the Optionee hereby agree as follows:
<PAGE>
W I T N E S S E T H:
1. Definitions. In this Agreement, except where the context otherwise
indicates, the following definitions apply:
1.1 Terms defined in the Program shall have the same meanings when
used herein as defined therein.
1.2 The term "Optionee" when used herein shall include the
Optionee's legal representative when the context requires.
2. Representations, Warranties and Acknowledgments of the Optionee.
2.1 The Optionee's address set forth above is his or her true and
correct residence.
2.2 The Optionee has had an opportunity to ask questions and
receive answers from the officers and directors of the Company, or a person or
persons acting on its behalf, concerning the terms and conditions of this
Agreement and the business and affairs of the Company. The Optionee has a
sufficient business and personal relationship with one or more of the officers
and directors of the Company, and has sufficient business or financial
experience, so as to be able to protect his or her own interests in connection
with the issuance of the Options (as hereinafter defined) and the issuance of
any Common Stock upon any exercise of the Options.
2.3 The Optionee acknowledges that the Options and the Common Stock
to be issued upon the exercise of the Options, if any, are speculative
investments and involve a substantial degree of risk of loss by the Optionee.
The Optionee represents and warrants to the Company that he or she is acquiring
the Options and the Common Stock to be issued upon the exercise of the Options
(if the Options are exercisable and exercised) solely for investment purposes
and not with a view towards distribution or transfer. The Optionee acknowledges
that the Options may or may not become exercisable, and accordingly may or may
not be of any value, based on numerous circumstances and conditions, many of
which may be beyond the control of Optionee.
2.4 The Optionee acknowledges that the Options and the Common Stock
to be issued upon the exercise of the Options constitute a part of the
Optionee's compensation arrangement with the Company.
2.5 The Optionee confirms that neither the Company nor any officer,
director or representative thereof has made any representation, prediction, or
forecast as to the value or possible future value of the Options or the Common
Stock. The Optionee has not been induced to accept the Options by any
representation or promise by or on behalf of the Company.
2.6 The Optionee has had an opportunity to consult with his legal,
tax and investment advisors, to the extent the Optionee deems necessary,
concerning the Options.
2.7 This Agreement consists of this document and the terms and
provisions contained in the Program, as it may be amended from time to time,
which are hereby incorporated by reference herein and made a part hereof. Unless
otherwise expressly stated herein, in the case of any conflict or inconsistency
between the terms of this document and the terms of the Program, the terms of
the Program shall control.
<PAGE>
3. Grant of Options. The Company, subject to the terms of the Program,
hereby grants to the Optionee as of the date hereof, as a matter of separate
inducement and agreement and not in lieu of salary or other compensation for
services, incentive stock options (the "Incentive Options" or the "Options") to
purchase the number of shares of the Common Stock of the Company set forth in
the box on the first page hereof (the "Incentive Shares" or the "Shares").
4. Exercise Price. The exercise price (the "Exercise Price") of the
Options is the amount per share set forth in the box on the front page hereof,
subject to adjustment as provided in Section 4(b) of the Program.
5. Tax Treatment. Optionee understands that the Incentive Options
granted under this Agreement are not expected to qualify for special tax
treatment under Section 422 of the Internal Revenue Code of 1986, as amended to
date and as may be amended from time to time (the "Code"). The Company makes no
representation to Optionee regarding the tax treatment of the Incentive Options
or of the effect of any exercise of the Incentive Options.
6. Options Non-Transferable. The Options shall not be transferable by
the Optionee otherwise than by will, or by the laws of descent and distribution,
and shall be exercised during the lifetime of the Optionee only by the Optionee.
Neither the Options nor any interest therein may be transferred, sold, assigned,
pledged or hypothecated by the Optionee during the Optionee's lifetime, whether
by operation of law or otherwise, or be made subject to execution, attachment or
similar process.
7. Vesting Date of Options. The Options shall be and become exercisable
upon the earlier to occur of (a) November 2, 2003, at which time the Options
shall become exercisable in their entirety, provided that on such date the
Optionee is then employed by the Company, or (b) on such date, if at all, as it
shall have been determined by the Board of Directors of the Company, in
consultation with the independent auditors of the Company, that with respect to
the fiscal year of the Company then ended, the Company shall have achieved Gross
Revenues of not less than $10 Million and Adjusted EBITDA (as defined below) of
not less than $3 Million, at which time the Options shall become exercisable in
their entirety, provided that at such date the Optionee is then employed by the
Company. For purposes hereof "Adjusted EBITDA" shall mean the Net Income of the
Company before income taxes, computed without regard to (a) depreciation or
amortization expense, (b) direct or indirect compensation to officers or
directors of the Company, or (c) such write-offs and adjustments to accounts
receivable as are consistent with industry practices with regard to third party
payment, insurance reimbursement, and state and federal health and welfare
programs.
8. Exercise of Options. The Options may be exercised only in accordance
with the provisions of the Program. The Options may be exercised before or after
the exercise of any other options granted to the Optionee under the Program or
any of the Company's other stock option programs or compensation plans.
9. Termination of Options. Subject to the terms hereof, all rights of
the Optionee in and to the Options, to the extent that they have not been
exercised, shall terminate on the date which is the tenth annual anniversary of
the Date of Grant set forth above, or, if sooner, three (3) months after the
Optionee's termination as an employee of the Company for any reason, including
voluntary resignation. Notwithstanding the foregoing, in the event of the death
of Optionee or the termination of his employment by the Company by reason of
disability (within the meaning of Section 22(e)(3) of the Code), the three (3)
month period referenced in the preceding sentence shall be one (1) year. The
Optionee acknowledges that, notwithstanding the provisions of this paragraph
authorizing the Options to be exercised within one (1) year after death, under
applicable laws, regulations and rules now in effect, the Options shall not
qualify for special tax treatment under Section 422 of the Code if they are
exercised later than three (3) months after the termination of Optionee's
employment on account of death.
<PAGE>
10. Death of Optionee. Options granted hereunder and outstanding on the
date of Optionee's death may be exercised, to the extent otherwise exercisable
pursuant to Section 7, by Optionee's personal representative or his or her
transferees by will or intestate distribution at any time prior to the
termination of such Options pursuant to Section 9 above. The Plan Administrator
may require an indemnity and/or such evidence or other assurances as it may deem
necessary in connection with an exercise by a legal representative, guardian, or
beneficiary.
11. Fraud, Dishonesty, or Similar Acts. Notwithstanding anything
contained herein to the contrary, if Optionee's employment by the Company is
terminated for cause or it is determined by the Plan Administrator that fraud,
dishonesty, or similar acts were committed by Optionee at any time while in the
employ of the Company, or that an Optionee has at any time disclosed to any
person, firm, corporation or other entity any of the Company's "proprietary
information" (defined below) without the express written consent of the Board of
Directors or except as such disclosure may have been required in connection with
the Optionee's service as an employee of the Company, all option and other
rights with respect to all Options granted to Optionee hereunder shall
immediately terminate and be null and void. For the purposes of this Section 10,
the term "proprietary information" shall mean all confidential or secret
customer lists, prospective customer lists, trade secrets, processes, computer
programs, object codes, source codes, inventions, improvements, manufacturing or
systems techniques, formulas, development or experimental work, work in process,
business, data disclosed to the Company by or for the benefit of the Company's
customers, information relating to the Company's business contracts (including
without limitation contracts with service providers, medical insurers and claims
administrators), marketing and competitive strategies, and any other secret or
confidential matter relating or pertaining to the products, services, sales or
other business of the Company.
12. Restriction on Exercise After Termination. Notwithstanding anything
herein to the contrary, the exercise of the Options after termination of
employment by Optionee shall be subject to satisfaction of the conditions
precedent that the Optionee neither (1) takes other employment with or renders
services to any business in contravention of any then-applicable Non-Competition
Agreement with the Company or any Affiliate of the Company, nor (2) conducts
himself in a manner adversely affecting the Company.
13. Reserve. The Company shall at all times during the term of the
Options reserve such number of shares of its Common Stock as will be sufficient
to satisfy the requirements of this Agreement.
14. Withholding Taxes. The Optionee acknowledges that it is a condition
to the obligation of the Company to deliver the Shares, upon the exercise of the
Options, to pay the Company such amount, if any, as may be requested by the
Company for the purpose of satisfying any liability for any federal, state or
local income, or other taxes required by law to be withheld with respect to such
delivery; provided that the Optionee may elect, in accordance with applicable
law, to pay a portion or all of such withholding taxes in shares of Common Stock
held by the Optionee for at least six (6) months and the Optionee hereby
authorizes the Company to withhold and agrees to surrender back to the Company,
on or about the date such withholding tax is determinable, shares previously
owned by the Optionee or a portion of the shares that were or otherwise would be
distributed to the Optionee pursuant hereto so qualifying and having a fair
market value equal to the amount of such withholding taxes to be paid in shares.
<PAGE>
15. No Right to Continued Employment. Nothing contained herein shall be
construed to require the Company to continue to employ the Optionee for any
particular period of time and the Optionee shall not be deemed to have any right
to continued employment or to employment for any particular period of time by
virtue hereof.
16. Governing Law. The Program, this Agreement and all action taken
under each shall be governed, as to construction and administration, by the laws
of the State of Delaware.
17. Restricted Shares. The Optionee acknowledges that the Options and
Shares have not been registered in accordance with the Act or applicable state
Blue Sky laws, and that the Options and Shares may not be sold or transferred
and must be held indefinitely, unless they are subsequently registered under the
Act or an exemption from registration is available. The Optionee understands and
acknowledges that the Company is under no obligation to register the Options and
Shares or to comply with any exemption under the Act or to supply or file any
information which would facilitate sales of the Shares. The Optionee
acknowledges that stop transfer instructions will be given to the Company's
transfer agent(s) with respect to the Shares and that there will be affixed to
the certificates evidencing ownership of the Shares, or any substitutions
therefor, appropriate restrictive legends.
IN WITNESS WHEREOF, the Company and the Optionee have duly executed
this Agreement as of the day and year first above written.
ATTEST: CERTIFIED DIABETIC SERVICES, INC.
/s/ Peter Fiscina By: /s/ Myron M. Blumenthal
- ------------------- ---------------------------
Secretary Name: Myron M. Blumenthal
Title: Chief Financial Officer and Treasurer
ACCEPTED AND AGREED:
/s/ Peter Fiscina
------------------------------
Name: Peter J. Fiscina
<PAGE>
CERTIFIED DIABETIC SERVICES, INC.
STOCK OPTION AGREEMENT
----------------------
- --------------------------------------------------------------------------------
Optionee Name: Peter J. Fiscina
Optionee Address: ---------------------------------------------------
---------------------------------------------------
Number of Shares of Exercise Price per
Common Stock: 1,000,000 Share: $8.75
Date of Grant: September 2, 1997
- --------------------------------------------------------------------------------
STOCK OPTION AGREEMENT (this "Agreement") made as of the Date of Grant
set forth above, between CERTIFIED DIABETIC SERVICES, INC., a Delaware
corporation (collectively, with any wholly-owned subsidiaries, the "Company"),
and the Optionee identified above ("Optionee"), residing at the address set
forth above.
WHEREAS, pursuant to the Company's 1997 Incentive Program (as amended,
the "Program"), the Company desires to grant stock options to Optionee to
purchase certain shares of its Common Stock, par value $.01 per share (the
"Common Stock") upon the occurrence of certain conditions;
WHEREAS, the stock options being granted by the Company hereunder and
the shares of Common Stock issuable upon the exercise of such Options, if any,
have not been registered under the Securities Act of 1933, as amended (the
"Act"), in reliance on an exemption from registration contained in the Act;
WHEREAS, this Agreement consists of this document and the Program
attached hereto as Exhibit A;
NOW, THEREFORE, the Company and the Optionee hereby agree as follows:
W I T N E S S E T H:
--------------------
1. Definitions. In this Agreement, except where the context otherwise
indicates, the following definitions apply:
1.1 Terms defined in the Program shall have the same meanings when used
herein as defined therein.
<PAGE>
1.2 The term "Optionee" when used herein shall include the Optionee's
legal representative when the context requires.
2. Representations, Warranties and Acknowledgments of the Optionee.
2.1 The Optionee's address set forth above is his or her true and
correct residence.
2.2 The Optionee has had an opportunity to ask questions and receive
answers from the officers and directors of the Company, or a person or persons
acting on its behalf, concerning the terms and conditions of this Agreement and
the business and affairs of the Company. The Optionee has a sufficient business
and personal relationship with one or more of the officers and directors of the
Company, and has sufficient business or financial experience, so as to be able
to protect his or her own interests in connection with the issuance of the
Options (as hereinafter defined) and the issuance of any Common Stock upon any
exercise of the Options.
2.3 The Optionee acknowledges that the Options and the Common Stock to
be issued upon the exercise of the Options, if any, are speculative investments
and involve a substantial degree of risk of loss by the Optionee. The Optionee
represents and warrants to the Company that he or she is acquiring the Options
and the Common Stock to be issued upon the exercise of the Options (if the
Options are exercisable and exercised) solely for investment purposes and not
with a view towards distribution or transfer. The Optionee acknowledges that the
Options may or may not become exercisable, and accordingly may or may not be of
any value, based on numerous circumstances and conditions, many of which may be
beyond the control of Optionee.
2.4 The Optionee acknowledges that the Options and the Common Stock to
be issued upon the exercise of the Options constitute a part of the Optionee's
compensation arrangement with the Company.
2.5 The Optionee confirms that neither the Company nor any officer,
director or representative thereof has made any representation, prediction, or
forecast as to the value or possible future value of the Options or the Common
Stock. The Optionee has not been induced to accept the Options by any
representation or promise by or on behalf of the Company.
2.6 The Optionee has had an opportunity to consult with his
legal, tax and investment advisors, to the extent the Optionee deems
necessary, concerning the Options.
2.7 This Agreement consists of this document and the terms
and provisions contained in the Program, as it may be amended from time to
time, which are hereby incorporated by reference herein and made a part
hereof. Unless otherwise expressly stated herein, in the case of any conflict
or inconsistency between the terms of this document and the terms of the
Program, the terms of the Program shall control.
3. Grant of Options. The Company, subject to the terms of the Program,
hereby grants to the Optionee as of the date hereof, as a matter of separate
inducement and agreement and not in lieu of salary or other compensation for
services, incentive stock options (the "Incentive Options" or the "Options") to
purchase the number of shares of the Common Stock of the Company set forth in
the box on the first page hereof (the "Incentive Shares" or the "Shares").
<PAGE>
4. Exercise Price. The exercise price (the "Exercise Price") of the
Options is the amount per share set forth in the box on the front page hereof,
subject to adjustment as provided in Section 4(b) of the Program.
5. Tax Treatment. Optionee understands that the Incentive Options
granted under this Agreement are not expected to qualify for special tax
treatment under Section 422 of the Internal Revenue Code of 1986, as amended to
date and as may be amended from time to time (the "Code"). The Company makes no
representation to Optionee regarding the tax treatment of the Incentive Options
or of the effect of any exercise of the Incentive Options.
6. Options Non-Transferable. The Options shall not be transferable by
the Optionee otherwise than by will, or by the laws of descent and distribution,
and shall be exercised during the lifetime of the Optionee only by the Optionee.
Neither the Options nor any interest therein may be transferred, sold, assigned,
pledged or hypothecated by the Optionee during the Optionee's lifetime, whether
by operation of law or otherwise, or be made subject to execution, attachment or
similar process.
7. Vesting Date of Options. The Options shall be and become exercisable
upon the earlier to occur of (a) eighth anniversary of date of grant, at which
time the Options shall become exercisable in their entirety, provided that on
such date the Optionee is then employed by the Company, or (b) on such date, if
at all, as it shall have been determined by the Board of Directors of the
Company, in consultation with the independent auditors of the Company, that with
respect to the fiscal year of the Company then ended, the Company shall have
achieved Gross Revenues of not less than $10 Million and Adjusted EBITDA (as
defined below) of not less than $3 Million, at which time the Options shall
become exercisable in their entirety, provided that at such date the Optionee is
then employed by the Company. For purposes hereof "Adjusted EBITDA" shall mean
the Net Income of the Company before income taxes, computed without regard to
(a) depreciation or amortization expense, (b) direct or indirect compensation to
officers or directors of the Company, or (c) such write-offs and adjustments to
accounts receivable as are consistent with industry practices with regard to
third party payment, insurance reimbursement, and state and federal health and
welfare programs.
8. Exercise of Options. The Options may be exercised only in accordance
with the provisions of the Program. The Options may be exercised before or after
the exercise of any other options granted to the Optionee under the Program or
any of the Company's other stock option programs or compensation plans.
9. Termination of Options. Subject to the terms hereof, all rights of
the Optionee in and to the Options, to the extent that they have not been
exercised, shall terminate on the date which is the tenth annual anniversary of
the Date of Grant set forth above, or, if sooner, three (3) months after the
Optionee's termination as an employee of the Company for any reason, including
voluntary resignation. Notwithstanding the foregoing, in the event of the death
of Optionee or the termination of his employment by the Company by reason of
disability (within the meaning of Section 22(e)(3) of the Code), the three (3)
month period referenced in the preceding sentence shall be one (1) year. The
Optionee acknowledges that, notwithstanding the provisions of this paragraph
authorizing the Options to be exercised within one (1) year after death, under
applicable laws, regulations and rules now in effect, the Options shall not
qualify for special tax treatment under Section 422 of the Code if they are
exercised later than three (3) months after the termination of Optionee's
employment on account of death.
<PAGE>
10. Death of Optionee. Options granted hereunder and outstanding on
the date of Optionee's death may be exercised, to the extent otherwise
exercisable pursuant to Section 7, by Optionee's personal representative or
his or her transferees by will or intestate distribution at any time prior to
the termination of such Options pursuant to Section 9 above. The Plan
Administrator may require an indemnity and/or such evidence or other
assurances as it may deem necessary in connection with an exercise by a legal
representative, guardian, or beneficiary.
11. Fraud, Dishonesty, or Similar Acts. Notwithstanding anything
contained herein to the contrary, if Optionee's employment by the Company is
terminated for cause or it is determined by the Plan Administrator that fraud,
dishonesty, or similar acts were committed by Optionee at any time while in the
employ of the Company, or that an Optionee has at any time disclosed to any
person, firm, corporation or other entity any of the Company's "proprietary
information" (defined below) without the express written consent of the Board of
Directors or except as such disclosure may have been required in connection with
the Optionee's service as an employee of the Company, all option and other
rights with respect to all Options granted to Optionee hereunder shall
immediately terminate and be null and void. For the purposes of this Section 10,
the term "proprietary information" shall mean all confidential or secret
customer lists, prospective customer lists, trade secrets, processes, computer
programs, object codes, source codes, inventions, improvements, manufacturing or
systems techniques, formulas, development or experimental work, work in process,
business, data disclosed to the Company by or for the benefit of the Company's
customers, information relating to the Company's business contracts (including
without limitation contracts with service providers, medical insurers and claims
administrators), marketing and competitive strategies, and any other secret or
confidential matter relating or pertaining to the products, services, sales or
other business of the Company.
12. Restriction on Exercise After Termination. Notwithstanding
anything herein to the contrary, the exercise of the Options after termination
of employment by Optionee shall be subject to satisfaction of the conditions
precedent that the Optionee neither (1) takes other employment with or renders
services to any business in contravention of any then-applicable
Non-Competition Agreement with the Company or any Affiliate of the Company,
nor (2) conducts himself in a manner adversely affecting the Company.
13. Reserve. The Company shall at all times during the term of the
Options reserve such number of shares of its Common Stock as will be
sufficient to satisfy the requirements of this Agreement.
14. Withholding Taxes. The Optionee acknowledges that it is a condition
to the obligation of the Company to deliver the Shares, upon the exercise of the
Options, to pay the Company such amount, if any, as may be requested by the
Company for the purpose of satisfying any liability for any federal, state or
local income, or other taxes required by law to be withheld with respect to such
delivery; provided that the Optionee may elect, in accordance with applicable
law, to pay a portion or all of such withholding taxes in shares of Common Stock
held by the Optionee for at least six (6) months and the Optionee hereby
authorizes the Company to withhold and agrees to surrender back to the Company,
on or about the date such withholding tax is determinable, shares previously
owned by the Optionee or a portion of the shares that were or otherwise would be
distributed to the Optionee pursuant hereto so qualifying and having a fair
market value equal to the amount of such withholding taxes to be paid in shares.
<PAGE>
15. No Right to Continued Employment. Nothing contained herein shall be
construed to require the Company to continue to employ the Optionee for any
particular period of time and the Optionee shall not be deemed to have any right
to continued employment or to employment for any particular period of time by
virtue hereof.
16. Governing Law. The Program, this Agreement and all action taken
under each shall be governed, as to construction and administration, by the laws
of the State of Delaware.
17. Restricted Shares. The Optionee acknowledges that the Options and
Shares have not been registered in accordance with the Act or applicable state
Blue Sky laws, and that the Options and Shares may not be sold or transferred
and must be held indefinitely, unless they are subsequently registered under the
Act or an exemption from registration is available. The Optionee understands and
acknowledges that the Company is under no obligation to register the Options and
Shares or to comply with any exemption under the Act or to supply or file any
information which would facilitate sales of the Shares. The Optionee
acknowledges that stop transfer instructions will be given to the Company's
transfer agent(s) with respect to the Shares and that there will be affixed to
the certificates evidencing ownership of the Shares, or any substitutions
therefor, appropriate restrictive legends.
IN WITNESS WHEREOF, the Company and the Optionee have duly executed
this Agreement as of the day and year first above written.
ATTEST: CERTIFIED DIABETIC SERVICES, INC.
/s/ Peter Fiscina By: /s/ Myron M. Blumenthal
- ----------------- -----------------------
Secretary Name: Myron M. Blumenthal
Title: Chief Financial Officer and Treasurer
ACCEPTED AND AGREED:
/s/ Peter Fiscina
-----------------
Name: Peter Fiscina
<PAGE>
CERTIFIED DIABETIC SERVICES, INC.
STOCK OPTION AGREEMENT
----------------------
Optionee Name: Albert R. Ayala
Optionee Address: ---------------------------------------
---------------------------------------
Number of Shares of Exercise Price per
Common Stock: 1,000,000 Share: $1.00
Date of Grant: August 12, 1997
STOCK OPTION AGREEMENT (this "Agreement") made as of the Date of Grant
set forth above, between CERTIFIED DIABETIC SERVICES, INC., a Delaware
corporation (collectively, with any wholly-owned subsidiaries, the "Company"),
and the Optionee identified above ("Optionee"), residing at the address set
forth above.
WHEREAS, Certified Diabetic Supplies Inc., a Florida corporation
("CDS-Florida"), has, on the Date of Grant, merged with and into Certified
Diabetic Supplies, Inc., a Delaware corporation and subsidiary of the Company
(the "Merger");
WHEREAS, in connection with the Merger, each holder of stock options
granted by CDS-Florida pursuant to its 1995 Incentive Program (the "1995
Options") is to receive from the Company, among other things, in substitution
for each stock option held, one stock option of the Company under its 1997
Incentive Program, bearing terms substantially identical to the stock options
granted by CDS-Florida pursuant to the 1995 Incentive Program.
WHEREAS, pursuant to the Company's 1997 Incentive Program (as amended,
the "Program"), the Company desires to grant stock options to Optionee, in
substitution for the 1995 Options held by Optionee, to purchase certain shares
of its Common Stock, par value $.01 per share (the "Common Stock") upon the
occurrence of certain conditions;
WHEREAS, the stock options being granted by the Company hereunder and
the shares of Common Stock issuable upon the exercise of such Options, if any,
have not been registered under the Securities Act of 1933, as amended (the
"Act"), in reliance on an exemption from registration contained in the Act;
WHEREAS, this Agreement consists of this document and the Program
attached hereto as Exhibit A;
NOW, THEREFORE, the Company and the Optionee hereby agree as follows:
<PAGE>
W I T N E S S E T H:
1. Definitions. In this Agreement, except where the context otherwise
indicates, the following definitions apply:
1.1 Terms defined in the Program shall have the same meanings when
used herein as defined therein.
1.2 The term "Optionee" when used herein shall include the
Optionee's legal representative when the context requires.
2. Representations, Warranties and Acknowledgments of the Optionee.
2.1 The Optionee's address set forth above is his or her true and
correct residence.
2.2 The Optionee has had an opportunity to ask questions and
receive answers from the officers and directors of the Company, or a person or
persons acting on its behalf, concerning the terms and conditions of this
Agreement and the business and affairs of the Company. The Optionee has a
sufficient business and personal relationship with one or more of the officers
and directors of the Company, and has sufficient business or financial
experience, so as to be able to protect his or her own interests in connection
with the issuance of the Options (as hereinafter defined) and the issuance of
any Common Stock upon any exercise of the Options.
2.3 The Optionee acknowledges that the Options and the Common Stock
to be issued upon the exercise of the Options, if any, are speculative
investments and involve a substantial degree of risk of loss by the Optionee.
The Optionee represents and warrants to the Company that he or she is acquiring
the Options and the Common Stock to be issued upon the exercise of the Options
(if the Options are exercisable and exercised) solely for investment purposes
and not with a view towards distribution or transfer. The Optionee acknowledges
that the Options may or may not become exercisable, and accordingly may or may
not be of any value, based on numerous circumstances and conditions, many of
which may be beyond the control of Optionee.
2.4 The Optionee acknowledges that the Options and the Common Stock
to be issued upon the exercise of the Options constitute a part of the
Optionee's compensation arrangement with the Company.
2.5 The Optionee confirms that neither the Company nor any officer,
director or representative thereof has made any representation, prediction, or
forecast as to the value or possible future value of the Options or the Common
Stock. The Optionee has not been induced to accept the Options by any
representation or promise by or on behalf of the Company.
2.6 The Optionee has had an opportunity to consult with his legal,
tax and investment advisors, to the extent the Optionee deems necessary,
concerning the Options.
2.7 This Agreement consists of this document and the terms and
provisions contained in the Program, as it may be amended from time to time,
which are hereby incorporated by reference herein and made a part hereof. Unless
otherwise expressly stated herein, in the case of any conflict or inconsistency
between the terms of this document and the terms of the Program, the terms of
the Program shall control.
<PAGE>
3. Grant of Options. The Company, subject to the terms of the Program,
hereby grants to the Optionee as of the date hereof, as a matter of separate
inducement and agreement and not in lieu of salary or other compensation for
services, incentive stock options (the "Incentive Options" or the "Options") to
purchase the number of shares of the Common Stock of the Company set forth in
the box on the first page hereof (the "Incentive Shares" or the "Shares").
4. Exercise Price. The exercise price (the "Exercise Price") of the
Options is the amount per share set forth in the box on the front page hereof,
subject to adjustment as provided in Section 4(b) of the Program.
5. Tax Treatment. Optionee understands that the Incentive Options
granted under this Agreement are not expected to qualify for special tax
treatment under Section 422 of the Internal Revenue Code of 1986, as amended to
date and as may be amended from time to time (the "Code"). The Company makes no
representation to Optionee regarding the tax treatment of the Incentive Options
or of the effect of any exercise of the Incentive Options.
6. Options Non-Transferable. The Options shall not be transferable by
the Optionee otherwise than by will, or by the laws of descent and distribution,
and shall be exercised during the lifetime of the Optionee only by the Optionee.
Neither the Options nor any interest therein may be transferred, sold, assigned,
pledged or hypothecated by the Optionee during the Optionee's lifetime, whether
by operation of law or otherwise, or be made subject to execution, attachment or
similar process.
7. Vesting Date of Options. The Options shall be and become exercisable
upon the earlier to occur of (a) November 2, 2003, at which time the Options
shall become exercisable in their entirety, provided that on such date the
Optionee is then employed by the Company, or (b) on such date, if at all, as it
shall have been determined by the Board of Directors of the Company, in
consultation with the independent auditors of the Company, that with respect to
the fiscal year of the Company then ended, the Company shall have achieved Gross
Revenues of not less than $10 Million and Adjusted EBITDA (as defined below) of
not less than $3 Million, at which time the Options shall become exercisable in
their entirety, provided that at such date the Optionee is then employed by the
Company. For purposes hereof "Adjusted EBITDA" shall mean the Net Income of the
Company before income taxes, computed without regard to (a) depreciation or
amortization expense, (b) direct or indirect compensation to officers or
directors of the Company, or (c) such write-offs and adjustments to accounts
receivable as are consistent with industry practices with regard to third party
payment, insurance reimbursement, and state and federal health and welfare
programs.
8. Exercise of Options. The Options may be exercised only in accordance
with the provisions of the Program. The Options may be exercised before or after
the exercise of any other options granted to the Optionee under the Program or
any of the Company's other stock option programs or compensation plans.
9. Termination of Options. Subject to the terms hereof, all rights of
the Optionee in and to the Options, to the extent that they have not been
exercised, shall terminate on the date which is the tenth annual anniversary of
the Date of Grant set forth above, or, if sooner, three (3) months after the
Optionee's termination as an employee of the Company for any reason, including
voluntary resignation. Notwithstanding the foregoing, in the event of the death
of Optionee or the termination of his employment by the Company by reason of
disability (within the meaning of Section 22(e)(3) of the Code), the three (3)
month period referenced in the preceding sentence shall be one (1) year. The
Optionee acknowledges that, notwithstanding the provisions of this paragraph
authorizing the Options to be exercised within one (1) year after death, under
applicable laws, regulations and rules now in effect, the Options shall not
qualify for special tax treatment under Section 422 of the Code if they are
exercised later than three (3) months after the termination of Optionee's
employment on account of death.
10. Death of Optionee. Options granted hereunder and outstanding on the
date of Optionee's death may be exercised, to the extent otherwise exercisable
pursuant to Section 7, by Optionee's personal representative or his or her
transferees by will or intestate distribution at any time prior to the
termination of such Options pursuant to Section 9 above. The Plan Administrator
may require an indemnity and/or such evidence or other assurances as it may deem
necessary in connection with an exercise by a legal representative, guardian, or
beneficiary.
<PAGE>
11. Fraud, Dishonesty, or Similar Acts. Notwithstanding anything
contained herein to the contrary, if Optionee's employment by the Company is
terminated for cause or it is determined by the Plan Administrator that fraud,
dishonesty, or similar acts were committed by Optionee at any time while in the
employ of the Company, or that an Optionee has at any time disclosed to any
person, firm, corporation or other entity any of the Company's "proprietary
information" (defined below) without the express written consent of the Board of
Directors or except as such disclosure may have been required in connection with
the Optionee's service as an employee of the Company, all option and other
rights with respect to all Options granted to Optionee hereunder shall
immediately terminate and be null and void. For the purposes of this Section 10,
the term "proprietary information" shall mean all confidential or secret
customer lists, prospective customer lists, trade secrets, processes, computer
programs, object codes, source codes, inventions, improvements, manufacturing or
systems techniques, formulas, development or experimental work, work in process,
business, data disclosed to the Company by or for the benefit of the Company's
customers, information relating to the Company's business contracts (including
without limitation contracts with service providers, medical insurers and claims
administrators), marketing and competitive strategies, and any other secret or
confidential matter relating or pertaining to the products, services, sales or
other business of the Company.
12. Restriction on Exercise After Termination. Notwithstanding anything
herein to the contrary, the exercise of the Options after termination of
employment by Optionee shall be subject to satisfaction of the conditions
precedent that the Optionee neither (1) takes other employment with or renders
services to any business in contravention of any then-applicable Non-Competition
Agreement with the Company or any Affiliate of the Company, nor (2) conducts
himself in a manner adversely affecting the Company.
13. Reserve. The Company shall at all times during the term of the
Options reserve such number of shares of its Common Stock as will be sufficient
to satisfy the requirements of this Agreement.
<PAGE>
14. Withholding Taxes. The Optionee acknowledges that it is a condition
to the obligation of the Company to deliver the Shares, upon the exercise of the
Options, to pay the Company such amount, if any, as may be requested by the
Company for the purpose of satisfying any liability for any federal, state or
local income, or other taxes required by law to be withheld with respect to such
delivery; provided that the Optionee may elect, in accordance with applicable
law, to pay a portion or all of such withholding taxes in shares of Common Stock
held by the Optionee for at least six (6) months and the Optionee hereby
authorizes the Company to withhold and agrees to surrender back to the Company,
on or about the date such withholding tax is determinable, shares previously
owned by the Optionee or a portion of the shares that were or otherwise would be
distributed to the Optionee pursuant hereto so qualifying and having a fair
market value equal to the amount of such withholding taxes to be paid in shares.
15. No Right to Continued Employment. Nothing contained herein shall be
construed to require the Company to continue to employ the Optionee for any
particular period of time and the Optionee shall not be deemed to have any right
to continued employment or to employment for any particular period of time by
virtue hereof.
16. Governing Law. The Program, this Agreement and all action taken
under each shall be governed, as to construction and administration, by the laws
of the State of Delaware.
17. Restricted Shares. The Optionee acknowledges that the Options and
Shares have not been registered in accordance with the Act or applicable state
Blue Sky laws, and that the Options and Shares may not be sold or transferred
and must be held indefinitely, unless they are subsequently registered under the
Act or an exemption from registration is available. The Optionee understands and
acknowledges that the Company is under no obligation to register the Options and
Shares or to comply with any exemption under the Act or to supply or file any
information which would facilitate sales of the Shares. The Optionee
acknowledges that stop transfer instructions will be given to the Company's
transfer agent(s) with respect to the Shares and that there will be affixed to
the certificates evidencing ownership of the Shares, or any substitutions
therefor, appropriate restrictive legends.
IN WITNESS WHEREOF, the Company and the Optionee have duly executed
this Agreement as of the day and year first above written.
ATTEST: CERTIFIED DIABETIC SERVICES, INC.
/s/ Peter Fiscina By:/s/ Myron M. Blumenthal
- ---------------------- ----------------------------------------------
Secretary Name: Myron M. Blumenthal
Title: Chief Financial Officer and Treasure
ACCEPTED AND AGREED:
/s/ Albert R. Ayala
----------------------
Name: Albert R. Ayala
<PAGE>
EXHIBIT 10.7
CERTIFIED DIABETIC SERVICES, INC.
STOCK OPTION AGREEMENT
- -------------------------------------------------------------------------------
Optionee Name: Albert R. Ayala
-------------------------------------------
Optionee Address:
-------------------------------------------
-------------------------------------------
Number of Shares of Exercise Price per
Common Stock: 100,000 Share: $8.75
------- -----
Date of Grant: September 2, 1997
- -------------------------------------------------------------------------------
STOCK OPTION AGREEMENT (this "Agreement") made as of the Date of
Grant set forth above, between CERTIFIED DIABETIC SERVICES, INC., a Delaware
corporation (collectively, with any wholly-owned subsidiaries, the "Company"),
and the Optionee identified above ("Optionee"), residing at the address set
forth above.
WHEREAS, pursuant to the Company's 1997 Incentive Program (as
amended, the "Program"), the Company desires to grant stock options to
Optionee to purchase certain shares of its Common Stock, par value $.01 per
share (the "Common Stock") upon the occurrence of certain conditions;
WHEREAS, the stock options being granted by the Company hereunder and
the shares of Common Stock issuable upon the exercise of such Options, if any,
have not been registered under the Securities Act of 1933, as amended (the
"Act"), in reliance on an exemption from registration contained in the Act;
WHEREAS, this Agreement consists of this document and the Program
attached hereto as Exhibit A;
NOW, THEREFORE, the Company and the Optionee hereby agree as follows:
W I T N E S S E T H:
1. Definitions. In this Agreement, except where the context otherwise
indicates, the following definitions apply:
1.1 Terms defined in the Program shall have the same meanings when
used herein as defined therein.
<PAGE>
1.2 The term "Optionee" when used herein shall include the
Optionee's legal representative when the context requires.
2. Representations, Warranties and Acknowledgments of the Optionee.
2.1 The Optionee's address set forth above is his or her true and
correct residence.
2.2 The Optionee has had an opportunity to ask questions and receive
answers from the officers and directors of the Company, or a person or persons
acting on its behalf, concerning the terms and conditions of this Agreement and
the business and affairs of the Company. The Optionee has a sufficient business
and personal relationship with one or more of the officers and directors of the
Company, and has sufficient business or financial experience, so as to be able
to protect his or her own interests in connection with the issuance of the
Options (as hereinafter defined) and the issuance of any Common Stock upon any
exercise of the Options.
2.3 The Optionee acknowledges that the Options and the Common Stock
to be issued upon the exercise of the Options, if any, are speculative
investments and involve a substantial degree of risk of loss by the Optionee.
The Optionee represents and warrants to the Company that he or she is acquiring
the Options and the Common Stock to be issued upon the exercise of the Options
(if the Options are exercisable and exercised) solely for investment purposes
and not with a view towards distribution or transfer. The Optionee acknowledges
that the Options may or may not become exercisable, and accordingly may or may
not be of any value, based on numerous circumstances and conditions, many of
which may be beyond the control of Optionee.
2.4 The Optionee acknowledges that the Options and the Common Stock
to be issued upon the exercise of the Options constitute a part of the
Optionee's compensation arrangement with the Company.
2.5 The Optionee confirms that neither the Company nor any officer,
director or representative thereof has made any representation, prediction, or
forecast as to the value or possible future value of the Options or the Common
Stock. The Optionee has not been induced to accept the Options by any
representation or promise by or on behalf of the Company.
2.6 The Optionee has had an opportunity to consult with his legal,
tax and investment advisors, to the extent the Optionee deems necessary,
concerning the Options.
2.7 This Agreement consists of this document and the terms and
provisions contained in the Program, as it may be amended from time to time,
which are hereby incorporated by reference herein and made a part hereof. Unless
otherwise expressly stated herein, in the case of any conflict or inconsistency
between the terms of this document and the terms of the Program, the terms of
the Program shall control.
3. Grant of Options. The Company, subject to the terms of the
Program, hereby grants to the Optionee as of the date hereof, as a matter of
separate inducement and agreement and not in lieu of salary or other
compensation for services, incentive stock options (the "Incentive Options" or
the "Options") to purchase the number of shares of the Common Stock of the
Company set forth in the box on the first page hereof (the "Incentive Shares"
or the "Shares").
<PAGE>
4. Exercise Price. The exercise price (the "Exercise Price") of the
Options is the amount per share set forth in the box on the front page hereof,
subject to adjustment as provided in Section 4(b) of the Program.
5. Tax Treatment. Optionee understands that the Incentive Options
granted under this Agreement are not expected to qualify for special tax
treatment under Section 422 of the Internal Revenue Code of 1986, as amended
to date and as may be amended from time to time (the "Code"). The Company
makes no representation to Optionee regarding the tax treatment of the
Incentive Options or of the effect of any exercise of the Incentive Options.
6. Options Non-Transferable. The Options shall not be transferable by
the Optionee otherwise than by will, or by the laws of descent and
distribution, and shall be exercised during the lifetime of the Optionee only
by the Optionee. Neither the Options nor any interest therein may be
transferred, sold, assigned, pledged or hypothecated by the Optionee during
the Optionee's lifetime, whether by operation of law or otherwise, or be made
subject to execution, attachment or similar process.
7. Vesting Date of Options. The Options shall be and become
exercisable upon the earlier to occur of (a) eighth anniversary of date of
grant, at which time the Options shall become exercisable in their entirety,
provided that on such date the Optionee is then employed by the Company, or
(b) on such date, if at all, as it shall have been determined by the Board of
Directors of the Company, in consultation with the independent auditors of the
Company, that with respect to the fiscal year of the Company then ended, the
Company shall have achieved Gross Revenues of not less than $10 Million and
Adjusted EBITDA (as defined below) of not less than $3 Million, at which time
the Options shall become exercisable in their entirety, provided that at such
date the Optionee is then employed by the Company. For purposes hereof
"Adjusted EBITDA" shall mean the Net Income of the Company before income
taxes, computed without regard to (a) depreciation or amortization expense,
(b) direct or indirect compensation to officers or directors of the Company,
or (c) such write-offs and adjustments to accounts receivable as are
consistent with industry practices with regard to third party payment,
insurance reimbursement, and state and federal health and welfare programs.
8. Exercise of Options. The Options may be exercised only in
accordance with the provisions of the Program. The Options may be exercised
before or after the exercise of any other options granted to the Optionee
under the Program or any of the Company's other stock option programs or
compensation plans.
9. Termination of Options. Subject to the terms hereof, all rights of
the Optionee in and to the Options, to the extent that they have not been
exercised, shall terminate on the date which is the tenth annual anniversary
of the Date of Grant set forth above, or, if sooner, three (3) months after
the Optionee's termination as an employee of the Company for any reason,
including voluntary resignation. Notwithstanding the foregoing, in the event
of the death of Optionee or the termination of his employment by the Company
by reason of disability (within the meaning of Section 22(e)(3) of the Code),
the three (3) month period referenced in the preceding sentence shall be one
(1) year. The Optionee acknowledges that, notwithstanding the provisions of
this paragraph authorizing the Options to be exercised within one (1) year
after death, under applicable laws, regulations and rules now in effect, the
Options shall not qualify for special tax treatment under Section 422 of the
Code if they are exercised later than three (3) months after the termination
of Optionee's employment on account of death.
<PAGE>
10. Death of Optionee. Options granted hereunder and outstanding on
the date of Optionee's death may be exercised, to the extent otherwise
exercisable pursuant to Section 7, by Optionee's personal representative or
his or her transferees by will or intestate distribution at any time prior to
the termination of such Options pursuant to Section 9 above. The Plan
Administrator may require an indemnity and/or such evidence or other
assurances as it may deem necessary in connection with an exercise by a legal
representative, guardian, or beneficiary.
11. Fraud, Dishonesty, or Similar Acts. Notwithstanding anything
contained herein to the contrary, if Optionee's employment by the Company is
terminated for cause or it is determined by the Plan Administrator that fraud,
dishonesty, or similar acts were committed by Optionee at any time while in
the employ of the Company, or that an Optionee has at any time disclosed to
any person, firm, corporation or other entity any of the Company's
"proprietary information" (defined below) without the express written consent
of the Board of Directors or except as such disclosure may have been required
in connection with the Optionee's service as an employee of the Company, all
option and other rights with respect to all Options granted to Optionee
hereunder shall immediately terminate and be null and void. For the purposes
of this Section 10, the term "proprietary information" shall mean all
confidential or secret customer lists, prospective customer lists, trade
secrets, processes, computer programs, object codes, source codes, inventions,
improvements, manufacturing or systems techniques, formulas, development or
experimental work, work in process, business, data disclosed to the Company by
or for the benefit of the Company's customers, information relating to the
Company's business contracts (including without limitation contracts with
service providers, medical insurers and claims administrators), marketing and
competitive strategies, and any other secret or confidential matter relating
or pertaining to the products, services, sales or other business of the
Company.
12. Restriction on Exercise After Termination. Notwithstanding
anything herein to the contrary, the exercise of the Options after termination
of employment by Optionee shall be subject to satisfaction of the conditions
precedent that the Optionee neither (1) takes other employment with or renders
services to any business in contravention of any then-applicable
Non-Competition Agreement with the Company or any Affiliate of the Company,
nor (2) conducts himself in a manner adversely affecting the Company.
13. Reserve. The Company shall at all times during the term of the
Options reserve such number of shares of its Common Stock as will be
sufficient to satisfy the requirements of this Agreement.
14. Withholding Taxes. The Optionee acknowledges that it is a
condition to the obligation of the Company to deliver the Shares, upon the
exercise of the Options, to pay the Company such amount, if any, as may be
requested by the Company for the purpose of satisfying any liability for any
federal, state or local income, or other taxes required by law to be withheld
with respect to such delivery; provided that the Optionee may elect, in
accordance with applicable law, to pay a portion or all of such withholding
taxes in shares of Common Stock held by the Optionee for at least six (6)
months and the Optionee hereby authorizes the Company to withhold and agrees
to surrender back to the Company, on or about the date such withholding tax is
determinable, shares previously owned by the Optionee or a portion of the
shares that were or otherwise would be distributed to the Optionee pursuant
hereto so qualifying and having a fair market value equal to the amount of
such withholding taxes to be paid in shares.
<PAGE>
15. No Right to Continued Employment. Nothing contained herein shall
be construed to require the Company to continue to employ the Optionee for any
particular period of time and the Optionee shall not be deemed to have any
right to continued employment or to employment for any particular period of
time by virtue hereof.
16. Governing Law. The Program, this Agreement and all action taken
under each shall be governed, as to construction and administration, by the
laws of the State of Delaware.
17. Restricted Shares. The Optionee acknowledges that the Options and
Shares have not been registered in accordance with the Act or applicable state
Blue Sky laws, and that the Options and Shares may not be sold or transferred
and must be held indefinitely, unless they are subsequently registered under
the Act or an exemption from registration is available. The Optionee
understands and acknowledges that the Company is under no obligation to
register the Options and Shares or to comply with any exemption under the Act
or to supply or file any information which would facilitate sales of the
Shares. The Optionee acknowledges that stop transfer instructions will be
given to the Company's transfer agent(s) with respect to the Shares and that
there will be affixed to the certificates evidencing ownership of the Shares,
or any substitutions therefor, appropriate restrictive legends.
IN WITNESS WHEREOF, the Company and the Optionee have duly executed
this Agreement as of the day and year first above written.
ATTEST: CERTIFIED DIABETIC SERVICES, INC.
/s/ Peter Fiscina By: /s/ Myron M. Blumenthal
- ----------------- -----------------------
Secretary Name: Myron M. Blumenthal
Title: Chief Financial Officer and Treasurer
ACCEPTED AND AGREED:
/s/ Albert R. Ayala
--------------------
Name: Albert R. Ayala
<PAGE>
CERTIFIED DIABETIC SERVICES INC.
STOCK OPTION AGREEMENT
- --------------------------------------------------------------------------------
Optionee Name: Frederick J. Roberts
--------------------------------
Optionee Address:
--------------------------------
--------------------------------
Number of Shares of Exercise Price per
Common Stock: 240,000 Share:
------- $4.00 *
Date of Grant: --------
December 22, 1997
-----------------
*Closing Price per OTC
Electronic Bulletin
Board on Date of Grant
- --------------------------------------------------------------------------------
STOCK OPTION AGREEMENT (this "Agreement") made as of the Date
of Grant set forth above, between CERTIFIED DIABETIC SERVICES, INC., a Delaware
corporation (collectively, with any wholly-owned subsidiaries, the "Company"),
and the Optionee identified above ("Optionee"), residing at the address set
forth above.
WHEREAS, pursuant to the Company's 1997 Incentive Program (as
amended, the "Program"), the Company desires to grant stock options to Optionee
to purchase certain shares of its Common Stock, par value $.01 per share (the
"Common Stock") upon the occurrence of certain conditions;
WHEREAS, the stock options being granted by the Company
hereunder and the shares of Common Stock issuable upon the exercise of such
Options, if any, have not been registered under the Securities Act of 1933, as
amended (the "Act"), in reliance on a exemption(s) from registration contained
in the Act and the rule(s) promulgated thereunder;
WHEREAS, this Agreement consists of this document and the
Program attached hereto as Exhibit A;
NOW, THEREFORE, the Company and the Optionee hereby agree as
follows:
W I T N E S S E T H:
1. Definitions. In this Agreement, except where the context
otherwise indicates, the following definitions apply:
1.1 Terms defined in the Program shall have the same
meanings when used herein as defined therein.
1
<PAGE>
1.2 The term "Optionee" when used herein shall
include the Optionee's legal representative when the context requires.
2. Representations, Warranties and Acknowledgments of the
Optionee.
2.1 The Optionee's address set forth above is his or
her true and correct residence.
2.2 The Optionee has had an opportunity to ask
questions and receive answers from the officers and directors of the Company, or
a person or persons acting on its behalf, concerning the terms and conditions of
this Agreement and the business and affairs of the Company. The Optionee has a
sufficient business and personal relationship with one or more of the officers
and directors of the Company, and has sufficient business or financial
experience, so as to be able to protect his or her own interests in connection
with the issuance of the Options (as hereinafter defined) and the issuance of
any Common Stock upon any exercise of the Options.
2.3 The Optionee acknowledges that the Options and
the Common Stock to be issued upon the exercise of the Options, if any, are
speculative investments and involve a substantial degree of risk of loss by the
Optionee. The Optionee represents and warrants to the Company that he or she is
acquiring the Options, and the Common Stock to be issued upon the exercise of
the Options (if the Options are exercisable and exercised) solely for investment
purposes and not with a view towards distribution or transfer. The Optionee
acknowledges that the Options may or may not become exercisable, and accordingly
may or may not be of any value, based on numerous circumstances and conditions,
many of which may be beyond the control of Optionee.
2.4 The Optionee acknowledges that the Options and
the Common Stock to be issued upon the exercise of the Options constitute a part
of the Optionee's compensation arrangement with the Company.
2.5 The Optionee confirms that neither the Company
nor any officer, director or representative thereof has made any representation,
prediction, or forecast as to the value or possible future value of the Options
or the Common Stock. The Optionee has not been induced to accept the Options by
any representation or promise by or on behalf of the Company.
2.6 The Optionee has had an opportunity to consult
with his legal, tax and investment advisors, to the extent the Optionee deems
necessary, concerning the Options.
2.7 This Agreement consists of this document and the
terms and provision contained in the Program, as it may be amended from time to
time, which are hereby incorporated by reference herein and made a part hereof.
Unless otherwise expressly stated herein, in the case of any conflict or
inconsistency between the terms of this document and the terms of the Program,
the terms of the Program shall control.
3. Grant of Options. The Company, subject to the terms of the
Program, hereby grants to the Optionee as of the date hereof, as a matter of
separate inducement and agreement and not in lieu of salary or other
compensation for services, incentive stock options (the "Incentive Options" or
the "Options") to purchase the number of shares of the Common Stock of the
Company set forth in the box on the first page hereof (the "Incentive Shares" or
the "Shares").
4. Exercise Price. The exercise price (the "Exercise Price")
of the Options is the amount per share set forth in the box on the front page
hereof, subject to adjustment as provided in Section 4(b) of the Program.
2
<PAGE>
5. Tax Treatment. Optionee understands that the Incentive
Options granted under this Agreement are not expected to qualify for special tax
treatment under Section 422 of the Internal Revenue Code of 1986, as amended to
date and as may be amended from time to time (the "Code"). The Company makes no
representation to Optionee regarding the tax treatment of the Incentive Options
or of the effect of any exercise of the Incentive Options.
6. Options Non-Transferable. The Options shall not be
transferable by the Optionee otherwise than by will, or by the laws of descent
and distribution, and shall be exercised during the lifetime of the Optionee
only by the Optionee. Neither the Options nor any interest therein may be
transferred, sold, assigned, pledged or hypothecated by the Optionee during the
Optionee's lifetime, whether by operation of law or otherwise, or be made
subject to execution, attachment or similar process.
7. Vesting Date of Options. The Options shall be and become
exercisable in one-third increments, commencing on the first anniversary date of
the Date of Grant and annually thereafter until all 240,000 Options are
exercisable, provided that on each such anniversary, the Optionee is then
employed by the Company. Notwithstanding the foregoing, the Options shall become
exercisable at an earlier date as set forth in Schedule I.
8. Exercise of Options. The Options may be exercised only in
accordance with the provisions of the Program. The Options may be exercised
before or after the exercise of any other options granted to the Optionee under
the Program or any of the Company's other stock option programs or compensation
plans.
9. Termination of Options. Subject to the terms hereof
(including the provisions of Schedule I hereto), all rights of the Optionee in
and to the Options, to the extent that they have not been exercised, shall
terminate on the date which is the tenth annual anniversary of the Date of Grant
set forth above, or, if sooner, three (3) months after the Optionee's
termination as an employee of the Company for any reason, including voluntary
resignation. Notwithstanding the foregoing, in the event of the death of
Optionee or the termination of his employment by the Company by reason of
disability (within the meaning of Section 22(e)(3) of the Code), the three (3)
month period referenced in the preceding sentence shall be one (1) year. The
Optionee acknowledges that, notwithstanding the provisions of this paragraph
authorizing the Options to be exercised within one (1) year after death, under
applicable laws, regulations and rules now in effect, the Options shall not
qualify for special tax treatment under Section 422 of the Code if they are
exercised later than three (3) months after the termination of Optionee's
employment on account of death.
10. Death of Optionee. Options granted hereunder and
outstanding on the date of Optionee's death may be exercised, to the extent
otherwise exercisable pursuant to Section 7, by Optionee's personal
representative or his or her transferees by will or intestate distribution at
any time prior to the termination of such Options pursuant to Section 9 above.
The Plan Administrator may require an indemnity and/or such evidence or other
assurances as it may deem necessary in connection with an exercise by a legal
representative, guardian, or beneficiary.
11. Fraud, Dishonesty, or Similar Acts. Notwithstanding
anything contained herein to the contrary, if Optionee's employment by the
Company is terminated for cause or it is determined by the Plan Administrator
that fraud, dishonesty, or similar acts were committed by Optionee at any time
while in the employ of the Company, or that an Optionee has at any time
disclosed to any person, firm, corporation or other entity any of the Company's
"proprietary information" (defined below) without the express written consent of
the Board of Directors or except as such disclosure may have been required in
connection with the Optionee's service as an employee of the Company, all option
and other rights with respect to all Options granted to
3
<PAGE>
Optionee hereunder shall immediately terminate and be null and void. For the
purposes of this Section 11, the term "proprietary information" shall mean all
confidential or secret customer lists, prospective customer lists, trade
secrets, processes, computer programs, object codes, source codes, inventions,
improvements, manufacturing or systems techniques, formulas, development or
experimental work, work in process, business, data disclosed to the Company by
or for the benefit of the Company's customers, information relating to the
Company's business contracts (including without limitation contracts with
service providers, medical insurers and claims administrators), marketing and
competitive strategies, and any other secret or confidential matter relating or
pertaining to the products, services, sales or other business of the Company.
12. Restriction on Exercise After Termination. Notwithstanding
anything herein to the contrary, the exercise of the Options after termination
of employment by Optionee shall be subject to satisfaction of the conditions
precedent that the Optionee neither (1) takes other employment with or renders
services to any business in contravention of any then-applicable Non-Competition
Agreement with the Company or any Affiliate of the Company, nor (2) conducts
himself in a manner adversely affecting the Company.
13. Reserve. The Company shall at all times during the term of
the Options reserve such number of shares of its Common Stock as will be
sufficient to satisfy the requirements of this Agreement.
14. Withholding Taxes. The Optionee acknowledges that it is a
condition to the obligation of the Company to deliver the Shares, upon the
exercise of the Options, to pay the Company such amount, if any, as may be
requested by the Company for the purpose of satisfying any liability for any
federal, state or local income, or other taxes required by law to be withheld
with respect to such delivery; provided that the Optionee may elect, in
accordance with applicable law, to pay a portion or all of such withholding
taxes in shares of Common Stock held by the Optionee for at least six (6) months
and the Optionee hereby authorizes the Company to withhold and agrees to
surrender back to the Company, on or about the date such withholding tax is
determinable, shares previously owned by the Optionee or a portion of the shares
that were or otherwise would be distributed to the Optionee pursuant hereto so
qualifying and having a fair market value equal to the amount of such
withholding taxes to be paid in shares.
15. No Right to Continued Employment. Nothing contained herein
shall be construed to require the Company to continue to employ the Optionee for
any particular period of time and the Optionee shall not be deemed to have any
right to continued employment or to employment for any particular period of time
by virtue hereof.
16. Governing Law. The Program, this Agreement and all action
taken under each shall be governed, as to construction and administration, by
the laws of the State of Florida.
17. Restricted Shares. The Optionee acknowledges that the
Options and Shares have not been registered in accordance with the Act or
applicable state Blue Sky laws, and that the Options and Shares may not be sold
or transferred and must be held indefinitely, unless they are subsequently
registered under the Act or an exemption from registration is available. The
Optionee understands and acknowledges that the Company is under no obligation to
register the Options and Shares or to comply with any exemption under the Act or
to supply or file any information which would facilitate sales of the Shares.
The Optionee acknowledges that stop transfer instructions will
4
<PAGE>
be given to the Company's transfer agent(s) with respect to the Shares and that
there will be affixed to the certificates evidencing ownership of the Shares, or
any substitutions therefor, appropriate restrictive legends.
IN WITNESS WHEREOF, the Company and the Optionee have duly
executed this Agreement as of the day and year first above written.
ATTEST: CERTIFIED DIABETIC SERVICES, INC.
/s/ Myron M. Blumenthal By: /s/Peter J. Fiscina
- ----------------------------- ------------------------------
Secretary Name: Peter J. Fiscina
Myron M. Blumenthal Title: President/CEO
ACCEPTED AND AGREED:
/s/ Frederick J. Roberts
----------------------------------
Name: Frederick J. Roberts
5
<PAGE>
Schedule I
----------
If a "Change in Control" (as defined in the Executive Agreement, dated
December 1, 1997, between the Company and Optionee (the "Executive Agreement")),
shall have occurred and within three years of such Change in Control either (I)
Optionee terminates his employment upon making a determination (which
determination will be conclusive and binding upon the Company and the Optionee
provided it has been made in good faith) that Optionee's employment status or
employment responsibilities have been materially and adversely affected thereby,
or (ii) Optionee's employment is terminated by the Corporation, all Options
granted under this Agreement shall become immediately vested and exercisable
and, notwithstanding any other provision of this Agreement, all Options shall
thereafter be exercisable for a period of one (1) year from such date.
<PAGE>
CERTIFIED DIABETIC SERVICES INC.
STOCK OPTION AGREEMENT
- -------------------------------------------------------------------------------
Optionee Name: Frederick J. Roberts
--------------------
Optionee Address: --------------------
--------------------
Number of Shares of Exercise Price per
Common Stock: 260,000 Share: $4.1875*
------- --------
Date of Grant: April 1, 1998
-------------
*Closing Price per OTC Electronic Bulletin
Board on Date of Grant
- -------------------------------------------------------------------------------
STOCK OPTION AGREEMENT (this "Agreement") made as of the Date of Grant
set forth above, between CERTIFIED DIABETIC SERVICES, INC., a Delaware
corporation (collectively, with any wholly-owned subsidiaries, the "Company"),
and the Optionee identified above ("Optionee"), residing at the address set
forth above.
WHEREAS, pursuant to the Company's 1997 Incentive Program (as amended,
the "Program"), the Company desires to grant stock options to Optionee to
purchase certain shares of its Common Stock, par value $.01 per share (the
"Common Stock") upon the occurrence of certain conditions;
WHEREAS, the stock options being granted by the Company hereunder and
the shares of Common Stock issuable upon the exercise of such Options, if any,
have not been registered under the Securities Act of 1933, as amended (the
"Act"), in reliance on a exemption(s) from registration contained in the Act and
the rule(s) promulgated thereunder;
WHEREAS, this Agreement consists of this document and the Program
attached hereto as Exhibit A;
NOW, THEREFORE, the Company and the Optionee hereby agree as follows:
W I T N E S S E T H:
--------------------
1. Definitions. In this Agreement, except where the context otherwise
indicates, the following definitions apply:
1.1 Terms defined in the Program shall have the same meanings when
used herein as defined therein.
<PAGE>
1.2 The term "Optionee" when used herein shall include the
Optionee's legal representative when the context requires.
2. Representations, Warranties and Acknowledgments of the Optionee.
2.1 The Optionee's address set forth above is his or her true and
correct residence.
2.2 The Optionee has had an opportunity to ask questions and receive
answers from the officers and directors of the Company, or a person or persons
acting on its behalf, concerning the terms and conditions of this Agreement and
the business and affairs of the Company. The Optionee has a sufficient business
and personal relationship with one or more of the officers and directors of the
Company, and has sufficient business or financial experience, so as to be able
to protect his or her own interests in connection with the issuance of the
Options (as hereinafter defined) and the issuance of any Common Stock upon any
exercise of the Options.
2.3 The Optionee acknowledges that the Options and the Common Stock
to be issued upon the exercise of the Options, if any, are speculative
investments and involve a substantial degree of risk of loss by the Optionee.
The Optionee represents and warrants to the Company that he or she is acquiring
the Options, and the Common Stock to be issued upon the exercise of the Options
(if the Options are exercisable and exercised) solely for investment purposes
and not with a view towards distribution or transfer. The Optionee acknowledges
that the Options may or may not become exercisable, and accordingly may or may
not be of any value, based on numerous circumstances and conditions, many of
which may be beyond the control of Optionee.
2.4 The Optionee acknowledges that the Options and the Common Stock
to be issued upon the exercise of the Options constitute a part of the
Optionee's compensation arrangement with the Company.
2.5 The Optionee confirms that neither the Company nor any officer,
director or representative thereof has made any representation, prediction, or
forecast as to the value or possible future value of the Options or the Common
Stock. The Optionee has not been induced to accept the Options by any
representation or promise by or on behalf of the Company.
2.6 The Optionee has had an opportunity to consult with his legal,
tax and investment advisors, to the extent the Optionee deems necessary,
concerning the Options.
2.7 This Agreement consists of this document and the terms and
provision contained in the Program, as it may be amended from time to time,
which are hereby incorporated by reference herein and made a part hereof. Unless
otherwise expressly stated herein, in the case of any conflict or inconsistency
between the terms of this document and the terms of the Program, the terms of
the Program shall control.
3. Grant of Options. The Company, subject to the terms of the Program,
hereby grants to the Optionee as of the date hereof, as a matter of separate
inducement and agreement and not in lieu of salary or other compensation for
services, incentive stock options (the "Incentive Options" or the "Options") to
purchase the number of shares of the Common Stock of the Company set forth in
the box on the first page hereof (the "Incentive Shares" or the "Shares").
4. Exercise Price. The exercise price (the "Exercise Price") of the
Options is the amount per share set forth in the box on the front page hereof,
subject to adjustment as provided in Section 4(b) of the Program.
<PAGE>
5. Tax Treatment. Optionee understands that the Incentive Options
granted under this Agreement are not expected to qualify for special tax
treatment under Section 422 of the Internal Revenue Code of 1986, as amended to
date and as may be amended from time to time (the "Code"). The Company makes no
representation to Optionee regarding the tax treatment of the Incentive Options
or of the effect of any exercise of the Incentive Options.
6. Options Non-Transferable. The Options shall not be transferable by
the Optionee otherwise than by will, or by the laws of descent and distribution,
and shall be exercised during the lifetime of the Optionee only by the Optionee.
Neither the Options nor any interest therein may be transferred, sold, assigned,
pledged or hypothecated by the Optionee during the Optionee's lifetime, whether
by operation of law or otherwise, or be made subject to execution, attachment or
similar process.
7. Vesting Date of Options. The Options shall be and become exercisable
in the annual increments and on the dates set forth on the attached Schedule I,
provided that on each date the Optionee is then employed by the Company.
Notwithstanding the foregoing, the Options shall become exercisable at an
earlier date in the incremental numbers and subject to the conditions set forth
in Schedule II.
8. Exercise of Options. The Options may be exercised only in accordance
with the provisions of the Program. The Options may be exercised before or after
the exercise of any other options granted to the Optionee under the Program or
any of the Company's other stock option programs or compensation plans.
9. Termination of Options. Subject to the terms hereof, all rights of
the Optionee in and to the Options, to the extent that they have not been
exercised, shall terminate on the date which is the tenth annual anniversary of
the Date of Grant set forth above, or, if sooner, three (3) months after the
Optionee's termination as an employee of the Company for any reason, including
voluntary resignation. Notwithstanding the foregoing, in the event of the death
of Optionee or the termination of his employment by the Company by reason of
disability (within the meaning of Section 22(e)(3) of the Code), the three (3)
month period referenced in the preceding sentence shall be one (1) year. The
Optionee acknowledges that, notwithstanding the provisions of this paragraph
authorizing the Options to be exercised within one (1) year after death, under
applicable laws, regulations and rules now in effect, the Options shall not
qualify for special tax treatment under Section 422 of the Code if they are
exercised later than three (3) months after the termination of Optionee's
employment on account of death.
10. Death of Optionee. Options granted hereunder and outstanding on the
date of Optionee's death may be exercised, to the extent otherwise exercisable
pursuant to Section 7, by Optionee's personal representative or his or her
transferees by will or intestate distribution at any time prior to the
termination of such Options pursuant to Section 9 above. The Plan Administrator
may require an indemnity and/or such evidence or other assurances as it may deem
necessary in connection with an exercise by a legal representative, guardian, or
beneficiary.
11. Fraud, Dishonesty, or Similar Acts. Notwithstanding anything
contained herein to the contrary, if Optionee's employment by the Company is
terminated for cause or it is determined by the Plan Administrator that fraud,
dishonesty, or similar acts were committed by Optionee at any time while in the
employ of the Company, or that an Optionee has at any time disclosed to any
person, firm, corporation or other entity any of the Company's "proprietary
information" (defined below) without the express written consent of the Board of
Directors or except as such disclosure may have been required in connection with
the Optionee's service as an employee of the Company, all option and other
rights with respect to all Options granted to Optionee hereunder shall
immediately terminate and be null and void. For the purposes of this Section 11,
the term "proprietary information" shall mean all confidential or secret
customer lists, prospective customer lists, trade secrets, processes, computer
<PAGE>
programs, object codes, source codes, inventions, improvements, manufacturing or
systems techniques, formulas, development or experimental work, work in process,
business, data disclosed to the Company by or for the benefit of the Company's
customers, information relating to the Company's business contracts (including
without limitation contracts with service providers, medical insurers and claims
administrators), marketing and competitive strategies, and any other secret or
confidential matter relating or pertaining to the products, services, sales or
other business of the Company.
12. Restriction on Exercise After Termination. Notwithstanding anything
herein to the contrary, the exercise of the Options after termination of
employment by Optionee shall be subject to satisfaction of the conditions
precedent that the Optionee neither (1) takes other employment with or renders
services to any business in contravention of any then-applicable Non-Competition
Agreement with the Company or any Affiliate of the Company, nor (2) conducts
himself in a manner adversely affecting the Company.
13. Reserve. The Company shall at all times during the term of the
Options reserve such number of shares of its Common Stock as will be sufficient
to satisfy the requirements of this Agreement.
14. Withholding Taxes. The Optionee acknowledges that it is a condition
to the obligation of the Company to deliver the Shares, upon the exercise of the
Options, to pay the Company such amount, if any, as may be requested by the
Company for the purpose of satisfying any liability for any federal, state or
local income, or other taxes required by law to be withheld with respect to such
delivery; provided that the Optionee may elect, in accordance with applicable
law, to pay a portion or all of such withholding taxes in shares of Common Stock
held by the Optionee for at least six (6) months and the Optionee hereby
authorizes the Company to withhold and agrees to surrender back to the Company,
on or about the date such withholding tax is determinable, shares previously
owned by the Optionee or a portion of the shares that were or otherwise would be
distributed to the Optionee pursuant hereto so qualifying and having a fair
market value equal to the amount of such withholding taxes to be paid in shares.
15. No Right to Continued Employment. Nothing contained herein shall be
construed to require the Company to continue to employ the Optionee for any
particular period of time and the Optionee shall not be deemed to have any right
to continued employment or to employment for any particular period of time by
virtue hereof.
16. Governing Law. The Program, this Agreement and all action taken
under each shall be governed, as to construction and administration, by the laws
of the State of Florida.
17. Restricted Shares. The Optionee acknowledges that the Options and
Shares have not been registered in accordance with the Act or applicable state
Blue Sky laws, and that the Options and Shares may not be sold or transferred
and must be held indefinitely, unless they are subsequently registered under the
Act or an exemption from registration is available. The Optionee understands and
acknowledges that the Company is under no obligation to register the Options and
Shares or to comply with any exemption under the Act or to supply or file any
information which would facilitate sales of the Shares. The Optionee
acknowledges that stop transfer instructions will
<PAGE>
be given to the Company's transfer agent(s) with respect to the Shares and that
there will be affixed to the certificates evidencing ownership of the Shares,
or any substitutions therefor, appropriate restrictive legends.
IN WITNESS WHEREOF, the Company and the Optionee have duly executed
this Agreement as of the day and year first above written.
ATTEST: CERTIFIED DIABETIC SERVICES, INC.
/s/ Myron M. Blumenthal By: /s/ Peter J. Fiscina
- ------------------------ ---------------------
Secretary Name: Peter J. Fiscina
Myron M. Blumenthal Title: President/CEO
ACCEPTED AND AGREED:
/s/ Frederick J. Roberts
------------------------
Name: Frederick J. Roberts
<PAGE>
Schedule I
----------
Date on which Options
Number of Options become Exercisable
----------------- ---------------------
60,000 April 1, 2002
50,000 April 1, 2003
50,000 April 1, 2004
50,000 April 1, 2005
50,000 April 1, 2006
<PAGE>
Schedule II
If a "Change in Control" (as defined in the Executive Agreement, dated
December 1, 1997, between the Company and Optionee (the "Executive Agreement")),
shall have occurred and within three years of such Change in Control either (I)
Optionee terminates his employment upon making a determination (which
determination will be conclusive and binding upon the Company and the Optionee
provided it has been made in good faith) that Optionee's employment status or
employment responsibilities have been materially and adversely affected thereby,
or (ii) Optionee's employment is terminated by the Corporation, all Options
granted under this Agreement shall become immediately vested and exercisable
and, notwithstanding any other provision of this Agreement, all Options shall
thereafter be exercisable for a period of one (1) year from such date.
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
Agreement made the 2nd day of November, 1995, by and between a
Corporation: Certified Diabetic Supplies, Inc.
(a Florida Corporation) 1951 J & C Boulevard
Naples, Florida 33942
and
Executive: Peter J. Fiscina
15084 Royal Fern Court L-200
Naples, Florida 33963
Effective Date: November 2, 1995
BACKGROUND
It is in the best interest of the Corporation and its Shareholders
to secure Executive's services for the Corporation with an employment agreement.
The Corporation, as an incentive to Executive to become employed and to continue
employment with the Corporation grants compensation, present and future stock
interest and other incentives as more fully set forth in this Agreement and the
attached Schedules. Executive and the Corporation desire to enter into an
Employment Agreement under the terms and conditions set forth below.
NOW THEREFORE, in consideration of the promises and mutual
agreements set forth in this Agreement and for other good and valuable
consideration, the parties agree as follows:
1. EMPLOYMENT
The Executive shall be employed by the Corporation in the
capacity of President and Chief Operating Officer of the Company
2. DUTIES
Executive shall serve the Corporation faithfully and to best of
his ability, under the direction of the Board of Directors. He shall devote his
entire time, energy and skill during the regular business hours and such other
hours as are reasonably necessary and shall perform from time to time such
services and act in such office or capacity as the Board of Directors may
direct. Company acknowledges, however, that Employee has other business
interests and is a director of other businesses and that such activity shall not
constitute a breach of this Agreement as long as it does not normally interfere
with the performance by Employee of his duties hereunder.
<PAGE>
3. COMPENSATION
The Corporation shall pay or cause to pay the Executive during
the term of his employment salary and bonuses as more particularly set forth in
Schedule "A" which is attached to this Agreement and made part hereof.
4. STOCK
Executive shall be entitled to certain capital stock in the
Corporation as set forth in Schedule "B" which is attached to this Agreement and
made a part hereof.
5. ADDITIONAL BENEFITS
Executive shall also be entitled to any fringe benefits which
may from time to time be made available to officers, directors and other
Executives of the Corporation and as set forth in the personal policies of the
Corporation, or as determined by the Board including but not limited to any
employee benefit plan which is qualified and exempt under Section 401(a) and
501(a) of the Internal Revenue Code. Executive shall also be entitled to any
group medical, dental, hospitalization insurance, long-term disability insurance
equal to ($4,000/month) Four Thousand Dollars per month and a life insurance
policy of not less than ($1,000,000) One Million dollars payable in the event of
death of the Executive and the Executive shall select the beneficiary. It is
understood that, with the exception of the life insurance policy, employment is
not a requirement for the Corporation to be responsible for continued coverage
for the executive and his wife for group medical, dental and hospitalization
insurance. This insurance will be a continuing cost to the Corporation until
death of the Executive and his wife, Elizabeth A. Fiscina.
6. EXPENSES
The Corporation shall reimburse Executive for out-of-pocket
expenditures for transportation, fuel, entertainment, travel, meals, hotel
accommodations and the like incurred by him in the interest of the Corporation
("out-of-pocket expenses"). Executive shall each month submit vouchers, receipts
or other documentation together with appropriate written explanation required by
Corporation to verify out-of-pocket expenses and shall be reimbursed for the
actual expenses incurred. Corporation shall provide Executive a reasonable
monthly allowance for automobile expense, including cost of the vehicle, gas,
maintenance, repairs and insurance or, in the alternative, may provide a
suitable motor vehicle for use by the Executive for conduct of business on
behalf of the Corporation.
7. WORKING FACILITIES
The Corporation shall furnish Executive with such office space
and such other facilities and services as in the discretion of the Board of
Directors is appropriate for such an executive position and necessary for
performance of his duties.
8. AUTHORITY TO BIND THE CORPORATION
Executive shall have authority to enter into contracts binding
upon the Corporation and to create any obligations on the part of the
Corporation in the normal course of business and as would be expected of an
Executive of a similar Corporation. Notwithstanding the foregoing, Executive
shall not have the authority to enter into contracts binding the Corporation,
without prior approval with the Board of Directors, for purchases of
transactions equal to or exceeding ($500,000) Five Hundred Thousand Dollars.
2
<PAGE>
9. VACATIONS
Executive shall be entitled each year to six (6) weeks vacation
in accord with company policy for officers, directors senior management
personnel.
Vacations shall be coordinated with other employees of the
Corporation, shall be consistent with Executive's duties (as more fully set
forth in Section 2 of this Agreement) and the needs of the Corporation and shall
be scheduled at such times so as not to interfere with the effective operation
of the Corporation.
10. TERM AND TERMINATION OF EMPLOYMENT
10.a. Term
The term of employment shall be for a period of five (5) years
commencing on the Effective Date of this Agreement November 2, 1995 until
October 31, 2000. At the end of the initial five (5) year term, Corporation and
Executive agree to negotiate in good faith a new contract or extension of the
current contract. In the event the Corporation and Executive fail to reach an
Agreement due solely to the failure of the Corporation to negotiate in good
faith, Executive shall be entitled upon his termination to his highest annual
compensation (to include all bonus compensation) payable for one (1) year from
the date of termination in the same manner his salary was paid while employed
("Severance Pay"). Executive shall have no duty to mitigate damages and should
he accept other employment, severance pay shall not be reduced or deducted from
any other of his earned income.
Further, in the event the Corporation terminates Executive
other than pursuant to the provisions set forth in Section 10b below, the
Executive shall be entitled to (i) the balance of his compensation due under
this Employment Agreement, but in no event Executive shall be paid no less than
an amount equal to two year's compensation as provided in Sections 3, 4, 5, 6,
and 7 (ii) Severance pay for the year following termination and (iii) release of
all stock from any escrow and forfeited provisions set forth in Schedule B.
10.b. Termination
10.b.1 Termination by Death. If Executive dies, then this
Agreement shall terminate immediately, except that Executive's heirs, personal
representatives or estate shall be entitled to receive (a) his salary for a
period of one (1) year after his death payable as his salary was paid during
Executive's lifetime; (b) any accrued benefits up to the date of termination;
(c) bonuses that have accrued but not paid; (d) shares of stock pledged, held in
escrow, stock options, warrants or other rights to own or purchase stock in the
Corporation; and
3
<PAGE>
(e) any benefits which are to be continued or paid after the date of termination
in accordance with the terms of the corresponding benefit plans. Specifically,
medical insurance is to continue for the lifetime of the Executive and his wife,
Elizabeth A. Fiscina.
10.b.2 Termination by Disability. If Executive becomes
disabled, and such disability continues for more than three (3) consecutive
months after the onset of Disability (as defined below) or for periods
aggregating more than four(4) months during any sixth month period, then
Corporation shall have the right to terminate this Agreement immediately, except
that Executive shall be entitled to receive (a) the difference in his Base
Salary above any disability insurance proceeds received from the disability
policy or plan paid for or provided by Corporation for a period of one (1)
calendar year beginning on the date of the Onset of the disability; (b) any
accrued benefits up to the date of the termination; (c) bonuses that have
accrued but not paid; (d) all shares of stock in the Corporation including
without limitation all stock pledge, held in escrow, stock options, warrants or
other rights to own or purchase stock in the Corporation; and (e) any benefits
which are to be continued or paid after the date of termination in accordance
with the terms of the corresponding benefit plans. "Onset of Disability" means
the first day on which Executive shall be unable to perform any of his duties
under this Agreement a full time basis by reason of physical or mental
incapacity, sickness or infirmity.
In the event of a partial disability, Executive shall be
entitled to work for such time and in such capacity as his disability permits
and his salary shall be adjusted accordingly.
10.b.3 For Cause. This Agreement may be terminated for cause
as defined below, upon five (5) days prior written notice from the Corporation
to the Executive upon the occurrence or act by the Executive of any one of more
of the following events:
(a) fraud,
(b) dishonesty, or
(c) other material and willful misconduct by the Executive
If the Executive's employment is terminated for cause pursuant to
this Section, Executive shall be entitled to receive (a) his accrued Base Salary
through the date of termination, (b) any accrued benefits up to the date of
termination, (c) all shares of stock released from any forfeiture provision set
forth in Schedule B and (d) any benefits which are to be continued or paid after
the date of termination in accordance with the terms of corresponding benefit
plans.
10.b.4 Mutual Agreement. This Agreement may be terminated at
any time upon mutual agreement of the parties.
11. PROCEDURE UPON TERMINATION
Upon termination of his employment, Executive shall promptly
return to Corporation all documents (including copies) and other materials and
property of Corporation, pertaining to its business, including without
limitation customer and prospect lists, contracts, files, manuals, letters,
reports and records in his possession or control, no matter from whom or in what
manner required.
4
<PAGE>
12. DISCOVERIES
Except as set forth in this Section, Executive shall
communicate to Corporation, in writing when requested, and preserve as
confidential information of Corporation, all customer lists, trade secrets,
estimating techniques, bidding practices, non-public client information, client
contacts, vendors, business concepts and other ideas, relating to the business
for the Corporation which are conceived, developed or made by Executive, whether
alone or jointly with others, at any time (during or after business hours)
during the term of Executive's employment with Corporation (such concepts,
practices, ideas and lists are referred to "Executive Discoveries") or have been
made heretofore by the Executive in relation to business of the Corporation. All
of Executive's Discoveries shall be Corporation's exclusive property, and
Executive shall, at Corporation's expenses, sign all documents and take such
other actions as they may reasonably request to confirm their ownership of
Executive's Discoveries.
13. NONDISCLOSURE
At all times after the date of this Agreement, except with
Corporation's express prior written consent or in connection with the proper
performance of services under this Agreement, Executive shall not, directly or
indirectly, communicate, disclose or divulge to any Person (as defined in
Section 22 below) or use for the benefit of any Person, any confidential or
proprietary knowledge or information, no matter when or how acquired, concerning
the business of Corporation including, but not limited to, (a) names of
customers, locations, prospects and suppliers, (b) details of contracts,
proposals or other business arrangements with clients, prospects and suppliers,
(c) marketing methods, trade secrets, financial condition, and (d) software,
source code, technical documentation and other information. For purposes of this
Section 13, confidential information shall not include any information which is
known by the general public, or which becomes known by the general public other
than as a result of any improper act or omission of Executive.
14. RESTRICTIVE COVENANT
a. Covenant Not to Compete or Solicit
The Corporation was founded for the purpose of being a
Registered Provider under Medicare to sell durable medical equipment, primarily
diabetic supplies throughout the United States. As a material inducement to
entering this Agreement, Executive agrees and covenants that while he is an
employee of the Corporation and for a period of two (2) years thereafter, he:
(1) shall be restricted from competing with the
Corporation, directly or indirectly on his own behalf or through third parties,
in any manner whatsoever as a shareholder, director, officer, joint venturer,
partner, sole proprietor, investor or, in any other ownership capacity
whatsoever, or as an employee, consultant, agent, or representative of or for a
competing business within the fifty (50) states of the United States all
territories of the United States and Canada;
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(2) shall not either directly or indirectly on his own
behalf or through third parties solicit or attempt to solicit advertisers,
agencies, developers, operators, owners, clients or customers (collectively
"Customers") of the Corporation who are or were customers of the Corporation at
any time during the preceding two (2) years prior to his termination of
employment with respect to any of the Corporation's business or businesses of
its subsidiaries or affiliates for a competing business; and
(3) shall not communicate with or solicit any person or
entity, who is, or during a six (6) month period prior to his termination of
employment an employee, salesman, contractor, agent or representative
(hereinafter collectively "Employee or Contractor"), or Contractor's
relationship with the Corporation or in an effort to obtain such Person as an
employee, salesman, contractor, agent or representative of an entity or business
which competes with the Corporation's business.
b. Convenient Not to Violate Corporate Confidences
The parties agree and acknowledge that the Executive will
have access to and will become aware of confidential information and trade
secrets including Customer data, files, and business techniques, (collectively,
"Confidential Information") and that this confidential information (1) is not
generally available to the public, (2) has been compiled at the Corporation's
expense and over a substantial amount of time, (3) is critical to the
Corporation's ability to compete in the industry in which it does business, and
(4) if disclosed or released will be greatly and irreparably damage the
Corporation's business. Therefore, as a material inducement to entering into
this Agreement, Executive agrees and covenants that he will not, while he is an
Executive or during a two (2) year period beginning on the date of the
termination of his employment, either disclose or divulge this confidential
information to anyone or use this confidential information in any manner to
compete with the Corporation.
c. Enforcement
The Corporation may enforce the provisions of this Section
by suit for damages, injunction, or both, as provided below:
(1) The parties agree and acknowledge that the Corporation
will be irreparably injured by the breach of any provision of this Section, and
that money damages alone will not be an appropriate measure of the harm the
Corporation will suffer from such continuing breach. Therefore, the parties
agree that the equitable relief, including specific performance of these
provisions by injunction, is an appropriate remedy for breach of these
provisions.
(2) The parties also agree and acknowledge, however, that
money damages will be appropriate with respect to any past breach of any
provision of this Section. Therefore, in case of any breach of this Section, the
breaching party shall render a full
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and complete accounting of the gross receipts, expenses, and net profits which
have resulted from such breach and shall be liable for money equal to the
greater of (1) the actual profits recognized by such breaching party from all
transactions in breach of this Section, or (2) profits that the Corporation
could realize from the transactions in breach of this Section.
(3) Notwithstanding anything to the contrary contained in
this Agreement neither the Corporation nor other Shareholders shall be obligated
to make any payments to the Executive under this or any other Agreement between
the parties if the Executive is deemed to have violated any provision of this
Section of this Agreement. Further, breach of this Section shall be a complete
defense to the non-payment by the Corporation of any payments due Executive
under the terms of this Agreement.
(4) The Corporation shall, in addition to the damages
described in this Section be entitled to be reimbursed for all reasonable legal
fees and costs necessary to prosecute any claim or action under this Section as
part of any award by a Court Arbitrator. The term "costs" shall include all the
filing and court costs, investigation, witness and expert witness fees,
deposition costs, travel, long-distance telephone, photocopying and printing and
any and all other costs necessary to prosecute the claim.
(5) If any portion of the provisions of this Section or its
application is construed to be invalid, illegal, or unenforceable, then the
other portions and their application shall not be affected thereby and shall be
enforceable without regard thereto. If any of the Covenants are determined to be
unenforceable because of their scope, duration, geographic area or similar
factor, then the Court or arbitrator making such determination shall have the
power to reduce or limit such scope, duration, area or other factor, and such
Covenant shall then be enforceable in its reduced or limited form.
15. RELATIONSHIP OF PARTIES
The relationship between the partners is that of employer
and employee. The employee shall be eligible to participate in any plans or
arrangements or distributions by the Corporation pertaining to any person,
profit-sharing bonus or similar benefits provided for regular employees and
officers, directors and senior executives except to the extent that such plans,
arrangements, or distributions are superseded by more liberal provisions in the
Agreement.
16. MANAGEMENT RESPONSIBILITY
The parties recognize that the business affairs of the
Corporation shall be managed by the Board of Directors of the Corporation in
accordance with the laws of the State of Florida governing the organization and
administration of business corporations.
17. WAIVER OF BREACH
The waiver by either party hereto of a breach of any
provisions of this Agreement shall not operate to be construed as a waiver of
subsequent breach of the same or any other provision of this Agreement.
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18. NOTICES
All notices, consents or other communication required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given (a) when delivered personally, (b) three (3)
business days after being mailed by first class certified mail, return receipt
requested, postage prepaid, or (c) one (1) business day after being sent by a
reputable overnight delivery service, postage or delivery charges prepaid, to
the parties at their respective address stated on the first page of this
Agreement. Notices may also be given by prepaid telegram or facsimile and be
effective on the date transmitted if confirmed within twenty-four (24) hours
thereafter by a signed original sent in the manner provided in the preceding
sentence. Notice to Corporation, addressed to the attention of the Chairman of
the Board, shall suffice as notice to the Corporation, provided that a copy
thereof is simultaneously sent to the Corporate Attorney of record. Notice to
Executive addressed to the address set forth at the beginning of this Agreement
and shall suffice. Any party may change its address for notice and the address
to which copies must be sent by giving notice of the new addresses to the other
parties in accordance with this Section 18, except that any such change of
address notice shall not be effective unless and until received.
19. PRIOR AGREEMENTS
Executive represents to Corporation (a) that there are no
restrictions, agreements or undertakings whatsoever to which Executive is a part
which would prevent to make unlawful his execution of this Agreement or his
employment hereunder, (b) that his execution of this Agreement or his employment
hereunder do not constitute a breach of any contract, agreement or
understanding, oral or written to which he is a party of which he is bound and
(c) that he is free and able to execute this Agreement and to enter into
employment by Executive.
20. ASSIGNMENT
Corporation may assign its rights and duties under this
Agreement to any party without the consent of Executive. This Agreement, being
for the personal services of Executive, shall not be assignable by him.
21. OTHER PROVISIONS
This Agreement sets forth the entire understanding of the
parties hereto with respect to the subject matter hereof and supersedes all
prior and contemporaneous, oral or written, express or implied, agreements and
understandings. This Agreement shall not be modified or terminated except in
writing. No action taken by Corporation under this Agreement, including without
limitation any waiver, consent or approval, shall be effective unless approved
by Corporation's Board of Directors. This Agreement shall inure to the benefit
of and bind each of the parties hereto and the successors and assigns of
Corporation and the personal representatives, estate and heirs of Executive.
Neither the failure nor any delay on the part of either party to exercise any
right, remedy, power or privilege under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, remedy, power or
privilege preclude any other or further exercise of the same of any other right,
remedy, power or privilege with
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respect to any occurrence or be construed as a waiver of such right, remedy,
power or privilege with respect to any other occurrence. No waiver shall be
effective unless it is in writing and is signed by the party asserted to have
granted such waiver. Any headings preceding the text of any of the Sections or
Subsections of this Agreement are inserted for convenience of reference only,
and shall neither constitute a part of this Agreement nor affect its
construction, meaning, or effect.
22. DEFINITION
22.1 Person. "Person" means any individual,
corporation, partnership, sole proprietorship, joint venture, association,
cooperative, trust, estate, governmental body, administrative agency, regulatory
authority or other entity of an nature.
WITNESS the due execution and delivery hereof on the date
first above written.
CORPORATION: EXECUTIVE:
CERTIFIED DIABETIC SUPPLIES, INC.
/s/ MYRON M. BLUMENTHAL /s/ PETER J. FISCINA
- -------------------------- -----------------------
Name: Myron M. Blumenthal Name: Peter J. Fiscina
Title: Treasurer
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SCHEDULE A
COMPENSATION
1. MINIMUM BASE COMPENSATION
Subject to the termination provisions of the Agreement, Executive
shall be paid an annual minimum base salary of $150,000 per year for all
services rendered to the Corporation for the term of this Agreement ("Minimum
Base Compensation") in equal weekly or bi-weekly installments with a deduction
of all taxes and other amounts required to be withheld or deducted by law.
2. INCENTIVE BONUS COMPENSATION
In addition to his Base Compensation, Executive shall be entitled to
Incentive Bonus Compensation ("Incentive Bonus Compensation") as determined as
follows:
Starting from a base of $2,500,000 in sales and an EBITDA of
$750,000 and not taking into consideration the adjustment for (1) accounts
receivable and (2) officer's salaries. See Schedule Below.
Annual Sales EBITDA Compensation
------------ --------- ------------
$2,500,000 $750,000 $150,000
4,000,000 1,200,000 250,000
6,000,000 1,800,000 300,000
8,000,000 2,400,000 400,000
10,000,000 3,000,000 500,000
Each Incentive Bonus shall be paid not more than thirty (30) days
after a determination that the applicable performance goal has been met. EBITDA
means, for any period, the Company's consolidated earnings from continuing
operations before interest, taxes, depreciation and amortization for such
period.
The Executive shall be entitled to such other cash bonuses as
determined from time to time at the discretion of the Board of Directors based
upon the growth and success of the Corporation.
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SCHEDULE B
STOCK
-----
NONE
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EMPLOYMENT AGREEMENT
Agreement made the 2nd day of November, 1995, by and between a
Corporation: Certified Diabetic Supplies, Inc.
(a Florida Corporation) 1951 J & C Boulevard
Naples, Florida 33942
and
Executive: Myron M. Blumenthal
105 West Shore Drive
Massapequa, New York 11758
Effective Date: November 2, 1995
BACKGROUND
It is in the best interest of the Corporation and its Shareholders
to secure Executive's services for the Corporation with an employment agreement.
The Corporation, as an incentive to Executive to become employed and to continue
employment with the Corporation grants compensation, present and future stock
interest and other incentives as more fully set forth in this Agreement and the
attached Schedules. Executive and the Corporation desire to enter into an
Employment Agreement under the terms and conditions set forth below.
NOW THEREFORE, in consideration of the promises and mutual
agreements set forth in this Agreement and for other good and valuable
consideration, the parties agree as follows:
1. EMPLOYMENT
The Executive shall be employed by the Corporation in the
capacity of Treasurer and Chief Financial Officer of the Company.
2. DUTIES
Executive shall serve the Corporation faithfully and to best of
his ability, under the direction of the Board of Directors. He shall devote his
entire time, energy and skill during the regular business hours and such other
hours as are reasonably necessary and shall perform from time to time such
services and act in such office or capacity as the Board of Directors may
direct. Company acknowledges, however, that Employee has other business
interests and is a director of other businesses and that such activity shall not
constitute a breach of this Agreement as long as it does not normally interfere
with the performance by Employee of his duties hereunder.
<PAGE>
3. COMPENSATION
The Corporation shall pay or cause to pay the Executive during
the term of his employment salary and bonuses as more particularly set forth in
Schedule "A" which is attached to this Agreement and made part hereof.
4. STOCK
Executive shall be entitled to certain capital stock in the
Corporation as set forth in Schedule "B" which is attached to this Agreement and
made a part hereof.
5. ADDITIONAL BENEFITS
Executive shall also be entitled to any fringe benefits which
may from time to time be made available to officers, directors and other
Executives of the Corporation and as set forth in the personal policies of the
Corporation, or as determined by the Board including but not limited to any
employee benefit plan which is qualified and exempt under Section 401(a) and
501(a) of the Internal Revenue Code. Executive shall also be entitled to any
group medical, dental, hospitalization insurance, long-term disability insurance
equal to ($4,000/month) Four Thousand Dollars per month and a life insurance
policy of not less than ($1,000,000) One Million dollars payable in the event of
death of the Executive and the Executive shall select the beneficiary. If, for
any reason, the insurance cannot be placed, then the Executive is entitled to
the cash equivalent.
6. EXPENSES
The Corporation shall reimburse Executive for out-of-pocket
expenditures for transportation, fuel, entertainment, travel, meals, hotel
accommodations and the like incurred by him, in the interest of the Corporation
("out-of-pocket expenses"). Executive shall each month submit vouchers, receipts
or other documentation together with appropriate written explanation required by
Corporation to verify out-of-pocket expenses and shall be reimbursed for the
actual expenses incurred. Corporation shall provide Executive a reasonable
monthly allowance for automobile expense, including cost of the vehicle, gas,
maintenance, repairs and insurance or, in the alternative, may provide a
suitable motor vehicle for use by the Executive for conduct of business on
behalf of the Corporation.
7. WORKING FACILITIES
The Corporation shall furnish Executive with such office space
and such other facilities and services as in the discretion of the Board of
Directors is appropriate for such an executive position and necessary for
performance of his duties.
8. AUTHORITY TO BIND THE CORPORATION
Executive shall have authority to enter into contracts binding
upon the Corporation and to create any obligations on the part of the
Corporation in the normal course of business and as would be expected of an
Executive of a similar Corporation. Notwithstanding the foregoing, Executive
shall not have the authority to enter into contracts binding the Corporation,
without prior approval with the Board of Directors, for purchases of
transactions equal to or exceeding ($500,000) Five Hundred Thousand Dollars.
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9. VACATIONS
Executive shall be entitled each year to six (6) weeks vacation
in accord with company policy for officers, directors senior management
personnel.
Vacations shall be coordinated with other employees of the
Corporation, shall be consistent with Executive's duties (as more fully set
forth in Section 2 of this Agreement) and the needs of the Corporation and shall
be scheduled at such times so as not to interfere with the effective operation
of the Corporation.
10. TERM AND TERMINATION OF EMPLOYMENT
10.a. Term
The term of employment shall be for a period of five (5) years
commencing on the Effective Date of this Agreement November 2, 1995 until
October 31, 2000. At the end of the initial five (5) year term, Corporation and
Executive agree to negotiate in good faith a new contract or extension of the
current contract. In the event the Corporation and Executive fail to reach an
Agreement due solely to the failure of the Corporation to negotiate in good
faith, Executive shall be entitled upon his termination to his highest annual
compensation (to include all bonus compensation) payable for one (1) year from
the date of termination in the same manner his salary was paid while employed
("Severance Pay"). Executive shall have no duty to mitigate damages and should
he accept other employment, severance pay shall not be reduced or deducted from
any other of his earned income.
Further, in the event the Corporation terminates Executive
other than pursuant to the provisions set forth in Section 10b below, the
Executive shall be entitled to (i) the balance of his compensation due under
this Employment Agreement, but in no event Executive shall be paid no less than
an amount equal to two year's compensation as provided in Sections 3, 4, 5, 6,
and 7 (ii) Severance pay for the year following termination and (iii) release of
all stock from any escrow and forfeited provisions set forth in Schedule B.
10.b. Termination
10.b.1 Termination by Death. If Executive dies, then
this Agreement shall terminate immediately, except that Executive's heirs,
personal representatives or estate shall be entitled to receive (a) his salary
for a period of one (1) year after his death payable as his salary was paid
during Executive's lifetime; (b) any accrued benefits up to the date of
termination; (c) bonuses that have accrued but not paid; (d) shares of stock
pledged, held in escrow, stock options, warrants or other rights to own or
purchase stock in the Corporation; and (e) any benefits which are to be
continued or paid after the date of termination in accordance with the terms of
the corresponding benefit plans.
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<PAGE>
10.b.2 Termination by Disability. If Executive becomes
disabled, and such disability continues for more than three (3) consecutive
months after the onset of Disability (as defined below) or for periods
aggregating more than four(4) months during any sixth month period, then
Corporation shall have the right to terminate this Agreement immediately, except
that Executive shall be entitled to receive (a) the difference in his Base
Salary above any disability insurance proceeds received from the disability
policy or plan paid for or provided by Corporation for a period of one (1)
calendar year beginning on the date of the Onset of the disability; (b) any
accrued benefits up to the date of the termination; (c) bonuses that have
accrued but not paid; (d) all shares of stock in the Corporation including
without limitation all stock pledge, held in escrow, stock options, warrants or
other rights to own or purchase stock in the Corporation; and (e) any benefits
which are to be continued or paid after the date of termination in accordance
with the terms of the corresponding benefit plans. "Onset of Disability" means
the first day on which Executive shall be unable to perform any of his duties
under this Agreement on a full time basis by reason of physical or mental
incapacity, sickness or infirmity.
In the event of a partial disability, Executive shall be
entitled to work for such time and in such capacity as his disability permits
and his salary shall be adjusted accordingly.
10.b.3 For Cause. This Agreement may be terminated for
caused as defined below, upon five (5) days prior written notice from the
Corporation to the Executive upon the occurrence or act by the Executive of
any one of more of the following events:
(a) fraud,
(b) dishonesty, or
(c) other material and willful misconduct by the
Executive
If the Executive's employment is terminated for cause pursuant
to this Section, Executive shall be entitled to receive (a) his accrued Base
Salary through the date of termination, (b) any accrued benefits up to the date
of termination, (c) all shares of stock released from any forfeiture provision
set forth in Schedule B and (d) any benefits which are to be continued or paid
after the date of termination in accordance with the terms of corresponding
benefit plans.
10.b.4 Mutual Agreement. This Agreement may be
terminated at any time upon mutual agreement of the parties.
11. PROCEDURE UPON TERMINATION
Upon termination of his employment, Executive shall promptly
return to Corporation all documents (including copies) and other materials and
property of Corporation, pertaining to its business, including without
limitation customer and prospect lists, contracts, files, manuals, letters,
reports and records in his possession or control, no matter from whom or in what
manner required.
12. DISCOVERIES
Except as set forth in this Section, Executive shall
communicate to
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Corporation, in writing when requested, and preserve as confidential information
of Corporation, all customer lists, trade secrets, estimating techniques,
bidding practices, non-public client information, client contacts, vendors,
business concepts and other ideas, relating to the business for the Corporation
which are conceived, developed or made by Executive, whether alone or jointly
with others, at any time (during or after business hours) during the term of
Executive's employment with Corporation (such concepts, practices, ideas and
lists are referred to "Executive Discoveries") or have been made heretofore by
the Executive in relation to business of the Corporation. All of Executive's
Discoveries shall be Corporation's exclusive property, and Executive shall, at
Corporation's expenses, sign all documents and take such other actions as they
may reasonably request to confirm their ownership of Executive's Discoveries.
13. NONDISCLOSURE
At all times after the date of this Agreement, except with
Corporation's express prior written consent or in connection with the proper
performance of services under this Agreement, Executive shall not, directly or
indirectly, communicate, disclose or divulge to any Person (as defined in
Section 22 below) or use for the benefit of any Person, any confidential or
proprietary knowledge or information, no matter when or how acquired, concerning
the business of Corporation including, but not limited to, (a) names of
customers, locations, prospects and suppliers, (b) details of contracts,
proposals or other business arrangements with clients, prospects and suppliers,
(c) marketing methods, trade secrets, financial condition, and (d) software,
source code, technical documentation and other information. For purposes of this
Section 13, confidential information shall not include any information which is
known by the general public, or which becomes know by the general public other
than as a result of any improper act or omission of Executive.
14. RESTRICTIVE COVENANT
a. Covenant Not to Compete or Solicit
The Corporation was founded for the purpose of being a
Registered Provider under Medicare to sell durable medical equipment, primarily
diabetic supplies throughout the United States. As a material inducement to
entering this Agreement, Executive agrees and covenants that while he is an
employee of the Corporation and for a period of two (2) years thereafter, he:
(1) shall be restricted from competing with the
Corporation, directly or indirectly on his own behalf or through third parties,
in any manner whatsoever as a shareholder, director, officer, joint venturer,
partner, sole proprietor, investor or, in any other ownership capacity
whatsoever, or as an employee, consultant, agent, or representatives of or for a
competing business within the fifty (50) states of the United States all
territories of the United States and Canada;
(2) shall not either directly or indirectly on his own
behalf or through third parties solicit or attempt to solicit advertisers,
agencies, developers, operators,
5
<PAGE>
owners, clients or customers (collectively "Customers") of the Corporation who
are or were customers of the Corporation at any time during the preceding two
(2) years prior to his termination of employment with respect to any of the
Corporation's business or businesses of its subsidiaries or affiliates for a
competing business; and
(3) shall not communicate with or solicit any person or
entity, who is, or during a six (6) month period prior to his termination of
employment an employee, salesman, contractor, agent or representative
(hereinafter collectively "Employee or Contractor"), or Contractor's
relationship with the Corporation or in an effort to obtain such Person as an
employee, salesman, contractor, agent or representative of an entity or business
which competes with the Corporation's business.
b. Convenient Not to Violate Corporate Confidences
The parties agree and acknowledge that the Executive will
have access to and will become aware of confidential information and trade
secrets including Customer data, files, and business techniques, (collectively,
"Confidential Information") and that this confidential information (1) is not
generally available to the public, (2) has been compiled at the Corporation's
expense and over a substantial amount of time, (3) is critical to the
Corporation's ability to compete in the industry in which it does business, and
(4) if disclosed or released will be greatly and irreparably damage the
Corporation's business. Therefore, as a material inducement to entering into
this Agreement, Executive agrees and covenants that he will not, while he is an
Executive or during a two (2) year period beginning on the date of the
termination of his employment, either disclose or divulge this confidential
information to anyone or use this confidential information in any manner to
compete with the Corporation.
c. Enforcement
The Corporation may enforce the provisions of this Section
by suit for damages, injunction, or both, as provided below:
(1) The parties agree and acknowledge that the Corporation
will be irreparably injured by the breach of any provision of this Section, and
that money damages alone will not be an appropriate measure of the harm the
Corporation will suffer from such continuing breach. Therefore, the parties
agree that the equitable relief, including specific performance of these
provisions by injunction, is an appropriate remedy for breach of these
provisions.
(2) The parties also agree and acknowledge, however, that
money damages will be appropriate with respect to any past breach of any
provision of this Section. Therefore, in case of any breach of this Section, the
breaching party shall render a full and complete accounting of the gross
receipts, expenses, and net profits which have resulted from such breach and
shall be liable for money equal to the greater of (1) the actual profits
recognized by such breaching party from all transactions in breach of this
Section, or (2) profits that the Corporation could realize from the transactions
in breach of this Section.
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(3) Notwithstanding anything to the contrary contained in
this Agreement neither the Corporation nor other Shareholders shall be obligated
to make any payments to the Executive under this or any other Agreement between
the parties if the Executive is deemed to have violated any provision of this
Section of this Agreement. Further, breach of this Section shall be a complete
defense to the non-payment by the Corporation of any payments due Executive
under the terms of this Agreement.
(4) The Corporation shall, in addition to the damages
described in this Section be entitled to be reimbursed for all reasonable legal
fees and costs necessary to prosecute any claim or action under this Section as
part of any award by a Court Arbitrator. The term "costs" shall include all the
filing and court costs, investigation, witness and expert witness fees,
deposition costs, travel, long-distance telephone, photocopying and printing and
any and all other costs necessary to prosecute the claim.
(5) If any portion of the provisions of this Section or its
application is construed to be invalid, illegal, or unenforceable, then the
other portions and their application shall not be affected thereby and shall be
enforceable without regard thereto. If any of the Covenants are determined to be
unenforceable because of their scope, duration, geographic area or similar
factor, then the Court or arbitrator making such determination shall have the
power to reduce or limit such scope, duration, area or other factor, and such
Covenant shall then be enforceable in its reduced or limited form.
15. RELATIONSHIP OF PARTIES
The relationship between the partners is that of employer and
employee. The employee shall be eligible to participate in any plans or
arrangements or distributions by the Corporation pertaining to any person,
profit-sharing bonus or similar benefits provided for regular employees and
officers, directors and senior executives except to the extent that such plans,
arrangements, or distributions are superseded by more liberal provisions in this
Agreement.
16. MANAGEMENT RESPONSIBILITY
The parties recognize that the business affairs of the
Corporation shall be managed by the Board of Directors of the Corporation in
accordance with the laws of the State of Florida governing the organization and
administration of business corporations.
17. WAIVER OF BREACH
The waiver by either party hereto of a breach of any
provision of this Agreement shall not operate to be construed as a waiver of
subsequent breach of the same or any other provision of this Agreement.
18. NOTICES
All notices, consents or other communication required or
permitted to be
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<PAGE>
given under this Agreement shall be in writing and shall be deemed to have been
duly given (a) when delivered personally, (b) three (3) business days after
being mailed by first class certified mail, return receipt requested, postage
prepaid, or (c) one (1) business day after being sent by a reputable overnight
delivery service, postage or delivery charges prepaid, to the parties at their
respective addresses stated on the first page of this Agreement. Notices may
also be given by prepaid telegram or facsimile and be effective on the date
transmitted if confirmed within twenty-four (24) hours thereafter by a signed
original sent in the manner provided in the preceding sentence. Notice to
Corporation, addressed to the attention of the Chairman of the Board, shall
suffice as notice to the Corporation, provided that a copy thereof is
simultaneously sent to the Corporate Attorney of record. Notice to Executive
addressed to the address set forth at the beginning of this Agreement and shall
suffice. Any party may change its address for notice and the address to which
copies must be sent by giving notice of the new addresses to the other parties
in accordance with this Section 18, except that any such change of address
notice shall not be effective unless and until received.
19. PRIOR AGREEMENTS
Executive represents to Corporation (a) that there are no
restrictions, agreements or undertakings whatsoever to which Executive is a part
which would prevent to make unlawful his execution of this Agreement or his
employment hereunder, (b) that his execution of this Agreement or his employment
hereunder do not constitute a breach of any contract, agreement or
understanding, oral or written to which he is a party of which he is bound and
(c) that he is free and able to execute this Agreement and to enter into
employment by Executive.
20. ASSIGNMENT
Corporation may assign its rights and duties under this
Agreement to any party without the consent of Executive. This Agreement, being
for the personal services of Executive, shall not be assignable by him.
21. OTHER PROVISIONS
This Agreement sets forth the entire understanding of the
parties hereto with respect to the subject matter hereof and supersedes all
prior and contemporaneous, oral or written, express or implied, agreements and
understandings. This Agreement shall not be modified or terminated except in
writing. No action taken by Corporation under this Agreement, including without
limitation any waiver, consent or approval, shall be effective unless approved
by Corporation's Board of Directors. This Agreement shall inure to the benefit
of and bind each of the parties hereto and the successors and assigns of
Corporation and the personal representatives, estate and heirs of Executive.
Neither the failure nor any delay on the part of either party to exercise any
right, remedy, power or privilege under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, remedy, power or
privilege preclude any other or further exercise of the same of any other right,
remedy, power or privilege with respect to any occurrence or be construed as a
waiver of such right, remedy, power or privilege with respect to any other
occurrence. No waiver shall be effective unless it is in writing and is signed
by the party asserted to have granted such waiver. Any headings preceding the
text of any of the Sections or Subsections of this Agreement are inserted for
convenience of reference only, and shall neither constitute a part of this
Agreement nor affect its construction, meaning, or effect.
8
<PAGE>
22. DEFINITION
22.1 Person. "Person" means any individual, corporation,
partnership, sole proprietorship, joint venture, association, cooperative,
trust, estate, governmental body, administrative agency, regulatory authority or
other entity of an nature.
WITNESS the due execution and delivery hereof on the date
first above written.
CORPORATION: EXECUTIVE:
CERTIFIED DIABETIC SUPPLIES, INC.
/s/ PETER J. FISCINA /s/ MYRON M. BLUMENTHAL
- ----------------------- ------------------------------
Name: Peter J. Fiscina Name: Myron M. Blumenthal
Title: President
9
<PAGE>
SCHEDULE A
COMPENSATION
------------
1. MINIMUM BASE COMPENSATION
Subject to the termination provisions of the Agreement, Executive
shall be paid an annual minimum base salary of $100,000 per year for all
services rendered to the Corporation for the term of this Agreement ("Minimum
Base Compensation") in equal weekly or bi-weekly installments with a deduction
of all taxes and other amounts required to be withheld or deducted by law.
2. INCENTIVE BONUS COMPENSATION
In addition to his Base Compensation, Executive shall be entitled to
Incentive Bonus Compensation ("Incentive Bonus Compensation") as determined as
follows:
Starting from a base of $2,500,000 in sales and an EBITDA of
$750,000 and not taking into consideration the adjustment for (1) accounts
receivable and (2) officer's salaries. See Schedule Below.
Annual Sales EBITDA Compensation
------------ ------ ------------
$ 2,500,000 $ 750,000 $100,000
4,000,000 1,200,000 150,000
6,000,000 1,800,000 200,000
8,000,000 2,400,000 250,000
10,000,000 3,000,000 300,000
Each Incentive Bonus shall be paid not more than thirty (30) days
after a determination that the applicable performance goal has been met. EBITDA
means, for any period, the Company's consolidated earnings from continuing
operations before interest, taxes, depreciation and amortization for such
period.
The Executive shall be entitled to such other cash bonuses as
determined from time to time at the discretion of the Board of Directors based
upon the growth and success of the Corporation.
10
<PAGE>
SCHEDULE B
STOCK
-----
NONE
11
<PAGE>
EMPLOYMENT AGREEMENT
Agreement made the 2nd day of November, 1995, by and between a
Corporation: Certified Diabetic Supplies, Inc.
(a Florida Corporation) 1951 J & C Boulevard
Naples, Florida 33942
and
Executive: Albert R. Ayala
22 Lancashire Place
Naples, Florida 33963
Effective Date: November 2, 1995
BACKGROUND
It is in the best interest of the Corporation and its
Shareholders to secure Executive's services for the Corporation with an
employment agreement. The Corporation, as an incentive to Executive to become
employed and to continue employment with the Corporation grants compensation,
present and future stock interest and other incentives as more fully set forth
in this Agreement and the attached Schedules. Executive and the Corporation
desire to enter into an Employment Agreement under the terms and conditions set
forth below.
NOW THEREFORE, in consideration of the promises and mutual
agreements set forth in this Agreement and for other good and valuable
consideration, the parties agree as follows:
1. EMPLOYMENT
The Executive shall be employed by the Corporation in the
capacity of Vice President of the Company.
2. DUTIES
Executive shall serve the Corporation faithfully and to best
of his ability, under the direction of the Board of Directors. He shall devote
his entire time, energy and skill during the regular business hours and such
other hours as are reasonably necessary and shall perform from time to time such
services and act in such office or capacity as the Board of Directors may
direct. Company acknowledges, however, that Employee has other business
interests and is a director of other businesses and that such activity shall not
constitute a breach of this Agreement as long as it does not normally interfere
with the performance by Employee of his duties hereunder.
<PAGE>
3. COMPENSATION
The Corporation shall pay or cause to pay the Executive during
the term of his employment salary and bonuses as more particularly set forth in
Schedule "A" which is attached to this Agreement and made part hereof.
4. STOCK
Executive shall be entitled to certain capital stock in the
Corporation as set forth in Schedule "B" which is attached to this Agreement and
made a part hereof.
5. ADDITIONAL BENEFITS
Executive shall also be entitled to any fringe benefits which
may from time to time be made available to officers, directors and other
Executives of the Corporation and as set forth in the personal policies of the
Corporation, or as determined by the Board including but not limited to any
employee benefit plan which is qualified and exempt under Section 401(a) and
501(a) of the Internal Revenue Code. Executive shall also be entitled to any
group medical, dental, hospitalization insurance, long-term disability insurance
equal to ($4,000/month) Four Thousand Dollars per month and a life insurance
policy of not less than ($1,000,000) One Million dollars payable in the event of
death of the Executive and the Executive shall select the beneficiary.
6. EXPENSES
The Corporation shall reimburse Executive for out-of-pocket
expenditures for transportation, fuel, entertainment, travel, meals, hotel
accommodations and the like incurred by him, in the amount of ($100) One Hundred
Dollars per week, in the interest of the Corporation ("out-of-pocket expenses").
Executive shall each month submit vouchers, receipts or other documentation
together with appropriate written explanation required by Corporation to verify
out-of-pocket expenses and shall be reimbursed for the actual expenses incurred.
Corporation shall provide Executive a reasonable monthly allowance for
automobile expense, including cost of the vehicle, gas, maintenance, repairs and
insurance or, in the alternative, may provide a suitable motor vehicle for use
by the Executive for conduct of business on behalf of the Corporation.
7. WORKING FACILITIES
The Corporation shall furnish Executive with such office space
and such other facilities and services as in the discretion of the Board of
Directors is appropriate for such an executive position and necessary for
performance of his duties.
8. AUTHORITY TO BIND THE CORPORATION
Executive shall have authority to enter into contracts binding
upon the Corporation and to create any obligations on the part of the
Corporation in the normal course of business and as would be expected of an
Executive of a similar Corporation. Notwithstanding the foregoing, Executive
shall not have the authority to enter into contracts binding the Corporation,
without prior approval with the Board of Directors, for purchases of
transactions equal to or exceeding ($10,000) Ten Thousand Dollars.
2
<PAGE>
9. VACATIONS
Executive shall be entitled each year to two (2) weeks
vacation in accord with company policy for officers, directors senior management
personnel.
Vacations shall be coordinated with other employees of the
Corporation, shall be consistent with Executive's duties (as more fully set
forth in Section 2 of this Agreement) and the needs of the Corporation and shall
be scheduled at such times so as not to interfere with the effective operation
of the Corporation.
10. TERM AND TERMINATION OF EMPLOYMENT
10.a. Term
The term of employment shall be for a period of five (5) years
commencing on the Effective Date of this Agreement November 2, 1995 until
October 31, 2000. At the end of the initial five (5) year term, Corporation and
Executive agree to negotiate in good faith a new contract or extension of the
current contract. In the event the Corporation and Executive fail to reach an
Agreement due solely to the failure of the Corporation to negotiate in good
faith, Executive shall be entitled upon his termination to his highest annual
compensation (to include all bonus compensation) payable for one (1) year from
the date of termination in the same manner his salary was paid while employed
("Severance Pay"). Executive shall have no duty to mitigate damages and should
he accept other employment, severance pay shall not be reduced or deducted from
any other of his earned income.
Further, in the event the Corporation terminates Executive
other than pursuant to the provisions set forth in Section 10b below, the
Executive shall be entitled to (i) the balance of his compensation due under
this Employment Agreement, but in no event Executive shall be paid no less than
an amount equal to two year's compensation as provided in Sections 3, 4, 5, 6,
and 7 (ii) Severance pay for the year following termination and (iii) release of
all stock from any escrow and forfeited provisions set forth in Schedule B.
10.b. Termination
10.b.1 Termination by Death. If Executive dies, then this
Agreement shall terminate immediately, except that Executive's heirs, personal
representatives or estate shall be entitled to receive (a) his salary for a
period of one (1) year after his death payable as his salary was paid during
Executive's lifetime; (b) any accrued benefits up to the date of termination;
(c) bonuses that have accrued but not paid; (d) shares of stock pledged, held in
escrow, stock options, warrants or other rights to own or purchase stock in the
Corporation; and (e) any benefits which are to be continued or paid after the
date of termination in accordance with the terms of the corresponding benefit
plans.
3
<PAGE>
10.b.2 Termination by Disability. If Executive becomes
disabled, and such disability continues for more than three (3) consecutive
months after the onset of Disability (as defined below) or for periods
aggregating more than four(4) months during any sixth month period, then
Corporation shall have the right to terminate this Agreement immediately, except
that Executive shall be entitled to receive (a) the difference in his Base
Salary above any disability insurance proceeds received from the disability
policy or plan paid for or provided by Corporation for a period of one (1)
calendar year beginning on the date of the Onset of the disability; (b) any
accrued benefits up to the date of the termination; (c) bonuses that have
accrued but not paid; (d) all shares of stock in the Corporation including
without limitation all stock pledge, held in escrow, stock options, warrants or
other rights to own or purchase stock in the Corporation; and (e) any benefits
which are to be continued or paid after the date of termination in accordance
with the terms of the corresponding benefit plans. "Onset of Disability" means
the first day on which Executive shall be unable to perform any of his duties
under this Agreement a full time basis by reason of physical or mental
incapacity, sickness or infirmity.
In the event of a partial disability, Executive shall be
entitled to work for such time and in such capacity as his disability permits
and his salary shall be adjusted accordingly.
10.b.3 For Cause. This Agreement may be terminated for cause
as defined below, upon five (5) days prior written notice from the Corporation
to the Executive upon the occurrence or act by the Executive of any one of more
of the following events:
(a) fraud,
(b) dishonesty, or
(c) other material and willful misconduct by the Executive
If the Executive's employment is terminated for cause pursuant
to this Section, Executive shall be entitled to receive (a) his accrued Base
Salary through the date of termination, (b) any accrued benefits up to the date
of termination, (c) all shares of stock released from any forfeiture provision
set forth in Schedule B and (d) any benefits which are to be continued or paid
after the date of termination in accordance with the terms of corresponding
benefit plans.
10.b.4 Mutual Agreement. This Agreement may be terminated at
any time upon mutual agreement of the parties.
11. PROCEDURE UPON TERMINATION
Upon termination of his employment, Executive shall promptly
return to Corporation all documents (including copies) and other materials and
property of Corporation, pertaining to its business, including without
limitation customer and prospect lists, contracts, files, manuals, letters,
reports and records in his possession or control, no matter from whom or in what
manner required.
12. DISCOVERIES
Except as set forth in this Section, Executive shall
communicate to Corporation, in writing when requested, and preserve as
4
<PAGE>
confidential information of Corporation, all customer lists, trade secrets,
estimating techniques, bidding practices, non-public client information, client
contacts, vendors, business concepts and other ideas, relating to the business
for the Corporation which are conceived, developed or made by Executive, whether
alone or jointly with others, at any time (during or after business hours)
during the term of Executive's employment with Corporation (such concepts,
practices, ideas and lists are referred to "Executive Discoveries") or have been
made heretofore by the Executive in relation to business of the Corporation. All
of Executive's Discoveries shall be Corporation's exclusive property, and
Executive shall, at Corporation's expenses, sign all documents and take such
other actions as they may reasonably request to confirm their ownership of
Executive's Discoveries.
13. NONDISCLOSURE
At all times after the date of this Agreement, except with
Corporation's express prior written consent or in connection with the proper
performance of services under this Agreement, Executive shall not, directly or
indirectly, communicate, disclose or divulge to any Person (as defined in
Section 22 below) or use for the benefit of any Person, any confidential or
proprietary knowledge or information, no matter when or how acquired, concerning
the business of Corporation including, but not limited to, (a) names of
customers, locations, prospects and suppliers, (b) details of contracts,
proposals or other business arrangements with clients, prospects and suppliers,
(c) marketing methods, trade secrets, financial condition, and (d) software,
source code, technical documentation and other information. For purposes of this
Section 13, confidential information shall not include any information which is
known by the general public, or which becomes known by the general public other
than as a result of any improper act or omission of Executive.
14. RESTRICTIVE COVENANT
a. Covenant Not to Compete or Solicit
The Corporation was founded for the purpose of being a
Registered Provider under Medicare to sell durable medical equipment, primarily
diabetic supplies throughout the United States. As a material inducement to
entering this Agreement, Executive agrees and covenants that while he is an
employee of the Corporation and for a period of two (2) years thereafter, he:
(1) shall be restricted from competing with the Corporation,
directly or indirectly on his own behalf or through third parties, in any manner
whatsoever as a shareholder, director, officer, joint venturer, partner, sole
proprietor, investor or, in any other ownership capacity whatsoever, or as an
employee, consultant, agent, or representative of or for a competing business
within the fifty (50) states of the United States all territories of the United
States and Canada;
(2) shall not either directly or indirectly on his own behalf
or through third parties solicit or attempt to solicit advertisers, agencies,
developers, operators, owners, clients or customers (collectively "Customers")
of the Corporation who are or were customers of the Corporation at any time
5
<PAGE>
during the preceding two (2) years prior to his termination of employment with
respect to any of the Corporation's business or businesses of its subsidiaries
or affiliates for a competing business; and
(3) shall not communicate with or solicit any person or
entity, who is, or during a six (6) month period prior to his termination of
employment an employee, salesman, contractor, agent or representative
(hereinafter collectively "Employee or Contractor"), or Contractor's
relationship with the Corporation or in an effort to obtain such Person as an
employee, salesman, contractor, agent or representative of an entity or business
which competes with the Corporation's business.
b. Convenient Not to Violate Corporate Confidences
The parties agree and acknowledge that the Executive will have
access to and will become aware of confidential information and trade secrets
including Customer data, files, and business techniques, (collectively,
"Confidential Information") and that this confidential information (1) is not
generally available to the public, (2) has been compiled at the Corporation's
expense and over a substantial amount of time, (3) is critical to the
Corporation's ability to compete in the industry in which it does business, and
(4) if disclosed or released will be greatly and irreparably damage the
Corporation's business. Therefore, as a material inducement to entering into
this Agreement, Executive agrees and covenants that he will not, while he is an
Executive or during a two (2) year period beginning on the date of the
termination of his employment, either disclose or divulge this confidential
information to anyone or use this confidential information in any manner to
compete with the Corporation.
c. Enforcement
The Corporation may enforce the provisions of this Section by
suit for damages, injunction, or both, as provided below:
(1) The parties agree and acknowledge that the Corporation
will be irreparably injured by the breach of any provision of this Section, and
that money damages alone will not be an appropriate measure of the harm the
Corporation will suffer from such continuing breach. Therefore, the parties
agree that the equitable relief, including specific performance of these
provisions by injunction, is an appropriate remedy for breach of these
provisions.
(2) The parties also agree and acknowledge, however, that
money damages will be appropriate with respect to any past breach of any
provision of this Section. Therefore, in case of any breach of this Section, the
breaching party shall render a full and complete accounting of the gross
receipts, expenses, and net profits which have resulted from such breach and
shall be liable for money equal to the greater of (1) the actual profits
6
<PAGE>
recognized by such breaching party from all transactions in breach of this
Section, or (2) profits that the Corporation could realize from the transactions
in breach of this Section.
(3) Notwithstanding anything to the contrary contained in this
Agreement neither the Corporation nor other Shareholders shall be obligated to
make any payments to the Executive under this or any other Agreement between the
parties if the Executive is deemed to have violated any provision of this
Section of this Agreement. Further, breach of this Section shall be a complete
defense to the non-payment by the Corporation of any payments due Executive
under the terms of this Agreement.
(4) The Corporation shall, in addition to the damages
described in this Section be entitled to be reimbursed for all reasonable legal
fees and costs necessary to prosecute any claim or action under this Section as
part of any award by a Court Arbitrator. The term "costs" shall include all the
filing and court costs, investigation, witness and expert witness fees,
deposition costs, travel, long-distance telephone, photocopying and printing and
any and all other costs necessary to prosecute the claim.
(5) If any portion of the provisions of this Section or its
application is construed to be invalid, illegal, or unenforceable, then the
other portions and their application shall not be affected thereby and shall be
enforceable without regard thereto. If any of the Covenants are determined to be
unenforceable because of their scope, duration, geographic area or similar
factor, then the Court or arbitrator making such determination shall have the
power to reduce or limit such scope, duration, area or other factor, and such
Covenant shall then be enforceable in its reduced or limited form.
15. RELATIONSHIP OF PARTIES
The relationship between the partners is that of employer and
employee. The employee shall be eligible to participate in any plans or
arrangements or distributions by the Corporation pertaining to any person,
profit-sharing bonus or similar benefits provided for regular employees and
officers, directors and senior executives except to the extent that such plans,
arrangements, or distributions are superseded by more liberal provisions in the
Agreement.
16. MANAGEMENT RESPONSIBILITY
The parties recognize that the business affairs of the
Corporation shall be managed by the Board of Directors of the Corporation in
accordance with the laws of the State of Florida governing the organization and
administration of business corporations.
17. WAIVER OF BREACH
The waiver by either party hereto of a breach of any
provisions of this Agreement shall not operate to be construed as a waiver of
subsequent breach of the same or any other provision of this Agreement.
18. NOTICES
All notices, consents or other communication required or
permitted to be given under this Agreement shall be in writing and shall be
7
<PAGE>
deemed to have been duly given (a) when delivered personally, (b) three (3)
business days after being mailed by first class certified mail, return receipt
requested, postage prepaid, or (c) one (1) business day after being sent by a
reputable overnight delivery service, postage or delivery charges prepaid, to
the parties at their respective address stated on the first page of this
Agreement. Notices may also be given by prepaid telegram or facsimile and be
effective on the date transmitted if confirmed within twenty-four (24) hours
thereafter by a signed original sent in the manner provided in the preceding
sentence. Notice to Corporation, addressed to the attention of the Chairman of
the Board, shall suffice as notice to the Corporation, provided that a copy
thereof is simultaneously sent to the Corporate Attorney of record. Notice to
Executive addressed to the address set forth at the beginning of this Agreement
and shall suffice. Any party may change its address for notice and the address
to which copies must be sent by giving notice of the new addresses to the other
parties in accordance with this Section 18, except that any such change of
address notice shall not be effective unless and until received.
19. PRIOR AGREEMENTS
Executive represents to Corporation (a) that there are no
restrictions, agreements or undertakings whatsoever to which Executive is a part
which would prevent to make unlawful his execution of this Agreement or his
employment hereunder, (b) that his execution of this Agreement or his employment
hereunder do not constitute a breach of any contract, agreement or
understanding, oral or written to which he is a party of which he is bound and
(c) that he is free and able to execute this Agreement and to enter into
employment by Executive.
20. ASSIGNMENT
Corporation may assign its rights and duties under this
Agreement to any party without the consent of Executive. This Agreement, being
for the personal services of Executive, shall not be assignable by him.
21. OTHER PROVISIONS
This Agreement sets forth the entire understanding of the
parties hereto with respect to the subject matter hereof and supersedes all
prior and contemporaneous, oral or written, express or implied, agreements and
understandings. This Agreement shall not be modified or terminated except in
writing. No action taken by Corporation under this Agreement, including without
limitation any waiver, consent or approval, shall be effective unless approved
by Corporation's Board of Directors. This Agreement shall inure to the benefit
of and bind each of the parties hereto and the successors and assigns of
Corporation and the personal representatives, estate and heirs of Executive.
Neither the failure nor any delay on the part of either party to exercise any
right, remedy, power or privilege under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, remedy, power or
privilege preclude any other or further exercise of the same of any other right,
remedy, power or privilege with respect to any occurrence or be construed as a
waiver of such right, remedy, power or privilege with respect to any other
occurrence. No waiver shall be effective unless it is in writing and is signed
by the party asserted to have granted such waiver. Any headings preceding the
8
<PAGE>
text of any of the Sections or Subsections of this Agreement are inserted for
convenience of reference only, and shall neither constitute a part of this
Agreement nor affect its construction, meaning, or effect.
22. DEFINITION
22.1 Person. "Person" means any individual, corporation,
partnership, sole proprietorship, joint venture, association, cooperative,
trust, estate, governmental body, administrative agency, regulatory authority or
other entity of an nature.
WITNESS the due execution and delivery hereof on the date
first above written.
CORPORATION: EXECUTIVE:
CERTIFIED DIABETIC SUPPLIES, INC.
/s/ PETER J. FISCINA /S/ ALBERT R. AYALA
- --------------------------- -------------------------
Name: Peter J. Fiscina Name: Albert R. Ayala
Title: President
9
<PAGE>
SCHEDULE A
COMPENSATION
1. MINIMUM BASE COMPENSATION
Subject to the termination provisions of the Agreement,
Executive shall be paid an annual minimum base salary of $100,000 per year for
all services rendered to the Corporation for the term of this Agreement
("Minimum Base Compensation") in equal weekly or bi-weekly installments with a
deduction of all taxes and other amounts required to be withheld or deducted by
law.
2. INCENTIVE BONUS COMPENSATION
In addition to his Base Compensation, Executive shall be
entitled to Incentive Bonus Compensation ("Incentive Bonus Compensation") as
determined as follows:
Starting from a base of $2,500,000 in sales and an EBITDA of
$750,000 and not taking into consideration the adjustment for (1) accounts
receivable and (2) officer's salaries. See Schedule Below.
Annual Sales EBITDA Compensation
------------ ------ ------------
$2,500,000 $ 750,000 $100,000
4,000,000 1,200,000 150,000
6,000,000 1,800,000 200,000
8,000,000 2,400,000 250,000
10,000,000 3,000,000 300,000
Each Incentive Bonus shall be paid not more than thirty (30)
days after a determination that the applicable performance goal has been met.
EBITDA means, for any period, the Company's consolidated earnings from
continuing operations before interest, taxes, depreciation and amortization for
such period.
The Executive shall be entitled to such other cash bonuses as
determined from time to time at the discretion of the Board of Directors based
upon the growth and success of the Corporation.
10
<PAGE>
SCHEDULE B
STOCK
NONE
11
<PAGE>
EMPLOYMENT AGREEMENT
Agreement made the 9th day of December, 1997, by and between a
The Corporation: Certified Diabetic Services, Inc. (a Delaware corporation)
2373 Horseshoe Drive North
Naples, Florida 34104
and
Executive: Frederick J. Roberts
P.O. Box 7008
Naples, Florida 34101
Effective Date: December 22, 1997
BACKGROUND
It is in the best interest of the Corporation and its
Shareholders to secure Executive's services for the Corporation with an
employment agreement. The Corporation, as an incentive to Executive to become
employed and to continue employment with the Corporation grants compensation,
present and future stock interests and other incentives as more fully set
forth in this Agreement and the attached Schedules. Executive and the
Corporation desire to enter into an Employment Agreement under the terms and
conditions set forth below.
NOW THEREFORE, in consideration of the promises and mutual
agreements set forth in this Agreement and for other good and valuable
consideration, the parties agree as follows:
1. EMPLOYMENT
The Executive shall be employed by the Corporation in the
capacity of President and Chief Operating Officer of the Corporation.
The Corporation shall indemnify Executive to the full extent
of the general laws of the Corporation's state of incorporation, now or
hereafter in force, including the advance of expenses under procedures provided
by such laws.
2. DUTIES
Executive shall serve the Corporation faithfully and to the
best of his ability, under the direction of the Chairman of the Board of
Directors (the "Chairman"). Executive shall be responsible for managing the
daily operations and management of the Corporation, including without
limitation, personnel decisions, sales, marketing, customer support and
financial operations under the guidance of the Chairman. Executive shall perform
such other duties as the
<PAGE>
Chairman may from time to time prescribe consistent with Executive's position,
title, duties, responsibilities, and status with the Corporation. Executive
shall report and be responsible to the Chairman, and shall conduct his
activities hereunder in consultation with and under the reasonable direction and
control of the Chairman. Executive shall devote his entire time, energy and
skill during the regular business hours and such other hours as are reasonably
necessary to the Corporation. The Corporation acknowledges, however, that
Executive has other business interests and is a director of other businesses and
that such activity shall not constitute a breach of this Agreement as long as it
does not normally interfere with the performance by Executive of his duties
hereunder.
3. COMPENSATION
The Corporation shall pay or cause to pay Executive during the
term of his employment salary and bonuses as more particularly set forth in
Schedule "A" which is attached to this Agreement and made part hereof.
4. STOCK
Executive shall be entitled to certain stock and stock options
in the Corporation as set forth in Schedule "B" which is attached to this
Agreement and made a part hereof.
5. ADDITIONAL BENEFITS
Executive shall also be entitled to any fringe benefits which
may from time to time be made available to officers, directors and other
Executives of the Corporation and as set forth in the personal policies of the
Corporation, or as determined by the Board including but not limited to any
employee benefit plan which is qualified and exempt under Section 401(a) and
501(a) of the Internal Revenue Code. Executive shall also be entitled to any
group medical, dental, hospitalization insurance, long-term disability insurance
of not less than ($4,000/month) Four Thousand Dollars per month and a life
insurance policy of not less than ($1,000,000) One Million dollars payable in
the event of death of the Executive and the Executive shall select the
beneficiary. If, for any reason, the insurance cannot be placed, then the
Executive is entitled to the cash equivalent. Executive shall also be entitled
to annual membership fees for up to two private clubs of Executive's choosing,
to incur no more than $3,100 per annum.
6. EXPENSES
The Corporation shall reimburse Executive for out-of-pocket
expenditures for transportation, fuel, entertainment, travel, meals, hotel
accommodations and the like incurred by him, in the interest of the Corporation
("out-of-pocket expenses"). Executive shall each month submit vouchers, receipts
or other documentation together with appropriate written explanation required by
the Corporation to verify out-of-pocket expenses and shall be reimbursed for the
actual expenses incurred. The Corporation shall provide Executive a reasonable
monthly allowance for automobile expense, including cost of the vehicle, gas,
maintenance, repairs and insurance, or in the alternative, may provide a
suitable motor vehicle for use by the Executive for conduct of business on
behalf of the Corporation, of up to ($650) per month.
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7. WORKING FACILITIES
The Corporation shall furnish Executive with such office space
and other facilities and services as in the discretion of the Chairman is
appropriate for such an executive position and necessary for performance of his
duties.
8. AUTHORITY TO BIND THE CORPORATION
Executive shall have authority to enter into contracts binding
upon the Corporation and to create any obligations on the part of the
Corporation in the normal course of business and as would be expected of an
Executive of a similar corporation. Notwithstanding the foregoing, Executive
shall not have the authority to enter into contracts binding the Corporation,
without prior approval with the Chairman, for purchases or transactions equal to
or exceeding ($500,000) Five Hundred Thousand Dollars.
9. VACATIONS
Executive shall be entitled each year to six (6) weeks paid
vacation in accord with company policy for officers, directors, or senior
management personnel.
Vacations shall be coordinated with other employees of the
Corporation, shall be consistent with Executive's duties (as more fully set
forth in Section 2 of this Agreement) and the needs of the Corporation and shall
be scheduled at such times so as not to interfere with the effective operation
of the Corporation.
10. TERM AND TERMINATION OF EMPLOYMENT
10.a. Term
The term of employment shall be for a period of three (3)
years commencing on the Effective Date of this Agreement. At the end of the
initial three (3) year term, the Corporation and Executive agree to negotiate in
good faith a new contract or extension of the current contract. In the event the
Corporation and Executive fail to reach an agreement due solely to the failure
of the Corporation to negotiate in good faith, Executive shall be entitled upon
his termination to his highest annual compensation (to include all bonus
compensation) payable for one (1) year from the date of termination in the same
manner his salary was paid while employed ("Severance Pay").
Further, in the event the Corporation terminates Executive
other than pursuant to the provisions set forth in Section 10.b. below,
Executive shall be entitled to (i) the greater of (a) the balance of his
compensation due under this Agreement, and (b) an amount equal to two year's
compensation and benefits as provided in Sections 3, 4, 5, 6 and 7, (ii)
Severance Pay for the year following termination, and (iii) release of all stock
and stock options of the Corporation set forth in Schedule B from any escrow,
forfeiture, or vesting provisions.
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10.b. Termination
10.b.1 Termination by Death. If Executive dies, then
this Agreement shall terminate immediately, except that Executive's heirs,
personal representatives or estate shall be entitled to receive (a) his Minimum
Base Compensation (as defined in Schedule A) for a period of one (1) year after
his death payable as his Minimum Base Compensation was paid during Executive's
lifetime; (b) any accrued benefits up to the date of termination; (c) bonuses
that have accrued but not paid; (d) all shares of stock and stock options of the
Corporation owned by the Executive or promised by the Corporation to Executive,
including without limitation all stock pledged, held in escrow, stock options,
warrants or other rights to own or purchase stock in the Corporation; and (e)
any benefits which are to be continued or paid after the date of termination in
accordance with the terms of the corresponding benefit plans.
10.b.2 Termination by Disability. If Executive
becomes disabled, and such disability continues for more than three (3)
consecutive months after the onset of Disability (as defined below) or for
periods aggregating more than four (4) months during any six month period, the
Corporation shall have the right to terminate this Agreement immediately, except
that Executive shall be entitled to receive (a) the difference in his Minimum
Base Compensation above any disability insurance proceeds received from the
disability policy or plan paid for or provided by the Corporation for a period
of one (1) year beginning on the date of the Onset of Disability (as defined
below); (b) any accrued benefits up to the date of the termination; (c) bonuses
that have accrued but not paid; (d) all shares of stock and stock options of the
Corporation owned by or promised by the Corporation to Executive, including
without limitation all stock pledged, held in escrow, stock options, warrants or
other rights to own or purchase stock in the Corporation; and (e) any benefits
which are to be continued or paid after the date of termination in accordance
with the terms of the corresponding benefit plans. "Onset of Disability" means
the first day on which Executive shall be unable to perform any of his duties
under this Agreement on a full time basis by reason of physical or mental
incapacity, sickness or infirmity.
In the event of a partial disability, Executive shall be
entitled to work for such time and in such capacity as his disability permits
and his salary be adjusted accordingly.
10.b.3 For Cause. This Agreement may be terminated
for Cause (as defined below), upon five (5) days prior written notice from the
Corporation to Executive upon the occurrence or act by Executive of any one of
more of the following events ("Cause"):
(a) an act of fraud or dishonesty by Executive
that results in gain or personal enrichment
of Executive at the Corporation's expense;
or
(b) Executive's willful engagement in gross
misconduct materially injurious to the
Corporation that has not been cured by
Executive within thirty (30) days of
written notice specifying the alleged
willful gross misconduct and material
injury. For purposes of this Agreement, no
act or failure to act on Executive's part
shall be considered "willful" unless done
or omitted to be done by him not
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in good faith and without reasonable belief
that his action or omission was in the best
interest of the Corporation.
If the Executive's employment is terminated for Cause
pursuant to this Section, Executive shall be entitled to receive (a) his
accrued Minimum Base Compensation through the date of termination, (b) any
accrued benefits up to the date of termination, (c) release of all stock and
stock options of the Corporation set forth in Schedule B from any escrow,
forfeiture, or vesting provisions, and (d) any benefits which are to be
continued or paid after the date of termination in accordance with the terms
of corresponding benefit plan.
10.b.4 Mutual Agreement. This Agreement may be
terminated any time upon mutual agreement of the parties.
10.c. Change in Control
In the event that the Corporation shall have undergone a
Change of Control (as defined in the Executive Agreement, dated the date hereof,
between the Corporation and Executive (the "Executive Agreement")), in lieu of
compensation otherwise provided under this Agreement, Executive shall be
entitled to the benefits described in the Executive Agreement upon the
termination of his employment, either voluntarily by Executive or by the
Corporation for any reason except Executive's Disability or death.
10.d. Mitigation
In the event that Executive's employment is terminated for
any reason, Executive shall have not duty to mitigate his damages by seeking
other employment and the Corporation shall not be entitled to set off amounts
payable under this Agreement any compensation which Executive may receive from
future employment.
11. PROCEDURE UPON TERMINATION
Upon termination of his employment, Executive shall
promptly return to the Corporation all documents (including copies) and other
materials and property of the Corporation, pertaining to its business, including
without limitation customer and prospect lists, contracts, files, manuals,
letters, reports and records in his possession or control, no matter from whom
or in what manner required.
12. DISCOVERIES
Except as set forth in this Section, Executive shall
communicate to the Corporation, in writing when requested, and preserve as
confidential information of the Corporation, all customer lists, trade secrets,
estimating techniques, bidding practices, non-public client information, client
contacts, vendors, business concepts, and other ideas, relating to the business
for the Corporation which are conceived, developed or made by Executive, whether
alone or jointly with others, at any time (during or after business hours)
during the term of Executive's employment with the Corporation (such concepts,
practices, ideas and lists are referred to "Executive Discoveries"). All of
Executive's Discoveries shall be the Corporation's
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exclusive property, and Executive shall, at the Corporation's request and
expense, sign all documents and take such other action as it may reasonably
request to confirm its ownership of Executive's Discoveries.
13. NONDISCLOSURE
At all times after the date of this Agreement, except
with the Corporation's express prior written consent or in connection with the
proper performance of services under this Agreement, Executive shall not,
directly or indirectly, communicate, disclose or divulge to any Person (as
defined in Section 22 below) or use for the benefit of any Person, any
confidential or proprietary knowledge or information, no matter when or how
acquired, concerning the business of the Corporation including, but not limited
to, (a) names of customers, locations, prospects and suppliers, (b) details of
contracts, proposals or other business arrangements with clients, prospects and
suppliers, (c) marketing methods, trade secrets, financial condition, and (d)
software, source code, technical documentation and other information. For
purposes of this Section 13, confidential information shall not include any
information which is known by the general public, or which becomes known by the
general public other than as a result of any improper act or omission of
Executive.
14. RESTRICTIVE COVENANT
a. Covenant Not to Compete or Solicit
The Corporation was founded for the purpose of being a
Registered Provider under Medicare to sell durable medical equipment, primarily
diabetic supplies throughout the United States. As a material inducement to
entering this Agreement, Executive agrees and covenants that while he is an
employee of the Corporation and for a period of two (2) years thereafter (unless
Executive's employment is terminated by the Corporation without cause or
following a Change in Control, in which event the provisions of this Section
14.a. will not be binding on Executive), he:
(1) shall be restricted from competing with the
Corporation, directly or indirectly on his own behalf or through third parties,
in any manner whatsoever as a shareholder, director, officer, joint venturer,
partner, sole proprietor, investor or, in any other ownership capacity
whatsoever, or as an employee, consultant, agent, or representatives of or for a
competing business within the fifty (50) states of the United States all
territories of the United States and Canada; provided, however, that nothing
contained herein shall be construed to prevent Executive from investing in the
stock of any competing corporation listed on a national securities exchange or
traded in the over-the-counter market, but only if Executive is not involved in
the business of such corporation and if Executive and his associates (as such
term is defined in Regulation 14(A) promulgated under the Securities Exchange
Act of 1934, as in effect on the date hereof), collectively, do not own more
than an aggregate of five percent of the stock of such corporation;
(2) shall not either directly or indirectly on his own
behalf or through third parties solicit or attempt to solicit advertisers,
agencies, developers, operators, owners, clients or
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customers (collectively "Customers") of the Corporation who are or were
customers of the Corporation at any time during the proceeding two (2) years
prior to his termination of employment with respect to any of the Corporation's
business or business of its subsidiaries or affiliates for a competing business;
and
(3) shall not communicate with or solicit any person
or entity, who is, or during a six (6) month period prior to Executive's
termination of employment was, an employee, salesman, contractor, agent or
representative of the Corporation (hereinafter collectively "Employee or
Contractor"), in an effort to obtain such Person as an employee, salesman,
contractor, agent or representative of an entity or business which competes with
the Corporation`s business.
b. Convenient Not to Violate Corporate Confidences
The par6ties agree and acknowledge that the Executive
will have access to and will become aware of confidential information and trade
secrets including Customer data, files, and business techniques (collectively,
"Confidential Information") and that this Confidential Information (1) is not
generally available to the public, (2) has been compiled at the Corporation's
expense and over a substantial amount to time, (3) is critical to the
Corporation's ability to compete in the industry in which it does business, and
(4) if disclosed or released will be greatly and irreparably damage the
Corporation's business. Therefore, as a material inducement to entering into
this Agreement, Executive agrees and covenants that he will not, while he is an
Executive or during a two (2) year period beginning on the date of the
termination of his employment, either disclose or divulge this Confidential
Information to anyone or use this Confidential Information in any manner to
compete with the Corporation.
c. Enforcement
The Corporation may enforce the provisions of this
Section by suit for damages, injunction or both, as provided below:
(1) The parties agree and acknowledge that the
Corporation will be irreparably injured by the breach of any provision of this
Section, and that money damages alone will not be an appropriate measure of the
harm the Corporation will suffer from such continuing breach. Therefore, the
parties agree that the equitable relief, including specific performance of these
provisions by injunction, is an appropriate remedy for breach of these
provision.
(2) The parties also agree and acknowledge, however,
that money damages will be appropriate with respect to any past breach of any
provision of this Section. Therefore, in case of any breach of this Section, the
breaching party shall render a full and complete accounting of the gross
receipts, expenses, and net profits which have resulted from such breach and
shall be liable for money equal to the greater of (1) the actual profits
recognized by such breaching party from all transactions in breach of this
Section, or (2) profits that the Corporation could realize from the transactions
in breach of this Section.
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(3) Notwithstanding anything to the contrary
contained in this Agreement neither the Corporation nor other Shareholders shall
be obligated to make any payments to the Executive under this or any other
Agreement between the parties if the Executive is deemed to have violated any
provision of this Section of this Agreement. Further, breach of this Section
shall be a complete defense to the non-payment by the Corporation of any
payments due Executive under the terms of this Agreement.
(4) The Corporation shall, in addition to the damages
described in this Section be entitled to be reimbursed for all reasonable legal
fees and costs necessary to prosecute any claim or action under this Section as
part of any award by a court or arbitrator. The term "costs" shall include all
the filing and court costs, investigation, witness and expert witness fees,
deposition costs, travel, long-distance telephone, photocopying, and printing
and any and all other costs necessary to prosecute the claim.
(5) If any portion of the provisions of this Section
or its application is construed to be invalid, illegal, or unenforceable, then
the other portions and their application shall not be affected thereby and shall
be enforceable without regard thereto. If any of the covenants set forth in this
Section are determined to be unenforceable because of their scope, duration,
geographic area or similar factor, then the court or arbitrator making such
determination shall have the power to reduce or limit such scope, duration, area
or other factor, and such covenant shall then be enforceable in its reduced or
limited form.
15. RELATIONSHIP OF PARTIES
The relationship between the parties is that of employer and
employee. The Executive shall be eligible to participate in any plans or
arrangements or distributions by the Corporation pertaining to any person and
any profit-sharing bonus or similar benefits provided for regular employees
and officers, directors and senior executives except to the extent that such
plans, arrangements, or distributions are superseded by more liberal
provisions in this Agreement.
16. MANAGEMENT RESPONSIBILITY
The parties recognize that the business affairs of the
corporation shall be managed by the Board of Directors of the Corporation in
accordance with the laws of the State of Delaware governing the organization
and administration of business corporations.
17. WAIVER OF BREACH
The waiver by either party hereto of a breach of any
provision of this Agreement shall not operate to be construed as a waiver of
subsequent breach of the same or any other provision of this Agreement.
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18. NOTICES
All notices, consents or other communication required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given (a) when delivered personally, (b) three (3)
business days after being mailed by first class certified mail, return receipt
requested, postage prepaid, or (c) one (1) business day after being sent by a
reputable overnight delivery service, postage or delivery charges prepaid, to
the parties at their respective addresses stated on the first page of this
Agreement (or such other address as the party receiving notice may specify in
accordance with this Section). Notices may also be given by prepaid telegram
or facsimile and be effective on the date transmitted if confirmed within
twenty-four (24) hours thereafter by a signed original sent in the manner
provided in the preceding sentence. Notice to the Corporation, addressed to
the attention of the Chairman of the Board, shall suffice as notice to the
Corporation, provided that a copy thereof is simultaneously sent to the
Corporate Attorney of record. Notice to Executive addressed to the address set
forth at the beginning of this Agreement and shall suffice. Any party may
change its address for notice and the address to which copies must be sent by
giving notice of the new addresses to the other parties in accordance with
this Section 18, except that any such change of address notice shall not be
effective unless and until received.
19. PRIOR AGREEMENTS
Executive represents to the Corporation (a) that there are
no restrictions, agreements or undertakings whatsoever to which Executive is a
party which would prevent or make unlawful his execution of this Agreement or
of his employment hereunder, (b) that his execution of this Agreement or his
employment hereunder do not constitute a breach of any contract, agreement or
understanding, oral or written to which he is a party of which he is bound,
and (c) that he is free and able to execute this Agreement and to enter into
employment by Executive.
20. ASSIGNMENT
This Agreement shall not be assigned by either party without
the prior written consent of the non-assigning party.
21. OTHER PROVISIONS
This Agreement and the Executive Agreement set forth the
entire understanding of the parties hereto with respect to the subject matter
hereof and supersedes all prior and contemporaneous, oral or written, express
or implied, agreement and understandings. This Agreement shall not be modified
or terminated except in writing. The covenants set forth in Sections 10, 11,
12, 13, 14, 18 and this Section 21 shall survive the termination of this
agreement and the termination of Executive's employment with the Corporation.
No action taken by the Corporation under this Agreement, including without
limitation any waiver, consent or approval, shall be effective unless approved
by the Corporation's Chairman or the Board. This Agreement shall inure to the
benefit of and bind each of the parties hereto and the successors and assigns
of the Corporation and the personal representatives, estate and heirs of
Executive. Neither the
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failure nor any delay on the part of either party to exercise any right, remedy,
power or privilege under this Agreement shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, remedy, power or privilege
preclude any other or further exercise of the same or any other right, remedy,
power or privilege with respect to any other occurrence or be construed as a
waiver of such right, remedy, power or privilege with respect to any other
occurrence. No waiver shall be effective unless it is in writing and is signed
by the party asserted to have granted such waiver. Any headings preceding the
text of any of the Sections or Subsections of this Agreement are inserted for
convenience of reference only, and shall neither constitute a part of this
Agreement nor affect its construction, meaning or effect.
22. DEFINITION
Person. "Person" means any individual, corporation,
partnership, sole proprietorship, joint venture, association, cooperative,
trust, estate, governmental body, administrative agency, regulatory authority or
other entity of any nature.
WITNESS the due execution and delivery hereof on the date
first above written.
THE CORPORATION: EXECUTIVE:
CERTIFIED DIABETIC SUPPLIES, INC.
By: /s/ Peter J. Fiscina /s/ Frederick J. Roberts
------------------------- -------------------------
Name: Peter J. Fiscina Name: Frederick J. Roberts
Title: Chairman
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SCHEDULE A
COMPENSATION
1. MINIMUM BASE COMPENSATION
Subject to the termination provisions of the Agreement Executive
shall be paid an annual minimum base salary of $150,000 per year plus such
increase in annual minimum base salary as may be authorized by the Chairman or
the Board of Directors ("Minimum Base Compensation") for all services rendered
to the Corporation for the term of this Agreement in equal weekly or bi-weekly
installments with a deduction of all taxes and other amounts required to be
withheld or deducted by law. The Minimum Base Compensation will be reviewed in
good faith by the Board of Directors on an annual basis and may be increased
but not decreased from the prior level.
2. INCENTIVE BONUS COMPENSATION
In addition to his Minimum Base Compensation, Executive shall be
entitled to Incentive Bonus Compensation ("Incentive Bonus Compensation") as
determined as follows:
Starting from a base of $7,000,000 in sales and an EBITDA of
$2,000,000 and not taking into consideration the adjustment for (1) accounts
receivable and (2) officer's salaries. See Schedule Below.
- --------------------------------------------------------------------------------
Annual Sales EBITDA Incentive Bonus
Compensation
- --------------------------------------------------------------------------------
$ 7,000,000 $2,000,000 $150,000
- --------------------------------------------------------------------------------
10,000,000 3,000,000 200,000
- --------------------------------------------------------------------------------
15,000,000 3,500,000 250,000
- --------------------------------------------------------------------------------
20,000,000 4,000,000 300,000
- --------------------------------------------------------------------------------
25,000,000 5,000,000 350,000
- --------------------------------------------------------------------------------
30,000,000 6,000,000 400,000
- --------------------------------------------------------------------------------
Each Incentive Bonus shall be paid not more than (30) days after
a determination that the applicable performance goal has been met. EBITDA
means, for any period, the Corporation's consolidated earnings from continuing
operations before interest, taxes, depreciation and amortization for such
period.
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The Executive shall be entitled to such other cash bonuses as
determined from time to time at the discretion of the Board of Directors based
upon the growth and success of the Corporation.
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SCHEDULE B
STOCK
25,000 shares of common stock of the Corporation to be issued no
later than June 30, 1998.
Options to purchase 240,000 shares of common stock of the
Corporation, which will vest over a three year period commencing on the
Effective Date of this Agreement.
<PAGE>
EXHIBIT 10.14
EXECUTIVE AGREEMENT
This is an Agreement between Certified Diabetic Services, Inc., a
Delaware corporation, with its principal office at 2373 Horseshoe Drive North,
Naples, Florida 34104 ("the Corporation"), and ________________________________
("Executive"), effective as of December __, 1997.
Recitals
A. Executive is an executive officer of the Corporation or one or more
of its affiliated companies with significant policy-making and operational
responsibilities in the conduct of its business.
B. The Corporation recognizes that Executive is a valuable resource for
the Corporation and desires to be assured of the continued dedication and
services of Executive.
C. The Corporation acknowledges that upon a threatened change in
control Executive may have concerns about the continuation of his employment
status and responsibilities and may be approached by others with employment
opportunities, and the Corporation desires to provide Executive some assurance
as to the continuation of his employment status and responsibilities in the
event of a change in control.
D. The Corporation desires to assure that if it should receive an
offer involving a possible change of control and Executive would be involved
in deliberations or negotiations in connection therewith, Executive would be
in a secure position to consider such offer and negotiate on behalf of the
Corporation and its shareholders as objectively as possible, and to this end
the Corporation desires to protect Executive from any direct or implied threat
to his financial well-being under such circumstances.
E. Executive is willing to continue to serve as an executive of the
Corporation but desires assurance that in the event of a change in control he
will not be exposed to unreasonable financial hardship or loss of status.
Agreement
The parties do hereby agree as follows:
1. Definitions. As used herein:
"Change in Control" - A change in control shall be deemed to have
occurred if and when, after the date hereof any of the following events have
occurred:
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(i) (a) the Corporation (or in one or more transactions 50% or more
of its assets or earning power) is acquired by or combined with another Person
and (b) the owners of the voting shares of the Corporation outstanding
immediately prior to such acquisition or combination own less than a majority
of the outstanding voting shares of the Person surviving such transaction (or
the ultimate parent of the surviving Person) immediately after such
acquisition or combination;
(ii) there is a report filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report), each as promulgated pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), disclosing
that any person (including any "person" as defined in Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the
term "beneficial owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of securities representing 10%
or more of the combined voting power of the then outstanding securities
entitled to vote generally in the election of directors ("Voting Stock") of
the Corporation;
(iii) the Corporation files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act disclosing in
response to Form 8-K or Schedule 14A (or any successor schedule, form or
report or item therein) that a change in control of the Corporation has
occurred or will occur in the future pursuant to any then-existing contract or
transaction; or
(iv) if, during any period of two consecutive years, individuals who
at the beginning of any such period constitute the Board of Directors of the
Corporation ("Board") cease for any reason to constitute at least a majority
thereof; provided, however, that for purposes of this clause (iv) each
Director who is first appointed, or first nominated for election by the
Corporation's stockholders, by a vote of at least two-thirds of the Directors
of the Corporation (or a committee thereof) then still in office who were
Directors of the Corporation at the beginning of any such period will be
deemed to have been a Director of the Corporation at the beginning of such
period; or
(v) The occurrence of any other event or circumstance which is not
covered by (i) through (iv) above which the Board determines affects control
of the Corporation and, in order to implement the purposes of this Agreement
as set forth above, adopts a resolution that such event or circumstance
constitutes a Change in Control for the purposes of this Agreement.
Notwithstanding the foregoing provisions of paragraphs 1 (ii) or
(iii), unless otherwise determined in a specific case by majority vote of the
Board, a "Change in Control" shall not be deemed to have occurred for purposes
of paragraphs (ii) or (iii) solely because (1) the Corporation, (2) an entity
in which the Corporation directly or indirectly beneficially owns 50% or more
of the entity's outstanding voting stock (a "Subsidiary"), or (3) any employee
stock ownership plan or any other employee benefit plan of the Corporation or
any Subsidiary either files or becomes obligated to file a report or a proxy
statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or
Schedule 14A (or any successor schedule, form or report or item therein) under
the Exchange Act disclosing beneficial ownership by it of shares of voting
stock of the Corporation, whether in excess of 10% or otherwise, or because
the Corporation reports that a change in control of the Corporation has
occurred or will occur in the future by reason of such beneficial ownership.
In defining "Control," all voting securities of the Corporation shall be
considered to be a single class.
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"Minimum Base Compensation" means the Executive's current base annual
salary, plus such increases to the base annual compensation as the Board may
authorize in their discretion from time to time, but in no event less than the
annual base salary in effect at the time of making this Agreement.
"Person" means any individual, corporation, partnership, sole
proprietorship, joint venture, association, cooperative, trust, estate,
governmental body, administrative agency, regulatory authority or other entity
of an nature.
2. Termination Following Change in Control. Executive shall be
entitled to the benefits described below if a Change in Control shall have
occurred and within three years of such Change in Control either (i) Executive
terminates his employment upon making a determination (which determination
will be conclusive and binding upon the parties to this Agreement provided it
has been made in good faith) that Executive's employment status or employment
responsibilities have been materially and adversely affected thereby, or (ii)
his employment is terminated by the Corporation:
(a) Executive shall be entitled to receive an amount equal to three
times his Minimum Base Compensation in effect for the year in which
his termination of employment occurs. Executive shall also be
entitled to receive three times the average bonus or incentive
compensation paid to him in respect of the three fiscal years (or
such lesser number of years as Executive has been employed by the
Corporation) preceding his termination of employment. At Executive's
option the amount payable under this paragraph 2(a) shall be paid to
him in one lump sum within thirty days after termination of
employment or in twenty-four equal consecutive monthly payments
commencing on the first day of the month following termination of
employment.
(b) The Corporation shall maintain for Executive's benefit until the
earlier of (i) thirty-six months after termination of employment, or
(ii) Executive's commencement of full-time employment with a new
employer (the "Continuation Period"), all costs and expenses
associated with providing a corporate automobile, all professional
memberships, dues in all clubs in which Executive maintains
membership, all life insurance, medical, health and accident,
disability plans or programs and such other substantially similar
benefits which Executive shall have been entitled to prior to
termination, provided Executive's continued participation is
permitted under the general terms of such plans and programs after
the termination of employment. In the event Executive's
participation in any such plan or program is not permitted, the
Corporation will provide at no cost to Executive directly the
benefits to which Executive would be entitled under such plans and
programs.
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(c) Executive also shall be paid the aggregate of the increases in
the single sum actuarial equivalents of Executive's vested accrued
benefits under the Corporation's retirement plan or any successor
plan (the "Pension Plan") and each nonqualified defined benefit
pension plan sponsored by the Corporation, including any
supplemental executive retirement plan that would result if
Executive were credited with three additional years of service and
benefit service and three additional years of age under such plans.
(d) Executive shall be entitled to all shares of stock and stock
options of the Corporation owned by Executive or promised by the
Corporation to Executive, including without limitation all stock
pledged, held in escrow, stock options, warrants or other rights to
own or purchase stock in the Corporation, released of any escrow,
forfeiture, or vesting provisions.
(e) Without limiting the rights of Executive at law or in equity, if
the Corporation fails to make any payment or provide any benefit
required to be made or provided under this Agreement on a timely
basis, the Corporation will pay interest on the amount or value
thereof at an annualized rate of interest equal to the greater of
(i) 12% or (ii) the prime commercial rate in effect of the
Corporation primary lender from time to time. Such interest will be
payable as it accrues on demand. Any change in such prime rate will
be effective on and as of the date of such change.
3. Consideration for Payments. The Corporation hereby acknowledges that
it will be difficult (a) for Executive to find reasonably comparable employment,
and (b) to measure the amount of damages which Executive may suffer as a result
of termination of employment. Accordingly, the payment of the severance
compensation by the Corporation to Executive in accordance with the terms of
this Agreement is hereby acknowledged by the Corporation to be reasonable and
will be liquidated damages, and Executive will not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise, nor will any profits, income, earnings or other benefits from any
source whatsoever create any mitigation, offset, reduction or any other
obligation on the part of Executive under this Agreement or otherwise. The
Corporation shall not be entitled to set off or counterclaim against amounts
payable hereunder any claim, debt or obligation of Executive.
4. Excise Tax Payments. In the event that Executive becomes entitled
to the benefits described in this Agreement ("Severance Payments"), if any of
the Severance Payments will be subject to the tax (the "Excise Tax") imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"),
or any similar federal or state excise tax, the Corporation shall pay to
Executive at the time specified in Section 2(a) above, an additional amount
(the "Gross-Up Payment") such that the net amount retained by Executive after
payment of any Excise Tax, and any federal, state and local income tax on the
Gross-Up Payment itself shall be equal to the amount of the Severance Payments
stated in this Agreement.
<PAGE>
For purposes of determining whether any of the Severance Payments
will be subject to the Excise Tax and the amount of such Excise Tax:
(a) any other payments or benefits received or to be received by
Executive in connection with a Change of Control of the Corporation
or the termination of employment (whether pursuant to the terms of
this Agreement or of any other plan, arrangement or agreement with
the Corporation, or with any Person whose actions result in a Change
in Control or with any other Person affiliated with the Corporation
or such Person) shall be treated as "parachute payments" with the
meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) shall be treated
as subject to the Excise Tax, unless in the opinion of tax counsel
selected by the Corporation's independent auditors and acceptable to
Executive, other payments or benefits (in whole or in part) do not
constitute parachute payments, or such excess parachute payments (in
whole or in part) represent reasonable compensation for services
actually rendered within the meaning of Section 280G(b)(4) of the
Code;
(b) the amount of the Severance Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (i) the
total amount of the Severance Payments or (ii) the amount of excess
parachute payments within the meaning of Section 280G(b)(1) and (4)
(after applying clause (a), above); and
(c) the value of any noncash benefits or any deferred payment or
benefit shall be determined by the Corporation's independent
auditors in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment,
Executive shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the highest marginal
rates of taxation in the state and locality of Executive's residence on the
date of termination of employment, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes.
If the Excise Tax is subsequently determined to be less than the
amount taken into account under this Section 4 at the time of termination of
employment, Executive shall repay to the Corporation, at the time the
reduction in Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction. If the Excise Tax is determined to
exceed the amount taken into account under this Section 4 at the time of
termination of employment, the Corporation shall make an additional Gross-Up
Payment to Executive in respect of such excess at the time the amount of such
excess is finally determined.
<PAGE>
5. Arrangements Not Exclusive. The specific benefit arrangements
referred to in this Agreement are not intended to exclude Executive from
participation in or from other benefits available to executive personnel
generally or to preclude Executive's right to other compensation or benefits
as may be authorized by the Board of the Corporation at any time. The
provisions of this Agreement and any payments provided for hereunder shall not
reduce any amounts otherwise payable, or in any way diminish Executive's
existing rights, or rights which would accrue solely as the result of the
passage of time under any benefit plan, incentive plan, stock option plan,
employment agreement or other contract, plan or arrangement except as may be
specified in such contract, plan or arrangement.
6. The Corporation's Right to Terminate Employment. This Agreement
sets forth the severance benefits payable to Executive in the event his
employment with the Corporation is terminated under certain conditions
subsequent to a Change in Control (as defined in Section 1 hereof). This
Agreement is not an employment contract nor is it intended to confer upon the
Executive any right to continued employment. Notwithstanding the foregoing,
any termination of employment of Executive or the removal of the Executive
from the current office or position of Executive at the Corporation following
the commencement of any discussion with a third person that ultimately results
in a Change in Control shall be deemed to be a termination or removal of
Executive after a Change in Control for purposes of this Agreement.
7. Enforcement Costs; Interest. The Corporation is aware that, upon
the occurrence of a Change in Control, the Board or a stockholder of the
Corporation may then cause or attempt to cause the Corporation to refuse to
comply with its obligations under this Agreement, or may cause or attempt to
cause the Corporation to institute, or may institute, litigation seeking to
have this Agreement declared unenforceable, or may take, or attempt to take,
other action to deny Executive the benefits intended under this Agreement. In
these circumstances, the purpose of this Agreement could be frustrated.
It is the intent of the Corporation that Executive not be required to
incur the expenses associated with the enforcement of his rights under this
Agreement by litigation or other legal action nor be bound to negotiate any
settlement of his rights hereunder under threat of incurring such expenses
because the cost and expense thereof would substantially detract from the
benefits intended to be extended to Executive hereunder. Accordingly, if
following a Change in Control it should appear to Executive that the
Corporation has failed to comply with any of its obligations under this
Agreement or in the event that the Corporation or any other person takes any
action to declare this Agreement void or unenforceable, or institute any
litigation or other legal action designed to deny, diminish or to recover from
Executive, the benefits intended to be provided to Executive under this
Agreement, the Corporation irrevocably authorizes Executive from time to time
to retain counsel of his choice at the expense of the Corporation as provided
in this Section 7 to represent Executive in connection with the initiation or
defense of any litigation or other legal action, whether by or against the
Corporation or any director, officer, stockholder or other person affiliated
with the Corporation.
<PAGE>
Notwithstanding any existing or prior attorney-client relationship
between the Corporation and such counsel, the Corporation irrevocably consents
to Executive entering into an attorney-client relationship with such counsel,
and in that connection the Corporation and Executive agree that a confidential
relationship shall exist between Executive and such counsel. The reasonable
fees and expenses of counsel selected from time to time by Executive as
provided above shall be paid or reimbursed to Executive by the Corporation on
a regular, periodic basis upon presentation by Executive of a statement or
statements prepared by such counsel in accordance with its customary
practices. In any action involving this Agreement, Executive shall be entitled
to prejudgment interest on any amounts found to be due him from the date such
amounts would have been payable to Executive pursuant to this Agreement at an
annual rate of interest equal to the greater of (a) 12%, or (b) the prime
commercial rate in effect at the Corporation's primary lender from time to
time during the prejudgment period.
8. Termination. This Agreement shall terminate if the employment of
Executive with the Corporation shall terminate prior to a Change in Control.
9. Successors and Assigns. In the event that the Corporation shall
merge or consolidate with any other corporation or all or substantially all
the Corporation's business or assets shall be transferred in any manner to any
other Person, such Person shall thereupon succeed to, and be subject to, all
rights, interests, duties and obligations of, and shall thereafter be deemed
for all purposes hereof to be, the Corporation under this Agreement. This
Agreement shall be binding upon and inure to the benefit of any such successor
and the personal and legal representatives of Executive. If Executive should
die while any amounts are still payable to him under this Agreement, all such
amounts shall be paid in accordance with the terms of this Agreement to
Executive's beneficiary indicated on the Beneficiary Designation, attached
hereto as Exhibit A.
10. Severability. In the event that any section, paragraph, clause or
other provision of this Agreement shall be determined to be invalid or
unenforceable in any jurisdiction for any reason, such section, paragraph,
clause or other provision shall be enforceable in any other jurisdiction in
which valid and enforceable and, in any event, the remaining sections,
paragraphs, clauses and other provisions of this Agreement shall be unaffected
and shall remain in full force and effect to the fullest extent permitted by
law.
11. Indemnification. For a period of five years after any termination
of Executive's employment, the Corporation shall provide Executive (including
his heirs, executors and administrators) with coverage under a standard
directors' and officers' liability insurance policy at its expense, and shall
indemnify, hold harmless and defend Executive (and his heirs, executors and
administrators) to the fullest extent permitted under the laws of the
Corporation's state of organization against all expenses and liabilities
reasonably incurred by him in connection with or arising out of any action,
suit or proceeding in which he may be involved by reason of his having been a
director or officer of the Corporation or any subsidiary (whether or not he
continues to be a director or officer at the time of incurring such expenses
or liabilities), such expenses and liabilities to include, but not be limited
to, judgments, court costs and attorneys' fees and the cost of reasonable
settlements.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed on December __,
1997.
EXECUTIVE: CERTIFIED DIABETIC SERVICES, INC.
____________________________ By: _________________________
Peter J. Fiscina, Chairman
Print Name: ________________
<PAGE>
Exhibit A
Beneficiary Designation
In the event of my death, I hereby direct that any amounts due me
under the agreement to which this Beneficiary Designation is attached shall be
distributed to the person designated below. If no beneficiary shall be living
to receive such assets they shall be paid to the administrator or executor of
my estate.
- ---------------------- ----------------------------------------
Date
Executive's Name _______________________
----------------------------------------
Beneficiary's Name
----------------------------------------
Relationship to Executive
<PAGE>
[LOGO]
FIRST NATIONAL BANK
OF NAPLES
P.O. Box 413043
Naples, Florida 34101-3043
Phone: (941) 262-7600
Fax: (941) 262-6267
June 26, 1997
Mr. Peter J. Fiscina, President
Certified Diabetic Supplies, Inc.
1954 J & C Blvd.
Naples, FL 34109
Dear Mr. Fiscina:
FIRST NATIONAL BANK OF NAPLES,("Lender") is pleased to inform you that
is has approved your request for a loan (the "Loan") in an amount up to One
Million and no/100 Dollars ($1,000,000.00) under terms as further outlined in
this commitment letter, for the purpose of a working capital line of credit. The
Loan shall be evidenced by Borrower's promissory note in the amount of
$1,000,000.00 (the "Note") and secured by UCC-1 filings, giving the bank a first
lien position, covering all accounts, accounts receivable, inventory, and
equipment now owned or hereafter acquired.
Borrower
Certified Diabetic Supplies, Inc., a Delaware corporation.
Loan Amount:
The total amount of the Loan shall be a maximum of $1,000,000.00.
Interest Rate:
Interest on all amounts which shall, from time to time, remain
outstanding under the loan shall accrue at the rate of Prime plus three quarters
of one percent (.75%) per annum. Interest shall be calculated on the basis of
the actual number of days elapsed over a 360 day year. Prime rate is the "Prime
Rate" charged by Banker's Trust of New York, NY.
1
/S/ILLEGIBLE
"Where little things make a BIG difference."
<PAGE>
Payments:
Payments of interest on the outstanding balance shall be due and
payable monthly, and continuing on the same date of each and every month
thereafter. Principal due on maturity of note.
Loan Advance:
Funds shall be advanced based on a formula of 65% percent of current
accounts receivables, 50% of inventory and $300,000.00 to be advanced after
receipt of a letter from Jesup & Lamont Securities, Inc. of New York, New York
authorizing payment of Three Hundred Thousand and NO/100 Dollars ($300,000.00)
from the first proceeds of sale of stock offering.
Loan Term:
The loan shall be a Revolving Line of Credit for a term of one year.
Each advance shall have a maturity date not to exceed the term of the line.
Deposits:
Certified Diabetic Supplies, Inc. and related companies shall maintain
its depository relationship at First National Bank of Naples.
Guaranty:
The loan shall be guaranteed by Peter J. Fiscina and Albert R. Ayala.
Lender Agree's to review Borrower's financial condition at such time as
Certified Diabetic Supplies, Inc. becomes a publicly traded company on the
Nasdaq Stock Exchange. Lender may elect to release Peter J. Fiscina and Albert
R. Ayala from their respective guarantees. However, the election to do so is at
the sole discretion of the Lender.
Closing Date:
The loan shall be closed upon five (5) days notice to Lender by
Borrower but not later than August 29, 1997.
Miscellaneous:
1. Borrower shall obtain and maintain satisfactory liability insurance
coverage on all collateral listed on the loan. The initial policy shall be
prepaid and delivered to Lender prior to closing and all renewal policies shall
be deposited with Lender as evidence of such insurance.
2
/S/ILLEGIBLE
<PAGE>
2. The Note will provide that in the event payment of any monthly
interest is not made within ten (10) days of its due date, a late charge of five
percent (5%) of such payment may be assessed, or that in the event of any
default in the terms of the Loan, the Borrower shall pay, during the period of
default, interest on the unpaid balance of the Loan at the maximum rate
allowable by law. The Note shall further provide that if all or any part of any
installment payment remains unpaid more than ten (10) days after the date due
and payable, or if any other sums required to be paid under the Note are not
paid when due, or if Borrower should default in the observance of any of the
covenants, terms and conditions of the Note or any other Loan Document then the
entire principal amount of the Loan, together with all accrued interest thereon,
shall, at the option of Lender, become immediately due and payable forthwith
without further notice to Borrower. The Loan may be prepaid in whole or part, at
anytime and from time to time, while not in default. All payments under the Note
shall be applied first to accrued and unpaid interest and the balance, if any to
principal.
3. Lender will require of Borrower and Peter J. Fiscina and Albert R.
Ayala to furnish Lender, within 90 days following the end of each fiscal year
during the term of the Loan, and at such other times as Lender may require, a
copy of the Borrower's current financial statement (balance sheet and profit and
loss statements) and federal income tax return (or other income verification
satisfactory to Lender).
4. The Note will contain a provision that on sale or transfer of (a)
the subject property and assets or any legal or equitable interest therein, or
(b) beneficial interest in Borrower (if Borrower is a corporation, partnership,
or fiduciary), without Lender's prior written approval, then Lender may, at
Lender's option, declare the indebtedness secured by the Note immediately due
and payable without forfeiture of any prepayment penalty agreed to in the Note.
5. Borrower will deliver to Lender a "Receivables Aging Schedule" and
"Inventory Listing" on a monthly basis and quarterly interim financial
statements on Certified Diabetic Supplies, Inc.
6. The Note will contain a provision prohibiting Borrower form pledging
or encumbering the business assets or personal property securing this Loan in
any manner whatsoever without the prior written consent of Lender.
/S/ILLEGIBLE
3
<PAGE>
7. All Loan documents, guarantees, and security agreements used in this
transaction shall be on forms prescribed or approved by Lender and Lender's
legal counsel.
8. This commitment is subject to all provisions imposed on Lender by
regulatory authorities, provided, however, if it should be determined that any
such regulatory provisions would prevent the closing of the loan as contemplated
herein, then, unless Borrower agrees in writing to such changes in this
commitment as may be required to conform the Loan to such regulations, the
commitment fee will be refunded and this commitment will be canceled and
considered null and void.
9. This commitment is conditioned upon the initial and continuing
accuracy and applicability of all information, data, representations, exhibits,
financial statements, and other material submitted to Lender in connection with
the application for, and the consummation of, the subject Loan. Any material
misinformation or withholding of material information incident thereto shall, at
the option of Lender, void all of Lender's obligations hereunder. Should any
material adverse change take place in Borrower's business or financial condition
or in the subject property, Lender shall have the option of canceling this
commitment. It is agreed that in such event all fees paid by Borrower will be
retained by Lender as liquidated damages. By acceptance of this commitment,
Borrower agrees to promptly notify Lender in writing of any material changes in
information submitted to Lender.
10. All terms and conditions of this commitment are basic to the
proposed Loan transaction. All instruments executed and delivered in connection
with said transaction shall, to the extent the provisions thereof are consistent
with the terms hereof, be construed merely as implementing this commitment. To
the extent the terms of this commitment are not contradicted by the provisions
of instruments later executed, the terms hereof shall survive the execution and
delivery of all documents connected with the subject Loan transaction.
11. This commitment letter sets forth the entire agreement between
Borrower and Lender and supersedes any and all statements, agreements or
representations, whether oral or written, made by Lender or anyone acting on
Lender's behalf. Any modification or wiaver of any provisions of this commitment
must be in writing and must be signed by Borrower and Lender.
/S/ILLEGIBLE
4
<PAGE>
12. Borrower's acceptance of this commitment shall constitute its
unconditional agreement to pay all costs, expenses in connection with this
commitment letter and the making of the Loan, whether or not the Loan closes,
including but not limited to, the cost of obtaining, preparing and furnishing
all documents required herein including hazard insurance; recording and filing
fees; any outside legal counsel retained by Lender.
13. Lender reserves the right at such times as lender may reasonably
request to make a physical inspection of the inventory.
14. Borrower shall provide Certification of Good Standing from the
State of Delaware, showing the Corporation is in good standing and authorized to
do business in the State of Florida.
Commitment Fee:
No Fee - Shall be due upon acceptance of this commitment letter. Lender
and Borrower agree that a $500.00 commitment fee was previously paid on loan
number CLA 117-87703. Loan number CLA 117-87703 is replaced by this commitment
and no fees will be due unless renewed at maturity.
Representations:
This commitment has been issued to Borrower on the basis of all
information provided by Borrower and all representations, exhibits, data and
other materials submitted with or in support of Borrower's Loan Application. Any
material misinformation or withholding of material information hereto shall, at
the option of Lender, void all of Lender's obligations hereunder.
This commitment shall only be effective upon receipt by Lender on or
before July 30, 1997, of an accepted copy of this commitment executed by
Borrower. If an accepted commitment, is not received by Lender as hereinabove
set forth, this commitment shall terminate.
Borrower and Lender agree that this commitment letter shall survive the
closing of the Loan contemplated herein and that each and every one of the
obligations and undertakings of the Borrower set forth herein shall be
continuing obligations and undertakings and shall not cease or terminate until
the Loan, including any renewals or extensions, together with all principal and
interest have been paid in full.
/S/ILLEGIBLE
5
<PAGE>
Very truly yours,
/s/ RONALD L. RUCKER SVP
Ronald L. Rucker
Senior Vice Preisdent
The undersigned hereby accept the terms and conditions of the foregoing
loan commitment of FIRST NATIONAL BANK OF NAPLES on this 22 day of July, 1997.
BORROWER:
Certified Diabetic Supplies, Inc.
By: /s/ PETER J. FISCINA Submitted with $ N/A.
---------------------------------- -----
Peter J. Fiscina, President
GUARANTOR:
By: /s/ PETER J. FISCINA
----------------------------------
Peter J. Fiscina, Individually
By: /s/ ALBERT R. AYALA
----------------------------------
Albert R. Ayala, Individually
/S/ILLEGIBLE
6
<PAGE>
EXHIBIT 10.16
COMMERCIAL SECURITY AGREEMENT
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
$1,000,000.00 07-31-1997 07-31-1998 11788704 C4A 35 RLR
- ------------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular
loan or item.
Borrower: CERTIFIED DIABETIC SUPPLIES INC. Lender: FIRST NATIONAL BANK OF NAPLES
1954 J & C BLVD MAIN OFFICE
NAPLES, FL 34109 900 GOODLETTE ROAD NORTH
P.O. BOX 413043
NAPLES, FL 34101-3043
====================================================================================================================================
</TABLE>
THIS COMMERCIAL SECURITY AGREEMENT is entered into between CERTIFIED DIABETIC
SUPPLIES INC. (referred to below as "Grantor"); and FIRST NATIONAL BANK OF
NAPLES (referred to below as "Lender"). For valuable consideration, Grantor
grants to Lender a security interest in the Collateral to secure the
indebtedness and agrees that Lender shall have the rights stated in this
Agreement with respect to the Collateral, in addition to all other rights
which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
Agreement. The word "Agreement" means this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules
attached to this Commercial Security Agreement from time to time.
Collateral. The word "Collateral" means the following described
property of Grantor, whether now owned or hereafter acquired, whether
now existing or hereafter arising, and wherever located:
All Inventory, Chattel Paper, Accounts, Equipment, General
Intangibles, Furniture and Fixtures now owned and hereafter
acquired by debtor, wherever located
In addition, the word "Collateral" includes all the following,
whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
(a) All attachments, accessions, accessories, tools, parts,
supplies, increases, and additions to and all replacements
of and substitutions for any property described above.
<PAGE>
(b) All products and produce of any of the property
described in this Collateral section.
(c) All accounts, general intangibles, instruments, rents,
monies, payments, and all other rights, arising out of a
sale, lease, or other disposition of any of the property
described in this Collateral section.
(d) All proceeds (including insurance proceeds) from the
sale, destruction, loss, or other disposition of any of the
property described in this Collateral section.
(e) All records and data relating to any of the property
described in this Collateral section, whether in the form of
a writing, photograph, microfilm, microfiche, or electronic
media, together with all of Grantor's right, title, and
interest in and to all computer software required to
utilize, create, maintain, and process any such records or
data on electronic media.
Event of Default. The words "Event of Default" means and include
without limitation any of the Events of Default set forth below in the
section titled "Events of Default."
Grantor. The word "Grantor" means CERTIFIED DIABETIC SUPPLIES INC., its
successors and assigns.
Guarantor. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with the indebtedness.
Indebtedness. The word "indebtedness" means the indebtedness evidenced
by the Note, including all principal and interest, together with all
other indebtedness and costs and expenses for which Grantor is
responsible under this Agreement or under any of the Related Documents.
Lender. The word "Lender" means FIRST NATIONAL BANK OF NAPLES, its
successors and assigns.
Note. The word "Note" means the note or credit agreement dated July 31,
1997, in the principal amount of $1,000,000.00 from CERTIFIED DIABETIC
SUPPLIES INC. to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of and substitutions
for the note or credit agreement.
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the indebtedness.
<PAGE>
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory
security interest in and hereby assigns, conveys, delivers, pledges, and
transfers all of Grantor's right, title and interest in and to Grantor's
accounts with Lender (whether checking, savings, or some other account),
including all accounts held jointly with someone else and all accounts Grantor
may open in the future, excluding, however, all IRA and Keogh accounts, and
all trust accounts for which the grant of a security interest would be
prohibited by law. Grantor authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all indebtedness against any and all such
accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
Organization. Grantor is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
Authorization. The execution, delivery, and performance of this
Agreement by Grantor have been duly authorized by all necessary action
by Grantor and do not conflict with, result in a violation of, or
constitute a default under (a) any provision of its articles of
incorporation or organization, or bylaws, or any agreement or other
instrument binding upon Grantor or (b) any law, governmental
regulation, court decree, or order applicable to Grantor.
Perfection of Security Interest. Grantor agrees to execute such
financing statements and to take whatever other actions are requested
by Lender to perfect and continue Lender's security interest in the
Collateral. Upon request of Lender, Grantor will deliver to Lender any
and all of the documents evidencing or constituting the Collateral, and
Grantor will note Lender's interest upon any and all chattel paper if
not delivered to Lender for possession by Lender. Grantor hereby
appoints Lender as its irrevocable attorney-in-fact for the purpose of
executing any documents necessary to perfect or to continue the
security interest granted in this Agreement. Lender may at any time,
and without further authorization from Grantor, file a carbon,
photographic or other reproduction of any financing statement or of
this Agreement for use as a financing statement. Grantor will reimburse
Lender for all expenses for the perfection and the continuation of the
perfection of Lender's security interest in the Collateral. Grantor
promptly will notify Lender before any change in Grantor's name
including any change to the assumed business names of Grantor. This is
a continuing Security Agreement and will continue in effect even though
all or any part of the indebtedness is paid in full and even though for
a period of time Grantor may not be indebted to Lender.
No Violation. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is
a party, and its certificate or articles of incorporation and bylaws
do not prohibit any term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists
of accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies
with applicable laws concerning form, content and manner of
preparation and execution, and all persons appearing to be obligated
on the Collateral have authority and capacity to contract and are in
fact obligated as they appear to be on the Collateral.
<PAGE>
Location of the Collateral. Grantor, upon request of Lender, will
deliver to Lender in form satisfactory to Lender a schedule of real
properties and Collateral locations relating to Grantor's operations,
including without limitation the following: (a) all real property
owned or being purchased by Grantor; (b) all real property being
rented or leased by Grantor; (c) all storage facilities owned,
rented, leased, or being used by Grantor; and (d) all other
properties where Collateral is or may be located. Except in the
ordinary course of its business, Grantor shall not remove the
Collateral from its existing locations without the prior written
consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as
accounts, the records concerning the Collateral) at Grantor's address
shown above, or at such other locations as are acceptable to Lender.
Except in the ordinary course of its business, including the sales of
inventory, Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender. To the extent
that the Collateral consists of vehicles, or other titled property,
Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside the
State of Florida, without the prior written consent of Lender.
Transactions Involving Collateral. Except for inventory sold or
accounts collected in the ordinary course of Grantor's business,
Grantor shall not sell, offer to sell, or otherwise transfer or
dispose of the Collateral. While Grantor is not in default under this
Agreement, Grantor may sell inventory, but only in the ordinary
course of its business and only to buyers who qualify as a buyer in
the ordinary course of business. A sale in the ordinary course of
Grantor's business does not include a transfer in partial or total
satisfaction of a debt or any bulk sale. Grantor shall not pledge,
mortgage, encumber or otherwise permit the Collateral to be subject
to any lien, security interest, encumbrance, or charge, other than
the security interest provided for in this Agreement, without the
prior written consent of Lender. This includes security interests
even if junior in right to the security interests granted under this
Agreement. Unless waived by Lender, all proceeds from any disposition
of the Collateral (for whatever reason) shall be held in trust for
Lender and shall not be commingled with any other funds; provided
however, this requirement shall not constitute consent by Lender to
any sale or other disposition. Upon receipt, Grantor shall
immediately deliver any such proceeds to Lender.
Title. Grantor represents and warrants to Lender that it holds good
and marketable title to the Collateral, free and clear of all liens
and encumbrances except for the lien of this Agreement. No financing
statement covering any of the Collateral is on file in any public
office other than those which reflect the security interests created
by this Agreement or to which Lender has specifically consented.
Grantor shall defend Lender's rights in the Collateral against the
claims and demands of all other persons.
<PAGE>
Collateral Schedules and Locations. Insofar as the Collateral
consists of inventory, Grantor shall deliver to Lender, as often as
Lender shall require, such lists, descriptions, and designations of
such Collateral as Lender may require to identify the nature, extent,
and location of such Collateral. Such information shall be submitted
for Grantor and each of its subsidiaries or related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not
commit or permit damage to or destruction of the Collateral or any
part of the Collateral. Lender and its designated representatives and
agents shall have the right at all reasonable times to examine,
inspect, and audit the Collateral wherever located. Grantor shall
immediately notify Lender of all cases involving the return,
rejection, repossession, loss or damage of or to any Collateral; of
any request for credit or adjustment or of any other dispute arising
with respect to the Collateral; and generally of all happenings and
events affecting the Collateral or the value or the amount of the
Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon
this Agreement, upon any promissory note or notes evidencing the
indebtedness, or upon any of the other Related Documents. Grantor may
withhold any such payment or may elect to contest any lien if Grantor
is in good faith conducting an appropriate proceeding to contest the
obligation to pay and so long as Lender's interest in the Collateral
is not jeopardized in Lender's sole opinion. If the Collateral is
subjected to a lien which is not discharged within fifteen (15) days,
Grantor shall deposit with Lender cash, a sufficient corporate surety
bond or other security satisfactory to Lender in an amount adequate
to provide for the discharge of the lien plus any interest, costs,
reasonable attorneys' fees or other charges that could accrue as a
result of foreclosure or sale of the Collateral. In any contest
Grantor shall defend itself and Lender and shall satisfy any final
adverse judgment before enforcement against the Collateral. Grantor
shall name Lender as an additional obligee under any surety bond
furnished in the contest proceedings.
Compliance With Governmental Requirements. Grantor shall comply
promptly with all laws, ordinances, rules and regulations of all
governmental authorities, now or hereafter in effect, applicable to
the ownership, production, disposition, or use of the Collateral.
Grantor may contest in good faith any such law, ordinance or
regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Lender's interest in the Collateral;
in Lender's opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the
Collateral never has been, and never will be so long as this
Agreement remains a lien on the Collateral, used for the generation,
manufacture, storage, transportation, treatment, disposal, release or
threatened release of any hazardous waste or substance, as those
terms are defined in the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, 42 U.S.C.
Section 9601, et seq. ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section'
6901, et seq., or other applicable state or Federal laws, rules, or
regulations adopted pursuant to any of the foregoing. The terms
"hazardous waste" and "hazardous substance" shall also include,
without limitation, petroleum and petroleum by-products or any
fraction thereof and asbestos. The representations and warranties
contained herein are based on Grantor's due diligence in
investigating the Collateral for hazardous wastes and substances.
<PAGE>
Grantor hereby (a) releases and waives any future claims against
Lender for indemnity or contribution in the event Grantor becomes
liable for cleanup or other costs under any such laws, and (b) agrees
to indemnify and hold harmless Lender against any and all claims and
losses resulting from a breach of this provision of this Agreement.
This obligation to indemnify shall survive the payment of the
indebtedness and the satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain
all risks insurance, including without limitation fire, theft and
liability coverage together with such other insurance as Lender may
require with respect to the Collateral, in form, amounts, coverages
and basis reasonably acceptable to Lender and issued by a company or
companies reasonably acceptable to Lender. Grantor, upon request of
Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished
without at least ten (10) days' prior written notice to Lender and
not including any disclaimer of the insurer's liability for failure
to give such a notice. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be
impaired in any way by any act, omission or default of Grantor or any
other person. In connection with all policies covering assets in
which Lender holds or its offered a security interest, Grantor will
provide Lender with such loss payable or other endorsements as Lender
may require. If Grantor at any time fails to obtain or maintain any
insurance as required under this Agreement, Lender may (but shall not
be obligated to) obtain such insurance as Lender deems appropriate,
including if it so chooses "single interest insurance," which will
cover only Lender's interest in the Collateral.
Application of Insurance Proceeds. Grantor shall promptly notify
Lender of any loss or damage to the Collateral. Lender may make proof
of loss if Grantor fails to do so within fifteen (15) days of the
casualty. All proceeds of any insurance on the Collateral, including
accrued proceeds thereon, shall be held by Lender as part of the
Collateral. If Lender consents to repair or replacement of the
damaged or destroyed Collateral, Lender shall, upon satisfactory
proof of expenditure, pay or reimburse Grantor from the proceeds for
the reasonable cost of repair or restoration. If Lender does not
consent to repair or replacement of the Collateral, Lender shall
retain a sufficient amount of the proceeds to pay all of the
indebtedness, and shall pay the balance to Grantor. Any proceeds
which have not been disbursed within six (6) months after their
receipt and which Grantor has not committed to the repair or
restoration of the Collateral shall be used to prepay the
indebtedness.
<PAGE>
Insurance Reserves. Lender may require Grantor to maintain with
Lender reserves for payment of insurance premiums, which reserves
shall be created by monthly payments from Grantor of a sum estimated
by Lender to be sufficient to produce, at least fifteen (15) days
before the premium due date, amounts at least equal to the insurance
premiums to be paid. If fifteen (15) days before payment is due, the
reserve funds are insufficient, Grantor shall upon demand pay any
deficiency to Lender. The reserve funds shall be held by Lender as a
general deposit and shall constitute a non-interest-bearing account
which Lender may satisfy by payment of the insurance premiums
required to be paid by Grantor as they become due. Lender does not
hold the reserve funds in trust for Grantor, and Lender is not the
agent of Grantor for payment of the insurance premiums required to be
paid by Grantor. The responsibility for the payment of premiums shall
remain Grantor's sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following:
(a) the name of the insurer; (b) the risks insured; (c) the amount of
the policy; (d) the property insured; (e) the then current value on
the basis of which insurance has been obtained and the manner of
determining that value; and (f) the expiration date of the policy. In
addition, Grantor shall upon request by Lender (however not more
often than annually) have an independent appraiser satisfactory to
Lender determine, as applicable, the cash value or replacement cost
of the Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of
the tangible personal property and beneficial use of all the Collateral and
may use it in any lawful manner not inconsistent with this Agreement or the
Related Documents, provided that Grantor's right to possession and beneficial
use shall not apply to any Collateral where possession of the Collateral by
Lender is required by law t o perfect Lender's security interest in such
Collateral. If Lender at any time has possession of any Collateral, whether
before or after an Event of Default, Lender shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral if Lender
takes such action for that purpose as Grantor shall request or as Lender, in
Lender's sole discretion, shall deem appropriate under the circumstances, but
failure t o honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior
parties, nor to protect, preserve or maintain any security interest given to
secure the indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without
limitation all taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lender also may (but
shall not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by Lender
for such purposes will then bear interest at the rate charged under the Note
from the date incurred or paid by Lender to the date of repayment by Grantor.
All such expenses shall become a part of the indebtedness and, at Lender's
option, will (a) be payable on demand, (b) be added to the balance of the Note
and be apportioned amount and be payable with any installment payments to
become due during either (i) the term of any applicable insurance policy or
(ii) the remaining term of the Note, or (c) be treated as a balloon payment
which will be due and payable at the Note's maturity. This Agreement also will
secure payment of these amounts. Such right shall be in addition to all other
rights and remedies to which Lender may be entitled upon the occurrence of an
Event of Default.
<PAGE>
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Other Defaults. Failure of Grantor to comply with or to perform any
other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents or in any other
agreement between Lender and Grantor.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement,
the Note or the Related Documents is false or misleading in any
material respect, either now or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any collateral documents to create a valid and perfected security
interest or lien) at any time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as
a going business, the insolvency of Grantor, the appointment of a
receiver for any part of Grantor's property, any assignment for the
benefit of creditors, any type of creditor workout, or the
commencement of any proceeding under any bankruptcy or insolvency
laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure of
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by
any governmental agency against the Collateral or any other
collateral securing the indebtedness. This includes a garnishment of
any of Grantor's deposit accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the indebtedness or such Guarantor
dies or becomes incompetent.
Adverse Change. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of
the indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a
secured party under the Florida Uniform Commercial Code. In addition and
without limitation, Lender may exercise any one or more of the following right
and remedies:
<PAGE>
Accelerate Indebtedness. Lender may declare the entire indebtedness,
including any prepayment penalty which Grantor would be required to
pay, immediately due and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender
all or any portion of the Collateral and any and all certificates of
title and other documents relating to the Collateral. Lender may
require Grantor to assemble the Collateral and make it available to
Lender at a place to be designated by Lender. Lender also shall have
full power to enter upon the property of Grantor to take possession
of and remove the Collateral. If the Collateral contains other goods
not covered by this Agreement at the time of repossession, Grantor
agrees Lender may take such other goods, provided that Lender makes
reasonable efforts to return them to Grantor after repossession.
Sell the Collateral. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof
in its own name or that of Grantor. Lender may sell the Collateral at
public auction or private sale. Unless the Collateral threatens to
decline speedily in value or is of a type customarily sold on a
recognized market, Lender will give Grantor reasonable notice of the
time after which any private sale or any other intended disposition
of the Collateral is to be made. The requirements of reasonable
notice shall be met if such notice is given at least ten (10) days
before the time of the sale or disposition. All expenses relating to
the disposition of the Collateral, including without limitation the
expenses of relating, holding, insuring, preparing for sale and
selling the Collateral, shall become a part of the indebtedness
secured by this Agreement and shall be payable on demand, with
interest at the Note rate from date of expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender
shall have the following rights and remedies regarding the
appointment of a receiver: (a) Lender may have a receiver appointed
as a matter of right, (b) the receiver may be an employee of Lender
and may serve without bond, and (c) all fees of the receiver and his
or her attorney shall become part of the indebtedness secured by this
Agreement and shall be payable on demand, with interest at the Note
rate from date of expenditure until repaid.
Collect Revenues, Apply Accounts. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from
the Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the indebtedness or apply it to payment of the
indebtedness in such order of preference as Lender may determine.
Insofar as the Collateral consists of accounts, general intangibles,
insurance policies, instruments, chattel paper, chooses in action, or
similar property, Lender may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the Collateral
as Lender may determine, whether or not indebtedness or Collateral is
then due. For these purposes, Lender may, on behalf of and in the
name of Grantor, receive, open and dispose of mail addressed to
Grantor; change any address to which mail and payments are to be
sent; and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or
storage of any Collateral. To facilitate collection, Lender may
notify account debtors and obligors on any Collateral to make
payments directly to Lender.
<PAGE>
Obtain Deficiency. If Lender chooses to sell any or all of the
Collateral, Lender may obtain a judgment against Grnator for any
deficiency remaining on the indebtedness due to Lender after
application of all amounts received from the exercise of the rights
provided in this Agreement. Grantor shall be liable for a deficiency
even if the transaction described in this subsection is a sale of
accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and
remedies of a secured creditor under the provisions of the Uniform
Commercial Code, as may be amended from time to time. In addition,
Lender shall have and may exercise any or all other rights and
remedies it may have available at law, in equity, or otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Released Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election t o make
expenditures or to take action to perform an obligation of Grantor
under this Agreement, after Grantor's failure to perform, shall not
affect Lender's right to declare a default and to exercise its
remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as
to the matters set forth in this Agreement. No alteration of or
amendment to this Agreement shall be effective unless given in
writing and signed by the party or parties sought to be charged or
bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and
accepted by Lender in the State of Florida. If there is a lawsuit,
Grantor agrees upon Lender's request to submit to the jurisdiction of
the courts of the State of Florida. Lender and Grantor hereby waive
the right to any jury trial in any action, proceeding, or
counterclaim brought by either Lender or Grantor against the other.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Florida.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including reasonable attorneys' fees and
Lender's legal expenses, incurred in connection with the enforcement
of this Agreement. Lender may pay someone else to help enforce this
Agreement, and Grantor shall pay the costs and expenses of such
enforcement. Costs and expenses include Lender's reasonable
attorneys' fees and legal expenses whether or not there is a lawsuit,
including reasonable attorneys' fees and legal expenses for
bankruptcy proceedings (and including efforts to modify or vacate any
automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Grantor also shall pay all court
costs and such additional fees as may be directed by the court.
<PAGE>
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define
the provisions of this Agreement.
Notices. All notices required to be given under this Agreement shall
be given in writing, may be sent by telefacsimile (unless otherwise
required by law), and shall be effective when actually delivered or
when deposited with a nationally recognized overnight courier or
deposited in the United States mail, first class, postage prepaid,
addressed to the party to whom the notice is to be given at the
address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other
parties, specifying that the purpose of the notice is t o change the
party's address. To the extent permitted by applicable law, if there
is more than one Grantor, notice to any Grantor will constitute
notice to all Grantors. For notice purposes, Grantor will keep Lender
informed at all times of Grantor's current address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and
lawful attorney-in-fact, irrevocably, with full power of substitution
to do the following: (a) to demand, collect, receive, receipt for,
sue and recover all sums of money or other property which may now or
hereafter become due, owing or payable from the Collateral; (b) to
execute, sign and endorse any and all claims, instruments, receipts,
checks, drafts or warrants issued in payment for the Collateral; (c)
to settle or compromise any and all claims arising under the
Collateral, and, in the place and stead of Grantor, to execute and
deliver its release and settlement for the claim; and (d) to file any
claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary
or advisable. This power is given as security for the indebtedness,
and the authority hereby conferred is and shall be irrevocable and
shall remain in full force and effect until renounced by Lender.
Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to any
person or circumstance, such finding shall not render that provision
invalid or unenforceable as to any other persons or circumstances. If
feasible, any such offending provision shall be deemed to be modified
to be within the limits of enforceability or validity; however, if
the offending provision cannot be so modified, it shall be stricken
and all other provisions of this Agreement in all other respects
shall remain valid and enforceable.
Successor Interests. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under
this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any
right shall operate as a waiver of such right of any other right. A
waiver by Lender of a provision of this Agreement shall not prejudice
or constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing
between Lender and Grantor, shall constitute a waiver of any of
Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance
shall not constitute continuing consent to subsequent instances where
such consent is required and in all cases such consent may be granted
or withheld in the sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JULY 31,
1997.
GRANTOR:
CERTIFIED DIABETIC SUPPLIES INC.
By: /s/ Peter J. Fiscina
-----------------------
PETER J. FISCINA, PRESIDENT
<PAGE>
PROMISSORY NOTE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Amount Account Officer Initials
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,000,000 07-31-1997 07-31-1998 11788704 C4A 35 [illegible] [illegible] RLR
- ----------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this
document to any particular loan or item.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Borrower: CERTIFIED DIABETIC SUPPLIES INC. Lender: FIRST NATIONAL BANK OF NAPLES
1954 J & C BLVD MAIN OFFICE
NAPLES, FL 34109 900 GOODLETTE ROAD NORTH
P.O. BOX 413043
NAPLES, FL 34101-3043
================================================================================
Principal Amount: $1,000,000.00 Initial Rate: 9.250%
Date of Note: July 31, 1997
PROMISE TO PAY. CERTIFIED DIABETIC SUPPLIES INC. ("BORROWER") promises to pay
to FIRST NATIONAL BANK OF NAPLES ("Lender"), on order, in lawful money of the
United States of America, the principal amount of One Million & 00/100 Dollars
($1,000,000.00) or so much as may be outstanding, together with interest on the
unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance. The
interest rate will not increase above 18.000%.
PAYMENT. Borrower will pay the loan in one payment of all outstanding principal
plus all accrued unpaid interest on July 31, 1998. In addition, Borrower will
pay regular monthly payments of accrued unpaid interest beginning August 30,
1997, and all subsequent interest payments are due on the same day of each month
after that. The annual interest rate for the Note is computed on a 365/360
basis; that is, by applying the ratio of the annual interest rate over a year
of 360 days, multiplied by the outstanding principal balance, multiplied by the
actual number of days the principal is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will be
applied first to any unpaid collection costs and any late charges, then to any
unpaid interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the Bankers Trust
Prime Rate (the "Index"). The Index is not necessarily the lowest rate charged
by Lender on its loans. If the Index becomes unavailable during the term of this
loan, Lender may designate a substitute Index after notice to Borrower. Lender
will tell Borrower the current Index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate change will not occur more often than each day. The Index
currently is 8.500% per annum. The interest rate to be applied to the unpaid
principal balance of this Note will be at a rate of 0.750% percentage points
over the Index, adjusted if necessary for the minimum and maximum rate
limitations described below, resulting in an initial rate of 9.250% per annum.
Notwithstanding any other provision of this Note, the variable interest rate or
rates provided for in this Note will be subject to the following minimum and
maximum rates. NOTICE: Under no circumstances will the effective rate of
interest on this Note be less than 4.000% per annum or more than (except for any
higher default rate shown below) the lesser of 18.000% per annum or the maximum
rate allowable by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment of
this Note, Borrower understands that Lender is entitled to a minimum interest
charge of $10.00. Other than Borrower's obligation to pay any minimum interest
charge, Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
of accrued unpaid interest. Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $5.00, whichever is greater.
<PAGE>
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due, (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note or in any other agreement related to this
Note, or in any other agreement or loan Borrower has with Lender, (c) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished, (d) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws, (e) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with Lender,
(f) Any guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Note, (g) A material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the indebtedness is impaired, (h) Lender
in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note to 18.000% per
annum, if and to the extent that the increase does not cause the interest rate
to exceed the maximum rate permitted by applicable law. Lender may hire or pay
someone else to help collect this Note if Borrower does not pay. Borrower also
will pay Lender the amount of these costs and expenses, which includes, subject
to any limits under applicable law, Lender's reasonable attorneys' fees and
Lender's legal expenses whether or not there is a lawsuit, including reasonable
attorneys' fees and Lender's legal expenses whether or not there is a lawsuit,
including reasonable attorneys' fees and legal expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services. If
not prohibited by applicable law, Borrower will pay any court costs, in addition
to all other sums provided by law. This Note has been delivered to Lender and
accepted by Lender in the State of Florida. If there is a lawsuit, Borrower
agrees upon Lender's request to submit to the jurisdiction of the courts of
COLLIER County, the State of Florida. Lender and Borrower hereby waive the right
to any jury trial in any action, proceeding, or counterclaim brought by either
Lender or Borrower against the other. This Note shall be governed by and
construed in accordance with the laws of the State of Florida.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
COLLATERAL. This Note is secured by Business assets.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or by an
authorized person. Lender may, but need not, require that all oral requests be
confirmed in writing. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender's office shown
above. The following party or parties are authorized to request advances under
the line of credit until Lender receives from Borrower at Lender's address shown
above written notice of revocation of their authority: PETER J. FISCINA,
PRESIDENT. Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited to any
of Borrower's accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligaiton to advance funds under this Note if: (a) Borrower or any guarantor is
in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; (d) Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender; or (e) Lender in good faith
deems itself insecure under this Note or any other agreement between Lender and
Borrower.
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FINANCIAL STATEMENT COVENANT. The Borrower and any guarantors agree that, unless
the Lender shall otherwise consent in writing, they shall deliver to the Lender
1) as soon as available and in any event with 60 days after the end of each
calendar and/or fiscal year, an updated detailed financial statement in a format
acceptable to the Lender; and 2) a copy of Corporate and/or personal income tax
returns, as applicable, within 20 days of submission to the Internal Revenue
Service annually during the term of this obligation.
GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will
not affect the rest of the Note. Borrower does not agree or intend to pay, and
Lender does not agree or intend to contract for, charge, collect, take, reserve
or receive (collectively referred to herein as "charge or collect"), any amount
in the nature of interest or in the nature of a fee for this loan, which would
in any way or event (including demand, prepayment, or acceleration) cause
Lender to charge or collect more for this loan than the maximum Lender would be
permitted to charge or collect by federal law or the law of the State of Florida
(as applicable). Any such excess interest or unauthorized fee shall, instead of
anything stated to the contrary, be applied first to reduce the principal
balance of this loan, and when the principal has been paid in full, be refunded
to Borrower. Lender may delay or forgo enforcing any of its rights or remedies
under this Note without losing them. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
<PAGE>
07-31-1997 PROMISSORY NOTE
Loan No 51788704 (continued)
================================================================================
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF COMPLETED COPY OF THE NOTE.
BORROWER:
CERTIFIED DIABETIC SUPPLIES INC.
By: /s/ Peter J. Piscina
------------------------------
Peter J. Piscina, President
================================================================================
Variable Rate. Line of Credit. [illegible]
FLORIDA DOCUMENTARY STAMP TAX
REQUIRED BY LAW IN THE AMOUNT OF
$3500.00 HAS BEEN PAID OR WILL
BE PAID DIRECTLY TO THE DEPT. OF
REVENUE. CERTIFICATE OF REGISTRATION
65-0083472-21-01
<PAGE>
THIS INSTRUMENT PREPARED BY
AND RETURN TO:
David N. Morrison, Esq.
MORRISON & CONROY, P.A.
975 Sixth Avenue South
Naples, Florida 33940
FIRST NATIONAL BANK OF NAPLES
MORTGAGE AND SECURITY AGREEMENT
THIS MORTGAGE AND SECURITY AGREEMENT is made this 31st day of May,
1996, by CERTIFIED DIABETIC SUPPLIES INC., a Florida corporation, whose address
is 1951 J & C Boulevard, Naples, Florida 33942 ("Mortgagor"), in favor of FIRST
NATIONAL BANK OF NAPLES, a national banking association, whose address is 900
Goodlette Road, North, Naples, Florida 33940 ("Mortgagee").
WITNESSETH:
WHEREAS, Mortgagee has made a loan of even date herewith to Mortgagor
in the original principal amount of Two Hundred Fifty Thousand and 00/100
Dollars ($250,000.00), and in consideration therefor, Mortgagor has agreed to
pay the same, with interest thereon, according to the terms of that certain
Promissory Note made by Mortgagor to the order of Mortgagee in the original
principal amount of Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00),
bearing even date herewith, with final payment being due on December 28, 1998
(such Promissory Note being hereinafter referred to as the "Note").
NOW, THEREFORE, to secure the performance and observance by Mortgagor
of all covenants and conditions in the Note and the indebtedness evidenced
thereby and in this instrument and in all other instruments securing the Note
and in order to charge the properties, interests and rights hereinafter
described with such payment, performance or observance, and for and in
consideration of the sum of Ten and 00/100 Dollars ($10.00) this date paid by
Mortgagee to Mortgagor, and for such other valuable consideration, the receipt
of which is acknowledged, Mortgagor does hereby grant, bargain, sell, alienate,
remise, release, convey, assign, transfer, mortgage, hypothecate, pledge,
deliver, set over, warrant and confirm unto Mortgagee, its successors and
assigns forever, a security interest in and fee simple title to the following
properties:
THE MORTGAGED PROPERTY
The term "Mortgaged Property" as used herein shall be as hereinafter
defined.
(A) The Land. All those parcels and tracts of land located in the
County of Collier, State of Florida (collectively, the "Land"), described in
Exhibit "A" attached hereto and made a part hereof;
(B) The Improvements. Together with all buildings, structures and
improvements of every nature whatsoever now or hereafter situated on the Land,
and all fixtures, machinery, appliances, equipment, and personal property of
every nature whatsoever now or hereafter owned by
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Mortgagor and located in or on, or attached to, or used or intended to be used
in connection with or with the operation of, the Land, buildings, structures or
other improvements, including all extensions, additions, improvements,
betterments, renewals and replacements to any of the foregoing and all of the
right, title and interest of Mortgagor in and to any such personal property or
fixtures together with the benefit of any deposits or payments now or hereafter
made by Mortgagor or on its behalf (the "Improvements");
(C) Easements or Other Interests. Together with all easements, zoning
variances and exceptions, rights of way, gores of land, streets, ways, alleys,
passages, sewer rights, waters, water courses, water rights and powers, and all
estates, rights, titles, interests, privileges, liberties, tenements,
hereditaments and appurtenances whatsoever, in any way belonging, relating or
appertaining to any of the property hereinabove described, or which hereafter
shall in any way belong, relate or be appurtenant thereto, whether now owned or
hereafter acquired by Mortgagor, and the reversion and reversions, remainder and
remainders, rents, issues and profits thereof, and all the estate, right, title,
interest, property, possession, claim and demand whatsoever, at law as well as
in equity, of Mortgagor of, in and to the same, including but not limited to all
judgments, awards of damages and settlements hereafter made resulting from
condemnation proceedings or the taking of the property described in paragraphs
(A), (B) and (C) hereof or any party thereof under the power of eminent domain,
or for any damage (whether caused by such taking or otherwise) to the property
described in paragraphs (A), (B) and (C) hereof or any part thereof, or to any
rights appurtenant thereto, and all proceeds of any sales or other dispositions
of the property described in paragraphs (A), (B) and (C) hereof or any part
thereof.
(D) Assignment of Rents. Together with all rents, royalties, issues,
profits, revenue, income and other benefits from any property described in
paragraphs (A), (B) and (C) hereof to be applied against the indebtedness and
other sums secured hereby, provided, however, that permission is hereby given to
Mortgagor so long as no default has occurred hereunder, to collect, receive,
take, use and enjoy such rents, royalties, issues, profits, revenue, income and
other benefits as they become due and payable, but not in advance thereof. The
foregoing assignment shall be fully operative without any further action on the
part of either party and specifically Mortgagee shall be entitled, at its option
upon the occurrence of a default hereunder, to all rents, royalties, issues,
profits, revenue, income and other benefits from any property described in
paragraphs (A), (B) and (C) hereof whether or not Mortgagee takes possession of
such property described in paragraphs (A), (B) and (C) hereof. Upon any such
default hereunder, the permission hereby given to Mortgagor to collect such
rents, royalties, issues, profits, revenue, income and other benefits from the
property described in paragraphs (A), (B) and (C) hereof shall terminate and
such permission shall not be reinstated upon a cure of the default without the
specific consent of Mortgagee. Neither the exercise of any rights under this
paragraph by Mortgagee nor the application of any such rents, royalties, issues,
profits, revenue, income or other benefits to the indebtedness and other sums
secured hereby, shall cure or waive any default or notice of default hereunder
or invalidate any act done pursuant hereto or to any such notice, but shall be
cumulative of all other rights and remedies.
(E) Assignment of Leases. Together with all right, title, and interest
of Mortgagor in and to any and all leases now or hereafter on or affecting any
property described in paragraphs (A), (B) and (C) hereof, together with all
security therefor and all monies payable thereunder, subject, however, to the
conditional permission hereinabove given to Mortgagor to collect the rentals
under any such lease. The foregoing assignment of any lease shall not be deemed
to impose upon Mortgagee any of the obligations or duties of Mortgagor provided
in any such lease, and Mortgagor agrees to fully perform all obligations of the
lessor under all such leases. Upon Mortgagee's request, Mortgagor agrees to send
to Mortgagee a list of all leases covered by the foregoing
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assignment and as any such lease shall expire or terminate or as any new lease
shall be made, Mortgagor shall so notify Mortgagee in order that at all times
Mortgagee shall have a current list of all leases affecting the property
described in paragraphs (A), (B) and (C) hereof. Mortgagee shall have the right,
at any time and from time to time, to notify any lessee of the rights of
Mortgagee as provided by this paragraph. From time to time, upon request of
Mortgagee, Mortgagor shall specifically assign to Mortgagee as additional
security hereunder, by an instrument in writing in such form as may be approved
by Mortgagee, all right, title and interest of Mortgagor in and to any and all
leases now or hereafter on or affecting the Mortgaged Property, together with
all security therefor and all monies payable thereunder, subject to the
conditional permission hereinabove given to Mortgagor to collect the rentals
under any such lease. Mortgagor shall also execute and deliver to Mortgagee any
notification, financing statement or other document reasonable required by
Mortgagee to perfect the foregoing assignment as to any such lease.
This instrument constitutes an absolute and present
assignment of the rents, royalties, issues, profits, revenue, income and other
benefits from the Mortgaged Property, Mortgagor to collect, receive, take, use
and enjoy the same as provided hereinabove; provided, further, that the
existence or exercise of such right of Mortgagor shall not operate to
subordinate this assignment to any subsequent assignment, in whole or in part,
by Mortgagor, and any such subsequent assignment by Mortgagor shall be subject
to the rights of Mortgagee hereunder.
(F) Fixtures and Personal Property. Together with a security interest
in all fixtures, fittings, furnishings, appliances, apparatus, equipment,
machinery and other personal property, including, without limitation, all gas an
electric fixtures, radiators, heaters, engines and machinery, boilers, ranges,
ovens, elevators and motors, bathtubs, sinks, water closets, basins, pipes,
faucets and other air conditioning, plumbing, and heating fixtures, mirrors,
mantles, refrigerating plant, refrigerators, iceboxes, dishwashers, carpeting,
furniture, laundry equipment, cooking apparatus and appurtenances, and all
building material, supplies and equipment now located on or hereafter delivered
to the Land and intended to be installed therein; all other fixtures and
personal property of whatever kind and nature at present contained in or
hereafter placed in any building standing on the Land; and all renewals or
replacements thereof or articles in substitution thereof; and all proceeds and
profits thereof and all of the estate, right, title and interest of Mortgagor in
and to all property of any nature whatsoever, now or hereafter situated on the
Land or intended to be used in connection with the operation thereof; all leases
and use agreements of machinery, equipment and other personal property of
Mortgagor in the categories hereinabove set forth, under which Mortgagor is the
lessee of, or entitled to use, such items, and all deposits made therefor; and
Mortgagor (Debtor) hereby grants to Mortgagee (Creditor) a security interest in
all fixtures, rights and personal property described herein. This Mortgage is a
self operative security agreement with respect to such property, but Mortgagor
agrees to execute and deliver on demand such other security agreements,
financing statements, continuation statements and other instruments as Mortgagee
may request in order to perfect its security interest or to impose the lien
hereof more specifically upon any of such property and Mortgagor hereby
constitutes and appoints Mortgagee as Agent and attorney-in-fact to make,
execute, deliver and record any instruments for the purpose of effecting the
lien and security interests of this Mortgage and continuing the effect thereof.
The foregoing power of attorney is irrevocable and coupled with an interest.
Mortgagee shall have all the rights and remedies in addition to those specified
herein of a secured party under the Uniform Commercial Code.
Everything referred to in paragraphs (A), (B), (C), (D), (E),
and (F) hereof and nay additional property hereafter acquired by Mortgagor and
subject to the lien of this mortgage or intended to be so is herein referred to
as the "Mortgaged Property".
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To have and to hold the Mortgaged Property and all parts
thereof unto Mortgagee, its successors and assigns, for enforcing the payment of
the Note when due and payable according to the true interest and meaning of the
stipulations and provisions of the Note, and the payment and performance of all
other obligations of Mortgagor hereunder and under the Note. The foregoing
amounts evidenced by the Note, or due and payable by Mortgagor under the Note,
or under the provisions hereof including advances by Mortgagee for the purpose
of paying taxes or premiums on insurance on the Mortgaged Property or to repair,
maintain, or improve the Mortgaged Property and all renewal or renewals and
extension or extensions of the Note are secured hereby and collectively referred
to herein as "Secured Indebtedness"; provided, however, that upon the express
conditions that if Mortgagor, its successors and assigns shall well and truly
pay or cause to be paid unto the holder of the Note and Secured Indebtedness and
shall well and truly keep, observe and perform all and singular the covenants
and provisions in the Note and any other instrument securing the Note, this
instrument shall be canceled to its own proper use and benefit forever, subject,
however, to the terms and conditions herein.
ARTICLE ONE
COVENANTS
1.01 Performance of Note, Mortgage, etc. Mortgagor shall perform,
observe and comply with all provisions hereof, of the Mortgage and every other
applicable instrument securing the Note, and will promptly pay all sums required
to be paid by Mortgagor pursuant to the provisions of this Mortgage and of every
other instrument securing the Note when payment shall become due, all without
deduction or credit for taxes or other similar charges paid by Mortgagor.
1.02 Warranty of Title. Mortgagor covenants and warrants that it is
seized of an indefeasible estate in fee simple in the Land and any other real
property hereby mortgaged, has good and absolute title to all existing personal
property hereby mortgaged or made subject to the security interest hereby
created and has good right, full power and lawful authority to convey, mortgage
and encumber the same as provided herein; that Mortgagee may at all times
peaceably and quietly enter upon, hold, occupy and enjoy the Land and any other
real property hereby mortgaged and every part thereof; that the Land, real
property and all existing personal property hereby mortgaged or made subject to
the security interest hereby created are free and clear of all liens, security
interests, charges and encumbrances whatsoever, except for those certain matters
set forth in Exhibit "B" attached hereto and made a part hereof ("Permitted
Exceptions"). Mortgagor shall and will make such further assurances to perfect
Mortgagor's fee simple title to the Land and the real property hereby mortgaged,
and the title to the personal property hereby mortgaged or made subject to the
security interest hereby created as may reasonably be required. Mortgagor fully
warrants the title to the Land, real property and all existing personal property
hereby mortgaged or made subject to the security interest hereby created and
every part thereof, and will forever defend the same against the claims of all
persons whomsoever. Mortgagor hereby warrants and represents that the Mortgaged
Property shall be utilized only as a commercial premises and is not now nor has
the Mortgaged Property every been designated as Mortgagor's homestead.
1.03 Transfer of Property. Mortgagor shall not sell, convey, transfer,
lease or further encumber any interest in or any part of the Mortgaged Property,
without the prior written consent of Mortgagee.
1.04 Further Assurances. At any time and from time to time, upon
Mortgagee's request, Mortgagor shall make, execute and deliver or cause to be
made, executed and delivered to Mortgagee and, where appropriate, shall cause to
be recorded or filed, from time to time, in such
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offices and places as shall be deemed desirable by Mortgagee any and all such
further mortgages, instruments of further assurance, certificates and other
documents as Mortgagee may consider necessary or desirable in order to
effectuate, complete, enlarge or perfect, or to continue and preserve the
obligations of Mortgagor under this Mortgage, and the lien of this Mortgage as a
first and prior lien upon all of the Mortgaged Property (subject to the
Permitted Exceptions), whether now owned or hereafter acquired by Mortgagor.
1.05 After Acquired Property. The lien of this Mortgage will
automatically attach, without further act, to all after acquired real or
personal property located in or on, appurtenant to or attached to, or used or
intended to be used in connection with or with the operation of, the Mortgaged
Property or any part thereof.
1.06 Taxes. Mortgagor shall pay, when due and payable, (a) all taxes,
assessments, general or special, and other charges levied on, or addressed,
placed or made against the Mortgaged Property, this instrument or the Secured
Indebtedness or any interest of Mortgagee in the Mortgaged Property or the
obligations secured hereby; (b) all premiums on policies of fire and other
hazard insurance covering the Mortgaged Property, as required herein. Mortgagor
shall promptly deliver to Mortgagee receipts showing payment in full of all of
the above items. Upon demand by Mortgagee, Mortgagor shall pay to Mortgagee,
together with and in addition to the payment of principal and interest payable
under the terms of the Note, on the installment-paying dates of the Note, until
the Secured Indebtedness is paid in full or until notification from Mortgagee to
the contrary, an amount reasonably sufficient (as estimated by Mortgagee) to
provide Mortgagee with funds to pay said taxes, assessments, insurance premiums,
rents and other charges next due so that Mortgagee will have sufficient funds on
hand to pay same thirty (30) days before the date of which they become past due.
In no event shall Mortgagee be liable for any interest on any amount paid to it
as herein required, and the money so received may be held and commingled with
its own funds, pending payment or application thereof as herein provided.
Mortgagor shall furnish to Mortgagee, at least thirty (30) days before the date
on which the same will become past due, an official statement of the amount of
said taxes, assessments, insurance premiums and rents next due, and Mortgagee
shall pay said charges to the amount of the then unused credit therefor as and
when they become severally due and payable. An official receipt therefor shall
be conclusive evidence of such payment and of the validity of such charges.
Mortgagee may, at its option, pay any of these charges when
payable, either before or after they become past due, without notice, or make
advances therefor in excess of the then amount of credit for said charges. The
excess amount advanced shall become part of the Secured Indebtedness and bear
interest at the rate provided in the Note from date of advancement. Mortgagee
may apply credits held by it for the above charges or any part thereof on
account of any delinquent installments of principal or interest or any other
payments maturing or due under this instrument, and the amount of credit
existing at any time shall be reduced by the amount thereof paid or applied as
herein provided. The amount of the existing credit hereunder at the time of any
transfer of the Land shall, without assignment thereof, inure to the benefit of
the successor-owner of the Land and shall be applied under and subject to all of
the provisions hereof. Upon payment in full of the Secured Indebtedness, the
amount of any unused credit shall be paid over to the person entitled to receive
it.
1.07 Insurance.
(a) Mortgagor shall keep the Mortgaged Property insured for
the benefit of Mortgagee against loss or damage by fire, lightning, windstorm,
hail, explosion, riot, riot attending a
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strike, civil commotion, aircraft, vehicles and smoke and such other hazards as
Mortgagee may from time to time require, and rental or business interruption
insurance against any abatement of rent or other casualty in surplus by a
standard fire and extended coverage insurance company, all in amounts approved
by Mortgagee not exceeding 100% of full replacement cost; all insurance herein
provided for shall be in a form and issued by companies approved by Mortgagee;
and regardless of the types or amounts of insurance required and approved by
Mortgagee, Mortgagor shall assign and deliver to Mortgagee, as collateral and
further security for the payment of the Secured Indebtedness, all policies of
insurance which insure against any loss or damage to the Mortgaged Property,
with loss payable to Mortgagee, without contribution by Mortgagee, pursuant to
the New York Standard or other mortgagee clause satisfactory to Mortgagee. If
Mortgagee, by reason of such insurance, receives any money for loss or damage,
such amount may, at the option of Mortgagee, be retained and applied by
Mortgagee toward payment of the Secured Indebtedness, or be paid over, wholly or
in part, to Mortgagor for the repair or replacement of the Mortgaged Property or
any part thereof, or for any other purpose or object satisfactory to Mortgagee,
but Mortgagee shall not be obligated to see to the proper application of any
amount paid over to Mortgagor.
(b) Not less than thirty (30) days prior to the expiration
date of each policy of insurance required of Mortgagor pursuant to this Article,
and of each policy of insurance held as additional collateral to secure the
Secured Indebtedness, Mortgagor shall deliver to Mortgagee a renewal policy or
policies marked "premium paid" or accompanied by other evidence of payment
satisfactory to Mortgage.
(c) In the event of a foreclosure of this Mortgage, the
purchaser of the Mortgaged Property shall succeed to all the rights of
Mortgagor, including any right to unearned premiums, in and to all policies of
insurance assigned and delivered to Mortgagee, with respect to all property
conveyed and to be conveyed by this Mortgage, pursuant to the provisions of this
Article.
(d) Any prepayment of the indebtedness evidenced by the Note,
whether in whole or in part resulting from the application of insurance
proceeds, shall be without any premium, charge or expense whatsoever.
1.08 Care of Mortgaged Property. Mortgagor shall maintain the Mortgaged
Property in good condition and repair, shall not commit or suffer any waste to
the Mortgaged Property, and shall comply with, or cause to be complied with, all
restrictive covenants, statutes, ordinances and requirements of any governmental
authority relating to the Mortgaged Property and the use thereof or any part
thereof. Mortgagor shall promptly repair, restore, replace or rebuild any part
of the Mortgaged Property, now or hereafter encumbered by this Mortgage, which
may be affected by any proceeding of the character referred to in Article 1.09
herein. No part of the Mortgaged Property, including, but not limited to, any
building, structure, parking lot, driveway, landscape scheme, timber or other
ground improvement, equipment or other property, now or hereafter conveyed as
security by or pursuant to this Mortgage, shall be removed, demolished or
materially altered without the prior written consent of Mortgagee. Mortgage
shall complete, within a reasonable time, and pay for any building, structure or
other improvement at any time in the process of construction on the property
herein conveyed. Mortgagor shall not initiate, join in or consent to any change
in any private restrictive covenant, zoning ordinance or other public or private
restrictions limiting or defining the uses which may be made of the Mortgaged
Property or any part thereof without the prior written consent of Mortgagee.
Mortgagee and any persons authorized by Mortgagee shall have the right to enter
and inspect the Mortgaged Property at all reasonable times and access thereto
shall be permitted for that purpose.
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1.09 Condemnation. Notwithstanding any taking of any property, herein
conveyed and agreed to be conveyed, by eminent domain, alteration of the grade
of any street or other injury to, or decrease in value of, the Mortgaged
Property by any public or quasi-public authority or corporation, Mortgagor shall
continue to pay principal and interest on the Secured Indebtedness, and any
reduction in the Secured Indebtedness resulting from the application by
Mortgagee of any award or payment for such taking, alterations, injury or
decrease in value of the Mortgaged Property, as hereinafter set forth, shall be
deemed to take effect only on the date of such receipt; and said award or
payment may, at the option of Mortgagee, be retained and applied by Mortgagee
toward payment of the Secured Indebtedness or be paid over, wholly or in part,
to Mortgagor for the purpose of altering, restoring or rebuilding any part of
the Mortgaged Property which may have been altered, damaged or destroyed as a
result of any such taking, alteration of grade, or other injury to the Mortgaged
Property, or for any other purpose or object satisfactory to Mortgagee, but
Mortgagee shall not be obligated to see to the application of any amount paid
over to Mortgagor. If, prior to the receipt by Mortgagee of such award or
payment, the Mortgaged Property shall have been sold on foreclosure of this
Mortgage, Mortgagee shall have the right to receive said award or payment to the
extent of any deficiency found to be due upon such sale, with legal interest
thereon, whether or not a deficiency judgment on this Mortgage shall have been
sought or recovered or denied, and of the reasonable counsel fees, costs and
disbursements incurred by Mortgagee in connection with the collection of such
award or payment.
1.10 Statements and Other Information. Mortgagor shall deliver to
Mortgagee, at any time within thirty (30) days after notice and demand by
Mortgagee but not more frequently than once per month, a statement in such
reasonable detail as Mortgagee may request, certified by Mortgagor or an
executive officer or treasurer of a corporate Mortgagor, or, at the option of
Mortgagee, by a certified public accountant, of the income from and expenses of
any one or more of the following: (a) the conduct of any business on the
Mortgaged Property, (b) the operation of the Mortgaged Property, or (c) the sale
or leasing of the Mortgaged Property or any part hereof, for the last twelve
(12) months calendar period prior to the giving of such notice, and, on demand,
Mortgagor shall furnish to Mortgagee executed counterparts of any such leases
and convenient facilities for the audit and verification of any such statement.
ARTICLE TWO
DEFAULTS
2.01 Event of Default. The term Event of Default, wherever used in this
Mortgage, shall mean any one or more of the following events and each of the
following events shall constitute an event of default hereunder:
(a) Failure by Mortgagor to pay, within ten (10) days of the
due date specified in the Note, any installment of principal or interest due
under the Note; or
(b) Failure by Mortgage or pay, within thirty (30) days of
when due and payable, the Secured Indebtedness; or
(c) Failure by Mortgagor to perform or observe any of the
covenants, agreements or conditions on the part of the Mortgagor in this
instrument or in any other instrument securing all or any part of the Secured
Indebtedness; or
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(d) Without limiting the foregoing, should Mortgagor violate
any provision of any Lease as defined in that certain Assignment of Rents and
Leases by Mortgagor in favor of Mortgagee of even date with respect to the
Mortgaged Property; or
(e) Without limiting the foregoing, should any event of
default occur under any term or condition of the Construction Loan Agreement of
even date given by Borrower in favor of Mortgagee; or
(f) Should Mortgagor, or any guarantor of the Secured
Indebtedness or any portion thereof (all of such parties being hereinafter
referred to as "Obligors") make any assignment for the benefit of creditors, or
should a receiver, liquidator or trustee of any of the Obligors or of any of the
property of any of the Obligors be appointed, or should any petition for the
bankruptcy, reorganization or arrangement of any of the Obligors, pursuant to
the Federal Bankruptcy Act or any similar statute, be filed by any of the
Obligors, or should any such proceeding be filed against any of the Obligors and
remain undismissed for a period of thirty (30) days, or should any of the
Obligors in any proceeding admit its insolvency or inability to pay its debts as
they fall due or should any of the Obligors be liquidated or dissolved or its
articles of incorporation expire or be revoked; or
(g) Should Mortgagor sell, encumber, convey or otherwise
transfer any interest in the Mortgaged Property or any portion thereof, whether
or not such interest is subject or subordinate to the interest of Mortgagee,
without prior written consent of Mortgagee; or
(h) Failure by Mortgagor or any guarantor of the Secured
Indebtedness to pay, as and when due and payable, any installment of principal
and interest due under any other obligation of Mortgagor to Mortgagee, whether
such obligation shall currently exist or shall arise at any time during the term
of this Mortgage; or
(i) The sale or other disposition of any interest in Mortgagor
to any third party, without the prior written consent of Mortgagee; or
(j) Failure by Mortgagor to pay, as and when due and payable,
any installment of principal and/or interest due under any other obligation of
Mortgagor to any other party, whether such obligation shall currently exist or
shall arrive at anytime during the term of this Mortgage.
2.02 Acceleration of Maturity. If an Event of Default shall have
occurred, Mortgagee may declare the outstanding principal amount of the Note and
the interest accrued thereon, and all other sums secured hereby, to be due and
payable immediately and upon such declaration such principal and interest and
other sums shall immediately become and be due and payable without demand or
notice.
2.03 Power of Enforcement. If an Event of Default shall have occurred,
Mortgagee may, either with or without entry or taking possession as hereinabove
provided or otherwise, proceed by suit or suits at law or in equity or by any
other appropriate proceeding or remedy: (a) to enforce payment of the Note or
the performance of any term hereof or any other right; (b) to foreclose this
Mortgage and to sell, in its entirety separate lots or parcels, the Mortgaged
Property under the judgment or decree of a court or courts of competent
jurisdiction; and (c) to pursue any other remedy available to it. Mortgagee
shall take action either by such proceedings or by the exercise of its powers
with respect to entry or taking possession, or both, as Mortgagee may determine.
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<PAGE>
2.04 Proceeds of Foreclosure. In the event the Mortgaged Property or
any portion thereof shall be sold in foreclosure proceedings or other
proceedings that may be authorized by law, the proceeds of such sale shall be
applied as follows: first, to the payment of all expenses incurred hereunder,
including reasonable payment of all expenses or in incurred hereunder, including
reasonable attorney's fees, as may be necessary for the collection of the
Secured Indebtedness or any part thereof and the foreclosure of this Mortgage;
second, to the payment, with interest as provided herein, of whatever sum or
sums Mortgagee may have paid or become liable to pay in carrying out the
objects, terms and stipulations of this Mortgage, including specifically,
without limitation, sums paid for taxes and insurance; third, to the payment and
satisfaction of the Secured Indebtedness and the balance, if any, being payable
to Mortgagor or to such other person or entity who shall be law be entitled to
such balance.
2.05 Leases. Mortgagee, at its option, is authorized to foreclose this
Mortgage, subject to the rights of any tenants of the Mortgaged Property, if
any, and the failure to make any such tenants parties defendant to any such
foreclosure proceedings and to foreclose their rights will not be, nor be
asserted by Mortgagor to be, a defense to any proceedings instituted by
Mortgagee to collect the Secured Indebtedness or to collect any deficiency
remaining unpaid after the foreclosure sale of the Mortgaged Property.
2.06 Purchase by Mortgagee. Upon any such foreclosure sale, Mortgagee
may bid for and purchase the Mortgaged Property and, upon compliance with the
terms of sale and applicable law, may hold, retain and possess and dispose of
such property in its own absolute right without further accountability to
Mortgagor.
2.07 Waiver of Appraisement, Valuation, Stay, Extension and Redemption
Laws. Mortgagor agrees to the full extent permitted by law that in case of a
default on its part hereunder, neither Mortgagor nor anyone claiming through or
under it shall or will set up, claim or seek to take advantage of any
appraisement, valuation, stay, extension or redemption laws as now or hereafter
in force, in order to prevent or hinder the enforcement or foreclosure of this
Mortgage, or the absolute sale of the Mortgaged Property or the final and
absolute putting into possession thereof, immediately after such sale, of the
purchasers thereat, and Mortgagor, for itself and all who may at any time claim
through or under it, hereby waives, to the full extent that it may lawfully so
do, the benefit of all such laws, and any and all right to have the assets
comprising the Mortgaged Property marshalled upon any foreclosure of the lien
hereof and agrees that Mortgagee or any court having jurisdiction to foreclose
such lien may sell the Mortgaged Property in part or as an entirety.
2.08 Receiver. If an Event of Default shall have occurred, Mortgagee,
to the extent permitted by law and without regard to the value or occupancy of
the Mortgaged Property, shall be entitled as a matter of right if it so elects
to the appointment of a receiver to enter upon and take possession of the
Mortgaged Property and to collect all rents, revenues, issues, income, products
and profits thereof and apply the same as the court may direct. The receiver
shall have all rights and powers permitted under the laws of the state where the
Land is located and such other powers as the court making such appointment shall
confer. The expenses, including the receiver's fees, attorney's fees, costs and
agent's compensation, incurred pursuant to the powers herein contained shall be
secured by this Mortgage and become part of the Secured Indebtedness, bear
interest at the rate provided in the Note and be immediately due and payable.
The right to enter and take possession of and to manage and operate the
Mortgaged Property, and to collect the rents, issues and profits thereof,
whether by a receiver or otherwise, shall be cumulative to any other right or
remedy hereunder or afforded by law, and may be exercised concurrently therewith
or independently thereof. Mortgagee shall be liable to account only for such
rents, issues and profits actually received
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by Mortgagee. Notwithstanding the appointment of any receiver or other
custodian, Mortgagee shall be entitled as pledgee to the possession and control
of any cash, deposits, or instruments at this time held by, or payable or
deliverable under the terms of this Mortgage, to Mortgagee.
2.09 Suits to Protect the Mortgaged Property. Mortgagee shall have the
power and authority to institute and maintain any suits and proceedings as
Mortgagee may deem advisable (a) to prevent any impairment of the Mortgaged
Property by any acts which may be unlawful or any violation of this Mortgage,
(b) to preserve or protect its interest in the Mortgaged Property, and (c) to
restrain the enforcement of or compliance with any legislation or other
governmental enactment, rule or order that may be unconstitutional or otherwise
invalid, if the enforcement of or compliance with such enactment, rule or order
might impair the security hereunder or be prejudicial to Mortgagee.
2.10 Delay or Omission No Waiver. No delay or omission of Mortgagee or
of any holder of the Note to exercise any right, power or remedy accruing upon
any Event of Default shall exhaust or impair any such right, power or remedy or
shall be construed to waive any such Event of Default or to constitute
acquiescence therein. Every right, power and remedy given to Mortgagee may be
exercised from time to time and as often as may be deemed expedient by
Mortgagee.
2.11 No Waiver of One Default to Affect Another. No waiver of any Event
of Default hereunder shall extend to or affect any subsequent or any other Event
of Default then existing, or impair any subsequent or any other Event of Default
then existing, or impair any rights, powers or remedies consequent thereon. If
Mortgagee (a) grants forbearance or an extension of time for the payment of any
of the Secured Indebtedness; (b) takes other or additional security for the
payment thereof; (c) waives or does not exercise any right granted in the Note,
this instrument or any other instrument securing the Note; (d) releases any part
of the Mortgaged Property from the lien of this instrument, or any other
instrument securing the Note; (e) consents to the filing of any map, plat or
replat of the Land; (f) consents to the granting of any easement on the Land; or
(g) makes or consents to any agreement changing the terms of this instrument or
subordinating the lien or any charge hereof, no such act or omission shall
release, discharge, modify, change or affect the original liability under the
Note, this Mortgage or otherwise of any party liable thereunder or hereunder or
any subsequent purchaser of the Mortgaged Property or any part thereof or any
maker, co-signer, endorser, surety or guarantor. No such act or omission shall
preclude Mortgagee from exercising any right, power or privilege herein granted
or intended to be granted in case of any Event of Default then existing or of
any subsequent Event of Default. In the event of the sale or transfer by
operation of law or otherwise of all or any part of the Mortgaged Property,
Mortgagee, without notice to any person, firm or corporation, is hereby
authorized and empowered to deal with any such vendee or transferee with
reference to the Mortgaged Property or the Secured Indebtedness, or with
reference to any of the terms or conditions hereof, as fully and to the same
extent as it might deal with the original parties hereto and without in any way
releasing or discharging any of the liabilities or undertakings hereunder.
2.12 Discontinue Proceedings; Position of Parties Restored. If
Mortgagee shall have proceeded to enforce any right or remedy under this
Mortgage by foreclosure, entry or otherwise, and such proceedings shall have
been discontinued or abandoned for any reason, or shall have been determined
adversely to Mortgagee, then and in every such case Mortgagor and Mortgagee
shall be restored to their former positions and rights hereunder, and all
rights, powers and remedies of Mortgagee shall continue as if no such proceeding
had occurred or had been taken.
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2.13 Remedies Cumulative. No right, power or remedy conferred upon or
reserved to Mortgagee by the Note, this Mortgage or any other instrument
securing the Note is exclusive of any other right, power or remedy, but each and
every such right, power and remedy shall be cumulative and concurrent and shall
be in addition to any other right, power and remedy given hereunder or under the
Note or any other instrument securing the Note, now or hereafter existing at
law, in equity or by statute.
ARTICLE THREE
MISCELLANEOUS PROVISIONS
3.01 Heirs, Successors, and Assigns Included in Parties. Whenever one
of the parties hereto is named or referred to herein, the heirs, successors and
assigns of such party shall be included and all covenants and agreements
contained in this Mortgage, by or on behalf of Mortgagor or Mortgagee, shall
bind and inure to the benefit of their respective heirs, successor and assigns,
whether so expressed or not.
3.02 Addresses for Notices, etc.
(a) Any notice, report, demand or other instrument authorized
or required to be given or furnished under this Mortgage to Mortgagor or
Mortgagee shall be deemed given or furnished when addressed to the party
intended to receive the same, at the address of such party on the first page
hereof, and delivered at such address or deposited in the United States mail as
first class certified mail, return receipt requested, postage paid, whether or
not the same is actually received by such party.
(b) Either party may change the address to which any such
notice, report, demand or other instrument is to be delivered or mailed, by
furnishing written notice of such change to the other party, but no such notice
of change shall be effective unless and until received by such other party.
3.03 Headings. The headings of the articles, sections, paragraphs and
subdivisions of this Mortgage are for convenience of reference only, are not to
be considered a part hereof, and shall not limit or expand or otherwise affect
any of the terms hereof.
3.04 Invalid Provisions to Affect No Others. In the event any of the
covenants, agreements, terms or provisions contained in the Note, this Mortgage
or any other instrument securing the Note shall be invalid, illegal or
unenforceable in any respect, the validity of the remaining covenants,
agreements, terms or provisions contained herein and in the Note and any other
instrument securing the Note shall be in no way affected, prejudiced or
disturbed thereby.
3.05 Changes, etc. Neither this Mortgage nor any term hereof may be
changed, waived, discharged or terminated orally, or by any action or inaction,
but only by an instrument in writing signed by the party against which
enforcement of the change, waive, discharge or termination is sought. Any
agreement hereafter made by Mortgagor and Mortgagee relating to this Mortgage
shall be superior to the rights of the holder of any intervening lien or
encumbrance.
3.06 Governing Law. The performance required by this instrument shall,
insofar as is possible, be rendered to Mortgagee at its office in Naples,
Florida. Mortgagor and Mortgagee intend that the validity and construction of
the obligations secured by this instrument and the enforcement of this Mortgage
shall be governed by the laws of the State of Florida. Should any obligation or
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remedy under this instrument be invalid or unenforceable under the laws provided
herein to govern, then the laws of another state whose laws can validate and
apply to this instrument shall apply.
3.07 Default Rate. The Default Rate shall be the rate of interest
provided in the Note, on the amount of the Secured Indebtedness, as of the date
of an Event of Default.
3.08 Remedies. Mortgagee shall have the right from time to time to sue
for any sums, whether interest, principal or any installment of either or both,
taxes, penalties, or any other sums required to be paid under the terms of this
Mortgage, as the same become due, without regard to whether or not all of the
Secured Indebtedness shall be due on demand, and without prejudice to the right
of Mortgagee thereafter to enforce any appropriate remedy against the Mortgagor,
including an action of foreclosure, or any other action, for a default or
defaults by Mortgagor existing at the time such earlier action was commenced.
3.09 Rights of Mortgagee. The rights of Mortgagee, granted and arising
under the clauses and covenants contained in this Mortgage and the Note, shall
be separate, distinct and cumulative of other powers and rights herein granted
and all other rights which Mortgagee may have in law or equity, and non of them
shall be in exclusion of the others; and all of them are cumulative to the
remedies for collection of indebtedness, enforcement of rights under mortgages,
and preservation of security as provided at law. No act of Mortgagee shall be
construed as an election to proceed under any one provision herein or under the
Note to the exclusion of any other provision, or an election of remedies to the
bar of any other remedy allowed at law or in equity, anything herein or
otherwise to the contrary notwithstanding.
3.10 Covenants of Mortgagor. The covenants of Mortgagor herein are
covenants running with the land and the title to the Mortgaged Property and
touch and concern the Mortgaged Property.
ARTICLE FOUR
LENDING PROVISIONS
4.01. Future Advances. The total amount of indebtedness that may be so
secured may decrease or increase from time to time during a period not to exceed
twenty (20) years from the date of this Mortgage, but the total unpaid balance
so secured at one time shall not exceed One Million and 00/100 Dollars
($1,000,000.00) plus interest thereon, and nay disbursements made for the
payment of taxes, levies or insurance on the Mortgaged Property, with interest
on such disbursements at the Default Rate.
4.02. Performance of Labor or Furnishing of Material. Nothing in this
instrument shall: (i) constitute any consent or request by Mortgagee, express or
implied, for the performance of any labor or services or the furnishing of any
material or other property in respect of the Mortgaged property or any part
thereof, or (ii) give Mortgagor any right, power or authority to contract for or
permit the performance of any labor or services or the furnishing of any
materials or other property in such fashion as would permit the making of any
claim against Mortgagee, or the holder of the Note in respect thereof or any
claim that any claim of lien based on the performance of such labor or services
or the furnishing of any such materials or other property is prior to the lien
of this instrument.
4.03. Interest Rate. Mortgagor and Mortgagee acknowledge and agree that
Mortgagee is a national banking association, chartered under the laws of the
United States of America, located in
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the State of Florida, and that under Section 85 of Title 12 of the United States
Code, the maximum rate of interest which Mortgagee may take, receive, reserve
and charge on the Secured Indebtedness shall be determined in accordance with
the laws of the State of Florida. In no event shall the amount of interest
(including any prepaid interest or other charges or fees held to be interest by
a court of competent jurisdiction) accrue to be payable under the Note exceed
the highest contract rate of interest allowed by applicable law for the time
such indebtedness shall be outstanding and unpaid, and if by reason of the
acceleration of maturity of the Secured Indebtedness, or for any other reason,
interest in excess of such highest legal rate shall be due and paid, any such
excess shall constitute and be treated as a payment on the principal evidenced
by the Note and shall operate to reduce such principal by the amount of such
excess, or if in excess of the principal indebtedness, such excess shall be
waived or refunded to the undersigned. It is the express intent hereof that the
undersigned not pay and Holder of the Note not receive, directly or indirectly
in any manner whatsoever, interest in excess of that which may be legally paid
by the Mortgagor under applicable law.
4.04. Hazardous or Toxic Materials. Mortgagor expressly represents to
Mortgagee that to the best of its knowledge the Mortgaged Property has not in
the past been used, is not presently being used, and will not in the future be
used for the handling, storage, transportation, or disposal of hazardous or
toxic materials except as permitted by law and approved in advance by Mortgagee
and that no spillage or leakage of such substances has occurred on the Mortgaged
Property. Mortgagor agrees to indemnify, defend and hold Mortgagee harmless from
and against any loss, liability, or damages to Mortgagee, including without
limitation attorneys' fees, incurred by Mortgagee as a result of such past,
present or future use, handling, storage, transportation, disposal, spillage or
leakage of hazardous or toxic materials.
Mortgagee, at Mortgagee's sole option at any time that Loan
proceeds remain outstanding, may obtain, at Mortgagor's expense, a satisfactory
report from a reputable environmental consultant of Mortgagee's choice as to
whether the Mortgaged Property has been or presently is being used for the
handling, storage, transportation, or disposal of hazardous or toxic materials
and that no spillage or leakage of such materials has occurred on the Mortgaged
Property.
In the event Mortgagee requests such a report and said report
indicates such past or present use, handling, storage, transportation, disposal,
spillage or leakage, Mortgagee may require that all violations of law with
respect to hazardous or toxic materials be corrected and/or that Mortgagor
obtain all necessary environmental permits within thirty (30) days of
Mortgagee's notice to Mortgagor or Mortgagor's discovery of a violation(s),
whichever occurs sooner, provided, however, if such violation(s) cannot be
corrected or such permit obtained within such thirty (30) day period, and
provided Mortgagor commences the necessary corrective action within such thirty
(30) day period and diligently pursues compliance or work necessary to obtain
necessary permits, Mortgagor shall have a reasonable time, not to exceed ninety
(90) days, to correct such condition or to obtain required permits within such
time periods shall constitute a default hereunder entitling Mortgagee to the
remedies provided herein.
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IN WITNESS WHEREOF, the undersigned has caused this instrument
to be signed and sealed the day and year first above written.
WITNESSES: CERTIFIED DIABETIC SUPPLIES INC., a
Florida corporation
/s/ DAVID N. MORRISON By: /s/ PETER J. FISCINA
- ----------------------------- ---------------------------------
Witness #1 Peter J. Fiscina
Its: President
David N. Morrison
- -----------------------------
(Type or Print Name)
/s/ TRACY L. GONSALVES
- -----------------------------
Witness #2
Tracy L. Gonsalves
- -----------------------------
(Type or Print Name)
STATE OF FLA
----------------
COUNTY OF COLLIER
---------------
The foregoing instrument was acknowledged before me this 31st
day of May, 1996 by Peter J. Fiscina, as President of CERTIFIED DIABETIC
SUPPLIES INC., a Florida corporation, on behalf of the corporation. He is
personally known to me or has produced
____________________________________________________________ (type of
identification) as identification and did (did not) take an oath. NOTE: If a
type of identification is not inserted in the blank provided, then the person
executing this instrument was personally known to me. If the words in the
parenthetical "did not" are not circled, then the person executing this
instrument did take an oath.
/s/ DAVID N. MORRISON
---------------------------------
Signature
/s/ David N. Morrison
---------------------------------
(Type or Print Name of Acknowledger)
---------------------------------
(Title or Rank)
---------------------------------
(Serial Number, if any)
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EXHIBIT "A"
Lots 62 and 63, J & C INDUSTRIAL PARK, an unrecorded plat in Section 11,
Township 49 South, Range 25 East, Collier County, Florida, more particularly
described as follows:
Parcel 62
Commencing at the West 1/4 corner of Section 11, Township 49 South, Range 25
East, Collier County, Florida; thence along the West line of said Section 11, N
0(Degree) 10' 36" W, 1864.95 feet to the Northerly right-of-way line of a road;
thence along said right-of-way line N 89(Degree) 28' 18" E, 1680.26 feet for a
Place of Beginning: thence N 0(Degree) 31' 42" W, 150.09 feet; thence N
89(Degree) 25' 20" E, 100.00 feet; thence S 0(Degree) 31' 42" E 150.18 feet to
said right-of-way line; thence S 89(Degree) 28' 18" W, 100.00 feet to the Place
of Beginning; being part of the North 1/2 of Section 11, Township 49 South,
Range 25 East, Collier County, Florida.
Parcel 63
Commencing at the West 1/4 corner of Section 11, Township 49 South, Range 25
East, Collier County, Florida; thence along the West line of said Section 11, N
0(Degree) 10' 36" W, 1829.95 feet to the centerline of a road; thence along said
centerline, N 89(Degree) 28' 18" E, 1580.47 feet for a Place of Beginning;
thence N 0(Degree) 31' 42" W, 185.01 feet; thence N 89(Degree) 25' 20" E, 100.00
feet; thence S 0(Degree) 31' 42" E, 185.00 feet to said centerline; thence S
89(Degree) 28' 18" W, 100.00 feet to the Place of Beginning, being part of the
North 1/2 of Section 11, Township 49 South, Range 25 East, Collier County,
Florida.
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EXHIBIT "B"
PERMITTED EXCEPTIONS
--------------------
1. Restriction regarding ingress and egress as contained in Warranty Deed
recorded in O.R. Book 1365, Page 943.
2. Restrictions contained in O.R. Book 472, Page 794.
3. Road Easement over the Southerly 35 feet, as evidenced in O.R. Book 578,
Page 222.
4. Drainage Easement along the North 15 feet to Collier County, as recorded in
O.R. Book 1419, Page 1876.
5. Terms, conditions and rights contained in Grant of Easement recorded in O.R.
Book 1691, Page 119.
6. Resolution creating the Pine Ridge Industrial Park Area Improvement
Assessment District recorded in O.R. Book 1153, Page 431.
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This sales contract provided as a courtesy to you by Lawyers' Abstract
Service, Inc., providing abstracts and title information to Collier County
for 42 years. Please call 774-2627 for all your title information needs.
SALES CONTRACT
(NOT FOR CONDOMINIUMS)
<TABLE>
<S> <C>
SELLER: Certified Diabetic Services BUYER: The Harvest Companies of FL Inc.
ADDRESS: 2373 Horseshoe Drive S. ADDRESS: 12933 Bald Cypress Lane
Naples, Florida 34104 Quail Creek, Naples, FL 34119
</TABLE>
UPON THE ACCEPTANCE OF THE OFFER (OR COUNTEROFFER) the Seller has agreed to sell
and the Buyer has agreed to buy UPON THE TERMS AND CONDITIONS WHICH FOLLOW, the
real property legally described as:
1951 J&C Blvd., Naples, FL 34109, ScII, TN 49, RG 25, Lot 62 & 63, J&C
Industrial Park
together with fixtures, including built-in appliances, wall-to-wall carpeting,
window coverings, and ____________ _______________________, and the personal
property, if any, as listed on the attached inventory, free from liens. The
following items are specifically excluded from this contract: furnishings. The
purchase price is allocated to real property only unless otherwise stated.
<TABLE>
<S> <C>
1. PURCHASE PRICE: The total purchase price shall be (U.S.)
payable as follows: ...................... $ 440,000.00
-----------
(a) Initial deposit in escrow at this time of $
......................
(b) Additional deposit to be received in escrow on or before 3
days after Effective Date as defined below in the amount of ...................... $ 50,000.00
------------
(c) Proceeds of mortgage, if any, [See Par 3(b)] ...................... $
(d) Note and mortgage to Seller, if any, [See Par 3(c)] ...................... $
(e) Other ...................... $
---------------------------------------------------
(f) The balance of the purchase price by local certified check, wire
transfer funds, or local cashier's check at
closing, subject to adjustments and prorations, of
approximately ...................... $ 390,000.00
-----------
Deposit checks are accepted subject to collection.
</TABLE>
2. CLOSING AND POSSESSION DATE: Closing shall occur at a time of day and
place selected by Buyer in the County in which the property is located, but upon
reasonable notice to the Seller, on May 10, 1998 (or prior to that date with the
written consent of both parties) (the "Closing Date"); provided, however, in no
event shall the Buyer be required to close less than two (2) weeks after the
date on which the mortgage commitment has been obtained pursuant to paragraph 3
below. Buyer shall be the legal owner of the property as of the closing and
Seller shall give possession of the property at closing unless otherwise
provided herein.
3. OMITTED.
<PAGE>
4. EVIDENCE OF TITLE: Within twenty (20) days after the Effective Date of
this contract or twenty (20) days prior to closing, whichever is earlier,
Seller: (1) [ ] shall deliver to Buyer a complete abstract of title from a
company satisfactory to Buyer, certified to the date of this contract; or (2)
[x] shall pay, at closing, $150.00 toward the cost of Buyer's title evidence and
insurance. If no box is checked, the Seller shall provide the abstract title.
The abstract or title evidence will show good and marketable title with legal
access subject only to the following exceptions: (a) real property ad valorem
taxes for the year of closing; (b) zoning, building code and other use
restrictions imposed by governmental authority; (c) outstanding oil, gas and
mineral interest of record, if any; and (d) restrictions and easements common to
the subdivision, provided, however, that no one of them shall prevent use of the
property for the purpose of office and warehouse space.
5. INSTRUCTIONS FOR TITLE: At least 15 days prior to closing, Buyer shall
deliver to Seller the name(s), address(es), manner in which title will be taken,
and any assignment(s) thereby required. No assignment shall release Buyer from
the obligations of this contract unless Seller consents in writing.
CONDITION OF PROPERTY, RISK OF LOSS, WARRANTIES:
(a) DISCLOSURE: There are no facts known to Seller materially affecting
value of the real property which are not readily observable to Buyer
or which have not been disclosed to Buyer in a written disclosure
form or other writing delivered to Buyer prior to this contract or
disclosed in writing in this contract.
(b) WARRANTY: Seller warrants that, except as aforesaid, all major
appliances, equipment and systems will be in working condition at
closing or possession, whichever comes first. No cost to repair a
warranted item hereunder shall exceed its fair market value at
closing. Docks and sea walls, if any, are not warranted by this
provision. Seller shall not be required to repair cosmetic defects.
"Working condition" shall mean operating in a manner in which the
items were designed to operate, and "cosmetic defect" shall mean an
aesthetic imperfection which does not affect the working condition of
the item, including corrosion, tears, worn spots, discoloration of
floor covering or wall paper or window treatments, nail holes,
scratches, dents, chips, caulking, pitted marcite, and minor cracks
in windows, driveways, sidewalks, pool decks and in garage, tile
(other than roof tile) or patio floors. Buyer (or its designated
independent inspector)may inspect shortly before closing or
possession to verify this warranty
(c) INSPECTION: Buyer may, at Buyer's expense, have inspections made of
the property by an appropriately licensed home inspection company or
by an appropriately licensed Florida contractor. Said inspections
shall be conducted and concluded within fifteen (15) calendar days of
the Effective Date of this contract or prior to ten (10) calendar
days from date of closing, whichever shall first occur. Within five
(5) calendar days following the time allowed for the inspection as
aforesaid, Buyer shall report in writing to Seller those items to be
repaired in the inspection report which are not cosmetic defects as
defined in (b) above, along with a copy of the said inspection
report. Unless Buyer timely reports such defects, Buyer shall be
deemed to have waived Seller's obligation to repair any defects not
reported. If repairs or replacements to undisclosed items are
required to comply with this paragraph, Seller shall cause them to be
made or shall pay up to $1,000.00 or 1.00% of the contract sales
price of the property, whichever is greater, for such repairs or
replacements. If the cost for such repairs or replacements exceeds
this amount, Buyer or Seller may elect to pay such excess, failing
which either party may cancel this contract.
(d) RISK OF LOSS: Seller shall maintain the property in its present
condition, ordinary wear and tear excepted, including but not limited
to the lawn, shrubbery, and landscaping. Any future loss and/or
damage to the property between the Effective Date of this contract
and the date of closing or date of possession, whichever occurs
first, shall be at Seller's sole risk and expense. Seller shall
maintain adequate casualty insurance on all improvements until
disbursement.
<PAGE>
7. SELLER'S INSTRUMENTS AND EXPENSES: Seller shall pay for and provide when
applicable including any state sales tax due thereon: (a) evidence of title as
specified in Paragraph 4 herein; (b) a current U.C.C. encumbrance search; (c)
preparation of statutory warrant deed (or special warranty deed if Seller is a
fiduciary), bill of sale or full warranties, condominium/homeowner's association
estoppel letter, tenant estoppel letter, copies of leases and assignment(s) of
lease(s) and an affidavit regarding liens, possession, and withholding under
FIRPTA, in a form sufficient to allow "gap" coverage by title insurance; (d)
mortgage payoff information; (e) documentary stamps on deed; (f) real estate
brokerage fee (to be disbursed by closing agent at closing); (g) utility service
to the Closing Date, the full amount of special taxes or assessments, including
condominium/homeowner's association special assessments, which are a lien or a
special assessment that in certain as to the identity of the lienor or assessor,
the property subject to the lien or special assessment and the amount of the
lien or special assessment, on or before the Effective Date of this contract;
(h) Seller's attorney fees; (i) any survey required from Seller by law.
8. BUYER'S INSTRUMENTS AND EXPENSES: Buyer shall pay for and provide when
applicable including any state sales tax due thereon: (a) recording fee for
deed; (b) preparation in form satisfactory to Seller of any purchase money note
and mortgage, documentary stamps, intangible tax and recording fees on any note
and mortgage to Seller, and all costs of any institutional loan secured by
Buyer; (c) mortgage transfer fee including recording expenses; (d) title
insurance; (e) recording membership approval; (f) abstract recertification or
title continuation through date of deed recording; (g) survey; (h) homeowner's
association transfer fee; (i) preclosing notice to utility suppliers; (j)
homeowner's association required resale capital contribution; (k) pending liens
or special assessments (liens or special assessments other than those described
in subparagraph 7(g) hereof). In the event it is determined there are pending
liens or special assessments, which do not fall under paragraph 7(g), not
disclosed in writing to Buyer by Seller, prior to or concurrent with the
execution of this contract, which pending liens or special assessments exceed 1%
of the purchase price of the property, Buyer, at its option shall have the right
to terminate this agreement by providing Seller written notice, unless Seller
agrees in writing to pay such pending liens or special assessments in excess of
1% of the purchase price. Seller agrees to pay into escrow a reasonable sum to
insure that the excess will be paid at closing. In the event this contract is
terminated for any reason prior to closing, Buyer shall immediately return to
Seller surveys, title evidence, and association and other documents, which have
been provided to Buyer by Seller.
9. PRORATIONS AND SPECIAL ASSESSMENTS: These items will be prorated at
closing, with the Buyer charged with and entitled to the closing date, or the
possession date, which ever first occurs: (a) real estate and personal property
taxes based on the current year (if available), otherwise on the prior year's
bill (without discount) and readjusted upon receipt of tax bill if requested by
either party; (b) interest on any assumed indebtedness; (c) rent and deposits
(and accrued interest thereon); (d) homeowner association maintenance
assessments; (e) prepaid utilities, including cable TV and County waste
assessments; (f) appliance service contracts.
10. HOMEOWNER ASSOCIATION CLAUSE: In the event that the property is located in
a homeowner association community, Florida law requires that the Seller provide
a disclosure summary to the Buyer before the Buyer signs this Contract. Buyer
has considered the existence or not of any homeowners association reserve
account and determined it to be satisfactory. Any reserve accounts are included
in the purchase price. If required, Buyer agrees to make prompt application in
the name(s) in which title will be taken and shall be responsible for securing
membership in the association. If no approval for membership has been obtained
within 30 days after Buyer's application for membership and at least 5 days
prior to the Closing Date, either the Buyer or Seller may cancel contract and
the Buyer's deposit(s) shall be returned to Buyer. Seller shall obtain a letter
from the association which sets forth the amounts, periods and payment status of
assessments and transfer fees and deliver it to the Buyer at least 15 days prior
to closing.
11. PROCEEDS OF SALE AND DISBURSEMENT PROCEDURE: If a portion of the purchase
price is to be derived from institutional financing, the requirements of the
lending institution as to place, time of day, procedures for closing, and for
disbursement of mortgage proceeds shall control. However, the Seller shall have
the right to require from the lending institution at closing a commitment that
the lender will not withhold disbursement of mortgage proceeds as a result of
any title defect attributable to Buyer-mortgagor. Unless institutional
procedures set forth above control, the Seller shall be entitled to receive the
net proceeds of sale upon tender of Seller's instruments at closing.
<PAGE>
12. TITLE DEFECTS: Buyer shall have 15 (15) days from receipt by Buyer of
Evidence of Title, as defined in paragraph 4 of this Sales Contract, for
examination of title and a reasonable time for examination of legal access. If
title or legal access is found defective, Buyer shall within such time period,
notify Seller in writing specifying the defect(s). If the defect(s) render(s)
title unmarketable, or Seller cannot deliver possession, or there is no access
per this contract, the Seller shall have 30 days from the receipt of notice to
remove such defect(s). Seller agrees that Seller will, if Seller cannot deliver
possession, or Seller has no access, or title is found to be defective, use
diligent effort to correct the defect(s) within the time provided therefor,
including the bringing of necessary suits. However, Seller shall not be liable
to Buyer for damages if Seller cannot make title marketable, deliver possession
or provide access. Buyer shall have the option of accepting such possession,
access and title as Seller can provide without reduction of the purchase price,
or of demanding a refund of all monies paid hereunder, and upon demand the
monies shall be promptly returned to Buyer. Upon such demand and repayment the
Buyer and Seller shall be released, as to one another, of all obligations under
this contract.
13. SURVEY: Buyer may, at Buyer's expense, have the real property surveyed so
as not to delay the closing. If the survey, as certified by a registered Florida
surveyor, correctly shows: (a) an encroachment onto the property; (b) an
improvement located on the property projects onto lands of others; (c) an
improvement violates a zoning or other governmental use restriction; or (d) an
improvement violates any recorded, or Sales Contract covenant, Buyer will
promptly notify the Seller in writing of the violation, encroachment or
projection and Seller shall treat it as a title defect. If any portion of this
real property lies seaward of the Coastal Construction Control Line, as defined
in Section 161.053F.S., the Buyer waives the right to receive an affidavit or
survey from Seller delineating the Coastal Construction Control Line located on
the property.
14. INGRESS AND EGRESS: Buyer's purchase is conditioned on the property having
access to and from a public right of way sufficient for the Buyer's intended
use. The Buyer may cancel this contract if there is no legal ingress and egress
from the captioned property to a public right of way, unless Seller elects at
his expense to provide such ingress and egress.
15. FUNDS ESCROW: The undersigned escrow agent (the "escrowee") will accept in
escrow the deposit monies provided in contract and hold and apply the deposit(s)
in escrow until the earlier of: (a) delivery for closing to another escrowee,
who by acceptance agrees to these terms and becomes the escrowee (the escrowee
holding the deposit(s) is authorized to so transfer the funds), and the
delivering escrowee is relieved of all liability for the funds delivered; (b)
delivery of the deed, with payment of the deposit monies as part of the purchase
price of the property; (c) such time as the Buyer may be entitled to a refund of
the deposit(s); or (d) delivery pursuant to a direction signed by the parties,
at which time the escrowee shall pay all of the deposit(s) to the party entitled
thereto.
The escrowee shall act with respect to the deposit(s) as a stakeholder only and
without compensation. The escrowee shall not be liable for the payment of any
interest, damages, attorney fees or court costs in any action that may be
brought to recover the monies held in escrow, or any part thereof, unless the
escrowee shall fail or refuse to pay over any such deposit(s) pursuant to a
judgment, order or decree that shall be final beyond possibility of appeal. In
any proceeding which litigates the disposition of the deposit(s) the escrowee
shall be entitled to be paid reasonable attorney fees and costs which shall be
paid by the non-prevailing party.
The escrowee has no duty to collect or attempt to collect any deposit or check
given as a deposit but shall give the parties written notice of (1) any deposit
that is not received within 5 days after its due date, and (2) any check for an
initial deposit which is not paid on presentation within 5 days after learning
of its dishonor. Upon receipt of separate written directions from the Buyer, the
deposit(s) shall be placed into an interest bearing account (but an insured
account is not required) and all interest accruing thereon shall be paid to the
Buyer in any event. If the escrowee is a licensed real estate broker, the
escrowee shall comply with the requirements of Chapter 475 F.S. An escrowee
charging an escrow fee shall be liable for ordinary negligence. An esrowee not
charging an escrow fee shall be liable only for willful misconduct or gross
negligence.
<PAGE>
16. ZONING: Seller represents and warrants that Seller has not commenced any
proceedings to change the present zoning classification of the property nor will
Seller initiate any such proceedings. Seller further represents and warrants
that Seller has received no notice of the commencement by third parties or any
proceedings which would affect the present zoning classification of the
property. Should Seller receive any such notice, Seller will promptly
communicate the same to Buyer in writing and if the proposed zoning would
prevent the use stated in paragraph 4, the Buyer may elect to cancel this
contract and have the deposit(s) returned to Buyer.
17. FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT (FIRPTA): Sellers who are U.S.
Citizens or who are resident aliens are exempt from FIRPTA withholding. Buyer
shall collect from the Seller, or deduct and withhold from the purchase price, a
tax on the Seller equal to 10% of the purchase price of the property unless (a)
the Seller shall satisfy Buyer that a statutory exemption relieves Buyer from
such collection by furnishing to Buyer an affidavit which establishes exemption
to Buyer's satisfaction and indemnifies Buyer for not collecting the tax, or (b)
the purchase price of the property is no more than $300,000 and Buyer executes
an affidavit establishing Buyer's compliance with the Internal Revenue Code.
Seller shall not be required to pay to the Buyer or allow withholding by Buyer
the Buyer satisfies Seller the tax will be properly and timely paid. Within 10
days after receipt, Buyer will file with and pay such tax to the Secretary of
the Treasury for the benefit of the Seller, and will provide evidence of
remittance to the Seller. The collection or withholding of the tax by Buyer, or
the establishment of an exemption by Seller or Buyer as set forth herein, is a
condition precedent to closing for the sole benefit of the Buyer. A failure of
Seller to comply or allow compliance with the requirements of Section 1445 IRC
(and regulations) is an event of default and breach of the contract by the
Seller.
18. TERMITES OR OTHER WOOD-DESTROYING ORGANISMS: Buyer, no later than 20 days
prior to closing, may have the improvements inspected at Buyer's expense by a
Certified Pest Control Operator ("Operator") (pursuant to the Florida Pest
Control Act F.S. 482.226) to determine any visible evidence of previous
treatments for the infestation of wood-destroying organisms or the identity of
any wood-destroying organisms present and any visible damage caused. If the
inspection report indicates that restoration of damage or treatment of
infestation is necessary, Buyer will have 7 days from the date of written notice
thereof within which to have such damages estimated (the "Estimate") by an
Operator or properly licensed contractor. Seller shall be responsible for
restoration or treatment described as necessary (excluding non-substantial
ancillary structures such as fences and trellises) in the inspection report to a
maximum cost of 2.0% of the Purchase Price. Should such costs exceed 2.0% of the
Purchase Price, Buyer shall have the option of accepting a credit of 2.0% of the
Purchase Price at closing, or canceling this contract within 5 days after
receipt of the Estimate by giving written notice to Seller.
19. TIME OF PERFORMANCE AND REMEDIES: Time is of the essence for closing
title. If Buyer does not perform Buyer's obligations hereunder (except as
excused by the Seller's default) all deposits made shall be paid to the Seller
as liquidated damages which shall be Seller's exclusive remedy. If Seller does
not perform Seller's obligations hereunder (except as excused by the Buyer's
default) Buyer may enforce this contract by a suit for specific performance,
damages or may elect to terminate this contract and receive a refund of the
deposit(s).
20. LITIGATION COSTS AND ATTORNEY'S FEES: In connection with any litigation
concerning this contract, the prevailing party shall be entitled to recover
reasonable attorney's fees and costs.
21. DISCLOSURES: RADON GAS/ENERGY EFFICIENCY/LEAD-BASED PAINT:
(a) RADON GAS DISCLOSURE: Florida law requires the following disclosure:
Radon is a naturally occurring radioactive gas that when it has
accumulated in a building in sufficient quantities, may present
health risks to persons who are exposed to it over time. Levels of
radon that exceed federal and state guidelines have been found in
buildings in Florida. Additional information regarding radon and
radon testing may be obtained from your county public health unit.
(b) ENERGY EFFICIENCY DISCLOSURE: Buyer acknowledges receiving the
Department of Community Affairs brochure on the Florida Building
Energy Efficiency Rating System and understands that Buyer may have
the energy efficiency rating of the building determined. To have the
energy efficiency rating determined, a separate "Energy Efficiency
Rating Disclosure and Request" Addendum must be executed by the
parties and attached to this contract.
<PAGE>
(c) LEAD-BASED PAINT DISCLOSURE: If construction of the building was
commenced prior to 1978, the Seller is required to complete and the
Buyer and Seller are required to sign and attach to this contract the
addendum entitled "Attachment to Sales Contract: Disclosure of
Information and Acknowledgment Lead-Based Paint and/or Lead-Based
Paint Hazards."
(d) Within the time parameters of paragraph 6C, Buyer may, at Buyer's
expense, have the property inspected for the presence of (i) radon
gas by a state-licensed radon measurement technician or specialist
and/or (ii) lead-based paint or paint hazards by an EPA-certified
lead exposure risk assessor. If said inspection(s) should find either
condition to exist above designated action levels, Buyer may, within
the time allowed for such inspections, object to said conditions to
Seller in writing and provide a copy of the inspection report(s).
Within five (5) days of Seller's receipt thereof, Seller may agree in
writing to take such action as is necessary to abate the said
condition below the designated action levels. If Seller fails to so
agree or fails to respond within the aforesaid five (5) day period,
Buyer may within five (5) days thereafter notify Seller in writing of
Buyer's cancellation of this Contract.
22. MISCELLANEOUS: The parties have agreed to deal in good faith and to
diligently work toward a timely closing. The singular tense shall include the
plural tense. This contract may only be modified in writing by the parties.
Notification to a party may be made to that party's attorney or by that party's
attorney. Unless otherwise specified to the contrary, all references in this
Contract to periods of days shall mean calendar days. As used herein, the terms
"real estate broker" or "broker" shall be deemed to include all real estate
brokers, brokerage corporations or business entities, and their respective
salespersons involved in this transaction.
23. REPRESENTATIONS AND WARRANTIES: All representations and warranties, if
any, must be written into this contract; otherwise, there are none. Buyer's
decision to buy was based upon Buyer's own investigation of the Property. Buyer
holds the broker(s) harmless from all liability or loss caused by Seller's
failure to disclose material facts in accordance with this contract,
representations regarding the property's condition, or broker's referral,
recommendation, or retention of any vendor. The parties agree that assistance to
a party by a broker does not, and will not, make the broker responsible for
performance. Each party (Seller or Buyer) is, and will remain, responsible for
that parties performance of the obligations of the contract.
24. PERIOD OF OFFER AND EFFECTIVE DATE: This offer or any counteroffer is
revoked if not accepted and notice of acceptance delivered to offeror or the
counteroffer by 12:00 p.m., 4-7-98. This time limit shall apply to all offers
and counteroffers unless otherwise stated. The Effective Date of this contract
shall be the last date either the Buyer or Seller signs or initials this
contract. Initialed changes must be dated or the latest date set forth on this
contract shall be deemed to be the Effective Date. A facsimile shall be deemed
to be original. Offer and acceptance by facsimile is binding.
25. BINDING CONTRACT AND PARTIES ADVISED TO SEEK LEGAL COUNSEL: THE PARTIES
ARE NOT REQUIRED TO USE ANY PARTICULAR FORM OF CONTRACT. TERMS AND CONDITIONS
SHOULD BE NEGOTIATED BASED UPON THE RESPECTIVE INTERESTS, OBJECTIVES AND
BARGAINING POSITIONS OF ALL INTERESTED PARTIES. APPROVAL OF THIS FORM BY THE
COLLIER COUNTY BAR ASSOCIATION AND BOARDS OF REALTORS DOES NOT CONSTITUTE AN
OPINION THAT ANY OF THE TERMS AND CONDITIONS IN THIS CONTRACT SHOULD BE ACCEPTED
BY A PARTY IN A PARTICULAR TRANSACTION. THIS IS A LEGALLY BINDING CONTRACT FORM.
EACH PARTY ACKNOWLEDGES THAT PRIOR TO SIGNING THE CONTRACT THE CLOSING EXPENSES
HAVE BEEN EXPLAINED AND THAT PARTY HAS BEEN ADVISED BY THE REAL ESTATE BROKER TO
SEEK LEGAL COUNSEL AND TITLE INSURANCE TO PROTECT THAT PARTY'S INTEREST IN
CONNECTION WITH THE TITLE STATUS AND CLOSING OF THIS TRANSACTION. BUYER AND
SELLER ARE ADVISED TO CONSULT AN APPROPRIATE PROFESSIONAL FOR LEGAL, TAX,
PROPERTY CONDITION, ENVIRONMENTAL, AND OTHER SPECIALIZED ADVICE. THIS CONTRACT
SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF THE PARTIES HERETO, THEIR
HEIRS, ADMINISTRATORS, PERSONAL REPRESENTATIVES, AND SUCCESSORS IN INTEREST.
<PAGE>
26. OTHER TERMS AND CONDITIONS: Seller warrants that there is no known defects
to the building and property including but not limited to the sub-soil. Act of
Sale to take place within 10 days of lessee's occupancy and commencement of
lease payments. Buyer reserves the right to have his attorney to read and
approve signed lease for said property within 3 days of acceptance of this
agreement. Buyer agrees to abide by commission terms on existing lease.
BEFORE SIGNING, THE PARTIES HAVE REVIEWED THE ADDITIONAL TERMS AND CONDITIONS ON
ALL PAGES OF THIS CONTRACT.
<TABLE>
<S> <C>
SELLER: BUYER: /s/ illegible, Pres & Broker
------------------------------------- ------------------------------------
(Signature) (Signature)
The Harvest Companies Of Fl
------------------------------------- ------------------------------------
(Print Name) (Print Name)
DATE: TAX I.D.: DATE: 4-6-98 TAX I.D.: ###-##-####
-------------- -------------- ------------ ------------
SELLER: BUYER:
------------------------------------- ------------------------------------
(Signature) (Signature)
------------------------------------- ------------------------------------
(Print Name) (Print Name)
DATE: TAX I.D.: DATE: TAX I.D.:
------------- -------------- ------------- --------------
</TABLE>
(Seller) (Buyer) hereby rejects the offer or counteroffer.
circle one ----------------
(Initials)
Acknowledgment of Real Estate Brokers: The Seller acknowledges that Kersey Quade
is the listing real estate broker. The Buyer acknowledges that The Harvest
Companies of Florida, Inc. is the selling real estate broker.
DEPOSIT RECEIPT
Receipt of the initial deposit is acknowledged by [ ] cash or [ ] check this
___________, 19____, to be held in escrow per terms and conditions set forth in
this contract.
By:
- ------------------------------- ----------------------------------------
(Insert Name of Escrow Agent) Its duly authorized agent.
(C)1997 Naples Area Board of REALTORS(R) and Association of Real Estate
Professionals, Inc. All Rights Reserved. Approved by the Marco Island Area
Association of Realtors(R) and the Collier County Bar Association.
<PAGE>
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is by and
between Barnett Bank, N.A., or its affiliate holding title to the Property (as
hereafter defined) ("Seller"), and Certified Diabetic Services, Inc., a Delaware
corporation ("Purchaser"), and is dated as of the date the Escrow Agent (as
hereafter defined) executes this Agreement (the "Effective Date").
1. Sale of Property. Seller agrees to sell and convey to
Purchaser and Purchaser agrees to purchase and acquire from Seller upon the
terms and conditions set forth herein the property located in Collier County,
Florida consisting of the real property described on Exhibit A attached hereto
and all improvements and personal property owned by Seller and located thereon
as described in Exhibit A-1 (all of the foregoing is sometimes collectively
called the "Property").
2. Appurtenant Rights. Included in the purchase price and the
sale hereunder is all of Seller's right, title and interest (if any) in and to
the following (subject, however, to the "Permitted Encumbrances" as hereinafter
defined):
(a) all of the improvements, if any, located on the
Property;
(b) transferable licenses and permits utilized in
connection with the Property;
(c) all easements, right-of-way, streets and other
appurtenances incidental to the operation of the Property; and
(d) all of the Occupancy Leases (as hereinafter defined).
3. Purchase Price and Deposit.
(a) The purchase price (the "Purchase Price") is Two
Million Eight Hundred Thousand and 00/100 Dollars ($2,800,000), which is
allocated as $2,600,000 for the real property and $200,000.00 for the personal
property, and subject to the specified adjustments and prorations hereinafter
provided. The Purchase Price shall be paid as follows:
Payment Due Date Amount
------- -------- ------
(i) First Deposit to be held Due upon the Effective $ 50,000
in Escrow by Mahoney Date
Adams & Criser, P.A.
(Escrow Agent)
(ii) Second Deposit to be Due on or before $ 50,000
held in Escrow by Termination Date (as
Escrow Agent defined in
Section 15.(a))
(iii) Cash to Close (adjusted Closing $2,700,000
for closing
prorations)
TOTAL PURCHASE PRICE $2,800,000
(b) The timely delivery to Escrow Agent of the First
Deposit and, to the extent applicable, the Second Deposit (collectively, the
"Deposit") is a condition precedent to the performance of Seller's obligations
hereunder. The balance of the cash to close shall be paid to Seller by Federal
wire transfer to such bank account as shall be directed by Seller or by such
other manner of payment as shall be directed by Seller.
(c) PURCHASER'S OBLIGATIONS HEREUNDER ARE CONTINGENT UPON
PURCHASER OBTAINING A COMMITMENT FOR MORTGAGE FINANCING ON BEFORE THE
TERMINATION DATE (AS HEREINAFTER DEFINED). NOTWITHSTANDING THE FOREGOING, SELLER
HAS PROVIDED NO ASSURANCES TO PURCHASER THAT SELLER OR ANY AFFILIATE THEREOF
WILL PROVIDE ANY FINANCING TO PURCHASER AND PURCHASER'S OBLIGATIONS HEREUNDER
ARE NOT CONTINGENT UPON SELLER OR ANY AFFILIATE THEREOF PROVIDING ANY FINANCING
TO PURCHASER.
<PAGE>
4. Title Evidence.
(a) Within 15 days from the Effective Date, Seller shall
deliver to Purchaser or Purchaser's attorneys, a title insurance commitment (the
"Commitment") for an owner's marketability policy of title insurance in the
amount of the Purchase Price, insuring Purchaser's title to the real property
included in this sale (the "Real Property") subject only to the following (the
"Permitted Encumbrances"):
(i) zoning, restrictions, prohibitions, regulations,
ordinances and other requirements of any applicable
governmental authority;
(ii) the lien of taxes and assessments for the calendar
year of the Closing and all subsequent years;
(iii) public utility easements (if any);
(iv) any lien, encumbrance or other matter as to which
the title company shall commit to affirmatively "insure
over" at the minimum risk rate;
(v) the rights of the tenants under the Occupancy
Leases;
-2-
<PAGE>
(vi) matters revealed by the Prior Survey, as
hereinafter defined.
(b) Purchaser or its counsel shall notify Seller in writing
("Title Notice") within 10 days after Purchaser's receipt of the Commitment and
copies of all title exceptions if the Commitment discloses any defects in the
title to the Real Property, other than the Permitted Encumbrances, which may
render title unmarketable. Any such defects appearing in the Commitment not
noted by Purchaser in the Title Notice, or any defects noted in a Title Notice
not delivered within the period specified above, shall be deemed to have been
waived by Purchaser. In the event the Commitment discloses any defect which
renders the title to the Real Property other than marketable and insurable
(other than the Permitted Encumbrances), and such defect is noted in a Title
Notice given by Purchaser to Seller within the time period required hereunder,
Seller, at Seller's sole option, shall have 60 days from the date it receives
the Title Notice within which to make Seller's title marketable and insurable.
If after the expiration of such 60-day period, Seller is unable to make Seller's
title marketable and insurable, or if having received the Title Notice, Seller,
in its sole discretion, shall have elected not to cure (or shall have elected to
discontinue any attempted cure of) any such defects appearing, in the Commitment
noted in the Title Notice, then in any such event, Purchaser's remedies shall be
limited solely to either (x) accepting, such title to the Real Property as
Seller shall be willing, and able to convey, without adjustment to or diminution
of the Purchase Price, or (y) terminating, this Agreement and receiving a return
of the Deposit. Any other provision of this Agreement to the contrary
notwithstanding, it shall not be objectionable if the Commitment discloses the
existence of any liens or encumbrances provided the same are discharged,
canceled of record and terminated by Seller at or prior to the Closing.
5. Obligation of Escrow Agent. If there is any dispute as to
whether Escrow Agent is obligated to deliver the Deposit, or any other monies or
documents which it holds or as to whom such Deposit, monies or documents are to
be delivered, Escrow Agent shall not be obligated to make any delivery, but, in
such event, may hold same until receipt by Escrow Agent of an authorization, in
writing, signed by all of the parties having an interest in such dispute
directing the disposition of same, or, in the absence of such authorization,
Escrow Agent may hold such Deposit, monies or documents until the final
determination of the rights of the parties in an appropriate proceeding. If such
written authorization not given or proceeding for such determination is not
begun and diligently continued, Escrow Agent may, but is not required to, bring
an appropriate action or proceeding for leave to deposit such Deposit, monies or
documents in court, pending such determination. Escrow Agent shall not be
responsible for any acts or omissions unless the same constitutes gross
negligence or willful misconduct and upon making delivery of the Deposit, monies
or documents which Escrow Agent holds in accordance with the terms of this
Agreement, Escrow Agent shall have absolutely no further liability hereunder. In
the event Escrow Agent places the Deposit, monies or documents that have
actually been delivered to Escrow Agent in the Registry of the Circuit Court in
and for the County in which the Real Property is located and files an action of
interpleader, naming the parties hereto, Escrow Agent shall be released and
relieved from any and all further obligation and liability hereunder or in
connection herewith. Seller and Purchaser shall and do hereby, jointly and
severally, agree to indemnify and hold Escrow Agent harmless from any and all
damages, losses, liabilities, claims, costs and expenses arising hereunder or in
connection therewith, including but not limited to, all costs and expenses
incurred by Escrow Agent in connection with the filing of such action including,
but not limited to, reasonable attorney and paralegal fees and expenses for
Escrow Agent's attorneys through all trial and appellate levels. IT IS
ACKNOWLEDGED THAT ESCROW AGENT MAY ACT AS THE COUNSEL FOR SELLER. IT IS AGREED
THAT ESCROW AGENT SHALL NOT BE DISABLED OR DISQUALIFIED FROM REPRESENTING SELLER
IN CONNECTION WITH ANY LITIGATION WHICH MIGHT ARISE OUT OF OR IN CONNECTION WITH
THIS AGREEMENT BY VIRTUE OF THE FACT THAT ESCROW AGENT HAS AGREED TO ACT AS
ESCROW AGENT HEREUNDER, AND PURCHASER DOES HEREBY WAIVE ANY CLAIM ARISING OUT OF
OR IN CONNECTION WITH THE FOREGOING.
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Purchaser's federal tax identification number is 65-0613873.
The provisions of this Section 5 shall survive the Closing or the termination of
this Agreement.
6. Closing. Unless extended by the terms of Section 4, the
closing of the sale of the Property ("Closing") shall take place at offices of
Mahoney Adams & Criser, P.A., 50 North Laura Street, Suite 3300, Jacksonville,
Florida 32202, commencing at 10:00 A.M. via mail-away closing on that certain
date fourteen (14) days after the Termination Date (the "Closing Date"), TIME
BEING OF THE ESSENCE.
7. Prorations and Adjustments.
(a) Municipal improvement liens where the work has been
completed or has physically commenced as of the Effective Date (certified liens)
shall be paid by Seller or a credit shall be provided to Buyer on the closing
statements at Closing; and municipal improvement liens which have been
authorized but where the work has not commenced as of the Effective Date
(pending liens) shall be assumed by Purchaser.
(b) The following items as applicable shall be apportioned
between the Seller and Purchaser as of midnight on the day immediately preceding
the Closing Date.
(i) Real property taxes shall be prorated on the basis
of the current year's taxes, if known, at the highest
allowable discount. If the Closing shall occur before the
amount of current taxes shall have been determined, such
taxes shall be apportioned upon the basis of the taxes for
the most recent calendar year available.
(ii) Fees for licenses and permits which are
transferable to the Purchaser, if any.
(iii) Fees for service and maintenance contracts
assumed by Purchaser, if any.
(iv) All current rent, common area maintenance charges
("CAM Charges"), operating expenses and real estate tax
pass through (the "Operating Expense Charges") and prepaid
rents shall be prorated and adjusted as of Midnight of the
date prior to the Closing Date, provided, however, all
rents, CAM Charges and Operating Expense Charges which are
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delinquent more than fifteen (15) days (the "Delinquent
Rents") as of the Closing Date shall not be prorated.
Purchaser agrees to use its best efforts, for a reasonable
period of time after closing, to collect Delinquent Rents
after the Closing Date and any amounts received by
Purchaser from any party owing Delinquent rents shall first
be applied to all Purchaser's costs of collection incurred,
second, to rents and other charges due for the months in
which such payment is received by Purchaser, third, to
rents and to the charges attributable to any period after
closing, which are past due on the date of receipt, and
then to Delinquent Rents, which amounts, if any, shall be
paid to Seller. Purchaser shall not be obligated to file
suit to collect Delinquent rents, if after good faith
effort to collect, it determines, in its sole discretion,
that said suit will either be unsuccessful or any judgment
obtained therefrom will be uncollectible. Seller shall be
entitled to continue to prosecute any and all legal actions
commenced by Seller prior to the date of closing but not
against any tenant which remain in possession as tenant
after closing. Purchaser and Seller acknowledge that CAM
Charges and Operating Expense Charges are estimated.
Nevertheless, Purchaser and Seller agree not to readjust
the CAM Charges and the Operating Expense Charges for the
year 1997 when the actual charges are determined.
(v) All security and other deposits of existing
tenants, together with all interests accrued thereon, if
any, as of the date of Closing, shall be transferred and
assigned to Purchaser or Purchaser shall receive a credit
at closing, for the amount of said deposits and Purchaser
shall indemnify and hold Seller harmless from any claims
for damages by tenants in regard to said deposits paid to
Purchaser.
(vi) At the option of the parties, the premiums on any
transferable insurance policies relating to the Property.
(vii) Water and garbage collection charges and all
other similar charges.
(viii) Seller shall pay for, or cause to be paid for,
all utilities furnished to the Property through the date
immediately preceding the Closing Date: Purchaser shall
assume payment of such utilities from the Closing Date.
Seller shall withdraw all utility deposits made by it, and
Purchaser shall make its own deposits for utilities.
(c) After Closing, Purchaser will assume full
responsibility for all unapplied security deposits and advance rental deposits
currently held by Seller, if any, and transferred and paid over to Purchaser at
closing.
(d) The provisions of this Section 7 shall survive the
Closing.
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8. Seller's Representations. Seller represents to Purchaser as
follows:
(a) Seller has full right and authority to execute this
Agreement and consummate the transactions contemplated hereby subject to the
terms, provisions and conditions hereof.
(b) To the best of Seller's knowledge, Seller has furnished
to Purchaser true and correct copies of all of the Occupancy Leases regarding
the Property as disclosed in the attached Exhibit B.
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9. Closing Procedure and Documents.
(a) At the Closing, simultaneously with the payment of the
Purchaser Price by Purchaser, Seller shall deliver or cause to be delivered to
Purchaser the following:
(i) a special warranty deed (the "Deed") conveying the
fee simple title to the Real Property, subject to the
Permitted Encumbrances and the matters referred to in the
Commitment;
(ii) an assignment, without recourse to or warranty by,
Seller, of any transferable licenses and permits respecting
the Property;
(iii) a FIRPTA affidavit;
(iv) an affidavit in the form required by the Title
Company to delete the standard printed exception relating
to the "gap" and to remove the standard printed exceptions
for mechanics' liens and parties in possession other than
Occupancy Tenants (except to the extent the same constitute
Permitted Encumbrances); and
(v) a quit-claim bill of sale conveying all personal
property, if any, owned by Seller and comprising a portion
of the Property, in their "as is" condition;
(vi) an assignment of Seller's interest in all
outstanding Occupancy Leases relating to the Property and
an assumption effective as of the Closing Date by Purchaser
of same;
(vii) an executed written assignment of (1) the
maintenance and service contracts assumed by Purchaser at
Closing, and the assumption by Purchaser of same, which
assumption shall be effective as of the Closing Date; and
(2) any and all transferable warranties, guaranties or
similar contract rights in favor of Seller pertaining in
any manner to the Property; and
(viii) that certain Post Closing occupancy Agreement
(as hereafter defined).
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(b) At the Closing, Escrow Agent shall deliver the Deposit
and Purchaser shall deliver the cash to close, to Seller, in accordance with
Section 3. Purchaser can deliver to Seller such consents and authorization as
Seller may reasonably deem necessary to evidence authority of Purchaser to
purchase the Property and to consummate all other actions required to be taken
by Purchaser under this Agreement.
(c) At the Closing, Seller and Purchaser shall mutually
execute and deliver to each other a closing statement in customary form.
(d) At or prior to the Closing, Purchaser shall deliver to
the Seller a corporate resolution signed by all of the directors of the
Purchaser approving this Agreement and the transaction contemplated herein.
10. Closing Expenses. State documentary stamps required to be
affixed to the Deed and the cost of the title search and the owner's title
policy issued pursuant to the commitment shall be shared equally by Purchaser
and Seller. The cost of recording the Deed, the cost of any state sales or
similar tax attributable to the transfer of the personal property, the cost of
obtaining an updated survey, all of the expenses and fees in connection with any
mortgage financing obtained by Purchaser in connection with the Property,
including, without limitation, any Florida documentary and intangible taxes and
recording fees due with respect to ancillary documents thereto, shall be borne
by Purchaser. Each party hereto shall bear the expense of its legal counsel.
11. Broker. Seller and Purchaser acknowledge that Mike Carr of
Coldwell Banker Commercial/McFadden & Sprowls and Albert R. Ayala of Kersey
Quade, Inc. (collectively, the "Broker") has been the procuring cause of this
Agreement and the transactions contemplated hereby. As a condition precedent to
the obligations of Seller hereunder, Seller shall execute an agreement with the
Broker in form and content satisfactory to Seller respecting the payment of any
brokerage commissions due to the Broker in the amount of six percent (6%) of the
Purchaser Price, which commission shall be payable as 3% percent* to Coldwell
Banker and 3% percent to Ayala. If for any reason the transaction contemplated
under this Agreement does not close, the Broker shall not be entitled to any
portion of the Deposit or any fee, commission or compensation and Broker shall
make no claim with respect thereto. Purchaser represents and warrants to Seller
that Purchaser has not dealt with any real estate broker, firm or person other
than the Broker in connection with the transactions contemplated under this
Agreement nor has Purchaser been introduced to the Property or to Seller by any
real estate broker firm or person other than the Broker and Purchaser does
hereby agree to indemnify and save Seller harmless from and against any and all
claims, suits, demands or liabilities of any kind of nature whatsoever
(including, but not limited to, all attorneys' and paralegals' fees and expenses
and all court costs, including any appellate proceedings and appeals) arising
out of or in connection with the claim (whether meritorious or not) of any other
person, firm or corporation for real estate commissions or finder's fees as a
result of having dealt with Purchaser or as a result of having introduced
Purchaser to Seller or to the Property.
* Of the commission paid to Coldwell banker, it shall be based on a purchase
price of $2,716,000 or a total of $81,480.
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12. Survey. If prior to the execution of this Agreement by
Purchaser, Seller has delivered to Purchaser a Survey of the Real Property (a
"Prior Survey"), all matters reflected on such Prior Survey shall constitute a
Permitted encumbrance and shall not serve as the basis of any alleged title
defect. Purchaser, at Purchaser's expense, prior to the "Termination Date" (as
hereinafter defined), may have the real property surveyed and certified by a
registered Florida Surveyor. Purchaser or its counsel shall provide written
notice (the "Survey Notice") to Seller within 10 days after Purchaser's receipt
of any such new survey (the "Survey") if the survey discloses any encroachments
or any other title defects affecting the property (other than Permitted
Encumbrances). All such encroachments or defects so noted in the Survey Notice,
provided they adversely affect the marketability of title to the Property, are
to be regarded for all purposes under this Agreement as title defects and, as
such, are to be treated in the manner provided in Section 4. Any such title
defects shown on the Survey and not noted in the Survey Notice to Seller shall
be deemed to have been waived by Purchaser.
13. Risk of Loss.
(a) If, prior to the Closing, the Property or any portion
thereof shall be taken pursuant to an exercise of the power of eminent domain or
condemnation or shall be damaged by fire, wind or other casualty and the cost of
repairing or restoring same reasonably estimated by Seller exceeds 10% of the
Purchaser Price, Purchaser may elect to terminate this Agreement and receive the
return of the Deposit, or to proceed with the Closing, and receive an assignment
of Seller's right to any condemnation or insurance proceeds. If Purchaser shall
elect to proceed with the Closing, or if the estimated cost of repair or
restoration of any such damage shall be less than 10% of the Purchaser Price in
which event Purchaser shall have no right to terminate this Agreement), there
shall be no abatement of the Purchaser Price and the adjustment of the loss or
award and the repair or restoration of the Property shall proceed at the joint
direction of Seller and Purchaser until the Closing; thereafter adjustment and
restoration shall proceed at the sole direction of Purchaser without obligation
in connection therewith on the part of Seller. At Closing, Seller shall pay to
Purchaser all proceeds of condemnation or insurance then held by Seller and
Seller shall assign to Purchaser Seller's right to receive any unpaid proceeds,
after receipt from Purchaser of any expenses of collection of such proceeds or
of the restoration of the Property.
(b) Notwithstanding anything contained in subsection (a)
above to the contrary, if the portion of the Property taken results in a partial
or total loss of access to the Property, Purchaser may elect to terminate this
Agreement and receive a refund of the Deposit.
14. Property Information. Seller shall make a best effort to
deliver or cause to be delivered to Purchaser within 5 days after the Effective
Date, to the extent Seller shall have same in its possession, all of the
following: (i) photocopies of all permits, certificates of occupancy and
licenses pertaining to the Property; (ii) letters from the applicable utility
companies respecting the availability and capacity of all applicable utility
services; (iii) photocopies of all service and maintenance contracts affecting
the Property; (iv) copies of any and all documents relating to the development
and/or use of the Property; and (v) such other documents regarding the Property
as Seller shall be willing to provide to Purchaser at no expense to Seller (all
of the foregoing is sometimes collectively herein referred to as the "Property
Information"), provided, however, that the delivery of such Property Information
to Purchaser shall not constitute any representation or warranty by Seller
regarding the truth or accuracy of such Property Information except to the
extent that Seller may otherwise specifically represent or warrant in this
Agreement, it being understood and agreed that Seller is providing such Property
Information solely to facilitate and assist Purchaser's inspection as set forth
in Section 15. Seller shall not be responsible in the event it fails to deliver
every document in its possession.
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15. Inspection and Option to Terminate.
(a) Promptly following the execution of this Agreement and
until thirty (30) days from the Effective Date (the "Termination Date"),
Purchaser shall have the right to inspect the Property and the Property
Information. Purchaser and its representatives shall take reasonable precautions
so that its inspection of the Property and Property Information shall cause
minimum disruption to any parties in possession of the Property and Seller's or
tenant's employees located on the Property. Any entry made on the Property by
Purchaser or its representatives shall be upon reasonable notice to Seller and
at reasonable times and at the sole risk of Purchaser; Purchaser hereby
indemnifies and exonerates Seller (in addition to the liquidated damages
provided in Section 18) from all losses, claims, liabilities, actions, demands,
costs and expenses, including reasonable attorney and paralegal fees and
expenses, arising therefrom or connected therewith, including any entry upon the
Property by any agents or contractors of Purchaser or their sub-agents or
sub-contractors. Purchaser shall pay for all work and inspections performed on
or in connection with the Property and shall not permit the creation of any lien
in favor of any contractor, materialman, mechanic, surveyor, architect or
laborer.
(b) If following the execution of this Agreement, but
prior to the Termination Date, Purchaser determines in its sole discretion that
the Property or any of the Property Information is not satisfactory to
Purchaser, Purchaser shall have the right to give written notice to Seller in
the manner specified in Section 29 and elect to terminate this Agreement
provided such notice is postmarked or delivered to Seller on or before the
Termination Date. In the event that such notice is given by Purchaser in
accordance with the foregoing, then in that event, the Deposit shall be promptly
returned to Purchaser, and upon such repayments, this Agreement shall terminate
and Purchaser shall promptly deliver and return to Seller (at no cost or expense
to Seller) all Property information and any plans, correspondence, surveys,
drawings, and other materials obtained by or on behalf of Purchaser with respect
to the Property. TIME SHALL BE DEEMED OF THE ESSENCE FOR THE PURPOSES OF THIS
SECTION WITH RESPECT TO THE EXERCISE OF THE RIGHT TO TERMINATE BY PURCHASER
HEREUNDER. If, for any reason, Purchaser shall not timely exercise its right to
terminate prior to the Termination Date in accordance with the terms and
conditions of this Section 15, Purchaser shall conclusively be deemed to have
approved all aspects of the Property and the Property Information, and have
agreed to purchase the Property in its "as is" condition, "without fault" of
Seller as of the Closing Date, and the right of Purchaser to terminate under
this Section shall be deemed to have been waived by Purchaser for all purposes
hereof.
(c) Escrow Agent acknowledges and agrees that in the event
Purchaser timely exercises its right to terminate this Agreement prior to the
Termination Date, Escrow Agent shall refund the Deposit to Purchaser within five
(5) business days of the date Escrow Agent received the notice of termination.
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(d) Purchaser's obligations under this Section 15 shall
survive the Closing or the termination of this Agreement.
16. Condition of Property. PURCHASER HAS OR WILL INSPECT THE
PROPERTY AND IS FAMILIAR OR WILL BECOME FAMILIAR WITH THE PHYSICAL CONDITION
THEREOF. ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT NOTWITHSTANDING,
SELLER HAS NOT MADE AND DOES NOT MAKE ANY REPRESENTATIONS OR WARRANTIES AS TO
THE PHYSICAL CONDITION, QUALITY OF CONSTRUCTION OF ANY IMPROVEMENTS, TIMELINESS
OF COMPLETION OF ANY IMPROVEMENTS, QUALITY OF MATERIALS TO BE INCORPORATED INTO
ANY IMPROVEMENTS, EXPENSES, OPERATION, MAINTENANCE, PROFIT, RENTS, LOSS OR USE
TO WHICH THE PROPERTY OR ANY PART THEREOF MAY BE PUT, OR ANY OTHER MATTER OR
THING AFFECTING OR PERTAINING TO THE PROPERTY, EXCEPT TO THE EXTENT SPECIFICALLY
PROVIDED OTHERWISE IN THIS AGREEMENT, AND THE PURCHASER HEREIN EXPRESSLY
ACKNOWLEDGES AND AGREES AT CLOSING TO TAKE THE SAME "AS IS" AS OF THE CLOSING
DATE. IT IS UNDERSTOOD AND AGREED THAT ALL UNDERSTANDINGS AND AGREEMENTS HERETO
HAD BETWEEN THE PARTIES ARE MERGED INTO THIS AGREEMENT AND THAT THE SAME IS
ENTERED INTO AFTER FULL INVESTIGATION, NEITHER PARTY RELYING UPON ANY STATEMENTS
OR REPRESENTATIONS NOT EMBODIED IN THIS AGREEMENT, MADE BY THE OTHER. SELLER
SHALL NOT BE LIABLE OR BOUND IN ANY MANNER BY ANY VERBAL OR WRITTEN AGREEMENTS
OR STATEMENTS, REPRESENTATIONS, "SETUPS," FINANCIAL STATEMENTS, OR INFORMATION
PERTAINING TO THE OPERATION, LAYOUT, EXPENSES, CONDITION, INCOME PROFITS, OR
LOSS FURNISHED BY ANY AGENT, EMPLOYEE, REAL ESTATE BROKER, SALESMAN OR SERVANT
OF THE SELLER OR ANY OTHER PERSON OR ENTITY (INCLUDING THE SELLER), UNLESS THE
SAME ARE SPECIFICALLY SET FORTH HEREIN. FURTHER, SELLER IS NOT LIABLE OR BOUND
IN ANY MANNER FOR ANY INFORMATION WHICH THE SELLER MAY HERETOFORE HAVE SUPPLIED
TO PURCHASER WITH RESPECT TO T HE PROPERTY. PURCHASER HAVING THE RIGHT TO
CONDUCT ITS OWN INVESTIGATION UPON ALL SUCH MATTERS PURSUANT TO THE PROVISIONS
OF SECTION 15, AND PURCHASER HEREBY EXPRESSLY ACKNOWLEDGES THAT IT HAS NOT
RELIED UPON ANY PRO FORMA STATEMENTS, FINANCIAL STATEMENTS OR FINANCIAL
INFORMATION OR OTHER STATEMENTS OR REPRESENTATIONS WITH RESPECT TO THE PROPERTY
HERETOFORE SUPPLIED BY SELLER TO PURCHASER. ANY SUCH PRO FORMA STATEMENTS,
FINANCIAL INFORMATION OR OTHER COMMUNICATIONS BETWEEN THE SELLER AND PURCHASER
WITH RESPECT TO THE PROPERTY WHICH IS THE SUBJECT MATTER HEREOF HAVE BEEN
RECEIVED BY PURCHASER SOLELY FOR ITS OWN CONVENIENCE AND PURCHASER ACKNOWLEDGES
THAT IT HAS NOT AND WILL NOT RELY THEREON. PURCHASER ACKNOWLEDGES THAT SELLER
HAS AFFORDED OR WILL AFFORD PURCHASER THE OPPORTUNITY FOR A FULL AND COMPLETE
INVESTIGATION, EXAMINATION AND INSPECTION OF THE PROPERTY AND ALL MATTERS AND
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ITEMS RELATING THERETO OR CONNECTED THEREWITH. THERE ARE NO EXPRESS OR IMPLIED
WARRANTIES GIVEN TO PURCHASER IN CONNECTION WITH THE PROPERTY OR IN CONNECTION
WITH THE CONDITION OR QUALITY OF THE CONSTRUCTION OF ANY IMPROVEMENTS COMPRISING
THE PROPERTY EXCEPT AS HEREIN SPECIFICALLY SET FORTH. SELLER DOES HEREBY
DISCLAIM ANY AND ALL WARRANTIES OF MERCHANTABILITY AND FITNESS THAT MAY BE DUE
FROM SELLER TO PURCHASER, WHETHER IN REGARD TO THE IMPROVEMENTS, BUILDINGS, OR
PERSONAL PROPERTY CONTAINED THEREIN AND INCLUDED IN THIS SALE. PURCHASER
EXPRESSLY RELEASE AND RELIEVES SELLER FROM ANY LIABILITY, WARRANTY, OR
OBLIGATION RELATING TO THE CONDITION OF THE PROPERTY, SPECIFICALLY INCLUDING:
LATENT AND PATENT CONDITIONS; THE PRESENCE OR RELEASE OF HAZARDOUS OR TOXIC
WASTES, SUBSTANCE AND MATERIALS ON OR FROM THE PROPERTY OR ANY ADJOINING
PROPERTY; ZONING REQUIREMENTS; SUBSOIL CONDITIONS; STORM WATER DRAINAGE
CONDITIONS; THE EXISTENCE OR CONDITION OF UTILITIES, IF ANY, AT THE PROPERTY;
AND ANY AND ALL OTHER MATTERS RELATING TO THE PHYSICAL CONDITION OF THIS
PROPERTY. THE PROVISIONS OF THIS SECTION 16 SHALL SURVIVE THE CLOSING.
17. Prohibition of Recording. If any attempt to record this
Agreement or any memorandum thereof or any reference hereto in the public
records is made by Purchaser or any agent or representative of Purchaser, Seller
shall have the right to terminate this Agreement, in which event, Escrow Agent
shall deliver the Deposit to Seller and the parties shall be relieved of any
further liability or obligation hereunder (except as otherwise specifically
provided herein).
18. Default.
(a) If Purchaser shall default in the payment of the
Purchaser Price (including, but not limited to, any portion of the Deposit) or
otherwise default in the performance of any of the terms, covenants, and
conditions under this Agreement on the part of the Purchaser to be performed,
Seller may retain and be entitled to receive as full and agreed upon liquidated
damages, consideration for the execution of this Agreement and in full
settlement of Seller's claims against Purchaser, the Deposit, whereupon
Purchaser and Seller shall be relieved, each as to the other, of all obligations
hereunder, or Seller, at Seller's option, may proceed in equity to enforce
Seller's rights under this Agreement. Any indemnification provisions or
covenants on the part of Purchaser under this Agreement shall continue in full
force and effect and shall not be affected or limited by Seller's election to
enforce the liquidated damages provisions of this subsection.
(b) In the event of a wrongful failure or refusal by
Seller to perform its obligations under this Agreement, Purchaser's sole
remedies (Purchaser hereby waiving all other remedies) shall be (i) an action to
specifically enforce the terms of this Agreement, or (ii) the termination of
this Agreement by notifying Seller of such election in writing, whereupon
Purchaser shall be entitled to a refund of the Deposit then being held by Escrow
Agent and the parties relieved of all further liability each to the other
hereunder.
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19. Survival. All covenants, terms, provisions,
representations and warranties set forth in this Agreement, except as
specifically provided otherwise herein, shall at the Closing, be merged into the
Deed.
20. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which shall constitute one and the same agreement.
21. TIME OF ESSENCE. TIME SHALL BE DEEMED OF THE ESSENCE ON
THE PART OF PURCHASER IN PERFORMING ALL OF THE TERMS AND CONDITIONS ON THE PART
OF PURCHASER TO BE PERFORMED HEREUNDER.
22. Modification Must Be In Writing. No modification or
termination of this Agreement shall be valid unless executed in writing and
signed by the applicable duly authorized representatives of Seller and
Purchaser.
23. No Waiver. No waiver of any provision of this Agreement
shall be effective unless it is in writing and signed by the party against whom
it is asserted, and any such written waiver shall only be applicable to the
specific instance to which it relates and shall not be deemed to be a continuing
or future waiver.
24. Captions and Section Headings. Captions and Section
Headings contained in this Agreement are for convenience and reference only and
in no way define, describe, extend, or limit the scope or intent of this
Agreement, nor the intent of any provision thereof.
25. Acceptance of the Deed. The acceptance of the Deed by
Purchaser shall be deemed to be the full performance and discharge of every
agreement, obligation, and covenant, guaranty, representation or warranty on the
part of Seller to be performed. Pursuant to the provisions of this Agreement in
respect of the Property, except for those Sections or sub-sections specifically
stated to survive the Closing.
26. Assignability; Binding Effect. Neither this Agreement, nor
any of the rights or privileges conferred upon Purchaser hereunder, may be
assigned by Purchaser without the prior written consent of Seller, which consent
may be withheld by Seller in Seller's sole and absolute discretion. Subject to
the foregoing limitation as to assignability, this Agreement shall inure to the
benefit of and shall be binding upon the parties thereto and their respective
heirs, personal representatives, successors and assigns.
27. Attorneys' Fees. In the event of any litigation arising
out of or connected in any manner with this Agreement, the non-prevailing party
shall pay the costs of the prevailing party, including its reasonable attorney
and paralegal fees and expenses incurred in connection therewith through and
including the costs of any appeals and appellate costs relating thereto. This
Section 27 shall survive the Closing or the termination of this Agreement.
28. Summary Proceedings. The right and privilege Seller to
institute summary proceedings against any Occupancy Tenant on account of default
prior to Closing Date, and it is agreed that no representations have been made
and no responsibilities assumed by Seller with respect to the continued
occupancy of any of the Property by any Occupancy Tenant.
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29. Notices. All notices, offers, acceptances, rejections,
consents, requests and other communications hereunder shall be in writing and
shall all be deemed to have been given (i) when delivered in person, or (ii)
when sent by telecopier (with receipt confirmed), or (iii) when sent by first
class mail or registered mail, postage prepaid, return receipt requested, or
(iv) on receipt after being sent by express mail or a responsible delivery
service guaranteeing overnight delivery provided that in the case of notice
given by the methods described in (i) or (ii) above, a copy is immediately
mailed by first class, registered or certified mail, postage prepaid, return
receipt requested, in each case addressed as follows:
If to Seller: Barnett Bank, N.A.
c/o Barnett Banks, Inc., Special Assets
Attention: Alan Blankstein
Transactions Officer
Real Estate Transactions Group
Barnett Banks, Inc.
2850 North Federal Highway
2nd Floor
Lighthouse Point, FL 33064
(954) 786-3323
with a copy to: Karen M. Chastain, Esquire
Mahoney Adams & Criser, P.A.
50 North Laura Street, Suite 3300
Jacksonville, Florida 32202
(904) 354-1100
Fax: (904) 798-2697
If to Purchaser: Certified Diabetic Services, Inc.
Attn: Peter Fiscina, President
1951 J&C Boulevard
Naples, Florida 34109
(800) 445-4313
with a copy to: Gudrun Maria Nickel, Esquire
350 Fifth Avenue, Suite 350
Naples, Florida 34102
(941) 262-7748
Fax: (941) 262-7144
If to Escrow Agent: Karen M. Chastain, Esquire
Mahoney Adams & Criser, P.A.
50 North Laura Street, Suite 3300
Jacksonville, Florida 32202
-13-
<PAGE>
30. Waiver of Strict Construction Against Drafting Party.
Should any provision of this Agreement be subject to judicial interpretation, it
is agreed that the court interpreting or considering such provision not apply
the presumption or rule of construction that the terms of this Agreement be more
strictly construed against the party which itself or through its counsel or
other agent prepared the same, as all parties thereto have participated in the
preparation of the final form of this Agreement through review by their
respective counsel and the negotiation or changes in language in any provision
deemed unsuitable or inadequate as initially written, and, therefore, the
application of such presumption or rule of construction would be inappropriate
and contrary to the intent of the parties.
31. Exhibits. All of the exhibits attached hereto are
incorporated herein by reference and form part of this Agreement for all
purposes. For convenient reference, the following list briefly describes the
exhibits to this Agreement:
Exhibit A - Legal description of the property;
---------
Exhibit A-1 - Inventory of personal property;
-----------
Exhibit B - Tenant list.
---------
32. Interpretations. In case any one or more or the provisions
of this Agreement shall be invalid, illegal or unenforceable in any respect, the
validity of the remaining provisions shall be in no way affected, prejudiced or
disturbed thereby. The use of any gender shall include all other genders. The
singular shall include the plural and vice versa. Use of the words "herein,"
"hereof," "hereunder" and any other words of similar import refer to this
Agreement as a whole and not to any particular article, section or sub-section
of this Agreement unless specifically noted otherwise in this Agreement.
33. Governing Law and Jurisdiction. This Agreement shall be
deemed to be governed by, construed and enforced in accordance with the laws of
the State of Florida.
34. Third Parties. This Agreement shall not be deemed to
confer in favor of any third parties any rights whatsoever as third-party
beneficiaries, the parties hereto intending by the provisions hereof to confer
no such benefits or status.
35. Effect of Termination of Agreement. If for any reason
whatsoever the transactions contemplated under this Agreement are not closed or
this Agreement is terminated in accordance with the terms hereof, Purchaser
shall promptly return or turn over to Seller (at no cost or expense to Seller)
all Property Information and any plans, correspondence, surveys, drawings and
other materials obtained by or on behalf of Purchaser with respect to the
Property or any portion thereof.
36. Calculation of Time Periods. Whenever this Agreement calls
for or contemplated a period of time for the performance of any term, provision
or condition of this Agreement, all of the days in such period of time shall be
calculated consecutively without regard to whether any of the days falling in
such period of time shall be a Saturday, Sunday or other non-business day
provided, however, if the last day of any such time period shall happen to fall
on a Saturday, Sunday or other non-business day, the last day shall be extended
to the next succeeding business day immediately thereafter occurring.
-14-
<PAGE>
37. Contract Not An Offer; Time For. This Agreement shall not
be binding upon Seller nor shall Seller have any obligation to Purchaser unless
and until such time as Seller shall have executed a copy of this Agreement and
thereafter unconditionally delivered it to Purchaser. If this Agreement is not
fully executed by Seller, Purchaser and Escrow Agent and an executed copy
hereof, (together with the First Deposit) is not delivered to Seller on or
before June 30, 1997, by 5:00 P.M., this Agreement shall be null, and neither
party shall have any obligation hereunder. SELLER RESERVES ITS RIGHTS TO
NEGOTIATE AND ACCEPT COMPETING OFFERS UNTIL THIS CONTRACT HAS BEEN EXECUTED BY
BOTH SELLER AND PURCHASER, AND THE DEPOSIT HAS BEEN RECEIVED BY THE ESCROW AGENT
AND CASHED.
38. Radon Gas Notification. In accordance with the
requirements of Section 404.056(8), Florida Statutes the following notice is
hereby given:
RADON GAS: Radon is a naturally occurring radioactive gas
that, when it is accumulated in a building in sufficient
quantities, may present health risks to persons who are
exposed to it over time. Levels of radon that exceed federal
and state guidelines have been found in buildings in Florida.
Additional information regarding radon and radon testing may
be obtained from the local County Public Health Center.
39. Seller's Post-Closing Occupancy. Prior to the Termination
Date, Purchaser and Seller shall negotiate the terms of Seller's continued
occupancy of the Property for a time certain and for certain location within the
Property, and any consideration to be paid in connection therewith. The specific
terms shall be determined by the parties prior to the Termination Date, and the
parties shall execute a written agreement at Closing evidencing said agreement
(the "Post Closing Occupancy Agreement"). The Post Closing Occupancy Agreement
shall permit the Seller to remove any personal property located on the Property
which is not included on Exhibit A-1. The parties agree to negotiate the terms
of the Post Closing Occupancy Agreement in good faith.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement effective as of the Effective date.
WITNESS: PURCHASER:
CERTIFIED DIABETIC SERVICES, INC.
/s/ illegible Hawkins
- ---------------------
Name:
By:/s/ Myron M. Blumenthal
--------------------------
/s/ Tammy Navans Name: Myron M. Blumenthal
- --------------------- Title: Treasurer
Name:
SELLER:
BARNETT BANK, N.A.
By: Barnett Banks, Inc., as
attorney-in-fact for Barnett
Bank, N.A., pursuant to Power
of Attorney dated March 1,
1992
By:/s/ Alan Blankstein
______________________________ --------------------
Name: Name: Alan Blankstein
Title: Authorized Designee
______________________________
Name:
First Deposit received by Mahoney Adams & Criser, P.A. which
the Escrow Agent agrees to retain in accordance with the terms and conditions of
the within Agreement.
Escrow Agent:
By: ____________________________
Karen M. Chastain
Date:____________________________
(the "Effective Date")
All changes must be initialed by Purchaser by July 3, 1997, or
this Contract shall be void.
-16-
<PAGE>
JOINDER
The undersigned brokers hereby join in execution of this
Agreement for the purpose of confirming the terms and conditions set forth in
Section 11 of this Agreement. If a claim for brokerage in connection with this
transaction is made by any broker, salesman or finder claiming to have dealt
through or on behalf of the undersigned, then the undersigned shall indemnify,
defend and hold Seller and Purchaser and their officers, directors, agents and
representatives harmless from all liabilities, damages, claims, costs, fees and
expenses whatsoever (including reasonable attorney's fees and court costs) with
respect to said claim for brokerage.
Coldwell Banker Commercial/
McFadden & Sprowls
By:/s/ illegible By:/s/ Albert R. Ayala
-------------- --------------------
Name: illegible Name: Albert R. Ayala
---------
Date: 6/27/97
-------
-17-
<PAGE>
EXHIBIT A
---------
Legal Description
(To be verified with Title Commitment and Survey, if any)
Lots 14 and 15, East Naples Industrial Park, recorded in Plat
Book 10, page 114, of the public records of Collier County, Florida.
-18-
<PAGE>
Exhibit A-1
FILES-STORAGE-SHELVING
ITEM #: QUANTITY: MANUFACTURER DESCRIPTION:
- ------- --------- ------------ ------------
1 2 EA. METAL STORAGE CABINETS: 36W X 18D X 72H
2 1 EA MOBILE FILE CABINET 14"X 16"
3 2 EA 5-DRAWER LETTER VERTICLE FILE - NO LOCK
4 2 EA 2-DRAWER VERTICLE FILE - NO LOCK
5 2 EA 3 DRAWER LATERAL FILE W/LOCK
6 4 EA 4-DRAWER LEGAL VERTICLE FILE W/LOCK
7 4 EA 4-DRAWER LETTER VERTICLE FILE NO LOCK
8 4 EA 4-DRAWER LETTER VERTICLE FILE W/LOCK
9 1 EA 2 DRAWER LEGAL FILE W/LOCK
10 1 EA 3 DRAWER LATERAL FILE W/LOCK
2 DRAWER LATERAL FILE W/SLIM LINE
11 1 EA STORAGE DRAWER
12 6 EA 2 DRAWER LATERAL FILE 36"
13 1 EA 2-DRAWER VERTICLE FILE - BLACK
14 1 EA 2-DRAWER LATERAL FILE WOOD GRAIN FINISH
15 1 EA 5-DRAWER LATERAL FILE - BROWN
16 15 EA 5-DRAWER LATERAL FILE- BUFF
17 5 EA 5 DRAWER LATERAL FILE -CREAM
18 1 EA 2-SHELF WOOD BOOKCASE
18 1 EA 3-SHELF WOOD BOOKCASE
19 1 EA LAMINATE DOOR STORAGE UNIT 103" W X 24"
DEEP
20 1 EA WOOD BOOKSHELF 32W X 20 X 29 (LOBBY)
MISC:
1 1 WOOD FINISH PRESENTATION BOARD 48 X 48
2 1 TACK/MARKER BOARD 42H X 46W
<PAGE>
DESK/CREDENZA/TABLES
ITEM #: QUANTITY: MANUFACTURER: DESCRIPTION:
- ------- --------- ------------- ------------
1 1 DESK 30 X 60
2 1 STEELCASE DESK 30 X 66
3 1 CREDENZA W/HUTCH 72 X 24
4 1 2-DRAWER LATERAL FILE 36" WOOD
5 1 KIMBALL 38" 2 DR. LATERAL FILE
5 1 36" 2 DR. LATERAL FILE/LAMINATE
6 1 BOOKCASE - 4 SHELF WOOD 36 X 14 X 48H
7 1 KIMBALL DESK W/LEFT RETURN 30 X 66; 20 X 40
7 1 KIMBALL CREDENZA W/KNEE SPACE 20 X 60
8 1 KIMBALL DESK 72 X 36
8 1 KIMBALL CREDENZA 66 X 20
8 1 KIMBALL BOOKCASE 30 X 14 X 50
9 1 DESK 30 X 66
10 1 KIMBALL DESK 36 X 72
11 1 DESK W/RIGHT RETURN 36 X 66; 20 X 42
12 1 KIMBALL CREDENZA 20 x 66
13 2 JOFFCO DOOR UNIT/BOOKCASE 30 X 19
14 1 JOFFCO CREDENZA
15 1 JOFFCO DESK 72 X 36
16 1 BOOKCASE 36 X 12
17 1 KIMBALL LATERAL FILE: WOOD 2 DRAWER
18 1 CREDENZA 20 X 72
19 1 KIMBALL DESK W/LEFT RETURN 30 X 66; 20 X 40
20 1 KIMBALL DESK W/RIGHT RETURN 36 X 66; 20 X 42
20 2 KIMBALL 32" LATERAL FILE: WOOD 2 DRAWER
21 1 DESK 30 X 66
21 1 CREDENZA 60 X 20
22 1 CREDENZA 60 X 20
23 4 LAMINATE TABLE W/WOOD EDGE 60 X 30
24 1 HERMAN MILLER WORK TABLE 72 X 30
25 1 36" ROUND PEDESTAL LEG TABLE
26 1 26 X 26 TABLE
27 3 96 X 32 TABLE
28 1 BAKER END TABLE
29 1 BAKER END TABLE 32 X 32
30 2 KIMBALL END TABLE 26 X 20 (LOBBY)
31 1 SEMI-CIRCLE LAMINATE DESK (LOBBY)
<PAGE>
CHAIRS
ITEM #: QUANTITY: MANUFACTURER: DESCRIPTION:
- ------- --------- ------------- ------------
1 20 NATIONAL WOOD ARM CHAIR
2 1 STEELCASE EXECUTIVE CHAIR
3 1 NATIONAL WOOD SLED BASE ARM CHAIR
4 1 JASPER EXECUTIVE CHAIR
5 1 WOOD BASE STENO W/ARMS
6 1 HIGH BACK EXECUTIVE CHAIR
7 1 HIGH BACK EXECUTIVE CHAIR
8 2 LIFELINE ARM CHAIR
9 1 STEELCASE METAL SLED BASE CHAIR
10 1 KIMBALL UPHOLSTERED ARM/STENO
11 7 HAWORTH DARK PINK STENO W/ARMS
12 6 HAWORTH BLUE STENO W/ARMS
13 1 HAWORTH DARK PINK STENO W/ARMS - HIGH BACK
14 2 HERMAN MILLER SLED BASE ARM CHAIR - TEAL
15 2 JASPER WOOD ARM CHAIR
16 1 KIMBALL WOOD ARM CHAIR- ROSE
17 3 KIMBALL WOOD ARM CHAIR-BURGANDY
18 2 KIMBALL WOOD ARM CHAIR - BLUE
19 3 HAWORTH LIGHT PINK STENO W/ARMS
20 8 HERMAN MILLER BURGANDY ARMLESS STENO
21 4 HERMAN MILLER TEAL STENO W/ARMS
22 12 HERMAN MILLER RED ARMLESS STENO
23 2 JASPER TRADITIONAL ARM CHAIR
24 3 SCHAFFER WOOD ARM CHAIR/BEIGE FABRIC
24 1 STEELCASE BURNT ORANGE MID-BACK STENO W/ARMS
25 2 WOOD ARM CHAIR
26 1 JASPER MID-BACK TRAD. EXECUTIVE CHAIR
27 3 UPHOLSTERED GREE ARM CHAIRS (LOBBY)
28 4 SOFA WEDGE PIECES (LOBBY)
<PAGE>
HAWORTH SYSTEMS FURNITURE
QUANTITY: DESCRIPTION:
- --------- ------------
3 EA. PANEL 60 W X 67 H
13 EA. PANEL 48 W X 67 H
31 EA. PANEL 36 W X 67 H
9 EA. PANEL 30 W X 67 H
11 EA. PANEL 24 W X 67 H
2 EA. PANEL 12 W X 67 H
1 EA. CORNER END BRACKET 67"H
1 EA. END PANEL-RIGHT 28" H X 23"D
1 EA. END PANEL- LEFT 28" H X 23"D
1 EA. WORKSURFACE 72"W X 30"D
11 EA. WORKSURFACE 72"W X 24"D
3 EA. WORKSURFACE 60" X 30"D
10 EA. WORKSURFACE 48"W X 30"D
3 EA. WORKSURFACE 48"W X 24"D
2 EA. WORKSURFACE 36"W X 24"D
6 EA. PENCIL/BOX/FILE PEDESTAL (ATTACHED)
7 EA. FILE/FILE PEDESTAL (ATTACHED)
3 EA. PENCIL/BOX PEDESTAL (ATTACHED)
1 EA. PENCIL/FILE PEDESTAL (ATTACHED)
3 EA. MOBILE BOX/FILE PEDESTAL
1 EA. OVERHEAD STORAGE BIN W/FLIPPER DOOR AND TASK LIGHT 60"W
1 EA. OVERHEAD STORAGE BIN W/FLIPPER DOOR AND TASK LIGHT 48"W
21 EA. OVERHEAD STORAGE BIN W/FLIPPER DOOR AND TASK LIGHT 36"W
1 EA. TACK BOARD - BLUE 42" W X 15"H
1 EA. TACK BOARD - 48"W X 15"H
2 EA. TACK BOARD 60" W X 15"H
13 EA. TACK BOARD 36" X 15"H
6 EA. KEYBOARD DRAWER 32"W
2 EA POWER POLES
<PAGE>
STEELCASE SYSTEMS FURNITURE
QUANTITY: DESCRIPTION:
- --------- ------------
5 EA. PANEL 60 W X 65 H - BEIGE
11 EA. PANEL 48 W X 65 H - BEIGE
53 EA. PANEL 36 W X 65 H - BEIGE
40 EA. PANEL 24 W X 67 H - BEIGE
1 EA. PANEL 24 W X 34 H - BEIGE
3 EA. PANEL 30 W X 65 H - BROWN
7 EA. PANEL 24 W X 65 H - BROWN
3 EA. PANEL 48 W X 34 H - BROWN
6 EA. PANEL 24 W X 34 H - BROWN
40 EA END BRACKET - RIGHT
42 EA. END BRACKET - LEFT
6 EA. END LEG - RIGHT
6 EA. END LEG - LEFT
5 EA. END PANEL-RIGHT 28" H X 23"D
6 EA. END PANEL- LEFT 26" H X 23"D
19 EA. WORKSURFACE 72"W X 24"D
7 EA. WORKSURFACE 60" X 24"D
4 EA. WORKSURFACE 48" W X 24"D
17 EA. WORKSURFACE 36"W X 24"D
27 EA. PENCIL/BOX/FILE PEDESTAL (ATTACHED)
4 EA. MOBILE BOX/FILE PEDESTAL 22"DEEP
1 EA. MOBILE BOX/FILE PEDESTAL 30"DEEP
4 EA. 36" LATERAL FILE HANGING
1 EA. OVERHEAD STORAGE BIN W/FLIPPER DOOR AND TASK LIGHT 72"W
4 EA. OVERHEAD STORAGE BIN W/FLIPPER DOOR AND TASK LIGHT 60"W
9 EA. OVERHEAD STORAGE BIN W/FLIPPER DOOR AND TASK LIGHT 48"W
8 EA. OVERHEAD STORAGE BIN W/FLIPPER DOOR AND TASK LIGHT 36"W
6 EA. KEYBOARD DRAWER
7 EA. POWER POLES
2 EA. WORK TABLE 90" W X 30" D
1 EA. WORK TABLE 30" W X 30" D
<PAGE>
EXHIBIT B
---------
Occupancy Tenants
-----------------
1. Lease Agreement dated 1992, with Allen Systems Group
as tenant, as amended from time to time.
-19-
<PAGE>
AMENDMENT TO PURCHASE AND SALE AGREEMENT
----------------------------------------
This Amendment to Purchase and Sale Agreement (the
"Amendment") is made effective the 31st day of July, 1997 between BARNETT BANK,
N.A., as Seller, and CERTIFIED DIABETIC SUPPLIES, INC., as Purchaser.
Whereas, Seller and Purchaser signed that certain Purchase and
Sale Agreement with an Effective Date on or about July 2, 1997 (the "Contract")
for the Purchaser's purchase of certain real property and improvements located
in Collier County, Florida (the "Property").
Whereas, the parties desire to set forth certain additional
understandings regarding the transactions contemplated in the Contract, as more
fully set forth herein.
NOW, THEREFORE, in consideration of Ten Dollars and other good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged by the parties, the Seller and Purchaser agree as follows:
1. Recitals. The recitals set forth above are true and correct
and are incorporated herein by this reference.
2. Termination Date and Closing Date. Paragraph 15 of the
Contract is amended so that the Termination Date is extended to be on or before
5:00 p.m., EDT, August 8, 1997 for the sole purpose of Purchaser obtaining a
commitment for financing for the subject transaction. Notwithstanding the
foregoing, it is understood and agreed that the Closing Date shall remain August
15, 1997.
3. Governing Law and Jurisdiction. This Amendment shall be
deemed to be governed by, construed and enforced in accordance with the laws of
the State of Florida.
4. Facsimile and Counterpart Signatures. This Amendment may be
executed in counterpart and facsimile signatures, the counterparts and
facsimiles of which, when taken together, shall constitute an entire and
original Amendment.
5. Effect of Amendment. This Amendment shall control over all
provisions of the Contract. To the extent that provisions of the Contract are
not amended by this Amendment, then such provisions shall remain in full force
and effect.
-20-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first above written.
PURCHASER:
CERTIFIED DIABETIC SUPPLIES, INC.
/s/ ILLEGIBLE By: /s/ RANDY AYALA
- ------------------------- ---------------------------
Witness Name: Randy Ayala
-------------------------
Title: V. Pres.
------------------------
/s/ ILLEGIBLE
- -------------------------
Witness
SELLER:
BARNETT BANK, N.A.
/s/ XENIA L. AMES By: /s/ ALAN BLANKSTEIN
- ------------------------- ---------------------------
Witness Xenia L. Ames Name: Alan Blankstein
Title: Authorized Designee
/s/ CAROL L. JOHNSON COOTE
- ---------------------------
Witness Carol L. Johnson Coote
-21-
<PAGE>
SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT
-----------------------------------------------
This Second Amendment to Purchase and Sale Agreement (the
"Amendment") is made effective the 15th day of August, 1997 between BARNETT
BANK, N.A., as Seller, and CERTIFIED DIABETIC SUPPLIES, INC., as Purchaser.
Whereas, Seller and Purchaser signed that certain Purchase and
Sale Agreement with an Effective Date on or about July 2, 1997, and that certain
Amendment to Purchase and Sale Agreement dated on or about July 31, 1997
(collectively, the "Contract") for the Purchaser's purchase of certain real
property and improvements located in Collier County, Florida (the "Property").
Whereas, the parties desire to set forth certain additional
understandings regarding the transactions contemplated in the Contract, as more
fully set forth herein.
NOW, THEREFORE, in consideration of Ten Dollars and other good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged by the parties, the Seller and Purchaser agree as follows:
6. Recitals. The recitals set forth above are true and correct
and are incorporated herein by this reference.
7. Termination Date and Closing Date. Paragraph 15 of the
Contract is amended so that the Termination Date is extended to be on or before
5:00 p.m., EDT, August 22, 1997 for the sole purpose of Purchaser obtaining a
commitment for financing for the subject transaction. Paragraph 6 of the
Contract is amended so that the Closing Date is extended to be on or before
10:00 a.m., EDT, August 29, 1997.
8. Governing Law and Jurisdiction. This Amendment shall be
deemed to be governed by, construed and enforced in accordance with the laws of
the State of Florida.
9. Facsimile and Counterpart Signatures. This Amendment may be
executed in counterpart and facsimile signatures, the counterparts and
facsimiles of which, when taken together, shall constitute an entire and
original Amendment.
10. Effect of Amendment. This Amendment shall control over all
provisions of the Contract. To the extent that provisions of the Contract are
not amended by this Amendment, then such provisions shall remain in full force
and effect.
-22-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first above written.
PURCHASER:
CERTIFIED DIABETIC SUPPLIES, INC.
/s/ ILLEGIBLE By: /s/ Myron M. Blumenthal
- ----------------------- -----------------------------
Witness Name: Myron M. Blumenthal
---------------------------
Title: CFO
/s/ NANCY FEELEY --------------------------
- -----------------------
Witness
SELLER:
BARNETT BANK, N.A.
/s/ XENIA L. AMES By: /s/ ALAN BLANKSTEIN
- ----------------------- ------------------------------
Witness Name: Alan Blankstein
Title: Authorized Designee
/s/ PATRICIA WILLIAMS
- -----------------------
Witness
-23-
<PAGE>
THIRD AMENDMENT TO PURCHASE AND SALE AGREEMENT
----------------------------------------------
This Third Amendment to Purchase and Sale Agreement (the
"Amendment") is made effective the 18th day of August, 1997 between BARNETT
BANK, N.A., as Seller, and CERTIFIED DIABETIC SUPPLIES, INC., as Purchaser.
Whereas, Seller and Purchaser signed that certain Purchase and
Sale Agreement with an Effective Date on or about July 2, 1997, and that certain
Amendment to Purchase and Sale Agreement dated on or about July 31, 1997, and
that certain Second Amendment to Purchase and Sale Agreement dated on or about
August 15, 1997 (collectively, the "Contract") for the Purchaser's purchase of
certain real property and improvements located in Collier County, Florida (the
"Property").
Whereas, the parties desire to set forth certain additional
understandings regarding the transactions contemplated in the Contract, as more
fully set forth herein.
NOW, THEREFORE, in consideration of Ten Dollars and other good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged by the parties, the Seller and Purchaser agrees as follows:
11. Recitals. The recitals set forth above are true and
correct and are incorporated herein by this reference.
12. Termination Date. Paragraph 15 of the Contract is amended
so that the Termination Date is extended to be on or before 5:00 p.m., EDT,
August 25, 1997 for the sole purpose of Purchaser obtaining a commitment for
financing for the subject transaction. The Purchaser otherwise accepts all other
aspects of the Property, including (but not limited to) its physical condition,
status of title as reflected in the Title Commitment delivered to Purchaser, and
any matters that would be disclosed by a current survey.
13. Closing Date. Paragraph 6 of the Contract is amended so
that the Closing Date is extended to be on or before 10:00 a.m., EST, December
15, 1997.
14. Second Deposit. The amount of the Second Deposit to be
delivered to Escrow Agent on or before the Termination Date is amended to be
$230,000.00, which shall become part of the Deposit. The Purchaser understands
and agrees that the Deposit in its entirety shall be non-refundable to Purchaser
after the Termination Date.
15. Occupancy of the Property. Purchaser has advised that it
may desire to occupy the Property prior to the Closing. Seller and Purchaser
agree to discuss terms for a lease agreement for Purchaser's pre-Closing
occupancy of the Property. In the event the parties can agree on mutually
acceptable terms, then the parties may execute a lease agreement providing for
Purchaser's occupancy of the Property prior to the Closing.
<PAGE>
16. Governing Law and Jurisdiction. This Amendment shall be
deemed to be governed by, construed and enforced in accordance with the laws of
the State of Florida.
17. Facsimile and Counterpart Signatures. This Amendment may
be executed in counterpart and facsimile signatures, the counterparts and
facsimiles of which, when taken together, shall constitute an entire and
original Amendment.
18. Effect of Amendment. This Amendment shall control over all
provisions of the Contract. To the extent that provisions of the Contract are
not amended by this Amendment, then such provisions shall remain in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first above written.
PURCHASER:
CERTIFIED DIABETIC SUPPLIES, INC.
/s/ NANCY FEELEY By: /s/ MYRON M. BLUMENTHAL
- ----------------------- ------------------------------
Witness Nancy Feeley Name: Myron M. Blumenthal
----------------------------
Title: CFO
/s/ ILLEGIBLE ---------------------------
- -----------------------
Witness
SELLER:
BARNETT BANK, N.A.
/s/ XENIA L. AMES By: /s/ ALAN BLANKSTEIN
- ----------------------- ------------------------------
Witness Xenia L. Ames Name: Alan Blankstein
Title: Authorized Designee
/s/ CAROL J. JOHNSON COOTE
- -------------------------------
Witness Carol J. Johnson Coote
-25-
<PAGE>
AMENDMENT TO PURCHASE AND SALE AGREEMENT
This Amendment to Purchase and Sale Agreement (the
"Amendment") is made effective the 15th day of December, 1997 between BARNETT
BANK, N.A., as Seller, and CERTIFIED DIABETIC SERVICES, INC., as Purchaser.
Whereas, Seller and Purchaser signed that certain Purchase and
Sale Agreement with an Effective Date on or about July 2, 1997, as amended from
time to time thereafter (collectively, the "Contract") for the Purchaser's
purchase of certain real property and improvements located in Collier County,
Florida (the "Property").
Whereas, the parties desire to set forth certain additional
understandings regarding the transactions contemplated in the Contract, as more
fully set forth herein.
NOW, THEREFORE, in consideration of Ten Dollars and other good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged by the parties, the Seller and Purchaser agree as follows:
1. Recitals. The recitals set forth above are true and correct
and are incorporated herein by this reference.
2. Seller's Collection of Prior Unpaid Rent. Paragraph
7(a)(iv) of the Contract is amended so that the Seller may commence litigation
after the Closing Date against Allen Systems Group, Inc. (the "Tenant") for
Tenant's unpaid rent and expenses owing to Seller.
3. Governing Law and Jurisdiction. This Amendment shall be
deemed to be governed by, construed and enforced in accordance with the laws of
the State of Florida.
4. Facsimile and Counterpart Signatures. This Amendment may be
executed in counterpart and facsimile signatures, the counterparts and
facsimiles of which, when taken together, shall constitute an entire and
original Amendment.
5. Effect of Amendment. This Amendment shall control over all
provisions of the Contract. To the extent that provisions of the Contract are
not amended by this Amendment, then such provisions shall remain in full force
and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first above written.
PURCHASER:
CERTIFIED DIABETIC SERVICES, INC.
/s/ Nancy Feeley By: /s/ Peter J. Fiscina
- ------------------------------ -----------------------------
Witness Nancy Feeley Name: Peter J. Fiscina
Title: CEO/President
/s/ Ron West
- ------------------------------
Witness
SELLER:
BARNETT BANK, N.A.
/s/ Patricia Williams By: /s/ Alan Blankstein
- ------------------------------ -----------------------------
Witness Name: Alan Blankstein
Title: Authorized Designee
/s/ Curt L. Johnson - C Gote
- ------------------------------
Witness
- 2 -
<PAGE>
AMENDMENT TO PURCHASE AND SALE AGREEMENT
This Amendment to Purchase and Sale Agreement (the
"Amendment") is made effective the 15th day of December, 1997 between BARNETT
BANK, N.A., as Seller, and CERTIFIED DIABETIC SERVICES, INC., as Purchaser.
Whereas, Seller and Purchaser signed that certain Purchase and
Sale Agreement with an Effective Date on or about July 2, 1997, as amended from
time to time thereafter, together with prior amendments thereto (collectively,
the "Contract") for the Purchaser's purchase of certain real property and
improvements located in Collier County, Florida (the "Property").
Whereas, the parties desire to set forth certain additional
understandings regarding the transactions contemplated in the Contract, as more
fully set forth herein.
NOW, THEREFORE, in consideration of Ten Dollars and other good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged by the parties, the Seller and Purchaser agree as follows:
1. Recitals. The recitals set forth above are true and correct
and are incorporated herein by this reference.
2. Closing Date. Paragraph 6 of the Contract is deleted in its
entirety and replaced with the following:
The closing of the sale of the Property ("Closing") shall take
place at offices of Mahoney Adams & Criser, P.A., 50 North
Laura Street, Suite 3300, Jacksonville, Florida 32202,
commencing at 10:00 AM via mail-away closing on December 18,
1997 (the "Closing Date"), TIME BEING OF THE ESSENCE.
3. Governing Law and Jurisdiction. This Amendment shall be
deemed to be governed by, construed and enforced in accordance with the laws of
the State of Florida.
4. Facsimile and Counterpart Signatures. This Amendment may be
executed in counterpart and facsimile signatures, the counterparts and
facsimiles of which, when taken together, shall constitute an entire and
original Amendment.
5. Effect of Amendment. This Amendment shall control over all
provisions of the Contract. To the extent that provisions of the Contract are
not amended by this Amendment, then such provisions shall remain in full force
and effect. IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first above written:
PURCHASER:
CERTIFIED DIABETIC SERVICES, INC.
/s/ Nancy Feeley By:/s/ Peter J. Fiscina
- ----------------------------------- ----------------------------
Witness Nancy Feeley Name: Peter J. Fiscina
Title:CEO/ President
/s/ Ron West
- -----------------------------------
Witness Ron West
SELLER:
BARNETT BANK, N.A.
Patricia Williams By: /s/ Alan Blankstein
- ----------------------------------- ---------------------------
Witness Name: Alan Blankstein
Title: Authorized Designee
Curt L. Johhnson - CGote
- -----------------------------------
Witness
<PAGE>
Loan No. 117-88705
PROMISSORY NOTE
(Loan "A" - Acquisition)
$2,525,000.00 Naples, Florida
December 17th, 1997
FOR VALUE RECEIVED, the undersigned CERTIFIED DIABETIC SERVICES, INC.,
a Delaware corporation (hereinafter referred to as the "Maker"), promises to pay
to the order of FIRST NATIONAL BANK OF NAPLES, a national banking association
(the "Payee"), at its office at 900 Goodlette Road North, P.O. Box 413043,
Naples, Florida 33941-3043, or at any other place from time to time designated
by the holder hereof in writing, in immediately available funds of legal tender
of the United States of America, the principal sum of TWO MILLION FIVE HUNDRED
TWENTY-FIVE THOUSAND AND NO/100 DOLLARS ($2,525,000.00) together with interest
thereon (not to exceed the maximum lawful rate under applicable law) or on so
much thereof as is from time to time advanced and outstanding hereunder at the
rate and at such times as hereinafter set forth.
From and after the date hereof on all amounts which shall from time
to time remain outstanding, interest shall accrue at the rate of EIGHT AND
SEVEN-EIGHTS PERCENT (8.875%) per annum. Interest due and payable shall be
calculated on the actual number of days elapsed over a 360 day year.
Commencing on the date ONE (1) month from the date hereof and continuing on
the same date of each and every month thereafter prior to maturity of this
note, monthly payments of principal and accrued interest based on a twenty
(20) year amortization schedule (for payment calculation purposes only) in the
amount of TWENTY TWO THOUSAND SEVEN HUNDRED TWENTY THREE 70/00 DOLLARS
($22,723.70) per month shall be due and payable. This note shall mature on the
date FIVE (5) years from the date hereof, whereupon the entire unpaid
principal balance of this note, together with all interest accrued thereon not
theretofore paid shall be due and payable in full.
This note may be prepaid in whole or in part at any time and from
time to time prior to maturity, while not in default, without premium or
penalty. All payments made hereunder shall be credited first to accrued and
unpaid interest, and the balance, if any, to principal.
This note is secured by a first mortgage dated of even date herewith
to be recorded in the Public Records of Collier County, Florida, given by
Maker, as mortgagor to Payee as mortgagee (the "Mortgage"). Said Mortgage
encumbers real property situated in Collier County, Florida, which property is
more fully described in said Mortgage. The failure of Maker to comply with the
terms and conditions of said Mortgage, or any other instruments securing this
note, or the default by Maker under any other indebtedness owed by Maker to
Payee or under any instrument securing payment of such indebtedness, shall
constitute a default hereunder.
In case of default in the payment of any amounts due hereunder which
shall continue for more than ten (10) days after the date due and payable, or
default under any instruments securing this Note or under any other
indebtedness owed by Maker to Payee which shall continue beyond the applicable
grace period, if any, then, or at any time thereafter during such default the
holder hereof may, without notice, declare the entire debt then remaining
unpaid immediately due and payable.
<PAGE>
If all or any party of any monthly payment due hereunder remains
unpaid more than ten (10) days after the date due and payable, then Payee may,
at its sole option, charge Maker a late payment charge equal to five percent
(5%) of each unpaid monthly payment or sum, or, alternatively, during the
period of any default under the terms of this note Payee may charge Maker
interest on the entire indebtedness then outstanding at the highest rate
permitted by law until such default be cured.
The Maker, and each endorser, surety, guarantor and other party who
may be or become liable for the payment of this note, waives presentment for
payment, demand, notice of dishonor, protest and notice of protest, notice of
nonpayment, delays in collection, and agree that the holder hereof may at any
time, and from time to time, extend the time for, or the due date of, any
payment due hereunder, or otherwise modify the terms of payment of all or any
part of the indebtedness evidenced by this note, whether such extension or
modification shall be granted or made before, at, or after maturity, and
agrees that at any time while this note shall be in default, all indebtedness
due hereunder shall, at the option of the holder hereof, be and become
immediately due and payable without demand or notice, and agrees to pay all
costs of collection, including reasonable attorneys' fees, whether suit shall
be brought or not.
Upon any default hereunder all persons liable hereon jointly and
severally promise to pay all costs of collection, enforcement and defense of
this instrument and the obligations therein and the legal proceedings related,
ancillary, or supplementary thereto, including reasonable attorneys' fees. It
is expressly agreed that such costs and attorneys' fees, aforesaid, shall
include such as may be incurred by the holder hereof in prosecuting or
resisting any proceedings in appellate courts before or after final decision
of a court of competent jurisdiction arising out of any action to collect,
enforce or defend the herein instrument and indebtedness and any and all other
instruments, agreements, liens, assignments or security agreements entered
into in connection herewith.
Notwithstanding anything contained herein to the contrary, no payee
or holder of this note shall ever be entitled to receive, collect or apply, as
interest on the obligation, any amount in excess of the maximum lawful rate
under applicable law, and in the event the payee or any holder hereof ever
receives, collects or applies as interest, any such excess, such amount which
would be excessive interest shall be applied to the reduction of the principal
debt; and, if the principal debt is paid in full, any remaining excess shall
forthwith be paid to Maker. In determining whether or not the interest paid or
payable under any specific contingency exceeds the highest lawful rate, Maker
and Payee shall to the maximum extent permitted under applicable law (a)
characterize any non-principal payment as an expense, fee or premium rather
than as interest (b) exclude voluntary prepayments and the effects thereof and
(c) "spread" the total amount of interest throughout the entire contemplated
term of the obligation so that the interest rate is uniform throughout the
entire term of the obligation.
This note shall be deemed to be an obligation made under and shall be
construed in accordance with and governed by the laws of the State of Florida.
WAIVER OF JURY TRIAL. BY ACCEPTANCE HEREOF, THE PARTIES MUTUALLY AGREE THAT
NEITHER PARTY, NOR ANY ASSIGNEE, SUCCESSOR, HEIR OR LEGAL REPRESENTATIVE OF
THE PARTIES (ALL OF WHOM ARE HEREINAFTER REFERRED TO AS THE "PARTIES") SHALL
SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDINGS, COUNTERCLAIM, OR ANY OTHER
LITIGATION PROCEDURE BASED UPON OR ARISING OUT OF THIS NOTE OR THE MORTGAGE
SECURING ITS REPAYMENT OR UNDER ANY INSTRUMENT EVIDENCING, SECURING, OR
RELATING TO THE INDEBTEDNESS AND OTHER OBLIGATIONS EVIDENCED HEREBY, ANY
RELATED AGREEMENT OR INSTRUMENT, ANY OTHER COLLATERAL FOR THE INDEBTEDNESS
EVIDENCED HEREBY OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG THE
PARTIES, OR ANY OF THEM. NONE OF THE PARTIES WILL SEEK TO CONSOLIDATE ANY SUCH
ACTION, IN WHICH A JURY TRIAL HAS BEEN WAIVED, WITH ANY OTHER ACTION IN WHICH
A JURY TRIAL HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN
FULLY NEGOTIATED BY THE PARTIES. THE WAIVER CONTAINED HEREIN IS IRREVOCABLE,
CONSTITUTES A KNOWING AND VOLUNTARY WAIVER, AND SHALL BE SUBJECT TO NO
EXCEPTIONS. PAYEE HAS IN NO WAY AGREED WITH OR REPRESENTED TO ANY OF THE
PARTIES THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN
ALL INSTANCES.
IN WITNESS WHEREOF, the undersigned Maker has caused this instrument
to be duly executed and delivered on the day and year first above written.
CERTIFIED DIABETIC SERVICES, INC.,
a Delaware corporation
By: /s/ Peter J. Fiscina,
---------------------------
Peter J. Fiscina,
President
(Corporate Seal)
<PAGE>
<TABLE>
<S> <C> <C> <C>
RECD RECORDED in the OFFICIAL RECORDS of COLLIER COUNTY, FL OBLD 2525000.00
GUDRUN KNICKEL at 08:39 AM DWIGHT B. BROCK, CLERK OBLI 2525000.00
350 FIFTH AVE S#200 REC FEE 55.50
NAPLES, FL 34102 DOC-.35 8837.50
INT -.002 5050,00
</TABLE>
MORTGAGE AND SECURITY AGREEMENT
(First Mortgage)
THIS MORTGAGE made on this 17th day of December, 1997, by CERTIFIED
DIABETIC SERVICES, INC., a Delaware corporation (hereinafter referred to as
the "Mortgagor") in favor of FIRST NATIONAL BANK OF NAPLES, a national banking
association (hereinafter referred to as the "Mortgagee").
Mortgagor is indebted to Mortgagee in the principal sum of TWO
MILLION FIVE HUNDRED TWENTY-FIVE THOUSAND AND NO/100 DOLLARS($2,525,000.00)
plus interest accruing and payable thereon under and as evidenced by that
certain promissory note dated of even date herewith and by reference being a
part hereof to the same extent as though set forth in full herein.
To better secure the payment of the principal sum set out in said
promissory note, and interest thereon, and in consideration thereof, and for
other valuable considerations, Mortgagor has granted, bargained and sold and
by these presents does grant, bargain and sell to Mortgagee and to its
successors and assigns forever, all of Mortgagor's fee simple interest in and
to land located in Collier County, Florida, more particularly described on
Exhibit "A" attached hereto and made a part hereof by reference.
This is a first mortgage on the Property.
TOGETHER with any and all buildings and other improvements, and all
fixtures in or on such buildings and other improvements, now or hereafter
situated on the above described land, and all additions thereto and all
renewals, replacements and replenishments thereof, including all personal
property, the heating and air conditioning units, equipment, machinery, ducts
and conduits, whether detachable or not, now or hereafter located in and about
the above described premises, and all additions thereto and all renewals,
replacements and replenishments thereof, and personal property now and
hereafter located thereon; and
This Instrument Prepared By:
Kenneth R. Johnson, Esq.
Goodlette Coleman & Johnson, P.A.
4001 Tamiami Trail North
Naples, FL 34103
<PAGE>
TOGETHER with all and singular the tenements, hereditaments and
appurtenances thereto belonging or in anywise thereunto appertaining,
including riparian and/or littoral rights, all permits and licenses for
maintaining and using the premises, any easements benefiting or serving the
property, any reversionary interest in any roads or streets, and any rights in
any easements benefiting and serving the property encumbered hereby or any
portions thereof, and the rents, issues and profits thereof, and also all the
estate, right, title, interest and all claim and demand whatsoever, as well in
law as in equity, of Mortgagor in and to the same, including but not limited
to all rents, issues, profits, revenues, royalties, rights and benefits
derived from the premises from time to time accruing, whether now existing or
hereafter created, reserving to Mortgagor, however, so long as Mortgagor is
not in default hereunder, the right to receive and retain the rents, issues
and profits.
TO HAVE AND TO HOLD the above described property to Mortgagee, its
successors and assigns, forever, and Mortgagor does hereby fully warrant the
title in and to said land, and will defend the same against the lawful claims
of all persons whomsoever; provided always that if Mortgagor shall pay to
Mortgagee that certain promissory note above described and shall perform all
other covenants and conditions of said promissory note, and of any renewal,
extension or modification thereof, and of this mortgage, then this mortgage
and the estate hereby created shall cease and be null and void.
Mortgagor further covenants and agrees with Mortgagee as follows:
1. To pay all sums, including interest, secured by the Mortgage as
hereby modified when due, as provided for in said promissory note and any
renewal, extension or modification thereof and in the Mortgage as modified
hereby, all such sums to be payable in lawful money of the United States of
America at Mortgagee's principal office, or at such other place as Mortgagee may
designate in writing.
2. To pay when due, and without requiring any notice form Mortgagee,
all taxes, assessments of any type or nature and other charges levied or
assessed against the premises hereby encumbered and to produce receipts therefor
upon demand. Prior to delinquency to pay and discharge any claim, lien or
encumbrance against such premises which is superior to this mortgage and to
permit no default or delinquency on any other lien, encumbrance or charge
against such premises.
3. If required by Mortgagee, to pay to Mortgagee, together with and in
addition to interest and principal, a sum equal to one-twelfth of the yearly
taxes and assessments which may be levied against the premises, and (if so
required) one-twelfth of the yearly premiums for insurance thereon. The amount
of such taxes, assessments and premiums, when unknown, shall be estimated by
Mortgagee. Such deposits shall be used by Mortgagee to pay such taxes,
assessments and premiums when due. Any insufficiency of such account to pay such
charges when due shall be paid by Mortgagor to Mortgagee on demand. If, by
reason of any default by Mortgagor under any provision of this mortgage or the
note secured hereby, Mortgagee declares to be immediately due and payable all
sums secured hereby, such deposits shall become the property of Mortgagee, and a
security interest therein is hereby created. The enforceability of the covenants
relating to taxes, assessments and insurance premiums herein otherwise provided
shall not be affected excepted insofar as those obligations have been met by
compliance with this paragraph. Mortgagee may from time to time at its option
waive, and after any such waiver reinstate, any or all provisions hereof
requiring such deposits, by notice to Mortgagor in writing. While any such
waiver is in effect Mortgagor shall pay taxes, assessments and insurance
premiums as herein elsewhere provided.
<PAGE>
4. Mortgagor, at its expenses, will maintain with respect to the
mortgaged property: (a) insurance on all improvements and buildings against loss
or damage by fire, windstorm and other such risks as are included under
"extended coverage" policies, in amounts sufficient to prevent Mortgagor or
Mortgagee from becoming a co-insurer, and in any event in amounts not less than
the then full insurable value of the mortgaged property; (b) comprehensive
public liability insurance against claims for personal injury or death of
persons and damage to or destruction of property, in such amounts as Mortgagee
may require; (c) workmen's compensation insurance for its employees and any
other individuals for whom Mortgagor is required by law to maintain such
insurance with respect to any work on or about the mortgaged property or any
part thereof; and (d) such other insurance against such hazards, as Mortgagee
from time to time may reasonably require, including, without limitation,
windstorm, flood, wind driven water, hurricanes and collapse, if available, at
all times. All insurance with respect to the mortgaged property shall (a) be
written by an insurer or insurers satisfactory to Mortgagee; (b) name Mortgagor
and Mortgagee as insureds, as their respective interests may appear; (c) provide
that all insurance proceeds for losses shall be adjusted by Mortgagor, subject
to the approval of Mortgagee; (d) except in the case of public liability
insurance, include waivers by the insurer of all rights of subrogation against
any named insured and (if obtainable) all claims for insurance premiums against
Mortgagor and Mortgagee, and be payable (without contribution if obtainable) to
Mortgagee; (e) provide that any proceeds for losses be payable to Mortgagee; (f)
provide that no change in coverage thereof shall be effective until at least
thirty (30) days after receipt of written notice thereof by Mortgagee; and (g)
be reasonably satisfactory in all other respects to Mortgagee. Any insurance may
be evidenced by blanket insurance policies covering the mortgaged property and
other assets of Mortgagor provided that any such policies shall specify that
portion of the total coverage that is allocated for the mortgaged property and
shall, in all other respects, comply with the requirements hereof. Mortgagor
will deliver to Mortgagee (a) the original of all insurance policies (or, in the
case of blanket policies, certificates thereof), together with evidence as to
the payment of all premiums then due thereon, (b) at least thirty (30) days
prior to the expiration of such policy, renewal policies (or, in the case of
renewal blanket policies, certificates thereof), together with evidence as to
the payment of all premiums then due thereon, and (c) promptly upon request by
Mortgagee, a certificate of Mortgagor stating the particulars (including policy
numbers, amounts and expiration dates) as to all such insurance policies and
certifying that the same are in full force and effect and comply with the
requirements hereof, together with evidence as to the payment of all premiums
then due thereon. Mortgagor will not, without the written consent of Mortgagee,
pledge or hypothecate or sell, or assign or transfer its interest in any such
insurance or in any rights to cancel such insurance or to obtain the return of
the unearned premiums therefor.
All insurance proceeds received or made available from insurance on
account of any damage to or destruction of the mortgaged property shall be
applied or dealt with by Mortgagee, at its election, as follows:
A. All such proceeds received by Mortgagee on account of any damage or
destruction may be paid from time to time as restoration progresses
either: (i) to Mortgagor as reimbursement for the cost of
restoration; or (ii) to any other person who shall have performed
labor or services or furnished materials or other property in
connection with restoration; but in each case only upon the written
request of Mortgagor, accompanied by evidence satisfactory to
Mortgagee that the sum requested has been paid by Mortgagor or is
then due and payable to such person and is a proper item of such
costs.
<PAGE>
B. All such proceeds received by Mortgagee on account of damage or
destruction may be applied to the repayment of the indebtedness
secured hereby, in full or in part. The balance, if any, of such
proceeds remaining after such repayment shall, if no default exists,
be paid over or assigned to Mortgagor or as it may direct.
5. To first obtain the written consent of Mortgagee, such consent to be
granted or withheld at the sole discretion of Mortgagee, before (a) removing or
demolishing any building, structure or other improvement now existing or
hereafter erected on the premises, (b) altering the arrangement, design or
structural character thereof, (c) making any exposure of the interior of such
structure or building to the elements, (d) conveying or transferring, allowing
to be assigned or transferred or contracting to sell Mortgagor's fee simple
interest or estate in and to the Property or any portion thereof, voluntarily or
by operation of law, (e) selling or leasing all or any portion of the Property,
or (f) creating or suffering any additional mortgages, liens or encumbrances on
the Property.
6. To maintain the premises in good condition and repair, including but
not limited to the making of such repairs as Mortgagee may from time to time
determine to be necessary for the preservation of the premises and to not commit
nor permit any waste thereof.
7. To comply with all laws, ordinances, regulations, covenants,
conditions, restrictions, permits and licenses affecting the premises, and not
to suffer or permit any violation thereof.
8. If Mortgagor fails to pay any claim, lien or encumbrance which is
superior to this mortgage within any applicable grace period, or bond or
otherwise remove same as a lien on the property, or fails to pay when due, any
tax or assessment or insurance premium, or to keep the premises in repair, or
shall commit or permit waste, or if there be commenced any action or proceeding
affecting the premises or the interest of Mortgagee therein, including but not
limited to eminent domain or bankruptcy or reorganization proceedings, then
Mortgagee, at its option, may pay any such claim, lien, encumbrance, tax,
assessment or premium, with right of subrogation thereunder, may make such
repairs and take such steps as it deems advisable to prevent or cure such waste,
and may appear in any such action or proceeding and retain counsel therein, and
take such action therein as Mortgagee deems advisable, and for any of such
purposes Mortgagee may advance such sums of money, including all costs,
reasonable attorneys' fees and other items of expense as it deems necessary.
Mortgagee shall be the sole judge of the legality, validity and priority of any
such claim, lien, encumbrance, tax, assessment and premium, and of the amount
necessary to be paid in satisfaction thereof. Mortgagee shall not be held
accountable for any delay in making any such payment, which delay may result in
any additional interest, costs, charges or expenses otherwise.
<PAGE>
9. Mortgagor will pay to Mortgagee, immediately and without demand, all
sums of money advanced by Mortgagee pursuant to this mortgage, including all
costs, reasonable attorneys' fees and other items expense, together with
interest on each such advance at the default rate of interest per annum provided
in the promissory note secured hereby, and all such sums and interest thereon
shall be secured hereby.
10. All sums of money secured hereby shall be payable without any
relief whatever from any valuation or appraisement laws.
11. If Mortgagor shall fail to pay any installment due on said note or
any part thereof within ten (10) days from the date when it is due, or fail to
pay when due any other sum secured hereby without notice or demand, which are
hereby expressly waived, or if Mortgagor shall fail in the performance of any of
Mortgagor's obligations, covenants or agreements hereunder or under any other
document evidencing or securing the note secured hereby, then all of the
indebtedness secured hereby shall become and be immediately due and payable at
the option of Mortgagee, in which event Mortgagee may avail itself of any or all
rights and remedies, at law or in equity, and this mortgagee may be foreclosed
with all rights and remedies afforded by the laws of Florida and Mortgagor shall
pay all costs, charges and expenses thereof, including a reasonable attorneys'
fee, whether prior to or after final judgment.
12. If default beyond any applicable grace period be made in payment of
any indebtedness secured hereby, or in performance of any of Mortgagor's
obligations, covenants or agreements hereunder:
A. Mortgagee is authorized at any time, without notice, in its sole
discretion to enter upon and take possession of the premises or any
part thereof, to perform any acts Mortgagee deems necessary or
proper to conserve the security and to collect and receive all
rents, issues and profits thereof, including those past due as well
as those accruing thereafter; and,
B. Mortgagee shall be entitled, as a manner of strict right and without
regard to the value or occupancy of the security, to have a receiver
appointed to enter upon and take possession of the premises,
complete construction of any partially completed improvements,
operate the premises, collect the rents and profits therefrom and
apply the same as the court may direct, such receiver to have all
the rights and powers permitted under the laws of Florida.
In either case, Mortgagee or the receiver may also take possession of,
and for these purposes use, any and all personal property contained in the
premises and used by Mortgagor in the rental or leasing of all or any part
thereof. The expense (including receiver's fees, counsel fees, costs and agent's
compensation) incurred pursuant to the powers herein contained shall be secured
hereby. Mortgagee shall (after payment of all costs and expenses incurred) apply
such rents, issues and profits received by it on the indebtedness secured hereby
in such order as Mortgagee determines. The right to enter and take possession,
to manage and operate the same and to collect the rents, issues and profits
thereof, whether by a receiver or otherwise, shall be cumulative to any other
right or remedy hereunder or afforded by law, and may be exercise concurrently
therewith or independently thereof. Mortgagee shall be liable to account only
for such rents, issues and profits actually received by Mortgagee.
<PAGE>
13. If the indebtedness secured hereby is now or hereafter further
secured by chattel mortgages, security interests, pledges, contracts of
guaranty, assignments or leases, or other securities, or if the premises hereby
encumbered consist of more than one parcel, Mortgagee may at its option exhaust
any one or more of said securities and security hereunder, or such parcels of
the security hereunder, either concurrently or independently, and in such order
as it may determine. A default by Mortgagor, or any guarantor of the loan
evidenced by the promissory note secured hereby, under any collateral security
documents securing repayment of the note or any such guaranty shall be a default
hereunder.
14. Mortgagee may, at its option, from time to time before full payment
of all indebtedness secured hereby, make future advances to Mortgagor (including
advances in excess of the face amount of the note initially secured hereby),
provided that such advances are made within twenty (20) years from the date
hereof and that the total principal secured hereby and remaining unpaid,
including any such future advances, shall not at any time exceed FIVE MILLION
AND NO/100 DOLLARS ($5,000,000.00). Mortgagor shall execute and deliver to
Mortgagee a note evidencing each and every such future advance which Mortgagee
may make, above the face amount of the note initially secured hereby and such
other documents as Mortgagee may require to reflect that each such note is
secured hereby, such note(s) to be payable on or before maturity of the
indebtedness secured hereby or as it may be extended, and to contain such terms
as Mortgagee shall require. Mortgagor shall pay all such future advances with
interest provided therefor, and the same, and each note evidencing the same,
shall be secured hereby. All provisions of this mortgage shall apply to each
future advance as well as to all other indebtedness secured hereby. Nothing
herein contained however, shall limit the amount secured by this mortgage if
such amount is increased by advances made by Mortgagee, as herein elsewhere
provided for, to protect the security or to complete construction of any
improvements. Nothing herein contained shall obligate Mortgagee to make any such
future advances and Mortgagor shall have no right to require same. The word
"Mortgagor" as used in this paragraph, includes any successor in ownership of
the premises who acquires title subject to the lien on this mortgage.
15. No delay by Mortgagee in exercising any right or remedy hereunder,
or otherwise afforded by law, shall operate as a waiver thereof or preclude the
exercise thereof during the continuance of any default hereunder. No waiver by
Mortgagee of any default shall constitute a waiver of or consent to subsequent
defaults. No failure of Mortgagee to exercise any option herein given to
accelerate maturity of the debt hereby secured, no forbearance by Mortgagee
before or after the exercise of such options and no withdrawal or abandonment of
foreclosure proceedings by Mortgagee shall be taken or construed as a waiver of
its right to exercise such option or to accelerate maturity of the debt hereby
secured by reason of any past, present or future default on the part of
Mortgagor; and the procurement of insurance or the payment of taxes or other
liens or charges by Mortgagee shall not be taken or construed as a waiver of its
right to accelerate the maturity of the debt hereby secured.
<PAGE>
16. Without affecting the liability of Mortgagor or any other person
(except any person expressly released in writing) for payment of any
indebtedness secured hereby or for performance of any obligation contained
herein, without affecting the rights of Mortgagee with respect to any security
not expressly released in writing, and without affecting the priority of the
lien hereof as to any inferior liens or interests, Mortgagee may, at any time
and from time to time, either before or after the maturity of said note, and
without notice or consent:
A. Release any person liable for payment of all or any part of the
indebtedness, or for performance of any obligation.
B. Make any agreement extending the time or otherwise altering the
terms of payment of all or any part of the indebtedness, with or
without changing the rate of interest, or modifying or waiving any
obligation, or subordinating, modifying or otherwise dealing with
the lien or charge hereof.
C. Exercise or refrain from exercising or waive any right Mortgagee may
have.
D. Accept additional security of any kind.
E. Release or otherwise deal with any property, real or personal,
securing the indebtedness, including all or any part of the property
mortgaged hereby.
F. Release portions of the property encumbered hereby from the lien
hereof with or without payment and on such terms and for such
considerations as it may require.
17. Any agreement hereafter made by Mortgagor and Mortgagee pursuant to
this mortgage including extensions or modifications hereof or of the note
secured hereby shall be superior to the rights of the holder of any intervening
or subordinate lien or encumbrance.
18. The filing by or against Mortgagor, or any guarantor of payment of
the indebtedness evidenced by said promissory note and secured by this mortgage,
of a petition in bankruptcy, or the insolvency of Mortgagor, or any guarantor,
or the making by Mortgagor or any guarantor of an assignment for the benefit of
creditors, or the filing of a petition for relief under the bankruptcy laws, or
the appointment of a receiver or a trustee for Mortgagor or the property
encumbered hereby shall constitute a default hereunder which shall authorize the
holder hereof, at its option, to immediately accelerate maturity of all
indebtedness secured hereby and exercise all remedies available to it hereunder.
19. Mortgagee shall be subrogated to the rights of the holder of any
existing mortgage or other lien encumbering the property hereby encumbered which
is satisfied by application of any portion of the proceeds of the loan evidenced
by the note secured hereby as though said mortgage or other lien had been
purchased by Mortgagee by assignment to Mortgagee even though said mortgage or
lien has been satisfied of record and the note thereby secured canceled.
<PAGE>
20. The Mortgagor hereby represents and warrants to the best of its
knowledge and belief: (i) that the location, construction, occupancy, operation
and use of the Property do not violate any applicable law, statute, ordinance,
rule, regulation, order or determination of any governmental authority or any
board of fire underwriters (or other body exercising similar functions), or any
restrictive covenant or deed restriction (recorded or otherwise affecting the
Property, including without limitation all applicable zoning ordinances and
building codes, flood disaster laws and health and environmental laws and
regulations (hereinafter sometimes collectively called the "Applicable
Regulations"); and (ii) without limitation of (i) above, that the Property and
the Mortgagor are not in violation of or subject to any existing, pending or
threatened investigation or inquiry by any governmental authority or to any
remedial obligations under any Applicable Regulations pertaining to health or
the environment (hereinafter sometimes collectively called the "Applicable
Environmental Laws"), including without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 as amended by
the Superfund Amendments and Reauthorization Act of 1986 ("CERCLA/SARA") and the
Resource Conservation and Recovery Act of 1976 ("RCRA"), and this representation
and warranty would continue to be true and correct following disclosure to the
applicable governmental authorities of all relevant facts, conditions and
circumstances, if any, pertaining to the Property; (iii) that the Mortgagor has
not obtained and is not required to obtain any permits, licenses or similar
authorizations to construct, occupy, operate or use any buildings, improvements,
fixtures and equipment forming a part of the Property by reason of any
Applicable Environmental Laws; and (iv) that the use which the Mortgagor makes
and intends to make of the Property will not result in the disposal or other
release of any hazardous substance or solid waste on or to the Property. The
terms (as used in this Mortgage) "hazardous substance" and "release" shall have
the meanings specified in CERCLA/SARA, and the terms "solid waste" and
"disposal" or "disposed" shall have the meanings specified in RCRA; provided, in
the event either CERCLA/SARA or RCRA is amended so as to broaden the meaning of
any term defined thereby, such broader meaning shall apply subsequent to the
effective date of such amendment and provided further, to the extent that the
laws of the State of Florida establish a meaning for "hazardous substance,"
"release," solid waste" or "disposal" which is broader than that specified in
either CERCLA/SARA or RCRA, such broader meaning shall apply.
21. The covenants and agreements herein contained shall bind and the
benefits and advantages shall inure to the benefit of the respective successors
and assigns of the parties hereto. Wherever used, the singular number shall
include the plural, and the plural the singular, and the use of any gender shall
be applicable to all genders. All covenants, agreements and undertakings shall
be joint and several. All references contained herein to "legal fees," "counsel
fees" or "attorneys' fees" and "costs" shall be deemed to include such fees and
costs incurred by Mortgagee whether or not suit is instituted, and, if
instituted, shall include such fees and costs incurred at the trial level and
all levels of appeal.
22. In addition to any notice requirements contained elsewhere in this
mortgage or in any of the other loan documents, Mortgagor shall notify Mortgagee
promptly of the occurrence of any of the following:
<PAGE>
A. a fire or other casualty causing damage to the Property;
B. receipt of notice of condemnation of the Mortgaged Property;
C. receipt of notice from any governmental or quasi-governmental
authority relating to the development, structure, use or occupancy
of the Mortgaged Property;
D. substantial change in the occupancy of the Property; or
E. commencement of any litigation affecting the Property.
23. Mortgagee, at its option, after giving notice to Mortgagor, if
required and the expiration of the applicable grace period, if any, may pay any
claim, lien, encumbrance, tax, assessment or premium, with right of subrogation
hereunder, now or hereafter affecting the mortgaged property or any portion
thereof and merge or consolidate the effect of such prior item with the lien
hereunder.
24. No payee or the holder of the note or notes secured hereby shall
ever be entitled to receive, collect, or apply, as interest on the obligation,
any amount in excess of the legally permitted maximum interest rate per annum
under applicable law, and in the event the payee or any holder thereof ever
receives, collects or applies as interest any such excess, such amount which
would be excessive interest shall be applied to the reduction of the principal
debt; and, if the principal debt is paid in full, any remaining excess shall
forthwith be paid to Mortgagor. In determining whether or not the interest paid
or payable under any specific contingency exceeds the highest lawful rate,
Mortgagor and Mortgagee shall to the maximum extent permitted under applicable
law (a) characterize any non-principal payment as an expense, fee or premium
rather than as interest, (b) exclude voluntary prepayments and the effects
thereof, and (c) "spread" the total amount of interest throughout the entire
contemplated term of the obligation so that the interest rate is uniform
throughout the entire term of the obligation.
25. Mortgagor hereby agrees that this mortgage is to be construed and
enforced according to the laws of the State of Florida.
26. Time is of the essence in all matters herein.
27. This instrument constitutes a security agreement under the
provisions of the Florida Uniform Commercial Code with respect to any personal
property now or hereafter located on the mortgaged premises and a security
interest therein is hereby created. With respect to such personalty Mortgagee
shall have all the rights and remedies afforded to a secured party by law.
Mortgagor hereby agrees to execute and deliver on demand and hereby irrevocably
constitutes and appoints Mortgagee the attorney-in-fact of Mortgagor, to
execute, deliver, and if appropriate, to file with the appropriate filing
officer or office such security agreements, financing statements, continuation
statements or other instruments as Mortgagee may request or require in order to
impose, perfect or continue the perfection of, the lien or security interest
created hereby. Upon the occurrence of any default hereunder, Mortgagee shall
have the right to cause any of the Mortgaged property which is personal property
and subject to the security interest of Mortgagee hereunder to be sold at any
one or more public or private sales as permitted by applicable law, and
Mortgagee shall further have all other rights and remedies, whether at law, in
equity, or by statute, as are available to secured creditors under applicable
law. Any such disposition may be conducted by an employee or agent of Mortgagee.
Any person, including both Mortgagor and Mortgagee, shall be eligible to
purchase any part or all of such property at any such disposition.
<PAGE>
Expenses of retaking, holding, preparing for sale, selling or the like
shall be borne by Mortgagor and shall include Mortgagee's attorneys' fees and
legal expenses. Mortgagor upon demand of Mortgagee shall assemble such personal
property and make it available to Mortgagee at the Premises, or a place which is
hereby deemed to be reasonably convenient to Mortgagee and Mortgagor. Mortgagee
shall give Mortgagor at least five (5) days prior written notice of the time of
or after which any private sale or any other intended disposition is to be made,
and if such notice is sent to Mortgagor, as the same is provided for the mailing
of notices herein, it is hereby deemed that such notice shall be and is
reasonable notice to Mortgagor.
28. Mortgagor will pay or reimburse Mortgagee for all reasonable
attorneys' fees, costs and expenses incurred by Mortgagee in any action,
proceeding or dispute of any kind in which the Mortgagee is made a party, or
appears as a party either as plaintiff or defendant, affecting the promissory
note, Mortgage, Mortgagor, or Mortgaged Property, including but not limited to
the foreclosure of this mortgage, any condemnation action involving the
Mortgaged Property, or any action to protect the security hereof; and any such
amounts paid by this mortgage.
29. Any contracts or leases which may be entered into by mortgagor for
the sale or lease of the Property or any portion thereof will be assigned to
Mortgagee as collateral security for the loan evidenced by note, and a security
interest therein is hereby created.
A. All of the existing and future rents, royalties, income and profits
of the Mortgaged Property that arise from its use or occupancy are
hereby absolutely and presently assigned to the Mortgagee. However,
until the Mortgagor is in default under this Mortgage, the Mortgagor
will have a license to collect and receive those rents, royalties,
income and profits. Upon any default by the Mortgagor, the Mortgagee
may terminate the Mortgagor's license in its discretion at any time
without notice to the Mortgagor and may thereafter collect the
rents, royalties, income or profits itself or by an agent or
receiver. No action taken by the Mortgagee to collect any rents,
royalties, income or profits will make the Mortgagee a
"mortgagee-in-possession" of the Mortgaged property, unless the
Mortgagee personally or by agent enters into actual possession of
the Mortgaged Property. Possession by a court-appointed receiver
will not be considered possession by the Mortgagee. All rents,
royalties, income and profits collected by the Mortgagee or a
receiver will be applied first to pay all expenses of collection,
and then to the payment of all costs of operation and management of
the Mortgaged Property, and then to the payment of the indebtedness
and obligations secured by this Mortgage in whatever order the
Mortgagee directs in its absolute discretion and without regard to
the adequacy of its security.
<PAGE>
B. If required by the Mortgagee, the Mortgagor will not execute any
leases or occupancy agreements affecting any of the Mortgaged
Property except on a form approved by Mortgagee.
C. Without the prior written consent of the Mortgagee, the Mortgagor
shall not accept prepayments of rent exceeding one month under any
leases or occupancy agreements affecting any of the Mortgaged
Property, nor modify or amend any such leases or occupancy
agreements, nor in any manner impair the Mortgagee's interest in the
rents, royalties, income and profits of the Mortgaged Property. The
Mortgagor will perform all covenants of the lessor under any such
leases or occupancy agreements. Upon the Mortgagee's request, the
Mortgagor will execute and deliver to the Mortgagee for recordation
an assignment of leases on the Mortgagee's form.
D. If required by the Mortgagee, each lease or occupancy agreement
affecting any of the Mortgaged Property must provide, in a manner
approved by the Mortgagee, that the tenant will recognize as its
lessor any person succeeding to the interest of the Mortgagor upon
any foreclosure of this Mortgage.
30. WAIVER OF JURY TRIAL. BY ACCEPTANCE HEREOF, THE PARTIES MUTUALLY
AGREE THAT NEITHER PARTY, NOR ANY ASSIGNEE, SUCCESSOR, HEIR, OR LEGAL
REPRESENTATIVE OF THE PARTIES (ALL OF WHOM ARE HEREINAFTER REFERRED TO AS THE
"PARTIES") SHALL SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDINGS, COUNTERCLAIM, OR
ANY OTHER LITIGATION PROCEDURE BASED UPON OR ARISING OUT OF THIS MORTGAGE OR ANY
INSTRUMENT EVIDENCING, SECURING, OR RELATING TO THE INDEBTEDNESS AND OTHER
OBLIGATIONS EVIDENCED HEREBY, ANY RELATED AGREEMENT OR INSTRUMENT, ANY OTHER
COLLATERAL FOR THE INDEBTEDNESS EVIDENCED HEREBY OR THE DEALINGS OR THE
RELATIONSHIP BETWEEN OR AMONG THE PARTIES, OR ANY OF THEM. NONE OF THE PARTIES
WILL SEEK TO CONSOLIDATE ANY SUCH ACTION, IN WHICH A JURY TRIAL HAS BEEN WAIVED,
WITH ANY OTHER ACTION IN WHICH A JURY TRIAL HAS NOT BEEN WAIVED. THE PROVISIONS
OF THIS PARAGRAPH HAVE BEEN FULLY NEGOTIATED BY THE PARTIES. THE WAIVER
CONTAINED HEREIN IS IRREVOCABLE, CONSTITUTES A KNOWING AND VOLUNTARY WAIVER, AND
SHALL BE SUBJECT TO NO EXCEPTIONS. BANK HAS IN NO WAY AGREED WITH OR REPRESENTED
TO ANY OF THE PARTIES THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY
ENFORCED IN ALL INSTANCES.
IN WITNESS WHEREOF, the undersigned Mortgagor has caused this
instrument to be duly executed and delivered on the day and year first above
written.
Signed, Sealed and Delivered CERTIFIED DIABETIC SERVICES, INC.,
in the Presence of: a Delaware corporation
/s/ C. William Rast, Jr. By: /s/ Peter J. Fiscina
- -------------------------------- ------------------------------
Print Name: C. William Rast, Jr. PETER J. FISCINA,
President
/s/ Becky J. Bauser
- --------------------------------- (Corporate Seal)
Print Name: B. Bauser
<PAGE>
STATE OF FLORIDA
COUNTY OF COLLIER
ACKNOWLEDGED before me on this 17th day of December 1997, by PETER J.
FISCINA, (_X_) who is personally known to me or (__) who produced his driver's
license as identification, as President of CERTIFIED DIABETIC SERVICES, INC.,
a Delaware corporation, on behalf of the corporation.
/s/ Becky J. Bauser
-----------------------------
Notary Public
Print Name: B. Bauser
State of Florida at Large
My Commission Expires:
Becky J. Bauser
My Commission #CC522234
EXPIRES: January 2, 2000
Bonded thru Notary Public Underwriters
(Notary Seal)
<PAGE>
Exhibit "A"
(Attach Legal Description of the Property)
Lots 14 and 15, EAST NAPLES INDUSTRIAL PARK, according to the map or
plat thereof as recorded in Plat Book 10, at Page 114, of the Public
Records of Collier County, Florida.
<PAGE>
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 2373 Horseshoe Drive South, Naples, Florida 34104
(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:
- 1 -
<PAGE>
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 & Frankel, 919
Third Avenue, New York, NY 10022 (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
- 2 -
<PAGE>
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
- 3 -
<PAGE>
deemed to be an underwriter (as the term is defined in the 1933 Act) 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.
- 4 -
<PAGE>
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,
- 5 -
<PAGE>
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 1933 Act) 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 mark
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 mark 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 mark 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.
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(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
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<PAGE>
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.
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<PAGE>
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 & Lamont 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 & Lamont 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.
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<PAGE>
(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
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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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 1933 Act) 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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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.
2373 Horseshoe Drive South
Naples, Florida 34104
Telephone: (941) 403-0500
Facsimile: (941) 403-4306
Attention: Myron M. Blumenthal
- 22 -
<PAGE>
With a copy to:
Bryan Cave LLP
245 Park Avenue
New York, New York 10167
Telephone: (212) 692-1800
Facsimile: (212) 692-1900
Attention: Stephan J. Mallenbaum
If to the Transfer Agent:
American Stock Transfer & Trust Co., Inc.
6201 15th Avenue
Brooklyn, New York 11219
Telephone: (718) 921-8261
Facsimile: (718) 921-8337
Attention: Donna Ansbro
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 -
<PAGE>
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 -
<PAGE>
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, LEONARDO, L.P.
INC. By: Angelo, Gordon & Co., L.P.
Its: General Partner
By: /s/ Myron M. Blumenthal
__________________________
Myron M. Blumenthal
Name: ________________________ By: _____________________________
Name: Michael L. Gordon
Chief Financial Officer Its: Chief Operating Officer
Its: ________________________
GAM ARBITRAGE INVESTMENTS, INC.
By: Angelo, Gordon & Co., L.P.
Its: Investment Advisor
By: _____________________________
Name: Michael L. Gordon
Its: Chief Operating Officer
AG SUPER FUND INTERNATIONAL
PARTNERS, L.P.
By: Angelo, Gordon & Co., L.P.
Its: General Partner
By: _____________________________
Name: Michael L. Gordon
Its: Chief Operating Officer
RAPHAEL, L.P.
By: _____________________________
Name: Michael L. Gordon
Its: Chief Operating Officer
<PAGE>
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, LEONARDO, L.P.
INC. By: Angelo, Gordon & Co., L.P.
Its: General Partner
By: __________________________
Name: ________________________ By: /s/ Michael L. Gordon
-----------------------------
Its: ________________________ Name: Michael L. Gordon
Its: Chief Operating Officer
GAM ARBITRAGE INVESTMENTS, INC.
By: Angelo, Gordon & Co., L.P.
Its: Investment Advisor
By: /s/ Michael L. Gordon
-----------------------------
Name: Michael L. Gordon
Its: Chief Operating Officer
AG SUPER FUND INTERNATIONAL
PARTNERS, L.P.
By: Angelo, Gordon & Co., L.P.
Its: General Partner
By: /s/ Michael L. Gordon
-----------------------------
Name: Michael L. Gordon
Its: Chief Operating Officer
RAPHAEL, L.P.
By: /s/ Michael L. Gordon
-----------------------------
Name: Michael L. Gordon
Its: Chief Operating Officer
<PAGE>
RAMIUS FUND, LTD.
By: AG Ramius Partners, L.L.C.
Its: Investment Advisor
By: /s/ Michael L. Gordon
-----------------------------
Name: Michael L. Gordon
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: H. U. Bachofen
Its: Director
<PAGE>
RAMIUS FUND, LTD.
By: AG Ramius Partners, L.L.C.
Its: Investment Advisor
By:
-----------------------------
Name: Michael L. Gordon
Its: Managing Officer
AGR HALIFAX FUND, LTD.
By: AG Ramius Partners, L.L.C.
Its: Investment Advisor
By: /s/ Peter A. Cohen
------------------------------
Name: Peter A. Cohen
Its: Managing Officer
AMRO INTERNATIONAL, S.A.
By: _____________________________
Name:
Its:
<PAGE>
RAMIUS FUND, LTD.
By: AG Ramius Partners, L.L.C.
Its: Investment Advisor
By:
-----------------------------
Name: Michael L. Gordon
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/ Michael Klee
-----------------------------
Name: Michael Klee
Its:
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF BUYERS
Number of
Investor Address Purchase Preferred
Investor Name and Facsimile Number Price Shares Number of Warrants
------------- -------------------- ----- ------ ------------------
<S> <C> <C> <C> <C>
Leonardo, L.P. c/o Angelo, Gordon & Co., L.P. $750,000 750 17,500.00
245 Park Avenue - 26th Floor
New York, New York 10167
Attn: Gary Wolf
Facsimile: 212-867-6449
GAM Arbitrage c/o Angelo, Gordon & Co., L.P. $100,000 100 2,333.33
Investments, Inc. 245 Park Avenue - 26th Floor
New York, New York 10167
Attn: Gary Wolf
Facsimile: 212-867-6449
AG Super Fund c/o Angelo, Gordon & Co., L.P. $100,000 100 2,333.33
International Partners, 245 Park Avenue - 26th Floor
L.P. New York, New York 10167
Attn: Gary Wolf
Facsimile: 212-867-6449
Raphael, L.P. c/o Angelo, Gordon & Co., L.P. $100,000 100 2,333.33
245 Park Avenue - 26th Floor
New York, New York 10167
Attn: Gary Wolf
Facsimile: 212-867-6449
Ramius Fund, Ltd. c/o Angelo, Gordon & Co., L.P. $200,000 200 4,666.67
245 Park Avenue - 26th Floor
New York, New York 10167
Attn: Gary Wolf
Facsimile: 212-867-6449
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: Patrick Agemian
Facsimile: (809) 949-3877
Notice address:
A.G. Ramius Partners, L.L.C.
757 Third Avenue, 27th Floor
New York, New York 10017
Attn: Jeffrey M. Solomon
Facsimile: 212-845-7999
Amro International, S.A. c/o Ultra Finance, Ltd. $500,000 500 11,666.67
Grossmunsterplatz 26
P.O. Box 4401
Zurich, Switzerland CH-8022
Attn: H.U. Bachofen
Facsimile: 011-411-262-5515
Notice address:
c/o Jesup & Lamont Securities Corp.
650 Fifth Avenue, 3rd Floor
New York, New York 10019
Attn: Thomas Badian
Facsimile: 212-307-7809
</TABLE>
<PAGE>
SCHEDULE OF UNDERWRITERS
A.G. Edwards & Sons Inc.
Bancamerica Robertson Stephens
BT Alex Brown
Cowen & Co.
Cruttendon Roth Incorporated
CS First Boston
Dain Bosworth Incorporated
Deutsche Morgan Grenfell
Donaldson Lufkin & Jenrette Securities Corporation
Fahnestock & Co., Inc.
Furman Selz Incorporated
Genesis Merchant Securities
Goldman Sachs & Co.
Hambrecht & Quist
Invermed Associates
J.P. Morgan & Company
Jesup & Lamont Securities Corporation
Lehman Brothers Inc.
Merrill Lynch & Co.
Morgan Stanley, Dean Witter, Discover & Co.
NationsBank Montgomery Securities
Needham & Company, Inc.
Oppenheimer & Co.
Pacific Growth Equities Inc.
Paine Webber
Piper Jaffray Inc.
Prudential Bache Securities
Punk Ziegel & Knoll
Raymond James & Associates, Inc.
Smith Barney Salomon Inc
SBC Warburg/Dillon Read
UBS Securities, Inc.
Vector Securities
Wedbush Morgan Securities
<PAGE>
Exhibit 10.24
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of March 19,
1998, by and among Certified Diabetic Services, Inc., a Delaware corporation,
with headquarters located at 2373 Horseshoe Boulevard South, Naples, Florida
34104 (the "Company"), and the undersigned buyers (each, a "Buyer" and
collectively, the "Buyers").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties of even date herewith (the "Securities Purchase Agreement"), the
Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to the Buyers shares of the
Company's Series A Convertible Preferred Stock, par value $.01 per share (the
"Preferred Shares"), which will be convertible into shares of the Company's
common shares, 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 of the Series A Convertible Preferred Stock (the "Certificate of
Designation"), and warrants (the "Warrants") to purchase shares of Common Stock
(the "Warrant Shares"); and
B. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 Act"), 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:
1. DEFINITIONS.
-----------
As used in this Agreement, the following terms shall have the
following meanings:
a. "Investor" means a Buyer and any transferee or assignee
thereof to whom a Buyer assigns its rights under this Agreement and who agrees
to become bound by the provisions of this Agreement in accordance with
Section 9.
b. "Person" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, a trust, an
individual, a governmental or political subdivision thereof or a governmental
agency.
c. "Register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering
<PAGE>
securities on a continuous basis ("Rule 415"), and the declaration or ordering
of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").
d. "Registrable Securities" means the Conversion Shares issued
or issuable upon conversion of the Preferred Shares and the Warrant Shares
issued or issuable upon exercise of the Warrants and any shares of capital stock
issued or issuable with respect to the Conversion Shares or the Warrant Shares
as a result of any stock split, stock dividend, recapitalization, exchange,
combination, merger, consolidation, distribution or similar event or otherwise.
e. "Registration Statement" means a registration statement of
the Company filed under the 1933 Act.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
------------
a. Mandatory Registration. The Company shall prepare, and, on
or prior to 45 days after the date of issuance of the Preferred Shares and
Warrants, file with the SEC a Registration Statement or Registration Statements
(as is necessary) on Form S-1, covering the resale of all of the Registrable
Securities, which Registration Statement(s) shall state that, in accordance with
Rule 416 promulgated under the 1933 Act, such Registration Statement(s) also
covers such intermediate number of additional shares of Common Stock as may
become issuable upon conversion of the Preferred Shares and upon exercise of the
Warrants (i) to prevent dilution resulting from stock splits, stock dividends or
similar transactions and (ii) by reason of changes in the Conversion Price or
Conversion Rate of the Preferred Shares and the Exercise Price of the Warrants
in accordance with the terms thereof. Such Registration Statement shall
initially register for resale at least such number of shares of Common Stock
equal to the number of relevant Conversion Shares and Warrant Shares, subject to
adjustment as provided in Section 3(b). Such registered shares of Common Stock
shall be allocated among the Investors pro rata based on the total number of
Registrable Securities issued or issuable as of each date that a Registration
Statement, as amended, relating to the resale of the Registrable Securities is
declared effective by the SEC. The Company shall use its best efforts to have
the Registration Statement(s) declared effective by the SEC as soon as
practicable, but in no event later than 120 days after the issuance of the
Preferred Shares and Warrants. Neither the Company nor any other holder of the
Company's securities who has registration rights (other than the Investors and
their assignees or transferees) may include its securities in any registration
effected pursuant to this Section 2(a).
b. Counsel and Investment Bankers. Subject to Section 5, in
connection with any offering pursuant to Section 2, the Investors shall have the
right to select one legal counsel and an investment banker or bankers and
manager or managers to administer their interest in the offering, which
investment banker or bankers or manager or managers shall be reasonably
satisfactory to the Company. The Company shall reasonably cooperate with any
such counsel and investment bankers.
- 2 -
<PAGE>
c. Piggy-Back Registrations. If a Registration Statement in
compliance with this Agreement is not effective, and prior to the expiration of
the Registration Period (as hereinafter defined), the Company proposes to file
with the SEC a Registration Statement relating to an offering for its own
account or the account of others under the 1933 Act of any of its securities
(other than on Form S-4 or Form S-8 or their then equivalents relating to
securities to be issued solely in connection with any acquisition of any entity
or business or to securities issuable in connection with stock option or other
employee benefit plans), the Company shall promptly send to each Investor who is
entitled to registration rights under this Section 2(c), at least twenty (20)
days prior to the anticipated date of filing, written notice of the Company's
intention to file a Registration Statement and of such Investor's rights under
this Section 2(c) and, if within twenty (20) days after receipt of such notice,
such Investor shall so request in writing, the Company shall include in such
Registration Statement the Registrable Securities such Investor requests to be
registered, subject to the priorities set forth in Section 2(d). No right to
registration of Registrable Securities under this Section 2(c) shall be
construed to limit any registration required under Section 2(a). The obligations
of the Company under this Section 2(c) may be waived by Investors holding a
majority of the Registrable Securities. If an offering in connection with which
an Investor is entitled to registration under this Section 2(c) is an
underwritten offering, then each Investor whose Registrable Securities are
included in such Registration Statement shall unless otherwise agreed by the
Company, offer and sell such Registrable Securities in an underwritten offering
using the same underwriter or underwriters and, subject to the provisions of
this Agreement, on the same terms and conditions as other shares of Common Stock
included in such underwritten offering.
d. Priority in Piggy-Back Registration Rights in Connection
with Registrations for Company Account. If the registration referred to in
Section 2(c) is to be an underwritten public offering and the managing
underwriter(s) advise the Company in writing, that in their reasonable good
faith opinion, marketing or other factors dictate that a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement (which may include a total "cut-back" of all Registrable Securities)
is necessary to facilitate and not adversely affect the proposed offering, then
the Company shall include in such registration: (1) first, all securities the
Company proposes to sell for its own account, (2) second, up to the full number
of securities proposed to be registered for the account of the holders of
securities entitled to inclusion of their securities in the Registration
Statement by reason of demand registration rights, and (3) third, the securities
requested to be registered by the Investors and other holders of securities
entitled to participate in the registration, as of the date hereof, drawn from
them pro rata based on the number each has requested to be included in such
registration.
e. Intentionally Omitted.
f. Liquidated Damages. If pursuant to Section 2(a) a
Registration Statement is not (i) filed with the SEC on or prior to 45 days
after the date of issuance of the Preferred Shares and the Warrants or (ii)
declared effective within 120 days after the date of issuance of the Preferred
Shares and Warrants (each a "Registration Default"), the Company agrees to pay
to each Investor liquidated damages ("Liquidated Damages") in an amount equal to
two percent (2%) of the stated value of the Preferred Shares held by such
Investor per month. If pursuant to this Section 2(a) the Registration Statement
is not declared effective within 150 days after the
- 3 -
<PAGE>
date of issuance of the Preferred Shares and Warrants, 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 held by such Investor
per month. All accrued Liquidated Damages shall be paid to the affected
Investors by the Company, at its option, by wire transfer of immediately
available funds or by issuing that number of shares of Common Stock which has in
the aggregate a Fair Market Value equal to the amount of Liquidated Damages. For
purposes of this Section 2(f), "Fair Market Value" shall mean the average
closing bid price of the Common Stock for the five (5) consecutive trading days
ending on the date of the Registration Default. As of the date of the cure of
all Registration Defaults relating to any particular Registrable Securities, the
accrual of Liquidated Damages with respect to such Registrable Securities will
cease. Notwithstanding the foregoing, in the event that at any time the Company
would be required to pay both Liquidated Damages under this Section 2(f) and
liquidated damages under Section 4(h)(ii) of the Securities Purchase Agreement
(the "Listing Liquidated Damages"), the Company shall only be required to pay
the greater of (x) the Liquidated Damages and (y) the Listing Liquidated
Damages; provided that, if, at such time, the Liquidated Damages equal the
Listing Liquidated Damages, then the Company shall only be required to pay
either the Liquidated Damages or the Listing Liquidated Damages.
3. RELATED OBLIGATIONS.
-------------------
Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2(c) or at such time as the Company is obligated
to file a Registration Statement with the SEC pursuant to Section 2(a), the
Company will use its best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof and,
pursuant thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities on or prior to
the forty-fifth (45th) day after the date of issuance of the Preferred Shares
and Warrants for the registration of Registrable Securities pursuant to Section
2(a) and use its best efforts to cause such Registration Statement relating to
the Registrable Securities to become effective as soon as possible after such
filing (but in no event later than 120 days after the issuance of the Preferred
Shares and Warrants for the registration of Registrable Securities pursuant to
Section 2(a)), and keep such Registration Statement effective pursuant to Rule
415 at all times until the earlier of (i) the date as of which the Investors may
sell all of the Registrable Securities without restriction pursuant to Rule
144(k) promulgated under the 1934, (ii) the date on which (A) the Investors
shall have sold all the Registrable Securities and (B) none of the Preferred
Shares and Warrants is outstanding or (iii) the third anniversary of the date of
issuance of the Preferred Shares and the Warrants (the "Registration Period"),
which Registration Statement (including any amendments or supplements thereto
and prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading.
b. Subject to Section 3(f), the Company shall prepare and file
with the SEC such amendments (including post-effective amendments) and
supplements to a Registration
- 4 -
<PAGE>
Statement and the prospectus forming a part of such Registration Statement,
which prospectus is to be filed pursuant to Rule 424 promulgated under the 1933
Act, as may be necessary to keep such Registration Statement effective at all
times during the Registration Period, and, during such period, comply with the
provisions of the 1933 Act with respect to the disposition of all Registrable
Securities of the Company covered by such Registration Statement until such time
as such Registrable Securities shall have been disposed of in accordance with
the intended methods of disposition by the seller or sellers thereof as set
forth in such Registration Statement. In the event the number of shares
available under a Registration Statement filed pursuant to this Agreement is
insufficient to cover all of the Registrable Securities, the Company shall amend
such Registration Statement, or file a new Registration Statement (on the short
form available therefor, if applicable), or both, so as to cover all of the
Registrable Securities, in each case, as soon as practicable, but in any event
within fifteen (15) days after the necessity therefor arises (based on the
market price of the Common Stock and other relevant factors on which the Company
reasonably elects to rely). The Company shall use its best efforts to cause such
amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof. For purposes of the foregoing
provision, the number of shares available under a Registration Statement shall
be deemed "insufficient to cover all of the Registrable Securities" if at any
time the number of Registrable Securities issued or issuable upon conversion of
the Preferred Shares is greater than the quotient determined by dividing (i) the
number of shares of Common Stock available for resale under such Registration
Statement by (ii) 1.5. For purposes of the calculation set forth in the
foregoing sentence, any restrictions on the convertibility of the Preferred
Shares and the exercise of the Warrants shall be disregarded and such
calculation shall assume that the Preferred Shares are then convertible into
shares of Common Stock at the then prevailing Conversion Rate (as defined in the
Certificate of Designation) and the Warrants are then exercisable into shares of
Common Stock at the prevailing Exercise Price (as defined in the certificate
representing the Warrants). If while the Registration Statement is required to
be effective pursuant to the terms of this Agreement, the effectiveness of the
Registration Statement lapses for any reason (including, without limitation, the
issuance of a stop order) or is unavailable to any Investor for sale of the
Registrable Securities in accordance with the terms of this Agreement (a "Lapse
Period"), such Lapse Period continues for any ten trading days (not including
any days during a Grace Period (as defined in Section 3(f)), and the cause of
such lapse or unavailability is not due to factors solely within the control of
the Investors, then the Company shall pay to each Investor liquidated damages in
an amount equal to four percent (4%) of the stated value of the Preferred Shares
held by such Investor per month until such time as such Lapse Period ceases. 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 Lapse
Periods.
c. The Company shall furnish to each Investor whose
Registrable Securities are included in any Registration Statement and its legal
counsel without charge (i) promptly after the same is prepared and filed with
the SEC at least one copy of such Registration Statement and any amendment(s)
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits, the prospectus included in
such Registration Statement (including each preliminary prospectus) and, with
regard to such Registration Statement(s), any correspondence by or on behalf of
the Company to the SEC or the staff of the SEC and any correspondence from the
SEC or the staff of the SEC to the Company or its
- 5 -
<PAGE>
representatives, (ii) upon the effectiveness of any Registration Statement, ten
(10) copies of the prospectus included in such Registration Statement and all
amendments and supplements thereto (or such other number of copies as such
Investor may reasonably request) and (iii) such other documents, including any
preliminary prospectus, as such Investor may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such Investor.
d. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as any Investor reasonably requests, (ii) prepare and file in those
jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
each Investor who holds Registrable Securities of the receipt by the Company of
any notification with respect to the suspension of the registration or
qualification of any of the Registrable Securities for sale under the securities
or "blue sky" laws of any jurisdiction in the United States or its receipt of
actual notice of the initiation or threatening of any proceeding for such
purpose.
e. In the event Investors who hold a majority of the
Registrable Securities being offered in the offering select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering; provided, that the Company shall not be obligated
to pay any fees, disbursements or expenses such underwriters incur in connection
with such offering.
f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor in writing of the happening of any
event as a result of which the prospectus included in a Registration Statement,
as then in effect, includes an untrue statement of a material fact or omission
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, and promptly prepare a supplement or amendment to such
Registration Statement to correct such untrue statement or omission, and deliver
ten (10) copies of such supplement or amendment to each Investor (or such other
number of copies as such Investor may reasonably request). The Company shall
also promptly notify each Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to each Investor by
facsimile on the same day of such effectiveness and by overnight mail), (ii) of
any request by the SEC for amendments or supplements to a Registration Statement
or related prospectus or related information, and (iii) of the Company's
reasonable determination that a post-effective amendment to a Registration
- 6 -
<PAGE>
Statement would be appropriate. Notwithstanding anything to the contrary in this
Section 3(f), at any time after the Registration Statement has been declared
effective, the Company may delay the disclosure of material non-public
information concerning the Company if the Board of Directors of the Company
determines in good faith that in its reasonable business judgment such
disclosure would interfere in any material respect with any financing (other
than an underwritten secondary offering), acquisition, corporate reorganization
or other transaction or development involving the Company that in the reasonable
good faith business judgment of such board is a transaction or development that
is or would be material to the Company and, in the opinion of counsel to the
Company, such disclosure is not otherwise required (a "Grace Period"); provided,
that the Company shall promptly (i) notify the Investors in writing of the
existence of material non-public information giving rise to a Grace Period and
the date on which the Grace Period will begin, and (ii) notify the Investors in
writing of the date on which the Grace Period ends; and, provided further, that,
prior to the one year anniversary of the date of issuance of the Preferred
Shares and Warrants (the "First Extension Date"), the Grace Period shall not
exceed twenty-five (25) calendar days in the aggregate, and (C) there has been
no Underwriting Lock-Up Period (as defined in the Securities Purchase Agreement)
in the 20 day period prior to the Company's notice to the Investors of a Grace
Period. In the event that any Grace Period exceeds the 25-day period described
in the preceding sentence prior to the First Extension Date, the Company shall
be required to pay to each Investor liquidated damages in the amount of four
percent (4%) of the stated value of the Preferred Shares held by such Investor
per month ("Grace Period Liquidated Damages"); provided that, (x) on and after
the First Extension Date and prior to the two year anniversary of the date of
issuance of the Preferred Shares and Warrants (the "Second Extension Date"),
Grace Period Liquidated Damages shall only be payable in the event that any
Grace Period exceeds forty-five (45) calendar days in the aggregate during any
consecutive 365-day period (which forty-five days shall include Grace Periods
which occur prior to the First Extension Date to the extent such Grace Periods
are included within the applicable consecutive 365-day period) and (y) on and
after the Second Extension Date, Grace Period Liquidated Damages shall only be
payable in the event that any Grace Period exceeds sixty (60) calendar days in
the aggregate during any consecutive 365-day period (which sixty days shall
include Grace Periods which occur prior to the Second Extension Date to the
extent such Grace Periods are included within the applicable consecutive 365-day
period); provided further, however, that, if the Company has (1) exceeded the
25-day Grace Period prior to, and continuing on and after, the First Extension
Date or (2) exceeded the 45-day Grace Period prior to, and continuing on and
after, the Second Extension Date, then, in each such case, the Grace Period
Liquidated Damages shall continue to accrue until the expiration of any such
Grace Period. For purposes of determining the length of a Grace Period above,
the Grace Period shall begin on and include the date the holders receive the
notice referred to in clause (i) of this Section 3(f) and shall end on and
include the date the holders receive the notice referred to in clause (ii) of
this Section 3(f). 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 Grace Periods. Upon expiration of the Grace Period, the Company
shall again be bound by the first sentence of this Section 3(f) with respect to
the information giving rise thereto and the accrual of liquidated damages under
this Section 3(f) shall cease.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the
- 7 -
<PAGE>
qualification of any of the Registrable Securities for sale in any jurisdiction
and, if such an order or suspension is issued, to obtain the withdrawal of such
order or suspension at the earliest possible moment and to notify each Investor
who holds Registrable Securities being sold (and, in the event of an
underwritten offering, the managing underwriters) of the issuance of such order
and the resolution thereof or its receipt of actual notice of the initiation or
threat of any proceeding for such purpose.
h. The Company shall permit each Investor and a single firm of
counsel, initially Kramer, Levin, Naftalis & Frankel or such other counsel as
thereafter designated as selling stockholders' counsel by the Investors who hold
a majority of the Registrable Securities being sold, to review and comment upon
a Registration Statement and all amendments and supplements thereto at least
seven business days prior to their filing with the SEC, and not file any
document in a form to which such counsel reasonably objects. The Company shall
not submit a request for acceleration of the effectiveness of a Registration
Statement or any amendment or supplement thereto without the prior approval of
such counsel, which approval shall not be unreasonably withheld.
i. At the request of the Investors who hold a majority of the
Registrable Securities being sold, the Company shall use its best efforts to
furnish, on the date that Registrable Securities are delivered to an
underwriter, if any, for sale in connection with the Registration Statement (i)
if required by an underwriter, a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters, and (ii) an
opinion, dated as of such date, of counsel representing the Company for purposes
of such Registration Statement, in form, scope and substance as is customarily
given in an underwritten public offering, addressed to the underwriters and the
Investors.
j. The Company shall make reasonably available for inspection
by (i) any Investor, (ii) any underwriter participating in any disposition
pursuant to a Registration Statement, (iii) one firm of attorneys and one firm
of accountants or other agents retained by the Investors, and (iv) one firm of
attorneys retained by all such underwriters (collectively, the "Inspectors") all
pertinent financial and other records, and pertinent corporate documents and
properties of the Company (collectively the "Records"), as shall be reasonably
deemed necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector shall
hold in confidence and shall not make any disclosure (except to an Investor) or
use of any Record or other information which the Company determines in good
faith to be confidential, and of which determination the Inspectors are so
notified in writing, unless (a) the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in any Registration Statement or is
otherwise required under the 1933 Act, (b) the release of such Records is
ordered pursuant to a final, non-appealable subpoena or order from a court or
government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement of which the Inspector has
knowledge. The Company shall not be required to
- 8 -
<PAGE>
disclose any confidential information in such Record to an Inspector unless and
until such Inspector shall have entered into a confidentiality agreement with
the Company with respect thereto, substantially in accordance with the
provisions of this Section 3(j). Each Investor shall agree that, upon learning
that disclosure of such Records is sought in or by a court or governmental body
of competent jurisdiction or through other means, it will give prompt notice to
the Company and allow the Company, at its expense, to undertake appropriate
action to prevent disclosure of, or to obtain a protective order for, the
Records deemed confidential.
k. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
l. The Company shall use its best efforts (i) to secure the
inclusion for quotation on the OTC Electronic Bulletin Board or the Nasdaq
SmallCap Market (or another nationally recognized exchange or market), as
applicable, for all the Registrable Securities covered by a Registration
Statement and, without limiting the generality of the foregoing, to arrange for
at least two market makers to register with the National Association of
Securities Dealers, Inc. as such with respect to such Registrable Securities or
(ii) to cause such Registrable Securities to be listed or traded on each
securities exchange, automated quotation system or electronic bulletin board on
which securities of the same class or series issued by the Company are then
listed or traded, if any, if the listing or trading of such Registrable
Securities is then permitted under the rules of such exchange, automated
quotation system or electronic bulletin board. The Company shall pay all fees
and expenses in connection with satisfying its obligation under this section
3(l).
m. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, any managing
underwriter or underwriters, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the managing underwriter or underwriters, if any, or, if there is no
managing underwriter or underwriters, the Investors may reasonably request and
registered in such names as the managing underwriter or underwriters, if any, or
the Investors may request.
n. The Company shall provide a transfer agent and registrar
for all such Registrable Securities not later than the effective date of such
Registration Statement.
- 9 -
<PAGE>
o. If requested by the managing underwriters or an Investor,
the Company shall (i) immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
Investors agree should be included therein relating to the sale and distribution
of Registrable Securities, including, without limitation, information with
respect to the number of Registrable Securities being sold to such underwriters,
the purchase price being paid therefor by such underwriters and any other terms
of the underwritten (or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; (ii) make all required filings of such
prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) supplement or make amendments to any Registration Statement
if requested by a shareholder or any underwriter of such Registrable Securities.
p. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.
q. The Company shall make generally available to its security
holders as soon as practical, but not later than 90 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
r. The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder.
s. Within two (2) business days after the Registration
Statement which includes the Registrable Securities is ordered effective by the
SEC, the Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) confirmation that the Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
4. OBLIGATIONS OF THE INVESTORS.
----------------------------
a. At least seven (7) days prior to the first anticipated
filing date of a Registration Statement, the Company shall notify each Investor
in writing of the information the Company requires from each such Investor if
such Investor elects to have any of such Investor's Registrable Securities
included in such Registration Statement. It shall be a condition precedent to
the obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request.
- 10 -
<PAGE>
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of any
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.
c. In the event any Investor elects to participate in an
underwritten public offering pursuant to Section 2, each such Investor agrees to
enter into and perform such Investor's obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations (only with respect to violations
which occur in reliance upon and in conformity with information furnished in
writing to the Company by such Investor expressly for use in the Registration
Statement for such underwritten public offering), with the managing underwriter
of such offering and take such other actions as are reasonably required in order
to expedite or facilitate the disposition of the Registrable Securities, unless
such Investor notifies the Company in writing of such Investor's election to
exclude all of such Investor's Registrable Securities from such Registration
Statement.
d. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(g)
or the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(g) or the
first sentence of 3(f).
e. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the Investors entitled hereunder to approve such arrangements, (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements, and (iii) agrees to pay its pro rata share of
all underwriting discounts and commissions.
f. Each Investor agrees that (i) it will not offer or sell any
Registrable Securities under a Registration Statement until it has received
copies of the prospectus included in such Registration Statement as then amended
or supplemented and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated in
Section 3(f) and (ii) such Investor will comply with the prospectus delivery
requirements of the 1933 Act applicable to it in connection with sales of
Registrable Securities pursuant to such Registration Statement.
5. EXPENSES OF REGISTRATION.
------------------------
Except as otherwise provided in this Agreement, all expenses
incurred by the Company in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees,
fees and disbursements of counsel and accountants for the Company and fees
- 11 -
<PAGE>
and disbursements of one counsel for the Investors (up to $5,000) as provided in
Section 2(b) shall be paid by the Company, whether or not any registration
statement becomes effective.
6. INDEMNIFICATION.
---------------
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Investor who holds
such Registrable Securities, the directors, officers, partners, employees,
agents of, and each Person, if any, who controls, any Investor within the
meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), and any underwriter (as defined in the 1933 Act) for the Investors,
and the directors and officers of, and each Person, if any, who controls, any
such underwriter within the meaning of the 1933 Act or the 1934 Act (each, an
"Indemnified Person"), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in
settlement or expenses, joint or several (collectively, "Claims"), incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto ("Indemnified Damages"), to which any of them may become
subject insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other
"blue sky" laws of any jurisdiction in which Registrable Securities are offered
("Blue Sky Filing"), or the omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which the statements therein were made, not
misleading, (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading, or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement (the matters in the
foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject
to the restrictions set forth in Section 6(d) with respect to the number of
legal counsel, the Company shall reimburse the Indemnified Persons promptly as
such expenses are incurred and are due and payable, for any reasonable legal
fees or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a): (i) shall not apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by any Indemnified Person expressly for use
in connection with the
- 12 -
<PAGE>
preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c); and (ii) shall not apply to amounts paid in settlement
of any Claim if such settlement is effected without the prior written consent of
the Company, which consent shall not be unreasonably withheld. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim or Indemnified Damages to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or are based upon any Violation, in each case
to the extent, and only to the extent, that such Violation occurs in reliance
upon and in conformity with written information furnished to the Company by such
Investor expressly for use in connection with such Registration Statement; and,
subject to Section 6(d), such Investor will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing
expressly for inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving
a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section
6, deliver to the indemnifying party a written notice of the commencement
thereof, and
- 13 -
<PAGE>
the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. The Company shall
pay reasonable fees for only one separate legal counsel for the Investors, and
such legal counsel shall be selected by the Investors holding a majority in
interest of the Registrable Securities included in the Registration Statement to
which the Claim relates. The Indemnified Party or Indemnified Person shall
cooperate fully with the indemnifying party in connection with any negotiation
or defense of any such action or claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person which relates to such action or claim.
The indemnifying party shall keep the Indemnified Party or Indemnified Person
fully apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. No indemnifying party shall be liable for any
settlement of any action, claim, suit, inquiry, proceeding, investigation or
appeal taken from the foregoing effected without its written consent, provided,
however, that the indemnifying party shall not unreasonably withhold, delay or
condition its consent. No indemnifying party shall, without the consent of the
Indemnified Party or Indemnified Person, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to such action, claim, suit, inquiry, proceeding, investigation or
appeal taken from the foregoing. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all Persons relating to
the matter for which indemnification has been made. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is materially prejudiced in its
ability to defend such action.
e. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.
f. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
- 14 -
<PAGE>
7. CONTRIBUTION.
------------
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6; (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (iii) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
--------------------------
With a view to making available to the Investors the benefits
of Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration ("Rule 144"), the
Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of the 1934 Act,
(ii) a copy of the most recent annual or quarterly report of the Company and
such other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested to permit the investors to sell such
securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
---------------------------------
The rights under this Agreement shall be automatically
assignable by the Investors to any transferee of all or any portion of
Registrable Securities if: (i) the Company is, within a reasonable time after
such transfer or assignment, furnished with written notice of (a) the name and
address of such transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned in accordance
with the terms of the Securities Purchase Agreement; (ii) at or before the time
the Company receives such written notice the transferee or assignee agrees in
writing with the Company to be bound by all of the
- 15 -
<PAGE>
provisions contained herein, including providing the Company with a current
address for all required notices; (iii) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement; and (iv) such transferee shall be an "accredited investor" as that
term is defined in Rule 501 of Regulation D promulgated under the 1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
--------------------------------
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who hold two-thirds (2/3) of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company.
11. MISCELLANEOUS.
-------------
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. 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 a
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.
2373 Horseshoe Boulevard South
Naples, Florida 34104
Telephone: (941) 403-0500
Facsimile: (941) 403-4306
Attention: Myron M. Blumenthal
With a copy to:
Bryan Cave LLP
245 Park Avenue
New York, New York 10167
Telephone: (212) 692-1800
- 16 -
<PAGE>
Facsimile: (212) 692-1900
Attention: Stephan J. Mallenbaum
If to a Buyer, to its address and facsimile number on
the Schedule of Buyers attached hereto, with copies
to such Buyer's counsel as set forth on the Schedule
of Buyers.
Each party shall provide five (5) days prior notice to the other party of any
change in address, phone number or facsimile number or the person to whose
attention notices are to be sent.
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. 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.
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. This Agreement and the Securities Purchase Agreement
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement and the Securities Purchase Agreement supersede all
prior agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement
shall inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto and, with respect to Section 6, to the
benefit of the Indemnified Persons and Indemnified Parties.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect, the meaning hereof. Any
reference to "Section __" shall refer to the applicable section of this
Agreement.
- 17 -
<PAGE>
h. This Agreement may be executed in two or more identical
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this
Agreement.
i. 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.
j. All consents and other determinations to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by Investors holding a majority of the Registrable
Securities, determined as if all of the Preferred Shares then outstanding have
been converted into, and all of the Warrants have been exercised for,
Registrable Securities.
k. 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.
- 18 -
<PAGE>
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Registration Rights Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
CERTIFIED DIABETIC SERVICES, LEONARDO, L.P.
INC. By: Angelo, Gordon & Co., L.P.
Its: General Partner
By: /s/ Myron M. Blumenthal
-------------------------------
Name: Myron M. Blumenthal By:
Its: Chief Financial Officer ------------------------------
Name: Michael L. Gordon
Its: Chief Operating Officer
GAM ARBITRAGE INVESTMENTS, INC.
By: Angelo, Gordon & Co., L.P.
Its: Investment Advisor
By:
------------------------------
Name: Michael L. Gordon
Its: Chief Operating Officer
AG SUPER FUND INTERNATIONAL
PARTNERS, L.P.
By: Angelo, Gordon & Co., L.P.
Its: General Partner
By:
------------------------------
Name: Michael L. Gordon
Its: Chief Operating Officer
RAPHAEL, L.P.
By:
------------------------------
Name: Michael L. Gordon
Its: Chief Operating Officer
<PAGE>
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Registration Rights Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
CERTIFIED DIABETIC SERVICES, LEONARDO, L.P.
INC. By: Angelo, Gordon & Co., L.P.
Its: General Partner
By:
-------------------------------
Name: By: /s/ Michael L. Gordon
Its: ------------------------------
Name: Michael L. Gordon
Its: Chief Operating Officer
GAM ARBITRAGE INVESTMENTS, INC.
By: Angelo, Gordon & Co., L.P.
Its: Investment Advisor
By: /s/ Michael L. Gordon
------------------------------
Name: Michael L. Gordon
Its: Chief Operating Officer
AG SUPER FUND INTERNATIONAL
PARTNERS, L.P.
By: Angelo, Gordon & Co., L.P.
Its: General Partner
By: /s/ Michael L. Gordon
------------------------------
Name: Michael L. Gordon
Its: Chief Operating Officer
RAPHAEL, L.P.
By: /s/ Michael L. Gordon
------------------------------
Name: Michael L. Gordon
Its: Chief Operating Officer
<PAGE>
RAMIUS FUND, LTD.
By: AG Ramius Partners, L.L.C.
Its: Investment Advisor
By: /s/ Michael L. Gordon
---------------------------
Name: Michael L. Gordon
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: H. U. Bachofen
Its: Director
<PAGE>
RAMIUS FUND, LTD.
By: AG Ramius Partners, L.L.C.
Its: Investment Advisor
By:____________________________
Name: Michael L. Gordon
Its: Managing Officer
AGR HALIFAX FUND, LTD.
By: AG Ramius Partners, L.L.C.
Its: Investment Advisor
By: /s/ Peter A. Cohen
-------------------------
Name: Peter A. Cohen
Its: Managing Officer
AMRO INTERNATIONAL, S.A.
By:__________________________
Name:
Its:
<PAGE>
RAMIUS FUND, LTD.
By: AG Ramius Partners, L.L.C.
Its: Investment Advisor
By:____________________________
Name: Michael L. Gordon
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/ Michael Klee
-------------------------
Name: Michael Klee
Its:
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF BUYERS
Number
of
Investor Address Purchase Preferred Number of
Investor Name and Facsimile Number Price Shares Warrants
- ------------------------------- -------------------------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Leonardo, L.P. c/o Angelo, Gordon & Co., L.P. $750,000 750 17,500.00
245 Park Avenue - 26th Floor
New York, New York 10167
Attn: Gary Wolf
Facsimile: 212-867-6449
GAM Arbitrage c/o Angelo, Gordon & Co., L.P. $100,000 100 2,333.33
Investments, Inc. 245 Park Avenue - 26th Floor
New York, New York 10167
Attn: Gary Wolf
Facsimile: 212-867-6449
AG Super Fund c/o Angelo, Gordon & Co., L.P. $100,000 100 2,333.33
International Partners, L.P. 245 Park Avenue - 26th Floor
New York, New York 10167
Attn: Gary Wolf
Facsimile: 212-867-6449
Raphael, L.P. c/o Angelo, Gordon & Co., L.P. $100,000 100 2,333.33
245 Park Avenue - 26th Floor
New York, New York 10167
Attn: Gary Wolf
Facsimile: 212-867-6449
Ramius Fund, Ltd. c/o Angelo, Gordon & Co., L.P. $200,000 200 4,666.67
245 Park Avenue - 26th Floor
New York, New York 10167
Attn: Gary Wolf
Facsimile: 212-867-6449
AGR Halifax Fund, Ltd. c/o CITCO Fund Services $1,250,000 1,250 29,166.67
(Cayman Islands), Ltd.
Corporate Center, West Bay
Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands,
B.W.I.
Attn: Patrick Agemian
Facsimile: (809) 949-3877
Notice address:
c/o AG Ramius Partners, L.L.C.
757 Third Avenue, 27th Floor
New York, New York 10017
Attn: Jeffrey M. Solomon
Facsimile: 212-845-7999
Amro International, S.A. c/o Ultra Finance, Ltd. $500,000 500 11,666.67
Grossmunsterplatz 26
P.O. Box 4401
Zurich, Switzerland CH-8022
Attn: H.U. Bachofen
Facsimile: 011-411-262-5515
Notice address:
c/o Jessup & Lamont Securities
Corp.
650 Fifth Avenue, 3rd Floor
New York, New York 10019
Attn: Thomas Badian
Facsimile: 212-307-7809
</TABLE>
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[ ]
[ADDRESS]
Attn:
Re: Certified Diabetic Services, Inc.
---------------------------------
Ladies and Gentlemen:
We are counsel to Certified Diabetic Services, Inc., a Delaware
corporation (the "Company"), and have represented the Company in connection with
that certain Securities Purchase Agreement (the "Purchase Agreement") entered
into by and among the Company and the buyers named therein (collectively, the
"Holders") pursuant to which the Company issued to the Holders shares of the
Company's Series A Convertible Preferred Stock, par value $.01 per share (the
"Preferred Shares"), convertible into shares of the Company's Common Stock, par
value $.01 per share (the "Common Stock"), and warrants (the "Warrants") to
purchase shares of Common Stock. Pursuant to the Purchase Agreement, the Company
also has entered into a Registration Rights Agreement with the Holders (the
"Registration Rights Agreement") pursuant to which the Company agreed, among
other things, to register the Registrable Securities (as defined in the
Registration Rights Agreement), including the shares of Common Stock issuable
upon conversion of the Preferred Shares and the shares of Common Stock issuable
upon exercise of the Warrants, under the Securities Act of 1933, as amended (the
"1933 Act"). In connection with the Company's obligations under the Registration
Rights Agreement, the Company filed a Registration Statement (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") relating to
the Registrable Securities which names each of the Holders as a selling
stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
Very truly yours,
[ ]
By:________________________
cc: [LIST NAMES OF HOLDERS]
<PAGE>
MULTIPLAN, INC.
PARTICIPATING FACILITY AGREEMENT
THIS AGREEMENT, effective May 20, 1997 is entered into between MultiPlan, Inc.,
115 Fifth Avenue, New York, NY 10003-1004 (MultiPlan) and Certified Diabetic
Supplies, Inc. with principal offices located at 1951 J & C Boulevard, Naples,
FL 34109 (Provider).
WHEREAS, MultiPlan represents and is authorized by various organizations and
institutions, including employers, third party administrators and other similar
entities (Clients), who provide or administer health care insurance pursuant to
a benefit plan, Workers' compensation programs, automobile liability coverage,
or other programs (Benefit Programs) for covered individuals (Participants) to
establish a preferred provider relationship with Provider as described herein;
and
WHEREAS, Provider wants to provide health care services in accordance with the
terms of this Agreement;
THEREFORE, in consideration of the foregoing and of the mutual covenants,
promises and undertakings herein and intending to be legally bound hereby, the
parties agree as follows:
A. RESPONSIBILITIES OF MULTIPLAN
1. Notification. MultiPlan agrees to notify its participating Clients of
that Provider is participating in the MultiPlan network, and to
distribute to its Clients material made available to MultiPlan by
Provider about Provider's services.
2. Limitations. MultiPlan does not determine benefits eligibility or
availability for Clients' Participants and does not exercise any
discretion or control as to Clients' Benefit Program assets, with
respect to policy, payment, interpretation, practices, or procedures.
MultiPlan is not the administrator, insurer, underwriter, or guarantor
of Clients' Benefit Programs, and MultiPlan is not liable for the
payment of services under Clients' Benefit Programs. Nothing in this
Agreement shall be construed as interfering with the freedom of choice
of eligible Participants.
3. Referrals. MultiPlan shall maintain a twenty-four hour-a-day toll-free
telephone referral system for the purpose of advising Clients and
Participants of providers in MultiPlan's Network. Provider shall be
included in this referral system.
B. RESPONSIBILITIES OF PROVIDER
1. Provision of Health Care Services. Provider solely shall be responsible
for the provision of health care advice and treatment rendered,
ordered, or authorized by Provider, its employees and/or agents, with
respect to Participants. Such services shall be
America's Managed Care Partner
115 Fifth Avenue
New York NY 10003-1004
Tel: (212) 780-2000
Tel: (212) 780-0402
<PAGE>
provided to Participants, including those covered by Workers'
Compensation and auto liability coverage, in accordance with community
standards, in the manner in which Provider renders services to other
patients, and without discrimination based on sex, race, color,
religion, marital status, sexual orientation, age, ancestry, or
national origin.
2. Licensure and Certification. Provider shall comply with all laws
relating to furnishing health care services to Participants and
maintain in effect all permits, licenses and governmental approvals
which may from time to time be necessary for that purpose. Provider
shall maintain Medicare certification. Provider agrees to notify
MultiPlan within thirty days of any change in compliance with any of
these requirements. Provider shall notify MPI of any pending
investigation, action, or sanction against it, any agent and/or any
employee, which may materially affect Provider's ability to perform an
obligation under this Agreement, or would otherwise bear on a
requirement of this paragraph.
3. Utilization. Provider shall cooperate with all reasonable utilization
management programs administered by Clients or their designees to the
extent that such programs are consistent with community standards.
4. Insurance. Provider shall maintain professional liability insurance
covering Provider against claims arising out of the services to be
performed hereunder in the minimum amounts required by law or, in the
absence of statutory requirements, no less than the amounts shown on
Appendix A. If the form of insurance is "claims made," Provider shall
purchase appropriate tail coverage for claims, demands, or actions made
after termination of this Agreement in relation to acts or omissions
occurring during the term of this Agreement. Provider shall provide
MultiPlan with a copy of its certificate(s) of insurance. Provider
shall notify MultiPlan in writing within thirty days of cancellation,
non-renewal, and/or any material change in such coverage.
5. Grievance Procedures Relating to Patient Care. Provider shall maintain
procedures for resolving grievances relating to patient care, and shall
cooperate with any grievance procedures or programs sponsored by MPI,
Clients, or their designees. Provider shall notify MPI promptly upon
knowledge of any dispute, complaint, or grievance relating to patient
care or other disputes involving MPI, its Clients, their designees, or
Participants.
6. Directory. Provider agrees that MultiPlan and/or Clients may use
Provider's name, address, telephone number and type of services or
facilities in any printed directory or other roster of participating
Providers.
C. FINANCIAL
1. Compensation.
a. Provider agrees to accept as payment-in-full for covered
services rendered to participants, the amounts due according to
Appendix A. Negotiated rates offered to MultiPlan shall be above any
prompt pay discounts offered to the general public or
2
<PAGE>
required by law. If, during the term of this Agreement, Provider enters
into any other contract, agreement, or other arrangement under which
Provider provides substantially the same services at a negotiated
rate(s) less than that set forth in Appendix A, the lower negotiated
rate shall apply to covered services rendered under this Agreement.
b. Notwithstanding the foregoing, with respect to services
rendered and if fee negotiation is permitted by law and/or regulation
in the applicable state, Provider shall accept * of the fee schedule
amount as payment in full for each covered service rendered to a
Participant.
2. Payment. Provider shall submit claims to Clients on completed HCFA 1500
other standard billing form providing the same information, and Clients
must make payment to Provider within thirty business days of receipt of
a such claim in order to obtain the benefit of the negotiated rate.
Upon request, Provider shall furnish to Client or MultiPlan, all
information reasonably required to verify Provider's health care
services and the charges for such services.
3. Adjustments To Clients' Payments. Clients' payments due under this
Agreement shall be reduced by any applicable deductibles, co-payments,
coinsurance. Provider shall notify Client and MultiPlan of any
erroneous claim sent to a Client within sixty days of the date the
claim was issued, and of any erroneous payment received within sixty
days of the date Client's payment was received.
4. Disputed Claims. In the event of a dispute between Provider and a
Client regarding billed amounts, payment due, or utilization review
issues, Client shall have the right, upon written notification of MPI
about the dispute within sixty days of the date payment was due, to
withhold payment pending resolution of the dispute. MPI shall make its
best efforts to assist the parties in resolving the dispute. Until the
dispute is resolved shipments will cease.
5. Participant Billings. Provider agrees to bill the Participant for
appropriate co-payments, deductibles, and coinsurance only in the
amount of the difference between the amount due for covered services
based on Appendix A, and the sum of the amounts paid by the Clients and
any other payors. Provider shall not balance bill or attempt to collect
compensation from Participants in connection with services covered by
Workers' Compensation programs, except as expressly permitted by law.
6. Coordination of Benefits. Provider shall cooperate with Clients for
purposes of coordinating benefits. When a Client is a primary payor,
Provider shall accept from Client as payment in full for covered
services the amounts established in Appendix A, less the appropriate
deductibles, co-payments and coinsurance. When a Client is a secondary
payor, Provider shall accept from Client as payment for covered
services the difference between the amount set forth in Appendix A,
less the sum of the amount paid by the primary payor(s) and the
appropriate deductibles, co-payments and coinsurance.
7. Audit. Upon fifteen business days' written notice, and during
MultiPlan's regular
- ---------------------------
* Confidential treatment requested. Portions of this document have been
omitted by blocking out the relevant text pursuant to an Application for
Confidential Treatment. Such blocked out omissions have been filed
separately with the Securities and Exchange Commission. The Registrant
shall furnish all omitted schedules and exhibits to this document upon
the request of the Securities and Exchange Commission.
3
<PAGE>
business hours, each party shall have the right to audit the other's
records pertaining to compensation under this Agreement for a period of
six months prior to the date of the notice of audit.
8. Survival. The rights and obligations set forth in this section C shall
survive the termination of this Agreement.
D. TERM AND TERMINATION
1. Term. This Agreement shall be effective for an initial term of two
years from the Effective Date indicated above. Thereafter, this
Agreement shall automatically renew for successive one year terms.
2. Termination.
a. After the expiration of the initial term, either party may
terminate this Agreement by giving no less than ninety days'
advance written notice to the other party prior to the
expiration of the term then in progress.
b. Either party may terminate this Agreement for cause due to a
material breach by giving thirty days' advance written notice
during which the breach may be cured. The notice of
termination for cause will not be effective if the breaching
party cures the breach to the reasonable satisfaction of the
other party within the thirty-day notice period.
c. MPI shall have the right to terminate this Agreement
immediately if it determines, in its reasonable discretion,
that the health or welfare of Participants is jeopardized by
the continuation of the Agreement. Under such circumstances,
MPI shall provide written notice to Provider specifying the
basis for termination.
3. Effect of Termination. If any Participant remains under Provider's care
on the termination date, whether in- or outpatient, Provider shall
continue to render appropriate care to such Participant until Provider
can arrange for transfer of such care to another Provider. Provider
shall make best efforts to transfer such Participants to other
MultiPlan providers. Provider shall accept payment from Clients for
such post-termination care as if the Agreement had not been terminated.
The rights and obligations set forth in this Section D(3) shall survive
the termination of this Agreement.
E. MISCELLANEOUS
1. Independent Contractors. Each party, including its officers, directors,
employees and agents, acts as an independent contractor. Neither party
has express or implied authority to assume or create any obligation on
behalf of the other. The parties shall maintain a cooperative
relationship in order to effectuate this Agreement.
2. Indemnification. Each party solely is responsible for its own actions
or omissions, and
4
<PAGE>
those of its officers, directors, employees and agents, arising in
connection with obligations created under this Agreement, including
Provider's rendering professional advice and/or treatment. Each party
shall hold the other, including its officers, directors, employees,
agents, successors and assigns, harmless from and against all claims,
liability, damages, and expenses, including reasonable attorneys' fees,
which may be alleged against or incurred by the other party and are the
result of any act or omission in connection with this Agreement.
3. Severability and Waiver. The waiver by either party of any breach of
any provision of this Agreement shall not be construed as a waiver of
any subsequent breach of the same or any other provision. The failure
to exercise any right hereunder shall not operate as a waiver of such
right. The finding by a court of competent jurisdiction that any
provision herein is void shall not void any other valid provision of
this Agreement.
4. Confidentiality and Disclosure.
a. The parties shall comply with all applicable laws and regulations
regarding maintenance and disclosure of Particpants' medical
records. The names of MultiPlan's Clients shall be kept confidential
and shall not be used except as necessary to implement this
Agreement.
b. Neither party shall disclose the negotiated rates and/or the
compensation payable to Provider pursuant to the terms of this
Agreement, except as may be required in order to comply with this
Agreement, or to the extent required by applicable law. In addition,
MPI, in its discretion, may release such information to Clients and
potential clients as MPI may reasonably determine is required in
connection with marketing its products.
c. MPI and Clients may include Provider's name, address, telephone
number, in its directories of participating Providers.
5. Notices. Any notice required to be given pursuant to this Agreement
shall be in writing and delivered by hand, by certified mail/return
receipt requested, or by facsimile confirmed with overnight delivery,
to the signatories, or their successors if any, at the addresses set
forth below.
6. Modification. This Agreement, together with Appendix A and Exhibit 1,
constitute the entire agreement between the parties with respect to the
subject matter hereof, and as of the date this Agreement is executed by
both parties, shall supersede any previous agreements or
understandings, written or oral, between the parties. Any modifications
to the Agreement shall be in writing and signed by both parties.
7. Assignment. This Agreement may not be assigned by either party without
the prior written approval of both parties. Any other attempt at
assignment shall be void.
8. Governing Law. This Agreement shall be governed by the laws of the
state in which Provider is licensed to operate.
5
<PAGE>
IN WITNESS HEREOF, the parties have executed this Agreement.
MultiPlan, Inc. Certified Diabetic Supplies, Inc.
115 Fifth Avenue
New York, New York 10003-1004
By: /S/ PETER J. FISCINA 5/20/97
-------------------------------------
By: /S/ DONALD RUBIN 5/21/97 Signature date
-------------------------------
Donald Rubin date
Chairman Peter J. Fiscina
-------------------------------
Print Name
1951 J & C Boulevard
Naples, FL 34109
Tax I.D. # 65-0613873
--------------------
6
<PAGE>
MULTIPLAN, INC.
PPO PARTICIPATING FACILITY AGREEMENT
APPENDIX A
A. Fee Schedule
For covered inpatient and outpatient services rendered to Participants
including those covered by Workers' Compensation and No Fault
Automobile Liability coverage, Provider agrees to accept as payment in
full the amounts set forth below.
As per Exhibit A
B. Licensure
Provider is licensed in the state of _______________
C. Accreditation
Provider is accredited by: N/A
JCAHO _____________________ accreditation period ending __________
Other (specify) Medicare accreditation period ending __________
---------------------
(Certificate attached as Exhibit 1)
D. Insurance
Provider shall maintain product liability insurance no less than the
following amounts:
$ * per occurrence; $ annual aggregate.
--------------- --------------------
Carrier NATIONWIDE INS.
---------------------
- ------------------------
* Confidential treatment requested. Portions of this document have been
omitted by blocking out the relevant text pursuant to an Application for
Confidential Treatment. Such blocked out omissions have been filed
separately with the Securities and Exchange Commission. The Registrant
shall furnish all omitted schedules and exhibits to this document upon
the request of the Securities and Exchange Commission.
7
<PAGE>
PPO PARTICIPATING FACILITY AGREEMENT
Exhibit 1
CERTIFICATE OF ACCREDITATION
(cover sheet)
8
<PAGE>
NY01 83317
Certified Diabetic Supplies, Inc.
EXHIBIT A
PRODUCTS AND PRICE LIST
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
80%
U & C of
CPT CODE Description Quantity Price U & C
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A4206 Syringes 100's * *
- -------------------------------------------------------------------------------------------------------------
A4253 Strips 50's * *
100's * *
- -------------------------------------------------------------------------------------------------------------
A4254 Battery Each * *
- -------------------------------------------------------------------------------------------------------------
A4256 Control Solution Each * *
- -------------------------------------------------------------------------------------------------------------
A4258 Lancing Devise Each * *
- -------------------------------------------------------------------------------------------------------------
A4259 Lancets 100's * *
- -------------------------------------------------------------------------------------------------------------
E0607 Glucose Meter Each * *
- -------------------------------------------------------------------------------------------------------------
J1820 Insulin Each * *
- -------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------
* Confidential treatment requested. Portions of this document have been
omitted by blocking out the relevant text pursuant to an Application for
Confidential Treatment. Such blocked out omissions have been filed
separately with the Securities and Exchange Commission. The Registrant
shall furnish all omitted schedules and exhibits to this document upon
the request of the Securities and Exchange Commission.
<PAGE>
DIABETIC SUPPLIES AGREEMENT
THIS AGREEMENT is entered into by and between Certified Medical Supplies, Inc.,
a Delaware corporation, Certified Diabetic Supplies, Inc. (both referred to
herein as "CDS"), a Delaware corporation, and, Benefit Plan Administrator, Inc.
(BPA), a New York corporation.
Whereas, BPA desires to engage CDS to provide diabetic supplies to Participants
in Plans, and CDS agrees to accept the engagement and provide diabetic supplies
to Participants.
Both parties agree as follows:
I. DEFINITIONS
1.1. Co-insurance or Co-payment means an amount a Participant is required to
pay to a Participating Provider for Covered Diabetic Supplies under a
Participant's Plan. Co-insurance is calculated as a percentage of the
contracted Reimbursement Rate of such services.
1.2. Covered Diabetic Supplies means those Medically Necessary diabetic
supplies as described by a Plan which CDS will provide to Participants in
accordance with the terms and conditions set forth in this Agreement.
Except as may otherwise be provided in this Agreement, diabetic supplies
which are not Medically Necessary are not Covered Diabetic Supplies.
1.3. Deductible means the amount a Participant must pay before a Client will
make any payments under the terms of a Plan.
1.4. Insurer means an insurance company providing health insurance or an
employer providing health benefits through an employee benefit plan which
has contracted with BPA to use the managed care network provided by BPA.
1.5. Medically Necessary means necessary as certified or prescribed by a
physician to treat and/or monitor diabetes.
1.6. Participant means an enrolled employee, beneficiary or insured or the
enrolled eligible spouse or dependent of the employees who is entitled to
receive benefits provided under a Plan.
1.7. Participating Provider means any physician, hospital, vendor or other
health care provider who has entered or will enter into a contractual
agreement, either directly or indirectly, to participate in the BPA
network.
1.8. Plan means the written health benefit plan, service or product which is
either insured, administered, underwritten, provided by, associated with
or offered by a Client. The Medical Plan includes the terms and
provisions of the health benefit plan and any schedule of benefits or
riders or other official attachments to it.
1
<PAGE>
1.9. Reimbursement Rate means the rate for medical services negotiated between
CDS and BPA and incorporated into this Agreement as Exhibit A.
1.10. Utilization Review means the written procedures and criteria used to
determine whether the medical care, goods and services ordered for or
provided to Participants are Medically Necessary.
II. CDS OBLIGATIONS
CDS shall:
2.1. Comply with the Utilization Review requirements communicated by BPA and
accept as payment in full from BPA for all Covered Diabetic Supplies
rendered pursuant to this Agreement the Reimbursement Rate.
2.2. Provide services for Participants even though there may be liability to
another party; shall bill the appropriate responsible party; shall
provide information to BPA to enable BPA to pursue other responsible
parties; and shall provide to BPA, upon request, a summary of all
co-payments, all Coordination of Benefit revenues and any other revenues
CDS receives from Participants or on behalf of Participants from any
person or party other than BPA; and
2.3. Be properly certified as a durable medical equipment supplier for the
Medicare program. Furthermore, CDS shall at all times abide by and
conform to all applicable laws, statutes, rules, regulations, orders, of
whatever nature.
III. PRICING
3.1. [Section deleted in entirety.]
3.2. Reimbursement Rate. The Reimbursement Rate as set forth in Exhibit A is
based upon the Health Care Financing Administration's ("HCFA")
periodically published list of acceptable prices. If, during the term
of this Agreement, HCFA's published rate for diabetic supplies changes,
then Exhibit A will be amended to reflect those new rates.
IV. ADMINISTRATION
4.1. Participant Status.
a. CDS is responsible for verifying a person's status as a
Participant under a Plan in accordance with BPA procedures
communicated to CDS by BPA. BPA shall maintain updated
Participant status files and shall verify Participant status
by telephone during regular business hours.
2
<PAGE>
b. If an individual is no longer a Participant, it is BPA's
responsibility to inform CDS of such individual's change in
status not less than 30 days prior to the effective date of
such a change.
4.2. Billings.
a. The Plan is solely responsible for all payments due to CDS for
Covered Diabetic Supplies. Any Co-payments, Co-insurance
and/or Deductibles, as specified in the Plan, shall be paid by
Participants directly to CDS.
b. CDS will not bill, charge, collect a deposit from, seek
compensation from, seek remuneration from, surcharge or have
recourse against Participants, except for expenses which are
not for Covered Diabetic Supplies and except for Co-insurance,
Co-payments and/or Deductibles as specified in the Plan or as
otherwise permitted for Coordination of Benefits. This Section
shall survive termination of this Agreement, regardless of the
cause of termination, and shall be construed to be for the
benefit of the Participants. This provision supersedes any
oral or written agreement, hereinafter entered into between
CDS and Participant or persons acting on Participant's behalf,
insofar as such agreement related to payment for services
provided under the terms and conditions of this Agreement.
c. CDS shall bill BPA for Covered Diabetic Supplies supplied to
Participants on a UB-92/HCFA 1500 billing form, or CDS shall
bill BPA electronically using a system agreed upon by the
parties. CDS shall provide such information as BPA may
reasonably require and communicate to CDS from time to time
for the processing of claims. BPA shall make payment for
Covered Diabetic Supplies to CDS within thirty (30) days of
receipt of a complete and accurate claim.
d. CDS agrees to submit claims to BPA for Covered Diabetic
Supplies provided to Participants no later than ninety (90)
days following the delivery of such diabetic supplies. In the
event CDS is unable to submit claims within the time specified
herein because of circumstances beyond CDS's control or due to
BPA's status as a secondary payor, the time for submission of
such claims shall be extended as is reasonably necessary.
e. When Client, under the applicable Plan, is the primary payor
under the appropriate Coordination of Benefit rules, BPA shall
pay the amounts due under this Agreement reduced by
Co-payments, Co-insurance and/or Deductibles. When Client is
not the primary payor under the appropriate Coordination of
Benefit rules, CDS shall submit its bill to the primary payor,
and BPA shall pay only those amounts which, when added to
amounts received by CDS from other sources pursuant to the
appropriate Coordination of Benefit rules, equal one hundred
(100%) of the amount CDS is due in accordance with the
Reimbursement Rates established by this Agreement.
3
<PAGE>
f. CDS shall submit bills to BPA at the address set forth in
Section 8.8 hereof.
4.3. Record Keeping
a. CDS shall maintain complete and accurate books and records of
all transactions subject to this Agreement. These books and
records shall be maintained in accordance with prudent
standards of record keeping and with all applicable
professional rules and state and federal laws and regulations.
b. BPA and its employees or authorized representatives shall have
continuing access to audit and copy all such files and records
of its Participants or pertaining to this Agreement. The right
to have access to CDS's records shall be subject to all
applicable laws and regulations concerning confidentiality of
records. Such audits and copying shall be conducted during
regular business hours and at BPA's expense, after reasonable
notice to CDS.
c. CDS and BPA agree that the data and information collected with
respect to the CDS, a Plan and/or a Participant shall be kept
in confidence and will not be disclosed in an identifiable
form except to parties authorized through function of
law or through specific release by the Participant and CDS.
4.4. Use of Name. BPA may use CDS's name and list the supplies offered by
CDS in publications to inform current and potential Participants of
CDS's participation. CDS may publicize its association with BPA.
Neither CDS nor BPA shall use any advertisement and/or other printed
materials which includes the other's name or which described or
referred to the other's products, unless such advertisement has been
approved in writing by the other party in advance of its use or
distribution.
V. UTILIZATION REVIEW
BPA and CDS acknowledge that Utilization Review and patient management services
are integral parts of some of the Plans and agree as follows:
5.1. BPA or its designee shall perform Utilization Review for services
provided by Participating Providers.
5.2. Utilization Review certification and/or identification of benefits does
not guarantee or confirm benefits. Benefits are subject to Participant
eligibility at the time charges are actually incurred, and other terms,
provisions, and exclusions of the Plan. BPA or its designee is
responsible for the final determination of benefit payments to be made
under a Plan.
5.3. BPA has no control over the provider-patient relationship and any final
decisions regarding treatment or confinement remains with the provider
and the patient.
5.4. BPA reserves the right to change, upon sixty (60) days advance written
notice, the entity performing Utilization Review.
4
<PAGE>
VI. COMPLAINTS, LITIGATION AND CONTRACTUAL DISPUTES
6.1. Arbitration. All disputes and differences between the parties on which
an agreement cannot be reached will be decided by the process of
binding arbitration under the rules of the American Arbitration
Association, regardless of the insolvency of either party, unless the
conservator, receiver, liquidator, or statutory successor is
specifically exempted from an arbitration proceeding by applicable
state or federal law.
6.2. Notice of Lawsuits. Immediately upon receipt, CDS shall forward to BPA
any legal process to which BPA or CDS have been named as a party or
which arises out of any activities subject to this Agreement. BPA is
the only party to this Agreement which is authorized to defend BPA
against any legal process.
6.3. Indemnification. BPA shall protect, indemnify, and hold CDS and the
directors, officers, and employees of CDS harmless from and against any
and all liability and expense of any kind arising from injuries or
damages to persons or property in connection with this Agreement unless
such liability resulted from the negligence or willful misconduct of
CDS or its respective employees or agents, in the services performed by
such party pursuant to this Agreement, except to the extent such
damages are covered by and paid by insurance. CDS shall protect,
indemnify, and hold BPA harmless from and against any and all liability
and expense of any kind, arising from injuries or damages to persons or
property in connection with activities undertaken pursuant to this
Agreement as a result of the negligence or willful misconduct of CDS,
its employees or agents, except to the extent such damages are covered
by and paid by insurance.
VII. TERM AND TERMINATION
7.1. Term. The term of this Agreement shall end five years from the
Effective Date and shall be automatically renewed for a two-year
period.
7.2. Events of Default. This Agreement shall terminate immediately upon the
occurrence of any of the following events:
a. The revocation of any license or certification required to be
maintained by either party under applicable federal, state or
local law.
b. The revocation of CDS's certification as a supplier under
title XVII (Medicare) of the Social Security Act.
c. Upon filing, by either party, of a petition or declaration in
bankruptcy, receivership or assignment for the benefit of
creditors. This paragraph shall also apply if such disability
is the result of an involuntary petition or other third party
suit. This paragraph may be temporarily abrogated by specific
amendment to this Agreement, created and duly executed as
provided for herein.
5
<PAGE>
7.3. Termination for Breach. This Agreement may be terminated in the event
of a material breach by either party, provided, however, that the
breaching party shall be given thirty (30) days to cure the breach
after receipt of written notice. Any written notice of termination for
cause must specify the reasons and causes justifying the termination.
Correction or cure of any and all potential breaches within the
specified time period shall, for the purpose of this Agreement,
abrogate the potential breach. The failure by either party to perform,
keep or fulfill any material covenant, undertaking, obligation or
condition set forth in this Agreement and the continuance of any such
potential reach for a period of thirty (30) days after written notice
of such failure to cure shall constitute a breach of this Agreement.
7.4. Available Remedies. Except as provided in Section 6.1, the rights
granted under this Agreement shall not be in substitution of, but shall
be in addition to, any and all other rights and remedies for breach of
contract available to the non-breaching party under applicable law.
7.5. Rights upon Termination. Upon termination of this Agreement, the rights
of each party hereunder shall terminate. However, the termination of
this Agreement shall not relieve either BPA or CDS of the obligations
imposed with respect to services furnished prior to the date of
termination.
VIII. GENERAL PROVISIONS
8.1. Entire Agreement. This Agreement constitutes the entire Agreement
between the parties, relating to the subject matter of this Agreement,
and supersedes all prior and contemporaneous agreements and
understandings of the parties in connection with the subject matter of
this Agreement.
8.2. Amendment. No supplement, modification or amendment of this Agreement
will be binding unless executed in writing by the parties to this
Agreement.
8.3. Severability. If any part, term, or provision of this Agreement is held
void, illegal, or unenforceable, the validity of the remaining portions
or provisions will remain in full force and effect.
8.4. Mutuality of Agreement. The terms and conditions of this Agreement are
mutually agreed upon and may not be construed against any party upon
the ground that such party was responsible for the preparation of this
Agreement or of any provision of this Agreement.
8.5. Independent Contractors. The relationship of the parties to this
Agreement is that of independent contractors. Nothing herein is
intended or may be construed to establish any agency, employment,
partnership, or joint venture relationship between the parties. Each
party shall be solely responsible for the direction, control and
management of its agents and employees.
6
<PAGE>
8.6. No Authority to Bind Other Party. Except as provided in this Agreement,
neither party may act on behalf of the other party nor may either party
bind or execute a release on behalf of the other party, except as
authorized in writing by the other party.
8.7. Cooperation. BPA and the CDS agree to work together to market products
together during the course of this Agreement.
8.8. Notice. Any notice, demand or other communication required or permitted
under this Agreement shall be in writing and personally delivered or
deposited in the United States Mail, first class, registered or
certified mail, with postal prepaid, and addressed as follows:
Benefit Plan Administrators, Inc.
One Huntington Quadrangle
Melville, NY 11747
If to CDS, addressed to: If to BPA, addressed to:
_____________________________ ______________________________
_____________________________ ______________________________
_____________________________ ______________________________
_____________________________ ______________________________
or to such other persons or addresses as any party request by written
notice as aforesaid. Notices shall be deemed given at the time of
personal delivery or three (3) days after the date mailed in the manner
set forth above.
8.9. Choice of Laws. The validity of this Agreement and of any of its terms
or provisions, as well as the rights and duties of the parties
hereunder, shall be interpreted and construed pursuant to and in
accordance with the laws of the State of Missouri.
8.10. Waiver. Waiver by either party of any rights under the terms of this
Agreement shall not be construed to operate as a waiver of any other or
further rights, either under the same terms, conditions or covenants
contained in this Agreement or in its Attachments.
7
<PAGE>
8.11. No Third Party Beneficiaries. This Agreement is solely for the benefit
of the parties to this Agreement and shall not confer any benefit upon
any other legal entities or persons.
8.12. Section Headings. The section headings contained in this Agreement and
the attached Exhibits are inserted for convenience of reference only
and will not affect the meaning or interpretation of this Agreement.
All capitalized terms defined herein are equally applicable to both the
singular and plural forms of such terms.
8.13. Effective Date. The effective date of this Agreement is July 1, 1997.
IN WITNESS WHEREOF, the parties hereto have affixed their signatures as of the
date first written above.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY
THE PARTIES.
CERTIFIED DIABETIC SUPPLIES, INC. BENEFIT PLAN ADMINISTRATORS
By: /s/ ILLEGIBLE By: /S/ ILLEGIBLE
--------------------- ---------------------------
Title: PRES/CEO Title: EXECUTIVE VICE PRESIDENT
--------------------- ---------------------------
Date: 7/2/97 Date: 7/1/97
--------------------- ---------------------------
8
<PAGE>
EXHIBIT A
CERTIFIED DIABETIC SERVICES, INC.
(BPA)
<TABLE>
<CAPTION>
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
GROUP ITEM CPT 100% U/C BPA QUOTE BPA ONLY BPA/U&C OVERALL %
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Battery BAT - ACC. EASY BATTERY SET (2/SET) A544 A4254 * * *** * *
- ---------------- ------------------------------------------------- -------- ------- ----------- ----------- --------- --------
Battery BAT - ACCUCHEK III BATTERY SET (2/SET) A544 A4254 * * *** * *
- ---------------- ------------------------------------------------- -------- ------- ----------- ----------- --------- ------
Battery BAT - ELITE BATTERY SET (2/SET) CR2032 A4254 * * * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- --------- ------
Battery BAT - TRACER II BATERY SET (2/SET) CR 2032 A4254 * * * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
Battery BAT - METER BATTERY "J" CELL A4254 * * * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
Battery BAT - ADVANTAGE BATTERY SET (2/SET) 2450 A4254 * * * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
Battery BAT -INSTANT BATTERY (EACH) [NEED 4/METER] A4254 * * * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
CTS CTS - ACCUCHEK II & III CONTROL SOLUTION A4256 * * *** * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
CTS CTS - GLUC III CONTROL SOLUTION A4256 * * *** * *
- ---------------- ------------------------------------------------- -------- ------- -------- ---------- ----------- -----
CTS CTS - GLUCO II/III LOW & HIGH CONTROL SOLUTION A4256 * * *** * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
CTS CTS - ADVANTAGE CONTROL SOLUTION A4256 * * * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
CTS CTS - DIASCAN CONTROL SOLUTION A4256 * * * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
CTS CTS - EASY CONTROL SOLUTION A4256 * * * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
CTS CTS - ELITE CONTROL SOLUTION A4256 * * * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
CTS CTS - GLUCOMETER ENCORE CONTROL SOLUTION A4256 * * * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- -------
CTS CTS - EXACTECH CONTROL SOLUTION A4256 * * *** * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
CTS CTS - INSTANT CONTROL SOLUTION A4256 * * * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
CTS CTS - ONE TOUCH CONTROL SOLUTION A4256 * * * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
CTS CTS - PRESTIGE CONTROL SOLUTION A4256 * * * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
CTS CTS - SURESTEP CONTROL SOLUTION A4256 * * * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
CTS CTS - ULTRA CONTROL SOLUTION A4256 * * * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
CTS OBSOLETE CTS - ADVANTAGE A4256 * * * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
CTS OBSOLETE CTS - ELITE A4256 * * * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
CTS OBSOLETE CTS - ENCORE A4256 * * * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
CTS OBSOLETE CTS - INSTANT A4256 * * * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
Infusion Misc. INFDZ - DISETRONIC 3 ML PISTON ROD 300.0208 * * * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
Infusion Misc. INFDZ - DISETRONIC PUMP BATTERIES E1399 * * *** * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
Infusion Misc. INFP - DISETRONIC H-TRON PLUS INSULIN PUMP * * *** * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
Infusion Misc. INFZ - 2" MICROPORE PAPER TAPE * * *** * *
- ---------------- ------------------------------------------------- -------- ------- -------- ----------- ---------- ------
</TABLE>
* Confidential treatment requested. Portions of this document have been
omitted by blocking out the relevant text pursuant to an Application
for Confidential Treatment. Such blocked out omissions have been filed
separately with the Securities and Exchange Commission. The Registrant
shall furnish all omitted schedules and exhibits to this document upon
the request of the Securities and Exchange Commission.
9
<PAGE>
<TABLE>
<CAPTION>
- ---------------- ------------------------------------------------ ----- --------- ---------- ----------- --------- ---------
GROUP ITEM CPT 100% U/C BPA QUOTE BPA ONLY BPA/U&C OVERALL %
- ---------------- ------------------------------------------------ ----- --------- ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Infusion Misc. INFZ - ALLKARE PROTECTIVE WIPES 100/ * * *** * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Infusion Misc. INFZ - BIOCLUSIVE STERILE DRESSING 100/ * * *** * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Infusion Misc. INFZ - DURAPORE TAPE (SILK) * * *** * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Infusion Sets INFM - MMT-116 SOF-SET QUICK RELEASE 24" A4230 * * * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Infusion Sets INFM - MMT-133 STRAIGHT NEEDLE A4231 * * * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Infusion Sets INFM - MMT-165 BENT NEEDLE QR 42" 24/ A4231 * * * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Insulin INS - HUMULIN 50/50 (VIAL) J1820 * * * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Insulin INS - HUMULIN 70/30 (VIAL) J1820 * * * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Insulin INS - HUMULIN L (VIAL) J1820 * * * *
- ---------------- ------------------------------------------------- --------- ------- --------- ------------ ---------- ----------
Insulin INS - HUMULIN N (VIAL) J1820 * * * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Insulin INS - HUMULIN R (VIAL) J1820 * * * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Insulin INS - HUMULIN U (VIAL) J1820 * * * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Insulin INS - ILETIN I L (VIAL) J1820 * * * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Insulin INS - ILETIN I N (VIAL) J1820 * * * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Insulin INS - ILETIN I R (VIAL) J1820 * * * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Insulin INS - NOVOLIN 70/30 (VIAL) J1820 * * * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Insulin INS - NOVOLIN L (VIAL) J1820 * * * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Insulin INS - NOVOLIN N (VIAL) J1820 * * * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Insulin INS - NOVOLIN R (VIAL) J1820 * * * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Insulin INS - VELOSULIN BR (VIAL) J1820 * * * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Lancets LCT - COMFORT TOUCH LANCETS 100'S A4259 * * *** * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Lancets LCT - COMFORT TOUCH LANCETS 200'S A4259 * * *** * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Lancets LCT - E-Z JECT LANCETS 200/ A4259 * * *** * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Lancets LCT - GLUCOSYSTEM LANCETS 100'S A4259 * * *** * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ----------- ---------- -----------
Lancets LCT - MONOLET LANCETS 100'S A4259 * * *** * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Lancets LCT - MONOLET LANCETS 200'S A4259 * * *** * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Lancets LCT - PENLET II LANCETS 200'S A4259 * * *** * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Lancets LCT - SOFT TOUCH LANCETS 100'S A4259 * * *** * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Lancets LCT - TENDERLETTE JR. LANCETS 50/ * * *** * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ ---------- -----------
Lancets LCT - LANCETS (100/B0X) A4259 * * * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Lancets LCT - LANCETS (200/BOX) A4259 * * * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Lancets LCT - BD ULTRAFINE LANCETS 100'S A4259 * * * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- -----------
Lancets LCT - CLEANLET XL LANCETS 100/ A4259 * * * *
- ---------------- ------------------------------------------------- --------- ------- ---------- ------------ --------- ------------
</TABLE>
* Confidential treatment requested. Portions of this document have been omitted
by blocking out the relevant text pursuant to an Application for Confidential
Treatment. Such blocked out omissions have been filed separately with the
Securities and Exchange Commission. The Registrant shall furnish all omitted
schedules and exhibits to this document upon the request of the Securities and
Exchange Commission.
10
<PAGE>
<TABLE>
<CAPTION>
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
GROUP ITEM CPT 100% U/C BPA QUOTE BPA ONLY BPA/U&C OVERALL %
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Lancets LCT - CLEANLET LANCETS FOR KIDS 100/ A4259 * * * *
- ---------------- ------------------------------------------------ ------ --------- ---------- ----------- -------- --------
Lancets LCT - CLEANLET LANCETS FOR KIDS 200/ A4259 * * * *
- ---------------- ------------------------------------------------ ------ --------- ---------- ----------- -------- --------
Lancets LCT - SOFTCLIX LANCETS 100'S A4259 * * * *
- ---------------- ------------------------------------------------ ------ --------- ---------- ----------- -------- --------
Lancing Devic LCT - AUTOLET LITE KIT A4258 * * *** * *
- ---------------- ------------------------------------------------ ------ --------- ---------- ----------- -------- --------
Lancing Devic LD - BD AUTOLANCE A4258 * * *** * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Lancing Devic LD - GLUCOLET II A4258 * * *** * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Lancing Devic LD - PENLET II A4258 * * *** * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Lancing Devic LD - DIALET LANCING DEVICE A4258 * * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Lancing Devic LD - LANCING DEVICE (STANDARD LANCETS) A4258 * * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Lancing Devic LD - SOFT TOUCH II A4258 * * * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Lancing Devic LD - SOFTCLIX A4258 * * * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Meter METER - ACCUCHECK III E0607 * * *** * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Meter METER - ADVANTAGE E0607 * * * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Meter METER - DIASCAN E0607 * * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Meter METER - DIASCAN PARTNER E0609 * * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Meter METER - EASY E0607 * * * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Meter METER - ELITE E0607 * * * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Meter METER - ENCORE E0607 * * * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Meter METER - INSTANT E0607 * * * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Meter METER - MEDISENSE 2 E0607 * * *** * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Meter METER - ONE TOUCH BASIC E0607 * * * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Meter METER - ONE TOUCH PROFILE E0607 * * * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Meter METER - PRESTIGE E0607 * * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Meter METER - PRECISION QID E0607 * * *** * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Meter METER - SURESTEP E0607 * * * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Meter METER - ULTRA PLUS E0607 * * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Misc ZZZ - MAGNI-GUIDE * *** * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Misc ZZZ - MEDIJECTOR ADAPTORS * *** * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Misc ZZZ - MEDIJECTOR EZ E1399 * *** * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Misc ZZZ - OSBON ERECAID CLASSIC * *** * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Misc ZZZ - OSBON ERECAID PLUS * *** * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Misc ZZZ - SURE DROP * *** * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Misc ZZZ - VOICE TOUCH (FOR OT2) * *** * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Misc ZZZ - TRANSFER PIPETTES (500) * *** * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
</TABLE>
* Confidential treatment requested. Portions of this document have been omitted
by blocking out the relevant text pursuant to an Application for Confidential
Treatment. Such blocked out omissions have been filed separately with the
Securities and Exchange Commission. The Registrant shall furnish all omitted
schedules and exhibits to this document upon the request of the Securities and
Exchange Commission.
11
<PAGE>
<TABLE>
<CAPTION>
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
GROUP ITEM CPT 100% U/C BPA QUOTE BPA ONLY BPA/U&C OVERALL %
- -------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Misc MSC - ALCOHOL SWABS 100'S A4245 * * * *
- ---------------- ------------------------------------------------ ------ -------- ----------- ----------- --------- -------
Misc MSC - ALCOHOL SWABS 200'S A4245 * * * *
- ---------------- ------------------------------------------------ ------ -------- ----------- ----------- --------- -------
Pen INS - CARTRIDGES HUM 70/30 (5-PACK) E1399 * * *
- ---------------- ------------------------------------------------ ------ -------- ----------- ----------- --------- -------
Pen INS - CARTRIDGES HUM N (5-PACK) E1399 * * *
- ---------------- ------------------------------------------------ ------ -------- ----------- ----------- --------- -------
Infusion Misc INFZ - MMT-134 POLYSKIN STERILE DRESSING 100/ * *** * *
- ---------------- ------------------------------------------------ ------ -------- ----------- ----------- --------- -------
Infusion Misc INFZ - OPSITE STERILE DRESSING 100/ * * *
- ---------------- ------------------------------------------------ ------ -------- ----------- ----------- --------- -------
Infusion Misc INFZ - TEGADERM 4 X 4 3/4 9536HP 50/ A6257 * *** * *
- ---------------- ------------------------------------------------ ------ -------- ----------- ----------- --------- -------
Infusion Misc INFZ - TEGADERM STERILE DRESSING 100/ * * *
- ---------------- ------------------------------------------------ ------ -------- ----------- ----------- --------- -------
Infusion Misc INFZ - UNISOLVE ADHESIVE REMOVER 50/ * *** * *
- ---------------- ------------------------------------------------ ------ -------- ----------- ----------- --------- -------
Infusion Misc INFDZ - DISETRONIC 3 ML GLASS CARTRIDGE 300.0216 A4232 * * * *
- ---------------- ------------------------------------------------ ------ -------- ----------- ----------- --------- -------
Infusion Misc INFMZ - MMT-103 3.0 ML RESERVOIRS 24/ A4232 * * * *
- ---------------- ------------------------------------------------ ------ -------- ----------- ----------- --------- -------
Infusion Misc INFMZ - MMT-104 BATTERY PACK 9/ E1399 * * * *
- ---------------- ------------------------------------------------ ------ -------- ----------- ----------- --------- -------
Infusion Misc INFMZ - MMT-117 SHOWER PACKS 30/ E1399 * *** * *
- ---------------- ------------------------------------------------ ------ -------- ----------- ----------- --------- -------
Infusion Misc INFZ - OPSITE IV-3000 100/ K0257 * * * *
- ---------------- ------------------------------------------------ ------ -------- ----------- ----------- --------- -------
Infusion Misc INFZ - SKIN PREP WIPES 4204.00 50/ E1399 * * * *
- ---------------- ------------------------------------------------ ------ -------- ----------- ----------- --------- -------
Infusion Misc INFZ - TEGADERM TRANSPARENT DRESSING #1624W K0257 * * *
- ---------------- ------------------------------------------------ ------ -------- ----------- ----------- --------- -------
Infusion Misc INFZ - ADVANTA JET CAPS` A4210 * * *
- ---------------- ------------------------------------------------ ------ -------- ------------ ----------- --------- -------
Infusion Misc INFZ - POLYSKIN II TRANSPARENT TAPE DRESSING K0257 * * *
- ---------------- ------------------------------------------------ ------ -------- ------------ ----------- --------- -------
Infusion Misc INFZ - IV PREP PADS 4210.00 50/ E1399 * * * *
- ---------------- ------------------------------------------------ ------ -------- ------------ ----------- --------- -------
Infusion Sets INF - PURELINE COMFORT 23" 10/ A4230 * * * *
- ---------------- ------------------------------------------------ ------ -------- ------------ ----------- --------- -------
Infusion Sets INF - PURELINE COMFORT 43" A4230 * * *
- ---------------- ------------------------------------------------ ------ ------- ------------ ----------- --------- -------
Infusion Sets INFD - CLASSIC 31" (80CM) 300.0247 A4231 * * * *
- ---------------- ------------------------------------------------ ------ -------- ------------ ----------- --------- -------
Infusion Sets INFD - CLASSIC 31" WITH WING (80 CM) 300.0258 A4231 * *** * *
- ---------------- ------------------------------------------------ ------ -------- ------------ ----------- --------- -------
Infusion Sets INFD - CLASSIC 43" (110 CM) 300.0248 A4231 * * *** * *
- ---------------- ------------------------------------------------ ------ -------- ------------ ----------- --------- -------
Infusion Sets INFD - CLASSIC 43" WITH WING (110 CM) 300.0252 A4231 * *** * *
- ---------------- ------------------------------------------------ ------ -------- ------------ ----------- --------- -------
Infusion Sets INFD - RAPID 10 31" (80 CM) 300.0257 A4231 * *** * *
- ---------------- ------------------------------------------------ ------ -------- ------------ ----------- --------- -------
Infusion Sets INFD - RAPID 10 43" (110 CM) 300.0258 A4231 * *** * *
- ---------------- ------------------------------------------------ ------ -------- ------------ ----------- --------- -------
Infusion Sets INFD - RAPID 12 43" (110 CM) 300.0261 A4231 * *** * *
- ---------------- ------------------------------------------------ ------ -------- ------------ ----------- --------- -------
Infusion Sets INFD - RAPID 8 31" (80 CM) 300.0254 A4231 * *** * *
- ---------------- ------------------------------------------------ ------ -------- ------------ ----------- --------- -------
Infusion Sets INFD - RAPID 8 43" (110 CM) 300.0255 A4231 * *** * *
- ---------------- ------------------------------------------------ ------ -------- ------------ ----------- --------- -------
Infusion Sets INFD - TENDER 1 31" (80 CM) 300.0292 A4231 * *** * *
- ---------------- ------------------------------------------------ ------ -------- ------------ ----------- ----------------
Infusion Sets INFD - TENDER 1 43" (110 CM) 300.0293 A4231 * *** * *
- ---------------- ------------------------------------------------ ------ -------- ------------ ----------- --------- -------
</TABLE>
* Confidential treatment requested. Portions of this document have been omitted
by blocking out the relevant text pursuant to an Application for Confidential
Treatment. Such blocked out omissions have been filed separately with the
Securities and Exchange Commission. The Registrant shall furnish all omitted
schedules and exhibits to this document upon the request of the Securities and
Exchange Commission.
12
<PAGE>
<TABLE>
<CAPTION>
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
GROUP ITEM CPT 100% U/C BPA QUOTE BPA ONLY BPA/U&C OVERALL %
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Infusion Sets INFD - TENDER 2 31" (80 CM) 20/ 300.0263 A4230 * * * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Infusion Sets INFD - TENDER 2 43" (110 CM) 20/ 300.0264 A4230 * * * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Infusion Sets INFM - MMT-106 BENT NEEDLE 42" 24/ A4231 * * * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Infusion Sets INFM - MMT-111 SOF-SET 42" 24/ A4230 * * * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Infusion Sets INFM - MMT-112 SOF-SET 24" 24/ A4230 * *** * *
- ---------------- ------------------------------------------------ ----- --------- ----------- ----------- --------- ---------
Infusion Sets INFM - MMT-115 SOF-SET QUICK RELEASE 42" 12/ A4230 * * * *
- ---------------- ------------------------------------------------ ----- -------- ----------- ----------- --------- ---------
</TABLE>
13
<PAGE>
[LOGO]
Island Group Administration, Inc.
3 Toilsome Lane
P.O. Drawer 5039
East Hampton, New York 11937
PHONE: (516) 324-2306 o FAX: (516) 324-7021
1-800-926-2306
LETTER OF AGREEMENT
BETWEEN
ISLAND GROUP ADMINISTRATION, INC.
AND
CDS HEALTH MANAGEMENT, INC.
This Letter of Agreement, entered into this 1st day of January, 1998 will
confirm an agreement between Island Group Administration, Inc. and CDS Health
Management, Inc. for treatments rendered as a provider for our plans.
The terms of the Agreement are as follows:
Reimbursement will be * U & C as per Exhibit A.
Island Group Administration, Inc. will designate CDS Health Management, Inc. as
a Participating Provider of the Island Group Participating Provider Organization
and will inform Island Group clients of such.
Island Group Administration, Inc. will ensure that payment is made to CDS Health
Management, Inc. in a timely manner and in accordance with Exhibit A.
This Agreement shall be in full force and effect for a period of one (1) year
commencing on the date first written above and shall automatically renew for
subsequent twelve (12) month periods unless terminated by either party as
provided for herein. This Agreement is cancellable by either party, with or
without cause, with sixty (60) days written notice.
<TABLE>
<CAPTION>
<S> <C>
/s/ Lynn Kaplan /s/ Ronald G. Hersch
- --------------------------------------------------- --------------------------------------------------------
Signature (for Island Group) Signature (for CDS Health Management, Inc.)
Lynn Kaplan Ronald G. Hersch
- --------------------------------------------------- --------------------------------------------------------
Print Name Print Name
Exec VP President
- --------------------------------------------------- --------------------------------------------------------
Title of Officer Title of Officer
1/1/98 1/1/98
- --------------------------------------------------- --------------------------------------------------------
- --------------------------------------------------- --------------------------------------------------------
Date Date
</TABLE>
* Confidential treatment requested portions of this document have been omitted
by blocking out the relevant text pursuant to an application for confidential
treatment. Such blocked out omissions have been filed seperately with the
Securities and Exchange Commission. The Registrant shall furnish all omitted
schedules and exhibits to this document upon the request of the Securities and
Exchange.
[LOGO}
<PAGE>
3 Toilsome Lane
P.O. Drawer 5039
East Hampton, New York 11937
PHONE: (516) 324-2306 o FAX: (516) 324-7021
1-800-926-2306
APPLICATION FOR ISLAND GROUP ADMINISTRATION, INC.
PARTICIPATING PROVIDER NETWORK
1. All information should be typed or neatly printed.
2. If more space is needed, attach additional sheets and make reference to the
question to which you are replying.
******************************************************************************
PERSONAL IDENTIFICATION DATA
Name in Full CDS Health Management, Inc.
Date of Application 12/12/97
Office Address (List additional locations on back)
2373 Horseshoe Drive South
Naples FL 34104-6103
(City) (State) (Zip Code)
Billing Address (if different) same
Appointment Phone (800) 441-7307 Billing Phone 800-441-7307
-------------- ------------
Fax (941) 403-4306
Social Security # UPIN #
Federal I.D. # 65-0760349 Medicare Prov. # 0925330001
----------- ------------
PROFESSIONAL DATA
A. SPECIALTY Diabetes Supplies SUBSPECIALTY
Group Name
B. LICENSURES (Specify Profession)
Attach Copies:
State License # N/A Expiration Date
-------- ------------------------------
State License # N/A Expiration Date
-------- ------------------------------
State License # N/A Expiration Date
-------- ------------------------------
DEA Reg. # Expiration Date
-------------------------------------------
PAGE 1 OF 2
<PAGE>
C. Please answer each of the following questions completely. If the answer
to any of them is yes, please provide full explanation of the details
on a separate sheet.
1. Have any disciplinary actions been initiated or are any pending
against you by any state licensure board? Yes No X
----- -----
2. Has your license to practice in any state ever been limited,
suspended, denied or revoked? Yes No X
----- -----
3. Has your DEA registration ever been limited, suspended, denied or
revoked? Yes No X
----- -----
4. Have you ever been suspended, sanctioned or otherwise restricted
from participating in any private, federal or state health insurance
program (for example, Medicare, Medicaid)? Yes No X
----- -----
5. Have you ever been convicted of a criminal offense?
Yes No X
----- -----
6. Have you ever lost or been suspended from hospital staff privileges?
Yes No X
----- -----
/s/ Ronald G. Hersch as President December 12, 1997
- --------------------------------------------------------------------------------
SIGNATURE DATE
PLEASE ATTACH A COPY OF YOUR: CURRICULUM VITAE INSTITUTIONAL AFFILIATIONS
BOARD CERTIFICATIONS LICENSES MALPRACTICE
INSURANCE INFORMATION
<PAGE>
Island Group Administration, Inc.
3 Toilsome Lane
P.O. Drawer 5039
East Hampton, New York 11937
PHONE: (516) 324-2306 o FAX: (516) 324-7021
1-800-926-2306
PARTICIPATING PROVIDER NETWORK APPLICATION
******************************************************************************
TO BE COMPLETED BY PROVIDER
__X__ YES, I WISH TO BECOME A PARTICIPATING PROVIDER FOR ISLAND
GROUP ADMINISTRATION, INC.'S SELF FUNDED PLANS. PLEASE
CONSIDER THIS AS MY LETTER OF INTENT.
______ NO, I DO NOT WISH TO BE LISTED AS A PARTICIPATING PROVIDER.
<TABLE>
<CAPTION>
NAME (PLEASE PRINT) CDS Health Management, Inc.
<S> <C> <C>
---------------------------------------------------------------
NAME OF GROUP
---------------------------------------------------------------
OTHERS IN GROUP
---------------------------------------------------------------
---------------------------------------------------------------
SPECIALTY/SUB SPECIALTY Diabetes Supplies
---------------------------------------------------------------
PHONE NUMBER 941-403-0500 ext. 225 FAX NUMBER 941-403-4306
--------------------------------------------- ----------------
ADDRESS (BILLING) 2373 Horseshoe Drive South
---------------------------------------------------------------
ADDRESS (OFFICE) Naples, FL. 34104
---------------------------------------------------------------
same
---------------------------------------------------------------
(PLACE OTHER OFFICE ADDRESSES/PHONES ON BACK)
OFFICE CONTACT PERSON AND TITLE Ronald G. Hersch, President
------------------------------------------------------
ANY PERTINENT INFORMATION REGARDING YOUR OFFICE OR PRACTICE
We are a national supply company - shipping 2 day through priority mail
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
SIGNATURE(S) /s/ Ronald G. Hersch as President
-------------------------------------
DESIGNATION (MD, CD, etc.) N.A.
-------------------------------------
DATE: 12-12-97
---------------
FEDERAL TAX ID (EIN#) 65-0760349
-------------------------------------
**PLEASE ATTACH CURRENT LICENSE(S), BOARD CERTIFICATION(S), ACCREDITATION(S), CURRICULUM VITAE AND MALPRACTICE
INSURANCE.
</TABLE>
[LOGO]
<PAGE>
OTHER PLANS YOU ACCEPT (EMPIRE, CHOICE CARE, J.J. NEWMAN, etc.)
Multiplan, Managed Care, Inc., WPPN, BPA, Intergroup
----------------------------------------------------------------------------
----------------------------------------------------------------------------
PLEASE NOTE: TERMINATION WILL BE BY MUTUAL AGREEMENT AND WITH A 60 DAY
NOTICE IN ORDER TO NOTIFY CLIENTS AND YOUR PATIENTS.
PLEASE MAIL TO:
ISLAND GROUP ADMINISTRATION, INC.
P.O. DRAWER 5039
EAST HAMPTON, NEW YORK 11937
ATTENTION: LYNN R. KAPLAN
[LOGO]
<PAGE>
CDS Health Management , Inc.
Island Group Administration, Inc.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
GROUP ITEM CPT U & C * Disc.
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Battery BAT - ACC. EASY BATTERY SET (2/SET) A544 A4254 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Battery BAT - ACCUCHEK III BATTERY SET (2/SET) A544 A4254 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Battery BAT - ELITE BATTERY SET (2/SET) CR2032 A4254 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Battery BAT - TRACER II BATTERY SET (2/SET) CR2032 A4254 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Battery BAT - METER BATTERY "J" CELL A4254 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Battery BAT - ADVANTAGE BATTERY SET (2/SET) 2450 A4254 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Battery BAT - INSTANT BATTERY (EACH) [NEED 4/METER] A4254 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
CTS CTS - ACCUCHEK II & III CONTROL SOLUTION A4256 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
CTS CTS - ADVANTAGE CONTROL SOLUTION A4256 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
CTS CTS - DIASCAN CONTROL SOLUTION A4256 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
CTS CTS - EASY CONTROL SOLUTION A4256 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
CTS CTS - INSTANT CONTROL SOLUTION A4256 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
CTS CTS - ONE TOUCH CONTROL SOLUTION A4256 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
CTS CTS - PRESTIGE CONTROL SOLUTION A4256 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
CTS CTS - SURESTEP CONTROL SOLUTION A4256 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
CTS CTS - ULTRA CONTROL SOLUTION A4256 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Infusion Misc INFDZ - DISETRONIC 3 ML GLASS CARTRIDGE 300.0216 A4232 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Infusion Misc INFMZ - MMT-103 3.0 ML RESERVOIRS 24/ A4232 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Infusion Misc INFMZ - MMT-104 BATTERY PACK 9/ E1399 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Infusion Misc INFZ - OPSITE IV-3000 100/ K0257 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Infusion Misc INFZ - SKIN PREP WIPES 4204.00 50/ E1399 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Infusion Misc INFZ - TEGADERM TRANSPARENT DRESSING #1624W K0257 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Infusion Misc INFZ - ADVANTA JET CAPS A4210 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Infusion Misc INFZ - POLYSKIN II TRANSPARENT TAPE DRESSING K0257 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Infusion Misc INFZ - IV PREP PADS 4210.00 50/ E1399 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Infusion Sets INF - PURELINE COMFORT 23" 10/ A4230 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Infusion Sets INF - PURELINE COMFORT 43" A4230 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Infusion Sets INFD - CLASSIC 31" (80CM) 300.0247 A4231 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Infusion Sets INFD - CLASSIC 43" (110 CM) 300.0248 A4231 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Infusion Sets INFD - TENDER 2 31" (80 CM) 20/ 300.0263 A4230 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Infusion Sets INFD - TENDER 2 43" (110 CM) 20/ 300.0264 A4230 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Infusion Sets INFM - MMT-106 BENT NEEDLE 42" 24/ A4231 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Infusion Sets INFM - MMT-111 SOF-SET 42" 24/ A4230 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Infusion Sets INFM - MMT-115 SOF-SET QUICK RELEASE 42" 12/ A4230 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Infusion Sets INFM - MMT-116 SOF-SET QUICK RELEASE 24" A4230 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Infusion Sets INFM - MMT-133 STRAIGHT NEEDLE A4231 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Infusion Sets INFM - MMT-165 BENT NEEDLE QR 42" 24/ A4231 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Insulin INS-HUMULIN 50/50 (VIAL) J1820 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
</TABLE>
* Confidential treatment requested. Portions of this document have been
omitted by blocking out the relevant text pursuant to an Application
for Confidential Treatment. Such blocked out omissions have been filed
separately with the Securities and Exchange Commission. The Registrant
shall furnish all omitted schedules and exhibits to this document upon
the request of the Securities and Exchange Commission.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Insulin INS-HUMULIN 70/30 (VIAL) J1820 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Insulin INS-HUMULIN L (VIAL) J1820 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Insulin INS-HUMULIN N (VIAL) J1820 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Insulin INS-HUMULIN R (VIAL) J1820 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Insulin INS-HUMULIN U (VIAL) J1820 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Insulin INS-ILETIN I L (VIAL) J1820 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Insulin INS - ILETIN I N (VIAL) J1820 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Insulin INS - ILETIN I R (VIAL) J1820 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Insulin INS - NOVOLIN 70/30 (VIAL) J1820 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Insulin INS - NOVOLIN L (VIAL) J1820 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Insulin INS - NOVOLIN N (VIAL) J1820 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Insulin INS - NOVOLIN R (VIAL) J1820 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Insulin INS - VELOSULIN BR (VIAL) J1820 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Lancets LCT - COMFORT TOUCH LANCETS 100'S A4259 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Lancets LCT - COMFORT TOUCH LANCETS 200'S A4259 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Lancets LCT - GLUCOSYSTEM LANCETS 100'S A4259 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Lancets LCT - MONOLET LANCETS 100'S A4259 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Lancets LCT - MONOLET LANCETS 200'S A4259 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Lancets LCT - PENLET II LANCETS 200'S A4259 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Lancets LCT - SOFT TOUCH LANCETS 100'S A4259 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Lancets LCT - LANCETS (100/BOX) A4259 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Lancets LCT - LANCETS (200/BOX) A4259 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Lancets LCT - BD ULTRAFINE LANCETS 100'S A4259 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Lancets LCT - CLEANLET XL LANCETS 100/ A4259 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Lancets LCT - CLEANLET LANCETS FOR KIDS 100/ A4259 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Lancets LCT - SOFTCLIX LANCETS 100'S A4259 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Lancing Device LD - AUTOLET LITE KIT A4258 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Lancing Device LD - BD AUTOLANCE A4258 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Lancing Device LD - GLUCOLET II A4258 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Lancing Device LD - PENLET II A4258 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Lancing Device LD - DIALET LANCING DEVICE A4258 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Lancing Device LD - LANCING DEVICE (STANDARD LANCETS) A4258 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Lancing Device LD - SOFT TOUCH II A4258 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Lancing Device LD - SOFTCLIX A4258 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Meter METER - ACCUCHECK III E0607 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Meter METER - ADVANTAGE E0607 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Meter METER - DIASCAN E0607 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Meter METER - DIASCAN PARTNER E0609 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Meter METER - EASY E0607 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Meter METER - ELITE E0607 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Meter METER - ENCORE E0607 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Meter METER - INSTANT E0607 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Meter METER - MEDISENSE 2 E0607 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Meter METER - ONE TOUCH BASIC E0607 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Meter METER - PRESTIGE E0607 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Meter METER - PRECISION QID E0607 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Meter METER - SURESTEP E0607 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
</TABLE>
* Confidential treatment requested. Portions of this document have been
omitted by blocking out the relevant text pursuant to an Application
for Confidential Treatment. Such blocked out omissions have been filed
separately with the Securities and Exchange Commission. The Registrant
shall furnish all omitted schedules and exhibits to this document upon
the request of the Securities and Exchange Commission.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Meter METER - ULTRA PLUS E0607 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Misc MSC - ALCOHOL SWABS 100'S A4245 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Misc MSC - ALCOHOL SWABS 200'S A4245 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Pen INS - CARTRIDGES HUM 70/30 (5-PACK) E1399 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Pen INS - CARTRIDGES HUM N (5-PACK) E1399 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Pen INS - CARTRIDGES HUM R (5-PACK) E1399 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Pen INS - CARTRIDGES NOV 70/30 (5-PACK) E1399 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Pen INS - CARTRIDGES NOV N (5-PACK) E1399 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Pen INS - CARTRIDGES NOV R (5-PACK) E1399 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Pen PEN NEEDLES - BD UF SHORT A4206 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Pen PEN NEEDLES - NOVOFINE 100/ A4206 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Pen PEN - BD PEN INSULIN DELIVERY DEVICE E1399 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Pen PEN - NOVOPEN INSULIN DELIVERY DEVICE E1399 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Pen INS - PREFILLED SYRINGES NOV 70/30 (5-PACK) E1399 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Pen INS - PREFILLED SYRINGES NOV N (5-PACK) E1399 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Pen INS - PREFILLED SYRINGES NOV R (5-PACK) E1399 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Strips STRIPS - ADVANTAGE 50'S A4253 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Strips STRIPS - CHEMSTRIPS BG 50'S A4253 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Strips STRIPS - DIASCAN 50/ A4253 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Strips STRIPS - EASY 50'S A4253 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Strips STRIPS - ELITE 50'S A4253 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Strips STRIPS - ENCORE 50'S A4253 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Strips STRIPS - EXACTECH 50'S A4253 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Strips STRIPS - GLUCOFILM 50'S [GLUC III] A4253 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Strips STRIPS - INSTANT 50'S A4253 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Strips STRIPS - ONE TOUCH 50/ [MED] A4253 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Strips STRIPS - ONE TOUCH 50'S [PRV] A4253 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Strips STRIPS - PRESTIGE 50/ A4253 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Strips STRIPS - [MEDISENSE 2 50'S] A4253 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Strips STRIPS - PRECISION QID 50'S A4253 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Strips STRIPS - EXACTECJ RSG 50/ A4253 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Strips STRIPS - GLUCOSTIX 50'S [GLUC II] A4253 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Strips STRIPS - SURESTEP 50'S A4253 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Strips STRIPS - TRACER 50'S A4253 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Strips STRIPS - ULTRA 50'S A4253 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Syringes SYR - BD 1 CC 27G 100/ A4206 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Syringes SYR - B-D 28G MICROFINE IV 1 CC 100/ A4206 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Syringes SYR - B-D 28G MICROFINE IV1/2CC 100/ A4206 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Syringes SYR - B-D 28G MICROFINE IV 3/10 CC 100/ A4206 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Syringes SYR - B-D 29G ULTRAFINE 1 CC 100/ A4206 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Syringes SYR - B-D 29G ULTRAFINE1/2CC Regular 100/ A4206 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Syringes SYR - B-D 29G ULTRAFINE 3/10 CC Regular 100/ A4206 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Syringes SYR - BD UF SHORT1/2CC 100/ A4206 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Syringes SYR - BD UF SHORT 3/10 CC 100/ A4206 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Syringes SYR - MONOJECT 28 GA 1 CC 100/ A4206 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Syringes SYR - MONOJECT 1 CC 29ga 100/ A4206 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Syringes SYR - MONOJECT1/2CC 29ga 100/ A4206 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
</TABLE>
* Confidential treatment requested. Portions of this document have been
omitted by blocking out the relevant text pursuant to an Application
for Confidential Treatment. Such blocked out omissions have been filed
separately with the Securities and Exchange Commission. The Registrant
shall furnish all omitted schedules and exhibits to this document upon
the request of the Securities and Exchange Commission.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Syringes SYR - TERUMO 1 CC 27G 100/ A4206 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Syringes SYR - TERUMO1/2CC 27G 100/ A4206 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Syringes SYR - TERUMO 1 CC 29G 100/ A4206 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Syringes SYR - TERUMO1/2CC 29G 100/ A4206 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Urine Strips URINE STRIPS - CHEMSTRIPS 7'S 100'S * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Urine Strips URINE STRIPS - DIASTIX 50'S A4250 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Urine Strips URINE STRIPS - KETO-DIASTIX 100'S A4250 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Urine Strips URINE STRIPS - KETOSTIX 100'S A4250 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Urine Strips URINE STRIPS - CLINISTIX 50'S A4250 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Urine Strips URINE STRIPS - KETOSTIX 50'S A4250 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Urine Strips URINE STRIPS - KETO-DIASTIX 50'S A4250 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
Urine Strips URINE STRIPS - CHEMSTRIP UGK 100'S A4250 * *
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
- -------------------- ------------------------------------------------------------ ----------- ----------- ------------
</TABLE>
* Confidential treatment requested. Portions of this document have been
omitted by blocking out the relevant text pursuant to an Application
for Confidential Treatment. Such blocked out omissions have been filed
separately with the Securities and Exchange Commission. The Registrant
shall furnish all omitted schedules and exhibits to this document upon
the request of the Securities and Exchange Commission.
<PAGE>
HERITAGE NY MEDICAL GROUP
ANCILLARY PROVIDER AGREEMENT
This ANCILLARY PROVIDER AGREEMENT ("Agreement") is made and entered into this
fifteenth (15th) day of January, 1998, by and between HERITAGE NEW YORK
MEDICAL GROUP, P.C., a Professional Corporation ("HNYMG") having its principal
place of business at 1325 Franklin Avenue, Garden City, NY 11530 and CDS
Health Management, Inc. ("CDS/Provider"), having their principal place of
business at 2373 Horseshoe Drive South, Naples, FL 34104-6103.
RECITALS
WHEREAS, HNYMG intends to enter into agreements with health maintenance
organizations which pay HNYMG on a capitated basis and who are licensed under
the laws of the State of New York, and other purchases of health care for the
provision of medical services ("Plan(s)") to persons enrolled as enrollees
("Enrollees") of Plans; and
WHEREAS, HNYMG and CDS desire to enter into a contract whereby CDS agrees to
provide Diabetic Supplies and Services (Health Care Services) on behalf of
HNYMG to Enrollees of Plans which contract with HNYMG;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties agree as follows:
ARTICLE I
SERVICES TO BE PERFORMED BY THE
CDS HEALTH MANAGEMENT, INC.
1.1. Definitions: Defined terms shall have the meanings given to them
in Attachment A.
1.2. Health Care Services: CDS agrees to provide Health Care Services
to each Plan with which HNYMG has contracted.
1.3. Assistants: CDS shall, at its own cost and expense, employ
Professional(s) to supervise such nonprofessional assistants or any and all
other employees as CDS deems necessary to perform Health Care Services pursuant
to this agreement.
<PAGE>
ARTICLE II
REPRESENTATIONS
2.1. CDS hereby warrants and represents that they are a Provider or
Professional Corporation, licensed to provide Health Care Services in the State
of New York, and that said license(s) have not been restricted or limited.
2.2. CDS hereby warrants and represents that any affiliated Specialist
Professionals it may hire shall hold Board Certification status in their
specialty, are credentialed for any subspecialty services, and have DEA
certifications respectively without restrictions or limitations. If any
agreement(s) between HNYMG and contracting Plan(s) have additional requirements
as to qualifications of the Provider or Specialist Professional, CDS will use
those members that fulfill those qualifications.
2.3. CDS warrants and represents that all such Specialist Professionals
including those providing on-call coverage must be credentialed by HNYMG and
Plans contracted to HNYMG in order to provide Health Care Services to Enrollees.
2.4. CDS warrants that it has authority to execute this Agreement and
bind Providers and/or Specialist Professional to the contents contained herein.
2.5. CDS shall furnish health care services (hereinafter "Health Care
Services") to all HNYMG members. All Health Care Services furnished to Members
shall be provided only upon referral from the Member" primary care physician or
upon prior approval of the HNYMG Medical Director. Likewise, any additional
referrals of Members by CDS to a physician or other health care provider
requires prior authorization by the Member's primary care physician or the HNYMG
Medical Director. Provider agrees to furnish Provider Services with the same
standard of care, skill and diligence customarily used by providers of such
services within the HNYMG service area.
ARTICLE III
COMPENSATION
3.1. Compensation Formula: HNYMG shall pay CDS for Health Care Services
provided to Enrollees (Attachment "A") pursuant to this Agreement, amounts set
forth in "Schedule A" attached hereto and made a part hereof for Commercial and
Senior Medicare Enrollees.
3.2. Timing of Payment of Compensation: HNYMG shall pay CDS the fee set
forth in Section 3.1 hereof. CDS shall submit to HNYMG within sixty (60) days
following the provision of Health Care Services to an Enrollee a complete
statement by services and charges (HCFA 1500 or its successor) for those Health
Care Services provided to an Enrollee. Statements submitted beyond sixty (60)
days will not be reimbursed. HNYMG shall pay CDS in accordance with the rates
established in "Schedule A," or as otherwise provided in the Agreement within
forty-five (45) days of receipt of a clean claim for Commercial and within HCFA
guidelines for Medicare Enrollees.
<PAGE>
3.3. Hold-Harmless Clause: CDS hereby agrees that in no event,
including, but not limited to nonpayment by HNYMG, HNYMG insolvency, or breach
of this Agreement, shall CDS or affiliated Professional(s) bill, charge, collect
a deposit from, seek compensation, remuneration, or reimbursement from, or have
any recourse against Subscriber, Enrollee, or persons other than HNYMG acting on
their behalf for services provided pursuant to this Agreement. This provision
shall not prohibit collection of supplemental charges made in accordance with
the terms of the agreement between HNYMG and Plan.
CDS further agrees that: (1) this provision shall survive the
termination of this Agreement regardless of the cause giving rise to termination
and shall be construed to be for the benefit of the HNYMG Subscriber/Enrollee,
and that (2) this provision supersedes any oral or written contrary agreement
now existing or hereafter entered into between CDS or Provider and Subscriber,
Enrollee, or persons acting on their behalf.
3.4. Patient Billing: CDS shall look only to HNYMG for compensation for
Covered Services and shall at no time seek compensation from Enrollees for
Covered Services. No surcharge to any Enrollee shall be permitted. A surcharge
shall, for purposes of this Agreement, be deemed to be any additional fee not
provided for in the Enrollee Plan contract and Evidence of Coverage.
3.5. Non-Covered Services: HNYMG recognizes that Enrollees may request
Non-Covered Services. CDS may bill, and collect from Enrollee those amounts for
Non-Covered Services if CDS has received a denial of authorization from HNYMG
and has informed the Enrollee in writing prior to delivery of services that the
service is not a Covered Service.
3.6. Patient Responsibility: CDS shall bill and collect all applicable
co-payments and deductibles specifically permitted in an Enrollee/Plan Contract
from the Enrollee. CDS shall further bill and collect all charges from an
Enrollee for those Non-Covered Services provided to an Enrollee pursuant to
Section 3.5.
ARTICLE IV
COORDINATION OF BENEFITS
4.1. When the primary and secondary benefits are coordinated,
determination of liability will be in accordance with usual procedures employed
by the New York Department of Insurance and applicable state regulations. CDS
agree to cooperate in the Coordination of Benefits.
<PAGE>
ARTICLE V
OBLIGATIONS OF CERTIFIED DIABETES SERVICES INC.
5.1. CDS shall provide Health Care Services to all Enrollees referred
by NYMG Participating Physicians unless:
a) CDS or Provider is a provider under the terms of this Agreement
and has provided HNYMG with a minimum of ninety (90) days' prior written notice
of Certified Diabetes Services Inc.'s intent to refuse to accept additional
Enrollees in accord with Article VIII and Section 10.1; or
b) CDS has terminated this Agreement to provide services under the
terms provided herein with proper written notice as defined in Article VIII and
section 10.1.
5.2. Hours: CDS agrees to be available to provide Health Care Services
during normal office hours and to provide coverage for said services after hours
365 days a year or arrange for coverage with a like specialty professional who
has been credentialed by HNYMG and who accepts the terms of reimbursement as
defined by this Agreement.
5.3. Malpractice Insurance: CDS shall separately provide, at its sole
cost and expense, through the entire term of this Agreement, a policy of
malpractice liability insurance with a licensed insurance company admitted to do
business in the State of New York in a minimum amount of One Million Dollars
($1,000,00.000) per claim and Two Million Dollars ($2,000,000.00) in the annual
aggregate, to cover any loss, liability or damage alleged to have been committed
by CDS or Provider, agents, servants or employees of CDS. CDS shall have a
"tail" policy for a period of no less than five (5) years following the
effective termination date of the foregoing policy if said policy is a "claims
made" policy. Said "tail" policy shall have the same policy limits as the
primary liability policy.
5.4. Proof of Insurance: CDS agrees to immediately notify HNYMG if such
liability insurance is canceled, denied or not renewed for any reason, and to
notify HNYMG immediately of any claims related to services provided to Enrollee
against CDS or CDS's employees or agents. Upon reasonable request of HNYMG, CDS
shall furnish to HNYMG, written evidence that the policy of insurance required
under Section 5.3 hereof is in full force and effect, and valid and existing in
accordance with the provisions of said paragraph.
5.5. CDS Licensure: CDS shall maintain the necessary business licenses,
including, but not limited to CDS's license to provide health care in the State
of New York, and to ensure that all of the CDS employees and agents do the same
as appropriate. If at any time during the term of this Agreement, CDS's license
to provide Health Care Services in the State of New York is suspended,
conditioned or revoked, this Agreement shall terminate immediately and become
<PAGE>
null and void and of no further force or effect, except as provided otherwise
herein as of the date of the suspension, condition or revocation of CDS's
license, without regard to whether or not such suspension, condition or
revocation has been finally adjudicated. CDS agrees to notify HNYMG as soon as
CDS becomes aware of any suspension, condition, or revocation placed on CDS's
license to provide Health Care Services in the State of New York or any similar
disciplinary action initiated against any person employed by or associated with
CDS who provides Covered Services. If at any time an affiliated Professional
shall have their license to practice health care or medicine in the State of New
York suspended, conditioned or revoked, CDS shall immediately notify HNYMG and
shall immediately stop Provider from providing Covered and Non-Covered Services
to Enrollees, without regard to whether or not suspension, condition or
revocation has been finally adjudicated.
5.6. Notifications: CDS must immediately advise HNYMG in writing of:
a) Any suspension, revocation or relinquishment, whether voluntary
or involuntary, of CDS's hospital admitting privileges or license to practice
health care or medicine or prescribe drugs;
b) Any investigatory, disciplinary or other action or proceeding
against CDS, for which CDS becomes aware, by any licensing authority, medical
professional organization or government agency, including but not limited to the
state of and federal agencies that administer Medicare and Medicaid;
c) Any act, omission or conduct by CDS for which its license to
provide health care or medicine or prescribe drugs, status as a participating
provider under Medicare or Medicaid, or membership in any professional
organization, could be revoked or suspended; or
d) any materially false or misleading statement or material
omission by CDS or Provider in connection with being credentialed or
recredentialed as an HNYMG Provider.
5.7. Compliance with HNYMG Policies: CDS agrees to cooperate with any
written administrative programs and procedures, including credentialing
requirements, utilization management, quality management, patient satisfaction
studies, outcomes research and similar activities which may be adopted by HNYMG
regarding the performance of Covered Services pursuant to this Agreement and
provided to CDS, including Plan grievance procedure.
5.8. Obligation to Bind CDS Inc.'s Employees: HNYMG's obligations under
this Agreement are expressly conditioned upon CDS Inc.'s causing each Provider
to secure the agreement of all persons employed by or associated with the
Provider who may render Covered Services to Enrollees, to be subject to the
requirements of the Agreement as if each had executed the Agreement
individually. At HNYMG's request and assistance, CDS agrees to cause each
Professional to participate in promotional activities and assist in the process
to enroll Medicare patients who wish to assign themselves to a Plan.
<PAGE>
5.9. CDS Roster: CDS agrees that HNYMG and each Plan which contracts
with HNYMG may use CDS Inc.'s including Provider, name, address, phone number,
type of practice and willingness to accept new patients in the HNYMG or Plan
roster of Provider participants. The roster may be inspected by and is intended
to be used by prospective patients, prospective HNYMG physicians and others.
HNYMG may utilize the CDS Inc.'s name(s) for normal promotion and advertisement.
CDS may list HNYMG's name, address and telephone number as a payor on a list of
payors or in reference to its network participation in informational literature
and materials only. Any other use of HNYMG's name, logo or trademark may be used
only with prior written consent of HNYMG.
At HNYMG's request and assistance, CDS agrees to participate in
promotional activities and assist in the process to enroll Medicare patients who
wish to assign themselves to a Plan.
5.10. Compliance with New York and Federal Statutes: CDS agrees to
cooperate with HNYMG so that HNYMG may meet any requirements imposed on HNYMG by
state and federal law, as amended, and all regulations issued pursuant thereto.
CDS agrees to maintain such records and provide such information to HNYMG or, to
agencies, for compliance as may be required. Such obligations shall not be
terminated upon termination of this Agreement. CDS agrees to permit HNYMG,
contracting Plans, or HNYMG's authorized representative at all reasonable times
to have access upon request to books, records and other papers relating to
Health Care Services rendered by Provider, and access to the cost thereof and to
the amounts of any payments received from Enrollees or from others on such
Enrollee's behalf.
CDS agrees to retain such books and records for a term of at least
seven (7) years from and after the termination of this Agreement or a longer
period if required by law or regulation and agrees to permit access to and
inspection by HNYMG, contracting Plans, the New York Department of Health, the
United States Department of Health and Human Services at all reasonable times
and upon demand, of all of those facilities, books and records maintained or
utilized by CDS or Provider in the performance of Health Care Services pursuant
to this Agreement.
5.11. Nondiscrimination: CDS agrees to: (1) not to differentiate or
discriminate in its provision of Health Care Services to Enrollees because of
race, color, national origin, ancestry, religion, sex, marital status, sexual
orientation, or age; and (2) to render Health Care Services to Enrollees in the
same manner, in accordance with the same standards, and within the same time
availability as offered to non-Plan patients consistent with existing medical
ethical/legal requirements for providing continuity of care to any patient.
5.12. Cooperation with Medical Directors: CDS agrees to cooperate with
Medical Directors, including Plan Medical Directors, in the review of the
quality and appropriateness of care administered to Enrollees.
<PAGE>
5.13. Compliance with HNYMG Pharmaceutical Formularies: CDS shall
comply with pharmaceutical formularies developed and/or adopted by HNYMG and
Plans.
5.14. Referral Services: CDS agrees to refer only to Participating
Providers, except in the case of a medical Emergency. Pre-authorization
notification is required for the following: non-Emergency inpatient or
outpatient Covered Services, referrals to participating or non-participating
health Care Physicians and other health care providers.
If, due to the severity of the Emergency, prior authorization cannot
be obtained, CDS shall act appropriately in Enrollees best medical interest
and notify HNYMG as soon as possible, but in no instance shall notification be
later than 24 hours of rendering Covered Services by Provider, or other
healthcare provider or admission to a hospital. Notification received after 24
hours may result in non-payment for said services by HNYMG, at their sole
discretion, based on medical necessity.
5.15. Verification of Member Eligibility: CDS agrees to admit Enrollees
or render any services other than Emergency Covered Services only upon the
verification of eligibility and an authorization number for services from HNYMG.
Eligibility may be verified directly by on-line connection with HNYMG. Should
CDS be unable to ascertain the eligibility of a patient who holds
himself/herself out to be an HNYMG Enrollee, CDS shall render immediate and
necessary care on a good faith basis. At the first available opportunity,
eligibility shall be verified by CDS. If the patient proves not to be an
eligible HNYMG Enrollee, CDS shall collect the amount due from the patient.
5.16. Encounter Data: CDS, whether compensated on a discounted fee
basis or capitated, agrees to submit to HNYMG, on a monthly basis, encounter
data by type of Health Care Service provided on a HCFA 1500 form, which
specifies professional and ancillary care and which contains a statement of fee
for service charges. CDS agrees to submit such encounter data to HNYMG by the
10th of the month following the month in which Health Care Services were
rendered.
<PAGE>
ARTICLE VI
RECORDS
6.1. Disclosure of Credentialing Information and Records: If requested,
CDS hereby authorizes HNYMG to release any and all information, records and
reports specific to CDS, including CDS qualifications and credentialing
information to Plans, governmental licensing agencies, or accreditation agencies
without CDS's prior written consent.
6.2. Maintenance and Retention of Records: CDS shall maintain medical
records that are accurate, complete, up-to-date, organized and otherwise in
conformance with good medical practice, so as to permit effective patient care
and quality review. Such records shall be retained for a period of seven (7)
years from the last date of treatment, or a longer time period if required by
law or regulation.
6.3. Access to Enrollee Medical Information: CDS shall comply with all
applicable laws, Professional standards and HNYMG policies regarding
confidential treatment of Enrollee medical information. Subject to and in
accordance with the foregoing, CDS shall make available to HNYMG and Plans at no
cost, other than the cost of copies, all Enrollee medical information required
by either of them for purposes of quality management and improvement (including
medical record review and peer review), utilization management (including case
management), adjudication of Enrollee claims, and resolution of complaints.
ARTICLE VII
TERM OF AGREEMENT
7.1. Term: This Agreement will become effective on the date executed by
HNYMG and will be effective for a period of twelve (12) months thereafter. This
Agreement will automatically be renewed for successive periods of twelve (12)
months each on the same terms and conditions contained herein.
<PAGE>
ARTICLE VIII
TERMINATION OF THE AGREEMENT
8.1. Termination: Notwithstanding any other provision of this
Agreement, HNYMG shall have the right to terminate this Agreement (1)
immediately upon written notice to CDs in the event that CDS shall be determined
by HNYMG to be in material violation or breach of the requirements of the
Agreement, and has failed to correct such violation or breach in seven (7)
calendar days, after notice by HNYMG, (2) if HNYMG reasonably determines that
the continuation of this Agreement may negatively affect the care rendered to
Enrollees, or (3) CDS or any person employed by or associated with CDS has
failed to maintain CDS liability insurance in the amount required in this
Agreement.
8.2. Termination Without Cause: This Agreement may be terminated by CDS
at the end of each month, without cause, by the giving of one hundred eighty
(180) days' prior written notice to HNYMG, unless a mutually accepted date is
agreed upon in writing. This Agreement may be terminated by HNYMG at any time,
without cause, by the giving of one hundred eighty (180) days' prior written
notice to CDS Inc., unless a mutually accepted date is agreed upon in writing.
8.3. Termination for Nonpayment: This Agreement may terminated by CDS
by the giving of thirty (30) days' prior written notice for undisputed and
uncorrected nonpayment by HNYMG to CDS Inc.
8.4. Termination of Agreement with Plan: In the event that the
Agreement to provide services between HNYMG and contracting Plan(s) is
terminated for any reason, HNYMG may terminate this Agreement on thirty (30)
days' prior written notice to CDS Inc.
8.5. Termination Mandated By Law: This Agreement may be terminated by
either party on thirty (30) days' written notice in the event that any court or
governmental agency determines that this Agreement violates any law or
regulation, or if such termination is expressly required by law. A shorter
notice period or no notice at all may be employed if required or ordered by any
court, governmental agency in authority or by legislative act.
8.6. Responsibility for Enrollees at Termination: CDS and each
affiliated Professional shall continue to provide Health Care Services to an
Enrollee who is receiving Health Care Services from CDS on the effective
termination date of this Agreement until the Health Care Services being rendered
to the Enrollee by CDS are completed (consistent with existing medical
ethical/legal requirement for providing continuity of care to a patient), unless
HNYMG or a Plan makes reasonable and medically appropriate provision for the
assumption of such Health Care Services by another Participating Provider. HNYMG
shall compensate CDS for those Health Care Services provided to an Enrollee at
the rate in effect at the time of this Agreement.
ARTICLE IX
OBLIGATIONS OF HNYMG
9.1. Utilization Review and Quality Assurance Procedure: HNYMG shall
provide to CDS the policies and procedures for HNYMG utilization and quality
management programs, including necessary forms. HNYMG shall establish a
Utilization Management Committee and a Quality Management Committee composed of
participating Providers to develop and oversee implementation of these programs.
9.2. Rights of Appeal: HNYMG shall establish an appeals process for
CDS's appeal of denials of payment for medical services rendered to Enrollees,
using an established appeals process.
9.3. Dispute Resolution Mechanism: HNYMG shall establish a dispute
resolution procedure for processing complaints or concerns of CDS, a
Professional, or Enrollee, including a formal grievance procedure. HNYMG shall
supply copies of such dispute resolution mechanism procedure to CDS.
9.4. Managed Care Education: HNYMG agrees to work with representatives
of CDS to develop and implement educational materials and programs for CDS and
Enrollees. Such programs may include: newsletter, training for Professional's
office staff, disease management programs, educational materials for Enrollees.
ARTICLE X
GENERAL PROVISIONS
10.1. Notices: Any notices required or permitted to be given hereunder
by either party shall be in writing. Notices given to CDS shall be deemed to be
received three (3) business days after having been deposited in the U.S. mail
with first class postage prepaid, or upon receipt whichever comes first, or upon
electronic confirmation of receipt of facsimile. Notices given to HNYMG shall be
deemed to have been received only upon actual receipt. Notices given pursuant to
termination of this Agreement of Section 5.4 or Section 5.5 of this Agreement
must be given by registered or certified mail, postage prepaid with return
receipt requested or overnight delivery service with tracking number. Notices
shall be addressed to the parties at the addresses appearing below, but each
party may change such party's address by written notice given in accordance with
this paragraph.
Heritage New York Medical Group Certified Diabetes Services, Inc.
1325 Franklin Avenue, Suite 102 2373 Horseshoe Drive South
Garden City, NY 11530 Naples, FL 34104
Attn: Ronald G. Hersch, PhD
TEL: (941) 430-5034
FAX: (941) 403-4306
<PAGE>
10.2. Entire Agreement of the Parties: This Agreement supersedes any
and all agreements, either written or oral, between the parties hereto with
respect to the subject matter contained herein and contains all of the covenants
and agreements between the parties with respect to the rendering of Covered
Services. Each party to this Agreement acknowledges that no representations,
inducements, promises, or agreements, oral or otherwise, have been made by
either party, or anyone acting on behalf of either party, which are not embodied
herein, and that no other agreement, statement, or promise not contained in this
Agreement shall be valid or binding. Except as otherwise provided herein, any
effective modification must be in writing, signed by the party to be charged.
10.3. Amendment: If HNYMG wishes to amend this Agreement, it shall give
notice to CDS of the proposed amendment. The failure of CDS to object to any
such proposed amendment within thirty (30) calendar days shall constitute
acceptance of the proposed amendment. Amendment shall become effective on the
31st day, unless within the 30 day period at least one-third (1/3) of all
affected participating Providers object in writing to the amendment, in which
case HNYMG shall either withdraw the amendment or send CDS a new proposed
amendment.
10.4. Severability: If any provision of this agreement is held by a
court of competent jurisdiction or applicable state or federal law, and its
implementing regulations, to be invalid, void or unenforceable, the remaining
provisions will nevertheless continue in full force and effect.
10.5. Arbitration: Any controversy or claim arising out of or relating
to this Agreement or the breach thereof that cannot be resolved by both parties
via the dispute resolution policy described in Section 9.3 will be settled by
arbitration in accordance with the rules of commercial arbitration of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. Such
arbitration shall occur within the County of Nassau, State of New York, unless
the parties mutually agree to have such proceeding in some other locale. The
arbitrator(s) may in any such proceeding award attorneys' fees and costs to the
prevailing party.
10.6. Governing Law: This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
10.7. Assignment: CDS shall not have the right to assign any of his/her
respective rights or delegate any of his/her respective duties hereunder without
receiving the prior written consent of HNYMG. Any such assignment, if not
consented by HNYMG, shall be null and void. This Agreement shall be binding
upon, and shall insure to the benefit of, the parties to it, and their
respective heirs, legal representatives, successors and assigns. HNYMG may
assign this agreement without approval of CDS Inc.
10.8. Independent Contractor: At all times relevant and pursuant to the
terms and conditions of this Agreement, CDS are and shall be construed to be
independent contractors practicing their profession and shall not be deemed to
be or construed to be an agent, servant or employee of HNYMG, except as
specifically set forth herein.
<PAGE>
10.9. Confidentiality: The terms of this Agreement and in particular
the provisions regarding compensation, are confidential and shall not be
disclosed except as necessary to the performance of this Agreement or as
required by law. In addition, CDS shall maintain all Enrollee information
including, but not limited to, the Enrollee's name, address, telephone number
("Enrollee Information"), and all other "HNYMG trade secret information"
confidential. For purposes of this Agreement, "HNYMG trade secret information"
shall include, but shall not be limited to: all HNYMG Plan Agreements and the
information contained therein regarding HNYMG, Plans, employer groups, the
financial arrangements between any hospital and HNYMG, and all manuals,
policies, forms, records, files, (other than patient medical files) and lists of
HNYMG.
CDS shall not disclose or use any Enrollee information or HNYMG trade
secret information for his/her own benefit or gain either during the term of
this Agreement or after the date of termination of this Agreement; provided,
however, CDS may use the name, address and telephone number or other medical
information of an Enrollee if medically necessary for the proper treatment of
such Enrollee or upon express prior written permission of HNYMG, Plans or the
Enrollee.
10.10. Non-Solicitation of Enrollees: During the period of this
Agreement, and for twelve (12) months after the effective date of termination of
this Agreement, CDS shall not engage in the practice of solicitation of HNYMG
Enrollees or any employer of Plan of said Enrollees, without HNYMG's prior
written consent. For purposes of this Agreement, solicitation shall mean any
action by CDS or Provider which HNYMG may reasonably interpret to be designed to
persuade an Enrollee to discontinue his/her relationship with HNYMG, to
disenroll from a Plan contracting with HNYMG, or to encourage an Enrollee to
receive health care from CDS or a Provider on a fee-for-service basis.
10.11. Waiver: The waiver of any provision, or of the breach of any
provision, of this Agreement must be set forth specifically in writing and
signed by the waiving party. Any such waiver shall not operate or be deemed to
be a waiver of any prior or future breach of such provision or of any other
provision.
10.12. Headings: The subject headings of the articles and paragraphs of
this Agreement are included for purposes of convenience only and shall not
affect the construction or interpretation of any of its provisions.
10.13. No Third Party Beneficiaries: Nothing in this Agreement,
expressed or implied, is intended or shall be construed to confer upon any
person, firm or corporation other than the parties hereto and their respective
successors or assigns, any remedy or claim under or by reason of this Agreement
or any term, covenant or condition hereof, as third party beneficiaries or
otherwise, and all of the terms, covenants and conditions hereof shall be for
the sole and exclusive benefit of the parties hereto and their successors and
assigns.
10.14. By executing this Agreement, CDS accepts the terms and
conditions hereof. Once CDS has been credentialed, HNYMG shall send an executed
copy of this Agreement to the CDS.
EXECUTED AT Nassau, New York, on the HNYMG:
date and year first above written.
CDS HEALTH MANAGEMENT, INC.
/s/ Ronald G. Hersch 1/22/98 /s/ Cindy A. Lighthill 1-23-98
- ------------------------------ -------------------------------
Signature Date Signature Date
Ronald G. Hersch, PhD Cindy A. Lighthill
President Vice President, Operations
<PAGE>
CDS AGREEMENT
SCHEDULE A
PAYMENT FOR HEALTH CARE SERVICES
HNYMG shall pay Provider those fees as set forth below as payment for those
Health Care Services made available or provided by Provider to an Enrollee.
These fees may be adjusted by HNYMG based upon funding available only upon
providing CDS with thirty (30) days' prior written notice of any such
modification to compensation amounts.
1. Commercial HMO Enrollees *
2. Senior HMO Enrollees *
CDS-TLC Diabetes Disease Management Product will be made available to
HNYMG members at the following rates:
Set-up Fee *
Participation Fee *(for indicated # of weeks)
CDS agrees to cooperate with educational programs arranged by HNYMG
for Primary Care Physicians and/or Specialists at the request of
HNYMG.
All services are subject to Benefit Plan provisions.
/s/ Ronald G. Hersch as President 1/22/98 /s/ Cindy A. Lighthill 1-23-98
- ------------------------------------------ -------------------------------
CDS Health Management, Inc./Date HNYMG/Date
- --------------
* Confidential treatment requested. Portions of this document have been
omitted by blocking out the relevant text pursuant to an Application for
Confidential Treatment. Such blocked out omissions have been filed separately
with the Securities and Exchange Commission. The Registrant shall furnish all
omitted schedules and exhibits to this document upon the request of the
Securities and Exchange Commission.
<PAGE>
PROFESSIONAL AGREEMENT
ATTACHMENT A
DEFINITIONS
1. "Co-payment or Deductible" means those charges for Professional
services which shall be collected directly by Provider from Enrollee as payment
in addition to the Fee, in accordance with the Enrollee's Evidence of Coverage.
2. "Covered Services" means those health care services and supplies
including Health Care Services which an Enrollee is entitled to receive under a
Plan's benefit program and which are described and defined in the Plan's
Evidence of Coverage and disclosure forms, subscriber and group contracts, and
in a Plan's Provider Manual.
3. "Emergency" means the existence or sudden onset of a symptom,
illness or injury which if diagnosis or treatment is delayed beyond what a
reasonable practitioner of care would recommend in the application of prudent
medical judgment, will result in further harm or injury to the patient, or in
the case of a pregnant female, to the fetus.
4. "Enrollee" (or "Member") means a person who is enrolled in a Plan,
including enrolled dependents, and is entitled to receive Covered Services.
5. "Evidence of Coverage" means the document issued by a Plan to an
Enrollee that describes the Enrollee's Covered Services in the Plan.
6. "Medical Director" means a Physician who is authorized by HNYMG to
be responsible for administering HNYMG medical affairs and for serving as
HNYMG's Medical Liaison to contracting Plans.
7. "Medically Necessary" means medical or surgical treatment which is
determined by the Participating Provider to be:
a) Appropriate and necessary at the time for the symptoms, diagnosis
or treatment of the medical condition;
b) Within the standards of medical practice within the community as
defined by HNYMG utilization management committee;
c) Not primarily for the convenience of the Enrollee, the CDS or any
other provider of health care services; and
d) covered services must be "Medically Necessary" unless defined
otherwise in the Plan's Evidence of Coverage.
8. "Non-Covered Services" means those health care services which are
not benefits under the Evidence of Coverage.
9. "Participating Hospital" means a duly licensed and accredited
hospital which has entered into an agreement with a Plan and HNYMG to provide
Covered Services to Enrollees.
10. "Participating Physician" means a physician (duly licensed to
practice health care or medicine or osteopathy in accordance with applicable New
York law) who has entered into an agreement with HNYMG to provide Covered
Services to Enrollees.
11. "Participating Provider" means a Participating Physician,
Participating Hospital, or other licensed health facility or licensed health
professional which has entered into an agreement to provide Covered Services to
Enrollees.
12. "Primary Hospital(s)" means a general acute care hospital(s)
selected by HNYMG.
13. "Primary Physician" or "Primary Care Physician" (PCP) means a
Participating Physician selected by an Enrollee to render first contact medical
care and to provide "Primary Care Services" and refers to physician as
determined by HNYMG, usually internists, pediatricians, family practitioners and
general practitioners, who are under contract with HNYMG and entered into an
arrangement with HNYMG to provide certain health care services to Enrollees.
<PAGE>
14. "Health Care Services" means those Covered Services for which CDS
is trained, qualified, credentialed, and licensed to perform and provided to all
Enrollees.
15. "Referral" means the process by which the Participating Physician
directs an Enrollee to seek and obtain Covered Services from a health
professional, a hospital or any other provider of Covered Services.
16. "Provider" means a Participating Physician who is professionally
qualified to practice his/her designated specialty and whose agreement with
HNYMG includes responsibility for providing Covered Services in his/her
designated specialty.
17. "Provider" means any Professional affiliated or employed by CDS
and/or CDS.
18. "Subscriber" means a person or entity which is responsible for
payment to a Plan, or a person whose employment or other status, except for
family dependency, is the basis for eligibility for enrollment in a Plan.
<PAGE>
LIFESCAN INC
a Johnson & Johnson company
Purchasing Agreement Contract
for Medicare Distributors Pilot Program
Date: June 2, 1997
Distributor's Name: Certified Diabetic Supplies, Inc.
Distributor's Address: 1951 J & C Blvd.
Naples, FL 34109-6215
Distributor's Phone (800) 445-4313 FAX: (800) 529-0543
Key Contacts: Peter J. Fascina Title: President
Signatures:
/s/ PETER J. FISCINA /s/ GLENN JOHNSON
- ---------------------------- ----------------------------
Signature Signature
Peter J. Fiscina Glenn Johnson
- ---------------------------- ----------------------------
Name (Please Print) Name (Please Print)
6/25/97 June 2, 1997
- ---------------------------- ----------------------------
Date Date
I. INTRODUCTION
A. Pursuant to this agreement, LifeScan agrees to sell and Certified
Diabetic Supplies, Inc. (hereafter, "Customer") agrees to buy Medicare
ONE TOUCH and SureStep Test Strips for sale exclusively to Medicare
end-users according to the terms set forth below.
<PAGE>
PAGE 2
B. This contract supersedes any existing agreement between LifeScan and
Customer covering the same subject matter.
II. TERM
A. This agreement shall commence on the date executed by both parties and
be effective with shipments beginning May 15, 1997 (hereinafter, the
effective date), and shall remain in effect until December 31, 1997.
B. This Agreement will be automatically renewed for successive annual
periods unless either party delivers, by December 1 of the current
year, written notice stating it does not intend to renew.
III. DEFINITIONS
A. Medicare Distributor - 1) An entity in the business of selling blood
glucose self-monitoring devices, such as ONE TOUCH meters and test
strips, 2) At least 70% of the entity's customer base for these blood
glucose meters and test strips are enrolled in Medicare or Medicaid, 3)
The entity has signed an agreement to accept assignment as a "preferred
supplier" for Medicare, and 4) The entity provides an enhanced product
consisting of test strips and patient services that promote tight
control of glucose levels, frequent testing and an improved quality of
life for people with diabetes.
B. Product Discounts - As an incentive for achieving the volumes and
providing services to the Medicare/Medicaid community, discounts are
available according to the following schedule:
<TABLE>
<CAPTION>
Product Qtrly 50's Rqmt Net Price* Patient Services
------- --------------- ---------- ----------------
<S> <C> <C> <C>
1. ** ** 800# for Patient Training
2. ** ** 800# for Patient Training
Out-Bound Calling
Patient Newsletter
3. ** ** 800# for Patient Training
Out-Bound Calling
Patient Newsletter
In-Home Patient Assistance
4. ** ** 800# for Patient Training
Out-Bound Calling
Patient Newsletter
In-Home Assistance
CDE Hot-Line Assistance
</TABLE>
- ---------------------
*Note: Net Price as of 7/1/96, if a price increase is announced after this date,
the Medicare Net Price increase will be proportionate.
** Confidential treatment requested. Portions of this document have been
omitted by blocking out the relevant text pursuant to an Application for
Confidential Treatment. Such blocked out omissions have been filed
separately with the Securities and Exchange Commission. The Registrant
shall furnish all omitted schedules and exhibits to this document upon
the request of the Securities and Exchange Commission.
<PAGE>
PAGE 3
C. Quarterly Volume Objectives (QVO) - quarterly volume requirements
established by the schedule above.
D. Medicare ONE TOUCH Test Strips - 50's - Genuine ONE TOUCH and
SureStep(TM) Test Strips, containing 2 vials of 25 strips for a total
of 50, specially packaged with a label marked "For Medicare Only",
LifeScan part # 010-391, and NDC # 53885-391-50, for ONE TOUCH; part
# 010-442 and NDC # 53885-442-50, for SureStep.
E. Medicare Assignment End-User - a qualified Medicare recipient for whom
the Customer has agreed to process the Medicare paperwork and accept
80% of the authorized Medicare reimbursement rate directly from
Medicare, plus the remaining 20% directly from the end-user or a
supplementary insurance provider.
F. 50-strip vial - one carton of Medicare ONE TOUCH or SureStep Test
Strips - 50's containing 2 vials of 25 strips for a total of 50.
G. Unit - one carton of Medicare ONE TOUCH or SureStep Test Strips - 50's
containing 2 vials of 25 strips for a total of 50 and the basis for
measuring sales volume.
H. Original Invoice Price - *
I. Credit Certificate - a document completed by a LifeScan representative
at the time of the on-site quarterly audit that verifies compliance to
the terms of the Agreement and calculates the Product Discounts earned
on each invoice. The Credit Certificate can be attached to an
outstanding LifeScan invoice. *
IV. PRICING AND QUANTITY LIMITATIONS
A. LifeScan will sell Medicare ONE TOUCH or SureStep Test Strips to
Customer at * (hereinafter, the "Original Invoice Price").
B. *
- -----------------
* Confidential treatment requested. Portions of this document have been
omitted by blocking out the relevant text pursuant to an Application for
Confidential Treatment. Such blocked out omissions have been filed
separately with the Securities and Exchange Commission. The Registrant
shall furnish all omitted schedules and exhibits to this document upon
the request of the Securities and Exchange Commission.
<PAGE>
PAGE 4
C. Customer agrees to permit a quarterly on-site audit by LifeScan. This
will confirm shipments to Medicare customers, reconcile Credit
Certificates and verify that the Consumer Service Requirements are
being met.
D. Customer agrees that orders exceeding * are subject to LifeScan
approval. Customer agrees to provide complete and adequate
documentation of increased Medicare assignment end-user demand, if
necessary.
E. Customer agrees to maintain a good credit status within its previously
approved limits and consistent with its current business conditions. If
the Customer exceeds its limit, LifeScan reserves the right to refuse
or hold additional shipments. Resolving a credit hold may require
advance payments on outstanding invoices that exceed the credit limit.
F. LifeScan has no control over the Customer's price to the end-user.
V. CUSTOMERS REPRESENTATIONS AND OBLIGATIONS
A. Customer represents that it is a Medicare Distributor, as defined
above. Customer further represents that at least 70% of the sales
(measured by unit sales) of such test strips made in the 12 months
preceding the Effective Date of this Agreement, were made to Medicare
Assignment end-users, and that Customer accepted 80% of the authorized
Medicare reimbursement ceiling price, plus the 20% co-payment from
either the end-user or a supplementary insurance carrier, as full
payment.
B. During the term of the Agreement, following the Effective Date,
Customer will only accept 80% of the authorized Medicare reimbursement
ceiling for LifeScan blood glucose products, plus the 20% co-payment
from either the end-user or a supplementary insurance carrier, as
payment in full. Customer agrees to sell Medicare ONE TOUCH or SureStep
Test Strips (measured by unit sales) to Medicare assignment end-users
only. Failure by Customer to sell Medicare ONE TOUCH or SureStep Test
Strips exclusively to Medicare assignment end-users during the one-year
term renders this Agreement immediately voidable by LifeScan.
C. Customer agrees to buy from LifeScan at least the minimum number of
units of 50-strip vials required for its QVO for each quarter of the
contract term, commencing on the Effective Date.
D. Customer agrees to sell Medicare ONE TOUCH or SureStep Test Strips to
Medicare assignment end-users only. If LifeScan, at its sole
discretion, believes that Customer has made a knowing sale of Medicare
ONE TOUCH or SureStep Test Strips to a person or entity other than a
Medicare assignment end-user, LifeScan may terminate this Agreement
immediately.
- ----------
* Confidential treatment requested. Portions of this document have been
omitted by blocking out the relevant text pursuant to an Application of
Confidential Treatment. Such blocked out omissions have been filed
separately with the Securities and Exchange Commission. The Registrant
shall furnish all omitted schedules and exhibits to this document upon the
request of the Securities and Exchange Commission.
<PAGE>
PAGE 5
E. Customer agrees not to advertise Medicare ONE TOUCH or SureStep Test
Strip prices. Customer agrees that advertising price is not essential
element of making sales to the Medicare assignment end-user since
Customer is accepting the Medicare reimbursement ceiling, including the
patient co-pay, as full payment. Failure to comply with the terms of
this paragraph renders the Agreement immediately voidable by LifeScan.
F. Customer agrees that, consistent with good professional practices, it
will not recommend that any Medicare assignment end-user requesting ONE
TOUCH or SureStep Test Strips consider accepting a substitute reagent
strip. Failure to comply with the terms of this paragraph renders the
Agreement immediately voidable by LifeScan.
Customer agrees to provide LifeScan with complete and adequate
documentation on sales and inventories, no later than 15 days after
each invoice becomes due, confirming sales of Medicare ONE TOUCH or
SureStep Test Strips to Medicare assignment end-users only. Failure to
comply with the terms of this paragraph renders the Agreement
immediately voidable by LifeScan. Customer's obligations and LifeScan's
rights under this paragraph survive termination of the Agreement.
VI. PRODUCT RETURNS
Product returns will be covered by the terms of the existing agreement
between the Customer and LifeScan. Customer agrees that all product
returns will be deducted from the volume calculations used for Volume
Discounts.
VII. DELAYS
Customer will not be penalized in volume calculations for Volume
Discounts if LifeScan was unable to fill legitimate orders or the
product was backordered.
VIII. WARRANTIES
LifeScan warrants to Customer that each product will be free from
defects in materials and workmanship and complies with LifeScan
specifications. Customer acknowledges and agrees that LifeScan's sole
responsibility in case of breach of the foregoing warranty shall be for
LifeScan to comply with LifeScan's policy for the return of defective
products in effect at the time of such breach, and LifeScan shall not
be liable to Customer for any other damages, including but not limited
to consequential for punitive damages arising out of breech of this
warranty. The foregoing warranty shall not apply to and LifeScan is not
responsible for any defects or damage caused by improper storage,
misuse, abuse, neglect or accident caused by persons not employed by
LifeScan.
<PAGE>
PAGE 6
IX. INDEMNIFICATION
Customer shall hold harmless and indemnify LifeScan, its agents and
employees, from any third party claims, suits, losses and expenses,
including attorney fees, provided that any such claim, suit, loss or
expense is attributable to bodily injury sickness, disease, or death,
or injury to property which is caused by negligence or intentional acts
of Customer, its agents, employees, subcontractors or suppliers, or
failure to comply with federal, state or local law including but not
limited to statutes, regulations and ordinances prohibiting illegal
discrimination or retaliation. And, LifeScan shall hold harmless and
indemnify Customer, its agents and employees, from any third party
claims, suits, losses and expenses, including attorney fees, provided
that any such claim, suit, loss or expenses is attributable to bodily
injury, sickness, disease, or death, or injury to property which is
caused by negligence or intentional acts of LifeScan, its agents,
employees, subcontractors or supplies, or failure to comply with
federal, state or local law including but not limited to statutes,
regulations and ordinances prohibiting illegal discrimination or
retaliation.
X. CONFIDENTIALITY
A. The pricing terms and conditions of this Agreement are considered
proprietary and confidential. Within Customer, such pricing terms and
conditions will be restricted to Customer's management directly
involved with administering the Agreement.
B. Customer agrees not to divulge the pricing, terms or conditions of
this Agreement to an outside party. If LifeScan, at its sole
discretion, believes Customer has breached the provisions of this
section IX, it may terminate Agreement immediately.
C. Customer's obligations and LifeScan's rights under this paragraph
survive termination of this Agreement.
XI. ARBITRATION
Any and all unresolved disputes between the parties relating to this
agreement shall be settled by binding arbitration at a location within
San Jose, California. Such arbitration shall be conducted in accordance
with the then current rules of the American Arbitration Association
("AAA") with a panel of three arbitrators to be selected from the
National Panel or Arbitrators of AAA pursuant to the AAA rules.
Reasonable discovery as determined by the arbitrators shall apply to
the arbitration proceeding and California law shall govern. Judgment
upon award rendered by the arbitrators may be entered in any court
having jurisdiction thereof. Each party shall bear its own costs. No
punitive damages shall be awarded.
<PAGE>
PAGE 7
XII. RELATIONSHIP OF THE PARTIES
The relationship between LifeScan and the Customer is that of supplier
and purchaser. Customer is an independent contractor and is not the
legal representative, agent, joint venturer, partner, or employee of
LifeScan for any purpose whatsoever and has no right or authority to
assume or create any obligations of any kind or to make any
representations or warranties, whether express or implied, on behalf of
LifeScan, or to bind LifeScan in any respect whatsoever.
XIII. TERMINATION
The intent of this contract is to establish an on-going business
relationship that provides efficient distribution to Medicare patients,
delivers services to those consumers, encourages increased blood
glucose monitoring compliance and reduces the associated medical costs.
Except as otherwise specified in the Agreement, this Agreement may be
terminated by either party in the event of a breach of any material
term after 6 month notice to the breaching party and an opportunity to
cure.
<PAGE>
Acct # 2952
BOEHRINGER MANNHEIM CORPORATION
MEDICARE STRIP REBATE CREDIT PROGRAM
Contract # M103
-------
MEDICARE/MEDICAID STRIP REBATE CREDIT
PURCHASING AGREEMENT
This Agreement is made this 22 day of May, 1997, by and between Boehringer
Mannheim Corporation ("BMC") and Certified Diabetic Supplies Inc.
("Distributor").
The parties hereto agree as follows:
1. Products and Price
A. BMC will sell to Distributor the products set forth on Exhibit A, attached
hereto and incorporated by reference, at the prices set forth on such exhibit.
Distributor agrees to purchase such products direct from BMC in case quantities
through the use of a separate purchase order than for other BMC products. BMC
agrees to ship products within five days of BMC's receipt of Distributor's
purchase order. Distributor agrees to resell such products only to Medicare or
Medicaid Customers (defined below). In addition, Distributor agrees to abide by
BMC's established direct account return goods policy.
B. The prices of Exhibit A products may be adjusted with thirty days' notice by
BMC if BMC adjusts its distributor pricing.
C. BMC reserves the right to add products to or delete products from Exhibit A
upon ninety (90) days notice to Distributor.
D. Distributor agrees to the volume and share commitments set forth on Exhibit
D. If Distributor does not meet the commitments, BMC may terminate this
Agreement by written notice to Distributor.
2. Rebates
A. Distributor represents and warrants to BMC that it is a party to a Medicare
and/or state(s) Medicaid participation agreement.
B. BMC will issue a credit to the Distributor for rebate amounts set forth on
Exhibit B for sales made to customers for which Distributor accepts assignment
of Medicare and/or Medicaid claims (hereinafter referred to as Customers).
The rebates on Exhibit B for Advantage and Instant strips are available
only if the total BMC strip share is equal to or greater than * of all blood
glucose monitoring strips sold to Medicare/Medicaid patients during the previous
calendar *. BMC strip share is defined as the * of all BMC strips sold to
Medicare/Medicaid patients during the previous * divided by the * of all strips
sold to Medicare/Medicaid patients during the previous *.
C. BMC will issue a credit to the Distributor for Medicaid Customers if the
state's Medicaid Programs (see Exhibit E for approved states) reimbursement for
strips is equal to or less than the Medicare strip reimbursement national
ceiling (e.g. Medicare's national ceiling for a vial of 50 strips in 1997 is
* ).
D. Distributor may claim rebates no more often than *. Distributor shall
provide BMC with a summary of sales made to Medicare and/or Medicaid Customers,
broken down by product by the 10th day of the month. The information provided to
BMC shall be in the form set forth on Exhibit C. The minimum rebate amount that
may be claimed is *. If Distributor's sales are insufficient to allow
Distributor to claim the minimum amount in any *, Distributor may claim a
rebate in a subsequent
- -----------------------
* Confidential treatment requested. Portions of this document have been
omitted by blocking out the relevant text pursuant to an Application for
Confidential Treatment. Such blocked out omissions have been filed
separately with the Securities and Exchange Commission. The Registrant
shall furnish all omitted schedules and exhibits to this document upon
the request of the Securities and Exchange Commission.
PAGE 1
<PAGE>
BOEHRINGER MANNHEIM CORPORATION
MEDICARE STRIP REBATE CREDIT PROGRAM
* by aggregating sales from *. Rebates for Advantage and Instant strips based on
attainment of at least * share as indicated in 2.B. may only be requested *.
E. BMC agrees to issue a credit to the Distributor for any rebate due within 10
days of receipt of rebate claim and information as specified in C.
F. Distributor has provided BMC with its Medicare and/or Medicaid supplier
number and hereby authorizes BMC to request information from Medicare and/or
Medicaid relating to sales of BMC products to Customers. Distributor will either
provide customer information (product, date sold and customer Medicare and/or
Medicaid number) with its rebate request form or allow a monthly on-site audit
by a BMC representative. Distributor also agrees that BMC may audit , at any
time upon reasonable notice, Distributor's records to determine that rebates
have been paid correctly. Distributor shall promptly reimburse BMC for any
amounts that the audit determines have been paid incorrectly.
3. Term/Termination
A. The term of this Agreement shall be for a period of one year from the date
hereof. Upon agreement by BMC and Distributor to revisions in the volume and
share commitments set forth in Exhibit D, this Agreement shall automatically
renew for additional one-year periods unless either party gives the other party
sixty (60) days notice that it does not desire to renew the Agreement.
B. Either party may terminate this Agreement upon sixty (60) days written notice
to the other in the event that (i) the other party becomes unable to pay its
debts as they occur in the ordinary course of business or commits any act of
bankruptcy; or (ii) the other party breaches this Agreement and fails to cure
said breach within thirty (30) days from its receipt of written notice from the
other party specifying such breach.
C. BMC may terminate this Agreement immediately upon written notice from BMC to
Distributor in the event that BMC has reason to believe that Distributor is
offering for sale any of the products purchased under this Agreement to
customers who are not Medicare and/or Medicaid Customers or that Distributor is
claiming rebates for sales that were not made to Medicare and/or Medicaid
Customers. In the event Distributor offers for sale any of the products
purchased under this Agreement to customers who are not Medicare and/or Medicaid
Customers or claims rebates for sales that were not made to Medicare and/or
Medicaid Customers, Distributor agrees to pay to BMC an amount equal to the
total rebate received for such products, plus a twenty-five percent (25%)
handling fee to compensate BMC for the costs of processing such rebates.
4. General
A. Assignment: This Agreement shall not be assigned by either party without the
prior and express written consent of the other.
B. Entire Agreement: This Agreement constitutes the entire agreement between the
parties, and no other agreements, whether written or oral, shall be used to
construe, alter, or modify the terms of this Agreement. This Agreement may be
amended only by a written document signed by both of the parties hereto.
C. Independent Contractors: The relationship between the parties to this
Agreement shall be that of independent contractors and neither party shall be
considered the agent of the other party or to have an authority to act for or on
behalf of the other party.
D. Governing Law: This Agreement shall be governed by and construed in
accordance with the laws of the State of Indiana.
- ---------------------
* Confidential treatment requested. Portions of this document have been
omitted by blocking out the relevant text pursuant to an Application for
Confidential Treatment. Such blocked out omissions have been filed
separately with the Securities and Exchange Commission. The Registrant
shall furnish all omitted schedules and exhibits to this document upon
the request of the Securities and Exchange Commission.
PAGE 2
<PAGE>
BOEHRINGER MANNHEIM CORPORATION
MEDICARE AND/STRIP REBATE CREDIT PROGRAM
- -------------------------------------------------------------------------------
Distributor: BMC
Name CERTIFIED DIABETIC SUPPLIES INC. BOEHRINGER MANNHEIM CORPORATION
---------------------------------
Acct No. 2452-0 By: /s/ JUDY A. PHIPPS
----------------------- ------------------------------
Address 1951 JC Boulevard Title: CONTRACTS
----------------------- ---------------------------
(To be signed by BMC Contract
Administrator only)
City/State/Zip NAPLES, FLORIDA 34109
----------------------
By: /S/ ILLEGIBLE Account Manager: /S/ ROBERT MEGNIN
------------------------ --------------------
Title: PRES/CEO Acct Mgr Territory 4164
--------------------- --------------
Medicare Supplier Number: Acct Mgr ASPEN 5123
--------------
0925330001
- ------------------------
Medicaid Supplier Number:
N/A
- ------------------------
States with sales to Medicaid beneficiary:
- ---------------------------------
- ---------------------------------
- ---------------------------------
- ---------------------------------
Standing P.O. #
261026
- ---------------------------------
- -------------------------------------------------------------------------------
Mail contract and first order (allow 30 days for delivery)
Boehringer Mannheim Corporation
Diabetes Care Contract Administration
9115 Hague Road
Indianapolis, Indiana 46250
PAGE 3
<PAGE>
BOEHRINGER MANNHEIM CORPORATION
MEDICARE/MEDICAID STRIP REBATE CREDIT PROGRAM
EXHIBT A
(LIST OF PRODUCT)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PRODUCT NDC. NO CATALOG NUMBER QUANTITY UNIT COST
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Chemstrip(R)bG 50924-502-50 00502 50/vial **
- ------------------------------------------------------------------------------------------------------------
Tracer(R)Strips 50924-535-50 00535 50/vial **
- ------------------------------------------------------------------------------------------------------------
Accu-Chek(R) 50924-336-50 336 50/vial **
Advantage(TM) Strips
- ------------------------------------------------------------------------------------------------------------
Accu-Chek(R)Easy(TM) 50924-560-50 00560 50/vial **
Test Strips *
- ------------------------------------------------------------------------------------------------------------
Accu-Chek(R)Instant(TM) 50924-337-50 337 50/vial **
Strips *
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Note: The discounted price of these two products is reflected in the purchase
price and honored if BMC strip volume is equal to or greater than **.
Account Signature /S/ ILLEGIBLE Date 6/24/97
------------------------- --------------------
- -------------------
** Confidential treatment requested. Portions of this document have been
omitted by blocking out the relevant text pursuant to an Application for
Confidential Treatment. Such blocked out omissions have been filed
separately with the Securities and Exchange Commission. The Registrant
shall furnish all omitted schedules and exhibits to this document upon
the request of the Securities and Exchange Commission.
<PAGE>
BOEHRINGER MANNHEIM CORPORATION
MEDICARE/MEDICAID STRIP REBATE CREDIT PROGRAM
EXHIBIT B
(REBATE AMOUNTS PER PRODUCTS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
PRODUCT CATALOG NUMBER REBATE
(BMC share of business must be maintained)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Chemstrip(R)bG 00502 *
- --------------------------------------------------------------------------------------------
Tracer(R)Strips 00535 *
- --------------------------------------------------------------------------------------------
Accu-Chek(R)Easy(TM) 00560 *
Test Strips *
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
PRODUCT CATALOG NUMBER REBATE
(BMC previous quarterly share of business
must be equal to or greater than *)
- --------------------------------------------------------------------------------------------
Accu-Chek(R) 336 *
Advantage(TM) Strips
- --------------------------------------------------------------------------------------------
Accu-Chek(R) 337 *
Instant(TM) Strips
- --------------------------------------------------------------------------------------------
</TABLE>
Account Signature /S/ ILLEGIBLE Date 6/24/97
---------------------------- ---------------------
- -------------------
* Confidential treatment requested. Portions of this document have been
omitted by blocking out the relevant text pursuant to an Application for
Confidential Treatment. Such blocked out omissions have been filed
separately with the Securities and Exchange Commission. The Registrant
shall furnish all omitted schedules and exhibits to this document upon
the request of the Securities and Exchange Commission.
<PAGE>
<TABLE>
<CAPTION>
CONTRACT M103 BOEHRINGER [LOGO]
MANNHEIM
CORPORATION
Exhibit C
MEDICARE STRIP REBATE REQUEST FORM
NAME Certified Diabetic Supplies Inc. CUST DEBIT MEMO__________________________________ REQUEST DATE____________________________
ACCT #/SHIP TO__________________________________ CONTRACT #______________________________
MEDICARE SUPPLIER #_____________________________
- -------------------------------------------------------------------------------------------------------------------------------
BEGINNING ENDING CATALOG BILLED CONTRACTED REBATE AMOUNT NUMBER OF TOTAL
DATE DATE NUMBER PRICE PRICE VIALS SOLD REBATE
SOLD SOLD PER VIAL PER VIAL
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
502 * * *
- -------------------------------------------------------------------------------------------------------------------------------
535 * * *
- -------------------------------------------------------------------------------------------------------------------------------
560 * * *
- -------------------------------------------------------------------------------------------------------------------------------
TOTALS
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------
Mail to:
Boehringer Mannheim Corporation
Attention: Rebate Administration
Medicare - H
9115 Hague Road
Indianapolis, IN 46256
- ---------------------------------
NOTE: THE FOLLOWING CUSTOMER INFORMATION MUST BE ATTACHED:
PRODUCT, DATE SOLD, AND CUSTOMER MEDICARE NUMBER
[ ] (Check here) Data will be provided during BMC monthly on-site audit.
PRODUCT CLASS 850701 SUPPLIER AUTHORIZED SIGNATURE /S/ ILLEGIBLE
-------------------
RR#________________________________________________
BMC USE ONLY
The name of the Medicare Customer and the Customer's Medicare number shall be
treated as confidential information by BMC and shall not be disclosed to third
parties or used except in connection with the administration of the Medicare
Strip Rebate Purchasing Agreement, or as may be required by law.
- -------------------
* Confidential treatment requested. Portions of this document have been
omitted by blocking out the relevant text pursuant to an Application for
Confidential Treatment. Such blocked out omissions have been filed
separately with the Securities and Exchange Commission. The Registrant
shall furnish all omitted schedules and exhibits to this document upon the
request of the Securities and Exchange Commission.
<PAGE>
BOEHRINGER MANNHEIM CORPORATION
MEDICARE/MEDICAID STRIP REBATE CREDIT PROGRAM
EXHIBIT D
(ANNUAL VOLUME AND SHARE COMMITMENTS)
ANNUAL STRIP SALES VOLUME COMMITMENT
-----------
PRIOR 12 MONTH BMD STRIP SALES GOAL **
-----------
-----------
NEXT 12 MONTH BMD STRIP SALES GOAL **
From June 1, 1997 TO May 31, 1998
-----------
o 1st quarter interim goal **
-----------
o 2nd quarter interim goal **
-----------
o 3rd quarter interim goal **
-----------
ANNUAL SHARE OF BUSINESS COMMITMENT
<TABLE>
<CAPTION>
<S> <C> <C>
- -------------------------------------------------------------------------------------- -----------------------------
COMPANY PRIOR 12 MONTH ACTUAL SHARE OF BUSINESS COMMITMENT
- -------------------------------------------------------------------------------------- -----------------------------
$ % %
- -------------------------------------------------------------------------------------- -----------------------------
BMD* ** ** **
- -------------------------------------------------------------------------------------- -----------------------------
Lifescan -- **
- --------------------------------------------------------------------------------------
Miles
- --------------------------------------------------------------------------------------
Medisense
- --------------------------------------------------------------------------------------
Polymer
- --------------------------------------------------------------------------------------
Can Am
- --------------------------------------------------------------------------------------
Other:
-- **
- --------------------------------------------------------------------------------------
TOTAL * Bayer -- **
- --------------------------------------------------------------------------------------
</TABLE>
* Required fields
BMC Account Manager Signature_________________________ Date___________________
Account Signature /S/ ILLEGIBLE Date 6/24/97
------------------------------------ -------------------
- -----------------
** Confidential treatment requested. Portions of this document have been
omitted by blocking out the relevant text pursuant to an Application for
Confidential Treatment. Such blocked out omissions have been filed
separately with the Securities and Exchange Commission. The Registrant
shall furnish all omitted schedules and exhibits to this document upon the
request of the Securities and Exchange Commission.
<PAGE>
BOEHRINGER MANNHEIM CORPORATION
MEDICARE/MEDICAID STRIP REBATE CREDIT PROGRAM
EXHIBIT E
State Medicaid Programs with strip reimbursement below the Medicare national
ceiling (e.g. vial of 50 strips *)
---------------------------------------------------------
State Effective
---------------------------------------------------------
Arizona 1/1/97
---------------------------------------------------------
Colorado 1/1/97
---------------------------------------------------------
Delaware 1/1/97
---------------------------------------------------------
Georgia 1/1/97
---------------------------------------------------------
Idaho 1/1/97
---------------------------------------------------------
Indiana 1/1/97
---------------------------------------------------------
Kansas 1/1/97
---------------------------------------------------------
Kentucky 1/1/97
---------------------------------------------------------
Minnesota 1/1/97
---------------------------------------------------------
Missouri 1/1/97
---------------------------------------------------------
Montana 1/1/97
---------------------------------------------------------
Nebraska 1/1/97
---------------------------------------------------------
Nevada 1/1/97
---------------------------------------------------------
New Mexico 1/1/97
---------------------------------------------------------
North Carolina 1/1/97
---------------------------------------------------------
North Dakota 1/1/97
---------------------------------------------------------
Ohio 1/1/97
---------------------------------------------------------
Oklahoma 1/1/97
---------------------------------------------------------
Rhode Island 1/1/97
---------------------------------------------------------
South Dakota 1/1/97
---------------------------------------------------------
Texas 1/1/97
---------------------------------------------------------
Washington 1/1/97
---------------------------------------------------------
Wisconsin 1/1/97
---------------------------------------------------------
Wyoming 1/1/97
---------------------------------------------------------
- ----------------
* Confidential treatment requested. Portions of this document have been
omitted by blocking out the relevant text pursuant to an Application for
Confidential Treatment. Such blocked out omissions have been filed
separately with the Securities and Exchange Commission. The Registrant
shall furnish all omitted schedules and exhibits to this document upon the
request of the Securities and Exchange Commission.
<PAGE>
LOGO
AGREEMENT FOR SERVICES
This is an Employee Lease Agreement (hereinafter referred to as the
"Agreement"), dated 6/9/97 between Certified Diabetic Supplies, Inc.
(hereinafter referred to as "Client"), located at 1951 J&C Blvd, Naples, FL
34109, and Professional Employee Management, Inc., its successors and assigns
(hereinafter referred to as "PEM.") of Sarasota, Florida.
BACKGROUND
Client desires to lease employees from PEM. Such employees shall remain
employees of PEM, unless this Agreement is terminated, in which case the
employees will automatically become employees of Client. Client recognizes that
it will receive significant advantages from such an arrangement. Accordingly, in
consideration of the mutual covenants and agreements contained in this
Agreement, the parties agree as follows:
1. Term.
A. This Agreement shall remain in force for the term of thirty (30)
days (the "Initial Term"). Following the Initial Term, this Agreement shall
remain in force from month to month until one party gives written notice to the
other party as specified in Paragraph 17 below, at least seven (7) days prior to
the expiration of any monthly extension of the Initial Term. PEM may terminate
this Agreement upon seven (7) days written notice should Client breach any of
the provisions of this Agreement.
B. PEM shall have the right to terminate this Agreement immediately in
the event of non-payment or late payment by the Client occurring at any time
after the date of this Agreement. The failure by Client to call in a payroll
shall work an immediate revocation of this Agreement.
2. Effective Date.
This Agreement shall become effective only when both parties have
signed this document, the initial payroll has been processed, paid for and
received by Client.
MARKETING REPRESENTATIVES OF PEM ARE NOT AUTHORIZED TO BIND PEM WITHOUT THE
SIGNATURES OF A LICENSED CONTROLLING PERSON, IN ACCORDANCE WITH FLORIDA
STATUTES, AND A CORPORATE OFFICER.
1
<PAGE>
3. The Employees.
PEM will lease the employees listed on Exhibit B to Client. Client
shall fill out Exhibit B, either in type or print. PEM shall be fully
responsible for notifying all leased employees of their leased employee status.
Each employee shall be identified according to workers' compensation
classification by proper code. Client's signature shall be affixed to Exhibit B
to indicate proper classification. No other employees shall become leased to
Client unless specifically agreed by PEM. Client is obligated to notify PEM
immediately of any new applicants to ensure that all new hires receive the
appropriate benefits and that all customary payroll obligations are met. Client
must transmit to PEM a workers' compensation classification, in type or print,
for each and every new hire. Client's signature must be affixed to this
transmission which should become a permanent addendum to Exhibit B when
processed and signed for by PEM. PEM shall not be considered an employer for any
employee who does not complete a PEM employment application and who is not
accepted by PEM as a leased employee. Failure by Client to timely notify PEM of
new hires shall constitute grounds for immediate termination of this Agreement.
Client agrees to notify PEM immediately upon the release, termination or
cessation of employment of any employee. Client agrees to cooperate with PEM in
all employment and unemployment matters. Client recognizes that these are
essential conditions of this agreement. PEM will provide workers' compensation
insurance for leased employees when they are performing work in accordance with
this Agreement. Should any individual perform services for Client and should
Client not report those hours to PEM, PEM shall not be obligated to said
individual in any way either with regard to paying such individual for such
hours or with regard to providing any benefit including workers' compensation,
or in any other manner be obligated to said individual.
4. Services Provided To Client.
PEM shall be fully responsible for payment of all payroll, payroll
taxes, collection of taxes, unemployment insurance and other administrative
functions customarily performed by an Employer for its employees with regard to
leased employees while they are performing work for PEM. PEM shall, without
regard to payments by Client, assume such responsibilities as are required by
applicable federal Wage and Hour law for payment of wages to leased employees
until such employees are terminated from employment with PEM. PEM shall properly
secure coverage for workers' compensation for employees covered under this
Agreement and shall offer an optional Employee benefit package to all qualifying
employees on an equal basis. Client shall be responsible for ensuring that all
applications and insurance enrollment forms are fully completed and returned to
PEM. PEM shall cooperate with and assist Client in this important endeavor.
2
<PAGE>
5. Reservation of Rights.
In compliance with State law and Federal guidelines, PEM shall, after
consultation with Client, through Client's Corporate Personnel Department or its
on-site Supervisor;
A. Have a right to recruit, hire, direct and control employees,
B. Have a right to discipline, replace, and terminate the employment
of such employees and designate the date of separation from employment,
C. Have a right to reward, promote, reassign, evaluate and determine
the wages, hours, terms and conditions of employment,
D. Have the right to resolve and decide employee grievances and
disputes,
E. Supervise and direct such employees in a reasonable manner
consistent with the practices of similar businesses and enterprises. Client's
on-site supervisor is Peter Fiscina.
F. Client may retain such sufficient direction and control over the
leased employees as is necessary to conduct the client's business and without
which the client would be unable to conduct its business, discharge any
fiduciary responsibility that it may have, or comply with any applicable
licensure, regulatory, or statutory requirement of Client.
6. Safety and Training.
It shall be the responsibility of Client to implement a safety and
training program which meets the standards of regulations issued by the Florida
Division of Safety, including the responsibility to implement a safety
committee. PEM shall provide Client assistance in fulfilling these obligations.
PEM shall retain such responsibilities as are required by Chapter 468, Florida
Statutes.
7. Safe Work Environment.
A. Client agrees that it will comply with all health and safety laws,
right-to-know laws, regulations, ordinances, directives and rules imposed by
controlling federal, state, and local government, and that it will immediately
report all accident and injuries to PEM. Client agrees to make "light duty work"
available in the event of light duty release. PEM reserves the right to locate a
light duty release employee at another location within a 100-mile radius of the
employee's residence. Failure by Client to adhere to this provision of the
Florida Workers' Compensation Act could cause a fine to be assessed against
Client in an amount not to exceed $2,000,000 per violation.
B. PEM retains a right of direction and control over management of
safety, risk and hazard control at the work-site or sites affecting its leased
employees. Environmental factors, equipment, machinery and all other matters
which affect employee health and safety shall be maintained in compliance with
OSHA standards. Client represents that its working environment, equipment and
machinery currently meet all OSHA standards and that they will be maintained in
compliance with such standards for the duration of this Agreement. Client agrees
that it shall be responsible for any OSHA violations.
3
<PAGE>
C. Client shall provide or ensure use of all personal protection gear
and/or equipment, as required by federal, state, or local law, regulation,
ordinance, directive, or rule as deemed necessary by PEM or PEM's workers'
compensation carrier. PEM will perform safety inspections of Client's equipment
and premises to insure safe working conditions.
D. PEM and PEM's workers' compensation carrier shall have the right to
inspect Client's premises during normal business hours and to make
recommendations pertaining to job safety. It is agreed that PEM, by inspecting
said premises or by not inspecting said premises, assumes neither liability nor
responsibility for any unsafe working condition which may exist. Failure by
Client to comply with its obligations pertaining to job safety shall constitute
grounds for immediate termination of this Agreement. PEM is responsible for the
promulgation and administration of employment and safety policies, managing
workers' compensation claims, claims filing and related procedures.
8. Employee Benefits.
The client shall select the Group Benefit Plan options desired under
this Agreement. Client shall sign in all appropriate places. By its signature
Client acknowledges that it has delivered all required data to the Marketing
Representative of PEM.
Benefit Options and Elections.
1. In an effort to furnish the best possible service, PEM offers a
Group Benefit Plan. The coverages are funded through a Group
Insurance Policy issued to the Sponsor by AETNA.
2. Client must select one of the following options:
a. Client chooses not to participate in the Group Benefit Plan
sponsored by PEM.
______________________________ (Signature of Client); or,
b. Client chooses to participate in the Group Benefit Plan sponsored
by PEM.
Illegible signature
_______________________________________ (Signature of Client).
4
<PAGE>
c. If Client chooses not to participate in the Group Benefit Plan
sponsored by PEM, Client hereby certifies that it has its own
Health Benefit Program which covers its employees.
d. If Client chooses to participate in the Group Benefit Plan
sponsored by PEM, Client selects the following coverage:
(1) Client elects to participate in the Group Benefit Plan which
includes a transitional period of coverage based upon written
acceptance by ______________________________
___________________________ (Signature of Client); or,
(a) Client must deliver to PEM's service representative the
following:
(a.1) A complete copy of Client's Health Benefit Insurance
Policy;
(a.2) A copy of the last statement from the Client's Health
Benefit Carrier marked paid in full and a copy of the
canceled check, front and back:
(a.3) A copy from the health Benefit carrier showing each
employee's effective date of coverage for the current
policy.
(2) Client elects to participate in the Group Benefit Plan as a new
Regular Enrollment, subject to all written terms and conditions of
the Group Insurance Policy.
Illegible signature_______________ (Signature of Client)
9. Indemnification and Attorney's Fees
A. Client agrees to indemnify, defend and hold harmless PEM, its
officers shareholders, non-leased employees, directors and agents from and
against any and all losses, liabilities, expenses (including court costs and
attorneys' fees) and claims for damage of any nature whatsoever, whether known
or unknown as though expressly set forth and described herein, which PEM may
incur, suffer, become liable for, or which may be asserted or claimed against
PEM as a result of the actual or alleged acts, errors or omissions of Client or
any leased employee, including without limitation any violation or breach of
paragraph 5 above by Client, or any claims whatsoever arising out of actual or
alleged violations of Wage and Hour laws, EEOC laws, tort law, The Family and
Medical Leave Act, American's with Disabilities Act, Title VII of the Civil
Rights Act or the National labor Relations Act by the Client and any leased
employee.
5
<PAGE>
B. Client agrees to indemnify, defend and hold harmless PEM from real
or asserted liability, including cost of defense, connected with or resulting
from the ownership, custody, maintenance, use or operation of any Client's
machinery, facilities, equipment and/or automobiles whether leased, rented,
borrowed or owned, where liabilities are not covered by the insurance provided
by Client, or if covered, are in excess of the policy limits required pursuant
to INSURANCE hereinafter expressed.
C. Client agrees to indemnify, defend and hold PEM harmless for any
and all liabilities whatsoever arising out of Client's hiring of Independent
Contractors and/or Employees outside of this Agreement.
D. In the event that PEM is required to defend against any claim to
which PEM reasonably believes it is entitled to indemnification under this
Section, Client shall advance to PEM any attorneys' fees and litigation expenses
related to the defense of such action that have not yet been previously
reimbursed by Client.
E. In the event that PEM is required to defend against any claim
occasioned by the breach or default in any provision of this Agreement to
enforce the terms of this Agreement, PEM shall be awarded all reasonable cost
pertaining thereto, including reasonable attorneys' fees and costs in addition
to any other relief to which PEM may be entitled.
F. Client agrees that, notwithstanding any other provision of this
Agreement, that access to any property whether real, appurtenant, or personal,
as well as the accommodation of said property to any person who may be
handicapped or disabled, or perceived as being handicapped or disabled, over
which real or personal property the Client has ownership, administration,
maintenance or some other control, shall be the sole and exclusive
responsibility of the Client. Client agrees to indemnify, hold harmless and
defend PEM(R), its officers, shareholders, non-leased employees, directors and
agents, from any and all losses, liabilities, expenses (including court costs
and attorneys' fees) and claims for damage of any nature, or other consequences
of any sort out of the client's obligations set forth herein.
10. Fees.
A. For services under this Agreement, PEM shall be entitled to a fee
as specified on Exhibit A attached to this Agreement. Exhibit A shall be signed
by Client after it is filled in by PEM's Representative. The signature by Client
shall indicate Client's acceptance for the rates and classifications thereon.
Upon acceptance by PEM of the Agreement, a duly authorized representative (i.e.
a corporate officer) shall sign Exhibit A indicating acceptance by PEM of the
rates and classifications. Both parties shall retain a copy of Exhibit A. A
portion of said fee shall be applied by PEM toward the Workers' Compensation
Policy covering employees working pursuant to this Agreement. The fee is payable
when PEM issues checks each pay period. Should Client require additional
services not included in this Agreement, the fee for any such additional
services shall be negotiated separately. While the preparation fee charged by
PEM is guaranteed for the Initial Term of this Agreement, the fee set forth on
Exhibit A is subject to adjustment by PEM based upon changes in local State
and/or Federal employment law or changes in insurance requirements or costs.
6
<PAGE>
B. If, for any reason whatsoever, payment is not timely submitted to
PEM for its services in accordance with this Agreement, or the payment received
is unable to be immediately negotiated, it will be considered a breach of
contract and PEM shall have the sole right to immediately terminate this
Agreement and/or charge Client a special service fee of up to $100 per day. This
special service fee shall be imposed to reimburse PEM for all expenses including
additional labor costs, incurred as a result of any Client's failure to timely
meet financial obligations under this Agreement.
C. Should payment of any amounts due PEM not be made when due, and
should PEM agree to continue to provide services to the Client, the Client shall
pay a monthly service charge of one and one-half percent (1 1/2%) per month on
the unpaid balance, however, in no event shall this amount exceed the lawful
rate of interest.
D. PEM shall have the right to adjust the negotiated fee should it be
determined that Client has misrepresented or understated the amount of its
payroll. Likewise PEM shall have the right to adjust the negotiated fee should
Client fail to cooperate in unemployment matters resulting in additional costs
to PEM. The adjustment shall be in compliance with PEM's Administrative Cost
Guidelines. A copy of the Administrative Cost Guideline is available upon
request.
E. The owner or owners of the Client business must make an election to
become a payroll employee of PEM at the time of the initial enrollment. If any
owner (be that an owner, self-proprietor, partner, or stockholder) declines to
be an employee of PEM at the time of the initial enrollment, then that owner
must wait until the one-year anniversary date to become enrolled as a salaried
employee. No benefits shall be available to any owner not properly enrolled as
an employee of PEM. This provision may be amended only upon written agreement by
PEM and Client.
11. Insurance.
A. PEM shall furnish and keep in full force and effect at all times
during the term of this Agreement, workers' compensation insurance covering all
PEM employees under the terms of this Agreement. Upon request, PEM shall produce
a Certificate of Insurance to be issued naming Client the certificate holder.
B. If Client transfers professionals engaged to act in their
professional capacity, Client shall furnish malpractice insurance which shall
cover any and all acts, errors and/or omissions, including but not limited to
negligence of PEM transferors and/or employees. Client shall cause its insurance
carrier to name PEM as an additional named insured and issue a certificate of
insurance to PEM, allowing not less than thirty (30) days advance notice of
cancellation or material changes. This insurance coverage shall have limits of
liability of no less than $1,000,000.00
7
<PAGE>
C. Client shall secure and maintain General Liability insurance
coverage with Limits of Liability no less than $1,000,000.00 combined single
limit. The policy shall also provide for the coverage of auto and non-owned
auto. PEM shall be provided with a certificate of such insurance.
D. Client and PEM agree to keep in full force and effect at all times
during the term of this Agreement all insurance required under this Agreement.
E. Misrepresentation of workers' compensation classification or
inaccurate reporting of employee payroll hours is cause for immediate
termination of this contract. Client is obligated to pay to PEM any additional
monies due as a result of workers' compensation audits, only as it applies to a
client location for the duration of this Agreement, or up to the statutory limit
of 2 years after termination of services.
12. Representation of Client.
Before the commencement of the Initial Term, Client shall warrant and
represent to PEM as follows:
A. That all wages and compensation due prior to the date of this
Agreement have been paid to Client's employees.
B. That no separate agreements or arrangements exist that would
obligate PEM except as set forth herein.
C. That in the opinion of counsel for Client all existing pension and
profit sharing plans are current and in compliance with applicable law and this
Agreement shall not be deemed a breach under the terms of such plans.
D. That no Client shut-down, lay-offs, or cessation of business is
contemplated by Client. That Client recognizes that Federal and State
regulations govern employers with great numbers of employees. That potential
liabilities in the event of "plant closings", "shut-downs", or "lay-offs" could
have a disastrous impact on PEM as well as the Client. That Client will notify
PEM at least sixty (60) days in advance of any "plant closings", "shut-downs",
or "lay-offs", "employee discharges" or other cessation of business.
E. That Client will cooperate and work with PEM with a stated goal of
seeking adequate job placement or relocation for any displaced employee.
F. Knowing that State Law requires that any checks which remain
unclaimed after a period of one year be remitted to the State's unclaimed
property fund. Client agrees to assist PEM in the compliance with this statute
by submitting any such checks back to PEM on a periodic basis. Client will
indemnify and hold harmless PEM from any and all liabilities whatsoever arising
out of Client's failure to comply and PEM has the right to inform the State's
unclaimed property fund of such failure so that they can initiate collection
procedures from the Client.
8
<PAGE>
13. Invalidity of a Provision.
If any provision of this Agreement (or any portion thereof) shall be
held to be invalid, illegal, or unenforceable, the validity, legality or
enforceability of the remainder of this Agreement shall not in any way be
affected or impaired thereby.
14. No Waiver.
The failure by either PEM or Client to insist upon strict performance
of any of the provisions contained in this Agreement shall in no way constitute
a waiver of any of its rights set forth herein, at law or equity.
15. Termination.
This Agreement may be terminated by PEM if, at any time, Client
breaches any material term of this Agreement. PEM may also terminate this
Agreement if, at any time, PEM, in its sole discretion, determines that a
material adverse change has occurred in the financial condition, the business,
or the business prospects of Client, or that Client is unable to pay its debts
as they become due in the ordinary course of business. This Agreement may also
be terminated, upon five days notice by PEM, in the event of any federal or
state legislation, regulatory action, or judicial decision which, in the sole
discretion of PEM, materially adversely affects its ability to perform under
this Agreement. This section is cumulative to all other incidents of termination
recited in this Agreement. Upon termination by either party of this Agreement
only standard information in standard form and format will be supplied to Client
by PEM. Client agrees that PEM has no obligation to supply information outside
of its standard services as set forth in this Agreement. Should Client desire
such information as an additional service, fees for these services must be
negotiated outside of this Agreement as set forth in Paragraph 10A. of this
Agreement.
16. Venue and Jurisdiction.
Any action or counterclaim arising out of or related to this
Agreement, must be brought by Client only in Sarasota County, Florida. Any
action may be brought by PEM in any jurisdiction where venue is proper. Client
hereby irrevocably consents to be subject to the jurisdiction of the courts of
Florida concerning any case or controversy arising out of or related to the
Agreement.
9
<PAGE>
17. Notices.
To be effective, any notice given under this Agreement must be in
writing, shall be effective when received, and will be delivered, by hand or by
overnight delivery service, to the following addresses:
IF TO PROFESSIONAL EMPLOYEE MANAGEMENT, INC.:
Professional Employee Management, Inc.
1819 Main Street, 8th Floor
Sarasota, Florida 34236
Attn: Corporate Officer
IF TO CLIENT:
Certified Diabetic Supplies, Inc.
---------------------------------
Business Name (Print or Type)
Peter Fiscina, President
---------------------------------
Officer Carter (Print or Type)
1951 J&C Blvd.
---------------------------------
Mailing Address (Print or Type)
Naples, Florida 34109
---------------------------------
City, State, Zip (Print or Type
or to such other address as either party may, in writing, from time to time,
give notice to the other party.
In no event will PEM be liable for any direct or consequential damages
to Client as a result of a breach of this Agreement, nor for any loss of
profits, business, or goodwill.
18. Waiver of Jury Trial.
Client hereby waives any right to a jury trial in any action against
PEM arising out of, or related to this Agreement.
19. Headings.
The headings in the Agreement are intended for convenience or
reference and shall not affect its interpretation.
20. Amendments.
This Agreement constitutes the entire Agreement between the parties
with regard to the subject matter and no other agreement, statement, promise or
practice between the parties relating to the subject matter shall be binding on
the parties. This Agreement may be changed pursuant to the terms hereof or by
written amendment signed by both parties.
10
<PAGE>
21. No Third Party Beneficiaries.
No rights of any third party are created by this Agreement and no
person not a party to this Agreement may rely on any aspect of this Agreement
notwithstanding any representation, written or oral, to the contrary.
22. Governing Law.
This Agreement shall be governed by and construed under the laws of
Florida, regardless of any choice of law provisions of any jurisdiction to the
contrary.
23. Oral Representations.
Oral amendments to this Agreement are not allowed. No oral promise
shall be enforceable. Agents and Sales Representatives of PEM have no authority
to alter or amend any provision of this Agreement. No promise by any Agent or
Sales Representative of PEM is enforceable unless in writing, attached to this
Agreement and approved by a LICENSED CONTROLLING PERSON, IN ACCORDANCE WITH
FLORIDA STATUES, AND A CORPORATE OFFICER.
WITNESS CLIENT
/s/ Illegible By: /s/ Illegible
- ------------------------------ -------------------------------
Date: 6/10/97
- ------------------------------ -------------------------------
PROFESSIONAL EMPLOYEE MANAGEMENT, INC.
WITNESS:
By:
- ------------------------------ ---------------------------------
Title:
- ------------------------------ ------------------------------
Date:
------------------------------
11
<PAGE>
Exhibit A (Fees) to Client Agreement For Services Dated: June 9, 1997
The following fee schedule is set forth for: Certified Diabetic Supplies, Inc.
---------------------------------
Client
Job Description Rate
--------------- ----
Office 12.16
Executive Officers 10.76
METHOD OF PAYMENT
PLAN A Cashier's Check or other _________________________________
certified funds CLIENT SIGNATURE
- --------------------------------------------------------------------------------
PLAN B Maintain prepaid payroll
period in advance enabling
PEM to accept your company
check upon delivery of
the payroll _________________________________
CLIENT SIGNATURE
- --------------------------------------------------------------------------------
PLAN C Wire transfer (must be
made at least two business
days prior to payroll date) ____________________________
CLIENT SIGNATURE
- --------------------------------------------------------------------------------
PLAN D Company check or ACH
Direct Debit upon approval /s/ Illegible
By PEM Corporate ONLY -----------------------------
CLIENT SIGNATURE
- --------------------------------------------------------------------------------
/s/ Illegible /s/ Illegible
- ------------------------------ ---------------------------------
Witness
6/10/97
---------------------------------
Date:
- ------------------------------ ---------------------------------
Witness Professional Employee Management
---------------------------------
Date:
FL PEM Agreement for Services
Revised 2/10/97
12
<PAGE>
PROFESSIONAL EMPLOYEE MANAGEMENT, INC.
EXHIBIT B
Date: 6/9/97 Sales Representative Felicia Phillips
- --------------------------- ---------------------------------------------
CLIENT NAME: Certified Diabetic Supplies, Inc.
- --------------------------------------------------------------------------------
CLIENT ADDRESS: 1951 J. & C. Blvd., Naples, FL 34109
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
EMPLOYEE NAME SOCIAL SECURITY NUMBER COMP. CODE APP W-4 I-9 HEALTH HISTORY INS Y XXXXX
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
WITNESS: CLIENT:
/s/ Illegible By: /s/ Illegible
- ----------------------------------- -----------------------------------------
Date: 6/10/97
- ----------------------------------- -----------------------------------------
</TABLE>
FL PEM Agreement for Services
Revised 2/10/97
13
<PAGE>
Employee
Work Group Name Count
- ---------- ---- ---------
Officers:
Peter Fiscina 1
Randy Ayala 2
Administration:
Kathy Hankins 3
Nancy Feeley 4
Betty Borsukoff 5
Subtotal
Data Processing:
Jeff Krueger 6
New Patient Input/Billing
Derdre Bowe 7
Kim Schneider 8
Mario Alvarez 9
Debra Borowski 10
Margaret Waters 11
Subtotal
Insurance Verification/Collections 12
Beverly Carver 13
Ruby Palacios 14
Brenda Piper 15
Charlotte Bremer 16
Kristine Abbott 17
Norma Navarro 18
Subtotal
Posting/Collections
Patti Creely 19
Jeanne D'Elia 20
Peggy Johnson 21
Roseann Manzoni 22
Abby Phipps 23
Susan Bloom 24
Lydia Camacho 25
Kim Erickson 26
Subtotal
Shipping
Ron West 27
Jamie Bolen 28
Brian Bolen 29
Chris Highman 30
Subtotal
Marketing
Liz Fiscina 31
Linda West 32
Donna Bolen 33
Lisa Smith 34
Kathie Gillespie 35
Shirley Yoakam 36
Subtotal
C.D.S. Total C.D.S. 37
Coastline Randy Carlton 38
CDS Health Mgmt. Ron Hersch 39
CFO
GRANT TOTAL
* Includes employers share of workers compensation, FICA, federal and state
unemployment and PEM administrative costs.
A. Elected not to take insurance
<PAGE>
March 19, 1998
Certified Diabetic Services, Inc.
2373 Horseshoe Drive South
Naples, Florida 34104
Gentlemen:
The undersigned owns certain shares of the common stock, par value $.01
per share (the "Common Stock") of Certified Diabetic Services, Inc. (the
"Company").
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the undersigned irrevocably covenants to and
agrees with the Company, that if, during such time as the undersigned may own
any shares of the Common Stock of the Company, whether such shares are the same
or different than those currently owned, a purchase, tender or exchange offer is
made to the stockholders of the Company for the outstanding shares of the Common
Stock (any of such events, a "Hostile Offer"), the undersigned will accept,
participate in, or vote to approve, the Hostile Offer only as may be directed by
the Company's Board of Directors.
Nothing contained herein shall limit or otherwise affect the right of
the undersigned to sell, transfer, convey, assign or otherwise derive economic
benefit from the Common Stock in any circumstances other than a Hostile Offer.
This Agreement applies to the undersigned only as a shareholder of the Company;
and nothing contained herein shall in any way affect the rights, duties or
obligations of the undersigned in any other capacity, including, without
limitation, as an officer, director or employee of the Company.
The undersigned acknowledges that this Agreement is executed and
delivered to the Company in connection with the closing of the Company's private
placement of units of the Company's securities comprised of the Company's Series
A Convertible Preferred Stock and Warrants to purchase shares of the Company's
Common Stock.
Very truly yours,
-------------------------------
(Signature)
--------------------------------
(Name)
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF CERTIFIED DIABETIC SERVICES, INC.
NAME STATE/JURISDICTION OF INCORPORATION
- ---- -----------------------------------
Certified Diabetic Supplies Inc. Delaware
CDS Medical Supplies, Inc. Delaware
CDS Health Management, Inc. Delaware
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our report dated November 21, 1997 (with respect to
Note B[7], January 31, 1998, and Note N, March 19, 1998) relating to the
financial statements of Certified Diabetic Services, Inc., formerly Certified
Diabetic Supplies Inc., included in this Registration Statement on Form S-1 and
related Prospectus.
We also consent to the reference to our firm under the caption "Experts" in the
Prospectus.
/s/ Richard A. Eisner & Company, LLP
- ------------------------------------
New York, New York
April 16, 1998
