<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 19, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
Form SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------------
COMPLETE WELLNESS CENTERS, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8099 52-1910135
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------------------
725 INDEPENDENCE AVE., S.E., WASHINGTON, D.C. 20003 (202) 543-6800
(Address and telephone number of principal executive offices)
------------------------------------
E. EUGENE SHARER, PRESIDENT AND CHIEF OPERATING OFFICER
725 INDEPENDENCE AVE., S.E., WASHINGTON, D.C. 20003 (202) 543-6800
(Name, address and telephone number of agent for service)
------------------------------------
Copies to:
Anthony Cipiti, Jr., Esq.
Storch & Brenner
1001 Connecticut Ave., N.W.
Washington, D.C. 20036-5504
202-452-0900
Lawrence B. Fisher, Esq.
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, New York 10103-0001
212-506-5000
------------------------------------
Approximate date 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. [ ]
------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING AGGREGATE REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1) FEE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.0001665 per
share................................... 1,150,000(2) $8.00 $ 9,200,000 $2,787.88
Redeemable Common Stock Purchase Warrants,
each exercisable for one share of
Common Stock........................... 1,150,000(3) $ .10 $ 115,000 $ 34.85
Common Stock issuable upon exercise of
Redeemable Warrants.................... 1,150,000(4) $9.60 $11,040,000 $3,345.45
Common Stock Purchase Warrants, each
exercisable for one share of Common
Stock.................................. 183,333(5) $.003 $ 550 $ .17
Common Stock issuable upon exercise of
Common Stock Purchase Warrants......... 183,333(6) $6.00 $ 1,100,000 $ 333.33
Total..................................... $6,501.68
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a) under the Securities Act of 1933.
(2) Includes 150,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(3) Includes 150,000 Redeemable Warrants which the Underwriters have the option
to purchase to cover over-allotments, if any.
(4) Pursuant to Rule 416 under the Securities Act of 1933, there are also being
registered such additional securities as may become issuable pursuant to the
antidilution provisions of the Redeemable Warrants.
(5) Consists of Common Stock Purchase Warrants being registered on behalf of
certain security holders of the Registrant.
(6) Consists of Common Stock issuable upon exercise of Common Stock Purchase
Warrants being registered on behalf of certain security holders of the
Registrant.
------------------------------------
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 THAT 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 COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
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 DECEMBER 19, 1996
Prospectus
COMPLETE WELLNESS CENTERS, INC.
1,000,000 SHARES OF COMMON STOCK AND
1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
------------------------------------
Complete Wellness Centers, Inc., a Delaware corporation (the "Company"),
hereby offers (the "Offering") 1,000,000 shares (the "Shares") of common stock,
par value $.0001665 per share (the "Common Stock"), and 1,000,000 Redeemable
Common Stock Purchase Warrants (the "Warrants"). The Shares and the Warrants are
sometimes hereinafter together referred to as the "Securities." Until the
completion of this Offering, the Shares and the Warrants offered hereby may only
be purchased together on the basis of one Share and one Warrant, but will trade
separately immediately after the Offering. It is currently anticipated that the
initial public offering prices of the Shares and the Warrants will be between
$6.00 and $8.00 per Share and $.10 per Warrant, respectively. Each Warrant
entitles the registered holder thereof to purchase one share of Common Stock at
an initial exercise price of $ per share [120% of the initial public
offering price per share of Common Stock], subject to adjustment, at any time
commencing , 1997 [six months after the date of this Prospectus] until
, 2002 [five years after the date of this Prospectus]. Commencing
, 1998 [18 months after the date of this Prospectus], the Warrants are
subject to redemption by the Company, in whole but not in part, at $.10 per
Warrant on 30 days' prior written notice provided that the average closing bid
price of the Common Stock as reported on the Nasdaq SmallCap Market ("Nasdaq")
equals or exceeds $ per share [160% of the initial public offering
price per share of Common Stock] (subject to adjustment under certain
circumstances) for any 20 trading days within a period of 30 consecutive trading
days ending on the fifth trading day prior to the date of the notice of
redemption. See "Description of Securities -- Warrants."
(cover continued on next page)
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 9 AND "DILUTION."
------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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Per Share........................................ $ $ $
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Per Warrant...................................... $ $ $
- ---------------------------------------------------------------------------------------------------------------
Total(3)......................................... $ $ $
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</TABLE>
(1) Does not include additional compensation payable to National Securities
Corporation, the representative (the "Representative") of the several
Underwriters, in the form of a non-accountable expense allowance. In
addition, see "Underwriting" for information concerning indemnification and
contribution arrangements with the Underwriters and other compensation
payable to the Representative.
(2) Before deducting estimated expenses of $425,000 payable by the Company,
excluding the non-accountable expense allowance payable to the
Representative.
(3) The Company has granted to the Representative an option, exercisable within
45 days after the date of this Prospectus, to purchase up to an aggregate of
150,000 additional shares of Common Stock and/or up to 150,000 additional
Warrants upon the same terms and conditions as set forth above, solely to
cover over-allotments, if any (the "Over-allotment Option"). If such
Overallotment Option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------------------
The Securities are being offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters and subject
to approval of certain legal matters by their counsel and subject to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify this Offering and to reject any order in whole or in part. It is expected
that delivery of the Securities will be made against payment at the offices of
National Securities Corporation, Seattle, Washington, on or about ,
1997.
NATIONAL SECURITIES CORPORATION
The date of this Prospectus is , 1997
<PAGE> 3
COMPLETE WELLNESS CENTERS, INC.
[MAP REPRESENTING EXISTING AND SCHEDULED
COMPLETE WELLNESS CENTERS]
------------------------------------
The Company intends to furnish its stockholders with annual reports
containing financial statements audited and reported upon by its independent
certified public accountants after the end of each fiscal year, and make
available such other periodic reports as the Company may deem to be appropriate
or as may be required by law.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND/OR THE WARRANTS OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE BOSTON
STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 4
(cover continued from front cover page)
Prior to this Offering, there has been no public market for the Securities
and there can be no assurance that such a market will develop after the
completion of this Offering or, if developed, that it will be sustained. For
information regarding the factors considered in determining the initial public
offering prices of the Shares and Warrants and the terms of the Warrants, see
"Risk Factors" and "Underwriting." Application has been made to include the
Shares and the Warrants for quotation on Nasdaq and listing on the Boston Stock
Exchange ("BSE") under the symbols "CMWL" and "CMWLW," respectively, on Nasdaq,
and "CMW" and "CMWW," respectively, on the BSE.
This Prospectus also relates to the registration by the Company, at its
expense, for the account of various security holders who provided bridge
financing (the "Bridge Financing") to the Company (collectively, the "Selling
Security Holders") of an aggregate of 157,142 warrants to purchase shares of
Common Stock at an exercise price of $.003 per share (the "Bridge Warrants") and
157,142 shares of Common Stock underlying the Bridge Warrants (assuming an
initial public offering price of $7.00 per share). The Selling Security Holders
have agreed with the Company not to effect any sales of the Common Stock
issuable upon exercise of the Bridge Warrants until 90 days after the date of
this Prospectus without the consent of the Representative. The Company will not
receive any proceeds from any of the securities offered for sale by the Selling
Security Holders although it will receive proceeds from the exercise of the
Bridge Warrants. All of the securities offered for sale by the Selling Security
Holders are hereinafter referred to as the "Selling Security Holders'
Securities." See "Selling Security Holders."
The sale of the Selling Security Holders' Securities may be effected from
time to time in transactions (which may include block transactions by or for the
account of the Selling Security Holders) in the over-the-counter market or in
negotiated transactions, through the writing of options on the Selling Security
Holders' Securities, through a combination of such methods of sale, or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices prevailing at the time of sale, or at negotiated prices. If any Selling
Security Holder sells his, her or its Securities, or options thereon, pursuant
to this Prospectus at a fixed price or at a negotiated price which is, in either
case, other than the prevailing market price or in a block transaction to a
purchaser who resells, or if any Selling Security Holder pays compensation to a
broker-dealer that is other than the usual and customary discounts, concessions
or commissions, or if there are any arrangements either individually or in the
aggregate that would constitute a distribution of the Selling Security Holders'
Securities, a post-effective amendment to the Registration Statement of which
this Prospectus is a part, would need to be filed and declared effective by the
Securities and Exchange Commission (the "Commission") before such Selling
Security Holders could make such sale, pay such compensation, or make such a
distribution. The Company is under no obligation to file a post-effective
amendment to the Registration Statement of which this Prospectus is a part under
such circumstances.
3
<PAGE> 5
[THIS PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated herein all
share and per share information in this Prospectus does not give effect to (i)
the issuance of 1,000,000 shares of Common Stock issuable upon exercise of the
Warrants, (ii) the exercise by the Representative of the Over-allotment Option,
(iii) the issuance upon exercise of warrants granted to the Representative (the
"Representative's Warrants") of up to 100,000 shares of Common Stock and 100,000
Warrants and the underlying 100,000 shares of Common Stock issuable upon
exercise of the Warrants contained in the Representative's Warrants, or (iv) the
conversion of 1,350 shares of Series A, 12% Cumulative Convertible Preferred
Stock of the Company into 145,800 shares of Common Stock upon consummation of
this Offering. See "Underwriting" and "Description of Securities -- Preferred
Stock." Unless otherwise indicated herein all share and per share information in
this Prospectus gives effect to (i) a 180-for-1 split of the Common Stock
effected in November 1995 and (ii) a 1-for-3 reverse split of the Common Stock
effected in November 1996. Unless the context otherwise requires, the "Company"
refers to Complete Wellness Centers, Inc. and its subsidiaries. This Prospectus
contains forward-looking statements which involve certain risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
The Company develops multi-disciplinary medical centers ("Integrated
Medical Centers") and furnishes certain support services to such facilities. The
Integrated Medical Centers combine, in one practice, at the same location,
traditional health care providers, such as physicians and physical therapists,
and alternative health care providers, such as chiropractors, acupuncturists and
massage therapists. The Company's objective is to become a nationally recognized
developer and manager of Integrated Medical Centers. At December 16, 1996, the
Company had developed and was managing 8 Integrated Medical Centers in the
states of Florida, Virginia and Illinois and had 36 binding agreements to
develop and manage Integrated Medical Centers in 9 states.
The Company develops Integrated Medical Centers generally through
affiliations with chiropractors and their existing chiropractic practices (the
"Affiliated Chiropractors"). Management endeavors to enter into an agreement
with a chiropractor who has an established chiropractic practice in a convenient
location and who is an individual who has demonstrated the entrepreneurial
skills to build a practice.
Management believes that the growing popularity and acceptance of
alternative medicine, also referred to as complementary medicine, has
contributed to the Company's growth. In 1993, the New England Journal of
Medicine reported that the use of alternative medicine in 1990 amounted to
approximately $13.7 billion. In October 1996, The Wall Street Journal reported
that the alternative medical therapy market is approximately $50 billion. By
integrating alternative medicine with traditional medicine, the Company is
providing a choice for the consumer in one location as well as the opportunity
to choose complementary treatments overseen by a medical doctor, which the
Company believes alleviates some of the concerns of patients and third party
payors.
The Company's operating strategy is to (i) provide consumers the
opportunity to obtain, and the convenience of obtaining, under the supervision
of a medical doctor, complementary traditional and alternative medical
treatments in one location, (ii) furnish high quality patient care efficiently
through the use of credentialing standards and standardized protocols, (iii)
establish Integrated Medical Centers in local and regional clusters for purposes
of obtaining managed care contracts, (iv) assist in marketing the Integrated
Medical Centers on a coordinated basis and furnish them management, marketing,
financing and other advice and support, and (v) achieve operating efficiencies
and economies of scale through the implementation of management information
systems, the rotation of health care practitioners among Integrated Medical
Centers,
5
<PAGE> 7
increased purchasing power with suppliers, and standardized protocols,
administrative systems, and procedures.
The Company's expansion strategy is to continue to develop additional
Integrated Medical Centers in regional groups or clusters in order to facilitate
the development of integrated networks of affiliated physicians, chiropractors
and other health care providers (both traditional and alternative). The Company
plans to continue to develop additional Integrated Medical Centers through
affiliations with chiropractors and their existing chiropractic practices and
intends to begin development of Integrated Medical Centers in connection with
strategic alliances with health clubs, corporations, government offices or other
organizations, in which cases the Integrated Medical Centers would be developed
in locations such as a health club or office building. The Company regularly
explores new opportunities related to integrated medical services and may in the
future negotiate arrangements with or acquire businesses ancillary to the
provision of integrated medical services such as services relating to medical
diagnostics or billing systems. As of the date of this Prospectus, the Company
has no understandings, commitments or agreements with respect to any
acquisitions.
THE OFFERING
Securities Offered......... 1,000,000 shares of Common Stock and 1,000,000
Warrants. See "Description of Securities."
Securities Registered for
the Selling Security
Holders.................. An aggregate of 157,142 Bridge Warrants and 157,142
shares of Common Stock issuable upon exercise of
the Bridge Warrants (assuming an initial public
offering price of $7.00 per share) are being
registered hereby and may be sold by the Selling
Security Holders, although the Selling Security
Holders have agreed with the Company not to effect
any sales of the Common Stock issuable upon
exercise of the Bridge Warrants until 90 days from
the date of this Prospectus without the consent of
the Representative. None of the Selling Security
Holders' Securities are being underwritten in this
Offering and the Company will not receive any
proceeds from their sale although it will receive
the exercise price of $.003 per share in the event
that any Bridge Warrants are exercised. See
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Selling
Security Holders."
Terms of Warrants.......... Each Warrant entitles the holder thereof to
purchase, at any time commencing , 1997
[six months after the date of this Prospectus], one
share of Common Stock at a price of $ per
share [120% of the initial public offering price
per share of Common Stock], subject to adjustment.
Commencing , 1998 [18 months after the
date of this Prospectus], the Warrants are subject
to redemption by the Company, in whole but not in
part, at $.10 per Warrant on 30 days' prior written
notice provided that the average closing bid price
of the Common Stock as reported on Nasdaq equals or
exceeds $ per share [160% of the initial
public offering price per share of Common Stock],
subject to adjustment, for any 20 trading days
within a period of 30 consecutive trading days
ending on the fifth trading day prior to the date
of the notice of redemption. See "Description of
Securities."
6
<PAGE> 8
Common Stock Outstanding:
Prior to the
Offering(1)................ 714,967 shares
After the
Offering(1)(2)............. 1,860,767 shares
Use of Proceeds............ Repayment of indebtedness incurred in connection
with the Bridge Financing; fund development of
additional Integrated Medical Centers; repayment of
certain other debt, accrued expenses and accrued
payroll; and working capital and general corporate
purposes. See "Use of Proceeds."
Risk Factors and
Dilution................... An investment in the Securities offered hereby
involves a high degree of risk and immediate and
substantial dilution to the purchasers in this
Offering. See "Risk Factors" and "Dilution."
Proposed Nasdaq Symbols:(3)
Common Stock............. CMWL
Warrants................. CMWLW
Proposed BSE Symbols:(3)
Common Stock............. CMW
Warrants................. CMWW
- ---------------
(1) Does not include (i) 351,166 shares issuable upon exercise of outstanding
options under the Company's 1994 Stock Option Plan (at a weighted average
exercise price of $.60 per share) and 11,167 shares reserved for issuance
upon exercise of options available for grant under such plan, of which
options for 11,000 shares will be granted to a consultant to the Company
upon consummation of the Offering at an exercise price equal to 75% of the
initial public offering per share in the Offering; (ii) 200,000 shares
reserved for issuance upon the exercise of options that may be granted
under the Company's 1996 Stock Option Plan, of which 24,000 will be granted
after completion of the Offering at an exercise price per share equal to
the initial public offering price per share of Common Stock; (iii) 100,000
shares reserved for issuance upon exercise of options that may be granted
under the Company's 1996 Restricted Stock Option Plan for Health Care
Professionals; (iv) 13,243 shares issuable upon exercise of certain
outstanding warrants that the Company issued in connection with a financing
in November 1995 at an exercise price of $.003 per share; (v) up to 157,142
shares (assuming an initial public offering price of $7.00 per share)
issuable upon exercise of the Bridge Warrants; and (vi) up to 2,857 shares
(assuming an initial public offering price of $7.00 per share) issuable
upon exercise of outstanding warrants (the "Broker-Dealer Bridge Warrants")
issued to a broker-dealer who acted as a placement agent for a portion of
the Bridge Financing. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Management -- Stock Option Plans."
(2) Gives effect to the conversion of 1,350 shares of Series A, 12% Cumulative
Convertible Preferred Stock of the Company (the "Series A Preferred Stock")
into 145,800 shares of Common Stock upon consummation of the Offering. See
"Description of Securities -- Preferred Stock."
(3) Application has been made for listing of the Common Stock and the Warrants
on Nasdaq and the BSE. See "Risk Factors -- No Assurance of Nasdaq Listing;
Risk of Low-Priced Securities."
7
<PAGE> 9
SUMMARY FINANCIAL DATA
The following summary financial data should be read in conjunction with the
consolidated financial statements of the Company and related notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NOVEMBER 17,
1994 NINE MONTHS ENDED
(INCEPTION) YEAR ENDED SEPTEMBER 30,
TO DECEMBER 31, DECEMBER 31, ----------------------
1994 1995 1995 1996
--------------- ------------ -------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenue:
Patient revenue........................ $ -- $ 22,114 $ 8,618 $ 869,122
Management services income............. -- -- -- 4,160
------- ---------- -------- ---------
Total revenue............................ -- 22,114 8,618 873,282
======= ========== ======== =========
Operating expenses:
Salary and consulting costs............ 1,400 93,131 59,283 249,293
Management fees........................ 29,669 4,146 438,948
Rent................................... 4,501 400 160,988
Advertising and marketing.............. 25,821 11,909 36,828
General and administration............. 253,024 28,818 607,770
Depreciation and amortization.......... 6,490 1,623 24,598
---------- -------- ---------
Total operating expenses................. 1,400 412,636 106,179 1,518,425
------- ---------- -------- ---------
Operating deficit........................ (1,400) (390,522) (97,561) (645,143)
Net interest income (expense)............ 176 483 (19,566)
Minority interest........................ 194,457 2,927 143,759
------- ---------- -------- ---------
Net loss................................. $(1,400) $ (195,889) $(94,151) $(520,950)
======= ========== ======== =========
Pro forma net loss per share(1).......... $ (0.26) $ (0.43)
========== =========
Pro forma weighted average number of
common and common equivalent shares
outstanding(1)......................... 753,924 1,225,633
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------
ACTUAL AS ADJUSTED(2)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)......................................... $ (437,991) $5,267,009
Total assets...................................................... 1,549,912 5,914,912
Total liabilities................................................. 1,795,815 430,815
Minority interest................................................. 326,793 326,793
Stockholders' equity (deficit).................................... (572,696) 5,179,304
</TABLE>
- ---------------
(1) See Note 10 to the Consolidated Financial Statements.
(2) Adjusted to give effect to the sale of the Securities offered hereby (at an
assumed initial public offering price of $7.00 per Share and $.10 per
Warrant) and the initial application of the net proceeds therefrom. See
"Use of Proceeds."
8
<PAGE> 10
RISK FACTORS
An investment in the Securities offered hereby involves a high degree of
risk and should be made only by investors who can afford the loss of their
entire investment. Prospective investors should carefully review and consider
the following risks as well as the other information set forth in this
Prospectus.
Limited Operating History; History of Losses; No Assurance of
Profitability. The Company commenced operations in January 1995 and began
managing its first Integrated Medical Center in September 1995. The Company has
a limited operating history upon which prospective investors can judge the
Company's performance. At September 30, 1996, the Company had an accumulated
deficit of $718,239 and a working capital deficit of $437,991. There can be no
assurance that the Company will ever be profitable. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation."
Risks Related to Expansion Strategy. The Company has expanded from
managing one Integrated Medical Center at December 31, 1995 to 8 Integrated
Medical Centers at December 16, 1996, with 36 others scheduled for development.
The Company's growth will depend upon a number of factors, including: (i) the
Company's ability to identify and affiliate with suitable chiropractors and
their existing chiropractic practices, the availability of suitable markets, and
the Company's ability to obtain good locations within those markets; (ii)
whether new Integrated Medical Centers will be opened in accordance with the
Company's plans; (iii) regulatory constraints; (iv) the ability of the Company
to manage Integrated Medical Centers effectively; (v) whether anticipated
performance levels at new Integrated Medical Centers will be achieved. There can
be no assurance that the Company's expansion strategy will be successful or that
modifications to the Company's expansion strategy will not be required. Any
significant delay in the opening of new Integrated Medical Centers or the
failure of new Integrated Medical Centers to achieve anticipated performance
levels could adversely affect the Company. In pursuing its expansion strategy,
the Company intends to expand its presence into new geographic markets. In
entering a new geographic market, the Company will be required to comply with
laws and regulations of jurisdictions that differ from those applicable to the
Company's current operations, deal with different payors as well as face
competitors with greater knowledge of such markets than the Company. There can
be no assurance that the Company will be able to effectively establish a
presence in any new market. The Company's strategy also involves growth through
acquisitions of complementary businesses in order to enhance the services
offered by its Integrated Medical Centers. The Company will be subject to
various risks associated with an acquisition growth strategy, including the risk
that the Company will be unable to identify and recruit suitable acquisition
candidates in the future or to absorb and manage the acquisitions. See
"Business -- Expansion Strategy" and "Business -- Government Regulation."
Possible Need for Additional Financing. The Company is dependent upon the
net proceeds of this Offering for the continued implementation of its expansion
strategy. Although the Company believes that the net proceeds of this Offering
together with cash from operations will be sufficient to satisfy its cash
requirements for at least 12 months following the date of this Prospectus
(exclusive of applying any such funds to the acquisition of other businesses)
there is no assurance that additional funds will not be needed. Factors that may
require the Company to seek additional financing include the development of a
larger number of Integrated Medical Centers than now anticipated, a higher
average cost to develop additional Integrated Medical Centers than that which
has been the case to date, and the acquisition of other businesses all or part
of the payment for which is in cash. Substantially all of the Company's assets
are secured as collateral for notes issued in connection with the Bridge
Financing. The Company has received a low interest rate loan commitment in the
amount of $45,000 to be used to defray its relocation costs resulting from the
leasing of executive offices in Montgomery County, Maryland. Such loan is to be
secured by the Company's capital assets. The loan commitment expires on January
31, 1997, however, the Company intends to seek an extension of this expiration
date. See "Business -- Properties." If the Company requires additional
financing, it may raise capital through the issuance of equity securities and/or
the incurrence of debt. If additional capital is raised through the issuance of
equity securities, dilution to the Company's stockholders may result, and if
additional capital is raised through the incurrence of debt, the Company likely
would become subject to restrictions on its operations and finances. There can
be no assurance that the Company will be able to raise additional capital when
needed on satisfactory terms or at all. If the Company is unable to secure
additional sources of financing on terms and conditions acceptable to the
Company or at all, the Company's expansion
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strategy could be materially adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and Note 1 to the Consolidated Financial Statements.
Possibility of Regulatory Challenge to the Affiliation Relationships. All
of the physician practice management companies ("PPMs") of which the Company is
aware involve a professional manager billing, collecting, disbursing funds to,
paying expenses (including its own fee) or otherwise managing traditional
physician or dental practices. The Company likewise undertakes to perform these
services but, unlike the PPMs, subcontracts day-to-day management functions to a
management company controlled by the Affiliated Chiropractor. Pursuant to such
subcontract, the Affiliated Chiropractor's management company provides certain
management services on behalf of the Company to the Integrated Medical Centers,
of which the Affiliated Chiropractor is an employee. To date, the Company is
unaware of any scrutiny by state or federal health care enforcement officials of
the structure of such relationships. Although the Company believes its
Affiliated Chiropractor relationships do not violate applicable federal or state
health care regulatory requirements, there can be no assurance that health care
enforcement officials will not take a contrary view. Investigations or
prosecutions by such enforcement officials could have a material adverse effect
on the Company, even if the Company's Affiliated Chiropractor relationships were
subsequently determined lawful.
Reliance on Chiropractors. The Company's revenue is dependent on revenue
generated by the Integrated Medical Centers, which are developed primarily
through affiliations with Affiliated Chiropractors pursuant to management
agreements. There can be no assurance that any such affiliation will result in a
successful multi-disciplinary medical practice. The initial terms of such
management agreements is five years and they may be renewed in five year
increments up to four times. The Affiliated Chiropractor may terminate a
management agreement if the Company materially breaches it and fails to cure the
breach within ten days after notification. The loss of a substantial number of
management agreements would have a material adverse effect on the Company. See
"Business-Agreements With Affiliated Chiropractors and Other Licensed
Practitioners."
Dependence On Third Party Reimbursement. Substantially all revenue of the
Integrated Medical Centers, on which the Company's revenue is dependent, comes
from commercial health insurance, state workers' compensation programs, and
preferred provider plans. Following the Company's specific approval, the
Integrated Medical Centers may also treat patients covered under federal and
state funded health care programs. All of these providers and programs are
regulated at the state or federal level. There are increasing and significant
public and private sector pressures to contain health care cost and to restrict
reimbursement rates for medical services. For example, it has been widely
reported that the Medicare program is expected to run short of funds early in
the next century. Accordingly, Congress, in its fiscal year 1996 budget
legislation, called for and considered severe reductions in both the Medicare
and Medicaid programs. Although a budget accord was not reached in the last
session, Congress is expected to again consider legislation in its 1997 and 1998
sessions that would propose significant reductions to the Medicare and Medicaid
programs. Changes in the level of support by federal and state governments of
health care services, the methods by which such services may be delivered, and
the prices of such services may all have a material impact on revenue of the
Integrated Medical Centers, which in turn could have a material adverse effect
on the Company. Third party payors are not generally familiar with reimbursing
for traditional and alternative health care services such as chiropractic in the
same medical practice. The third party payors may disagree with the descriptions
or coding of a bill for medical services, or may contest a code or description
under a lesser (e.g. chiropractic) fee schedule. Such disagreements on billing
code or description of professional services, particularly where the third party
payor is a federal or state funded health care program, can result in lesser
reimbursement, which can have a material adverse effect on the Integrated
Medical Center and ultimately on the Company. Persistent disagreements or
alleged "upcoding" can result in allegations of fraud or false billing, both of
which constitute felonies. Such an allegation, if proven, can result in
forfeitures of payment, civil money penalties, civil fines, suspensions, or
disbarment from participating in federal or state funded health care programs,
and have a material adverse effect on the Company. Investigation and
prosecutions for fraudulent or false billing can have a material adverse effect
on the Company, even where such allegations are disproven. See
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"-- Government Regulation," "Business -- Government Regulation" and
"Business -- Third Party Reimbursement."
Inability to Collect or Delay in Collecting Management Fees. Collection by
the Company of its management fees may be adversely affected by the
uncollectibility of the Integrated Medical Centers' medical fees from third
party payors (including workers' compensation insurers, no-fault insurance
carriers, no-fault payment pool, Medicare and commercial insurers) or by the
long collection cycles for those receivables. Many third party payors,
particularly insurance carriers covering automobile no-fault and workers'
compensation claims refuse, as a matter of business practice, to pay claims
unless submitted to arbitration. Further, third-party payors may reject medical
claims if, in their judgment, the procedures performed were not medically
necessary or if the charges exceed such payor's allowable fee standards. In
addition, some receivables may not be collected because of omissions or errors
in timely completion of the required claim forms. The inability of the
Integrated Medical Centers to collect their receivables could materially
adversely affect the Company. See "Business -- Third Party Reimbursement."
Risks Associated with Managed Care Contracts. An increasing percentage of
patients are coming under the control of managed care entities. The Company
believes that its success will, in part, depend upon the Company's ability to
negotiate, on behalf of the Integrated Medical Centers, favorable managed care
contracts with health maintenance organizations ("HMOs") and other private third
party payors. Such contracts often shift much of the financial risk of providing
care from the payor to the provider by requiring the provider to furnish all or
a portion of its services in exchange for a fixed, or "capitated," fee per
member patient, per month, regardless of the level of such patients' utilization
rates and, sometimes in the case of primary care physicians, to accept financial
risk for health care services not normally furnished by such physicians (e.g.,
specialty physician or hospital services). The Company intends to negotiate
capitated agreements with managed care organizations. Some managed care
agreements also offer "shared risk" provisions under which providers and
provider practice management concerns can earn additional compensation based on
the utilization of services by members, but may be required to bear a portion of
any loss in connection with such "shared-risk" provisions. Any such losses could
have a material adverse effect on the Company. Accordingly, in order for such
"shared-risk" contracts to be profitable for the Company, the Company must
effectively monitor the utilization of its services delivered to members of the
managed care organization who are patients of the Integrated Medical Centers
and, to the extent the Integrated Medical Centers are responsible for overall
patient care, monitor the utilization of specialist physicians or hospitals,
negotiate favorable rates with such other providers, and obtain, on favorable
terms, stoploss protection limiting its per enrollee exposure above specified
thresholds. Certain of the Company's operating strategies (e.g., having all
treatments supervised by a physician) are intended to attract managed care
contracts for the Integrated Medical Centers. Third party payors are not,
however, generally familiar with traditional and alternative health services
being provided within the same medical practice and may have concerns about
contracting with such practices. For this and other reasons, there can be no
assurance that the Company will be able to negotiate satisfactory managed care
contracts for the Integrated Medical Centers at satisfactory rates. Nor can
there be any assurance that any managed care contracts it enters into on behalf
of the Integrated Medical Centers will not adversely affect the Integrated
Medical Centers or the Company.
Health Care Reform. Although Congress failed to pass comprehensive health
care reform legislation in 1996, the Company anticipates that Congress and state
legislatures will continue to review and assess alternative health care delivery
and payment systems and may in the future propose and adopt legislation
effecting fundamental changes in the health care delivery system. Also, Congress
is expected to consider major reductions in the rate of increase of Medicare and
Medicaid spending as part of efforts to balance the budget of the United States.
The Company cannot predict the ultimate timing, scope or effect of any
legislation concerning health care reform, including legislation affecting the
Medicare and Medicaid programs. Any proposed federal legislation, if adopted,
could result in significant changes in the availability, delivery, pricing and
payment for health care services and products. Various state agencies also have
undertaken or are considering significant health care reform initiatives.
Although it is not possible to predict whether any health care reform
legislation will be adopted or, if adopted, the exact manner and the extent to
which the Company will be affected, it is likely that the Company will be
affected in some fashion, and there can be no assurance
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<PAGE> 13
that any health care reform legislation, if and when adopted, will not have a
material adverse effect on the Company.
Dependence Upon Key Personnel. The Company is dependent upon the active
participation of its executive officers, particularly the Company's founder,
Chairman and Chief Executive Officer, C. Thomas McMillen, and E. Eugene Sharer,
its President and Chief Operating Officer. The loss to the Company of the
services of Mr. McMillen or Mr. Sharer could have a material adverse effect upon
the Company. The Company has an employment contract with each of these executive
officers extending through March 31, 1999. See "Management -- Employment
Agreements." Prior to the consummation of the Offering, the Company plans to
apply for "key-man" life insurance policies on the lives of Messrs. McMillen and
Sharer providing benefits to the Company of $1 million upon the death of each of
Mr. McMillen or Mr. Sharer. Nevertheless, the loss of, or the inability to
attract other qualified employees could have a material adverse effect on the
Company.
Professional Liability. The Integrated Medical Centers employ health care
practitioners for the delivery of health care services to the public. They are
thus exposed to the risk of professional liability claims. The Company does not
itself provide such services or control the provision of health care services by
the Integrated Medical Centers' practitioners or their compliance with
regulatory and other requirements in that regard. The Company might nevertheless
be held liable for medical negligence on their part.
The Company's management service agreements with the Integrated Medical
Centers require the Integrated Medical Centers to maintain, at their expense,
professional liability insurance for themselves and the licensed health care
practitioners employed by or otherwise associated with them in the minimum
amount of $1,000,000 for each occurrence and $3,000,000 in the aggregate, or
such greater amounts as may be required by applicable state law. If an
Integrated Medical Center or a licensed health care practitioner employed by or
associated with it cannot obtain insurance of the type and in the amounts
required by the Company, the Company will arrange for coverage through a policy
maintained by the Company. In addition, the Company maintains general liability,
workers' compensation and professional liability insurance. The Company's
professional liability insurance is limited to $1,000,000 per occurrence and
$3,000,000 in the aggregate per practitioner per policy period. The professional
liability insurance is provided under a "claims-made" policy. The policy
provides coverage for covered claims made during the policy's term and does not
provide coverage for losses occurring during the policy's term for which a claim
is made subsequent to the policy's termination. Finally, the licensed health
care practitioners are required to indemnify the Integrated Medical Centers
which, in turn, are required to indemnify the Company against liability and
expenses for or related to professional liability claims arising out of the
medical negligence of the health care practitioner.
There can be no assurance, however, that the Company, its employees, or the
licensed health care practitioners employed by or associated with the Integrated
Medical Centers will not be subject to claims in amounts that exceed the
coverage limits or that such coverage will be available when needed. Further,
there can be no assurance that professional liability insurance will continue to
be available to the Company in the future at adequate levels or at an acceptable
cost to the Company. A successful claim against the Company in excess of the
Company's insurance coverage could have a material adverse effect upon the
Company's business. Claims against the Company, regardless of their merits or
eventual outcome, also may have an adverse effect upon the Company. See
"Business -- Professional Liability."
Government Regulation. Federal and state laws extensively regulate the
relationships among providers of health care services, physicians and other
clinicians. These laws include federal fraud and abuse provisions that prohibit
the solicitation, receipt, payment, or offering of any direct or indirect
remuneration for the referral of patients for which reimbursement is made under
any federal or state funded health care program or for the recommending,
leasing, arranging, ordering or providing of services covered by such programs.
States have similar laws that apply to patients covered by private and
government programs. Federal fraud and abuse laws also impose restrictions on
physicians' referrals for designated health services covered under a federal or
state funded health care program to entities with which they have financial
relationships. Various states, such as Illinois, Maryland and Florida, among
others, have adopted similar laws that cover patients in private programs as
well as government programs. There can be no assurance that the federal and
state governments
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will not consider additional prohibitions on physician ownership, directly or
indirectly, of facilities to which they refer patients, which could adversely
affect the Company. Violations of these laws may result in substantial civil or
criminal penalties for individuals or entities, including large civil money
penalties and exclusion from participation in the Medicare and Medicaid
programs. Such exclusion, if applied to the Company's Integrated Medical
Centers, could result in significant loss of reimbursement and could have a
material adverse effect on the Company. See "Business -- Government Regulation."
In addition, federal law also prohibits conduct that may result in
price-fixing or other anticompetitive conduct. Moreover, the Company may in the
future contract with licensed insurance companies and/or HMO's. Certain of such
contracts may require the Integrated Medical Centers on behalf of which the
Company contracts to assume risk in connection with providing health care
services under capitation arrangements. To the extent that the Company or the
Integrated Medical Centers may be in the business of insurance as a result of
entering into such arrangements, they may be subject to a variety of regulatory
and licensing requirements applicable to insurance companies or HMOs. There can
be no assurance that the Company or the Integrated Medical Centers will not be
adversely affected by such regulations.
Moreover, the laws of many states prohibit physicians from sharing
professional fees, or "splitting fees," with anyone other than a member of the
same profession. These laws and their interpretations vary from state to state
and are enforced by the courts and by regulatory authorities with broad
discretion. Expansion of the operations of the Company to certain jurisdictions
may require structural and organizational modifications of the Company's form of
relationship with Integrated Medical Centers, which could have an adverse effect
on the Company. Although the Company believes its operations as currently
conducted are in material compliance with existing applicable laws, there can be
no assurance that review of the Company's business by courts or regulatory
authorities will not result in a determination that could adversely affect the
operations of the Company or that the health care regulatory environment will
not change so as to restrict the Company's existing operations or its expansion.
State Laws Regarding Prohibition of Corporate Practice of Medicine. The
Company's Integrated Medical Centers are formed as general business corporations
wholly-owned by the Company in states (such as Florida and Virginia) in which
general business corporations are permitted to own medical practices. The
Integrated Medical Centers are formed as professional corporations owned by one
or more medical doctors licensed to practice medicine under applicable state
law, in states (such as Illinois) that prohibit the corporate practice of
medicine. Corporations such as the Company are not permitted under certain state
laws to practice medicine or exercise control over the medical judgments or
decisions of practitioners. Corporate practice of medicine laws and their
interpretations vary from state to state and are enforced by the courts and by
regulatory authorities with broad discretion. The Company believes that it
performs only non-medical administrative services, does not represent to the
public or its clients that it offers medical services and does not exercise
influence or control over the practice of medicine by the practitioners with
whom it contracts. Expansion of the operations of the Company to certain
jurisdictions may require structural and organizational modifications of the
Company's form of relationship with practitioners in order to comply with
corporate practice of medicine laws, which could have an adverse effect on the
Company. Although the Company believes its operations as currently conducted are
in material compliance with existing applicable laws, there can be no assurance
that the Company's structure will not be challenged as constituting the
unlicensed practice of medicine or that the enforceability of the agreements
underlying this structure will not be limited. If such a challenge were made
successfully in any state, the Company could be subject to civil and criminal
penalties under such state's law and could be required to restructure its
contractual arrangements in that state. Such results or the inability to
successfully restructure its contractual arrangements could have a material
adverse effect upon the Company.
Discretion in Use of Proceeds. Approximately 25.5% of the estimated net
proceeds of the Offering have been allocated to working capital and general
corporate purposes. Accordingly, management will have broad discretion as to the
application of such net proceeds. See "Use of Proceeds."
Competition. The managed health care industry, including the provider
practice management industry, is highly competitive. The Company competes with
other companies for physicians and other practitioners of
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health care services as well as for patients. The Company competes not only with
national and regional physician practice management companies, but also with
local providers, many of which are trying to combine their own services with
those of other providers into delivery networks. Certain of the companies are
significantly larger, provide a wider variety of services, have greater
financial and other resources, have greater experience furnishing provider
practice management services, and have longer established relationships with
buyers of these services, than the Company, and provide at least some of the
services provided by the Company. In addition, companies with greater resources
than the Company that are not presently engaged in the provision of integrated
provider practice management services could decide to enter the business and
engage in activities similar to those in which the Company engages. There can be
no assurance that the Company will be able to compete effectively. See
"Business -- Competition."
Loans to Integrated Medical Centers. The Company is required under the
terms of its management agreements to make loans to certain of its Integrated
Medical Centers in amounts up to $40,000. The failure of a substantial number of
the Integrated Medical Centers to repay such loans could have a material adverse
effect on the Company's financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Control by Existing Stockholders. Following the closing of the Offering,
the Company's executive officers and directors will control or own approximately
27.6% (25.6% if the Over-allotment Option is fully exercised) of the outstanding
shares of Common Stock. As a result, such persons may be able to determine the
election of all of the Company's directors and the outcome of all issues
submitted to the Company's stockholders. Furthermore, such concentration of
ownership could limit the price that certain investors might be willing to pay
in the future for shares of Common Stock, and could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, control of the Company. See "Principal
Stockholders."
Shares Eligible For Future Sale. Of the 1,860,767 shares of Common Stock
and 1,000,000 Warrants to
be outstanding upon completion of this Offering after giving effect to the
conversion of the 1,350 shares of Series A Preferred Stock into 145,800 shares
of Common Stock upon consummation of this Offering, the 1,000,000 shares of
Common Stock and the 1,000,000 Warrants (1,150,000 shares of Common Stock and
1,150,000 Warrants if the Over-allotment Option is exercised in full) will be
immediately freely tradeable without restriction under the Securities Act of
1933, as amended (the "Securities Act") except for any securities purchased by
an "affiliate" of the Company (as that term is defined in the Securities Act),
which securities will be subject to the resale limitations of Rule 144 under the
Securities Act. All of the remaining 860,767 shares of Common Stock outstanding
are "restricted securities," as that term is defined in Rule 144 under the
Securities Act and may, under certain circumstances, be sold without
registration under the Securities Act. The sale, or availability for sale, of
substantial amounts of Common Stock in the public market subsequent to this
Offering pursuant to Rule 144 or otherwise could materially adversely affect the
market price of the Common Stock and could impair the Company's ability to raise
additional capital through the sale of its equity securities or debt financing.
Notwithstanding the foregoing, each officer and director of the Company,
substantially all holders of the shares of Common Stock and all holders of any
options, warrants or other securities convertible, exercisable or exchangeable
for shares of Common Stock have agreed not to, directly or indirectly, offer,
sell, transfer, pledge, assign, hypothecate or otherwise encumber or dispose of
any of the Company's securities, whether or not presently owned, for a period of
13 months after the date of this Prospectus without the prior written consent of
the Representative. After such 13-month period, 713,100 of such shares of Common
Stock may be sold in accordance with Rule 144. The foregoing restriction does
not apply to the Bridge Warrants and the shares of Common Stock underlying such
Bridge Warrants registered pursuant hereto for the account of the Selling
Security Holders. The Selling Security Holders have agreed with the Company not
to effect any sales of the Common Stock issuable upon exercise of the Bridge
Warrants until 90 days after the date of this Prospectus without the consent of
the Representative. See "Shares Eligible for Future Sale."
Absence of Dividends. The Company has paid no cash dividends on its Common
Stock since its inception and does not plan to pay cash dividends on the Common
Stock in the foreseeable future. The
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Company anticipates that future earnings will be retained to finance future
operations and expansion. See "Dividend Policy."
No Prior Public Market; Arbitrary Determination of Public Offering Prices;
Possible Volatility of Common Stock and Warrant Market Prices. Prior to this
Offering, there has been no public market for the Common Stock or Warrants and
there can be no assurance that an active public market for the Common Stock or
the Warrants will develop or, if developed, be sustained after this Offering.
The initial public offering prices of the Securities and the terms of the
Warrants were arbitrarily determined by negotiations between the Company and the
Representative, and do not necessarily bear any relationship to the Company's
assets, book value, results of operations, or any other generally accepted
criteria of value. From time to time after this Offering, there may be
significant volatility in the market price of the Common Stock and the Warrants.
Quarterly operating results of the Company, changes in general conditions in the
economy or the health care industry, or other developments affecting the
Company, could cause the market price of the Common Stock and the Warrants to
fluctuate substantially. The equity markets have, on occasion, experienced
significant price and volume fluctuations that have affected the market prices
for many companies' securities and have often been unrelated to the operating
performance of these companies. Concern about the potential effects of health
care reform measures has contributed to the volatility of stock prices of
companies in health care and related industries and may similarly affect the
price of the Common Stock and the Warrants following this Offering. See
"Underwriting."
Immediate and Substantial Dilution. The purchasers of the shares of Common
Stock offered by the Company hereby will experience immediate and substantial
dilution in the net tangible book value of the shares of Common Stock from the
initial public offering price in the amount of $4.22 per share, or approximately
60% per share. See "Dilution."
Portions of Offering Proceeds Benefiting Management. Net proceeds to the
Company from the sale of the Securities offered hereby will be used to pay
accrued salaries of certain officers in an aggregate amount of $131,500, and
accrued equipment lease payments to McMillen and Company, Inc., a corporation
controlled by C. Thomas McMillen, the Company's Chairman and Chief Executive
Officer, in the amount of $6,000. See "Use of Proceeds" and
"Management -- Employment Agreements."
Speculative Nature of the Warrants; Possible Redemption of Warrants. The
Warrants do not confer any rights of Common Stock ownership on their holders,
such as voting rights or the right to receive dividends, but rather merely
represent the right to acquire shares of Common Stock at a fixed price for a
limited period of time. Specifically, commencing , 1997 [six months
after the date of this Prospectus], holders of the Warrants may exercise their
right to acquire Common Stock and pay an exercise price of $ per share
[120% of the initial offering price per share of Common Stock], subject to
adjustment upon the occurrence of certain dilutive events, until ,
2002 [five years after the date of this Prospectus], after which date any
unexercised warrants will expire and have no further value. Moreover, following
the completion of this Offering, the market value of the Warrants will be
uncertain and there can be no assurance that the market value of the Warrants
will equal or exceed their initial public offering price. There can be no
assurance that the market price of the Common Stock will ever equal or exceed
the exercise price of the Warrants and, consequently, whether it will ever be
profitable for holders of the Warrants to exercise the Warrants.
Commencing , 1998 [18 months after the date of this Prospectus],
the Warrants will be subject to redemption at $.10 per Warrant on 30 days' prior
written notice provided that the average closing bid price of the Common Stock
as reported on Nasdaq equals or exceeds $ per share [160% of the
initial public offering price per share] for any 20 trading days within a period
of 30 consecutive trading days ending on the fifth trading day prior to the date
of the notice of redemption. If the Warrants are redeemed, holders of the
Warrants will lose their rights to exercise the Warrants after the expiration of
the 30-day notice period. Upon receipt of a notice of redemption, holders would
be required to: (i) exercise the Warrants and pay the exercise price at a time
when it may be disadvantageous for them to do so, (ii) sell the Warrants at the
then-prevailing market price, if any, when they might otherwise wish to hold the
Warrants, or (iii) accept the redemption price, which is likely to be
substantially less than the market value of the Warrants at the time of
redemption. In the event that holders of the Warrants elect not to exercise
their Warrants upon notice of
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<PAGE> 17
redemption, the unexercised Warrants will be redeemed prior to exercise, and the
holders thereof will lose the benefit of the appreciated market price of the
Warrants, if any, and/or the difference between the market price of the
underlying Common Stock as of such date and the exercise price of such Warrants,
as well as any possible future price appreciation in the Common Stock. See
"Description of Securities -- Warrants."
Current Prospectus and State Blue Sky Registration Required to Exercise
Warrants. The Warrants are not exercisable unless, at the time of exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants and such shares have been registered, qualified or
deemed to be exempt under the securities or "blue sky" laws of the state of
residence of the exercising holder of the Warrants. Although the Company has
undertaken to use its best efforts to have all of the shares of Common Stock
issuable upon exercise of the Warrants registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until the
expiration of the Warrants, there is no assurance that it will be able to do so.
The value of the Warrants may be greatly reduced if a current prospectus
covering the Common Stock issuable upon the exercise of the Warrants is not kept
effective or if such Common Stock is not qualified or exempt from qualification
in the states in which the holders of the Warrants reside. Until completion of
this Offering, the Common Stock and the Warrants may only be purchased together
on the basis of one share of Common Stock and one Warrant, but the Warrants will
be separately tradeable immediately after this Offering. Although the Securities
will not knowingly be sold to purchasers in jurisdictions in which the
Securities are not registered or otherwise qualified for sale, investors may
purchase the Warrants in the secondary market or may move to a jurisdiction in
which the shares underlying the Warrants are not registered or qualified during
the period that the Warrants are exercisable. In such event, the Company will be
unable to issue shares to those persons desiring to exercise their Warrants
unless and until the shares are qualified for sale in jurisdictions in which
such purchasers reside, or an exemption from such qualification exists in such
jurisdictions, and holders of the Warrants would have no choice but to attempt
to sell the Warrants in a jurisdiction where such sale is permissible or allow
them to expire unexercised. See "Description of Securities -- Warrants."
Representative's Potential Influence on the Market. A significant amount
of the Securities offered hereby may be sold to customers of the Representative.
Such customers subsequently may engage in transactions for the sale or purchase
of such Securities through or with the Representative. If it participates in the
market, as a market maker or otherwise, the Representative may exert a
dominating influence on the market, if one develops, for the Securities
described in this Prospectus. Such market making activity may be discontinued at
any time. The price and liquidity of the Common Stock and the Warrants may be
significantly affected by the degree, if any, of the Representative's
participation in such market. See "Underwriting."
Anti-Takeover Provisions; Preferred Stock. The Company's Board of
Directors has the authority to issue up to 2,000,000 shares of preferred stock
in one or more series and to determine the number of shares in each series, as
well as the designations, preferences, rights and qualifications or restrictions
of those shares without any further vote or action by the stockholders. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any preferred stock that may be issued
in the future. The issuance of preferred stock 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 issued 1,350 shares of Series A
Preferred Stock, which will convert automatically into 145,800 shares of Common
Stock upon consummation of this Offering. The Company has no present plans to
issue additional shares of preferred stock. In addition, the Company is subject
to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law. In general, this statute 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 interested stockholder, unless the business combination
is approved in a prescribed manner. See "Description of Securities."
No Assurance of Nasdaq Listing; Risk of Low-Priced Securities. The Board
of Governors of the National Association of Securities Dealers, Inc. has
established certain standards for the initial listing and continued listing of a
security on Nasdaq. The standards for initial listing require, among other
things, that an issuer have total assets of $4,000,000 and capital and surplus
of at least $2,000,000; that the minimum bid price for the listed securities be
$3.00 per share; that the minimum market value of the public float (the shares
16
<PAGE> 18
held by non-insiders) be at least $2,000,000, and that there be at least two
market makers for the issuer's securities. The maintenance standards require,
among other things, that an issuer have total assets of at least $2,000,000 and
capital and surplus of at least $1,000,000; that the minimum bid price for the
listed securities be $1.00 per share; that the minimum market value of the
"public float" be at least $1,000,000 and that there be at least two market
makers for the issuer's securities. A deficiency in either the market value of
the public float or the bid price maintenance standard will be deemed to exist
if the issuer fails the individual stated requirement for ten consecutive
trading days. If an issuer falls below the bid price maintenance standard, it
may remain on Nasdaq if the market value of the public float is at least
$1,000,000 and the issuer has $2,000,000 in equity. Nasdaq has recently proposed
new maintenance criteria which, if implemented, would eliminate the exception to
the $1.00 per share minimum bid price and require, among other things,
$2,000,000 in net tangible assets, $1,000,000 market value of the public float
and adherence to certain corporate governance provisions. There can be no
assurance that the Company will continue to satisfy the requirements for
maintaining a Nasdaq listing. If the Company's securities were to be excluded
from Nasdaq, it would adversely affect the prices of such securities and the
ability of holders to sell them, and the Company would be required to comply
with the initial listing requirements to be relisted on Nasdaq.
If the Company is unable to satisfy Nasdaq's maintenance requirements and
the price per share were to drop below $5.00, then unless the Company satisfied
certain net asset tests, the Company's securities would become subject to
certain penny stock rules promulgated by the Commission. The penny stock rules
require a broker-dealer, prior to a transaction in a penny stock not otherwise
exempt from the rules, to deliver a standardized risk disclosure document
prepared by the Commission that provides information about penny stocks and the
nature and level of risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules require that prior to
a transaction in a penny stock not otherwise exempt from such rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for a stock
that becomes subject to the penny stock rules. If the Common Stock becomes
subject to the penny stock rules, investors in the Offering may find it more
difficult to sell their shares.
Risks Associated with Forward-Looking Statements Included in this
Prospectus. This Prospectus contains certain forward-looking statements
regarding the plans and objectives of management for future operations,
including plans and objectives relating to the development of Integrated Medical
Centers. The forward-looking statements included herein are based on current
expectations that involve numerous risks and uncertainties. The Company's plans
and objectives are based on a successful execution of the Company's expansion
strategy and assumptions that the Integrated Medical Centers will be profitable,
that the health care industry will not change materially or adversely, and that
there will be no unanticipated material adverse change in the Company's
operations or business. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that its assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this Prospectus will prove to be accurate. In light of
the significant uncertainties inherent in the forward-looking statements
included herein, particularly in view of the Company's early stage operations,
the inclusion of such information should not be regarded as a representation by
the Company or any other person that the objectives and plans of the Company
will be achieved.
17
<PAGE> 19
THE COMPANY
The Company develops multi-disciplinary medical centers ("Integrated
Medical Centers") and furnishes certain support services to such facilities. The
Integrated Medical Centers combine, in one practice at the same location,
traditional health care providers, such as physicians and physical therapists,
and alternative health care providers, such as chiropractors, acupuncturists and
massage therapists. The Company's objective is to become a nationally recognized
developer and manager of Integrated Medical Centers. At December 16, 1996, the
Company had developed and was managing 8 Integrated Medical Centers in the
states of Florida, Virginia and Illinois and had 36 binding agreements to
develop and manage Integrated Medical Centers in 9 states.
The Company was incorporated in the State of Delaware in November 1994. The
Company's principal executive offices are located at 725 Independence Ave.,
S.E., Washington, DC 20003 and its telephone number is (202) 543-6800. The
Company's web site is: http://www.completewellness.com.
18
<PAGE> 20
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby (assuming an initial public offering price of $7.00 per Share and $.10
per Warrant), after deduction of underwriting discounts and other estimated
offering expenses, are estimated to be approximately $5,752,000 (approximately
$6,678,550 if the Over-allotment Option is exercised in full). The Company
intends to utilize such net proceeds as follows:
<TABLE>
<CAPTION>
APPROXIMATE
DOLLAR APPROXIMATE
AMOUNT(1) PERCENTAGE
----------- -----------
<S> <C> <C>
Repayment of the Bridge Financing notes(2)............................ $1,171,000 20.4%
Development of additional Integrated Medical Centers(3)............... $2,850,000 49.5%
Repayment of certain other debt(4).................................... $ 265,000 4.6%
Working capital and general corporate purposes(5)..................... $1,466,000 25.5%
--------- ---------
Total............................................................ $5,752,000 100.0%
========= =========
</TABLE>
- ---------------
(1) The amount set forth with respect to each purpose represents the Company's
current estimate of the approximate amount of the net proceeds that will be
used for such purpose. However, the Company reserves the right to change
the amount of such net proceeds that will be used for any purpose to the
extent that management determines that such change is advisable.
Consequently, management of the Company will have broad discretion in
determining the manner in which the net proceeds of the Offering are
applied.
(2) The notes issued in connection with the Bridge Financing (the "Bridge
Notes") are in the aggregate principal amount of $1.1 million, bear
interest at the rate of 12% per annum, and are payable upon the earlier of
the closing of the Offering or June 30, 1997. The net proceeds from the
sale of the Bridge Notes were used for the development of additional
Integrated Medical Centers, for the expenses of this Offering, and for
working capital and general corporate purposes. Through February 14, 1997,
the amount of accrued interest to be repaid is approximately $71,000. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
(3) The Company intends to develop approximately 75 additional Integrated
Medical Centers within the 12 months after the date of this Prospectus, of
which five are expected to be developed in connection with a strategic
alliance. The average cost to the Company to develop an Integrated Medical
Center not connected with a strategic alliance is approximately $30,000,
which consists of approximately $10,000 in cash and approximately $20,000
in the form of a loan. The Integrated Medical Center may borrow up to
$40,000 from the Company; however, to date the amount of funds borrowed
have averaged approximately $20,000 for each Integrated Medical Center.
Cash provided by the Company to the Integrated Medical Center may be used
for computer software, legal fees, professional credentialing, training, an
administrative starter kit, and travel. The loan may be used for items such
as professional salaries, computer hardware, signage, and insurance. The
Company believes that the average cost to the Company to develop an
Integrated Medical Center in connection with a strategic alliance will be
approximately $150,000 in cash. These funds are expected to be used for
leasehold improvements, equipment, professional salaries, information
systems, and working capital. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- General."
(4) Consists of accrued payroll, accrued expenses, convertible note payable in
the principal amount of $25,000 (plus accrued interest), and certain other
indebtedness of the Company.
(5) The remaining portion of the net proceeds allocated to working capital will
be used by the Company to fund operations as required including amounts
required to pay officers' salaries, professional fees, office-related
expenses, management information system enhancements, and other corporate
expenses. The additional net proceeds received from the exercise of the
Overallotment Option, if any, will be used for working capital and general
corporate purposes.
The Company anticipates, based on current plans and assumptions relating to
its operations, that the net proceeds of the Offering, together with net cash
from operations, should be sufficient to satisfy the Company's cash requirements
for at least the 12 months after the date of this Prospectus. Proceeds not
immediately required for the purposes described above will be invested in
short-term, investment grade, interest-bearing government obligations.
19
<PAGE> 21
CAPITALIZATION
The following table sets forth as of September 30, 1996 the capitalization
of the Company (i) on an actual basis and (ii) as adjusted to give effect to (a)
the sale by the Company of the Securities offered hereby (at an assumed initial
public offering price of $7.00 per Share and $.10 per Warrant) and the initial
application of the estimated net proceeds therefrom, and (b) the conversion of
1,350 shares of Series A Preferred Stock into 145,800 shares of Common Stock.
See "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Description of Securities." This table should be read in conjunction with the
Consolidated Financial Statements and the notes thereto which are included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------------
ACTUAL AS ADJUSTED(1)
--------- ---------------
<S> <C> <C>
Short-term debt:
Note payable................................................... $ 730 $ 730
Bridge Notes................................................... 1,100,000 0
--------- ---------
Total short-term debt.................................. $1,100,730 $ 730
========= =========
Long-term debt:
Notes payable.................................................. $ 25,000 $ 0
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value per share; 2,000,000 shares
authorized of which 1,500 are designated Series A, 12%
Cumulative Convertible Preferred Stock; 1,350 shares issued and
outstanding, actual; 0 shares issued and outstanding, as
adjusted....................................................... $ 14 $ 0
Common stock, $.0001665 par value; 10,000,000 shares
authorized; 714,967 shares issued and outstanding, actual;
1,860,767 shares issued and outstanding, as adjusted........... 119 310
Additional capital............................................. 145,410 5,897,233
Accumulated deficit............................................ (718,239) (718,239)
--------- ---------
Total stockholders' equity (deficit)............................. $(572,696) $5,179,304
--------- ---------
Total capitalization............................................. $(547,696) $5,179,304
========= =========
</TABLE>
- ---------------
(1) Does not include (i) 351,166 shares issuable upon exercise of outstanding
options under the Company's 1994 Stock Option Plan and 11,167 shares
reserved for issuance upon exercise of options available for grant under
such plan, of which options for 11,000 shares will be granted to a
consultant to the Company upon consummation of the Offering; (ii) 200,000
shares reserved for issuance upon the exercise of options that may be
granted under the Company's 1996 Stock Option Plan, of which 24,000 will be
granted after completion of the Offering; (iii) 100,000 shares reserved for
issuance upon exercise of options that may be granted under the Company's
1996 Restricted Stock Option Plan for Health Care Professionals; (iv)
13,243 shares issuable upon exercise of certain outstanding warrants that
the Company issued in connection with a financing in November 1995; (v) up
to 157,142 shares (assuming an initial public offering price of $7.00 per
share) issuable upon exercise of the Bridge Warrants; and (vi) up to 2,857
shares (assuming an initial public offering price of $7.00 per share)
issuable upon exercise of the Broker-Dealer Bridge Warrants. See
"Management -- Stock Option Plans" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
20
<PAGE> 22
DIVIDEND POLICY
The Company has never declared or paid dividends, and does not intend to
pay any dividends in the foreseeable future on shares of Common Stock. Earnings
of the Company, if any, are expected to be retained for use in expanding the
Company's business. The payment of dividends is within the discretion of the
Board of Directors of the Company and will depend upon the Company's earnings,
if any, capital requirements, financial condition and such other factors as are
considered to be relevant by the Board of Directors from time to time.
DILUTION
At September 30, 1996, the Company had a negative net tangible book value
of approximately $572,696 or $0.80 per share of Common Stock. Negative net
tangible book value per share is equal to the Company's total tangible assets
less its total liabilities and minority interest, divided by the total number of
shares of its Common Stock outstanding. After giving effect to (i) the
conversion of the 1,350 shares of Series A Preferred Stock into 145,800 shares
of Common Stock and (ii) the sale of the shares of Common Stock and Warrants
offered hereby at an assumed initial public offering price of $7.00 per share
and $.10 per Warrant and the initial application of the net proceeds therefrom
(after deducting estimated underwriting discounts and other expenses of the
Offering), the pro forma net tangible book value of the Company at September 30,
1996 would have been $5,179,304 or $2.78 per share of Common Stock, representing
an immediate dilution of $4.22 per share (or approximately 60%) to the new
investors, as illustrated by the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................... $7.00
Negative net tangible book value per share prior to this Offering............. $(0.80)
Increase per share attributable to new investors and the conversion of the
Series A Preferred Stock.................................................... 3.58
-----
Pro forma net tangible book value per share after this Offering............... 2.78
-----
Dilution per share to new investors........................................... $4.22
=====
</TABLE>
In the event the Over-allotment Option is exercised in full, the pro forma
net tangible book value as of September 30, 1996 would be $6,105,854, or $3.04
per share of Common Stock, which would result in immediate dilution in net
tangible book value to new investors of approximately $3.96 per share.
21
<PAGE> 23
The following table sets forth, as of the date of this Prospectus, the
number of shares of Common Stock purchased from the Company, the total
consideration paid, and the average price per share paid by existing
stockholders and by new investors purchasing shares sold by the Company in the
Offering.
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
-------------------- --------------------- ---------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders(1)............ 860,767 46.3% $ 138,461 1.9% $0.16
New Investors....................... 1,000,000 53.7% $7,000,000(2) 98.1% $7.00(2)
-------- ----- -------- -----
Total............................... 1,860,767 100.0% $7,138,461 100.0%
======== ===== ======== =====
</TABLE>
- ---------------
(1) Gives pro forma effect to the conversion of 1,350 shares of Series A
Preferred Stock into 145,800 shares of Common Stock upon consummation of
the Offering; and does not include (i) 351,166 shares issuable upon
exercise of outstanding options under the Company's 1994 Stock Option Plan
and 11,167 shares reserved for issuance upon exercise of options available
for grant under such plan, of which options for 11,000 shares will be
granted to a consultant to the Company upon consummation of the Offering;
(ii) 200,000 shares reserved for issuance upon the exercise of options that
may be granted under the Company's 1996 Stock Option Plan, of which 24,000
will be granted after completion of the Offering; (iii) 100,000 shares
reserved for issuance upon exercise of options that may be granted under
the Company's 1996 Restricted Stock Option Plan for Health Care
Professionals; (iv) 13,243 shares issuable upon exercise of certain
outstanding warrants that the Company issued in connection with a financing
in November 1995; (v) up to 157,142 shares (assuming an initial public
offering price of $7.00 per share) issuable upon exercise of the Bridge
Warrants; and (vi) up to 2,857 shares (assuming an initial public offering
price of $7.00 per share) issuable upon exercise of the Broker-Dealer
Bridge Warrants. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources,"
"Management -- Stock Option Plans" and "Description of Securities."
(2) Attributes no value to the Warrants.
22
<PAGE> 24
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company for
each of the periods indicated. The selected financial data of the Company for
the period November 17, 1994 (inception) to December 31, 1994 and the year ended
December 31, 1995 are derived from the Consolidated Financial Statements of the
Company which have been audited by Ernst & Young LLP, independent auditors. The
selected financial data for the nine-month periods ended September 30, 1995 and
1996 and as of September 30, 1996 were derived from the unaudited consolidated
financial statements of the Company. The unaudited financial statements include
all adjustments, consisting of normal recurring accruals, which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for these periods. All of the information set forth below
should be read in conjunction with the Consolidated Financial Statements of the
Company and related notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NOVEMBER 17,
1994 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ----------------------
1994 1995 1995 1996
------------- ------------ -------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenue:
Patient revenue.......................... $ -- $ 22,114 $ 8,618 $ 869,122
Management services income............... -- -- -- 4,160
------- --------- -------- ---------
Total revenue.............................. -- 22,114 8,618 873,282
======= ========= ======== =========
Operating expenses:
Salary and consulting costs.............. 1,400 93,131 59,283 249,293
Management fees.......................... -- 29,669 4,146 438,948
Rent..................................... -- 4,501 400 160,988
Advertising and marketing................ -- 25,821 11,909 36,828
General and administrative............... -- 253,024 28,818 607,770
Depreciation and amortization............ -- 6,490 1,623 24,598
------- --------- -------- ---------
Total operating expenses................... 1,400 412,636 106,179 1,518,425
------- --------- -------- ---------
Operating deficit.......................... (1,400) (390,522) (97,561) (645,143)
Net interest income (expense).............. -- 176 483 (19,566)
Minority interest.......................... -- 194,457 2,927 143,759
------- --------- -------- ---------
Net loss................................... $(1,400) $ (195,889) $(94,151) $(520,950)
======= ========= ======== =========
Pro forma net loss per share(1)............ $ (0.26) $ (0.43)
========= =========
Pro forma weighted average number of common
and common equivalent shares
outstanding(1)........................... 753,924 1,225,633
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------------
ACTUAL AS ADJUSTED(2)
--------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)........................................ $(437,991) $5,267,009
Total assets..................................................... 1,549,912 5,914,912
Total liabilities................................................ 1,795,815 430,815
Minority interest................................................ 326,793 326,793
Stockholders' equity (deficit)................................... (572,696) 5,179,304
</TABLE>
- ---------------
(1) See Note 10 to the Consolidated Financial Statements.
(2) Adjusted to give effect to the sale of the Securities offered hereby (at an
assumed initial public offering price of $7.00 per Share and $.10 per
Warrant) and the initial application of the net proceeds therefrom. See
"Use of Proceeds."
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was established in November 1994. From its inception until
March 1995 the Company raised funds privately and developed the corporate
infrastructure, protocols, policies, and procedures required to commence its
plan to develop multi-disciplinary medical clinics.
In March 1995, the Company began implementing the initial stages of its
business plan. The Company formed Complete Wellness Centers, L.L.C. ("CWC LLC"),
a Delaware limited liability company, as a vehicle for raising capital needed to
open Integrated Medical Centers. The Company is the managing member of CWC LLC
and has a 1% equity interest. See "Certain Transactions." The Company has
obtained irrevocable and permanent voting proxies from the holders of a majority
of ownership interests in CWC LLC. The Company consolidates the financial
statements of CWC LLC in its financial statements.
Pursuant to an agreement entered into in July 1995, CWC LLC purchased
selected assets of a chiropractic practice for the purpose of establishing the
Company's first Integrated Medical Center in conjunction with a newly formed,
wholly-owned subsidiary of CWC LLC, Complete Wellness Center of Fredericksburg,
Inc. ("CWC Fredricksburg"). Operations began at CWC Fredricksburg on September
1, 1995. Revenue earned at CWC Fredericksburg through December 31, 1995 was
$22,114 and expenses for that period amounted to $44,232, net of interest income
of $86, resulting in a loss from operations of $22,118.
The Company began pursuing its primary development strategy in early 1996.
This strategy involves affiliating with chiropractors and their existing
chiropractic practices. The existing practice is used as a base for the
development of an Integrated Medical Center. The Company establishes a new
Integrated Medical Center by forming a medical corporation, which can be a
general business corporation wholly-owned by the Company or a professional
corporation that is physician-owned, depending upon applicable state law. The
Integrated Medical Center employs a physician, the Affiliated Chiropractor, and,
depending on the needs of the patient base, other health care practitioners to
provide traditional and alternative medical services. The Integrated Medical
Center enters into a long-term management agreement with the Company to provide
certain administrative and management services, including providing ongoing
legal support to assist in compliance with applicable legal requirements,
negotiating managed care contracts, assisting in the recruitment, non-medical
training of and negotiation with health care practitioners, providing
consultation on administrative matters such as billing, collections and
non-medical training of practitioners, and providing advertising and practice
development support. The Company charges the Integrated Medical Center fees for
these services, generally based on a periodic determination of the fair market
value of the services rendered in the relevant locality. The fees are pre-set
for one year in the case of Integrated Medical Centers that serve patients
covered by Medicare, Medicaid or other state or federal funded health care
reimbursement programs. The Company generally leases office space and equipment
required to operate the Integrated Medical Center for fair market, proportionate
use-based, value from the Affiliated Chiropractor or the Affiliated
Chiropractor's management company, depending upon which of them leases or owns
the office space and equipment. The Company then subleases the office space and
equipment for fair market, proportionate use-based, value to the Integrated
Medical Center. In addition, the Company enters into a submanagement agreement
with a management company owned by the Affiliated Chiropractor under which the
Affiliated Chiropractor's management company assumes responsibility for the
daily management functions of the Integrated Medical Center. The Company agrees
to pay the Affiliated Chiropractor's management company a monthly fee equal to
the sum of the management fee and lease income actually paid to the Company by
the Integrated Medical Center. In general, the Affiliated Chiropractor's
management company agrees to pay the Company a one time enrollment fee of $500
to defray the cost of credentialing and verification, an operations fee of $250
per month, a marketing and practice development fee of $200 per month, and a
monthly integration fee equal to 20% (if the initial term of the submanagement
agreement is five years) or 15% (if the initial term is ten years) of the sum of
(i) the management fee and lease income actually paid to the Company by the
Integrated Medical Center and (ii) the Integrated Medical Center's expenses,
until the sum reaches $500,000 in any one year, and 10% of the sum for the
remainder of that year. The integration fees are capped, however, in the case of
24
<PAGE> 26
Integrated Medical Centers that serve patients covered by federal or state
funded health care programs. Operations fees cover goods and services provided
by the Company. Integration fees cover general consultations, negotiation of
managed care contracts, hiring professional and non-professional employees,
legal consultation and non-medical training.
The terms of the Company's management agreements with the Integrated
Medical Centers are generally 35 years. The terms of the management agreements
with the Affiliated Chiropractors and their management companies range from 5 to
10 years, with the potential for one or more (up to four) renewal terms.
The Company currently plans to use this model for the Integrated Medical
Centers developed pursuant to its expansion strategy, including those in
connection with strategic alliances with health clubs, corporations, government
offices, or other organizations. In the case of a strategic alliance, office
space for the Integrated Medical Center would be leased or licensed from the
other party to the strategic alliance rather than from the Affiliated
Chiropractor or the Affiliated Chiropractor's management company. In this
regard, the Company entered into a master license agreement with Bally Total
Fitness Corporation in September 1996 to develop Integrated Medical Centers
within selected Bally Total Fitness Corporation health clubs throughout the
United States. The Company initially plans to develop an Integrated Medical
Center at a Bally Total Fitness Corporation health club in the Washington, D.C.
metropolitan area and is in the process of selecting a location. See
"Business -- Expansion Strategy." To date, the Company has developed 8
Integrated Medical Centers. Of these, seven were developed through CWC LLC prior
to July 1996. In the future, the Company does not plan to open any additional
Integrated Medical Centers owned directly or indirectly by CWC LLC, nor does it
plan for CWC LLC to raise any additional capital. See "Certain Transactions."
The Company recognizes all revenue and expenses of the Integrated Medical
Centers formed as a wholly-owned subsidiary of the Company or CWC LLC. The
financial results of Integrated Medical Centers organized as physician-owned
professional corporations are not consolidated in the Company's financial
statements. In such cases, the Company recognizes only the fees derived by the
Company through its management agreements. As of the date of this Prospectus,
seven Integrated Medical Centers are wholly-owned subsidiaries of CWC LLC (two
of which are operated by the same medical corporation) and one is a
physician-owned professional corporation.
Typically, within 30 days after the execution of the management agreement
among the Company, the Affiliated Chiropractor, and the Affiliated
Chiropractor's management company, the existing chiropractic practice is
analyzed, the professional credentials and background of the Affiliated
Chiropractor are verified, and landlord approval of the Integrated Medical
Center's occupancy of the proposed office space is obtained. In general, within
120 days after the execution of such management agreement, the Company provides
the services and other items necessary to medically integrate the existing
chiropractic practice. The date of integration is the date on which the services
of a medical doctor are first rendered.
The cost to the Company to develop an Integrated Medical Center not
connected with a strategic alliance has averaged $30,000, which consists of
approximately $10,000 in cash and approximately $20,000 (out of a possible
$40,000) in the form of a loan. Cash is provided by the Company after the
execution of a binding management agreement with the Affiliated Chiropractor and
his or her management company and before the integration date and may be used
for computer software, legal fees, professional credentialing, training, an
administrative starter kit, and travel. The loan may be used for items such as
professional salaries, computer hardware, signage, and insurance. The loan bears
interest at the rate of 10% per annum, is secured by the assets of the
Integrated Medical Center, is guaranteed by the Affiliated Chiropractor, and is
payable within five years. The Company believes that the average cost to the
Company to develop an Integrated Medical Center in connection with a strategic
alliance will be approximately $150,000 in cash. These funds are expected to be
used for leasehold improvements, equipment, professional salaries, information
systems, and working capital.
The Company may from time to time advance additional funds to Integrated
Medical Centers to fund working capital requirements, although it has not done
so to date. If the Company does make such an advance, it will bear interest at
the rate of 10% per annum, will be secured by such collateral as the Company
deems
25
<PAGE> 27
appropriate, and will be repayable before the expiration of the initial term of
the management agreement with the Affiliated Chiropractor and his or her
management company.
The Company intends to develop approximately 75 additional Integrated
Medical Centers within 12 months after the date of this Prospectus, of which
five are expected to be developed in connection with a strategic alliance.
However, there can be no assurance that the Company will be able to identify and
recruit a sufficient number of chiropractors and their existing chiropractic
practices, that it will have access to a sufficient number of locations in
connection with a strategic alliance, or that the average costs to the Company
to develop Integrated Medical Centers will not be greater than those discussed
above.
The Integrated Medical Centers developed prior to the date of this
Prospectus were financed by the issuance of the Company's notes, shares of
Common Stock, and shares of preferred stock, and by the sale of membership
interests in CWC LLC. The Integrated Medical Centers intended to be developed
within 12 months after the date of this Prospectus are expected to be financed
by a portion of the net proceeds of the Offering. See "Use of Proceeds."
RESULTS OF OPERATIONS
Nine months ended September 30, 1996 compared to nine months ended September 30,
1995
Revenue. During the nine months ended September 30, 1996 and September 30,
1995, the Company had total revenue of $873,282 and $8,618, respectively. At
September 30, 1995, the Company managed only one Integrated Medical Center,
which began operations in September 1995. The increase of $864,664 was due
primarily to the addition of seven Integrated Medical Centers after September
1995. Two Integrated Medical Centers accounted for $655,228 of the $873,282 of
total revenue at September 30, 1996.
Salary and Consulting Costs. During the nine months ended September 30,
1996 and September 30, 1995, the Company incurred salary and consulting costs of
$249,293 and $59,283, respectively. The increase of $190,010 was due to an
increase of $171,787 in costs resulting from the hiring of additional employees,
an increase of $4,987 in compensation expense resulting from the grant of stock
options the fair market value of which exceeded their exercise price, and an
increase of $13,236 resulting from consulting fees in connection with the
development of corporate infrastructure and the operation of Integrated Medical
Centers.
Management Fees. During the nine months ended September 30, 1996 and
September 30, 1995, the Company incurred management fees of $438,948 and $4,146,
respectively. These are fees that are paid to the Affiliated Chiropractors'
management companies for managing the day-to-day operations of the Integrated
Medical Centers. The fees are paid when the accounts receivable of the
Integrated Medical Centers are collected by the Integrated Medical Center. The
increase of $434,802 was due primarily to the addition of seven Integrated
Medical Centers after September 1995.
Rent. During the nine months ended September 30, 1996 and September 30,
1995, the Company incurred rent expenses of $160,988 and $400, respectively.
Rent consists of amounts paid for office space and certain equipment by the
Company and the Integrated Medical Centers. The increase of $160,588 was due
primarily to the addition of seven Integrated Medical Centers after September
1995.
Advertising and Marketing. During the nine months ended September 30, 1996
and September 30, 1995, the Company incurred advertising and marketing expenses
of $36,828 and $11,909, respectively. The increase of $24,919 was attributable
primarily to additional national advertising for marketing and recruitment
purposes.
General and Administrative. During the nine months ended September 30,
1996 and September 30, 1995, the Company incurred general and administrative
expenses of $607,770 and $28,818, respectively. The increase of $578,952 was due
primarily to the addition of seven Integrated Medical Centers after September
1995 and consists of an increase of (i) $95,320 in accounting costs, (ii)
$73,963 in legal costs, (iii) $12,790 in employment agency fees, (iv) $311,879
in various costs, such as bad debt reserves, travel and entertainment,
telephone, and insurance, and (v) $85,000 in costs attributable to the Bridge
Financing and the Offering.
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Depreciation and Amortization. During the nine months ended September 30,
1996 and September 30, 1995, the Company incurred depreciation and amortization
expense of $24,598 and $1,623, respectively. The increase of $22,975 resulted
from the addition of fixed assets, primarily computer equipment, which tend to
have depreciable lives of five years or less.
Net Interest Income (Expense). During the nine months ended September 30,
1996 and September 30, 1995, the Company had net interest expense of $19,566 and
net interest income of $483, respectively. The $20,049 increase in net interest
expense was attributable primarily to an increase of $21,700 in interest payable
on notes issued in connection with the Bridge Financing, an increase of $2,516
in interest payable on a note issued in connection with the acquisition of
assets for use at the first Integrated Medical Center developed by the Company,
and offset by an increase of $4,167 in interest income.
Year ended December 31, 1995 compared to year ended December 31, 1994
During the year ended December 31, 1994 the Company incurred a net loss of
$1,400. No revenues were generated during 1994. The Company was not formed until
November 1994, so a comparison with the year ended December 31, 1995 is not
meaningful. The Company began operations in January 1995 and opened its first
Integrated Medical Center in September 1995. During the year ended December 31,
1995 the Company had total revenue of $22,114. This revenue consisted of patient
revenue from one Integrated Medical Center, which began operations in September
1995. During the year ended December 31, 1995 the Company incurred salary and
consulting expenses of $93,131, management fees of $29,669, rent expense of
$4,501, advertising and marketing expenses of $25,821, general and
administrative expenses of $253,024, and depreciation and amortization expense
of $6,490. This resulted in a net loss of $195,889 after taking $194,457 of
minority interest into consideration.
SEASONALITY
The Company believes that the patient volumes at its Integrated Medical
Centers are not significantly affected by seasonality.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced net losses, negative cash flow, a deficit in
working capital, and an accumulated deficit each month since its inception. For
the year ended December 31, 1995 and for the nine months ended September 30,
1996 the Company had incurred a net loss of $195,889 and of $520,950,
respectively. At September 30, 1996, the Company had a deficit in working
capital of $437,991, and an accumulated deficit of $718,239. Net cash used in
operations for the year ended December 31, 1995 and for the nine months ended
September 30, 1996 was $252,114 and $704,652, respectively. Negative cash flow
for each period was attributable primarily to net losses in each of the periods
and increases in accounts receivable net of accounts payable and other current
liabilities. For the year ended December 31, 1995 and for the nine months ended
September 30, 1996, the Company used $38,814 and $184,362, respectively, for
purchases of equipment.
From November 1994 to September 1996 development costs, capital
expenditures and working capital needs of the Company have been financed through
the issuance of notes, shares of Common Stock, and shares of preferred stock of
the Company, and the sale of membership interests in CWC LLC.
During 1995 the Company issued 1,350 shares of Series A Preferred Stock for
$100 per share. Each share of Series A Preferred Stock is convertible into 108
shares (an aggregate of 145,800 shares) of Common Stock upon the closing of a
public offering. The Company raised $135,000 as a result of this issuance. The
proceeds were used for working capital and general corporate purposes.
In November 1995, the Company issued $39,730 in aggregate principal amount
of promissory notes and warrants to purchase an aggregate of 13,243 shares of
Common Stock at an exercise price of $.003 per share. The warrants are
exercisable for a period of five years commencing November 1996. The notes have
been repaid or converted into membership interests in CWC LLC.
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During 1995 and 1996, CWC LLC sold an aggregate of $665,000 of Class A
Units. The Company acquired 1% of the membership interests of CWC LLC. The net
equity of the other investors accounts for the minority interest shown in the
Company's consolidated financial statements. See "Certain Transactions."
In connection with the sale of the Class A Units, certain state
notification of sale requirements were not complied with on a timely basis. CWC
LLC offered to rescind the sale of membership interests to affected investors,
and all such investors rejected the offer.
In connection with the acquisition of assets used to establish CWC
Fredericksburg, CWC LLC issued a note in the principal amount of $25,000 that
bears interest at the rate of 8% per annum, is payable on July 17, 2000, is
secured by the assets of CWC Fredericksburg, and, at the option of the holder,
is convertible into membership interests of CWC LLC in certain circumstances.
The Company intends to use a portion of the net proceeds of the Offering to
repay the note plus accrued interest. See "Use of Proceeds."
In August 1996, the Company completed the Bridge Financing pursuant to
which it issued (i) an aggregate of $1.1 million principal amount of secured
promissory notes (the "Bridge Notes") that bear interest at the rate of 12% per
annum, are payable upon the earlier of the closing of the Offering or June 30,
1997, and are secured by substantially all of the Company's assets and (ii)
warrants entitling the holders to purchase that number of shares of Common Stock
determined by dividing the principal amount of the Bridge Notes by the price per
share of Common Stock offered hereby (the "Bridge Warrants"). The Company has
agreed that the Bridge Warrants and the shares of Common Stock issuable upon
exercise of the Bridge Warrants would be included in the registration statement
of which this Prospectus forms a part. Assuming a price per Share of $7.00 in
this Offering, a total of 157,142 shares of Common Stock will be issuable upon
exercise of the Bridge Warrants at an exercise price of $.003 per share. The
Company intends to use a portion of the proceeds of this Offering to repay the
entire principal amount of and accrued interest on the Bridge Notes. See "Use of
Proceeds." Proceeds of the Bridge Financing were used for the development of
additional Integrated Medical Centers, working capital, and general corporate
purposes, and certain costs attributable to the Offering. The Company also
issued a warrant to purchase up to 2,857 shares of Common Stock (assuming an
initial public offering price of $7.00 per share) to a broker-dealer who acted
as a placement agent for a portion of the Bridge Financing.
The Company intends to develop approximately 75 additional Integrated
Medical Centers within 12 months after the date of this Prospectus, including
five in connection with strategic alliances. The average cost to the Company to
develop an Integrated Medical Center not connected with a strategic alliance is
approximately $30,000. The Company believes the average cost to the Company to
develop an Integrated Medical Center in connection with a strategic alliance
will be approximately $150,000. There can be no assurance, however, that the
Company will be able to identify and recruit a sufficient number of
chiropractors and their existing chiropractic practices, that it will have
access to a sufficient number of locations in connection with a strategic
alliance, or that the average costs to the Company to develop Integrated Medical
Centers will not be greater than those mentioned above. The Company intends to
finance its expansion strategy with a portion of the net proceeds of this
Offering. In addition, with a portion of the net proceeds of this Offering, the
Company intends to continue development of its management information system.
Management believes that the net proceeds of this Offering together with net
cash from operations will be sufficient to finance the Company's activities for
at least 12 months following the date of this Prospectus; however, there can be
no assurance that such net proceeds and cash from operations will be sufficient
to finance the Company's activities for such period. See "Risk
Factors -- Possible Need for Additional Financing," "Use of Proceeds," and "--
General."
After the completion of this Offering, the Company intends to lease
approximately 3,000 to 5,000 square feet of space for its executive offices in
Montgomery County, Maryland. The Company has received a low interest rate loan
commitment in the amount of $45,000 from the Montgomery County Economic
Development Fund in order to defray its relocation costs. The loan is to bear
interest at the rate of 7% per annum with a ten year amortization, with payment
deferred until December 31, 1997. The loan is to be secured by the Company's
capital assets. The loan will be converted to a grant if the Company generates
more than 50 jobs and establishes a new Integrated Medical Center in Montgomery
County by the end of 1997. The loan
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commitment expires on January 31, 1997, however, the Company intends to seek an
extension of this expiration date. See "Business -- Property."
NET OPERATING LOSSES
The Company has net operating loss carryforwards for federal income tax
purposes of approximately $643,000 which expire in 2010. A valuation allowance
of approximately $288,000 has been established to offset any benefit from the
net operating loss carryforward, as it cannot be determined when or if the
Company will be able to utilize the net operating losses. These carryforwards
may be significantly limited under the Internal Revenue Code of 1986, as
amended, as a result of ownership changes resulting from this Offering and other
equity offerings of the Company.
NEW ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, Accounting for Stock-Based Compensation, which provides an alternative
to APB Opinion No. 25, Accounting for Stock Issued to Employees, in accounting
for stock-based compensation issued to employees. The statement allows for a
fair value based method of accounting for employee stock options and similar
equity instruments. However, for companies that continue to account for
stock-based compensation arrangements under APB Opinion No. 25, Statement No.
123 requires disclosure of the pro forma effect on net income and earnings per
share of its fair value based accounting for those arrangements. These
disclosure requirements are effective for fiscal years beginning after December
15, 1995, or upon initial adoption of the statement, if earlier. The Company has
elected to continue to account for stock-based compensation arrangements under
APB Opinion No. 25, and accordingly recognizes compensation expense for the
stock option grants as the difference between the fair value and the exercise
price at the grant date but will provide the required pro forma disclosures in
the December 31, 1996 consolidated financial statements.
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BUSINESS
GENERAL
The Company develops multi-disciplinary medical centers ("Integrated
Medical Centers") and furnishes certain support services to such facilities. The
Integrated Medical Centers combine, in one practice, at the same location,
traditional health care providers, such as physicians and physical therapists,
and alternative health care providers, such as chiropractors, acupuncturists and
massage therapists. The Company's objective is to become a nationally recognized
developer and manager of Integrated Medical Centers. At December 16, 1996, the
Company had developed and was managing 8 Integrated Medical Centers in the
states of Florida, Virginia and Illinois and had 36 binding agreements to
develop and manage Integrated Medical Centers in 9 states.
The Company develops Integrated Medical Centers generally through
affiliations with chiropractors and their existing chiropractic practices (the
"Affiliated Chiropractors"). Management endeavors to enter into an agreement
with a chiropractor who has an established chiropractic practice in a convenient
location and who is an individual who has demonstrated the entrepreneurial
skills to build a practice.
The total expenditures associated with the use of alternative medicine in
1990 amounted to approximately $13.7 billion, according to a report published by
the New England Journal of Medicine in 1993. In October 1996, The Wall Street
Journal reported that the alternative medical services market has grown to
approximately $50 billion. Management believes that the growing popularity and
acceptance of alternative medicine has contributed to the Company's growth. By
integrating alternative medicine with traditional medicine, the Company is
providing a choice for the consumer in one location as well as the opportunity
to choose complementary treatments overseen by a medical doctor, which the
Company believes alleviates some of the concerns of patients and third party
payors.
The Company's operating strategy is to (i) provide consumers the
opportunity to obtain, and the convenience of obtaining, under the supervision
of a medical doctor, complementary traditional and alternative medical
treatments in one location, (ii) furnish high quality patient care efficiently
through the use of credentialing standards and standardized protocols, (iii)
establish Integrated Medical Centers in local and regional clusters for purposes
of obtaining managed care contracts, (iv) assist in marketing the Integrated
Medical Centers on a coordinated basis and furnish them management, marketing,
financing and other advice and support, and (v) achieve operating efficiencies
and economies of scale through the implementation of management information
systems, the rotation of health care providers among Integrated Medical Centers,
increased purchasing power with suppliers, and standardized protocols,
administrative systems, and procedures.
The Company's expansion strategy is to continue to develop additional
Integrated Medical Centers in regional groups or clusters in order to facilitate
the development of integrated networks of affiliated physicians, chiropractors
and other health care providers (both traditional and alternative). The Company
plans to continue to develop additional Integrated Medical Centers through
affiliations with chiropractors and their existing chiropractic practices and
intends to begin development of Integrated Medical Centers in connection with
strategic alliances with health clubs, corporations, government offices, or
other organizations, in which cases the Integrated Medical Centers would be
developed in locations such as a health club or office building. The Company
regularly explores new opportunities related to integrated medical services and
intends to negotiate arrangements with or acquire businesses that provide
services ancillary to the provision of integrated medical services, such as
services relating to medical diagnostics or billing systems. As of the date of
this Prospectus, the Company has no understandings, commitments, or agreements
with respect to any acquisitions.
The Company itself is not authorized or qualified to engage in any activity
which may be construed or be deemed to constitute the practice of medicine but
is an independent supplier of non-medical services only. The physicians and
chiropractors are responsible for all aspects of the practice of medicine and
chiropractic and the delivery of medical and chiropractic services (subject to
certain business guidelines determined in conjunction with the Company),
including but not limited to diagnosis, treatment, referrals, quality assurance,
utilization
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management, and therapy. In connection with any managed care contracts it may
arrange on behalf of the Integrated Medical Centers, the Company will need to
manage the Integrated Medical Centers' utilization of medical services to
patients. If under such contracts, the Integrated Medical Centers accept
responsibility for the treatment of their patients by specialists or at
hospitals, the Company will also manage the practitioners' referral patterns
with respect to specialty physician and hospital services. The Company will only
do so, however, for payment purposes and will not, through such process,
interfere with the professional judgment of a medical practitioner or prohibit a
practitioner from providing any medical services.
INDUSTRY BACKGROUND
The integration of traditional and alternative medicine is becoming more
popular in the United States. In 1992, Congress required the National Institutes
of Health to establish The Office of Alternative Medicine, the purpose of which
was and remains to facilitate the evaluation of alternative medicine treatments
to determine their effectiveness and help integrate them into traditional
medicine. More recently, the Trends Research Institute of Rhinebeck, New York
has identified the integration of traditional and alternative medicine as one of
the top ten trends of the coming decade.
This trend is being reflected by health care insurers and legislative
initiatives. A U.S. health insurance company offered coverage for alternative
medical treatment for the first time in 1992, and the Company believes that
presently at least 15 insurers cover various aspects of alternative medicine. On
January 1, 1996, Washington became the first state to require health insurers to
pay for alternative ways of treating illnesses. In addition, seven states have
passed medical access laws that prevent state medical boards from disciplining a
doctor solely because a treatment is considered unacceptable by the mainstream
medical community and, earlier this year, Congress held hearings on a bill that
would allow a licensed health care practitioner to provide any method of
treatment requested by a patient, whether or not the treatment had been approved
by the U.S. Food and Drug Administration.
The Company believes that integrated medicine draws upon the strengths of
each discipline. For example, some of the strengths of traditional medicine are
its sophisticated ability to diagnose disease and its array of powerful drugs
and surgical procedures to treat emergency conditions and advanced stages of
illness. Alternative medicine emphasizes wellness and prevention and addresses
illness by identifying and trying to remove the causes, often found in the
patient's lifestyle habits. In addition, the Company believes that alternative
medicine is becoming more widely accepted by the medical community and the
insurance industry as a complement to traditional medicine because of the
growing realization of the quality of care given and its cost-effectiveness. The
Company has chosen chiropractic as the alternative medicine discipline that
serves as the base from which Integrated Medical Centers are developed. The
Company believes that chiropractic care is the largest component of alternative
medicine expenditures in the United States.
The Company has selected health clubs as the initial type of organization
with which to develop Integrated Medical Centers in connection with strategic
alliances. The Company believes that members of health clubs tend to be
interested in fitness and wellness, both of which are central themes of
alternative medicine. According to the International Health, Racquet and Sports
Club Association, there were approximately 13,300 health club facilities in the
United States in 1996.
OPERATING STRATEGY
The objective of the Company's operating strategy is to provide a high
level of traditional and alternative medical care to patients in a
cost-effective manner. Key elements of the Company's operating strategy are:
One Location. The Company seeks to provide consumers the opportunity to
obtain, and the convenience of obtaining, under the supervision of a medical
doctor, complementary traditional and alternative medical treatments in one
location. The Company believes that alternative medicine is growing in
popularity, and that supervision of treatment by a medical doctor may alleviate
some patient concerns.
Furnish High Quality Care Efficiently. All health care services at an
Integrated Medical Center are provided by health care practitioners under the
supervision of a licensed medical doctor. The Company seeks
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qualified and reputable medical doctors. The Company further seeks to ensure the
efficient provision of high quality care through the use of credentialing
standards and standardized protocols. Additionally, in many states, only medical
doctors are permitted to order certain laboratory and radiological tests. The
Company believes that supervision by a medical doctor and a medical doctor's
access to more sophisticated diagnostic testing services will enhance the
quality of patient care.
Establish Networks of Integrated Medical Centers to Obtain Managed Care
Contracts. A key component of the Company's operating strategy is to attract
both health care practitioners and managed care payors. The Company seeks to
attract health care practitioners by, among other things, providing them greater
access to managed care contracts than they could attain independently and
relieving them of significant administrative responsibilities. The Company
intends for its local and regional clusters of Integrated Medical Centers to
attract managed care contractors by providing single, integrated points of
market entry, thereby enabling managed care payors to more efficiently contract
for the provision of health care services for patient populations. The Company
believes its credentialing standards, standardized protocols and implementation
of a meaningful utilization management program will also likely be important in
attracting managed care contracts.
Provide Advice and Assistance. The Company intends to develop and
implement advertising and marketing programs for the Integrated Medical Centers
primarily at the regional and national levels, utilizing television, radio, and
print advertising as well as internal marketing promotions. The name of each
Integrated Medical Center includes the words "Complete Wellness Medical
Center(SM)" and each Integrated Medical Center displays signage bearing its
name. The Company's goal is to achieve "brand name" awareness of the Integrated
Medical Centers, although there is no assurance that the Company will be able to
realize this goal. Each Integrated Medical Center is required to pay a flat
monthly fee to finance the Company's advertising and marketing programs. An
individual Integrated Medical Center may also advertise its services locally,
and the Company provides advice in that regard upon request. The Company also
agrees to furnish the Integrated Medical Centers management services, financing
and other advice and support. By doing so, the Company seeks to relieve
providers, to a limited extent, from certain burdens of administering and
managing a medical practice.
Achieve Operating Efficiencies and Economies of Scale. The Company
organizes its Integrated Medical Centers into regional groups or clusters to
serve employees and patients more effectively, to leverage management and other
resources, to increase purchasing power with suppliers, and to facilitate the
development of networks of affiliated physicians, chiropractors, and other
health care practitioners. The Company intends to rotate physicians and other
health care practitioners among Integrated Medical Centers within a particular
cluster. The Company believes that this will reduce the number of practitioners
that would otherwise be needed, and thereby contain salary costs. In addition,
the Company has implemented a variety of operating procedures and systems to
improve the productivity and profitability of Integrated Medical Centers. These
include standardized protocols, administrative systems, and procedures, and the
installation of a management information system.
The Company believes that a sophisticated management information system is
critical to its success. Using commercially available software components, the
Company has developed a management information system tailored to its needs and
designed to handle billing and collection, appointment scheduling, and patient
records for all of the Integrated Medical Centers. In addition to providing the
capability for electronic creation and review of patient records, the Company
believes this system will provide the Company with the ability to monitor
outcomes of patient care, engage in effective utilization management of health
care services, and analyze the performance of each Integrated Medical Center.
EXPANSION STRATEGY
The Company plans to develop additional Integrated Medical Centers
primarily by affiliating with chiropractors and their existing chiropractic
practices. Management endeavors to enter into agreements with chiropractors who
are located in convenient locations, and who have demonstrated the
entrepreneurial skills to build a practice. The Company believes that such
chiropractors will consider affiliation with Integrated
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Medical Centers to be attractive because they may have greater access to managed
care contracts through the Company and its network of Integrated Medical
Centers, will be relieved of certain administrative burdens, will enjoy the use
of a sophisticated management information system, and may have the opportunity
to increase their practice income. An Integrated Medical Center is usually
established at the same location as the existing chiropractic practice, although
in some instances it might be established at a new location.
The Company also plans to develop Integrated Medical Centers in connection
with strategic alliances with health clubs, corporations, government offices, or
other organizations. In such cases, the Integrated Medical Center would be
established at a location (such as a health club or office building) provided,
leased or licensed to the Company by the other party to the strategic alliance.
The Company would in turn seek to affiliate with a chiropractor who has an
existing chiropractic practice located near the Integrated Medical Center. The
chiropractor would maintain his or her existing practice at its existing
location, but would arrange to see patients at the Integrated Medical Center as
well. If the Company were unable to affiliate with a chiropractor with an
existing practice located nearby, it would hire a chiropractor without an
existing practice to work on site at the Integrated Medical Center.
In this regard, in September 1996 the Company entered into a master license
agreement (the "License Agreement") with Bally Total Fitness Corporation
("Bally's"), with respect to the development of Integrated Medical Centers
within selected Bally's health clubs throughout the United States. Bally's is
the largest commercial operator of fitness centers in the United States, with
approximately 320 centers concentrated in 27 states and 4.2 million members.
Pursuant to the License Agreement, the Company will pay Bally's a license fee
equal to the greater of $15 ($10 for the first year) per square foot of the
space used by the Integrated Medical Center or 12.5% of the fees the Company
receives for its services to each Integrated Medical Center the Company develops
at a Bally's Total Fitness Center. The initial term of the license agreement is
five years, with five one-year mutual renewals. The first Integrated Medical
Center to be developed by the Company at a Bally's Total Fitness Center is
expected to be located in the Washington, D.C. metropolitan area. The Company is
in the process of selecting a location. If it meets the Company's expectations,
the Company expects to develop additional Integrated Medical Centers at other
Bally's Total Fitness Centers. In such event, the Company expects to select
Bally's Total Fitness Centers located near other Integrated Medical Centers.
Integrated Medical Centers developed pursuant to the License Agreement will not
treat patients covered by any federal or state funded health care program.
Additionally, in November 1996 the Company signed a non-binding letter of
intent with Complete Management, Inc. ("CMI"), pursuant to which it is
contemplated that the Company and CMI will form a joint venture to develop
Integrated Medical Centers at selected Bally's Total Fitness Centers or other
health clubs in the greater New York City metropolitan area. The letter of
intent contemplates that CMI, upon execution of a definitive joint venture
agreement, will be issued warrants to purchase 100,000 shares of the Company's
Common Stock at an exercise price equal to 120% of the initial public offering
price per share. The Company cannot predict whether the letter of intent will
lead to a definitive agreement or whether the terms of any such definitive
agreement will be the same as the terms contemplated by the letter of intent.
New York health care regulatory requirements are extremely restrictive and
prohibit many arrangements permitted in other states. For example, the provision
of many services, such as physical therapy and occupational therapy, may subject
a facility to New York's lengthy hospital licensing regulations. In addition,
New York prohibits publicly held companies from owning health care facilities,
and further prohibits companies from entering into management contracts with
certain health care facilities.
The cost to the Company to develop an Integrated Medical Center not
connected with a strategic alliance has averaged $30,000, which consists of
approximately $10,000 in cash and approximately $20,000 (out of a possible
$40,000) in the form of a loan. Cash provided by the Company may be used for
computer software, legal fees, professional credentialing, training, an
administrative starter kit, and travel. The loan may be used for items such as
professional salaries, computer hardware, signage, and insurance. The loan bears
interest at the rate of 10% per annum, is secured by the assets of the
Integrated Medical Center, is guaranteed by the Affiliated Chiropractor, and is
payable within five years. The Company believes that the average cost to the
Company to develop an Integrated Medical Center in connection with a strategic
alliance will be approxi-
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mately $150,000 in cash. These funds are expected to be used for leasehold
improvements, equipment, professional salaries, information systems, and working
capital.
An Integrated Medical Center is expected to expand its services in three
phases. The first phase involves the medical treatment of neuromusculoskeletal
conditions of the Affiliated Chiropractor's patients who are referred by the
Affiliated Chiropractor for reasons of medical necessity. This is accomplished
by utilizing a rotating part-time medical doctor supported by a consulting
neurologist. The second phase, generally expected to be after an Integrated
Medical Center has been in operation for six to twelve months of operation,
involves, depending on the market, adding other providers such as a physical
therapist or massage therapist. The third phase, generally expected to be after
12 to 24 months of operation, depending on an Integrated Medical Center's
results, involves utilizing a medical doctor on a full time basis. This allows
the Integrated Medical Center to provide services to patients of managed care
plans and, subject to certain structural revisions to its contractual
arrangements, to patients of federal or state funded health care programs, as
well as to provide weight management and other wellness programs.
The Company intends to facilitate the growth of the Integrated Medical
Centers by arranging for the provision of ancillary services, such as medical
imaging, rehabilitation, diagnostics, and weight management either by contract
with third party providers or by acquisition of other businesses. The Company
believes that the ability to offer ancillary services will make the Integrated
Medical Centers more attractive to patients, health care practitioners, and
third party payors. The acquisition or other provision of certain of such other
services may, however, trigger additional licensing requirements. As of the date
of this Prospectus, the Company has no understandings, commitments, or
agreements with respect to any acquisitions.
The Company may from time to time take advantage of opportunities that are
related to the integration of traditional and alternative medicine that do not
fit into its expansion strategy. In this regard, in November 1996 the Company
entered into a management subcontract agreement (the "IPM Agreement") with
Integrated Physicians Management Co., LLC ("IPM") to manage for IPM nine medical
clinics that were integrated by IPM, subject to the approval of the clinics. The
clinics are located in Illinois (one), Nebraska (five), Wisconsin (two), and
Texas (one). In general, IPM's fees under the contracts subject to the IPM
Agreement are either 10% of a clinic's gross collections for all services or 20%
of its gross collections for medical services only. The Company is to be paid
80% of the fees that IPM would have been paid in the absence of the IPM
Agreement. The Company will not be required to provide and will not provide
services to the clinics until such time as the management agreements between IPM
and the clinics are deemed by the Company's special health care regulatory
counsel to be in compliance with applicable federal and state laws. The clinics
are not Integrated Medical Centers, and do not operate under the Complete
Wellness Medical Center(SM) name, but the Company will attempt to have them
become Integrated Medical Centers in the future. As of the date of this
Prospectus, one clinic had consented to the IPM Agreement, and the others had
not yet made a decision.
To date, the Company has augmented the efforts of its management and staff
through consulting arrangements with various persons and entities. These
consultants have directed their efforts primarily toward identifying potential
chiropractors and chiropractic practices with which to affiliate and toward
providing assistance with the integration process. In November 1996, the Company
entered into a five year consulting agreement (the "Kats Agreement") with Kats
Management, LLC ("Kats Management"), a company under common control with IPM
that provides management and consulting services to over 600 chiropractic
clinics. Under the Kats Agreement, Kats Management agreed to advise and assist
the Company in (i) identifying and negotiating with chiropractors and their
existing chiropractic practices with which the Company might affiliate for the
purpose of developing additional Integrated Medical Centers and (ii) developing
Integrated Medical Centers. The Company agreed to pay Kats Management for each
management agreement entered into by the Company with a chiropractor and
existing chiropractic practice identified by Kats Management (i) a commission
equal to 20% of the Company's integration fee under such management agreement
during the initial term of the management agreement (see "-- Agreements With
Affiliated Chiropractors and Other Licensed Practitioners -- Integrated Medical
Center Management and Security Agreement"), (ii) a fixed fee not to exceed $350,
and (iii) a bonus of $10,000 for each of the first five such management
agreements and $5,000 for each of the next 25 such management agreements. In
addition, the Company agreed to grant Kats
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Management nonqualified options to purchase 11,000 shares of Common Stock under
the Company's 1994 Stock Option Plan at an exercise price equal to 75% of the
initial public offering price per share. See "Management -- Employment
Agreements." The Company expects to continue using consultants after the
consummation of this Offering. See "Certain Transactions."
The Company has been approached by medical doctors interested in
integrating their traditional medicine practices with alternative medicine
practices ("reverse integration"). The Company has entered into a consulting
agreement pursuant to which the Company may seek advice or assistance in
connection with reverse integration, but has taken no action with respect to,
and has not explored the business or financial ramifications of, reverse
integration. The Company expects to explore the feasibility of reverse
integration after the consummation of the Offering. There can be no assurance
that the Company will develop a reverse integration model or, if developed, that
it would be successfully implemented.
THE COMPANY'S INTEGRATED MEDICAL CENTERS
Since the Company commenced operations in January 1995, it has developed
its current business primarily through the establishment of affiliations with
chiropractors and their existing chiropractic practices. As of the date of this
Prospectus, the Company has developed eight Integrated Medical Centers. In
addition, the Company has entered into 36 binding agreements with chiropractors
and their existing chiropractic practices to develop additional Integrated
Medical Centers, and is planning to develop one Integrated Medical Center
pursuant to the License Agreement with Bally's in a location to be determined.
Most Integrated Medical Centers occupy approximately 1,200 to 1,500 square
feet of space under a lease or sublease in an office building or shopping
center. The Company expects that most Integrated Medical Centers located in a
health club in connection with a strategic alliance will occupy approximately
800 to 1,200 square feet of space. The Company prefers to have locations at
ground level to make the Integrated Medical Center as easily accessible to
patients as possible, but the Company may not always be successful in securing
such locations. In Integrated Medical Centers developed in the same location as
an existing chiropractic practice, the Company makes suggestions concerning
office decor and layout, but does not seek to impose uniform design standards.
In Integrated Medical Centers developed in connection with a strategic alliance,
the Company expects to have a greater degree of uniformity in design and layout,
but must retain flexibility to work with the space which is available. All
Integrated Medical Centers operate under a name that includes the words
"Complete Wellness Medical Center(SM)", followed by a geographic reference to
the city and/or street at which the Integrated Medical Center is located. Each
Integrated Medical Center has signage bearing its name.
The Company has applied for federal servicemark registration for the mark
"Complete Wellness Medical Center(SM)" as well as the mark "Complete Wellness
Centers(SM)". In November 1996 the Company received non-final office actions
from the Patent & Trademark Office ("PTO") noting certain objections to the
applications which must be resolved before the registrations will be issued.
Although the PTO initially refused registration of the marks on the Principal
Register on the grounds that the marks are "merely descriptive," it noted that
Applicant may amend its applications to seek registration on the Supplemental
Register. The Company has until May 1997 to respond to these office actions. It
may present arguments to overcome the initial refusal to register the marks on
the Principal Register, or it may agree to amend the applications to the
Supplemental Register. No conflicting marks owned by other parties were cited by
the PTO against the applications as a bar to registration.
The Integrated Medical Centers take advantage of underutilized space and
time. In Integrated Medical Centers developed in the same location as an
existing chiropractic practice, the medical doctor either has access to an
examination room that is not otherwise being used, or a staggered hours
appointment schedule is implemented. Traditional chiropractic office hours are
Mondays, Wednesdays, and Fridays from 9 a.m. to 12 noon and from 3 p.m. to 7
p.m., and Tuesdays and Thursdays from 3 p.m. to 7 p.m. If an examination room is
not available for use by a medical doctor or other health care practitioner
during those periods, appointments with such practitioners will be scheduled
primarily during periods when chiropractic appointments are not scheduled.
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Similarly, the medical doctor can use existing chiropractic equipment and
examination tables, with only minor equipment additions during the initial phase
of integration. Chiropractic offices are typically equipped with otoscopes,
opthalmoscopes, and blood pressure cuffs. Minor additions are mostly for
nondurable goods such as latex gloves, alcohol swabs, and paper rolls. When the
services of a consulting neurologist are added, it becomes necessary to obtain
an electromyography machine, although neurologists often own or lease their own
machines. When the services of a physical therapist are added, it becomes
necessary to add more equipment, such as free weights, a hydrocolator (machine
to heat hot packs), cold packs, and certain other staple items. When primary
care services are added, the Integrated Medical Center must acquire an
electrocardiogram machine and equipment for use in drawing blood, exercise
stress testing, and trigger point injections. Equipment acquired after the
opening date of an Integrated Medical Center is paid for by the Integrated
Medical Centers or the Affiliated Chiropractors' management companies, depending
on the type of equipment.
The type of ancillary staff added and the type of equipment used can vary
from one Integrated Medical Center to another depending upon the patient base.
If an Integrated Medical Center is located in an area with large numbers of
clerical workers/typists, a common problem might be carpal tunnel syndrome, and
the Integrated Medical Center would have equipment necessary to treat that
condition. If an Integrated Medical Center is located in an area with a high
concentration of senior citizens, a common problem might be stroke, and the
Integrated Medical Center would provide the services not only of a neurologist
but also a physiatrist, a medical doctor with specialty training in physical
medicine, including rehabilitation for stroke victims.
SERVICES AND OPERATIONS
Recruiting and Training
The Company seeks new affiliations with chiropractors by referrals from
Affiliated Chiropractors and by advertising in trade magazines. It also conducts
mailings of its marketing information to chiropractors in specific geographic
regions in which it is interested in developing additional Integrated Medical
Centers. The Company acquires and maintains address lists of prospects for these
mailings, conducts information seminars for prospective affiliates, conducts
telemarketing efforts, and advertises through its Internet web site.
Affiliated Chiropractors are given introductory materials regarding the
operations of the Company and Integrated Medical Centers and undergo a
credentialing process by an accredited credentialing firm which verifies their
education, professional licenses, and malpractice history, if any. The Company
then requires each Affiliated Chiropractor and certain other employees to attend
a one-day intensive integration seminar, at which they are taught the basic
principles behind managing a multi-disciplinary health care clinic. On-site
technical training takes place soon after this seminar and is conducted by the
Company's billing and integration specialists. Follow-on remote and, if
necessary, on site computer software training is also provided, together with
telephone support thereafter.
Affiliated Chiropractors work under (i) employment agreements with the
Integrated Medical Centers which provide for a base salary and (ii) contractual
arrangements with the Company, the Integrated Medical Centers, and the
Affiliated Chiropractors' management companies which reward them based upon
their performance and the operating results of the Integrated Medical Centers,
including collecting on receivables and cost containment efforts. In addition,
the Company recently adopted its 1996 Restricted Stock Option Plan for Health
Care Professionals and has reserved an aggregate of 100,000 shares of Common
Stock for issuance pursuant to the plan. No options have been granted under this
plan thus far and none may be issued until the Company has determined that all
applicable federal and state laws have been satisfied. See "-- Government
Regulation -- Federal Medicare and Medicaid Related Regulation" and
"Management -- Stock Option Plans."
Management Information System
The Company believes that effective and efficient integration of clinical,
patient and financial data enhances the quality of patient care and provides a
competitive advantage in negotiating and bidding for managed care contracts. The
Company's management information system links its existing Integrated
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Medical Centers to the Company's central administrative offices and provides the
capability for patient scheduling, billing, data assessment, clinical outcome
evaluation, utilization review, routine business management, and electronic
medical records storage and retrieval. The system enables the Company to collect
and store data which allows the Company to track and report utilization and
outcomes to insurance carriers, monitor the status and progress of Integrated
Medical Centers, and conduct quality assurance comparisons. The Company trains
Affiliated Chiropractors and staff in the use of its management information
system. After the initial training is completed, the Company provides ongoing
support by telephone, by computer linkage, and, if necessary, by a visit from a
member of the Company's staff. Information regarding an Integrated Medical
Center's performance is currently accessible by authorized personnel at the
Company's principal executive office and at any other Integrated Medical Center
by computer-to-computer linkage using modems and telephone lines. The Company
intends to use a portion of the proceeds of this Offering to make its management
information system accessible by authorized personnel through the Internet,
which the Company believes will allow networking among Integrated Medical
Centers at a lower cost than the system currently in use. See "Use of Proceeds."
The Company has established an Internet web site at
http://www.CompleteWellness.com.
Advertising and Marketing
In seeking to attract new patients to the Integrated Medical Centers, the
Company intends to advertise and market their services utilizing television,
radio, and print advertising, as well as internal marketing promotions. In
appropriate circumstances, the Company intends to tailor its marketing efforts
to the demands of a particular market. The Company's advertising and marketing
efforts will be focused at the national and regional (county, metropolitan area,
or state) levels and, in the latter case, will cover all Integrated Medical
Centers within the region. An individual Integrated Medical Center may elect to
advertise its services locally at its own expense. The Company's regional and
national advertising and marketing will be paid for by a $200 per month
marketing fee that each Integrated Medical Center is required to pay, typically
beginning six months after integration. The fees are deposited by the Company in
a segregated account and will be used only for regional and national advertising
and marketing. The Company has not conducted any such regional or national
advertising and marketing prior to the date of this Prospectus.
THIRD PARTY REIMBURSEMENT
The Company's ability to collect its management fees in a timely manner, or
at all, is affected by whether the Integrated Medical Center is reimbursed for
its medical services and the amount of reimbursement. The Company's own cash
flow could be adversely affected by the Integrated Medical Centers' long
collection cycle from various third party payors. Further, third party payors
may reject the Integrated Medical Centers' medical claims if, in their judgment,
the procedures performed were not medically necessary or if the charges exceeded
such payors' allowable fee standards. In addition, the reimbursement forms
required by third party payors for payment of medical claims are long, detailed
and complex and payments may be delayed or refused unless these forms are
properly completed in a timely manner. It is common practice for third party
payors to initially deny/reject the first submission of a medical claim. This
does not mean that the claim will not be ultimately paid. The Integrated Medical
Centers normally would re-submit the claim with such revised information as
requested and/or forms and documentation. Outstanding claims that continue to be
disputed after one year or more could then be submitted to an arbitration
process. Normally, when final arbitration decisions are about to be rendered,
the third party payor will settle. Under current law, the Company is entitled to
collect the settlement amount, filing fees and interest on the agreed-upon
payment. Although the Integrated Medical Centers will take all legally available
steps, including legally prescribed arbitration, to collect their receivables,
there is a significant risk that some Integrated Medical Centers' receivables
may not be collected.
Third party payors are not generally familiar with reimbursing for
traditional and alternative health care services such as chiropractic in the
same medical practice. The third party payors may disagree with the descriptions
or coding of a bill for medical services, or may contest a code or description
under a lesser (e.g. chiropractic) fee schedule. Such disagreements on billing
code or description of professional services,
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particularly where the third party payor is a federal or state funded health
care program, can result in lesser reimbursement, which can have a material
adverse effect on the Integrated Medical Center and ultimately on the Company.
Persistent disagreements or alleged "upcoding" can result in allegations of
fraud or false billing, both of which constitute felonies. Such an allegation,
if proven, can result in forfeitures of payment, civil money penalties, civil
fines, suspensions, or disbarment from participating in federal or state funded
health care programs, and have a material adverse effect on the Company.
Investigation and prosecutions for fraudulent or false billing can have a
material adverse effect on the Company, even where such allegations are
disproven.
The health care industry is undergoing significant change as third party
payors increase their efforts to control the cost, use and delivery of health
care services. Several states have taken measures to reduce the reimbursement
rates paid to health care providers in their states. The Company believes that
additional reductions will be implemented from time to time. Reductions in
Medicare rates often lead to reductions in the reimbursement rates of other
third party payors as well and the Company believes that such further reductions
are probable. Changes in Medicare reimbursement rates or other changes in
reimbursements by third party payors to Integrated Medical Centers could have a
material adverse affect on the Company.
AGREEMENTS WITH AFFILIATED CHIROPRACTORS AND OTHER LICENSED PRACTITIONERS
The Company provides management services to Integrated Medical Centers
pursuant to a Management and Security Agreement ("M&S Agreement") between the
Company and each Integrated Medical Center or a licensed medical doctor on
behalf of an Integrated Medical Center to be formed, and an Integrated Medical
Center Management and Security Agreement ("IMCM&S Agreement") among the Company,
the Affiliated Chiropractor in his or her individual capacity, the Affiliated
Chiropractor's existing chiropractic practice (whether or not incorporated), and
the Affiliated Chiropractor on behalf of a separate management company to be
formed and to be owned by the Affiliated Chiropractor ("Admincorp"). In general,
the M&S Agreement and the IMCM&S Agreement are entered into at or about the same
time, before the Company provides any services for the Integrated Medical
Centers, the Affiliated Chiropractors, or the Admincorps.
Management and Security Agreement
Under the M&S Agreement, the Company agrees to (i) manage certain
non-medical aspects of the Integrated Medical Center (including record keeping,
billing and collection, handling non-professional personnel, patient scheduling,
and continuing education), (ii) provide capital, facilities, equipment, computer
software and training, (iii) implement advertising and marketing programs, (iv)
arrange for certain legal and accounting services, and (v) assist in identifying
and recruiting medical doctors. As compensation for these services, the
Integrated Medical Center agrees to pay the Company flat monthly fees that
reflect the fair market value of the services. The initial amount of the fees is
determined by the Company and the Integrated Medical Center. The fees are
reviewed periodically by the Company and the Integrated Medical Center and
adjusted if necessary. The Company typically retains an independent third party
to assist in determining fair market value, but is not required to do so. The
fees for Integrated Medical Centers treating patients served by federal or state
funded health programs may not be adjusted more than once annually.
The costs to the Company to provide the computer software, legal services,
training and certain other items required of it by the M&S Agreement to develop
an Integrated Medical Center not connected with a strategic alliance have
averaged $30,000, which consists of approximately $10,000 in cash and
approximately $20,000 (out of a possible $40,000) in the form of a loan. The
loan may used for items such as professional salaries, computer hardware,
signage and insurance. The loan is evidenced by a promissory note, bears
interest at the rate of 10% per annum, is secured by the assets of the
Integrated Medical Center, is guaranteed by the Affiliated Chiropractor pursuant
to a separate guaranty agreement, and is payable within five years. In addition,
the Company may make other advances to the Integrated Medical Center from time
to time for working capital purposes. If the Company were to make such an
advance, it would bear interest at the rate of 10% per annum and be secured by
such collateral as the Company in its discretion deemed appropriate. The Company
expects that the M&S Agreement for an Integrated Medical Center developed in
connection with a
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strategic alliance would require the Company to bear development costs which the
Company believes will approximate $150,000.
The M&S Agreements are for terms of 35 years and may be terminated by the
Company or by the Integrated Medical Center for a material breach by the other
party that remains uncorrected for more than ten days after notification or for
the dissolution, bankruptcy or insolvency of the other party. In addition, the
Company may terminate the M&S Agreement if the Integrated Medical Center fails
to meet material standards of managed care payors. Termination does not relieve
either party for any indebtedness incurred before the date of termination. The
M&S Agreements require that the Company enter into a separate management
agreement with the Admincorp pursuant to which the Admincorp assumes
responsibility for day-to-day administration of the Integrated Medical Center.
Integrated Medical Center Management and Security Agreement
Under the IMCM&S Agreement, the Company provides the training, software and
services required to integrate the Integrated Medical Center after the
Affiliated Chiropractor successfully completes the credentialing process and
information regarding the existing chiropractic practice is verified. Typically,
such credentialing occurs and such services are provided within 120 days after
execution of the IMCM&S Agreement. The Admincorp agrees to provide such services
as may be necessary or appropriate to satisfy the daily operational, practice
development, and administrative requirements of the Integrated Medical Center,
including record keeping, billing and collection (using software provided by the
Company), supervision of non-professional personnel, ordering of medical and
non-medical supplies, maintenance of furniture, fixtures, and equipment,
establishment of continuing education policies for professional personnel, local
advertising, and responsibility for ensuring maintenance of all permits and
licenses required to be maintained by the Integrated Medical Center and its
professional personnel. These services are provided in the discretion and best
judgment of the Admincorp, subject to operating protocols, procedures, reports,
and disclosure requests established jointly by the Integrated Medical Center,
the Company, and the Admincorp, and generally at the cost of the Admincorp.
Except with respect to an Integrated Medical Center developed in connection with
a strategic alliance, the Affiliated Chiropractor or the Admincorp, as the case
may be, also agrees to lease a specified portion of office space and equipment
to the Company at fair market, proportionate use-based, value. The Company then
subleases such office space and equipment to the Integrated Medical Center at
fair market, proportionate use-based, value. In the case of a strategic
alliance, the other party to the strategic alliance would lease or license the
space for the Integrated Medical Center to the Company, which would then
sublease or sublicense the space to the Integrated Medical Center at the same
rate.
The Company agrees to pay the Administrator a monthly fee equal to the sum
of the management fee and lease income actually paid to the Company by the
Integrated Medical Center. In general, the Admincorp agrees to pay the Company a
one time enrollment fee of $500 to defray the cost of credentialing and
verification, an operations fee for goods and services furnished by the Company
of $250 per month, a marketing and practice development fee of $200 per month,
and a monthly integration fee equal to 20% (if the initial term of the IMCM&S
Agreement is five years) or 15% (if the initial term is ten years) of the sum of
(i) the management fee and lease income actually paid to the Company by the
Integrated Medical Center and (ii) the Integrated Medical Center's expenses,
until the sum reaches $500,000 in any one year, and 10% of the sum for the
remainder of that year. Integration fees cover general consultations,
negotiation of managed care contracts, hiring professional and non-professional
employees, legal consultation and non-medical training. For Integrated Medical
Centers located in Illinois or that render services to patients covered by
federal or state funded health care programs (which is prohibited by the IMCM&S
Agreement without the prior written consent of the Company), the integration fee
is capped on a per annum basis.
The initial term of the IMCM&S Agreement is for a period of either five
years or ten years, and may be renewed in five year increments up to four times
by mutual agreement of the parties. The Affiliated Chiropractor and the
Admincorp may terminate the IMCM&S Agreement if the Company materially breaches
it and does not remedy the breach within ten days after notification. The
Company may terminate the IMCM&S Agreement for a variety of reasons, including
without limitation a material breach by the Admincorp that remains uncorrected
for more than ten days after notification, misuse by the Admincorp of
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funds received by or on behalf of the Company or the Integrated Medical Center,
the dissolution, bankruptcy, or insolvency of the Admincorp or the death of the
Affiliated Chiropractor, and the failure by the Admincorp or the Affiliated
Chiropractor to meet material standards of managed care payors. Termination does
not relieve any party for any indebtedness incurred before the date of
termination. Upon termination, the Company is to pay the Admincorp an amount
equal to 80% of the Integrated Medical Center's accounts receivable less any
amount owed by the Admincorp to the Company or the Integrated Medical Center.
Employment Agreements With Affiliated Chiropractors
The IMCM&S Agreement requires the Affiliated Chiropractor to enter into an
employment agreement with the Integrated Medical Center pursuant to which he or
she agrees to work as a licensed chiropractor for a mutually agreed upon salary.
The initial term of the employment agreement is five years. It renews
automatically if the IMCM&S Agreement is renewed and terminates automatically if
the IMCM&S Agreement is terminated. The Affiliated Chiropractor may terminate
the employment agreement if the Integrated Medical Center materially breaches it
and does not remedy the breach within ten days after notification. The
Integrated Medical Center may terminate the employment agreement for a variety
of reasons, including without limitation a material breach by the Affiliated
Chiropractor that remains uncorrected for more than ten days after notification,
misuse by the Affiliated Chiropractor of funds received by or on behalf of the
Company or the Integrated Medical Center, the death, disability, or incapacity
of the Affiliated Chiropractor, the failure by the Affiliated Chiropractor to
meet material standards of managed care payors, or for "cause," defined as
chronic dependency on drugs or alcohol, gross neglect or gross misconduct,
disqualification or revocation of license to practice chiropractic, and
inability to obtain malpractice insurance in amounts and with carriers
acceptable to the Integrated Medical Center. The Affiliated Chiropractor agrees
to maintain in confidence certain information regarding the Integrated Medical
Center.
Employment Agreements With Other Health Care Practitioners
The Integrated Medical Centers enter into employment agreements with all
licensed health care practitioners employed by the Integrated Medical Centers.
Typically, the agreements provide that the practitioners retain independent
discretion and exercise independent judgment concerning the treatment of
patients and that the Integrated Medical Center is responsible for the nonhealth
care aspects of the practice, including provision of malpractice insurance. The
practitioner and the Integrated Medical Center agree upon a salary and benefits.
The term of the agreement is one year, with the first 120 days being a
probationary period during which the Integrated Medical Center may terminate it
for any reason. After the probationary period, the Integrated Medical Center may
terminate the agreement if the practitioner becomes disabled or for "cause,"
defined as including without limitation chronic dependency on drugs or alcohol,
gross neglect or gross misconduct, disqualification or revocation of license to
practice the applicable profession, inability to obtain malpractice insurance in
amounts and with carriers acceptable to the Integrated Medical Center, a
material adverse change in the business or economic prospects of the Integrated
Medical Center as determined solely by the Integrated Medical Center, and
cessation of the Integrated Medical Center's business. In addition, either party
may terminate the agreement by giving 60 days prior written notice to the other
party. The agreement provides that the practitioner will not compete with or
solicit patients of the Integrated Medical Center for one year after termination
of the agreement.
Formation of Integrated Medical Centers
The Integrated Medical Center is formed as a general business corporation
wholly-owned by the Company in states (such as Florida and Virginia) in which
general business corporations are permitted to own medical practices. The
Integrated Medical Center is formed as a professional corporation owned by one
or more medical doctors (each a "Qualified M.D.") licensed to practice medicine
under applicable state law, in states (such as Illinois) that prohibit the
corporate practice of medicine. A Qualified M.D. may, but need not, be an
employee of the Company, an Integrated Medical Center, and/or an affiliate of
the Company. A qualified M.D. of a professional corporation that treats patients
covered by a federal or state funded health care program, may not, however,
refer patients to, influence the referral of patients to, or furnish medical
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services on behalf of any Integrated Medical Center. A Qualified M.D. may own
stock in more than one Integrated Medical Center formed as a professional
corporation. Each Qualified M.D. enters into an agreement giving the Company the
right to direct the transfer of his or her stock in the Integrated Medical
Center to another Qualified M.D. in the Company's discretion, as well as a
pre-signed resignation as a director and officer of the professional
corporation. See "Certain Transactions." Qualified M.D.'s are paid fees by the
Integrated Medical Centers for serving as officers or directors thereof.
Qualified M.D.'s are also indemnified in their role as such by the Company.
GOVERNMENT REGULATION
Various state and federal laws regulate the relationship between providers
of health care services and physicians, and, as a business in the health care
industry, the Company is subject to these laws and regulations. The Company is
also subject to laws and regulations relating to business corporations in
general. Although many aspects of the Company's business operations have not
been the subject of state or federal regulatory interpretation, the Company
believes its operations are in material compliance with applicable laws. There
can be no assurance, however, that a review of the business practices of the
Company or its Integrated Medical Centers by courts or regulatory authorities
would not result in a determination that could adversely affect the operations
of the Company or the Integrated Medical Centers, or that the health care
regulatory environment will not change so as to restrict the Company's
operations or its ability to expand them. See "Risk Factors."
Licensure. Every state imposes licensing requirements on individual
physicians and on certain other types of health care providers and facilities.
Many states require regulatory approval, including licenses to render care or
certificates of need, before establishing certain types of heath care facilities
or offering services which entail the acquisition of expensive medical
equipment. While the performance of management services on behalf of a medical
practice does not currently require any regulatory approval, there can be no
assurance that such activities will not be subject to licensure in the future.
Corporate Practice of Medicine. The laws of many states prohibit business
corporations from engaging in the practice of medicine, such as through
employment arrangements with physicians. These laws vary from state to state and
are enforced by the state courts and regulatory authorities with broad
discretion. The Company will not employ physicians to practice medicine, will
not represent to the public that it offers medical services, and will not
control or interfere with the practice of medicine by physicians in the
Integrated Medical Centers. Integrated Medical Centers in states that prohibit
the corporate practice of medicine will be organized as professional
corporations or other entities that are specifically authorized to employ
physicians. Accordingly, the Company believes that its current and intended
operations do not and will not violate applicable state laws regulating the
unlicensed practice of medicine by a business corporation. However, because the
laws governing the corporate practice of medicine vary from state to state, any
expansion of the operations of the Company to a state with strict corporate
practice of medicine laws may require the Company to modify its operations with
respect to one or more of such practices, which may result in increased
financial risk to the Company. Further, there can be no assurance that the
Company's arrangements will not be successfully challenged as constituting the
unauthorized practice of medicine or that certain provisions of the management
services agreements or covenants not to compete will be enforceable. See "Risk
Factors -- State Laws Regarding Prohibition of Corporate Practice of Medicine."
Fee-Splitting Prohibitions. The laws of some states (including Illinois)
prohibit physicians from splitting professional fees. These statutes are
sometimes quite broad and as a result prohibit otherwise legitimate business
arrangements. Florida, for example, prohibits only fee-splitting arrangements
that are based on referrals. Penalties for violating these fee-splitting
statutes or regulations may include revocation, suspension, or probation of a
physician's license, or other disciplinary action, as well as monetary
penalties. Alleged violations of the fee-splitting laws have also been used
successfully by physicians to declare a contract to be void as against public
policy.
Pursuant to the terms of the management agreements with the Integrated
Medical Centers, the Company will receive a management fee based upon a fair
market value of its services. See "-- Agreements With
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Affiliated Chiropractors and Other Licensed Practitioners." While the Company
believes that its compensation arrangements comply with state fee-splitting
laws, there can be no assurance that these compensation arrangements will not be
construed by state or judicial authorities as being proscribed by the
fee-splitting laws.
State Anti-kickback and Self-Referral Laws. A number of states in which
the Company conducts business or plans to conduct business (including Florida,
Illinois and Maryland) have enacted laws that prohibit the payment for referrals
and other types of kickback arrangements. Such state laws typically apply to all
patients regardless of their insurance coverage. In addition, a number of states
(including Florida, Illinois and Maryland) have enacted laws which to varying
degrees prohibit physician self-referrals. Illinois, for example, has a broad
self-referral law which regulates all health care workers (including
physicians), regardless of the patient's source of payment. Subject to certain
limited exceptions, the Illinois law prohibits referrals for health services
provided by or through licensed health care workers to an entity outside the
health care worker's office or group practice in which the health care worker is
an investor, unless the health care worker directly provides health services
within the entity and will be personally involved with the provision of care to
the referred patient. In April 1992, the State of Florida enacted a Patient
Self-Referral Act that severely restricts patient referrals for certain
services, prohibits markups of certain procedures and requires health care
providers to disclose ownership in businesses to which patients are referred.
The Company believes it is likely that more states will adopt similar
legislation. The Company believes that its operations comply with current
statutory provisions, although there can be no assurance that state
anti-kickback and self-referral laws will not be interpreted more broadly or
amended in the future to be more expansive. In addition, expansion of the
operations of the Company to certain jurisdictions may require it to comply with
such jurisdictions' regulations, which could lead to structural and
organizational modifications of the Company's form of relationships with managed
practices. Such changes, if any, could have an adverse effect on the Company.
State Regulation of Insurance Business and HMOs. Laws in all states
regulate the business of insurance and the operation of health maintenance
organizations, or HMOs. Many states also regulate the establishment and
operation of networks of health care providers. Many state insurance
commissioners have interpreted their states' insurance statutes to prohibit
entities from entering into risk-based managed care contracts unless there is an
entity licensed to engage in the business of insurance, such as an HMO, in the
chain of contracts. An entity not licensed to engage in the business of
insurance that contracts directly with a self-insured employer in such a state
may be deemed to be engaged in the unlicensed business of insurance. While these
laws do not generally apply to the hiring and contracting of physicians by other
health care providers, there can be no assurance that regulatory authorities of
the states in which the Company operates would not apply these laws to require
licensure of the Company's operations as an insurer, as an HMO, or as a provider
network. The Company believes that it is in compliance with these laws in the
states in which it does business, but there can be no assurance that future
interpretations of insurance and health care network laws by regulatory
authorities in these states or in the states into which the Company may expand
will not require licensure or a restructuring of some or all of the Company's
operations.
Federal Medicare and Medicaid Related Regulation. There are a number of
federal laws prohibiting certain activities and arrangements relating to
services or items which are reimbursable by federal or state funded health care
programs. Certain provisions of the Social Security Act, commonly referred to as
the "Anti-kickback Amendments," prohibit the offer, payment, solicitation or
receipt of any form of remuneration either in return for the referral of federal
or state health care reimbursement program patients or patient care
opportunities, or in return for the recommendation, arrangement, purchase, lease
or order of items or services that are covered by such federal or state health
care funded programs. The Anti-kickback Amendments are broad in scope and have
been broadly interpreted by courts in many jurisdictions. Read literally, the
statute places at risk many otherwise legitimate business arrangements,
potentially subjecting such arrangements to lengthy, expensive investigations
and prosecutions initiated by federal and state governmental officials.
In July 1991, in part to address concerns regarding the Anti-kickback
Amendments, the federal government published regulations that provide
exceptions, or "safe harbors," for certain transactions that will be deemed not
to violate the Anti-kickback Amendments. Among the safe harbors included in the
regulations were provisions relating to the sale of physician practices,
management and personal services agreements, and
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<PAGE> 44
employee relationships. Additional proposed safe harbors were published in
September 1993 offering protections under the Anti-kickback Amendments to eight
new activities, including referrals within group practices consisting of active
investors. Proposed amendments to clarify these safe harbors were published in
July 1994 which, if adopted, would cause substantive retroactive changes to the
1991 regulations. Violation of the Anti-kickback Amendments is a felony,
punishable by substantial civil fines and imprisonment for up to five years. In
addition, the Department of Health and Human Services may impose civil penalties
excluding violators from participation in federal or state funded health care
reimbursement programs. Although the Company believes that its current
operations are not in violation of the Anti-kickback Amendments, there can be no
assurance that regulatory authorities will not determine that the Company's
operations are in violation of the Anti-kickback Amendments.
Significant prohibitions against physician self-referrals for services
covered by Medicare and Medicaid programs were enacted, subject to certain
exceptions, by Congress in the Omnibus Budget Reconciliation Act of 1993. These
prohibitions, commonly known as "Stark II," amended prior physician
self-referral legislation known as "Stark I" (which applied only to clinical
laboratory referrals) by significantly enlarging the list of services and
investment interests to which the referral prohibitions apply. Effective January
1, 1995 and subject to certain exceptions, Stark II prohibits a physician or a
member of his immediate family from referring Medicare or Medicaid patients to
any entity providing "designated health services" in which the physician has an
ownership or investment interest, or with which the physician has entered into a
compensation arrangement. The designated health services include the provision
of clinical laboratory services, radiology services, including magnetic
resonance imaging, computerized axial tarrography scans and ultrasound services,
radiation therapy services, physical and occupational therapy services, durable
medical equipment, parenteral and enteral nutrients, equipment and supplies,
orthotics and prosthetic devices and supplies, outpatient prescription drugs,
home health services and inpatient and outpatient hospital services. The
Integrated Medical Centers do not provide any of these services as of the date
of this Prospectus, although they may do so in the future. The penalties for
violating Stark II include a prohibition on Medicaid and Medicare reimbursement
and civil penalties of as much as $15,000 for each violative referral and
$100,000 for participation in a "circumvention scheme." A physician's ownership
of publicly traded securities of a corporation with equity exceeding $75 million
as of the end of its most recent fiscal year is not deemed to constitute an
ownership or investment interest in that corporation under Stark II. The Company
will not issue options under its 1996 Restricted Stock Option Plan for Health
Care Professionals until such time that it meets the $75 million safe harbor
requirement. See "Management -- Stock Option Plans." The Company believes that
its operations and those of the Integrated Medical Centers currently are not in
violation of Stark I or Stark II; however, the Stark legislation is broad and
ambiguous. Interpretative regulations clarifying the provisions of Stark I were
issued on August 14, 1995. Stark II regulations have yet to be proposed. While
the Company believes it is in compliance with the Stark legislation, future
regulations could require the Company to modify the form of its relationships
with the Integrated Medical Centers. Moreover, the violation of Stark I or II by
any of the Integrated Medical Centers could result in significant fines and loss
of reimbursement which would adversely affect the Company.
COMPETITION
The managed health care industry, including the provider practice
management industry, is highly competitive. The Company competes with other
companies for physicians and other practitioners of health care services as well
as for patients. The Company competes not only with national and regional
physician practice management companies, but also with local providers, many of
which are trying to combine their own services with those of other providers
into integrated delivery networks. Certain of the companies are significantly
larger, provide a wider variety of services, have greater financial and other
resources, have greater experience furnishing provider practice management
services, and have longer established relationships with buyers of these
services, than the Company, and provide at least some of the services provided
by the Company. In addition, companies with greater resources than the Company
that are not presently engaged in the provision of integrated provider practice
management services could decide to enter the business and engage in activities
similar to those in which the Company engages. There can be no assurance that
the Company will be able to compete effectively.
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<PAGE> 45
EMPLOYEES
As of December 9, 1996, the Company had 11 employees and eight Integrated
Medical Centers had a total of 61 employees. The Company's 11 employees consist
of 8 in finance and administration and 3 in sales and marketing. Neither the
Company's employees nor those of the Integrated Medical Centers are represented
by any labor union. The Company believes that relations with its employees are
satisfactory.
PROPERTIES
The Company does not own any property. The Company's executive and
administrative offices are located in approximately 1,350 square feet of office
space in Washington, DC. The Company pays $1,350 per month rent, on a
month-to-month basis.
After the completion of this Offering, the Company intends to lease
approximately 3,000 to 5,000 square feet of space for its executive offices in
Montgomery County, Maryland. The Company has received a low interest rate loan
commitment in the amount of $45,000 from the Montgomery County Economic
Development Fund in order to defray its relocation costs. The loan is to bear
interest at the rate of 7% per annum with a ten year amortization, with payment
deferred until the end of 1997. The loan is to be secured by the Company's
capital assets. The loan will be converted to a grant if the Company generates
more than 50 jobs and establishes a new Integrated Medical Center in Montgomery
County by the end of 1997. The loan commitment expires on January 31, 1997,
however, the Company intends to seek an extension of the expiration date.
PROFESSIONAL LIABILITY
The Integrated Medical Centers employ health care practitioners for the
delivery of health care services to the public. They are exposed to the risk of
professional liability claims. The Company does not itself provide such services
or control the provision of health care services by the Integrated Medical
Centers' practitioners or their compliance with regulatory and other
requirements in that regard. The Company might nevertheless be held liable for
medical negligence on their part.
The Company's management service agreements with the Integrated Medical
Centers require the Integrated Medical Centers to maintain, at their expense,
professional liability insurance for themselves and the licensed health care
practitioners employed by or otherwise associated with them in the minimum
amount of $1,000,000 for each occurrence and $3,000,000 in the aggregate, or
such greater amounts as may be required by applicable state law. If an
Integrated Medical Center or a licensed health care practitioner employed by or
associated with it cannot obtain insurance of the type and in the amounts
required by the Company, the Company will arrange for coverage through a policy
maintained by the Company. In addition, the Company maintains general liability,
workers' compensation and professional liability insurance. The Company's
professional liability insurance is limited to $1,000,000 per occurrence and
$3,000,000 in the aggregate per practitioner per policy period. The professional
liability insurance is provided under a "claims-made" policy. The policy
provides coverage for covered claims made during the policy's term and does not
provide coverage for losses occurring during the policy's term for which a claim
is made subsequent to the policy's termination. Finally, the licensed health
care practitioners are required to indemnify the Integrated Medical Centers
which, in turn, are required to indemnify the Company against liability and
expenses for or related to professional liability claims arising out of the
medical negligence of the health care practitioner.
There can be no assurance, however, that the Company, its employees, or the
licensed health care practitioners employed by or associated with the Integrated
Medical Centers will not be subject to claims in amounts that exceed the
coverage limits or that such coverage will be available when needed. Further,
there can be no assurance that professional liability insurance will continue to
be available to the Company in the future at adequate levels or at an acceptable
cost to the Company. A successful claim against the Company in excess of the
Company's insurance coverage could have a material adverse effect upon the
Company's business. Claims against the Company, regardless of their merits or
eventual outcome, also may have an adverse effect upon the Company.
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LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company or its
properties is subject. A former employee has raised the possibility of
instituting a legal or arbitration proceeding regarding the alleged breach by
the Company of an employment agreement with the former employee. The Company
believes that it has meritorious defenses against his claims, and if a
proceeding is commenced, intends to vigorously defend itself. Management
believes that if a legal or arbitration proceeding were instituted and decided
against the Company, it would not have a material adverse effect on the Company.
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<PAGE> 47
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS, AND KEY EMPLOYEES
The names and ages of the directors, executive officers, and key employees
of the Company, and their positions with the Company, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ------------------------------------------------------
<S> <C> <C>
C. Thomas McMillen(2)......... 44 Chairman of the Board, Chief Executive Officer, and
Director
E. Eugene Sharer(2)........... 63 President, Chief Operating Officer, and Director
Danielle F. Milano, M.D....... 41 Vice President-Medical Affairs
Michael T. Brigante........... 42 Vice President-Finance, Chief Financial Officer,
Treasurer and Secretary
Eric S. Kaplan, D.C........... 44 Senior Director of Operations and Development
Robert J. Mrazek(1)........... 51 Director
James T. McMillen, M.D.(1).... 51 Director
Robert S. Libauer(1)(2)....... 77 Director
</TABLE>
- ---------------
(1) Member of the Audit and Compensation Committees.
(2) Member of the Acquisition and Affiliation Committee.
C. Thomas McMillen, the Company's founder, has been the Chairman of the
Board of Directors and Chief Executive Officer since its formation in November
1994. He was also the President of the Company until April 1996. In 1993, Mr.
McMillen formed McMillen and Company, Inc., a health care consulting firm, and
subsequently from November 1993 through March 1994, assumed the role of Chief
Administrative Officer of Clinicorp, Inc., a publicly-traded physician practice
management company. Mr. McMillen was also a director of Clinicorp, Inc. from
January 1993 through December 1994. Clinicorp, Inc. filed for Chapter 11
bankruptcy protection in June 1996. From 1987 to 1993, Mr. McMillen served three
consecutive terms in the U.S. House of Representatives from the 4th
Congressional District of Maryland. He was named by President Clinton to
Co-Chair the President's Council on Physical Fitness and Sports in 1993. Mr.
McMillen was a collegiate all-American basketball player at the University of
Maryland and a member of the 1972 United States Olympic Basketball Team. He
completed his education at Oxford University on a Rhodes Scholarship and played
professional basketball for 11 years in the National Basketball Association,
before becoming a Member of Congress. Mr. McMillen is currently a member of the
Board of Directors of Kellstrom Industries, Inc., Commodore Applied
Technologies, Inc., CHG Inc., and Orion Acquisition Corporation I (of which he
is also the secretary and treasurer). Mr. McMillen is the brother of James J.
McMillen, a director of the Company.
E. Eugene Sharer has been President, Chief Operating Officer, and a
director of the Company since April 1996. From 1990 to 1995 he was President and
Chief Operating Officer of R.O.W. Sciences, Inc., a health research company. In
August 1995, Mr. Sharer formed Sharer Associates, a management consulting
company. From 1989 to 1990 he was Executive Vice President, Chief Operating
Officer and Director of Iverson Technology Corporation and from 1985 through
1988, he was President and Director of Calculon Corporation and a Vice President
of Atlantic Research Corporation, the parent company of Calculon. Between 1980
and 1985, Mr. Sharer was Vice President of the Systems Group at Computer
Sciences Corporation. He currently serves as a director and member of the
Executive Committee, Secretary, chair of the Membership Committee and chair of
the Nominating Committee of the Suburban Maryland High Technology Council. He
also serves on the Industrial and Professional Advisory Committee of the
Department of Computer Science and Engineering, College of Engineering at the
Pennsylvania State University.
Danielle F. Milano, M.D., has been Vice President -- Medical Affairs since
January 1996. From October 1994 to December 1995, she was Medical Director of
Rivington House Health Care Facility in New York, New York. From October 1990 to
October 1994, Dr. Milano was attending physician at New York
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<PAGE> 48
University School of Medicine and Director of the AIDS Clinic at Bellevue
Hospital in New York, New York. She is a graduate of New York University School
of Medicine, completed her residency at Lenox Hill hospital and is board
certified in internal medicine.
Michael T. Brigante has been Vice President -- Finance, Chief Financial
Officer, Treasurer and Secretary since October 1, 1996. Mr. Brigante was a
consultant to the Company from March 1996 through September 1996. He was the
sole principal in an independent consulting firm from January 1995 to February
1996. In 1988 Mr. Brigante joined MAC Products, Inc., a manufacturer of
electrical parts and components, and served as chief financial officer and
controller until starting his own consulting firm in January 1995. From 1986 to
1988 Mr. Brigante served as senior manager of international financial systems
with the SeaLand Corporation. Mr. Brigante is a certified public accountant.
Eric S. Kaplan, D.C., has been Senior Director of Operations and
Development since August 1996. From June 1993 to August 1996, Dr. Kaplan was
president of two subsidiaries of Clinicorp, Inc., Medical Diagnostic Imaging of
America and Clinicare Wellness Centers. From 1978 to June 1993, he was the
founder and owner of six chiropractic, weight loss, and medical clinics in south
Florida.
Robert S. Libauer has been a director of the Company since June 1995. Since
1971, he has been the managing partner of Libauer and Company, a financial
consulting firm.
James J. McMillen, M.D., has been a director of the Company since November
1994. From 1977 to the present, Dr. McMillen has been in private medical
practice in St. Joseph, Missouri. He is board certified in internal medicine.
Dr. McMillen is the brother of C. Thomas McMillen.
Robert J. Mrazek has been a director of the Company since January 1995.
Since 1993, Mr. Mrazek has been a legislative affairs consultant. From 1983 to
January 1993, he served five consecutive terms in the U.S. House of
Representatives from the 3rd Congressional District of New York.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit Committee, a Compensation
Committee, and an Acquisition and Affiliation Committee.
Audit Committee. The Audit Committee has the responsibility for reviewing
and supervising the financial controls of the Company. The Audit Committee makes
recommendations to the Board of Directors of the Company with respect to the
Company's financial statements and the appointment of independent auditors,
reviews significant audit and accounting policies and practices, meets with the
Company's independent public accountants concerning, among other things, the
scope of audits and reports, and reviews the performance of overall accounting
and financial controls of the Company. The Audit Committee consists of Mr.
Mrazek, Dr. McMillen, and Mr. Libauer.
Compensation Committee. The Compensation Committee has the responsibility
for reviewing the performance of the officers of the Company and recommending to
the Board of Directors of the Company salary and bonus amounts for all officers
of the Company, subject to the terms of existing employment agreements. The
Compensation Committee also has the responsibility for oversight and
administration of the Company's long-term incentive plans and other compensatory
plans. The Compensation Committee consists of Mr. Mrazek, Dr. McMillen, and Mr.
Libauer.
Acquisition and Affiliation Committee. The Acquisition and Affiliation
Committee has the responsibility for reviewing and approving affiliations or
strategic alliances with chiropractors and their existing chiropractic
practices, corporations, governmental entities, or other entities as well as
acquisitions of other businesses. Proposed acquisitions involving the issuance
of equity securities of the Company will be referred to the Board of Directors.
The members of the Acquisition and Affiliation Committee are Mr. McMillen, Mr.
Sharer, and Mr. Libauer.
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EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual
compensation of the Company's Chief Executive Officer for services in all
capacities to the Company during the Company's last fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
FISCAL COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY
- ------------------------------------------------------------------------ ------ ------------
<S> <C> <C>
C. Thomas McMillen...................................................... 1995 *
Chief Executive Officer
</TABLE>
- ---------------
* Mr. McMillen did not receive any compensation nor was any compensation accrued
for fiscal years 1994 or 1995 nor were any options granted to him. No other
executive officer received compensation in excess of $100,000 during the
Company's last fiscal year.
DIRECTOR COMPENSATION
The Company does not currently compensate, and does not anticipate
compensating its directors for their services as directors, except that each of
the Company's non-employee directors, after the completion of the Offering, will
receive a director's fee of $500 per meeting for attendance at Board of
Directors or committee meetings. In addition, each of the Company's directors
receives reimbursement of all ordinary and necessary expenses incurred in
attending any meeting or any committee meeting of the Board of Directors.
Currently, all directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
The Company's executive officers are appointed annually and serve at the
direction of the Board of Directors, subject to the terms of existing employment
agreements.
EMPLOYMENT AGREEMENTS
In July 1996, the Company entered into an employment agreement with Mr.
McMillen providing for his employment, as Chairman of the Board and Chief
Executive Officer, for a term expiring in March 1999. The employment agreement
provides for an annual base salary for Mr. McMillen of $90,000 that shall
increase to $150,000 upon the closing of the Offering. All salary payments are
being accrued until the closing of the Offering and will be paid with a portion
of the net proceeds of the Offering. See "Use of Proceeds." Mr. McMillen may
participate in all executive benefit plans and has the use of a Company car. The
agreement also provides, among other things, that if his employment is
terminated without cause (as defined in the agreement), the Company will pay an
amount equal to one year's base salary, payable over a one year period.
In March 1996 the Company entered into an employment agreement with Mr.
Sharer providing for his employment as President and Chief Operating Officer for
a term expiring in March 1999. The employment agreement provides for an annual
base salary for Mr. Sharer of $150,000 effective upon closing of this Offering,
and for participation in all executive benefit plans, as well as an automobile
allowance of $1,000 per month. Mr. Sharer was granted options to purchase
116,667 shares of the Company's Common Stock at an exercise price of $0.03 per
share. On the date of such grant, 16,667 of those options were exercisable, of
which 10,000 were exercised. The remaining options will vest in equal
installments on April 1, 1997, April 1, 1998, and March 31, 1999. The agreement
also provides, among other things, that, if his employment is terminated without
cause (as defined in the agreement) the Company will pay to him an amount equal
to one year's base salary, payable over a one year period.
In January 1996, the Company entered into an employment agreement with Dr.
Milano, providing for her employment as Vice President-Medical Affairs, for a
term expiring on December 31, 1998. The employment agreement provides for an
annual base salary of $120,000 beginning August 1, 1996, of which $6,000 per
month will be accrued until the closing of the Offering and paid with a portion
of the net proceeds of the Offering, and for participation in all executive
benefit plans plus an automobile allowance of $500 per month. See "Use of
Proceeds." Dr. Milano was granted options to purchase 46,667 shares of the
Company's Common
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<PAGE> 50
Stock at an exercise price of $0.03 per share. The options have vested as to
16,667 shares and will vest as to 15,000 shares on October 1, 1997, and as to
15,000 shares on September 30, 1998. Any additional compensation Dr. Milano
receives for services as a Qualified Physician (as described under "Business --
Agreements with Affiliated Chiropractors and Other Licensed
Practitioners -- Formation of Integrated Medical Centers") will be offset
against her base salary. See "Certain Transactions." The agreement also
provides, among other things, that, if her employment is terminated without
cause (as defined in the agreement), the Company will pay her an amount equal to
six month's salary, payable over a six month period.
In October 1996, the Company entered into an employment agreement with Mr.
Brigante, providing for his employment as Vice President-Finance and Chief
Financial Officer, for a term expiring on September 30, 1999. The employment
agreement provides for annual base salary of $60,000 until the closing of the
Offering, at which time the annual base salary is to be increased to $95,000,
and for participation in all executive benefit plans plus an automobile
allowance of $500 per month. Mr. Brigante was granted options to purchase 40,000
shares of the Company's Common Stock at an exercise price of $0.03 per share.
The options have vested as to 13,333 shares and will vest as to 13,333 shares on
each of October 1, 1997 and 1998. The agreement also provides that if his
employment is terminated without cause (as defined in the agreement), the
Company will pay him an amount equal to six month's base salary, payable over a
six month period.
Each of the employment agreements with Messrs. McMillen, Sharer, and
Brigante and with Dr. Milano requires the full-time services of such employees.
Mr. McMillen's employment agreement requires that he devote a minimum of 40
hours per week to his responsibilities as Chairman and Chief Executive Officer.
The agreements also contain covenants restricting the employee from engaging in
any activities competitive with the business of the Company during the term of
such agreement and for a period of one year thereafter, and prohibiting the
employee from disclosing confidential information regarding the Company.
STOCK OPTION PLANS
1994 Stock Option Plan. The Company's 1994 Stock Option Plan (the "1994
Plan") was adopted by the Company's Board of Directors and approved by the
shareholders of the Company in December 1994. The 1994 Plan was amended by the
Board of Directors, with shareholder approval, in 1995, so as to increase the
number of shares available under the 1994 Plan to 400,000 from 60,000. The
purpose of the 1994 Plan is to attract and retain qualified personnel, to
provide additional incentives to employees, officers, directors, consultants and
advisors of the Company, and to promote the Company's business. As of the date
of this Prospectus, options to purchase 351,166 shares of Common Stock at a
weighted average per share exercise price of $0.60 were outstanding. A total of
11,167 shares of Common Stock are available for grant under the 1994 Plan, of
which options to purchase 11,000 shares will be granted to Kats Management at an
exercise price per share equal to 75% of the initial public offering price per
share upon consummation of the Offering. See "Business -- Expansion Strategy."
The 1994 Plan will terminate in April 2004, unless sooner terminated by the
Board of Directors.
The 1994 Plan provides for the grant of both incentive stock options,
intended to qualify as such under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and nonqualified stock options. The Board may
delegate administration of the 1994 Plan to the Compensation Committee. Subject
to the limitations set forth in the 1994 Plan, the Board of Directors (or the
Compensation Committee) has the authority to select the persons to whom grants
are to be made, to designate the number of shares to be covered by each option,
to determine whether an option is to be an incentive stock option or a
nonqualified stock option, to establish vesting schedules, and, subject to
certain restrictions, to specify the type of consideration to be paid to the
Company upon exercise and to specify other terms of the options. The maximum
term of options granted under the 1994 Plan is ten years. Options granted under
the 1994 Plan are non-transferable and generally expire 90 days after the
termination of an optionee's service to the Company.
Although no specific vesting schedule is required under the 1994 Plan,
options previously granted under the 1994 Plan have generally provided for
vesting in three equal annual installments. The exercise price of incentive
stock options must equal at least the fair market value of the Common Stock on
the date of grant,
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<PAGE> 51
except that the exercise price of incentive stock options granted to any person
who at the time of grant owns stock possessing more than 10% of the total
combined voting power of all classes of stock must be at least 110% of the fair
market value of such stock on the date of grant.
1996 Stock Option Plan. In October 1996, the Board of Directors of the
Company, with shareholder approval, adopted its 1996 Stock Option Plan (the
"1996 Plan") covering up to 200,000 shares of the Common Stock, pursuant to
which officers, directors, employees, advisors and consultants to the Company
are eligible to receive incentive and/or nonqualified stock options. The 1996
Plan, which expires in September 2006, will be administrated by the Compensation
Committee of the Board of Directors. The selection of participants, allotment of
shares, determination of price, and other conditions relating to the grant of
options will be determined by the Compensation Committee in its sole discretion.
Incentive stock options granted under the 1996 Plan are exercisable for a period
of up to 10 years from the date of grant at an exercise price which is not less
than the fair market value of the Common Stock on the date of the grant, except
that the term of an incentive stock option granted under the 1996 Plan to a
shareholder owning more than 10% of the outstanding Common Stock may not exceed
five years and its exercise price may not be less than 110% of the fair market
value of the Common Stock on the date of the grant. Subject to the consummation
of this Offering, options to purchase an aggregate of 24,000 shares, exercisable
at the initial public offering price per share for a ten-year period, will be
granted to all of the members of the Company's Advisory Board. See "-- Advisory
Board." No other options have been granted under the 1996 Plan.
1996 Restricted Stock Option Plan for Health Care Professionals. In
October 1996, the Board of Directors adopted, and the stockholders of the
Company approved, the 1996 Restricted Stock Option Plan for Health Care
Professionals (the "1996 Professionals Plan"), which expires in October 2006.
The 1996 Professionals Plan permits the Company to grant nonqualified stock
options to licensed health care professionals affiliated with the Company and in
most cases employed by an Integrated Medical Center. The aggregate amount of
Common Stock with respect to which options may be granted may not exceed 100,000
shares. The Board of Directors has delegated to the Compensation Committee the
authority to grant options under such a plan, to construct and interpret such
plan, and to make all other determinations and take all actions necessary or
advisable for the administration of such plan. The exercise price for options
granted under the 1996 Professionals Plan may be no less than 85% of the fair
market value of the Common Stock on the date of grant. Options granted under the
1996 Professionals Plan will expire no later than the tenth anniversary of the
date of grant. No options had been granted under the 1996 Professionals Plan as
of the date of this Prospectus. See "Business -- Government
Regulation -- Federal Medicare and Medicaid Related Regulation" for a discussion
of certain regulatory constraints on the grant of options under the 1996
Professionals Plan.
EXECUTIVE BONUS PLAN
Effective January 1, 1996, the Company established an Executive Bonus Plan
for Key Executives (the "Bonus Plan") to reward executive officers and other key
employees based upon the performance of the Company and such individuals. Under
the Bonus Plan, the Company has discretion to award bonuses in an aggregate
amount equal to 10% of the Company's pre-tax income for a particular fiscal year
(the "Bonus Fund"). The maximum amount of the Bonus Fund for any year is $5
million. Under the terms of existing employment agreements, which expire on
various dates from December 31, 1998 through September 30, 1999, the Bonus Fund
has been allocated as follows: 30% to Mr. McMillen, 30% to Mr. Sharer, 10% to
Mr. Brigante, 10% to Dr. Milano, and 20% to Dr. Kaplan. Awards under the Bonus
Fund are not exclusive of other bonuses that may be awarded by the Board of
Directors or the Compensation Committee from time to time.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
The Company has included in its Certificate of Incorporation and By-laws
provisions to (i) eliminate the personal liability of its directors and officers
for monetary damages resulting from breaches of their fiduciary duty (provided
that such provisions do not eliminate liability for breaches of the duty of
loyalty, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, violations under Section 174 of the
Delaware General Corporation Law, or for any transaction from which the director
and/or officer derived an improper personal benefit), and (ii) indemnify its
directors and officers to the fullest
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extent permitted by the Delaware General Corporation Law, including
circumstances in which indemnification is otherwise discretionary. The Company
believes that these provisions are necessary to attract and retain qualified
persons as directors and officers.
The Company has not entered into indemnification agreements with any of its
directors and officers with the exceptions of the Company's Vice
President-Medical Affairs in her capacity as the sole stockholder, officer, and
director of an Illinois professional corporation formed in connection with an
Integrated Medical Center, and with the Company's President in his capacity as
an officer of certain medical corporations in Florida and Virginia affiliated
with the Company. The Company may in the future enter into separate
indemnification agreements with its directors and officers containing provisions
which may in some respects be broader than the specific indemnification
provisions contained in the Company's Certificate of Incorporation and By-laws.
ADVISORY BOARD
Subject to the consummation of the Offering, the Company has established an
Advisory Board (the "Advisory Board") initially comprised of three members with
experience in the areas of scientific, clinical, and regulatory strategy and
standards. The Advisory Board will meet periodically with the Company's Board of
Directors and management to discuss matters relating to the Company's business
activities. Members of the Advisory Board will be reimbursed by the Company for
out-of-pocket expenses incurred in serving on the Advisory Board. The Company
will grant to members of the Advisory Board, subject to the consummation of this
Offering, options to purchase up to 24,000 shares of Common Stock at an exercise
price equal to the initial public offering price per share, vesting over three
years. The members of the Company's Advisory Board and their primary
professional or academic affiliations are listed below.
Marc S. Micozzi, M.D., Ph.D., is Chairman of the Advisory Board and
Distinguished Scientist in the American Registry of Pathology, Inc., and the
executive director of the College of Physicians of Philadelphia. From 1986 to
1995, he served as the founding Director of the National Museum of Health and
Medicine in Washington, working with former Surgeon General C. Everett Koop,
S.D. to develop national health education programs for health professionals and
the public. Prior to 1986, Dr. Micozzi was a Senior Investigator at the National
Cancer Institute, National Institutes of Health, Bethesda, Maryland. He recently
authored the Fundamentals of Complementary and Alternative Medicine, a textbook
for physicians and medical students that lays the foundation for a broad
understanding of complementary and alternative medicine. He was the founding
editor of the Journal of Alternative and Complementary Medicine.
Richard A Lippin, M.D., is currently the Corporate Medical Director for
ARCO Chemical Company where he is responsible for the management of occupational
and environmental medical programs for ARCO Chemical Company worldwide. Dr.
Lippin has served on the Board of Directors of the American College of
Occupational and Environmental Medicine and currently serves on the governing
council of the College of Physicians of Philadelphia. He is also a member of the
faculty at Thomas Jefferson University in Philadelphia, Pennsylvania. Dr. Lippin
is the founder and immediate past president of the International Arts and
Medicine Association.
James M. Rippe, M.D., is currently the Director of the Center for Clinical
and Lifestyle Research and Associate Professor of Medicine (Cardiology) at Tufts
University School of Medicine. Dr. Rippe has written over 100 publications on
issues in medicine, health and fitness, and weight management. He has also
written 14 books including seven medical texts and seven books on health and
fitness for the general public. His recent book, Fit Over Forty, was published
in May 1996. Dr. Rippe has served as a Senior Medical Advisor on corporate
fitness to Johnson and Johnson Health Management. He serves as Chairman of the
Advisory Board for the "Healthy Growing Up" program. Dr. Rippe is Medical and
Child Development Director for the Discovery Zone and also serves as the Medical
Advisor of the International Health, Racquet, and Sports Club Association and
the Association of Quality Clubs. In 1989, Dr. Rippe was named Fitness Educator
of the Year by the International Dance Exercise Association ("IDEA"). In 1990 he
was named one of the 10 national "Healthy American Fitness Leaders" by the
United States Jaycees and the President's Council on Physical Fitness and
Sports. In 1992, he received a Lifetime Achievement Award from IDEA.
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<PAGE> 53
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's voting securities as of December 16, 1996, prior to
the Offering, and after the Offering, assuming the automatic conversion of all
outstanding shares of Series A Preferred Stock into Common Stock on the
effective date of the Offering and as adjusted to reflect the sale of the Shares
offered hereby by (i) each shareholder known by the Company to be the beneficial
owner of more than 5% of any class of the Company's voting securities, (ii) each
director of the Company and (iii) all officers and directors of the Company as a
group. Except as otherwise indicated, the Company believes that the beneficial
owners of the securities listed below have sole investment and voting power with
respect to such securities, subject to community property laws where applicable.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF CLASS
OF CLASS BENEFICIALLY OWNED
BENEFICIALLY -------------------------------------
NAME OF BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING
- -------------------------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
COMMON STOCK
C. Thomas McMillen(1)....................... 394,500 55.2% 21.2%
725 Independence Avenue, S.E.
Washington, D.C. 20003
Robert S. Libauer(2)........................ 79,199 11.0% 4.2%
3701 Old Court Road, Unit 9
Baltimore, MD 21208
Danielle F. Milano, M.D.(3)................. 22,667 3.1% 1.2%
725 Independence Avenue, S.E.
Washington, D.C. 20003
Robert J. Mrazek(4)......................... 16,500 2.3% *
301 Constitution Ave., N.E.
Washington, D.C. 20002
E. Eugene Sharer(5)......................... 16,667 2.3% *
725 Independence Avenue, S.E.
Washington, D.C. 20003
Michael T. Brigante(6)...................... 13,333 1.8% *
725 Independence Avenue, S.E.
Washington, D.C. 20003
James J. McMillen, M.D.(4).................. 6,000 * *
4004 Miller Road
St. Joseph, MO 64505
Reach Laboratories, Inc..................... 110,000 15.4% 5.9%
1000 NBC Center
Lincoln, NE 68508
R. Michael Floyd............................ 72,866 10.2% 3.9%
5817 Ogden Court
Bethesda, MD 20816
All officers and directors as a group (seven
persons).................................. 526,366 69.4% 27.6%
PREFERRED STOCK
Zev E. Kaplan............................... 500 37.0% --
3012 W. Charleston Boulevard
Suite 140
Las Vegas, NV 89102
Joel Babbit................................. 300 22.2% --
3350 Peachtree Road
Suite 1550
Atlanta, GA 30324
</TABLE>
52
<PAGE> 54
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF CLASS PERCENTAGE OF CLASS
BENEFICIALLY BENEFICIALLY OWNED
NAME OF BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING
------- -----
<S> <C> <C> <C>
Peter G. Kelly.............................. 250 18.5% --
211 North Union Street
Suite 300
Alexandria, VA 22314
George C. Finley............................ 100 7.4% --
95 Glastonbury Boulevard
Glastonbury, CT 06033
Pamela H. Shriver........................... 100 7.4% --
2510 Stone Mill Road
Baltimore, MD 21208
</TABLE>
- ---------------
* Percentage ownership is less than 1%
(1) Includes 34,500 shares as to which Mr. McMillen has sole voting power until
December 31, 2000, pursuant to irrevocable proxies from four other holders
of Common Stock. See "Certain Transactions."
(2) Includes 6,333 shares subject to warrants currently exercisable.
(3) Includes 16,667 shares subject to stock options currently exercisable.
Excludes 3,333 shares subject to warrants that are currently exercisable
and owned by Dr. Milano's father, as to which she disclaims beneficial
interest.
(4) Mr. Mrazek and Dr. McMillen have each given Mr. McMillen an irrevocable
proxy to vote their respective shares until December 31, 2000. See "Certain
Transactions."
(5) Includes 6,667 shares subject to stock options currently exercisable.
(6) Includes 13,333 shares subject to stock options currently exercisable.
53
<PAGE> 55
SELLING SECURITY HOLDERS
The registration statement, of which this Prospectus forms a part, also
relates to the registration by the Company, for the account of the Selling
Security Holders, of an aggregate of (i) 157,142 shares of Common Stock
(assuming an initial public offering price per Share of $7.00) issuable upon
exercise of the Bridge Warrants, and (ii) the Bridge Warrants. The Selling
Security Holders' Securities are not being underwritten by the Representative in
connection with this Offering. The Selling Security Holders have agreed with the
Company not to directly or indirectly offer, sell, transfer or otherwise
encumber or dispose of any of their Common Stock for a period of 90 days after
the date of this Prospectus without the consent of the Representative. See
"Shares Eligible for Future Sale" and "Underwriting."
The sale of the Selling Security Holders' Securities by the Selling
Security Holders may be effected from time to time in transactions (which may
include block transactions by or for the account of the Selling Security
Holders) in the over-the-counter market or in negotiated transactions, or
through the writing of options on the Selling Security Holders' Securities, a
combination of such methods of sale, or otherwise. Sales may be made at fixed
prices which may be changed, at market prices prevailing at the time of sale, or
at negotiated prices.
The Selling Security Holders may effect such transactions by selling the
Selling Security Holders' Securities directly to purchasers, through
broker-dealers acting as agents for the Selling Security Holders, or to
broker-dealers who may purchase shares as principals and thereafter sell the
Selling Security Holders' Securities from time to time in the over-the-counter
market, in negotiated transactions, or otherwise. Such broker-dealers, if any,
may receive compensation in the form of discounts, concessions or commissions
from the Selling Security Holders and/or the purchasers for whom such
broker-dealers may act as agents or to whom they may sell as principals or both
(which compensation as to a particular broker-dealer may be in excess of
customary commissions).
The Selling Security Holders and broker-dealers, if any, acting in
connection with such sales, might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit upon the resale of such securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
Sales of any shares of Common Stock by the Selling Security Holders may
depress the price of the Common Stock in any market that may develop for the
Common Stock.
54
<PAGE> 56
The following table sets forth certain information with respect to Selling
Security Holders for whom the Company is registering shares of Common Stock and
Bridge Warrants for resale to the public. None of the Selling Security Holders
has had any position with, held any office, or had any other material
relationship with the Company except that Complete Management, Inc. has signed a
letter of intent with the Company to develop Integrated Medical Centers in the
New York City metropolitan area and Jason Elkin is a consultant to the Company.
See "Business -- Expansion Strategy" and "Certain Transactions."
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF AMOUNT OF
SECURITIES SECURITIES BEING SECURITIES OWNED
NAME OWNED(1) REGISTERED AFTER OFFERING(2)
- --------------------------------------------------- --------- ---------------- -----------------
<S> <C> <C> <C>
Complete Management, Inc.
Common Stock..................................... 57,142 57,142 -0-
Bridge Warrants.................................. 57,142 57,142 -0-
Jason Elkin(3)
Common Stock..................................... 21,429 21,249 -0-
Bridge Warrants.................................. 21,429 21,249 -0-
Joseph D. Gersh
Common Stock..................................... 7,143 7,143 -0-
Bridge Warrants.................................. 7,143 7,143 -0-
Kanter Family Foundation
Common Stock..................................... 7,143 7,143 -0-
Bridge Warrants.................................. 7,143 7,143 -0-
Stefanie Rubin
Common Stock..................................... 7,143 7,143 -0-
Bridge Warrants.................................. 7,143 7,143 -0-
Arthur Steinberg
Common Stock..................................... 3,571 3,571 -0-
Bridge Warrants.................................. 3,571 3,571 -0-
Robert Steinberg
Common Stock..................................... 3,571 3,571 -0-
Bridge Warrants.................................. 3,571 3,571 -0-
Glenn Sutton, III
Common Stock..................................... 7,143 7,143 -0-
Bridge Warrants.................................. 7,143 7,143 -0-
Universal Partners, L.P.
Common Stock..................................... 7,143 7,143 -0-
Bridge Warrants.................................. 7,143 7,143 -0-
Christine Wally
Common Stock..................................... 7,143 7,143 -0-
Bridge Warrants.................................. 7,143 7,143 -0-
Winfield Capital Corporation
Common Stock..................................... 28,571 28,571 -0-
Bridge Warrants.................................. 28,571 28,571 -0-
</TABLE>
- ---------------
(1) Number of shares of Common Stock represents number of shares issuable upon
exercise of the Bridge Warrants.
(2) Assumes that all Bridge Warrants will be exercised and that all shares
issuable upon such exercise will be sold.
(3) Mr. Elkin also holds currently exercisable options to purchase 5,000 shares
of Common Stock.
55
<PAGE> 57
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Seven of the Company's eight Integrated Medical Centers are owned by CWC
LLC. The Company is the managing member of CWC LLC and owns 1% of its membership
interests. As managing member the Company receives (i) a base fee of $7,500 per
month, increased by $2,000 per month for each clinic acquired and/or managed by
CWC LLC in excess of two clinics, and (ii) a commission in an amount equal to 1%
of the prior year's revenue of any new clinic acquired and/or managed by CWC
LLC. In addition, the Company is entitled to receive 50% of any cash flow
distributions after the other members of CWC LLC have received a 12% preferred
cumulative non-compounded annual return. The Company, as managing member, has
the authority and responsibility to make substantially all management decisions
for CWC LLC. In addition, the holders of more than 50% of the CWC LLC membership
interests have granted the Company an irrevocable proxy to vote their membership
interests as the Company sees fit. The proxy is valid for the life of CWC LLC.
As a result of these irrevocable proxies, the financial statements of the
Company and CWC LLC are consolidated for financial reporting purposes. In the
future, the Company does not plan to open any additional Integrated Medical
Centers owned directly or indirectly by CWC LLC, nor does it plan for CWC LLC to
raise any additional capital.
The Company has an option to purchase all of the membership interests of
CWC LLC at an exercise price in an amount such that the other members would
receive a 12% preferred, cumulative, non-compounded, annual return plus a
multiple of their capital contributions ranging from 2 in the first year (1997)
to 4 in the seventh year (2003), after taking into account any previously
returned capital contribution and preferred cumulative return. The exercise
price is payable to the members within 120 days of the Company's exercise of the
option. The price may be paid, at the Company's election, either in cash, or, if
any class of the Company's securities is publicly traded, 75% in cash and 25% in
securities of that class valued at their initial public offering price. If
securities constitute part of the exercise price, the securities will not be
registered under the Securities Act or applicable state securities laws.
CWC LLC has outstanding 13.3 Class A Units (membership interests other than
that of the managing member). The following officers and directors of the
Company or members of their immediate family hold the following interests in CWC
LLC: a trust for the benefit of Wilma Sharer, the spouse of the Company's
President and Chief Operating Officer, holds two Class A Units; Danielle Milano,
the Company's Vice President-Medical Affairs, holds 1/5 of one Class A Unit;
Jill Brigante, as custodian for Virginia Brigante and Jacqueline Brigante, the
minor children of Michael Brigante, the Company's Vice President-Finance and
Chief Financial Officer, holds 1/5 of one Class A Unit and 11/50 of one Class A
Unit, respectively; and Robert Libauer, a director of the Company, holds 2
19/50 Class A Units. Each such person granted to the Company an irrevocable
proxy to vote such person's respective ownership interest in CWC LLC.
In August 1996, the Company entered into a consulting agreement with
J.E.M., Inc. ("JEM"), the sole stockholders of which are Dr. Kaplan, the
Company's Senior Director of Operations and Development, and his wife. Under the
terms of the consulting agreement, JEM agreed to provide advice and assistance
to the Company in connection with identifying and affiliating with chiropractors
and their existing chiropractic practices and identifying, acquiring, and/or
managing businesses engaged in providing services ancillary to those provided by
Integrated Medical Centers. The Company agreed to pay JEM $6,000 per month for
its services. The term of the consulting agreement expires in August 1999 and
may be terminated sooner by mutual agreement of the parties, by the Company for
"cause," defined as a violation by JEM of any material provision of the
consulting agreement not remedied within 30 days after notification or JEM's
conviction of a felony, upon termination of the employment agreement between Dr.
Kaplan and the Company, or JEM's failure to meet certain performance goals.
The Company, Mr. McMillen, Dr. McMillen, Mr. Mrazek, two other holders of
Common Stock and all holders of Series A Preferred Stock are parties to a
certain Stockholders' Agreement dated March 20, 1995 (the "Stockholders'
Agreement"), pursuant to which such stockholders agreed to various restrictions
on their ability to transfer the shares of Common Stock or Series A Preferred
Stock owned by them, among other things. The holders of the Series A Preferred
Stock, voting together as a class, were given the right to elect one director to
the Company's Board of Directors. The holders of the Series A Preferred Stock
have not
56
<PAGE> 58
exercised this right to date. In addition, the holders of both the Series A
Preferred Stock and the holders of Common Stock who are parties to the
Stockholders' Agreement were given the preemptive right to purchase a pro rata
portion of any issuance of equity securities of the Company other than issuances
pursuant to the exercise of options granted under the 1994 Plan. The preemptive
rights do not apply to any public offering of equity securities pursuant to a
registration statement filed with the Commission, and expire in such event. All
such holders have waived their preemptive rights for each issuance of equity
securities by the Company prior to the date of this Prospectus other than
pursuant to the exercise of stock options. The Stockholders' Agreement is to
expire on March 20, 2015 or upon the earlier voluntary written agreement of the
Company and such stockholders. The Company believes that the parties to the
Stockholders' Agreement will agree to terminate it upon the consummation of this
Offering.
Dr. Milano is a "Qualified M.D." and serves as an officer, director, and
the sole stockholder of an Integrated Medical Center in Illinois, Complete
Wellness Medical Center of East Main Street, Carbondale, P.C. ("CWC
Carbondale"). See "Business -- Agreements With Affiliated Chiropractors and
Other Licensed Practitioners -- Formation of Integrated Medical Centers." In
October 1996, Dr. Milano, CWC Carbondale, and the Company entered into a Stock
Transfer Agreement (the "Stock Transfer Agreement") pursuant to which (i) Dr.
Milano agreed not to sell, encumber, or otherwise transfer the shares of stock
in CWC Carbondale owned by her without the written consent of CWC Carbondale and
the Company and (ii) the Company has the right to direct the transfer of all or
part of such shares to such transferee as it may designate for the sum of ten
dollars, provided that the transferee is licensed to practice medicine in the
State of Illinois. In order to facilitate the transfer, the Stock Transfer
Agreement required the contemporaneous execution by Dr. Milano of a stock
transfer assignment, a resignation as an officer and director of CWC Carbondale,
and an Agreement for Sale of Business by Transfer of Capital Stock under which
Dr. Milano agreed to transfer her shares in CWC Carbondale for the sum of ten
dollars to a transferee to be designated by the Company for this purpose. In
accordance with the Stock Transfer Agreement, the Company holds the stock
transfer assignment, the resignation, and the Agreement for Sale of Business by
Transfer of Capital Stock in escrow. Additionally, the Stock Transfer Agreement
prohibits Dr. Milano, without prior written consent of CWC Carbondale and the
Company, from amending the charter or bylaws of CWC Carbondale, agreeing to the
merger or consolidation of CWC Carbondale with or into another corporation,
dissolving or liquidating CWC Carbondale, authorizing the issuance of any
additional shares of stock of CWC Carbondale, or approving any contract with Dr.
Milano herself, members of her family, or related parties. The Company and Dr.
Milano also entered into an indemnification agreement pursuant to which the
Company agreed to indemnify her from and against claims made against her in her
capacity as an officer or director of CWC Carbondale. See "Management --
Limitation of Directors' and Officers' Liability and Indemnification."
As of the date of this Prospectus, the Company has advanced approximately
$37,000 to Mr. McMillen without interest. Mr. McMillen has agreed to repay such
amount upon consummation of the Offering.
Dr. McMillen, Mr. Mrazek, and two other individuals have each given Mr.
McMillen a proxy to vote on their behalf all of the shares of Common Stock owned
by them. Each proxy is irrevocable and valid until December 31, 2000. See
"Principal Stockholders."
The Company believes that all prior transactions between the Company, its
officers, directors or other affiliates of the Company have been on terms no
less favorable than could have been obtained from unaffiliated third parties.
Any future transactions with officers, directors, 5% stockholders or affiliates
must be for valid business reasons, be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties, and be approved by a
majority of the independent outside members of the Company's Board of Directors
who do not have an interest in the transaction.
57
<PAGE> 59
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized by its Certificate of Incorporation to issue an
aggregate of 10,000,000 shares of Common Stock, par value $.0001665 per share,
and 2,000,000 shares of preferred stock, par value $.01 per share (the
"Preferred Stock"), of which 1,500 shares are designated as the Series A
Preferred Stock. As of September 30, 1996, 714,967 shares of Common Stock were
outstanding and held of record by nine stockholders, and 1,350 shares of Series
A Preferred Stock were outstanding and held of record by seven stockholders.
Upon consummation of this Offering, the outstanding shares of Series A Preferred
Stock will automatically convert into 145,800 shares of Common Stock, and an
aggregate of 1,860,767 shares of Common Stock will be outstanding.
COMMON STOCK
Holders of the Common Stock are entitled to one vote per share and, subject
to the rights of the holders of the Preferred Stock, to receive dividends when
and as declared by the Board of Directors, and to share ratably in the assets of
the Company legally available for distribution in the event of the liquidation,
dissolution or winding up of the Company. Holders of the Common Stock do not
have subscription, redemption or conversion rights, nor do they have any
preemptive rights other than holders of Common Stock who are parties to the
Stockholders' Agreement, as and to the extent provided in the Stockholders'
Agreement. See "Certain Transactions." In the event the Company were to elect to
sell additional shares of its Common Stock following this Offering, investors in
this Offering would have no prior right to purchase such additional shares. As a
result, their percentage equity interest in the Company would be diluted. The
shares of Common Stock offered hereby will be, when issued and paid for, fully
paid and not liable for further call or assessment. Holders of the Common Stock
do not have cumulative voting rights, which means that the holders of more than
half of the outstanding shares of Common Stock (subject to the rights of the
holders of the Preferred Stock) can elect all of the Company's directors, if
they choose to do so. In such event, the holders of the remaining shares of
Common Stock would not be able to elect any directors. The Board is empowered to
fill any vacancies on the Board. Except as otherwise required by Delaware Law,
and subject to the rights of the holders of Preferred Stock, all stockholder
action is taken by vote of a majority of the outstanding shares of Common Stock
voting as a single class present at a meeting of stockholders at which a quorum
(consisting of a majority of the outstanding shares of the Common Stock) is
present in person or by proxy.
PREFERRED STOCK
Preferred Stock may be issued in one or more series and having such rights,
privileges and limitations, including voting rights, conversion privileges
and/or redemption rights, as may, from time to time, be determined by the Board
of Directors of the Company. Preferred Stock may be issued in the future in
connection with acquisitions, financings or such other matters as the Board of
Directors deems to be appropriate. In the event that any such shares of
Preferred Stock are to be issued, a Certificate of Designation, setting forth
the series of such Preferred Stock and the relative rights, privileges and
limitations with respect thereto, shall be filed with the Secretary of State of
the State of Delaware. The effect of such Preferred Stock is that the Company's
Board of Directors alone, within the bounds and subject to the federal
securities laws and Delaware law, may be able to authorize the issuance of
Preferred Stock which could have the effect of delaying, deferring or preventing
a change in control of the Company without further action by the stockholders
and may adversely affect the voting and other rights of holders of Common Stock.
The issuance of Preferred Stock with voting and conversion rights may also
adversely affect the voting power of the holders of Common Stock, including the
loss of voting control to others.
The Company has designated 1,500 shares as Series A Preferred Stock and has
issued 1,350 shares of these shares. The holders who purchased 1,350 shares of
the Series A Preferred Stock and whose shares will convert into 145,800 shares
Common Stock upon this Offering, have certain piggyback registration rights.
Accordingly, if the Company proposes to register any of its securities, either
for its own account or for the
58
<PAGE> 60
account of other stockholders, the Company is required to notify such holders
and to include in such registration all of the 145,800 shares of Common Stock
requested to be included by them, subject to the discretion of the managing
underwriter. The holders of Series A Preferred Stock have agreed that they will
not seek to register any of their securities as part of this Offering. In
addition, such holders have entered into lock-up agreements with the
Representative. See "Shares Eligible for Future Sale" and "Underwriting".
WARRANTS
The following is a summary of certain provisions of the Warrants, but such
summary does not purport to be complete and is qualified in all respects by
reference to the actual text of the Warrant Agreement between the Company and
American Stock Transfer & Trust Company (the "Warrant Agent"). A copy of the
Warrant Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part. See "Additional Information."
Exercise Price and Terms. Each Warrant entitles the registered holder
thereof to purchase, at any time, one share of Common Stock at a price of $
per share [120% of the initial public offering price per share of Common Stock],
subject to adjustment in accordance with the anti-dilution and other provisions
referred to below, at any time commencing , 1997 [six months after the
date of this Prospectus] until , 2002 [five years after the date of
this Prospectus]. The holder of any Warrant may exercise such Warrant by
surrendering the certificate representing the Warrant to the Warrant Agent, with
the subscription form thereon properly completed and executed, together with
payment of the exercise price. No fractional shares will be issued upon the
exercise of the Warrants.
Adjustments. The exercise price and the number of shares of Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications of the Common Stock, or sale by the Company of
shares of its Common Stock or other securities convertible into Common Stock
(exclusive of options and shares under the 1994 Plan, 1996 Plan and 1996
Professionals Plan, and other limited exceptions) at a price below the then
applicable exercise price of the Warrants. Additionally, an adjustment would be
made in the case of a reclassification or exchange of Common Stock,
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the surviving
corporation) or sale of all or substantially all of the assets of the Company,
in order to enable warrant holders to acquire the kind and number of shares of
stock or other securities or property receivable in such event by a holder of
the number of shares of Common Stock that have been purchased upon the exercise
of the Warrant.
Redemption Provisions. Commencing , 1998 [18 months after the
date of this Prospectus], the Warrants are subject to redemption, in whole but
not in part, at $.10 per Warrant on 30 days' prior written notice, provided that
the average closing bid price of the Common Stock as reported on Nasdaq equals
or exceeds $ per share [160% of the initial public offering price] (subject
to adjustment for stock dividends, stock splits, combinations or
reclassifications of the Common Stock), for any 20 trading days within a period
of 30 consecutive trading days ending on the fifth trading day prior to the date
of the notice of redemption. In the event the Company exercises the right to
redeem the Warrants, such Warrants will be exercisable until the close of
business on the business day immediately preceding the date for redemption fixed
in such notice. If any Warrant called for redemption is not exercised by such
time, it will cease to be exercisable and the holder will be entitled only to
the redemption price.
Transfer, Exchange and Exercise. The Warrants are in registered form and
may be presented to the Warrant Agent for transfer, exchange or exercise at any
time (or commencing six months from the date of this Prospectus with respect to
exercise) on or prior to their expiration date five years from the date of this
Prospectus, at which time the Warrants become wholly void and of no value. If a
market for the Warrants develops, the holder may sell the Warrants instead of
exercising them. There can be no assurance, however, that a market for the
Warrants will develop or continue.
Modification of Warrants. The Company and the Warrant Agent may make such
modifications to the Warrants as they deem necessary and desirable that do not
adversely affect the interests of the Warrant holders. The Company may, in its
sole discretion, lower the exercise price of the Warrants for a period of not
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<PAGE> 61
less than 30 days on not less than 30 days' prior written notice to the Warrant
holders and the Representative. Modification of the number of securities
purchasable upon the exercise of any Warrant, the exercise price and the
expiration date with respect to any Warrant requires the consent of two-thirds
of the warrant holders. No other modifications may be made to the Warrants
without the consent of two-thirds of the warrant holders. The Warrants are not
exercisable unless, at the time of the exercise, the Company has a current
prospectus covering the shares of Common Stock issuable upon exercise of the
Warrants, and such shares have been registered, qualified or deemed to be exempt
under the securities laws of the state of residence of the exercising holder of
the Warrants. Although the Company will use its best efforts to have all of the
shares of Common Stock issuable upon exercise of the Warrants registered or
qualified on or before the exercise date and to maintain a current prospectus
relating thereto until the expiration of the Warrants, there can be no assurance
that it will be able to do so. The Warrants are separately transferable
immediately upon issuance. Although the Securities will not knowingly be sold to
purchasers in jurisdictions in which the Securities are not registered or
otherwise qualified for sale, purchasers might buy Warrants in the after-market
or may move to jurisdictions in which the shares underlying the Warrants are not
so registered or qualified during the period that the Warrants are exercisable.
In this event, the Company would be unable to issue shares to those persons
desiring to exercise their Warrants, and holders of Warrants would have no
choice but to attempt to sell the Warrants in a jurisdiction where such sale is
permissible or allow them to expire unexercised.
ANTI-TAKEOVER PROVISIONS
Upon consummation of this Offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law ("Section
203"). Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person or an affiliate, or associate of such person, who is an "interested
stockholder" for a period of three years from the date that such person became
an interested stockholder unless: (i) the transaction resulting in a person
becoming an interested stockholder, or the business combination, is approved by
the Board of Directors of the corporation before the person becomes an
interested stockholder; (ii) the interested stockholder acquired 85% or more of
the outstanding voting stock of the corporation in the same transaction that
makes such person an interested stockholder (excluding shares owned by persons
who are both officers and directors of the corporation, and shares held by
certain employee stock ownership plans); or (iii) on or after the date the
person becomes an interested stockholder, the business combination is approved
by the corporation's board of directors and by the holders of at least 66 2/3%
of the corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined as any person who is: (i) the owner of 15%
or more of the outstanding voting stock of the corporation; or (ii) an affiliate
or associate of the corporation and who was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws, by action of
its stockholders, to exempt itself from coverage, provided that such bylaw or
certificate of incorporation amendment shall not become effective until 12
months after the date it is adopted. The Company has not adopted such an
amendment to its Certificate of Incorporation or Bylaws.
TRANSFER AGENT AND REGISTRAR AND WARRANT AGENT
The Transfer Agent and Registrar for the Common Stock and the Warrant Agent
for the Warrants is American Stock Transfer & Trust Company, 40 Wall Street, New
York, New York 10005.
60
<PAGE> 62
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, 1,860,767 shares of Common Stock and
1,000,000 Warrants will be outstanding. The 1,000,000 shares of Common Stock and
1,000,000 Warrants sold in the Offering (1,150,000 shares of Common Stock and
1,150,000 Warrants if the Over-allotment Option is exercised in full) will be
freely tradeable without restriction or further registration under the
Securities Act unless acquired by an "affiliate" of the Company (as that term is
defined in the Securities Act) which securities will be subject to the resale
limitations of Rule 144 under the Securities Act ("Rule 144"). In addition, the
Company has agreed that the Bridge Warrants and the shares of Common Stock
issuable upon exercise of the Bridge Warrants would be included in the
registration statement of which this Prospectus forms a part. Assuming a price
per Share of $7.00 in this Offering, a total of 157,142 shares of Common Stock
will be issuable upon exercise of the Bridge Warrants. The Selling Security
Holders have agreed not to, directly or indirectly, offer, sell, transfer,
pledge, assign, hypothecate, or otherwise encumber or dispose of any such shares
for a period of 90 days after the date of this Prospectus without the consent of
the Representative.
The remaining 860,767 shares of Common Stock which will be outstanding upon
consummation of the Offering were issued by the Company in transactions that
were exempt from the registration requirements under the Securities Act at
various times from November 1994 through August 1996, and are therefore
"restricted securities" within the meaning of Rule 144 ("Restricted
Securities"). In general, Rule 144 allows a person who has beneficially owned
Restricted Securities for at least two years, including persons who may be
deemed affiliates of the Company, to sell, within any three-month period, up to
the number of Restricted Securities that does not exceed the greater of (i) one
percent of the Common Stock or other units of the class outstanding, and (ii)
the average weekly trading volume in such securities during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Commission. A person who is not deemed to have been an affiliate of the Company
at any time during the 90 days preceding a sale and who has beneficially owned
his Restricted Securities for at least three years would be entitled to sell
such Restricted Securities without regard to the volume limitations described
above and the other conditions of Rule 144.
Notwithstanding the foregoing, each officer and director of the Company,
substantially all holders of the shares of Common Stock and all holders of any
options, warrants or other securities convertible, exercisable or exchangeable
for shares of Common Stock have agreed not to, directly or indirectly, offer,
sell, transfer, pledge, assign, hypothecate or otherwise encumber or dispose of
any of the Company's securities, whether presently owned, for a period of 13
months after the date of this Prospectus without the prior written consent of
the Representative (the "Lock-Up Period"). An appropriate legend shall be marked
on the back of the stock certificates representing all such securities. Market
sales of a substantial number of shares of Common Stock, or the availability of
such shares for sale in the public market, could adversely affect prevailing
market prices of the Common Stock. In addition, sales of either the Warrants or
the underlying shares of Common Stock or even the existence of the Warrants, may
depress the price of the Common Stock or the Redeemable Warrants in any market
which may develop for such securities. Upon the termination of the Lock-Up
Period, approximately 713,100 Restricted Securities will be immediately eligible
for sale in the public market in reliance on Rule 144. The Commission has
proposed certain amendments to Rule 144 that would reduce by one year the
holding periods required for shares subject to Rule 144 to become eligible for
resale in the public market. This proposal, if adopted, would increase the
number of shares of Common Stock eligible for immediate resale following the
expiration of the Lock-up Period. No assurance can be given as to whether or
when the proposal will be adopted by the Commission.
A total of 700,000 shares of Common Stock are reserved for issuance under
the Company's three stock option plans. Upon completion of the Offering, options
to purchase an aggregate of 144,331 shares of Common Stock will be outstanding.
Each holder of options has agreed not to sell the shares issuable upon exercise
of such options until the expiration of the Lock-Up Period. Upon expiration of
the Lock-Up Period, options to purchase 323,550 shares will be exercisable. The
Company intends to file a registration statement on Form S-8 registering all
shares issuable upon exercise of options granted under the plans and, upon such
registration, such shares will be eligible for resale in the public market.
61
<PAGE> 63
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom National
Securities Corporation is acting as representative (in such capacity, the
"Representative"), have severally agreed, subject to the terms and conditions of
the Underwriting Agreement (the "Underwriting Agreement"), to purchase from the
Company, and the Company has agreed to sell to the Underwriters on a firm
commitment basis, the respective number of shares of Common Stock and Warrants
set forth opposite their names:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF NUMBER OF
UNDERWRITERS COMMON STOCK WARRANTS
- ------------------------------------------------------------------- ------------ ---------
<S> <C> <C>
National Securities Corporation....................................
------------ ---------
Total.................................................... 1,000,000 1,000,000
=========== ========
</TABLE>
The Underwriters are committed to purchase all the shares of Common Stock
and Warrants offered hereby, if any of such Securities are purchased. The
Underwriting Agreement provides that the obligations of the several Underwriters
are subject to conditions precedent specified therein.
The Company has been advised by the Representative that the Underwriters
propose initially to offer the Securities to the public at the initial public
offering prices set forth on the cover page of this Prospectus and to certain
dealers at such prices less concessions not in excess of $ per share of
Common Stock and $ per Warrant. Such dealers may reallow a concession
not in excess of $ per share of Common Stock and $ per Warrant
to certain other dealers. After the commencement of the Offering, the public
offering price, concession and reallowance may be changed by the Representative.
The Representative has informed the Company that it does not expect sales
to discretionary accounts by the Underwriters to exceed five percent of the
Securities offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make. The Company has also
agreed to pay to the Representative a non-accountable expense allowance equal to
3% of the gross proceeds derived from the sale of the Securities underwritten,
of which $50,000 has been paid to date.
The Company has granted to the Underwriters an Over-allotment Option,
exercisable during the 45-day period from the date of this Prospectus, to
purchase up to an additional 150,000 shares of Common Stock and/or an additional
150,000 Warrants at the initial public offering price per Share and per Warrant,
respectively, offered hereby, less underwriting discounts and the
non-accountable expense allowance. Such option may be exercised only for the
purpose of covering over-allotments, if any, incurred in the sale of the
Securities offered hereby. To the extent such option is exercised in whole or in
part, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase the number of the additional Securities proportionate to
its initial commitment.
All officers and directors of the Company, substantially all stockholders
of the Company, and all holders of any options, warrants or other securities
convertible, exercisable or exchangeable for Common Stock have agreed not to
offer, agree or offer to sell, sell, transfer, assign, encumber, grant an option
for the purchase or sale of, pledge or otherwise dispose of any beneficial
interest in such securities for a period of 13 months following the date of this
Prospectus without the prior written consent of the Representative ("Lock-up
Period"). An appropriate legend shall be marked on the face of certificates
representing all such securities. The Selling Security Holders have agreed not
to offer, agree or offer to sell, sell, transfer, assign, encumber, grant an
option for the purchase or sale of, pledge or otherwise dispose of any
beneficial interest in the Common Stock issuable upon exercise of the Bridge
Warrants for a period of 90 days following the date of this Prospectus without
the consent of the Representative.
62
<PAGE> 64
In connection with this Offering, the Company has agreed to sell to the
Representative, for nominal consideration, warrants to purchase from the Company
up to 100,000 shares of Common Stock and/or up to 100,000 Warrants (the
"Representative's Warrants"). The Representative's Warrants are initially
exercisable at a price of $ per share [120% of the initial public
offering price per share of Common Stock] and $ per Warrant [120% of
the initial public offering price per Warrant] for a period of four years,
commencing at the beginning of the second year after their issuance and sale.
The Representative's Warrants provide for adjustment in the number of shares of
Common Stock and Warrants issuable upon the exercise thereof as a result of
certain subdivisions and combinations of the Common Stock. The Representative's
Warrants grant to the holders thereof certain rights of registration for the
securities issuable upon exercise thereof.
The Underwriting Agreement provides that the Representative has a right of
first refusal for a period of three years from the effective date of the
Registration Statement with respect to any sale of securities by the Company or
any of its present or future affiliates or subsidiaries.
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants. Consequently, the initial public offering prices of the
Common Stock and the Warrants and the exercise price of the Warrants have been
determined by negotiation between the Company and the Representative and do not
necessarily bear any relationship to the Company's asset value, net worth, or
other established criteria of value. The factors considered in such
negotiations, in addition to prevailing market conditions, included the history
of and prospects for the industry in which the Company competes, an assessment
of the Company's management, the prospects of the Company, its capital
structure, the market for initial public offerings and certain other factors as
were deemed relevant.
Upon the exercise of any Warrants more than one year after the date of this
Prospectus, which exercise was solicited by the Representative, and to the
extent not inconsistent with the guidelines of the National Association of
Securities Dealers, Inc. ("NASD") and the Rules and Regulations of the
Commission, the Company has agreed to pay the Representative a commission that
will not exceed 5% of the aggregate exercise price of such Warrants in
connection with bona fide services provided by the Representative relating to
any warrant solicitation undertaken by the Representative. In addition, the
individual must designate the firm entitled to payment of such warrant
solicitation fee. A warrant solicitation fee will be paid only to the
Representative or another NASD member when such NASD member is specifically
designated in writing as the soliciting broker. However, no compensation will be
paid to the Representative in connection with the exercise of the Warrants if
(a) the market price of the Common Stock is lower than the exercise price, (b)
the Warrants are held in a discretionary account, or (c) the exercise of the
Warrants is not solicited by the Representative . Unless granted an exemption by
the Commission from Rule 10b-6 under the Exchange Act, the Representative and
any soliciting broker-dealers will be prohibited from engaging in any
market-making activities or solicited brokerage activities with regard to the
Company's securities for the period from nine business days (or such other
applicable period(s) as Rule 10b-6 may provide) prior to any solicitation of the
exercise of the Warrants until the later of the termination of such solicitation
activity or the termination (by waiver or otherwise) of any right that the
Representative and any soliciting broker-dealers may have to receive a fee for
the exercise of the Warrants following such solicitation. As a result, the
Representative and any soliciting broker-dealers may be unable to continue to
provide a market for the Common Stock or Warrants during certain periods while
the Warrants are exercisable. If the Representative has engaged in any of the
activities prohibited by Rule 10b-6 during the periods described above, the
Representative has undertaken to waive unconditionally its rights to receive a
commission on the exercise of such Warrants.
In August 1996, the Representative acted as a non-exclusive placement agent
for a portion of the Bridge Financing. The Representative received a 10%
commission in the amount of $40,000.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which are filed as exhibits to the Registration Statement
of which this Prospectus is a part. See "Additional Information."
63
<PAGE> 65
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for the
Company by Storch & Brenner, Washington, D.C. A partner of Storch & Brenner owns
8,400 shares of the Company's Common Stock. Winston & Strawn, Chicago, Illinois
has served as special regulatory counsel to the Company. Orrick, Herrington &
Sutcliffe LLP, New York, New York, has acted as counsel to the Underwriters in
connection with this Offering.
EXPERTS
The consolidated financial statements of Complete Wellness Centers, Inc. as
of December 31, 1995, and for the year then ended and for the period from the
date of inception (November 17, 1994) through December 31, 1994, appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement under the Securities
Act with respect to the Securities offered hereby. This Prospectus, filed as a
part of the Registration Statement, does not contain certain information set
forth in or annexed as exhibits to the Registration Statement. For further
information regarding the Company and the Securities offered hereby, reference
is made to the Registration Statement and to the exhibits filed as a part
thereof, which may be inspected at the office of the Commission without charge
or copies of which may be obtained therefrom upon request to the Commission and
payment of the prescribed fee. Statements contained in this Prospectus and the
contents of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. The Registration Statement and such
exhibits and schedules may be inspected without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission: New York
Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048, and
Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such material is also available
electronically by means of the Commission's home page on the Internet at
http:/www.sec.gov.
64
<PAGE> 66
COMPLETE WELLNESS CENTERS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM THE DATE OF INCEPTION (NOVEMBER 17, 1994)
THROUGH DECEMBER 31, 1994 AND AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1995 (AUDITED)
WITH REPORT OF INDEPENDENT AUDITORS,
AND FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2
Consolidated Financial Statements
Consolidated Balance Sheets......................................................... F-3
Consolidated Statements of Operations............................................... F-4
Consolidated Statements of Stockholders' Deficit.................................... F-5
Consolidated Statements of Cash Flows............................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 67
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Complete Wellness Centers, Inc.
We have audited the accompanying consolidated balance sheet of Complete
Wellness Centers, Inc. (the "Company"), as of December 31, 1995 and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the year then ended and for the period from the date of inception (November 17,
1994) through December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company at December 31, 1995 and the consolidated results of its operations
and its cash flows for the year then ended and for the period from the date of
inception (November 17, 1994) through December 31, 1994 in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Washington, DC
July 18, 1996, except for Notes 1, 5 and 7 as
to which the date is November 13, 1996
F-2
<PAGE> 68
COMPLETE WELLNESS CENTERS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
DECEMBER 31, -------------
1995
------------ (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 63,834 $ 722,293
Patient receivables, net of allowance for doubtful accounts
of $5,650 and $61,608......................................... 3,120 573,519
Advances to officers and other assets............................ 1,753 37,012
---------- -----------
Total current assets............................................... 68,707 1,332,824
Furniture and equipment, net....................................... 57,324 217,088
---------- -----------
Total assets....................................................... $ 126,031 $ 1,549,912
========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................................. $ 135,925 $ 206,103
Accrued liabilities.............................................. -- 463,982
Notes payable.................................................... 730 1,100,730
---------- -----------
Total current liabilities.......................................... 136,655 1,770,815
Convertible note payable........................................... 25,000 25,000
Minority interest.................................................. 24,543 326,793
Stockholders' deficit:
Preferred Stock, $.01 par value per share, 2,000,000 shares
authorized of which 1,500 are designated Series A, 12%
Cumulative Convertible Preferred Stock, 1,350 shares issued
and outstanding............................................... 14 14
Common Stock, $.0001665 par value per share; 10,000,000 shares
authorized, 567,300 shares issued and outstanding, 714,967
shares issued and outstanding at December 31, 1995 and
September 30, 1996, respectively.............................. 95 119
Additional capital............................................... 137,013 145,410
Accumulated deficit.............................................. (197,289) (718,239)
---------- -----------
Total stockholders' deficit........................................ (60,167) (572,696)
---------- -----------
Total liabilities and stockholders' deficit........................ $ 126,031 $ 1,549,912
========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 69
COMPLETE WELLNESS CENTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM THE
DATE OF INCEPTION NINE MONTHS ENDED
(NOVEMBER 17, 1994) SEPTEMBER 30,
THROUGH YEAR ENDED ----------------------
DECEMBER 31, 1994 DECEMBER 31, 1995 1995 1996
------------------- ----------------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating revenue:
Patient revenue................. $ -- $ 22,114 $ 8,618 $ 869,122
Management services income...... -- -- -- 4,160
------- --------- -------- ---------
-- 22,114 8,618 873,282
Direct expenses:
Salary and consulting costs..... 1,400 93,131 59,283 249,293
Management fees................. -- 29,669 4,146 438,948
Rent............................ -- 4,501 400 160,988
Advertising and marketing....... -- 25,821 11,909 36,828
------- --------- -------- ---------
Total direct expenses............. 1,400 153,122 75,738 886,057
General and administrative........ -- 253,024 28,818 607,770
Depreciation and amortization..... -- 6,490 1,623 24,598
------- --------- -------- ---------
Operating deficit................. (1,400) (390,522) (97,561) (645,143)
Interest expense.................. -- 930 13 24,229
Interest income................... -- 1,106 496 4,663
Minority interest................. -- 194,457 2,927 143,759
------- --------- -------- ---------
Net loss.......................... $(1,400) $(195,889) $(94,151) $(520,950)
======= ========= ======== =========
Pro forma net loss per share data
(Unaudited -- Note 10):
Net loss per common and
common equivalent shares... $ (0.26) $ (0.43)
Weighted average number of
common and common
equivalent shares
outstanding................ 753,924 1,225,633
</TABLE>
See accompanying notes.
F-4
<PAGE> 70
COMPLETE WELLNESS CENTERS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------- ---------------- ADDITIONAL ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------- ------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Date of inception (November 17,
1994)............................... -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common stock............ -- -- 378,000 63 -- -- 63
Net loss............................ -- -- -- -- -- (1,400) (1,400)
----- --- ------- ---- -------- --------- ---------
Balance at December 31, 1994.......... -- -- 378,000 63 -- (1,400) (1,337)
Issuance of common stock............ -- -- 189,300 32 1,893 -- 1,925
Issuance of preferred stock......... 1,350 14 -- -- 134,986 -- 135,000
Recognition of the granting of below
market stock options.............. -- -- -- -- 1 -- 1
Recognition of the granting of below
market common stock warrants...... -- -- -- -- 133 -- 133
Net loss............................ -- -- -- -- -- (195,889) (195,889)
----- --- ------- ---- -------- --------- ---------
Balance at December 31, 1995.......... 1,350 14 567,300 95 137,013 (197,289) (60,167)
Issuance of common stock............ -- -- 110,000 18 -- -- 18
Exercise of stock options for shares
of Complete Wellness Centers, Inc.
common stock...................... -- -- 37,667 6 1,449 -- 1,455
Recognition of the granting of below
market stock options.............. -- -- -- -- 4,988 -- 4,988
Recognition of the granting of below
market common stock warrants...... -- -- -- -- 1,960 -- 1,960
Net loss............................ -- -- -- -- -- (520,950) (520,950)
----- --- ------- ---- -------- --------- ---------
Balance at September 30, 1996
(unaudited)......................... 1,350 $ 14 714,967 $119 $145,410 $(718,239) $(572,696)
===== === ======= ==== ======== ========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 71
COMPLETE WELLNESS CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
DATE OF
INCEPTION
(NOVEMBER 17, NINE MONTHS ENDED
1994) THROUGH YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, -----------------------
1994 1995 1995 1996
------------- ------------ -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................. $(1,400) $ (195,889) $(94,151) $ (520,950)
Adjustments to reconcile net loss to net
cash used in operating activities:
Minority interest....................... -- (194,457) (2,927) (143,759)
Depreciation and amortization........... -- 6,490 1,623 24,598
Provision for bad debts................. -- 5,650 -- 70,000
Recognition of the compensatory granting
of non-qualified stock options....... -- 1 -- 4,988
Recognition of the granting of common
stock warrants....................... -- 133 -- 1,960
Recognition of common stock issued for
services rendered.................... -- 1,893 1,893 --
Changes in operating assets and
liabilities:
Patient receivables.................. -- (8,770) (6,235) (640,390)
Advances to officers and other
current assets..................... -- (1,753) (20,095) (35,259)
Accounts payable..................... 1,337 134,588 29,713 70,178
Accrued liabilities.................. -- -- -- 463,982
------- ---------- --------- ----------
Net cash used in operating activities..... (63) (252,114) (90,179) (704,652)
INVESTING ACTIVITIES
Purchase of equipment..................... -- (38,814) (26,129) (184,362)
------- ---------- --------- ----------
Net cash used in investing activities..... -- (38,814) (26,129) (184,362)
FINANCING ACTIVITIES
Proceeds from notes payable............... -- 39,730 -- 1,100,000
Proceeds from sale of common stock........ 63 32 32 18
Proceeds from sale of preferred stock..... -- 135,000 1,000 --
Proceeds from sale of equity in Complete
Wellness Centers, LLC................... -- 219,000 169,000 446,000
Payments of notes payable................. -- (39,000) -- --
Exercise of stock options................. -- -- -- 1,455
------- ---------- --------- ----------
Net cash provided by financing
activities.............................. -- 354,762 170,032 1,547,473
------- ---------- --------- ----------
Net increase in cash and cash
equivalents............................. -- 63,834 53,724 658,459
Cash and cash equivalents at beginning
of year................................. -- -- -- 63,834
------- ---------- --------- ----------
Cash and cash equivalents at end of
year.................................... $ -- $ 63,834 $ 53,724 $ 722,293
======= ========== ========= ==========
</TABLE>
See accompanying notes.
F-6
<PAGE> 72
COMPLETE WELLNESS CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM THE DATE OF INCEPTION (NOVEMBER 17, 1994)
THROUGH DECEMBER 31, 1994 AND AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1995 (AUDITED) AND FOR THE NINE-MONTH
PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Complete Wellness Centers, Inc. (the "Company") was incorporated in
Delaware in November 1994 and was in the development stage through December 31,
1994. The Company develops and operates integrated medical centers (the
"Integrated Medical Centers") primarily in the States of Virginia and Florida.
As of and for the year ended December 31, 1995, the Company's sole operation is
the management of an Integrated Medical Center located in Virginia.
The Company is the managing member of Complete Wellness Centers, LLC ("CWC,
LLC") and has a 1% equity ownership interest. CWC, LLC acquired certain
furniture and equipment of a chiropractic clinic for $15,000 in cash and a
$25,000 note payable. The assets were used to establish an Integrated Medical
Center at the same location as the previous chiropractic clinic. No working
capital, patient files or employees were transferred as a result of the
transaction. The Integrated Medical Center is managed by the Company.
CWC, LLC was formed in Delaware in March 1995 and was capitalized through
the issuance of 13.3 Class A units. The Company has an option for a seven-year
period to purchase all of the units at an exercise price in an amount such that
the Class A members shall receive a 12% cumulative preferred return plus a
multiple of their capital contribution ranging from two in the first year to
four in the seventh year. The exercise price shall be paid by the Company to the
Class A members within 120 days of the Company exercising the call option and is
payable either in cash or a combination of cash and, if it is publicly traded at
the exercise date, stock of the Company. The Company has obtained irrevocable
proxies valid for the life of CWC, LLC from the holders of a majority of the
Class A units to exercise all of their voting rights.
The consolidated financial statements reflect the accounts of Complete
Wellness Centers, Inc. and CWC, LLC and its wholly-owned subsidiary Complete
Wellness Center of Fredericksburg, Inc. Significant intercompany transactions
have been eliminated. The financial statements of CWC, LLC are consolidated with
the Company's financial statements because the Company has unilateral, perpetual
and non-temporary control (via signed irrevocable proxies from the holders of a
majority in interest of the membership interests of CWC, LLC) over the assets
and business operations of CWC, LLC and, notwithstanding the lack of technical
majority ownership, consolidation of CWC, LLC is necessary to present fairly the
financial position and results of operations of the Company.
The Company has recorded its obligation to the Class A members holding 99%
of the members interest of CWC, LLC as minority interest.
The Company's initial strategy was to develop approximately 25 Integrated
Medical Centers through December 31, 1996. Management expected the cash flow
generated from the Company's Integrated Medical Centers and the bridge loan (see
Note 5) to provide sufficient working capital resources to enable the Company to
implement this plan. To date the Company has developed 8 Integrated Medical
Centers, is in the process of developing an additional 16 Integrated Medical
Centers and now hopes to complete approximately 75 additional Integrated Medical
Centers in 1997. Throughout the development period the Company has experienced
continued operating losses and negative cash flows. The capital needs of
continuing operations and the expected expansion will require the Company to
obtain additional capital through incurring additional debt or the completion of
private or public equity offerings. The Company does not currently have any
committed sources of additional capital and substantially all of its assets are
secured as collateral for notes issued in connection with the 1996 bridge loan.
There can be no assurance that the Company will be able to
F-7
<PAGE> 73
COMPLETE WELLNESS CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND BASIS OF PRESENTATION -- (CONTINUED)
raise additional capital when needed on satisfactory terms or at all. If the
Company is unable to secure additional sources of financing, when needed, its
expansion strategy could be materially adversely affected.
2. SIGNIFICANT ACCOUNTING POLICIES
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers cash and cash equivalents to include currency on
hand, demand deposits, and all highly liquid investments with an original
maturity of three months or less.
FURNITURE AND EQUIPMENT
Furniture and equipment are recorded at the lower of cost or net realizable
value. Maintenance and repairs are charged to expense as incurred. Depreciation
is computed using the straight-line method at rates intended to amortize the
cost of the related assets over their estimated useful lives.
Furniture and equipment of the Company are reviewed for impairment whenever
events or circumstances indicate that the asset's undiscounted expected cash
flows are not sufficient to recover its carrying amount. The Company measures an
impairment loss by comparing the fair value of the asset to its carrying amount.
Fair value of an asset is calculated as the present value of expected future
cash flows.
INCOME TAXES
Income taxes are provided using the liability method in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis (i.e., temporary differences).
STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees.
In October 1995, the FASB issued Statement No. 123, Accounting for Stock-Based
Compensation, which provides an alternative to APB Opinion No. 25, Accounting
for Stock Issued to Employees, in accounting for stock-based compensation issued
to employees. The Statement allows for a fair-value-based method of accounting
for employee stock options and similar equity instruments and requires certain
disclosure of the pro forma effect on net income and earnings per share of its
fair-value-based accounting for those arrangements if the fair value method of
accounting is not adopted. These disclosure requirements are effective for
fiscal years beginning after December 15, 1995, or upon initial adoption of the
statement, if earlier. The Company has elected to continue to account for
stock-based compensation arrangements under APB Opinion No. 25 and accordingly
recognizes compensation expense for the stock option grants as the difference
between the fair value and the exercise price at the grant date but will provide
the required pro forma disclosures in the December 31, 1996 consolidated
financial statements.
F-8
<PAGE> 74
COMPLETE WELLNESS CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management has determined the estimated fair value of financial instruments
using available market information and valuation methodologies. Cash
equivalents, accounts receivable, accounts payable and accrued liabilities and
other current assets and liabilities are carried at amounts which reasonably
approximate their fair values. Considerable judgment is necessary to interpret
market data and develop estimated fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts the Company could
realize on disposition of the financial instruments. The use of different market
assumptions or estimation methodologies may have an effect on the estimated fair
value amounts.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the nine-month period ended September
30, 1996 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996.
3. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Details of the allowance for doubtful accounts receivable as of December
31, 1995 are as follows:
<TABLE>
<S> <C>
Beginning balance................................................... $ --
Bad debt expense.................................................... 5,650
Accounts written off................................................ --
------
Ending balance...................................................... $5,650
======
</TABLE>
4. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER
ASSET 31,
LIVES 1995
----- -----------
<S> <C> <C>
Furniture and equipment.................................. 5 $63,814
Less accumulated depreciation and amortization........... (6,490)
-------
$57,324
=======
</TABLE>
No interest was capitalized during 1995.
The Company leases space of its wholly owned Integrated Medical Center
(Complete Wellness Center of Fredericksburg) and its corporate office space on a
month-by-month basis.
5. DEBT
CONVERTIBLE NOTE PAYABLE
The convertible note payable bears interest at 8% and is due July 17, 2000.
Interest is payable quarterly while the principal is payable in one installment
on the due date. The note is secured by a lien on the assets of Complete
Wellness Centers of Fredericksburg. In the event of an initial public offering
for CWC, LLC, the note, at the lendee's option, will be convertible into
membership interests of CWC, LLC at the initial public offering price.
F-9
<PAGE> 75
COMPLETE WELLNESS CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. DEBT -- (CONTINUED)
1995 FINANCING
In November 1995 the Company issued $39,730 of subordinated promissory
notes bearing interest at 12%. In connection with the financing, the lendors
have been issued detachable warrants with an exercise price of $.003333 to
purchase 13,243 shares of the Company's Common Stock. Interest expense of $133
was recorded for these warrants. The Company repaid $39,000 of these notes in
1995.
1996 BRIDGE LOAN
On August 15, 1996, the Company completed a private placement of $1.1
million of 12% notes. In connection with the agreement, the lendors have been
issued detachable warrants with an exercise price of $0.003 to purchase 157,142
shares of Common Stock, assuming an initial public offering price of $7.00 per
share (176,000 shares if the Company does not close an Initial Public Offering
("IPO") by June 30, 1997). An additional 2,857 warrants with an exercise price
of $0.003 were given to an individual as consideration for assisting with the
financing. Interest expense of $1,960 was recorded for those warrants through
September 30, 1996. Additional interest expense of $5,880 will be recognized
over the term of the loan for the warrants associated with this bridge loan. The
outstanding notes bear interest at 12% and are callable on June 30, 1997 at the
sole discretion of the lendors. Accrued interest is payable quarterly beginning
January 1, 1997; principal is payable in one installment on the earlier of an
IPO or the due date. The loan is secured by substantially all of the Company's
assets. In the event of an IPO by the Company, the principal amount plus accrued
interest becomes due.
6. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. The tax effects of
temporary differences that give rise to significant portions of the deferred tax
assets and deferred tax liabilities recognized as of December 31, 1995 are
presented below:
<TABLE>
<CAPTION>
DECEMBER
31,
1995
-----------
<S> <C>
Deferred tax assets:
Start up costs......................................................... $ 448
Bad debt expense....................................................... 2,260
Operating loss carryforward............................................ 76,687
--------
Total deferred tax assets................................................ 79,395
Less valuation allowance................................................. (78,915)
--------
Net deferred tax assets.................................................. 480
Deferred tax liabilities:
Depreciation........................................................... (480)
--------
Total deferred tax liabilities........................................... (480)
Net deferred tax amount.................................................. $ --
========
</TABLE>
At December 31, 1995, the Company had net operating loss carryforwards for
income tax purposes of approximately $192,000, which expire in 2010.
The Company has a cumulative pretax loss for financial reporting purposes.
Recognition of deferred tax assets will require generation of future taxable
income. There can be no assurance that the Company will generate any earnings or
any specific level of earnings in future years. Therefore, the Company
established a
F-10
<PAGE> 76
COMPLETE WELLNESS CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES -- (CONTINUED)
valuation allowance on deferred tax assets of $78,915 as of December 31, 1995.
These carryforwards may be significantly limited under the Internal Revenue
Service Code as a result of ownership changes resulting from the Company's
redeemable convertible Preferred Stock financing and other equity offerings.
Significant components of the provision for income taxes are as follows for
the year ended:
<TABLE>
<CAPTION>
DECEMBER
31,
1995
-----------
<S> <C>
Current:
Federal........................................................ --
State.......................................................... --
--------
Total current.................................................... --
Deferred:
Federal........................................................ $ (65,971)
State.......................................................... (12,385)
Increase in valuation allowance................................ 78,356
--------
Total deferred................................................... $ --
========
</TABLE>
The effective tax rate on income before income taxes varies from the
statutory federal income tax rate for the year ended December 31, 1995 as
follows:
<TABLE>
<S> <C>
Statutory rate...................................................... (34)%
State taxes, net.................................................... (6)%
Valuation allowance................................................. 40%
---
0%
===
</TABLE>
7. STOCKHOLDERS' EQUITY
STOCK SPLIT
During 1995 the Company effected a one-hundred and eighty-for-one stock
split of the Company's Common Stock and increased the number of authorized
shares from 20,000 to 10,000,000. Pursuant to the authorization of the Board of
Directors and Stockholders, the Company effected, on November 13, 1996, a
one-for-three stock split. Authorized shares of Common Stock remain at
10,000,000. All share amounts reflected herein reflect the one-for-three stock
split.
CONVERTIBLE PREFERRED STOCK
The Series A Convertible Preferred Stock ("Series A Preferred Stock") has a
12% cumulative preferred return payable upon declaration by the Board of
Directors and liquidation preference equal to $100 per share plus accrued but
unpaid dividends. There are no accrued, undeclared dividends at September 30,
1996. Each share of Series A Preferred Stock is convertible to 108 shares of
Common Stock at the option of the holder and automatically in the event of an
IPO of the Company's Common Stock. Beginning on March 17, 1996, at the
unilateral option of the Company the Series A Preferred Stock may be redeemed
for $112 per share plus accrued dividends. The holders of Series A Preferred
Stock shares are entitled to vote on all matters submitted to a vote of the
stockholders of the Company. The preferred shareholders have the number of votes
equal to the number of whole shares of Common Stock into which each share of
Series A Preferred Stock is then convertible.
F-11
<PAGE> 77
COMPLETE WELLNESS CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCK OPTION PLAN
The Company has a stock option plan providing for the grant of incentive
and nonqualified stock options to employees, directors, consultants and
advisors. Pursuant to the Plan, 400,000 shares of Common Stock have been
reserved for issuance. No options are exercisable at December 31, 1995. At
December 31, 1995 the following options have been granted:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
DATE OF GRANT SHARES GRANTED PRICE FAIR VALUE
------------------------------------------------ ---------------- -------- ----------
<S> <C> <C> <C>
December 1, 1995................................ 4,333 $.03 $ .004
December 1, 1995................................ 36,667 $.03 $ .01
</TABLE>
The 36,667 options granted December 1, 1995 include 33,333 performance
options exercisable only upon the attainment of certain revenue goals. Options
generally vest 33 1/3% each year beginning on the anniversary of the grant date.
No options have been forfeited as of December 31, 1995. Through September 30,
1996, 36,667 options were forfeited.
The 4,333 shares were granted to a consultant. The fair value of these
securities was $.004 per share as determined by an independent valuation
company. Nominal expense was recorded for these options as of December 31, 1995.
A total of 545,800 shares of Common Stock have been reserved for stock
option plans and conversion of preferred stock as of December 31, 1995.
9. COMMITMENTS
The Company's Chief Executive Officer's (employed since inception of the
Company) employment contract requires him to serve without cash compensation
until July 1, 1996. As of July 1, 1996 he began accruing compensation at $90,000
per annum, payable upon the closing of an IPO. The Company's Chief Operating
Officer's (employed in the second quarter of 1996) employment contract requires
him to serve without cash compensation until the closing of an IPO.
The Company leases certain furniture and equipment located at the corporate
office from its Chief Executive Officer. The lease payments are $1,000 per month
and are on a month-by-month basis.
Future minimum lease payment under an automobile lease as of December 31,
1995 is approximately $4,500 payable in installments in 1996.
10. PRO FORMA NET LOSS PER COMMON SHARE (UNAUDITED)
The Company's pro forma net loss per share calculations are based upon the
weighted average number of shares of Common Stock outstanding and the number of
shares of Common Stock resulting from the assumed conversion of the Series A
Preferred Stock. Pursuant to the requirements of the Securities and Exchange
Commission (SEC) Staff Accounting Bulletin No. 83, options to purchase Common
Stock issued at prices below the initial public offering price during the twelve
months immediately preceding the contemplated initial filing of the registration
statement relating to the IPO, have been included in the computation of net loss
per share as if they were outstanding for all periods presented (using the
treasury method assuming repurchase of common stock at the estimated IPO price).
Subsequent to the Company's IPO, options under the treasury stock method will be
included to the extent they are dilutive.
F-12
<PAGE> 78
COMPLETE WELLNESS CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. PRO FORMA NET LOSS PER COMMON SHARE (UNAUDITED) -- (CONTINUED)
The following table summarizes the computations of share amounts used and
the computation of pro forma net loss per common share presented in the
accompanying statements of operations:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Common and common equivalent shares:
Weighted average number of shares of common stock outstanding.... 567,300 714,967
Assumed conversion of the preferred stock as of January 1,
1995.......................................................... 145,800 145,800
--------- ----------
Number of shares of common stock outstanding during the period
assuming conversion of the preferred stock as of January 1,
1995.......................................................... 713,100 860,767
Options to purchase common stock issued within one year of
registration statement using the treasury stock method........ 40,824 364,866
--------- ----------
Total common and common equivalent shares of stock considered
outstanding during the year...................................... 753,924 1,225,633
========= ==========
Net loss........................................................... $ (195,889) $ (520,950)
========= ==========
Pro forma net loss per common and common equivalent shares......... $ (0.26) $ (0.43)
========= ==========
</TABLE>
11. SUBSEQUENT EVENTS (UNAUDITED)
INITIAL PUBLIC OFFERING
On December 15, 1996, the Board of Directors authorized management of the
Company to file a registration statement with the SEC permitting the Company to
sell shares of its Common Stock to the public. If the IPO is closed under the
terms presently anticipated, all of the Series A Preferred Stock outstanding
will automatically convert into 145,800 shares of Common Stock.
DEVELOPMENT AGREEMENTS
The Company has entered into contracts with twenty chiropractors during the
nine months ended September 30, 1996 to develop Integrated Medical Centers. The
total costs of developing these centers are expected to be approximately
$600,000.
Under the agreements entered into in 1996, the Company will open new
Integrated Medical Centers in the same location as existing chiropractic
practices (the "Affiliated Practices"). The Integrated Medical Centers will
employ a physician (the "MD") on a salaried basis to supervise the provision of
health care services. The MD does not currently have an existing medical
practice. Where permitted by state law, the Integrated Medical Centers will be
wholly-owned by the Company. In other jurisdictions, the Integrated Medical
Centers will be wholly-owned by another MD. Patients of the Integrated Medical
Centers will be billed in the Integrated Medical Center's name and the
Integrated Medical Centers will own the related accounts receivable. The Company
will provide administrative services to the Integrated Medical Centers via a
management contract.
Patient revenue from services is reported at the estimated realizable
amounts from patients and third party payors for services rendered.
Substantially all of the patient service revenue of the Integrated Medical
Centers is paid by the patients and traditional commercial insurers. The
Integrated Medical Centers do not currently have any HMO contracts.
F-13
<PAGE> 79
COMPLETE WELLNESS CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SUBSEQUENT EVENTS (UNAUDITED) -- (CONTINUED)
The Company also entered into contractual arrangements with each
chiropractor whereby (1) the Company will lease from the chiropractor certain
facilities and equipment, and (2) the Integrated Medical Center will pay the
Chiropractor a fixed salary to render chiropractic services to patients of the
Integrated Medical Center. The chiropractor will continue to operate his or her
existing Affiliated Practice separately from the Integrated Medical Center. The
Company will not acquire the Affiliated Practice, its patient base, or its
tangible assets. In addition, no consideration will be paid to the chiropractor
at inception of the arrangements. The Company will not provide management
services to, and will not receive any fees from, the existing Affiliated
Practice. The agreements are for an initial period of either five or ten years.
1996 STOCK OPTIONS
During 1996 the Company instituted another nonqualified stock option plan
for employees, directors, consultants and advisors. Pursuant to the plan, up to
200,000 shares of Common Stock have been reserved for issuance. No options have
been granted, exercised or forfeited.
In 1996 the Company also instituted a separate nonqualified stock option
plan for persons employed by or associated with the Company's Integrated Medical
Centers. Pursuant to the plan, up to 100,000 shares of Common Stock have been
reserved for issuance. No options have been granted, exercised or forfeited.
SHAREHOLDER ADVANCE
The Company has advanced approximately $37,000 to Mr. McMillen without
interest. Mr. McMillen is to repay such amount upon consummation of the
Offering.
F-14
<PAGE> 80
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any Underwriter.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any date subsequent to the date hereof. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby by anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make such offer or solicitation.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Prospectus Summary..................... 5
Risk Factors........................... 9
The Company............................ 18
Use of Proceeds........................ 19
Capitalization......................... 20
Dividend Policy........................ 21
Dilution............................... 21
Selected Financial Data................ 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 24
Business............................... 30
Management............................. 46
Principal Stockholders................. 52
Selling Security Holders............... 54
Certain Relationships and Related
Transactions......................... 56
Description of Securities.............. 58
Shares Eligible for Future Sale........ 61
Underwriting........................... 62
Legal Matters.......................... 64
Experts................................ 64
Additional Information................. 64
Index to Financial Statements.......... F-1
</TABLE>
------------------
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligations of dealers to
deliver a Prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions.
- ------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
COMPLETE WELLNESS CENTERS, INC.
1,000,000 Shares of Common Stock
and
1,000,000 Redeemable Common Stock
Purchase Warrants
-------------------
PROSPECTUS
-------------------
NATIONAL SECURITIES CORPORATION
, 1997
------------------------------------------------------
------------------------------------------------------
<PAGE> 81
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to Section 102 of the Delaware General Corporation Law (the
"DGCL"), the Registrant's Certificate of Incorporation contains the following
provision regarding limitation of liability of directors and officers:
A director of this corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for the breach of any
fiduciary duty as a director, except in the case of (a) any breach of the
director's duty of loyalty to the corporation or its stockholders, (b) acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (c) under section 174 of the General Corporation
Law of the State of Delaware or (d) for any transaction from which the
director derives an improper personal benefit. Any repeal or modification
of this Article by the stockholders of the corporation shall not adversely
affect any right or protection of a director of the corporation existing at
the time of such repeal or modification with respect to acts or omissions
occurring prior to such repeal or modification.
The Registrant is empowered by Section 145 of the DGCL, subject to the
procedures and limitation stated therein, to indemnify any person against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with any
threatened, pending or completed action, suit or proceeding in which such person
is made a party by reason of his being or having been a director, officer,
employer or agent of the Registrant. The statute provides that indemnification
pursuant to its provisions is not exclusive of other rights of indemnification
to which a person may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors, or otherwise. The Registrant's
Certificate of Incorporation and the Registrant's By-laws both provide for
indemnification of its officers and directors to the full extent permitted by
the DGCL.
The Company intends to apply for directors' and officers' liability
insurance after the filing of this Registration Statement. Such insurance may
insure against any liability asserted against any present or past director or
officer incurred in the capacity of director or officer arising out of such
status, whether or not the Company would have the power to indemnify such
person.
Reference is made to Section 7 of the Underwriting Agreement filed as
Exhibit 1.1 to this Registration Statement with respect to certain
indemnification provisions for the benefit of the Registrant and its directors,
officers and controlling persons.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth various expenses, other than the
underwriters' fees, discounts and commissions, which are anticipated to be
incurred in connection with the Offering. All amounts except the SEC
registration fee, the Nasdaq filing fee, the Boston Stock Exchange filing fee,
and the NASD filing fee are estimates. None of the expenses will be paid for by
selling security holders.
<TABLE>
<S> <C>
SEC registration fee........................................................ $ 6,501.68
Nasdaq filing fee........................................................... 8,194.10
Boston Stock Exchange fee................................................... 15,250.00
NASD filing fee............................................................. 2,646.00
Blue Sky fees and expenses.................................................. 40,000.00
Transfer Agent's fees and expenses.......................................... 5,000.00
Printing and engraving expenses............................................. 80,000.00
Accounting fees and expenses................................................ 150,000.00
Legal fees and expenses..................................................... 100,000.00
Miscellaneous............................................................... 17,408.22
-----------
Total.................................................................. $425,000.00
===========
</TABLE>
II-1
<PAGE> 82
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is certain information concerning sales by the Company of
unregistered securities within the past three years. Such information with
respect to the Company's Common Stock has been adjusted for (i) a 180-for-1
forward split of the Common Stock in November 1995, and (ii) a 1-for-3 reverse
split of the Common Stock in November 1996. Exemptions from registration for
other transactions are noted below. The consideration paid to the Company in
respect of each issuance of securities was cash, unless otherwise indicated.
(i) Effective November 1994, the Registrant issued a total of 378,000
shares of Common Stock to its four original stockholders (including C.
Thomas McMillen and James J. McMillen), each of whom was also a director
and/or officer of the Registrant at that time, for a price equal to
$.0001665 per share. Exemption from registration under the Act is claimed
pursuant to Section 4(2) thereof.
(ii) Effective January 1995, the Registrant issued a total of 16,500
shares of Common Stock to a newly elected member of its board of directors
(Robert J. Mrazek) for a price equal to $.0001665 per share. Exemption from
registration under the Act is claimed pursuant to Section 4(2) thereof.
(iii) Effective March 1995, the Registrant issued a total of 1,350
shares of its Series A, 12% Cumulative Convertible Preferred Stock, par
value $.01 per share, to seven individuals for a price of $100 per share,
each of whom had a pre-existing business and/or personal relationship with
one or more of the Registrant's officers, directors, or controlling persons
and was either an accredited investor within the meaning of Rule 501(a)
under the Act or a sophisticated investor who had the financial resources
to bear the loss of the investment and the means and opportunity to obtain
information concerning the Registrant. Exemption from registration under
the Act is claimed pursuant to Sections 3(b) and 4(2) thereof.
(iv) Effective June 1995, the Registrant issued a total of 158,400
shares of Common Stock to a newly elected member of its board of directors
(Robert S. Libauer) for a price equal to $.0001665 per share. Exemption
from registration under the Act is claimed pursuant to Section 4(2)
thereof.
(v) Effective September 1995, the Registrant issued 6,000 shares of
Common Stock to Danielle S. Milano, now an officer of the Registrant, and
8,400 shares of Common Stock to one of the Registrant's outside attorneys
for a price equal to $.0001665 per share in both cases. Exemption from
registration under the Act is claimed pursuant to Section 4(2) thereof.
(vi) Effective November 1995, the Registrant issued $39,730 aggregate
principal amount of subordinated promissory notes and warrants to purchase
a total of 13,243 shares of Common Stock at an exercise price equal to
$.003 per share to four individuals, one of whom was a director of the
Registrant (Robert S. Libauer) and each of the others of whom had a
pre-existing business and/or personal relationship with one or more of the
Registrant's officers, directors, or controlling persons and was either an
accredited investor within the meaning of Rule 501(a) under the Act or a
sophisticated investor who had the financial resources to bear the loss of
the investment and the means and opportunity to obtain information
concerning the Registrant. Exemption from registration under the Act is
claimed pursuant to Section 4(2) thereof.
(vii) Effective April 1996, the Registrant issued 10,000 shares of
Common Stock to its President and Chief Operating Officer (E. Eugene
Sharer) upon his exercise of options to purchase such shares at an exercise
price of $.03 per share pursuant to the Registrant's 1994 Stock Option
Plan. Exemption from registration under the Act is claimed pursuant to
Section 3(b) thereof.
(viii) Effective April 1996, the Registrant issued 110,000 shares of
Common Stock to a party (Reach Laboratories, Inc.) that had performed
consulting and financial advisory services for the Registrant. The
Registrant's Board of Directors determined the value of such past services
to be no less than $3,300. The investor was an accredited investor within
the meaning of Rule 501(a) under the Act. Exemption from registration under
the Act is claimed pursuant to Section 4(2) thereof.
II-2
<PAGE> 83
(ix) Effective May 1996, the Registrant issued 23,333 shares of Common
Stock to a consultant to the Registrant upon the consultant's exercise of
options to purchase such shares at an exercise price of $.03 per share
pursuant to the Registrant's 1994 Stock Option Plan. Exemption from
registration under the Act is claimed pursuant to Section 3(b) thereof.
(x) Effective June 1996, the Registrant issued 4,333 shares of Common
Stock to a consultant to the Registrant upon the consultant's exercise of
options to purchase such shares at an exercise price of $.03 per share
pursuant to the Registrant's 1994 Stock Option Plan and a settlement
agreement entered into between such parties in connection with litigation
involving alleged breaches of the consulting agreement between such
parties. Exemption from registration under the Act is claimed pursuant to
Section 3(b) and/or Section 4(2) thereof.
(xi) Effective August 1996, the Registrant issued $1,100,000 aggregate
principal amount of secured promissory notes and warrants to purchase that
number of shares of Common Stock determined by dividing such amount by the
price per share of Common Stock in the offering subject to this
Registration Statement at an exercise price of $.003 per share to 11
investors, each of whom was an accredited investor within the meaning of
Rule 501(a) under the Act. The registrant also issued a warrant to purchase
that number of shares of Common Stock determined by dividing such aggregate
principal amount by the price per share of Common Stock in the offering
subject to this Registration Statement at an exercise price of $.003 per
share to a broker-dealer who acted as a placement agent for a portion of
the financing. Exemption from registration under the Act is claimed
pursuant to Section 4(2) thereof.
II-3
<PAGE> 84
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------------------------------------------------------------------------
<C> <S>
1.1 Form of proposed Underwriting Agreement between the Company and National
Securities Corporation, as Representative of the several Underwriters listed
therein (the "Representative")
3.1 Certificate of Incorporation, as amended, of the Registrant
3.2 By-Laws of the Registrant
4.1 Specimen Common Stock Certificate*
4.2 Form of proposed Representative's Warrant Agreement between the Company and
the Representative, including form of Representative's Warrant Certificate
4.3 Form of Warrant Agreement between the Company and American Stock Transfer &
Trust Company as Warrant Agent, including form of Warrant Certificate
5.1 Opinion of Storch & Brenner*
10.1 Form of Stockholders' Agreement dated March 20, 1995 among the Registrant,
certain holders of its Common Stock, and all holders of its Series A, 12%
Cumulative Convertible Preferred Stock
10.2 Form of Warrant issued by the Registrant to each person or entity that
provided funds to the Registrant in connection with a financing in November
1995
10.3 Form of Promissory Note and Warrant issued by the Registrant to each person
or entity that provided funds to the Registrant in connection with a bridge
financing completed in August 1996 and related Loan and Security Agreement
10.4 Form of Warrant issued to placement agent for the bridge financing completed
in August 1996*
10.5 Form of Management and Security Agreement
10.6 Form of Integrated Medical Center Management and Security Agreement
10.7 Form of Affiliated Chiropractor Employment Agreement
10.8 Form of Medical Doctor Employment Agreement
10.9 Form of Physical Therapist Employment Agreement
10.10 Form of Acupuncturist Employment Agreement
10.11 Form of Nutrition Counselor Employment Agreement
10.12 Form of Fitness Specialist Employment Agreement
10.13 Form of Promissory Note from Integrated Medical Center
10.14 Form of Guaranty from Affiliated Chiropractor
10.15 Form of Medical Office Sublease
10.16 Form of Equipment Sublease
10.17 Employment Agreement dated as of July 1, 1996 between the Registrant and C.
Thomas McMillen
10.18 Employment Agreement dated as of March 21, 1996 between the Registrant and E.
Eugene Sharer
10.19 Employment Agreement dated as of January 1, 1996 between the Registrant and
Danielle F. Milano
10.20 Employment Agreement dated as of October 1, 1996 between the Registrant and
Michael T. Brigante
10.21 Employment Agreement dated as of August 26, 1996 between the Registrant and
Eric S. Kaplan
</TABLE>
II-4
<PAGE> 85
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------------------------------------------------------------------------
<C> <S>
10.22 Consulting Agreement dated as of November 21, 1996 between the Registrant and
Kats Management, L.L.C.
10.23 Consulting Agreement dated as of August 26, 1996 between the Registrant and
J.E.M., Inc.
10.24 Registrant's 1994 Stock Option Plan
10.25 Registrant's 1996 Stock Option Plan
10.26 Registrant's 1996 Restricted Stock Option Plan for Health Care Professionals
10.27 Registrant's Executive Bonus Plan for Key Executives*
10.28 Master License Agreement dated as of September 16, 1996 between the
Registrant and Bally Total Fitness Corporation
10.29 Management Subcontract Agreement dated as of November 1, 1996 between the
Registrant and Integrated Physicians Management Co., LLC
10.30 Subordinate Chiropractor Employment Agreement
21.1 Subsidiaries of the Registrant*
23.1 Consent of Ernst & Young LLP
23.2 Consent of Storch & Brenner (included in the Opinion filed as Exhibit 5.1)*
24.1 Powers of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- ------------------
* To be filed by amendment.
ITEM 28. UNDERTAKINGS.
(a) The Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(b) The Registrant hereby undertakes to provide to the Representative, at
the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Representative to
permit prompt delivery to each purchaser.
II-5
<PAGE> 86
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, 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.
(d) The Registrant hereby undertakes that it will:
(1) For determining any liability under the Act, treat the information
omitted from the form of prospectus filed as part of the Registration
Statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant under Rule 424(b)(1) or (4) or 497(h) under the Act
as part of this Registration Statement as of the time the Commission
declared it effective.
(2) For determining any liability under the Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-6
<PAGE> 87
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2, and has authorized this
Registration Statement to be signed on its behalf by the undersigned in
Washington, D.C., on December 19, 1996.
COMPLETE WELLNESS CENTERS, INC.
/s/ E. EUGENE SHARER
By:
E. Eugene Sharer
President and Chief Operating
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints E. Eugene Sharer his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place, and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute, may lawfully do or cause to be
done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<C> <C> <S>
/s/ C. THOMAS MCMILLEN Chairman of the Board, Chief December 18, 1996
- ------------------------------------- Executive
C. Thomas McMillen Officer, and Director
(Principal Executive Officer)
/s/ E. EUGENE SHARER President, Chief Operating Officer, December 18, 1996
- ------------------------------------- and Director
E. Eugene Sharer
/s/ MICHAEL T. BRIGANTE Vice President, Chief Financial December 18, 1996
- ------------------------------------- Officer,
Michael T. Brigante Treasurer, and Secretary
(Principal Financial and Accounting
Officer)
/s/ ROBERT S. LIBAUER Director December 18, 1996
- -------------------------------------
Robert S. Libauer
/s/ JAMES T. MCMILLEN Director December 18, 1996
- -------------------------------------
James T. McMillen
/s/ ROBERT J. MRAZEK Director December 18, 1996
- -------------------------------------
Robert J. Mrazek
</TABLE>
II-7
<PAGE> 1
EXHIBIT 1.1
OHS DRAFT
12/5/96
[Form of Underwriting Agreement - Subject to Additional Review]
1,000,000 SHARES OF COMMON STOCK
AND 1,000,000 REDEEMABLE WARRANTS
COMPLETE WELLNESS CENTERS, INC.
UNDERWRITING AGREEMENT
New York, New York
, 1997
NATIONAL SECURITIES CORPORATION
As Representative of the
Several Underwriters listed on Schedule A hereto
1001 Fourth Avenue
Suite 2200
Seattle, Washington 98154
Ladies and Gentlemen:
Complete Wellness Centers, Inc., a Delaware corporation (the "Company"),
confirms its agreement with National Securities Corporation ("National") and
each of the underwriters named in Schedule A hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 11), for whom National is acting as
representative (in such capacity, National shall hereinafter be referred to as
"you" or the "Representative"), with respect to the sale by the Company and the
purchase by the Underwriters, acting severally and not jointly, of the
respective numbers of shares ("Shares") of the Company's common stock, $.001665
par value per share ("Common Stock"), and redeemable common stock purchase
warrants (the "Redeemable Warrants"), each to purchase one share of Common
Stock, set forth in Schedule A hereto. The aggregate 1,000,000 Shares and
1,000,000 Redeemable Warrants will be separately tradeable upon issuance and
are hereinafter referred to as the "Firm Securities." Each Redeemable Warrant
is exercisable
<PAGE> 2
commencing on ____________, 1997 [6 months from the date of this Agreement]
until ____________, 2002 [60 months from the date of this Agreement], unless
previously redeemed by the Company, at an initial exercise price of $_______
[120% of the initial public offering price] per share of Common Stock. The
Redeemable Warrants may be redeemed by the Company at a redemption price of
$.10 per Redeemable Warrant at any time after _____________, 1998 [18 months
from the date of this Agreement] on thirty (30) days' prior written notice,
provided that the closing bid price of the Common Stock equals or exceeds
$_______________ [160% of the initial public offering price of Common Stock]
per share, for any twenty (20) trading days within a period of thirty (30)
consecutive trading days ending on the fifth trading day prior to the notice of
redemption, all in accordance with the terms and conditions of the Warrant
Agreement (herein defined).
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also issue and sell to the Underwriters, acting severally and not
jointly, up to an additional 150,000 shares of Common Stock and/or 150,000
Redeemable Warrants for the purpose of covering over-allotments, if any. Such
150,000 shares of Common Stock and 150,000 Redeemable Warrants are hereinafter
collectively to as the "Option Securities." The Company also proposes to issue
and sell to you warrants (the "Representative's Warrants") pursuant to the
Representative's Warrant Agreement (the "Representative's Warrant Agreement")
for the purchase of an additional 100,000 shares of Common Stock and/or 100,000
Redeemable Warrants. The shares of Common Stock and Redeemable Warrants
issuable upon exercise of the Representative's Warrants are hereinafter
referred to as the "Representative's Securities." The Firm Securities, the
Option Securities, the Representative's Warrants and the Representative's
Securities (collectively, hereinafter referred to as the "Securities") are more
fully described in the Registration Statement and the Prospectus referred to
below.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters as of the
date hereof, and as of the Closing Date (as hereinafter defined) and each
Option Closing Date (as hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (No. 333-_________), including
any related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Firm Securities, the Option Securities and the
Representative's Securities under the Securities Act of 1933, as amended (the
"Act"), which registration statement and amendment or amendments have been
prepared by the Company in conformity with the requirements of the Act, and the
rules and regulations (the "Regulations") of the Commission under the Act. The
Company will promptly file a further amendment to said registration statement
in the form heretofore delivered to the Underwriters and will not file any
other amendment thereto to which the Underwriters shall have objected in
writing after having been furnished with a copy thereof. Except as the context
may otherwise require, such registration statement, as amended, on file with
the Commission at the time the registration statement becomes effective
(including the prospectus, financial statements, schedules, exhibits and all
other documents filed as a part thereof or incorporated therein (including, but
not limited to those documents or information incorporated by reference
therein) and all information deemed
2
<PAGE> 3
to be a part thereof as of such time pursuant to paragraph (b) of Rule 430(A)
of the Regulations), is hereinafter called the "Registration Statement", and
the form of prospectus in the form first filed with the Commission pursuant to
Rule 424(b) of the Regulations, is hereinafter called the "Prospectus." For
purposes hereof, "Rules and Regulations" mean the rules and regulations adopted
by the Commission under either the Act or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or Prospectus or any part of any thereof
and no proceedings for a stop order suspending the effectiveness of the
Registration Statement or any of the Company's securities have been instituted
or are pending or threatened. Each of the Preliminary Prospectus, the
Registration Statement and Prospectus at the time of filing thereof conformed
with the requirements of the Act and the Rules and Regulations, and none of the
Preliminary Prospectus, the Registration Statement or Prospectus at the time of
filing thereof contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that this representation and warranty does not apply to
statements made in reliance upon and in conformity with written information
furnished to the Company with respect to the Underwriters by or on behalf of
the Underwriters expressly for use in such Preliminary Prospectus, Registration
Statement or Prospectus or any amendment thereof or supplement thereto.
(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date (as defined herein) and each
Option Closing Date (as defined herein), if any, and during such longer period
as the Prospectus may be required to be delivered in connection with sales by
the Underwriters or a dealer, the Registration Statement and the Prospectus
will contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations, and will conform to the
requirements of the Act and the Rules and Regulations; neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
provided, however, that this representation and warranty does not apply to
statements made or statements omitted in reliance upon and in strict conformity
with information furnished to the Company in writing by or on behalf of any
Underwriter expressly for use in the Preliminary Prospectus, Registration
Statement or Prospectus or any amendment thereof or supplement thereto.
(d) Each of the Company, the Company's wholly-owned subsidiaries,
_____________________ (such subsidiaries being the only subsidiaries that are
"significant subsidiaries" (as defined in the Rules and Regulations) of the
Company, are hereinafter referred to individually as a "Subsidiary" and
collectively as the "Subsidiaries"), has been duly organized and is validly
existing as a corporation in good standing under the laws of the state of its
incorporation. Except as set forth in the Prospectus, none of the Company nor
the Subsidiaries owns an interest in any corporation, partnership, trust, joint
venture or other business entity. Each of the Company and the Subsidiaries is
duly qualified and licensed and in good standing
3
<PAGE> 4
as a foreign corporation in each jurisdiction in which its ownership or leasing
of any properties or the character of its operations requires such
qualification or licensing. The Company owns, directly or indirectly, one
hundred percent (100%) of the outstanding capital stock of each of the
Subsidiaries, and all of such shares have been validly issued, are fully paid
and non-assessable, were not issued in violation of any preemptive rights, and,
except as set forth in the Prospectus, are owned free and clear of any liens,
charges, claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever. Each of the Company and the
Subsidiaries has all requisite power and authority (corporate and other), and
has obtained any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having jurisdiction
over environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; each of the Company and
the Subsidiaries is and has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises and
permits and all applicable federal, state, local and foreign laws, rules and
regulations; and none of the Company nor the Subsidiaries has received any
notice of proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, position, prospects, value, operation,
properties, business or results of operations of the Company or the
Subsidiaries. The disclosures in the Registration Statement concerning the
effects of federal, state, local, and foreign laws, rules and regulations on
the Company's and the Subsidiaries' businesses as currently conducted and as
contemplated are correct in all material respects and do not omit to state a
material fact required to be stated therein or necessary to make the statements
contained therein not misleading in light of the circumstances under which they
were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and each Option Closing Date, if any, based upon
the assumptions set forth therein, and the Company is not a party to or bound
by any instrument, agreement or other arrangement providing for it to issue any
capital stock, rights, warrants, options or other securities, except for this
Agreement, the Warrant Agreement, the Representative's Warrant Agreement and as
described in the Prospectus. The Securities and all other securities issued or
issuable by the Company conform or, when issued and paid for, will conform, in
all respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding
securities of the Company have been duly authorized and validly issued and are
fully paid and non-assessable and the holders thereof have no rights of
rescission with respect thereto, and are not subject to personal liability by
reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holders of any security of the
Company or similar contractual rights granted by the Company. The Securities
are not and will not be subject to any preemptive or other similar rights of
any stockholder, have been duly authorized and, when issued, paid for and
delivered in accordance with the terms hereof, will be validly issued, fully
paid and non-assessable and will conform to the description thereof contained
in the Prospectus; the holders thereof will not be subject to any liability
solely as such holders; all corporate action required
4
<PAGE> 5
to be taken for the authorization, issue and sale of the Securities has been
duly and validly taken; and the certificates representing the Securities will
be in due and proper form. Upon the issuance and delivery pursuant to the
terms hereof of the Securities to be sold by the Company hereunder, the
Underwriters or the Representative, as the case may be, will acquire good and
marketable title to such Securities free and clear of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction or equity
of any kind whatsoever.
(f) The consolidated financial statements of the Company and the
Subsidiaries, together with the related notes and schedules thereto, included
in the Registration Statement, each Preliminary Prospectus and the Prospectus
fairly present the financial position, income, changes in cash flow, changes in
stockholders' equity and the results of operations of the Company and the
Subsidiaries at the respective dates and for the respective periods to which
they apply and such financial statements have been prepared in conformity with
generally accepted accounting principles and the Rules and Regulations,
consistently applied throughout the periods involved and such financial
statements as are audited have been examined by Ernst & Young, LLP, who are
independent certified public accountants within the meaning of the Act and the
Rules and Regulations, as indicated in their reports filed therewith. There
has been no adverse change or development involving a prospective adverse
change in the condition, financial or otherwise, or in the earnings, position,
prospects, value, operation, properties, business, or results of operations of
the Company and the Subsidiaries taken as a whole, whether or not arising in
the ordinary course of business, since the date of the financial statements
included in the Registration Statement and the Prospectus and the outstanding
debt, the property, both tangible and intangible, and the business of the
Company and the Subsidiaries, conform in all material respects to the
descriptions thereof contained in the Registration Statement and the
Prospectus. Financial information (including, without limitation, any pro
forma financial information) set forth in the Prospectus under the headings
"Summary Financial Data", "Selected Consolidated Financial Data,"
"Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," fairly present, on the basis stated in
the Prospectus, the information set forth therein, and have been derived from
or compiled on a basis consistent with that of the audited financial statements
included in the Prospectus; and, in the case of pro forma financial
information, if any, the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect to
the transactions and circumstances referred to therein. The amounts shown as
accrued for current and deferred income and other taxes in such financial
statements are sufficient for the payment of all accrued and unpaid federal,
state, local and foreign income taxes, interest, penalties, assessments or
deficiencies applicable to the Company and the Subsidiaries, whether disputed
or not, for the applicable period then ended and periods prior thereto;
adequate allowance for doubtful accounts has been provided for unindemnified
losses due to the operations of the Company and the Subsidiaries; and the
statements of income do not contain any items of special or nonrecurring income
not earned in the ordinary course of business, except as specified in the notes
thereto.
(g) Each of the Company and the Subsidiaries (i) has paid all
federal, state, local, and foreign taxes for which it is liable, including, but
not limited to, withholding taxes and amounts payable under Chapters 21 through
24 of the Internal Revenue Code of 1986, as amended (the "Code"), and has
furnished all information returns it is required to furnish pursuant to the
Code,
5
<PAGE> 6
(ii) has established adequate reserves for such taxes which are not due and
payable, and (iii) does not have any tax deficiency or claims outstanding,
proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is payable by
or on behalf of the Underwriters in connection with (i) the issuance by the
Company of the Securities, (ii) the purchase by the Underwriters of the Firm
Securities and the Option Securities from the Company and the purchase by the
Representative of the Representative's Warrants from the Company, (iii) the
consummation by the Company of any of its obligations under this Agreement, or
(iv) resales of the Firm Securities and the Option Securities in connection
with the distribution contemplated hereby.
(i) Each of the Company and the Subsidiaries maintains insurance
policies, including, but not limited to, general liability, malpractice and
property insurance, which insures each of the Company, the Subsidiaries and
their respective employees, against such losses and risks generally insured
against by comparable businesses. None of the Company nor the Subsidiaries (A)
has failed to give notice or present any insurance claim with respect to any
matter, including but not limited to the Company's business, property or
employees, under any insurance policy or surety bond in a due and timely
manner, (B) has any disputes or claims against any underwriter of such
insurance policies or surety bonds or has failed to pay any premiums due and
payable thereunder, or (C) has failed to comply with all conditions contained
in such insurance policies and surety bonds. There are no facts or
circumstances under any such insurance policy or surety bond which would
relieve any insurer of its obligation to satisfy in full any valid claim of the
Company or any Subsidiary.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, the Company
or the Subsidiaries which (i) questions the validity of the capital stock of
the Company, this Agreement, the Warrant Agreement or the Representative's
Warrant Agreement, or of any action taken or to be taken by the Company
pursuant to or in connection with this Agreement, the Warrant Agreement or the
Representative's Warrant Agreement, (ii) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in all
material respects), or (iii) might materially and adversely affect the
condition, financial or otherwise, or the earnings, position, prospects,
stockholders' equity, value, operation, properties, business or results of
operations of the Company and the Subsidiaries taken as a whole.
(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, enter into this Agreement,
the Warrant Agreement and the Representative's Warrant Agreement and to
consummate the transactions provided for in this Agreement, the Warrant
Agreement and the Representative's Warrant Agreement; and this Agreement, the
Warrant Agreement and the Representative's Warrant Agreement have each been
duly and properly authorized, executed and delivered by the Company. Each of
this Agreement, the Warrant Agreement and the Representative's Warrant
Agreement constitutes a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its
6
<PAGE> 7
terms, and none of the Company's issue and sale of the Securities, execution or
delivery of this Agreement, the Warrant Agreement or the Representative's
Warrant Agreement, its performance hereunder and thereunder, its consummation
of the transactions contemplated herein and therein, or the conduct of its
business as described in the Registration Statement, the Prospectus, and any
amendments or supplements thereto, conflicts with or will conflict with or
results or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or result in
the creation or imposition of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever
upon, any property or assets (tangible or intangible) of any of the Company or
the Subsidiaries pursuant to the terms of (i) the certificate of incorporation
or by-laws of any of the Company or the Subsidiaries, (ii) any license,
contract, collective bargaining agreement, indenture, mortgage, deed of trust,
lease, voting trust agreement, stockholders agreement, note, loan or credit
agreement or any other agreement or instrument to which any of the Company or
the Subsidiaries is a party or by which any of the Company or the Subsidiaries
is or may be bound or to which either of its or their respective properties or
assets (tangible or intangible) is or may be subject, or any indebtedness, or
(iii) any statute, judgment, decree, order, rule or regulation applicable to
any of the Company or the Subsidiaries of any arbitrator, court, regulatory
body or administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over any of the Company or
the Subsidiaries or any of its or their respective activities or properties.
(l) No consent, approval, authorization or order of, and no
filing with, any court, regulatory body, government agency or other body,
domestic or foreign, is required for the issuance of the Securities pursuant to
the Prospectus and the Registration Statement, the performance of this
Agreement, the Warrant Agreement and the Representative's Warrant Agreement and
the transactions contemplated hereby and thereby, including without limitation,
any waiver of any preemptive, first refusal or other rights that any entity or
person may have for the issue and/or sale of any of the Securities, except such
as have been or may be obtained under the Act or may be required under state
securities or Blue Sky laws in connection with the Underwriters' purchase and
distribution of the Firm Securities and the Option Securities, and the
Representative's Warrants to be sold by the Company hereunder.
(m) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits
to the Registration Statement to which any of the Company or the Subsidiaries
is a party or by which it or they may be bound or to which its or their
respective assets, properties or business may be subject have been duly and
validly authorized, executed and delivered by the Company or the Subsidiaries,
as the case may be, and constitute the legal, valid and binding agreements of
the Company or the Subsidiaries, as the case may be, enforceable against each
of them in accordance with their respective terms. The descriptions in the
Registration Statement of agreements, contracts and other documents are
accurate and fairly present the information required to be shown with respect
thereto by Form SB-2, and there are no contracts or other documents which are
required by the Act to be described in the Registration Statement or filed as
exhibits to the Registration Statement which are not described or filed as
required, and the exhibits which have been filed are complete and correct
copies of the documents of which they purport to be copies.
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<PAGE> 8
(n) Subsequent to the respective dates as of which information is
set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, none of the Company
nor the Subsidiaries has (i) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money, (ii) entered into any
transaction other than in the ordinary course of business, or (iii) declared or
paid any dividend or made any other distribution on or in respect of its
capital stock of any class, and there has not been any change in the capital
stock, or any change in the debt (long or short term) or liabilities or
material adverse change in or affecting the general affairs, management,
financial operations, stockholders' equity or results of operations of any of
the Company or the Subsidiaries.
(o) No default exists in the due performance and observance of any
term, covenant or condition of any license, contract, collective bargaining
agreement, indenture, mortgage, installment sale agreement, lease, deed of
trust, voting trust agreement, stockholders agreement, partnership agreement,
note, loan or credit agreement, purchase order, or any other agreement or
instrument evidencing an obligation for borrowed money, or any other material
agreement or instrument to which any of the Company or the Subsidiaries is a
party or by which any of the Company or the Subsidiaries may be bound or to
which the property or assets (tangible or intangible) of any of the Company or
the Subsidiaries is subject or affected.
(p) Each of the Company and the Subsidiaries has generally enjoyed
a satisfactory employer-employee relationship with its employees and is in
compliance with all federal, state, local, and foreign laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours. There are no pending investigations involving
any of the Company or the Subsidiaries by the U.S. Department of Labor, or any
other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. There is no unfair labor
practice charge or complaint against any of the Company or the Subsidiaries
pending before the National Labor Relations Board or any lockout, strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or involving any of the Company or the Subsidiaries, or any predecessor entity,
and none has ever occurred. No representation question exists respecting the
employees of any of the Company or the Subsidiaries, and no collective
bargaining agreement or modification thereof is currently being negotiated by
any of the Company or the Subsidiaries. No grievance or arbitration proceeding
is pending under any expired or existing collective bargaining agreements of
any of the Company or the Subsidiaries. No labor dispute with the employees of
any of the Company or the Subsidiaries exists, or, is imminent.
(q) None of the Company nor any of the Subsidiaries maintains,
sponsors or contributes to any program or arrangement that is an "employee
pension benefit plan," an "employee welfare benefit plan," or a "multiemployer
plan" as such terms are defined in Sections 3(2), 3(1) and 3(37), respectively,
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
("ERISA Plans"). None of the Company nor the Subsidiaries maintains or
contributes, now or at any time previously, to a defined benefit plan, as
defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Code, which could subject the
Company or the Subsidiaries to any tax penalty on prohibited
8
<PAGE> 9
transactions and which has not adequately been corrected. Each ERISA Plan is
in compliance with all reporting, disclosure and other requirements of the Code
and ERISA as they relate to any such ERISA Plan. Determination letters have
been received from the Internal Revenue Service with respect to each ERISA Plan
which is intended to comply with Code Section 401(a), stating that such ERISA
Plan and the attendant trust are qualified thereunder. None of the Company nor
the Subsidiaries has ever completely or partially withdrawn from a
"multiemployer plan."
(r) None of the Company, the Subsidiaries, nor any of its or their
respective employees, directors, stockholders, partners, or affiliates (within
the meaning of the Rules and Regulations) of any of the foregoing has taken or
will take, directly or indirectly, any action designed to or which has
constituted or which might be expected to cause or result in, under the
Exchange Act, or otherwise, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Securities or
otherwise.
(s) Except as otherwise disclosed in the Prospectus, none of the
patents, patent applications, trademarks, service marks, trade names and
copyrights, and licenses and rights to the foregoing presently owned or held by
any of the Company or the Subsidiaries, are in dispute so far as known by the
Company or are in any conflict with the right of any other person or entity.
Each of the Company and the Subsidiaries (i) owns or has the right to use, free
and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects or other restrictions or equities of any kind whatsoever,
all patents, trademarks, service marks, trade names and copyrights, technology
and licenses and rights with respect to the foregoing, used in the conduct of
its business as now conducted or proposed to be conducted without infringing
upon or otherwise acting adversely to the right or claimed right of any person,
corporation or other entity under or with respect to any of the foregoing and
(ii) is not obligated or under any liability whatsoever to make any payment by
way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, any patent, trademark, service mark, trade name, copyright,
know-how, technology or other intangible asset, with respect to the use thereof
or in connection with the conduct of its business or otherwise.
(t) Each of the Company and the Subsidiaries has good and
marketable title to, or valid and enforceable leasehold estates in, all items
of real and personal property stated in the Prospectus to be owned or leased by
it, free and clear of all liens, charges, claims, encumbrances, pledges,
security interests, defects, or other restrictions or equities of any kind
whatsoever, other than those referred to in the Prospectus and liens for taxes
not yet due and payable.
(u) Ernst & Young, LLP, whose report is filed with the Commission
as a part of the Registration Statement, are independent certified public
accountants as required by the Act and the Rules and Regulations.
(v) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which each of the Company's officers,
directors, stockholders and holders of securities exchangeable or exercisable
for or convertible into shares of Common Stock has agreed (i) not to, directly
or indirectly, issue, offer, offer to sell, sell, grant any option for
9
<PAGE> 10
the sale or purchase of, assign, transfer, pledge, hypothecate or otherwise
encumber or dispose of any shares of Common Stock or securities convertible
into, exercisable or exchangeable for or evidencing any right to purchase or
subscribe for any shares of Common Stock (either pursuant to Rule 144 of the
Rules and Regulations or otherwise) or dispose of any beneficial interest
therein for a period of not less than thirteen (13) months following the
effective date of the Registration Statement without the prior written consent
of the Representative and the Company and (ii) to waive all rights to request
or demand the registration pursuant to the Act of any securities of the Company
which are registered in the name of or beneficially owned by any such holder.
During the 13 month period commencing on the effective date of the Registration
Statement, the Company shall not, without the prior written consent of the
Representative, sell, contract or offer to sell, issue, transfer, assign,
pledge, distribute, or otherwise dispose of, directly or indirectly, any shares
of Common Stock or any options, rights or warrants with respect to any shares
of Common Stock. The Company will cause the Transfer Agent (as hereinafter
defined) to mark an appropriate legend on the face of stock certificates
representing all of such securities and to place "stop transfer" orders on the
Company's stock ledgers.
(w) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities
hereunder or any other arrangements, agreements, understandings, payments or
issuance with respect to the Company, the Subsidiaries, or any of its or their
respective officers, directors, stockholders, partners, employees or
affiliates, that may affect the Underwriters' compensation, as determined by
the National Association of Securities Dealers, Inc. ("NASD").
(x) The Common Stock has been approved for quotation on the
Nasdaq Small Cap Market ("Nasdaq/NM").
(y) None of the Company, the Subsidiaries, nor any of its or their
respective officers, employees, agents or any other person acting on behalf of
any of the Company or the Subsidiaries has, directly or indirectly, given or
agreed to give any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business) to any customer,
supplier, employee or agent of a customer or supplier, or official or employee
of any governmental agency (domestic or foreign) or instrumentality of any
government (domestic or foreign) or any political party or candidate for office
(domestic or foreign) or other person who was, is, or may be in a position to
help or hinder the business of any of the Company or the Subsidiaries (or
assist any of the Company or the Subsidiaries in connection with any actual or
proposed transaction) which (a) might subject any of the Company or the
Subsidiaries, or any other such person to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or foreign), (b) if
not given in the past, might have had a material adverse effect on the assets,
business or operations of any of the Company or the Subsidiaries, or (c) if not
continued in the future, might adversely affect the assets, business,
condition, financial or otherwise, earnings, position, properties, value,
operations or prospects of any of the Company or the Subsidiaries. The
Company's and each Subsidiary's internal accounting controls are sufficient to
cause each of the Company and the Subsidiaries to comply with the Foreign
Corrupt Practices Act of 1977, as amended.
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<PAGE> 11
(z) Except as set forth in the Prospectus, no officer, director,
stockholder or partner of the Company or of any Subsidiary, or any "affiliate"
or "associate" (as these terms are defined in Rule 405 promulgated under the
Rules and Regulations) of any of the foregoing persons or entities has or has
had, either directly or indirectly, (i) an interest in any person or entity
which (A) furnishes or sells services or products which are furnished or sold
or are proposed to be furnished or sold by any of the Company or the
Subsidiaries, or (B) purchases from or sells or furnishes to any of the Company
or the Subsidiaries any goods or services, or (ii) a beneficiary interest in
any contract or agreement to which the Company or any Subsidiary is a party or
by which it may be bound or affected. Except as set forth in the Prospectus
under "Certain Transactions," there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the Company or any Subsidiary,
and any officer, director, or 5% or greater securityholder of the Company or
any Subsidiary, or any partner, affiliate or associate of any of the foregoing
persons or entities.
(aa) Any certificate signed by any officer of the Company or any
Subsidiary, and delivered to the Underwriters or to Underwriters' Counsel (as
defined herein) shall be deemed a representation and warranty by the Company to
the Underwriters as to the matters covered thereby.
(ab) The minute books of each of the Company and the Subsidiaries
have been made available to the Underwriters and contain a complete summary of
all meetings and actions of the directors (including committees thereof) and
stockholders of each of the Company and the Subsidiaries, since the time of its
incorporation, and reflect all transactions referred to in such minutes
accurately in all material respects.
(ac) Except and to the extent described in the Prospectus, no
holders of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement under the Act and no person or entity holds any
anti-dilution rights with respect to any securities of the Company.
(ad) The Company has as of the effective date of the Registration
Statement (i) entered into an employment agreement with each of C. Thomas
McMillen in the form filed as Exhibit ______ to the Registration Statement and
(ii) purchased term key person insurance on the life of Mr. McMillen in the
amount of $1 million which policy names the Company as the sole beneficiary
thereof.
(ae) As of the date hereof, the Company does not have more than
_________ shares of Common Stock issued and outstanding (including securities
with equivalent rights as the Common Stock and shares of Common Stock, or such
equivalent securities, issuable upon exercise of any and all options, warrants
and other contract rights and securities convertible directly or indirectly
into shares of Common Stock or such equivalent securities, but excluding up to
___________ shares of Common Stock issuable upon the exercise of options
granted under
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<PAGE> 12
the Company's 1996 Stock Option Plan at prices not less than the higher of the
market value of the shares at the date of the grant or the offering price per
share).
(af) Each of the Company and the Subsidiaries confirms as of the
date hereof that it is in compliance with all provisions of Section 1 of Laws
of Florida, Chapter 92-198, An Act Relating to Disclosure of Doing Business
with Cuba, and each of the Company and the Subsidiaries further agrees that if
it or any affiliate commences engaging in business with the government of Cuba
or with any person or affiliate located in Cuba after the date the Registration
Statement becomes or has become effective with the Commission or with the
Florida Department of Banking and Finance (the "Department"), whichever date is
later, or if the information reported or incorporated by reference in the
Prospectus, if any, concerning the Company's, any Subsidiary's or any
affiliate's, business with Cuba or with any person or affiliate located in Cuba
changes in any material way, the Company will provide the Department notice of
such business or change, as appropriate, in a form acceptable to the
Department.
(ag) The Company is not, and upon the issuance and sale of the
Securities as herein contemplated and the application of the net proceeds
therefrom as described in the Prospectus under the caption "Use of Proceeds"
will not be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company Act of
1940, as amended (the "1940 Act").
(ah) Each of the Company and the 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
preparations of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access
to assets is permitted only in accordance with management's general or specific
authorizations; 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.
(ai) The Company has entered into a warrant agreement
substantially in the form filed as Exhibit ____ to the Registration Statement
(the "Warrant Agreement") with the Representative and Continental Stock
Transfer and Trust Company, as Warrant Agent, in form and substance
satisfactory to the Representative, with respect to the Redeemable Warrants and
providing for the payment of the commission contemplated by Section 4(v).
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$_______ [90% of the public offering price] per Share and $_______ [90% of the
public offering price] per Redeemable Warrant, that number of Firm Securities
set forth in Schedule A opposite the name of such Underwriter, subject to such
adjustment as the Representative in its sole discretion shall make to eliminate
any sales or purchases of fractional
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<PAGE> 13
shares, plus any additional number of Firm Securities which such Underwriter
may become obligated to purchase pursuant to the provisions of Section 11
hereof.
(b) In addition, on the basis of the representations,
warranties, covenants and agreements herein contained, but subject to the terms
and conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of an
additional 150,000 shares of Common Stock at a price of $ ____ [90% of the
public offering price] per share of Common Stock and/or an additional 150,000
Redeemable Warrants at a price of $______ [90% of the public offering price]
per Redeemable Warrant. The option granted hereby will expire forty-five (45)
days after (i) the date the Registration Statement becomes effective, if the
Company has elected not to rely on Rule 430A under the Rules and Regulations,
or (ii) the date of this Agreement if the Company has elected to rely upon Rule
430A under the Rules and Regulations, and may be exercised in whole or in part
from time to time only for the purpose of covering over-allotments which may be
made in connection with the offering and distribution of the Firm Securities
upon notice by the Representative to the Company setting forth the number of
Option Securities as to which the several Underwriters are then exercising the
option and the time and date of payment and delivery for any such Option
Securities. Any such time and date of delivery (an "Option Closing Date")
shall be determined by the Representative, but shall not be later than three
(3) full business days after the exercise of said option, nor in any event
prior to the Closing Date, as hereinafter defined, unless otherwise agreed upon
by the Representative and the Company. Nothing herein contained shall obligate
the Underwriters to make any over-allotments. No Option Securities shall be
delivered unless the Firm Securities shall be simultaneously delivered or shall
theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Securities shall be made at the offices of the
Representative at 1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154, or
at such other place as shall be agreed upon by the Representative and the
Company. Such delivery and payment shall be made at 10:00 a.m. (New York City
time) on _______________, 1997 or at such other time and date as shall be
agreed upon by the Representative and the Company, but not less than three (3)
nor more than five (5) full business days after the effective date of the
Registration Statement (such time and date of payment and delivery being herein
called the "Closing Date"). In addition, in the event that any or all of the
Option Securities are purchased by the Underwriters, payment of the purchase
price for, and delivery of certificates for, such Option Securities shall be
made at the above-mentioned office of the Representative or at such other place
as shall be agreed upon by the Representative and the Company on each Option
Closing Date as specified in the notice from the Representative to the Company.
Delivery of the certificates for the Firm Securities and the Option Securities,
if any, shall be made to the Underwriters against payment by the Underwriters,
severally and not jointly, of the purchase price for the Firm Securities and
the Option Securities, if any, to the order of the Company for the Firm
Securities and the Option Securities, if any, by New York Clearing House funds.
In the event such option is exercised, each of the Underwriters, acting
severally and not jointly, shall purchase that proportion of the total number
of Option Securities then being purchased which the number of Firm Securities
set forth in Schedule A hereto opposite the name of such Underwriter bears to
the total number of Firm Securities, subject in each case to such adjustments
as the Representative in its discretion shall make to eliminate any
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<PAGE> 14
sales or purchases of fractional shares. Certificates for the Firm Securities
and the Option Securities, if any, shall be in definitive, fully registered
form, shall bear no restrictive legends and shall be in such denominations and
registered in such names as the Underwriters may request in writing at least
two (2) business days prior to the Closing Date or the relevant Option Closing
Date, as the case may be. The certificates for the Firm Securities and the
Option Securities, if any, shall be made available to the Representative at
such office or such other place as the Representative may designate for
inspection, checking and packaging no later than 9:30 a.m. on the last business
day prior to the Closing Date or the relevant Option Closing Date, as the case
may be.
(d) On the Closing Date, the Company shall issue and sell to the
Representative Representative's Warrants at a purchase price of $.0001 per
warrant, which Representative's Warrants shall entitle the holders thereof to
purchase an aggregate of 100,000 shares of Common Stock and/or 100,000
Redeemable Warrants. The Representative's Warrants shall be exercisable for a
period of four (4) years commencing one (1) year from the effective date of the
Registration Statement at a price equaling one hundred twenty percent (120%) of
the respective initial public offering price of the Shares and the Redeemable
Warrants. The Representative's Warrant Agreement and form of Warrant
Certificate shall be substantially in the form filed as Exhibit [___] to the
Registration Statement. Payment for the Representative's Warrants shall be
made on the Closing Date.
3. Public Offering of the Shares and Redeemable Warrants. As soon
after the Registration Statement becomes effective as the Representative deems
advisable, the Underwriters shall make a public offering of the Shares and
Redeemable Warrants (other than to residents of or in any jurisdiction in which
qualification of the Shares and Redeemable Warrants is required and has not
become effective) at the price and upon the other terms set forth in the
Prospectus. The Representative may from time to time increase or decrease the
respective public offering price after distribution of the Shares and
Redeemable Warrants has been completed to such extent as the Representative, in
its sole discretion deems advisable. The Underwriters may enter into one of
more agreements as the Underwriters, in each of their sole discretion, deem
advisable with one or more broker-dealers who shall act as dealers in
connection with such public offering.
4. Covenants and Agreements of the Company. The Company covenants
and agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Act or Exchange Act before termination of the offering of the Shares
and Redeemable Warrants by the Underwriters of which the Representative shall
not previously have been advised and furnished with a copy, or to which the
Representative shall have objected or which is not in compliance with the Act,
the Exchange Act or the Rules and Regulations.
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<PAGE> 15
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representative and confirm the notice in
writing (i) when the Registration Statement, as amended, becomes effective, if
the provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective; (ii)
of the issuance by the Commission of any stop order or of the initiation, or
the threatening, of any proceeding suspending the effectiveness of the
Registration Statement or any order preventing or suspending the use of the
Preliminary Prospectus or the Prospectus, or any amendment or supplement
thereto, or the institution of proceedings for that purpose; (iii) of the
issuance by the Commission or by any state securities commission of any
proceedings for the suspension of the qualification of any of the Securities
for offering or sale in any jurisdiction or of the initiation, or the
threatening, of any proceeding for that purpose; (iv) of the receipt of any
comments from the Commission; and (v) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement to the
Prospectus or for additional information. If the Commission or any state
securities commission shall enter a stop order or suspend such qualification at
any time, the Company will make every effort to obtain promptly the lifting of
such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representative) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Representative,
pursuant to Rule 424(b)(4)) not later than the Commission's close of business
on the earlier of (i) the second business day following the execution and
delivery of this Agreement and (ii) the fifth business day after the effective
date of the Registration Statement.
(d) The Company will give the Representative notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Securities which
differs from the corresponding prospectus on file at the Commission at the time
the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Rules and
Regulations), and will furnish the Representative with copies of any such
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such prospectus to
which the Representative or Orrick, Herrington & Sutcliffe LLP ("Underwriters'
Counsel") shall object.
(e) The Company shall endeavor in good faith, in cooperation with
the Representative, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Representative may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such
documents and furnish such information as may be required for such purpose;
provided, however, the Company shall not be required to qualify as a foreign
corporation or file a general or limited consent to service of process in any
such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Representative agrees that such action
is not at the time
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<PAGE> 16
necessary or advisable, use all reasonable efforts to file and make such
statements or reports at such times as are or may reasonably be required by the
laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus
relating to the Securities is required to be delivered under the Act, any event
shall have occurred as a result of which, in the opinion of counsel for the
Company or Underwriters' Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company will notify the Representative promptly and
prepare and file with the Commission an appropriate amendment or supplement in
accordance with Section 10 of the Act, each such amendment or supplement to be
satisfactory to Underwriters' Counsel, and the Company will furnish to the
Underwriters copies of such amendment or supplement as soon as available and in
such quantities as the Underwriters may request.
(g) As soon as practicable, but in any event not later than
forty-five (45) days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the effective
date of the Registration Statement occurs (ninety (90) days in the event that
the end of such fiscal quarter is the end of the Company's fiscal year), the
Company shall make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the
Representative, an earnings statement which will be in the detail required by,
and will otherwise comply with, the provisions of Section 11(a) of the Act and
Rule 158(a) of the Rules and Regulations, which statement need not be audited
unless required by the Act, covering a period of at least twelve (12)
consecutive months after the effective date of the Registration Statement.
(h) During a period of seven (7) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants) and unaudited quarterly reports of earnings, and will deliver to
the Representative:
i. concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in
the form furnished to the Company's stockholders and certified by the
Company's principal financial or accounting officer;
ii. concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity, and cash flows of the Company for such fiscal
year,
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<PAGE> 17
accompanied by a copy of the certificate thereon of independent
certified public accountants;
iii. as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
iv. as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD
or any securities exchange;
v. every press release and every material news item or article of
interest to the financial community in respect of the Company, or its
affairs, which was released or prepared by or on behalf of the Company;
and
vi. any additional information of a public nature concerning the
Company (and any future subsidiary) or its businesses which the
Representative may request.
During such seven-year period, if the Company has an active subsidiary,
the foregoing financial statements will be on a consolidated basis to the
extent that the accounts of the Company and its subsidiary(ies) are
consolidated, and will be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(i) The Company will maintain a transfer agent and warrant agent
("Transfer Agent") and, if necessary under the jurisdiction of incorporation of
the Company, a Registrar (which may be the same entity as the Transfer Agent)
for its Common Stock and Redeemable Warrants.
(j) The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, the Registration Statement
and any pre-effective or post-effective amendments thereto (two of which copies
will be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any
prospectus prepared after the effective date of the Registration Statement, in
each case as soon as available and in such quantities as the Representative may
request.
(k) On or before the effective date of the Registration Statement,
the Company shall provide the Representative with true original copies of duly
executed, legally binding and enforceable agreements pursuant to which, for a
period of thirteen (13) months from the effective date of the Registration
Statement, each of the Company's stockholders and holders of securities
exchangeable or exercisable for or convertible into shares of Common Stock
agrees that it or he or she (i) will not, directly or indirectly, issue, offer
to sell, sell, grant an option for the sale or purchase of, assign, transfer,
pledge, hypothecate or otherwise encumber or dispose of any shares of Common
Stock or securities convertible into, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common Stock
(either pursuant to Rule 144 of the Rules and Regulations or otherwise) or
dispose of any beneficial interest therein without the prior consent of the
Representative (collectively, the "Lock-up Agreements") and (ii) waives, during
such 13 month period, any and all rights to request or demand the registration
pursuant to the Act, of any securities of the Company which
17
<PAGE> 18
are registered in the name of or beneficially owned by it or he or she,
respectively. During the 13 month period commencing on the effective date of
the Registration Statement, the Company shall not, without the prior written
consent of the Representative, sell, contract or offer to sell, issue,
transfer, assign, pledge, distribute, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any options, rights or warrants with
respect to any shares of Common Stock. On or before the Closing Date, the
Company shall deliver instructions to the Transfer Agent authorizing it to
place appropriate legends on the certificates representing the securities
subject to the Lock-up Agreements and to place appropriate stop transfer orders
on the Company's ledgers.
(l) None of the Company, the Subsidiaries, nor any of its or their
respective officers, directors, stockholders, nor any of its or their
respective affiliates (within the meaning of the Rules and Regulations) will
take, directly or indirectly, any action designed to, or which might in the
future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use
of Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(n) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, a Form SR as may
be required pursuant to Rule 463 under the Act) from time to time, under the
Act, the Exchange Act, and the Rules and Regulations, and all such reports,
forms and documents filed will comply as to form and substance with the
applicable requirements under the Act, the Exchange Act, and the Rules and
Regulations.
(o) The Company shall furnish to the Representative as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in their letters to be
furnished pursuant to Sections 6(l) and 6(m) hereof.
(p) The Company shall cause the Common Stock and Redeemable
Warrants to be quoted on Nasdaq and, for a period of seven (7) years from the
date hereof, use its best efforts to maintain the Nasdaq quotation of the
Common Stock and the Redeemable Warrants to the extent outstanding.
(q) For a period of five (5) years from the Closing Date, the
Company shall furnish to the Representative at the Company's sole expense, (i)
daily consolidated transfer sheets relating to the Common Stock and Redeemable
Warrants (ii) the list of holders of all of the Company's securities and (iii)
a Blue Sky "Trading Survey" for secondary sales of the Company's securities
prepared by counsel to the Company.
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<PAGE> 19
(r) As soon as practicable, (i) but in no event more than five (5)
business days before the effective date of the Registration Statement, file a
Form 8-A with the Commission providing for the registration under the Exchange
Act of the Securities and (ii) but in no event more than thirty (30) days after
the effective date of the Registration Statement, take all necessary and
appropriate actions to be included in Standard and Poor's Corporation
Descriptions and Moody's OTC Manual and to continue such inclusion for a period
of not less than seven (7) years.
(s) The Company hereby agrees that it will not, for a period of
thirteen (13) months from the effective date of the Registration Statement,
adopt, propose to adopt or otherwise permit to exist any employee, officer,
director, consultant or compensation plan or similar arrangement permitting (i)
the grant, issue, sale or entry into any agreement to grant, issue or sell any
option, warrant or other contract right (x) at an exercise price that is less
than the greater of the public offering price of the Shares set forth herein
and the fair market value on the date of grant or sale or (y) to any of its
executive officers or directors or to any holder of 5% or more of the Common
Stock, except as provided in subsection (ii) of this subparagraph; (ii) the
maximum number of shares of Common Stock or other securities of the Company
purchasable at any time pursuant to options or warrants issued by the Company
to exceed the aggregate _______ shares reserved for future issuance under the
Company's Stock Option Plans described in footnote one (1) to the "Prospectus
Summary - The Offering" section of the Prospectus; (iii) the payment for such
securities with any form of consideration other than cash; or (iv) the
existence of stock appreciation rights, phantom options or similar
arrangements.
(t) Until the completion of the distribution of the Securities,
the Company shall not, without the prior written consent of the Representative
and Underwriters' Counsel, issue, directly or indirectly, any press release or
other communication or hold any press conference with respect to the Company or
its activities or the offering contemplated hereby, other than trade releases
issued in the ordinary course of the Company's business consistent with past
practices with respect to the Company's operations.
(u) For a period equal to the lesser of (i) seven (7) years from
the date hereof, and (ii) the sale to the public of the Representative's
Securities, the Company will not take any action or actions which may prevent
or disqualify the Company's use of Form SB-2 (or other appropriate form) for
the registration under the Act of the Representative's Securities. The Company
further agrees to use its best efforts to file such post-effective amendments
to the Registration Statement, as may be necessary, in order to maintain its
effectiveness and to keep such Registration Statement effective while any of
the Redeemable Warrants or Representative's Warrants remain outstanding.
(v) Commencing one year and one day from the date hereof, if the
Company engages the Representative as a warrant solicitation agent under the
terms of the Warrant Agreement, the Company shall pay the Representative a
commission equal to five percent (5%) of the exercise price of the Redeemable
Warrants, payable on the date of the exercise thereof on the terms provided in
the Warrant Agreement; provided, however, the Representative shall be entitled
to receive the commission contemplated by this Section 4(x) only if: (i) the
Representative has provided actual services in connection with the solicitation
of the exercise of a Redeemable Warrant by a Warrantholder and (ii) the
Warrantholder exercising a Redeemable
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<PAGE> 20
Warrant affirmatively designates in writing on the exercise form on the reverse
side of the Redeemable Warrant Certificate that the exercise of such
Warrantholder's Redeemable Warrant was solicited by the Representative.
(w) For a period of three (3) years from the effective date of the
Registration Statement, the Company hereby agrees to grant the Representative a
preferential right of first refusal on the terms and subject to the conditions
set forth in this paragraph, to purchase for cash for its account, or to sell
for cash for the account of the Company, or of any present or future
subsidiaries or affiliates thereof, any securities issued or to be issued by
the Company, or any present or future subsidiaries or affiliates thereof, with
respect to which the Company, or any present or future subsidiaries or
affiliates thereof may seek a sale of such securities and the Company will
consult, and will cause any such present or future subsidiaries or affiliates
to consult with the Representative with regard to any such offering or
placement and will offer, or cause any of its present or future subsidiaries to
offer, to the Representative the opportunity, on terms not more favorable to
the Company, or any present or future subsidiary or affiliate thereof than they
can secure elsewhere, to purchase or sell any such securities. If the
Representative fails to accept in writing such proposal made by the Company, or
any present or future subsidiaries or affiliates thereof within thirty (30)
business days after receipt of a notice containing such proposal (which notice
may be delivered to the Representative simultaneously), then the Representative
shall have no further claim or right with respect to the proposal contained in
such notice. If, thereafter such proposal is modified, the Company shall again
consult, and cause any present or future subsidiary or affiliate to consult,
with the Representative in connection with such modification and shall in all
respects have the same obligations and adopt the same procedures with respect
to such proposal as are provided hereinabove with respect to the original
proposal, except that the thirty (30) business day period provided hereinabove
shall instead be twenty (20) business days.
(x) For a period of five (5) years from the effective date of the
Registration Statement, the Company hereby agrees to use its best efforts to
nominate for election and elect one (1) person designated by the Representative
to the Company's Board of Directors (the "Board"), which person shall be
entitled to all fees, payments, expense reimbursements and other rights and
privileges generally accorded to the other members of the Board. In the event
the Representative elects not to exercise its right to designate one (1) person
for election to the Board, then the Representative shall have the right to
designate one (1) person to attend all meetings of the Board. The Company
shall send to such person all notices and other correspondence and
communications sent by the Company to members of the Board. Such designee of
the Representative shall be reimbursed for all out-of-pocket expenses incurred
in connection with his attendance of meetings of the Board.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing Date
and the Option Closing Date (to the extent not paid at the Closing Date) all
expenses and fees (other than fees of Underwriters' Counsel, except as provided
in (iv) below) incident to the performance of the obligations of the Company
under this Agreement, the Warrant Agreement and the Representative's Warrant
Agreement, including, without limitation, (i) the fees and expenses of
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<PAGE> 21
accountants and counsel for the Company, (ii) all costs and expenses incurred
in connection with the preparation, duplication, printing (including mailing
and handling charges), filing, delivery and mailing (including the payment of
postage with respect thereto) of the Registration Statement and the Prospectus
and any amendments and supplements thereto and the printing, mailing (including
the payment of postage with respect thereto) and delivery of this Agreement,
the Warrant Agreement, the Representative's Warrant Agreement, the Agreement
Among Underwriters, the Selected Dealer Agreements, and related documents,
including the cost of all copies thereof and of the Preliminary Prospectuses
and of the Prospectus and any amendments thereof or supplements thereto
supplied to the Underwriters and such dealers as the Underwriters may request,
in quantities as hereinabove stated, (iii) the printing, engraving, issuance
and delivery of the Securities including, but not limited to, (x) the purchase
by the Underwriters of the Firm Securities and the Option Securities and the
purchase by the Representative of the Representative's Warrants from the
Company, (y) the consummation by the Company of any of its obligations under
this Agreement, the Warrant Agreement and the Representative's Warrant
Agreement, and (z) resale of the Firm Securities and the Option Securities by
the Underwriters in connection with the distribution contemplated hereby, (iv)
the qualification of the Securities under state or foreign securities or "Blue
Sky" laws and determination of the status of such securities under legal
investment laws, including the costs of printing and mailing the "Preliminary
Blue Sky Memorandum", the "Supplemental Blue Sky Memorandum" and "Legal
Investments Survey," if any, and disbursements and fees of counsel in
connection therewith (such fees not to exceed $40,000), (v) advertising costs
and expenses, including but not limited to costs and expenses in connection
with the "road show", information meetings and presentations, bound volumes and
prospectus memorabilia and "tomb-stone" advertisement expenses, (vi) costs and
expenses in connection with due diligence investigations, including but not
limited to the fees of any independent counsel, expert or consultant retained,
(vii) fees and expenses of the Transfer Agent and registrar and all issue and
transfer taxes, if any, (viii) applications for assignment of a rating of the
Securities by qualified rating agencies, (ix) the fees payable to the
Commission and the NASD, and (x) the fees and expenses incurred in connection
with the quotation of the Securities on Nasdaq and any other exchange.
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 6 or Section 12, the Company shall
reimburse and indemnify the Underwriters for all of their actual out-of-pocket
expenses, including the fees and disbursements of Underwriters' Counsel, less
any amounts already paid pursuant to Section 5(c) hereof.
(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 5, it will pay to the
Representative on the Closing Date by certified or bank cashier's check or, at
the election of the Representative, by deduction from the proceeds of the
offering contemplated herein a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds received by the Company from the sale of the
Firm Securities, $50,000 of which has been paid to date. In the event the
Representative elects to exercise the over-allotment option described in
Section 2(b) hereof, the Company agrees to pay to the Representative on the
Option Closing Date (by certified or bank cashier's check or, at the
Representative's election, by deduction from the proceeds of the offering) a
non-accountable expense allowance equal to three percent (3%) of the gross
proceeds received by the Company from the sale of the Option Securities.
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<PAGE> 22
6. Conditions of the Underwriters' Obligations. The obligations of
the Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had
been made on and as of the Closing Date or each Option Closing Date, as the
case may be; the accuracy on and as of the Closing Date or Option Closing Date,
if any, of the statements of the officers of the Company made pursuant to the
provisions hereof; and the performance by the Company on and as of the Closing
Date and each Option Closing Date, if any, of its covenants and obligations
hereunder and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 12:00 P.M., New York time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Representative,
and, at the Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriters' Counsel. If the Company has elected
to rely upon Rule 430A of the Rules and Regulations, the price of the Shares
and Redeemable Warrants and any price-related information previously omitted
from the effective Registration Statement pursuant to such Rule 430A shall have
been transmitted to the Commission for filing pursuant to Rule 424(b) of the
Rules and Regulations within the prescribed time period and, prior to the
Closing Date, the Company shall have provided evidence satisfactory to the
Representative of such timely filing, or a post-effective amendment providing
such information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A of the Rules and Regulations.
(b) The Representative shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representative's opinion, is material, or omits to state
a fact which, in the Representative's opinion, is material and is required to
be stated therein or is necessary to make the statements therein not
misleading, or that the Prospectus, or any supplement thereto, contains an
untrue statement of fact which, in the Representative's opinion, is material,
or omits to state a fact which, in the Representative's opinion, is material
and is required to be stated therein or is necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(c) On or prior to each of the Closing Date and each Option
Closing Date, if any, the Representative shall have received from Underwriters'
Counsel, such opinion or opinions with respect to the organization of the
Company, the validity of the Securities, the Registration Statement, the
Prospectus and other related matters as the Representative may request and
Underwriters' Counsel shall have received such papers and information as they
request to enable them to pass upon such matters.
(d) At the Closing Date, the Underwriters shall have received the
favorable opinion of Storch & Brenner, counsel to the Company and the
Subsidiaries, dated the Closing Date, addressed to the Underwriters and in form
and substance satisfactory to Underwriters' Counsel, to the effect that:
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<PAGE> 23
i. each of the Company and the Subsidiaries (A) has been duly
organized and is validly existing as a corporation in good standing
under the laws of its jurisdiction, (B) is duly qualified and licensed
and in good standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of any properties or the character of its
operations requires such qualification or licensing, and (C) has all
requisite corporate power and authority, and has obtained any and all
necessary authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having
jurisdiction over environmental or similar matters), to own or lease its
properties and conduct its business as described in the Prospectus; each
of the Company and the Subsidiaries is and has been doing business in
compliance with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all federal, state and local
laws, rules and regulations; and, none of the Company nor the
Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such authorization, approval, order,
license, certificate, franchise, or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would materially adversely affect the business, operations, condition,
financial or otherwise, or the earnings, business affairs, position,
prospects, value, operation, properties, business or results of
operations of the Company and the Subsidiaries taken as whole. The
disclosures in the Registration Statement concerning the effects of
federal, state and local laws, rules and regulations on each of the
Company's and the Subsidiaries' businesses as currently conducted and as
contemplated are correct in all material respects and do not omit to
state a fact required to be stated therein or necessary to make the
statements contained therein not misleading in light of the
circumstances in which they were made.
ii. The Company owns, directly or indirectly, one hundred percent
(100%) of the outstanding capital stock of each of the Subsidiaries, and
all such shares have been validly issued, are fully paid and
non-assessable, were not issued in violation of any preemptive rights
and are owned free and clear of any liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions
or equities of any kind whatsoever;
iii. except as described in the Prospectus, none of the Company
nor the Subsidiaries owns an interest in any other corporation,
partnership, joint venture, trust or other business entity;
iv. the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under "CAPITALIZATION", and the Company is not a
party to or bound by any instrument, agreement or other arrangement
providing for it to issue, sell, transfer, purchase or redeem any
capital stock, rights, warrants, options or other securities, except for
this Agreement, the Warrant Agreement and the Representative's Warrant
Agreement and as described in the Prospectus. The Securities and all
other securities issued or issuable by the Company conform in all
material respects to all statements with respect thereto contained in
the Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly authorized and
validly issued and are fully paid and non-assessable; the holders
thereof have no rights of rescission with respect thereto,
23
<PAGE> 24
and are not subject to personal liability by reason of being such
holders; and none of such securities were issued in violation of the
preemptive rights of any holders of any security of the Company or any
similar rights granted by the Company. The Securities to be sold by the
Company hereunder and under the Warrant Agreement and the
Representative's Warrant Agreement are not and will not be subject to
any preemptive or other similar rights of any stockholder, have been
duly authorized and, when issued, paid for and delivered in accordance
with the terms hereof, will be validly issued, fully paid and
non-assessable and conform to the description thereof contained in the
Prospectus; the holders thereof will not be subject to any liability
solely as such holders; all corporate action required to be taken for
the authorization, issue and sale of the Securities has been duly and
validly taken; and the certificates representing the Securities are in
due and proper form. The Representative's Warrants and the Redeemable
Warrants constitute valid and binding obligations of the Company to
issue and sell, upon exercise thereof and payment therefor, the number
and type of securities of the Company called for thereby. Upon the
issuance and delivery pursuant to this Agreement of the Firm Securities
and the Option Securities and the Representative's Warrants to be sold
by the Company, the Underwriters and the Representative, respectively,
will acquire good and marketable title to the Firm Securities and the
Option Securities and the Representative's Warrants free and clear of
any pledge, lien, charge, claim, encumbrance, pledge, security interest,
or other restriction or equity of any kind whatsoever. No transfer tax
is payable by or on behalf of the Underwriters in connection with (A)
the issuance by the Company of the Securities, (B) the purchase by the
Underwriters of the Firm Securities and the Option Securities from the
Company, and the purchase by the Representative of the Representative's
Warrants from the Company (C) the consummation by the Company of any of
its obligations under this Agreement, the Warrant Agreement or the
Representative's Warrant Agreement, or (D) resales of the Firm
Securities and the Option Securities in connection with the distribution
contemplated hereby.
v. the Registration Statement is effective under the Act, and, if
applicable, filing of all pricing information has been timely made in
the appropriate form under Rule 430A, and no stop order suspending the
use of the Preliminary Prospectus, the Registration Statement or
Prospectus or any part of any thereof or suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or, to the best of such
counsel's knowledge, threatened or contemplated under the Act;
vi. each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or supplements thereto
(other than the financial statements and other financial and statistical
data included therein, as to which no opinion need be rendered) comply
as to form in all material respects with the requirements of the Act and
the Rules and Regulations.
vii. to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act to be
described in the Registration Statement and the Prospectus and filed as
exhibits to the Registration Statement other than those described in the
Registration Statement (or required to be filed under the Exchange Act
24
<PAGE> 25
if upon such filing they would be incorporated, in whole or in part, by
reference therein) and the Prospectus and filed as exhibits thereto, and
the exhibits which have been filed are correct copies of the documents
of which they purport to be copies; (B) the descriptions in the
Registration Statement and the Prospectus and any supplement or
amendment thereto of contracts and other documents to which the Company
or any Subsidiary is a party or by which it is bound, including any
document to which the Company or any Subsidiary is a party or by which
it is bound, incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate and fairly represent the
information required to be shown by Form SB-2; (C) there is not pending
or threatened against any of the Company or the Subsidiaries any action,
arbitration, suit, proceeding, inquiry, investigation, litigation,
governmental or other proceeding (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or
foreign, pending or threatened against (or circumstances that may give
rise to the same), or involving the properties or business of any of the
Company or the Subsidiaries which (x) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings
as are summarized in the Registration Statement are accurately
summarized in all respects), (y) questions the validity of the capital
stock of the Company or this Agreement, the Warrant Agreement or the
Representative's Warrant Agreement, or of any action taken or to be
taken by the Company pursuant to or in connection with any of the
foregoing; (D) no statute or regulation or legal or governmental
proceeding required to be described in the Prospectus is not described
as required; and (E) there is no action, suit or proceeding pending, or
threatened, against or affecting any of the Company or the Subsidiaries
before any court or arbitrator or governmental body, agency or official
(or any basis thereof known to such counsel) in which there is a
reasonable possibility of a decision which may result in a material
adverse change in the condition, financial or otherwise, or the
earnings, position, prospects, stockholders' equity, value, operation,
properties, business or results of operations of any of the Company or
the Subsidiaries, which could adversely affect the present or
prospective ability of the Company to perform its obligations under this
Agreement, the Warrant Agreement or the Representative's Warrant
Agreement or which in any manner draws into question the validity or
enforceability of this Agreement, the Warrant Agreement or the
Representative's Warrant Agreement;
viii. the Company has full legal right, power and authority to
enter into each of this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement, and to consummate the transactions
provided for therein; and each of this Agreement, the Warrant Agreement
and the Representative's Warrant Agreement has been duly authorized,
executed and delivered by the Company. Each of this Agreement, the
Warrant Agreement and the Representative's Warrant Agreement, assuming
due authorization, execution and delivery by each other party thereto
constitutes a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating
to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as
rights to indemnity or contribution may be limited by applicable law),
and none of the Company's execution or delivery of this Agreement, the
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Warrant Agreement and the Representative's Warrant Agreement, its
performance hereunder or thereunder, its consummation of the
transactions contemplated herein or therein, or the conduct of its
business as described in the Registration Statement, the Prospectus, and
any amendments or supplements thereto, conflicts with or will conflict
with or results or will result in any breach or violation of any of the
terms or provisions of, or constitutes or will constitute a default
under, or result in the creation or imposition of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or
assets (tangible or intangible) of any of the Company or the
Subsidiaries pursuant to the terms of, (A) the certificate of
incorporation or by-laws of any of the Company or the Subsidiaries, (B)
any license, contract, collective bargaining agreement, indenture,
mortgage, deed of trust, lease, voting trust agreement, stockholders
agreement, note, loan or credit agreement or any other agreement or
instrument to which any of the Company or the Subsidiaries is a party or
by which it is or they are or may be bound or to which any of its or
their respective properties or assets (tangible or intangible) is or may
be subject, or any indebtedness, or (C) any statute, judgment, decree,
order, rule or regulation applicable to any of the Company or the
Subsidiaries of any arbitrator, court, regulatory body or administrative
agency or other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over any of the
Company or the Subsidiaries or any of its or their respective activities
or properties.
ix. no consent, approval, authorization or order, and no filing
with, any court, regulatory body, government agency or other body (other
than such as may be required under Blue Sky laws, as to which no opinion
need be rendered) is required in connection with the issuance of the
Firm Securities and the Option Securities pursuant to the Prospectus and
the Registration Statement, the issuance of the Representative's
Warrants, the performance of this Agreement, the Warrant Agreement and
the Representative's Warrant Agreement, and the transactions
contemplated hereby and thereby;
x. the properties and business of each of the Company and the
Subsidiaries conform in all material respects to the description thereof
contained in the Registration Statement and the Prospectus; and each of
the Company and the Subsidiaries has good and marketable title to, or
valid and enforceable leasehold estates in, all items of real and
personal property stated in the Prospectus to be owned or leased by it,
in each case free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or equities
of any kind whatsoever, other than those referred to in the Prospectus
and liens for taxes not yet due and payable;
xi. none of the Company nor the Subsidiaries is in breach of, or
in default under, any term or provision of any license, contract,
collective bargaining agreement, indenture, mortgage, installment sale
agreement, deed of trust, lease, voting trust agreement, stockholders'
agreement, partnership agreement, note, loan or credit agreement or any
other agreement or instrument evidencing an obligation for borrowed
money, or any other agreement or instrument to which any of the Company
or the Subsidiaries is a party or by which any of the Company or the
Subsidiaries may be bound or to which the respective
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<PAGE> 27
properties or assets (tangible or intangible) of any of the Company or
the Subsidiaries is subject or affected; and none of the Company nor the
Subsidiaries is in violation of any term or provision of its Articles of
Incorporation or By-Laws or in violation of any franchise, license,
permit, judgment, decree, order, statute, rule or regulation;
xii. the statements in the Prospectus under "RISK FACTORS," "THE
COMPANY," "BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN
TRANSACTIONS," "DESCRIPTION OF SECURITIES," and "SHARES ELIGIBLE FOR
FUTURE SALE" have been reviewed by such counsel, and insofar as they
refer to statements of law, descriptions of statutes, licenses, rules or
regulations or legal conclusions, are correct in all material respects;
xiii. the Securities have been accepted for quotation on Nasdaq;
xiv. the persons listed under the caption "PRINCIPAL STOCKHOLDERS"
in the Prospectus are the respective "beneficial owners" (as such phrase
is defined in regulation 13d-3 under the Exchange Act) of the securities
set forth opposite their respective names thereunder as and to the
extent set forth therein;
xv. none of the Company, the Subsidiaries nor any of their
respective officers, stockholders, employees or agents, nor any other
person acting on behalf of any of the Company or the Subsidiaries has,
directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in the
ordinary course of business) to any customer, supplier, employee or
agent of a customer or supplier, or official or employee of any
governmental agency or instrumentality of any government (domestic or
foreign) or any political party or candidate for office (domestic or
foreign) or other person who is or may be in a position to help or
hinder the business of any of the Company or the Subsidiaries (or assist
it in connection with any actual or proposed transaction) which (A)
might subject any of the Company or the Subsidiaries to any damage or
penalty in any civil, criminal or governmental litigation or proceeding,
(B) if not given in the past, might have had an adverse effect on the
assets, business or operations of the Company and the Subsidiaries taken
as a whole, as reflected in any of the financial statements contained in
the Registration Statement, or (C) if not continued in the future, might
adversely affect the assets, business, operations or prospects of the
Company and the Subsidiaries taken as a whole;
xvi. no person, corporation, trust, partnership, association or
other entity has the right to include and/or register any securities of
the Company in the Registration Statement, require the Company to file
any registration statement or, if filed, to include any security in such
registration statement;
xvii. except as described in the Prospectus, there are no claims,
payments, issuances, arrangements or understandings for services in the
nature of a finder's or origination fee with respect to the sale of the
Securities hereunder or financial consulting arrangements or any other
arrangements, agreements, understandings, payments or issuances that may
affect the Underwriters' compensation, as determined by the NASD;
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<PAGE> 28
xviii. assuming due execution by the parties thereto other than
the Company, the Lock-up Agreements are legal, valid and binding
obligations of the parties thereto, enforceable against the party and
any subsequent holder of the securities subject thereto in accordance
with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any
action, legal or equitable, and except as rights to indemnity or
contribution may be limited by applicable law);
xix. except as described in the Prospectus, none of the Company
nor the Subsidiaries (A) maintains, sponsors or contributes to any ERISA
Plans, (B) maintains or contributes, now or at any time previously, to a
defined benefit plan, as defined in Section 3(35) of ERISA, and (C) has
ever completely or partially withdrawn from a "multiemployer plan";
xx. the minute books of each of the Company and the Subsidiaries
have been made available to the Underwriters and contain a complete
summary of all meetings and actions of the directors and stockholders of
the Company since the time of its incorporation and reflect all
transactions referred to in such minutes accurately in all material
respects;
xxi. except as set forth in the Prospectus and to the best
knowledge of such counsel, no officer, director or stockholder of any of
the Company or the Subsidiaries, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules and
Regulations) of any of the foregoing persons or entities has or has had,
either directly or indirectly, (A) an interest in any person or entity
which (x) furnishes or sells services or products which are furnished or
sold or are proposed to be furnished or sold by any of the Company or
the Subsidiaries, or (y) purchases from or sells or furnishes to any of
the Company or the Subsidiaries any goods or services, or (B) a
beneficial interest in any contract or agreement to which any of the
Company or the Subsidiaries is a party or by which it or they may be
bound or affected. Except as set forth in the Prospectus under "CERTAIN
TRANSACTIONS," there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among any of the Company or
the Subsidiaries, and any officer, director, or 5% or greater
securityholder of any of the Company or the Subsidiaries, or any
affiliate or associate of any such person or entity;
xxii. each of the Company and the Subsidiaries is in compliance
with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An
Act Relating to Disclosure of Doing Business with Cuba;
xxiii. to the best of such counsel's knowledge, after due inquiry,
there is no action, suit, proceeding, inquiry, investigation, litigation
or governmental proceeding, domestic or foreign, pending or threatened
(or circumstances that may give rise to the same) involving the
Company's or any Subsidiary's production, use, testing, manufacturing or
marketing of any products or services, which (i) questions the authority
of the Company or any Subsidiary to produce, use, test, manufacture or
market any products or services as described in the Prospectus, (ii)
questions the completeness or accuracy of data
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<PAGE> 29
generated by any trials, tests or studies being conducted by or on
behalf of the Company or any of its Subsidiaries, (iii) is required to
be disclosed in the Prospectus which is not so disclosed, or (iv) might
materially and adversely affect the condition, financial or otherwise,
or the earnings, prospects, value, operations or business of the Company
and the Subsidiaries, taken as a whole.
xxiv. none of the Company, the Subsidiaries or any of their
respective affiliates shall be subject to the requirements of or shall
be deemed an "Investment Company," pursuant to and as defined under,
respectively, the Investment Company Act.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company and the
Subsidiaries, and representatives of the independent public accountants for the
Company and the Subsidiaries, at which conferences such counsel made inquiries
of such officers, representatives and accountants and discussed the contents of
the Preliminary Prospectus, the Registration Statement, the Prospectus, and
related matters and, although such counsel is not passing upon and does not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Preliminary Prospectus, the Registration Statement
and Prospectus, on the basis of the foregoing, no facts have come to the
attention of such counsel which lead them to believe that either the
Registration Statement or any amendment thereto, at the time such Registration
Statement or amendment became effective or the Preliminary Prospectus or
Prospectus or amendment or supplement thereto as of the date of such opinion
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading (it being understood that such counsel need express no
opinion with respect to the financial statements and schedules and other
financial and statistical data included in the Preliminary Prospectus, the
Registration Statement or the Prospectus). Such counsel shall further state
that its opinions may be relied upon by Underwriters' Counsel in rendering its
opinion to the Underwriters.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on
certificates and written statements of responsible officers of each of the
Company and the Subsidiaries and certificates or other written statements of
officers of departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of each of the Company and
the Subsidiaries, provided that copies of any such statements or certificates
shall be delivered to Underwriters' Counsel if requested. The opinion of such
counsel for the Company and the Subsidiaries shall state that the opinion of
any such other counsel is in form satisfactory to such counsel and that the
Representative, Underwriters' Counsel and they are each justified in relying
thereon. Any opinion of counsel for the Company and the Subsidiaries shall not
state that it is to be governed or qualified by, or that it is otherwise
subject to, any treatise, written policy or other document relating to legal
opinions, including, without limitation, the Legal Opinion Accord of the ABA
Section of Business Law (1991) or any comparable state accord.
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<PAGE> 30
(e) At the Closing Date, the Underwriters shall have received the
favorable opinion of Winston & Strawn, special regulatory counsel to the
Company and the Subsidiaries, dated the Closing Date, addressed to the
Underwriters, in form and substance satisfactory to Underwriters' Counsel to
the effect that:
i. the statements in the Prospectus under "RISK
FACTORS--Risks Associated with Managed Case Contracts,""RISK
FACTORS--Government Regulation" and "BUSINESS--Government
Regulation" have been reviewed by such counsel, and insofar as
they refer to statements of law, descriptions of statutes,
licenses, rules or regulations or legal conclusions, are correct
in all material respects, do not contain any untrue statement of a
material fact and do not omit to state a fact required to be
stated therein or necessary to make the statements contained
therein not misleading;
ii. to the best of such counsel's knowledge, the Company
and the Subsidiaries are in compliance in all material respects
with all federal, state, local and foreign rules, orders,
regulations with respect to the Company's business as currently
conducted and as contemplated;
iii. each of the Company and the Subsidiaries has obtained
all necessary and required approvals, authorizations, licenses,
orders, permits, certificates and franchises of and from all
governmental or regulatory officials and bodies, domestic and
foreign, to conduct its respective business as described in the
Prospectus; and none of such approvals, authorizations, licenses,
orders, permits, certificates and franchises have been revoked,
restricted or limited in any matter and all of such approvals,
authorizations, licenses, orders, permits, certificates and
franchises are in full force and effect;
iv. to the best of such counsel's knowledge, there is no
action, suit, proceeding, inquiry, investigation, litigation or
governmental proceeding, domestic or foreign, pending or
threatened (or circumstances that may give rise to the same)
against or affecting any of the Company or the Subsidiaries before
any court or arbitrator or governmental body, agency or official
in which there is a reasonable possibility of a decision which may
result in a material adverse change in the condition, financial or
otherwise, or the earnings, position, prospects, stockholders'
equity, value, operation, properties, business or results of
operations of any of the Company or the Subsidiaries.
(f) At each Option Closing Date, if any, the Underwriters shall
have received the favorable opinions of each of Storch & Brenner, counsel to
the Company and the Subsidiaries, and Winston & Strawn, special regulatory
counsel to the Company and the Subsidiaries, dated such Option Closing Date,
addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel confirming as of such Option Closing Date the statements
made by each of Storch & Brenner, and Winston & Strawn, in their respective
opinions delivered on the Closing Date.
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<PAGE> 31
(g) On or prior to each of the Closing Date and each Option
Closing Date, if any, Underwriters' Counsel shall have been furnished such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
subsection (c) of this Section 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of the Company, or herein contained.
(h) Prior to each of the Closing Date and each Option Closing
Date, if any, (i) there shall have been no material adverse change nor
development involving a prospective change in the condition, financial or
otherwise, earnings, position, value, properties, results of operations,
prospects, stockholders' equity or the business activities of any of the
Company or the Subsidiaries, whether or not in the ordinary course of business,
from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by any of the
Company or the Subsidiaries, from the latest date as of which the financial
condition of the Company and the Subsidiaries is set forth in the Registration
Statement and Prospectus which is adverse to the Company and the Subsidiaries
taken as a whole; (iii) none of the Company nor the Subsidiaries shall be in
default under any provision of any instrument relating to any outstanding
indebtedness; (iv) none of the Company nor the Subsidiaries shall have issued
any securities (other than the Securities) or declared or paid any dividend or
made any distribution in respect of its capital stock of any class and there
has not been any change in the capital stock or any material change in the debt
(long or short term) or liabilities or obligations of any of the Company or the
Subsidiaries (contingent or otherwise); (v) no material amount of the assets of
any of the Company or the Subsidiaries shall have been pledged or mortgaged,
except as set forth in the Registration Statement and Prospectus; (vi) no
action, suit or proceeding, at law or in equity, shall have been pending or
threatened (or circumstances giving rise to same) against any of the Company or
the Subsidiaries, or affecting any of its or their respective properties or
businesses before or by any court or federal, state or foreign commission,
board or other administrative agency wherein an unfavorable decision, ruling or
finding may adversely affect the business, operations, earnings, position,
value, properties, results of operations, prospects or financial condition or
income of the Company and the Subsidiaries taken as a whole; and (vii) no stop
order shall have been issued under the Act and no proceedings therefor shall
have been initiated, threatened or contemplated by the Commission.
(i) At each of the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received a certificate of the Company signed
by the principal executive officer and by the chief financial or chief
accounting officer of the Company, dated the Closing Date or Option Closing
Date, as the case may be, to the effect that each of such persons has carefully
examined the Registration Statement, the Prospectus and this Agreement, and
that:
i. The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date
or the Option Closing Date, as the case may be, and the Company has
complied with all agreements and covenants and satisfied all conditions
contained in this Agreement on its part to be performed or satisfied at
or prior to such Closing Date or Option Closing Date, as the case may
be;
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<PAGE> 32
ii. No stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued, and no proceedings for
that purpose have been instituted or are pending or, to the best of
each of such person's knowledge, are contemplated or threatened under
the Act;
iii. The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the
Registration Statement, the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading and neither the Preliminary
Prospectus or any supplement thereto included any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; and
iv. Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (a) none of the
Company nor the Subsidiaries has incurred up to and including the
Closing Date or the Option Closing Date, as the case may be, other than
in the ordinary course of its business, any material liabilities or
obligations, direct or contingent; (b) none of the Company nor the
Subsidiaries has paid or declared any dividends or other distributions
on its capital stock; (c) none of the Company nor the Subsidiaries has
entered into any transactions not in the ordinary course of business;
(d) there has not been any change in the capital stock or long-term debt
or any increase in the short-term borrowings (other than any increase in
the short-term borrowings in the ordinary course of business) of any of
the Company or the Subsidiaries; (e) none of the Company nor the
Subsidiaries has sustained any loss or damage to its or their respective
properties or assets, whether or not insured; (f) there is no litigation
which is pending or threatened (or circumstances giving rise to same)
against any of the Company or the Subsidiaries or any affiliated party
of any of the foregoing which is required to be set forth in an amended
or supplemented Prospectus which has not been set forth; and (g) there
has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(j) are to such documents as amended and supplemented at the date of such
certificate.
(j) By the Closing Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable
to the Underwriters, as described in the Registration Statement.
(k) At the time this Agreement is executed, the Underwriters shall
have received a letter, dated such date, addressed to the Underwriters in form
and substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriters and Underwriters' Counsel, from Ernst & Young, LLP:
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i. confirming that they are independent certified public
accountants with respect to the Company and the Subsidiaries within the
meaning of the Act and the applicable Rules and Regulations;
ii. stating that it is their opinion that the consolidated
financial statements and supporting schedules of the Company and the
Subsidiaries included in the Registration Statement comply as to form in
all material respects with the applicable accounting requirements of the
Act and the Rules and Regulations thereunder and that the Representative
may rely upon the opinion of Ernst & Young, LLP with respect to the
consolidated financial statements and supporting schedules included in
the Registration Statement;
iii. stating that, on the basis of a limited review which included
a reading of the latest available unaudited interim financial statements
of each of the Company and the Subsidiaries, a reading of the latest
available minutes of the stockholders and board of directors and the
various committees of the boards of directors of each of the Company and
the Subsidiaries, consultations with officers and other employees of
each of the Company and the Subsidiaries responsible for financial and
accounting matters and other specified procedures and inquiries, nothing
has come to their attention which would lead them to believe that (A)
the unaudited consolidated financial statements and supporting schedules
of the Company and the Subsidiaries included in the Registration
Statement do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and
Regulations or are not fairly presented in conformity with generally
accepted accounting principles applied on a basis substantially
consistent with that of the audited consolidated financial statements of
the Company and the Subsidiaries included in the Registration Statement,
or (B) at a specified date not more than five (5) days prior to the
effective date of the Registration Statement, there has been any change
in the capital stock or long-term debt of any of the Company or the
Subsidiaries, or any decrease in the stockholders' equity or net current
assets or net assets of any of the Company or the Subsidiaries as
compared with amounts shown in the September 30, 1996 balance sheet
included in the Registration Statement, other than as set forth in or
contemplated by the Registration Statement, or, if there was any change
or decrease, setting forth the amount of such change or decrease, and
(C) during the period from September 30, 1996 to a specified date not
more than five (5) days prior to the effective date of the Registration
Statement, there was any decrease in net revenues, net earnings or
increase in net earnings per common share of any of the Company or the
Subsidiaries, in each case as compared with the corresponding period
beginning January 1, 1995, other than as set forth in or contemplated by
the Registration Statement, or, if there was any such decrease, setting
forth the amount of such decrease;
iv. setting forth, at a date not later than five (5) days prior to
the date of the Registration Statement, the amount of liabilities of the
Company and the Subsidiaries taken as a whole (including a break-down of
commercial paper and notes payable to banks);
v. stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and
other financial information pertaining
33
<PAGE> 34
to the Company and the Subsidiaries set forth in the Prospectus in each
case to the extent that such amounts, numbers, percentages, statements
and information may be derived from the general accounting records,
including work sheets, of the Company and the Subsidiaries and excluding
any questions requiring an interpretation by legal counsel, with the
results obtained from the application of specified readings, inquiries
and other appropriate procedures (which procedures do not constitute an
examination in accordance with generally accepted auditing standards)
set forth in the letter and found them to be in agreement;
vi. statements as to such other matters incident to the
transaction contemplated hereby as the Representative may request.
(l) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from Ernst & Young, LLP a letter, dated as of
the Closing Date or the Option Closing Date, as the case may be, to the effect
that they reaffirm that statements made in the letter furnished pursuant to
subsection (k) of this Section, except that the specified date referred to
shall be a date not more than five (5) days prior to the Closing Date or the
Option Closing Date, as the case may be, and, if the Company has elected to
rely on Rule 430A of the Rules and Regulations, to the further effect that they
have carried out procedures as specified in clause (v) of subsection (k) of
this Section with respect to certain amounts, percentages and financial
information as specified by the Representative and deemed to be a part of the
Registration Statement pursuant to Rule 430A(b) and have found such amounts,
percentages and financial information to be in agreement with the records
specified in such clause (v).
(m) On each of the Closing Date and each Option Closing Date, if
any, there shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Securities.
(n) No order suspending the sale of the Securities in any
jurisdiction designated by the Representative pursuant to subsection (e) of
Section 4 hereof shall have been issued on either the Closing Date or the
Option Closing Date, if any, and no proceedings for that purpose shall have
been instituted or shall be contemplated.
(o) On or before the Closing Date, the Company shall have executed
and delivered to the Representative, (i) the Representative's Warrant Agreement
substantially in the form filed as Exhibit [___] to the Registration Statement,
in final form and substance satisfactory to the Representative, and (ii) the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
(p) On or before the Closing Date, the Firm Securities and Option
Securities shall have been duly approved for quotation on Nasdaq, subject to
official notice of issuance.
(q) On or before the Closing Date, there shall have been delivered
to the Representative all of the Lock-up Agreements, in form and substance
satisfactory to Underwriters' Counsel.
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(r) On or before the Closing Date, the Company shall have executed
and delivered to the Representative and the Transfer Agent the Warrant
Agreement substantially in the form filed as Exhibit [___] to the Registration
Statement, in final form and substance satisfactory to the Representative.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representative may terminate this
Agreement or, if the Representative so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 7 "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the
Underwriter, including specifically each person who may be substituted for an
Underwriter as provided in Section 11 hereof), and each person, if any, who
controls the Underwriter ("controlling person") within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, from and against any and
all losses, claims, damages, expenses or liabilities, joint or several (and
actions, proceedings, investigations, inquiries, suits and litigation in
respect thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any such claim, action, proceeding, investigation, inquiry, suit or litigation,
commenced or threatened, or any claim whatsoever), as such are incurred, to
which the Underwriter or such controlling person may become subject under the
Act, the Exchange Act or any other statute or at common law or otherwise or
under the laws of foreign countries, arising out of or based upon (A) any
untrue statement or alleged untrue statement of a material fact contained (i)
in any Preliminary Prospectus, the Registration Statement or the Prospectus (as
from time to time amended and supplemented); (ii) in any post-effective
amendment or amendments or any new registration statement and prospectus in
which is included securities of the Company issued or issuable upon exercise of
the Securities; or (iii) in any application or other document or written
communication (in this Section 7 collectively called "application") executed by
the Company or based upon written information furnished by the Company in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or
agency, Nasdaq or any other securities exchange; (B) the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading (in the case of the
Prospectus, in the light of the circumstances under which they were made), or
(C) any breach of any representation, warranty, covenant or agreement of the
Company contained herein or in any certificate by or on behalf of the Company
or any of its officers delivered pursuant hereto, unless, in the case of clause
(A) or (B) above, such statement or omission was made in reliance upon and in
strict conformity with written information furnished to the Company with
respect to any Underwriter by or on behalf of such Underwriter expressly for
use in any Preliminary Prospectus, the Registration Statement or Prospectus, or
any amendment thereof or supplement thereto, or in any application, as the case
may be.
35
<PAGE> 36
The indemnity agreement in this subsection (a) shall be in addition to
any liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company within the meaning of the Act, to the same extent
as the foregoing indemnity from the Company to the Underwriters but only with
respect to statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof
or supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering.
The Company acknowledges that the statements with respect to the public
offering of the Firm Securities and the Option Securities set forth under the
heading "Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any claim, action, suit,
investigation, inquiry, proceeding or litigation, such indemnified party shall,
if a claim in respect thereof is to be made against one or more indemnifying
parties under this Section 7, notify each party against whom indemnification is
to be sought in writing of the commencement thereof (but the failure so to
notify an indemnifying party shall not relieve it from any liability which it
may have under this Section 7 except to the extent that it has been prejudiced
in any material respect by such failure or from any liability which it may have
otherwise). In case any such claim, action, suit, investigation, inquiry,
proceeding or litigation is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense of thereof at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense thereof within a
reasonable time after notice of commencement thereof, or (iii) such indemnified
party or parties shall have reasonably concluded that there may be defenses
available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense thereof on
behalf of the indemnified party or parties), in any of which events such fees
and expenses of one additional counsel shall be borne by the indemnifying
parties. In no event shall
36
<PAGE> 37
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one claim, action, suit,
investigation, inquiry, proceeding or litigation or separate but similar or
related claims, actions, suits, investigations, inquiries, proceedings or
litigation in the same jurisdiction arising out of the same general allegations
or circumstances. Anything in this Section 7 to the contrary notwithstanding,
an indemnifying party shall not be liable for any settlement of any claim,
action, suit, investigation, inquiry, proceeding or litigation effected without
its written consent; provided, however, that such consent was not unreasonably
withheld. An indemnifying party will not, without the prior written consent of
the indemnified parties, settle, compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit,
investigation, inquiry, proceeding or litigation in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim, action,
suit, investigation, inquiry, proceeding or litigation), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such claim, action, suit,
investigation, inquiry, proceeding or litigation and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act by or
on behalf of any indemnified party.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this Section 7, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Firm Securities and the Option Securities or (B) if the allocation provided
by clause (A) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of each of the contributing parties, on
the one hand, and the party to be indemnified on the other hand in connection
with the statements or omissions that resulted in such losses, claims, damages,
expenses or liabilities, as well as any other relevant equitable
considerations. In any case where the Company is the contributing party and
the Underwriters are the indemnified party, the relative benefits received by
the Company on the one hand, and the Underwriters, on the other, shall be
deemed to be in the same proportion as the total net proceeds from the offering
of the Firm Securities and the Option Securities (before deducting expenses)
bear to the total underwriting discounts received by the Underwriters
hereunder, in each case as set forth in the table on the Cover Page of the
Prospectus. Relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company, or by the Underwriters, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, expenses or
liabilities (or actions in respect thereof) referred to above in this
37
<PAGE> 38
subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), the Underwriters shall not be required to contribute any amount
in excess of the underwriting discount applicable to the Firm Securities and
the Option Securities purchased by the Underwriters hereunder. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. For purposes of this Section 7, each
person, if any, who controls the Company or the Underwriter within the meaning
of the Act, each officer of the Company who has signed the Registration
Statement, and each director of the Company shall have the same rights to
contribution as the Company or the Underwriter, as the case may be, subject in
each case to this subsection (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subsection (d), notify such
party or parties from whom contribution may be sought, but the omission so to
notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subsection (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution
agreement set forth above shall be in addition to any liabilities which any
indemnifying party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of any Underwriter or the Company, and shall
survive termination of this Agreement or the issuance and delivery of the
Securities to the Underwriters and the Representative, as the case may be.
9. Effective Date. This Agreement shall become effective at 10:00
a.m., New York City time, on the next full business day following the date
hereof, or at such earlier time after the Registration Statement becomes
effective as the Representative, in its discretion, shall release the
Securities for sale to the public; provided, however, that the provisions of
Sections 5, 7 and 10 of this Agreement shall at all times be effective. For
purposes of this Section 9, the Securities to be purchased hereunder shall be
deemed to have been so released upon the earlier of dispatch by the
Representative of telegrams to securities dealers releasing such securities for
offering or the release by the Representative for publication of the first
newspaper advertisement which is subsequently published relating to the
Securities.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the
Representative shall have the right to terminate this Agreement, (i) if any
domestic or international event or act or occurrence has
38
<PAGE> 39
materially adversely disrupted, or in the Representative's opinion will in the
immediate future materially adversely disrupt, the financial markets; or (ii)
if any material adverse change in the financial markets shall have occurred; or
(iii) if trading generally shall have been suspended or materially limited on
or by, as the case may be, any of the New York Stock Exchange, the American
Stock Exchange, the NASD, the Boston Stock Exchange, the Commission or any
governmental authority having jurisdiction over such matters; or (iv) if
trading of any of the securities of the Company shall have been suspended, or
any of the securities of the Company shall have been delisted, on any exchange
or in any over-the-counter market; (v) if the United States shall have become
involved in a war or major hostilities, or if there shall have been an
escalation in an existing war or major hostilities or a national emergency
shall have been declared in the United States; or (vi) if a banking moratorium
has been declared by a state or federal authority; or (vii) if a moratorium in
foreign exchange trading has been declared; or (viii) if the Company shall have
sustained a loss material or substantial to the Company by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act which, whether or not such loss shall have been insured, will, in the
Representative's opinion, make it inadvisable to proceed with the offering,
sale and/or delivery of the Securities; or (ix) if there shall have been such a
material adverse change in the conditions or prospects of the Company, or such
material adverse change in the general market, political or economic
conditions, in the United States or elsewhere, that, in each case, in the
Representative's judgment, would make it inadvisable to proceed with the
offering, sale and/or delivery of the Securities or (x) if C. Thomas McMillen
shall no longer serve the Company in his present capacity.
(b) If this Agreement is terminated by the Representative in
accordance with the provisions of Section 10(a) the Company shall promptly
reimburse and indemnify the Representative for all of its actual out-of-pocket
expenses, including the fees and disbursements of counsel for the Underwriters
(less amounts previously paid pursuant to Section 5(c) above). Notwithstanding
any contrary provision contained in this Agreement, if this Agreement shall not
be carried out within the time specified herein, or any extension thereof
granted to the Representative, by reason of any failure on the part of the
Company to perform any undertaking or satisfy any condition of this Agreement
by it to be performed or satisfied (including, without limitation, pursuant to
Section 6 or Section 12) then, the Company shall promptly reimburse and
indemnify the Representative for all of its actual out-of-pocket expenses,
including the fees and disbursements of counsel for the Underwriters (less
amounts previously paid pursuant to Section 5(c) above). In addition, the
Company shall remain liable for all Blue Sky counsel fees and disbursements,
expenses and filing fees (such Blue Sky counsel fees not to exceed $40,000).
Notwithstanding any contrary provision contained in this Agreement, any
election hereunder or any termination of this Agreement (including, without
limitation, pursuant to Sections 6, 10, 11 and 12 hereof), and whether or not
this Agreement is otherwise carried out, the provisions of Section 5 and
Section 7 shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 10 or
Section 12 hereof) to purchase the Securities which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Securities"), the
Representative shall have the right, within 24 hours thereafter, to make
arrangement for one
39
<PAGE> 40
or more of the non-defaulting Underwriters, or any other underwriters, to
purchase all, but not less than all, of the Defaulted Securities in such
amounts as may be agreed upon and upon the terms herein set forth; if, however,
the Representative shall not have completed such arrangements within such
24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of
the total number of Firm Securities to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full
amount thereof in the proportions that their respective underwriting
obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriters (or, if such
default shall occur with respect to any Option Securities to be
purchased on an Option Closing Date, the Underwriters may at the
Representative's option, by notice from the Representative to the
Company, terminate the Underwriters' obligation to purchase Option
Securities from the Company on such date).
No action taken pursuant to this Section 11 shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default which does not result in a termination
of this Agreement, the Representative shall have the right to postpone the
Closing Date for a period not exceeding seven (7) days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements.
12. Default by the Company. If the Company shall fail at the Closing
Date or at any Option Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
any Option Securities to be purchased on an Option Closing Date, the
Underwriters may at the Representative's option, by notice from the
Representative to the Company, terminate the Underwriters' obligation to
purchase Option Securities from the Company on such date) without any liability
on the part of any non-defaulting party other than pursuant to Section 5,
Section 7 and Section 10 hereof. No action taken pursuant to this Section 12
shall relieve the Company from liability, if any, in respect of such default.
13. Notices. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative at National Securities Corporation, 1001 Fourth Avenue, Suite
2200, Seattle, Washington 98154, Attention: Steven A. Rothstein, Chairman,
with a copy to Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York,
New York 10103, Attention: Lawrence B. Fisher, Esq. Notices to the Company
shall be directed to the Company at 725 Independence Avenue, S.E., Washington,
D.C. 20003, Attention: C. Thomas McMillen, Chairman and Chief Executive
Officer, with a copy to Storch & Brenner, 1001 Connecticut Avenue, N.W.,
Washington, D.C. 20036, Attention: Anthony Cipiti, Esq.
40
<PAGE> 41
14. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or
claim under or in respect of or by virtue of this Agreement or any provisions
herein contained. No purchaser of Securities from any Underwriter shall be
deemed to be a successor by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York without
giving effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement, the Warrant
Agreement and the Representative's Warrant Agreement constitute the entire
agreement of the parties hereto and supersede all prior written or oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in a writing, signed by the
Representative and the Company.
41
<PAGE> 42
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among us.
Very truly yours,
COMPLETE WELLNESS CENTERS, INC.
By:
-------------------------------------
C. Thomas McMillen
Chairman and Chief Executive Officer
Confirmed and accepted as of
the date first above written.
NATIONAL SECURITIES CORPORATION
For itself and as Representative
of the several Underwriters named
in Schedule A hereto.
By:
-------------------------------
Steven A. Rothstein
Chairman
<PAGE> 43
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF FIRM
SECURITIES
NAME OF UNDERWRITERS TO BE PURCHASED
-------------------- ---------------
<S> <C>
National Securities Corporation . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000
=========
</TABLE>
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
COMPLETE WELLNESS CENTERS, INC.
The undersigned incorporator, in order to form a corporation
under the General Corporation Law of Delaware, certifies as follows:
FIRST: The name of the corporation is Complete Wellness
Centers, Inc.
SECOND: The registered office of the corporation is to be
located at The Corporation Trust Company. The name of its registered agent at
that address is 1209 Orange Street, Wilmington, New Castle County, DE 19801.
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 corporation shall have the authority to issue
21,500 shares, consisting of 20,000 shares of common stock, par value $.01, and
1,500 shares of preferred stock, par value $.01. The board of directors may
authorize the issuance from time to time of the preferred stock in one or more
series and with such designations and such powers, preferences and rights, and
the qualifications, limitations or restrictions thereof (which may differ with
respect to each series) and such powers as the board may fix by resolution,
FIFTH: The name and mailing address of the incorporator are
as follows:
C. Thomas McMillen
1103 South Carolina Avenue, S.E.
Washington, D.C, 20003
SIXTH: Whenever a compromise or arrangement is proposed
between the corporation and its creditors or any class of them and/or between
the 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 the corporation or of any creditor or stockholder thereof or
on the application of any receiver or receivers appointed for the 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 the corporation under the provisions of Section 279 of Title 8 of
the Delaware Code order a
<PAGE> 2
meeting of the creditors or class of creditors, and/or of 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 the 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 the corporation, as the case may be, and also on the
corporation.
SEVENTH: A director of this corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for the breach of any fiduciary duty as a director, except in the case of (a)
any breach of the director's duty of loyalty to the corporation or its
stockholders, (b) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (c) under section 174 of
the General Corporation Law of the State of Delaware or (d) for any transaction
from which the director derives an improper personal benefit. Any repeal or
modification of this Article by the stockholders of the corporation shall not
adversely affect any right or protection of a director of the corporation
existing at the time of such repeal or modification with respect to acts or
omissions occurring prior to such repeal or modification. --
EIGHTH: The corporation shall, to the fullest extent
permitted by law, as the same is now or may hereafter be in effect, indemnify
each person (including the heirs, executors, administrators and other personal
representatives of such person) against expenses including attorneys' fees,
judgments, fines and amounts paid in settlement, actually and reasonably
incurred by such person in connection with any threatened, pending or completed
suit, action or proceeding (whether civil, criminal, administrative or
investigative in nature or otherwise) in which such person may be involved by
reason of the fact that he or she is or was a director or officer of the
corporation or is or was serving any other incorporated or unincorporated
enterprise in such capacity at the request of the corporation.
NINTH: Unless, and except to the extent that, the by-laws of
the corporation shall so require, the election of directors of the corporation
need not be by written ballot.
TENTH: The corporation hereby confers the power to adopt,
amend or repeal bylaws of the corporation upon the directors.
<PAGE> 3
IN WITNESS WHEREOF, I have hereunto set my hand this 17 day of
November, 1994.
/s/ C. THOMAS MCMILLEN
-------------------------
C. Thomas McMillen
Sole Incorporator
<PAGE> 4
COMPLETE WELLNESS CENTERS, INC.
CERTIFICATE OF DESIGNATION OF PREFERENCES,
RIGHTS, AND LIMITATIONS OF SERIES A, 12% CUMULATIVE
COVERTIBLE PREFERRED STOCK
Complete Wellness Centers, Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), does
hereby certify:
That, pursuant to authority conferred upon the Board of
Directors of the Corporation ("Board of Directors") by the Certificate of
Incorporation of the Corporation (the "Certificate"), and pursuant to the
provisions of the Delaware General Corporation Law, said Board of Directors, on
March 13, 1995, pursuant to a unanimous written consent, duly ratified and
adopted resolutions providing for the issuance of one series, aggregating One
Thousand Five Hundred (1,500) shares, of Series A, 12% Cumulative Convertible
Preferred Stock, par value $.01 per share, which resolutions are as follows:
WHEREAS, the Certificate of Incorporation of the Corporation
authorizes for issuance a class of shares of capital stock known as
Preferred Stock, par value $.01 per share (the "Preferred Stock"),
issuable by the Board of Directors from time to time;
WHEREAS, the Certificate of Incorporation of the Corporation
authorizes the Board of Directors to determine the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly
unissued Preferred Stock, to fix the number of shares constituting any
such class and to determine the designation thereof or any of them; and
WHEREAS, on or about November 14, 1994, the Board of Directors
of the Corporation, pursuant to its authority as aforesaid, determined
and fixed the rights, preferences, privileges and restrictions relating
to a class of said Preferred Stock to be designated "Series A, 12%
Cumulative Convertible Preferred Stock" (the "Series A Preferred Stock").
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors
hereby ratifies its prior actions and hereby fixes and determines the
designation of the number of shares constituting, and the rights,
preferences, privileges and restrictions relating to, the Series A
Preferred Stock as follows:
<PAGE> 5
1. Designation. The designation of the series of stock
created by this resolution shall be "Series A, 12% Cumulative
Convertible Preferred Stock" (the "Series A Preferred Stock") and the
number of shares constituting the Series A Preferred shall be Fifteen
Hundred (1,500). Each share of the Series A Preferred Stock shall have
a stated value equal to $100.
2. Dividends. The holders of the Series A Preferred
Stock shall be entitled to receive, when, as and if declared by the
Board of Directors out of the funds of the Corporation legally available
therefore, cumulative dividends at the annual rate of $12 per share
payable $6.00 per share on each January 31st and July 31st, commencing
January 1, 1996. Such dividends shall be payable in cash or in kind.
In the year in which shares of Series A Preferred Stock are issued, in
the event that the payment date for the purchase of shares of Series A
Preferred Stock shall be other than January 31st or July 31st, the
initial dividend shall accumulate and be payable pro rata only from the
date of payment to the Corporation for the respective shares of Series A
Preferred Stock. If the dividend on the Series A Preferred Stock for
any dividend period shall not have been paid or set apart in full for
the Series A Preferred Stock, the aggregate deficiency shall be
cumulative and shall be fully paid or set apart for payment before any
dividends shall be paid upon or set apart for payment for any class of
common stock of the Corporation or any other class of preferred stock of
the Corporation ranking junior thereto. Accumulations of dividends on
the Series A Preferred Stock shall not bear interest.
3. Liquidation Preference. In the event of any
liquidation, dissolution or winding up of the affairs of the
Corporation, whether voluntary or otherwise, after payment or provision
for payment of the debts and other liabilities of the Corporation, the
holders of the Series A Preferred Stock shall be entitled to receive,
before the holders of any of the common stock or other classes of
preferred stock of the Corporation ranking junior thereto, out of the
remaining net assets of the Corporation, the amount of $100 in cash or
in kind for each share of Series A Preferred Stock, plus an amount equal
to all dividends accrued but unpaid, if any, with respect to each such
share up to the date fixed for distribution. After such payment shall
have been made in full to the holders of the outstanding Series A
Preferred Stock, or funds or assets necessary for such payment shall
have been set aside in trust for the account of the holders of the
outstanding Series A Preferred Stock, so as to be and continue to be
available therefor, the holders of the outstanding Series A Preferred
Stock shall be entitled to no further participation in such distribution
of the assets of the Corporation.
2
<PAGE> 6
In the event, after payment or provision for payment of the
debts and other liabilities of the corporation, the remaining net assets
of the Corporation are not sufficient to pay the liquidation preference
of the holders of the Series A Preferred Stock, no such distribution
shall be made on account of any shares of any other class or series of
capital stock of the Corporation ranking on a parity with the shares of
the Series A Preferred Stock upon such liquidation unless proportionate
distributive amounts shall be paid on account of each share of the
Series A Preferred Stock, ratably, in proportion to the full
distributable amounts for which holders of all such parity shares,
including other shares of Series A Preferred Stock, are respectively
entitled upon such liquidation.
4. Conversion of Preferred Stock into Common Stock. Each
share of the Series A Preferred Stock shall be under paragraph 4(a)
below convertible at the option of the holder thereof and under
paragraph 4(b) below automatically and mandatorily converted upon the
occurrence of the event described therein; in either event, any such
shares of Series A Preferred Stock shall be converted into fully paid
and non-assessable shares of the Corporation's common stock, par value
$.01 per share (the "Common Stock").
A. Elective Conversion. Subject to any other
provision of this paragraph 4, each holder of record of any share(s) of
Series A Preferred Stock shall have the right to convert such holder's
share(s) of Series A Preferred Stock, in whole or in part, including all
accrued but unpaid dividends, if any, in accordance with the Conversion
Ratio (defined below), subject to the adjustments set forth below, at
his or her option, at any time and from time to time after the issuance
of such shares of Series A Preferred Stock.
In case any shares of Series A Preferred Stock shall
have been called for redemption pursuant to paragraph 5 hereof, any
election to convert under this paragraph 4(a) with respect to the
shares so called for redemption shall cease and terminate at the close
of business on the tenth day prior to the date fixed for the redemption
of such shares, unless default shall be made in the payment of the
redemption price.
Any holder of a share or shares of Series A Preferred
Stock electing to convert his or her Series A Preferred Stock into
Common Stock shall surrender the certificate(s) representing all of the
share(s) of Series A Preferred Stock so to be converted, duly endorsed
to the Corporation or in blank, at the principal office of the
Corporation (or such other place as may be designated by the
Corporation), and shall give written notice to the Corporation at said
office that he or she elects to convert the same and therein set forth
the name or names (with the address or
3
<PAGE> 7
addresses) in which the shares of Common Stock are to be issued.
If the last day of the exercise period of the conversion right
in the city where the principal place of business of the Corporation (or
in the city of the principal office of such other entity as the
Corporation shall have designated as the place so to surrender Series A
Preferred Stock for conversion, as aforesaid) shall be a legal holiday
or a day on which banking institutions are authorized by law to close,
then such conversion right may be exercised in such city on the next
succeeding day not in such city a legal holiday or a day on which
banking institutions are authorized by law to close.
(b) Mandatory Conversion. Each share of the Series A
Preferred Stock, and all accrued but unpaid dividends, if any, shall
automatically and mandatorily convert, without the option of any holder
of any share(s) of Series A Preferred Stock or any action of the
Corporation, to shares of Common Stock in accordance with the Conversion
Ratio (defined below) on the date on which a registration statement is
declared effective by the U.S. Securities and Exchange Commission
("SEC"), or any other Federal agency at the time administering the
Securities Act of 1933, as amended, or any similar Federal statute, and
the rules and regulations of the SEC issued under such Act, as they each
may, from time to time, be in effect with respect to Common Stock.
As soon as practicable after the Automatic Conversion Date,
the Corporation shall provide each holder of record of Series A
Preferred Stock with notice of the automatic conversion and the
Automatic Conversion Date and call upon the holders to surrender to the
Corporation, in the manner and at the place designated, the
certificate(s) representing shares of the Series A Preferred Stock. Such
notice shall be by mail to each holder of the Series A Preferred Stock
at the address last shown on the records of the Corporation for such
holder or given by such holder to the Corporation for the holder for the
purpose of notice or, if no such address appears or is given, at the
place where the principal executive office of the Corporation is
located. Notwithstanding any failure by a holder to deliver the
certificates representing his or her shares of Series A Preferred Stock,
after the Automatic Conversion Date all such certificates of the Series
A Preferred Stock shall be deemed to represent the appropriate number of
shares of Common Stock.
Notwithstanding any provision contained in this paragraph
4(b), no share of the Series A Preferred Stock called for redemption
pursuant to paragraph 5 hereof shall automatically and mandatorily
convert at any time after the Corporation has provided notice of its
intent to redeem such
4
<PAGE> 8
shares pursuant to paragraph 5 hereof, unless the Corporation shall
provide notice to the holder on or before the date specified for
redemption of such shares of Series A Preferred Stock that it elects to
have the mandatory conversion provisions of this paragraph 4(b) apply
and override the Corporation's notice of redemption (the "Notice of
Cancellation"). Unless such Notice of Cancellation is provided, the
automatic and mandatory conversion under this paragraph 4(b) shall cease
and terminate with respect to all shares of Series A Preferred Stock so
called for redemption at the close of business on the date that the
Corporation provides notice of such redemption pursuant to Paragraph 5
hereof. The Corporation's redemption, including any related notice to
redeem, of certain shares of the Series A Preferred Stock shall have no
effect on the automatic and mandatory conversion under paragraph 4(b) of
those other shares of Series A Preferred Stock with respect to which
notice of redemption was not provided.
(c) Additional Provisions Applicable to All Conversions.
Any conversion of Series A Preferred Stock into Common Stock pursuant to
this paragraph 4 shall be subject to the following additional terms and
provisions:
(1) All shares of the Series A Preferred Stock and
all accrued but unpaid dividends, if any, shall be convertible (or, as
the case may be, automatically converted) into Common Stock at the rate
of one and eight-tenths (1.8) shares of Common Stock for each share of
Series A Preferred Stock (the "Conversion Ratio"), subject to the
adjustments set forth in this paragraph 4(c) below.
(2) In the event that the Corporation shall at any
time subdivide or combine in a greater or lesser number of shares the
outstanding shares of Common Stock, the number of shares of Common Stock
issuable upon conversion of any shares of Series A Preferred Stock prior
to the occurrence of such event shall be proportionately increased in
the case of subdivision or decreased in the case of a combination,
effective in either case at the close of business on the date when such
subdivision or combination shall become effective.
(3) In the event that the Corporation shall be
consolidated with or merged into any other corporation, provision shall
be made as part of the terms of such consolidation or merger so that any
holder of Series A Preferred Stock may thereafter receive in lieu of
Common Stock otherwise issuable to him upon conversion of his or her
Series A Preferred Stock, but only in accordance with the conversion
ratio stated in this paragraph 4, the same kind and amount of securities
as may be distributable upon such consolidation or merger with respect
to the Common Stock.
5
<PAGE> 9
(4) In the event that the Corporation shall at any
time pay to the holders of Common Stock a dividend in Common Stock, the
number of shares of Common Stock of the Corporation issuable upon any
conversion of the Series A Preferred Stock shall be proportionately
increased, effective following the close of business on the record date
for determination of the holders of Common Stock entitled to such
dividend.
(5) The issuance of certificates for shares of
Common Stock upon conversion of any shares of the Series A Preferred
Stock shall be made without charge for any tax in respect of such
issuance. However, if any certificate is to be issued in a name other
than that of the holder of record as the Series A Preferred Stock so
converted, the person or persons requesting the issuance thereof shall
pay to the Corporation the amount of any tax which may be payable in
respect of any transfer involved in such issuance, or shall establish to
the satisfaction of the Corporation that such tax has been paid or is
not due and payable.
5. Redemption of Preferred Stock. The Series A Preferred
Stock of any holder shall be redeemable, in whole or in part, at the
option of the Corporation by resolution of its Board of Directors, from
time to time and at anytime, commencing one year after the date that the
Series A Preferred Stock certificate was issued to the original holder
of such shares of Series A Preferred Stock. The redemption price shall
equal $112, plus all dividends accrued and unpaid on the Series A
Preferred Stock so redeemed up to the date fixed for redemption. The
Corporation shall give notice of redemption as hereinafter provided.
In the event that less than the entire amount of the Series A
Preferred Stock outstanding is redeemed at any one time, the shares to
be redeemed shall be selected by lot in a manner to be determined by the
Board of Directors of the Corporation.
The Corporation shall give notice of redemption not less than
thirty (30) nor more than sixty (60) days prior to the date fixed for
redemption of the Series A Preferred Stock or any part thereof. Such
notice shall specify the time and place thereof and shall be given by
mail to each holder of record of shares of Series A Preferred Stock
chosen for redemption at the address last shown on the records of the
Corporation for such holder or given by such holder to the Corporation
for the purpose of notice or, if no such address appears or is given, at
the place where the principal executive office of the Corporation is
located. Any notice which was mailed in the manner herein provided
shall be conclusively presumed to have been duly given whether or not
the holder received the notice.
6
<PAGE> 10
Upon such redemption date, or upon such earlier date as the
Board of Directors shall designate for payment of the redemption price
(unless the Corporation shall default in the payment of the redemption
price as set forth in such notice), the holders of shares of Series A
Preferred Stock selected for redemption to whom notice has been duly
given shall cease to be stockholders with respect to such shares and
shall have no interest in or claim against the Corporation by virtue
thereof and shall have no other rights with respect to such shares
except the right to convert such shares within the time hereinafter set
forth and except the right to receive the moneys payable upon such
redemption from, the Corporation or otherwise, without interest thereon,
upon surrender (and endorsement, if required by the Corporation) of the
certificates, and the shares represented thereby shall no longer be
deemed to be outstanding.
Upon redemption or conversion of any share of Series A
Preferred Stock in the manner set out herein, or upon purchase of any
share of Series A Preferred Stock by the Corporation, the shares so
acquired by the Corporation shall be cancelled.
After giving any notice of redemption and prior to the close
of business on the tenth day prior to the redemption date, as
hereinafter provided, the holders of the Series A Preferred Stock so
called for redemption may convert such stock into Common Stock of the
Corporation in accordance with the conversion privileges set forth in
paragraph 4(a) hereof.
In the event that the Corporation shall at any time
subdivide or combine in a greater or lesser number of shares the
outstanding shares of Series A Preferred Stock or issue shares of Common
Stock as the form of a dividend paid with respect to its Common Stock,
the consideration payable upon redemption of the Series A Preferred
Stock shall be proportionately decreased in the case of subdivision or
increased in the case of a combination or the payment of such a stock
dividend, effective in either case at the close of business on the date
when such subdivision or combination shall become effective.
6. Voting Rights. Except as may be otherwise provided by
law, by the Certificate of Incorporation of the Corporation or by this
Section 6, the Series A Preferred Stock shall vote together with the
Common Stock as a single class on all actions to be taken by the
stockholders of the Corporation. Each share of Series A Preferred Stock
shall entitle the holder thereof to one and eight-tenths (1.8) votes per
share.
7
<PAGE> 11
IN WITNESS WHEREOF, the undersigned, being the President of
the Corporation, for the purpose of adopting and ratifying the Certificate of
Designation of Series A Preferred Stock of the Corporation pursuant to the
Delaware Code, has executed this Certificate of Designation of Series A
Preferred Stock on behalf of the Corporation, and has caused the same to be
attested by the Secretary of the Corporation, hereby declaring and certifying
that this is his act and deed and the facts herein stated are true, and
accordingly has hereunto set his hand this 14th day of March, 1995.
COMPLETE WELLNESS CENTERS, INC.
By: /s/ C. THOMAS MCMILLEN
---------------------------
C. Thomas McMillen
President
ATTEST:
/s/ MARY E. CLEGG
- -----------------
Mary E. Clegg
Secretary
8
<PAGE> 12
District of Columbia ) SS.:
)
The foregoing instrument was acknowledged before me this 14
day of March, 1995, by C. Thomas McMillen as president of Complete Wellness
Centers, Inc., a Delaware corporation, on behalf of the corporation. He is
(check one) ______ personally known to me or DI has produced ___________________
_________________ as identification.
Notary Public:
Signature /s/ CAROLINE F. KLEMP
--------------------------
(Notarial Seal) --------------------------
District of Columbia
Commission #: My Commission expires:
Caroline F. Klemp
Notary Public, Dist. of Columbia
Commission Expires April 30, 1996
District of Columbia ) SS.:
)
The foregoing instrument was acknowledged before me this 14
day of March, 1995, by Mary E. Clegg as secretary of Complete Wellness Centers,
Inc., a Delaware corporation, on behalf of the corporation. She is (check one)
___________ personally known to me or ___X___ has produced ___DI____ as
identification.
Notary Public:
Signature /s/ CAROLINE F. KLEMP
--------------------------
--------------------------
(Notarial Seal) District of Columbia
Commission #: My commission expires:
Caroline F. Klemp
Notary Public, Dist. of Columbia
Commission Expires April 30, 1996
9
<PAGE> 13
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
COMPLETE WELLNESS CENTERS, INC.
Complete Wellness Centers, Inc., a corporation organized and existing
under the laws of the State of Delaware, hereby certifies that:
ONE: The Certificate of Incorporation of the corporation is hereby
amended by deleting in their entirety Articles SECOND and FOURTH and by
substituting in lieu thereof the following new Articles SECOND and FOURTH:
SECOND: The registered office of the corporation is to be
located at 1209 Orange Street, Wilmington, New Castle County, Delaware
19801. The name of its registered agent at that address is The
Corporation Trust Company.
FOURTH: The corporation shall have the authority to issue
12,000,000 shares of stock, consisting of 10,000,000 shares of common
stock with a par value of $.0000555 per share, and 2,000,000 shares of
preferred stock with a par value of $.01 per share. The board of
directors may authorize the issuance from time to time of shares of
the preferred stock in one or more series, in such number of shares
and with such powers, designations, preferences, and relative,
participating, optional or other rights, if any, or the
qualifications, limitations, or restrictions thereof, if any (which
may differ with respect to each series) as the board may fix by
resolution.
TWO: Upon the effectiveness of this certificate, each share of the
corporation's common stock with a par value of $.01 per share that was
authorized immediately prior to such effectiveness shall automatically be split
and changed into 180 shares of its common stock with a par value of $.0000555
per share, and shall be included within the 10,000,000 shares of common stock
authorized in the foregoing amendment.
THREE: In accordance with the applicable provisions of Sections 141
and 242 of the General Corporation Law of the State of Delaware, the board of
directors of the corporation, by the unanimous written consent of its members,
adopted a resolution setting forth the foregoing amendment, declaring its
advisability, and directing that it be submitted for the consideration of all
of the stockholders of the corporation entitled to vote thereon by means of
written consent in lieu of a special meeting.
<PAGE> 14
FOUR: The foregoing amendment was duly adopted by unanimous written
consent of the stockholders in accordance with the applicable provisions of
Sections 228 and 242 of the General Corporation Law of the State of Delaware.
FIVE: The foregoing amendment was duly adopted in accordance with
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Complete Wellness Centers, Inc. has caused this
certificate to be signed by C. Thomas McMillen, its President, and attested by
Mary E. Clegg, its Secretary, on November 8, 1995.
COMPLETE WELLNESS CENTERS, INC.
By /s/ C. THOMAS MCMILLEN
--------------------------------
President
ATTEST:
By /s/ MARY E. CLEGG
------------------------------
Secretary
2
<PAGE> 15
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
COMPLETE WELLNESS CENTERS, INC.
Complete Wellness Centers, Inc., a corporation organized and existing
under the laws of the State of Delaware, hereby certifies that:
ONE: The Certificate of Incorporation of the corporation, as
previously amended, is hereby further amended by deleting in its entirety
Article FOURTH and by substituting in lieu thereof the following new Article
FOURTH:
FOURTH: The corporation shall have the authority to issue
12,000,000 shares of stock, consisting of 10,000,000 shares of common
stock with a par value of $.0001665 per share, and 2,000,000 shares of
preferred stock with a par value of $.01 per share. The board of
directors may authorize the issuance from time to time of shares of
the preferred stock in one or more series, in such number of shares
and with such powers, designations, preferences, and relative,
participating, optional or other rights, if any, or the
qualifications, limitations, or restrictions thereof, if any (which
may differ with respect to each series) as the board may fix by
resolution.
TWO: Upon the effectiveness of this certificate, each three shares of
the corporation's common stock with a par value of $.0000555 per share that
were authorized immediately prior to such effectiveness shall automatically be
combined and changed into one share of its common stock with a par value of
$.0001665 per share, and shall be included within the 10,000,000 shares of
common stock authorized in the foregoing amendment. No fractional shares shall
be issued by reason of the foregoing combination, but the corporation shall
pay, in lieu of any such fractional shares, cash equal to the fair value of
such fractional shares, as determined by the board of directors of the
corporation.
THREE: In accordance with the applicable provisions of Sections 141
and 242 of the General Corporation Law of the State of Delaware, the board of
directors of the corporation, by the unanimous written consent of its members,
adopted a resolution setting forth the foregoing amendment, declaring its
advisability, and directing that it be submitted for the consideration of all
of the stockholders of the corporation entitled to vote thereon by means of
written consent in lieu of an annual or special meeting.
<PAGE> 16
FOUR: The foregoing amendment was duly adopted by unanimous written
consent of the stockholders in accordance with the applicable provisions of
Sections 228 and 242 of the General Corporation Law of the State of Delaware.
FIVE: The foregoing amendment was duly adopted in accordance with
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Complete Wellness Centers, Inc. has caused this
certificate to be signed by E. Eugene Sharer, its President, and attested by
Michael T. Brigante, its Secretary, on October 31, 1996.
COMPLETE WELLNESS CENTERS, INC.
By /s/ E. EUGENE SHARER
-------------------------------
President
ATTEST:
By /s/ MICHAEL T. BRIGANTE
-----------------------------
Secretary
2
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
COMPLETE WELLNESS CENTERS, INC.
1. MEETINGS OF STOCKHOLDERS.
1.1 Annual Meeting. The annual meeting of stockholders shall
be held in the first week of May in each year, or as soon thereafter as
practicable, and shall be held at a place and time determined by the board of
directors (the "Board").
1.2 Special Meetings. Special meetings of the stockholders
may be called by resolution of the Board or the president and shall be called
by the president or secretary upon the written request (stating the purpose or
purposes of the meeting) of a majority of the directors then in office or of
the holders of a majority of the outstanding shares entitled to vote. Only
business related to the purposes set forth in the notice of the meeting may be
transacted at a special meeting.
1.3 Place and Time of Meetings. Meetings of the stockholders
may be held in or outside Delaware at the place and time specified by the Board
or the officers or stockholders requesting the meeting.
1.4 Notice of Meetings; Waiver of Notice. Written notice of
each meeting of stockholders shall be given to each stockholder entitled to
vote at the meeting, except that (a) it shall not be necessary to give notice
to any stockholder who submits a signed waiver of notice before or after the
meeting, and
<PAGE> 2
(b) no notice of an adjourned meeting need be given, except when required under
section 1.5 below or by law. Each notice of a meeting shall be given,
personally or by mail, not fewer than 10 nor more than 60 days before the
meeting and shall state the time and place of the meeting, and, unless it is
the annual meeting, shall state at whose direction or request the meeting is
called and the purposes for which it is called. If mailed, notice shall be
considered given when mailed to a stockholder at his address on the
corporation's records. The attendance of any stockholder at a meeting, without
protesting at the beginning of the meeting that the meeting is not lawfully
called or convened, shall constitute a waiver of notice by him.
1.5 Quorum. At any meeting of stockholders, the presence in
person or by proxy of the holders of a majority of the shares entitled to vote
shall constitute a quorum for the transaction of any business. In the absence
of a quorum, a majority in voting interest of those present or, if no
stockholders are present, any officer entitled to preside at or to act as
secretary of the meeting, may adjourn the meeting until a quorum is present.
At any adjourned meeting at which a quorum is present, any action may be taken
that might have been taken at the meeting as originally called. No notice of
an adjourned meeting need be given, if the time and place are announced at the
meeting at which the adjournment is taken, except that, if adjournment is for
more than 30 days or if, after the adjournment, a new record date is
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<PAGE> 3
fixed for the meeting, notice of the adjourned meeting shall be given pursuant
to section 1.4.
1.6 Voting; Proxies. Each stockholder of record shall be
entitled to one vote for each share registered in his name. Corporate action
to be taken by stockholder vote, other than the election of directors, shall be
authorized by a majority of the votes cast at a meeting of stockholders, except
as otherwise provided by law or by section 1.8. Directors shall be elected in
the manner provided in section 2.1. Voting need not be by ballot, unless
requested by a majority of the stockholders entitled to vote at the meeting or
ordered by the chairman of the meeting. Each stockholder entitled to vote at
any meeting of stockholders or to express consent to or dissent from corporate
action in writing without a meeting may authorize another person to act for him
by proxy. No proxy shall be valid after three years from its date, unless it
provides otherwise.
1.7 List of Stockholders. Not fewer than 10 days prior to
the date of any meeting of stockholders, the secretary of the corporation shall
prepare a complete list of stockholders entitled to vote at the meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in his name. For a period of not fewer than 10
days prior to the meeting, the list shall be available during ordinary business
hours for inspection by any stockholder for any purpose germane to the meeting.
During this period, the list shall be kept either (a) at
- 3 -
<PAGE> 4
a place within the city where the meeting is to be held, if that place shall
have been specified in the notice of the meeting, or (b) if not so specified,
at the place where the meeting is to be held. The list shall also be available
for inspection by stockholders at the time and place of the meeting.
1.8 Action by Consent Without a Meeting. Any action required or
permitted to be taken at any meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not fewer than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voting. Prompt notice of the taking
of any such action shall be given to those stockholders who did not consent in
writing.
2. BOARD OF DIRECTORS.
2.1 Number, Qualification, Election and Term of Directors.
The business of the corporation shall be managed by the entire Board, which
initially shall consist of 3 directors. The number of directors may be changed
by resolution of a majority of the Board or by the stockholders, but no
decrease may shorten the term of any incumbent director. Directors shall be
elected at each annual meeting of stockholders by a plurality of the votes cast
and shall hold office until the next annual meeting of stockholders and until
the election and qualification of their respective
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<PAGE> 5
successors, subject to the provisions of section 2.9. As used in these
by-laws, the term "entire Board" means the total number of directors the
corporation would have, if there were no vacancies on the Board.
2.2 Quorum and Manner of Acting. A majority of the entire
Board shall constitute a quorum for the transaction of business at any meeting,
except as provided in section 2.10. Action of the Board shall be authorized by
the vote of the majority of the directors present at the time of the vote, if
there is a quorum, unless otherwise provided by law or these by-laws. In the
absence of a quorum, a majority of the directors present may adjourn any
meeting from time to time until a quorum is present.
2.3 Place of Meetings. Meetings of the Board may be held in
or outside Delaware.
2.4 Annual and Regular Meetings. Annual meetings of the
Board, for the election of officers and consideration of other matters, shall
be held either (a) without notice immediately after the annual meeting of
stockholders and at the same place, or (b) as soon as practicable after the
annual meeting of stockholders, on notice as provided in section 2.6. Regular
meetings of the Board may be held without notice at such times and places as
the Board determines. If the day fixed for a regular meeting is a legal
holiday, the meeting shall be held on the next business day.
- 5 -
<PAGE> 6
2.5 Special Meetings. Special meetings of the Board maybe
called by the chairman of the board, the president or by a majority of the
directors.
2.6 Notice of Meeting; Waiver of Notice. Notice of the time
and place of each special meeting of the Board, and of each annual meeting not
held immediately after the annual meeting of stockholders and at the same
place, shall be given to each director by mailing it to him at his residence or
usual place of business at least three days before the meeting, or by
delivering or telephoning or telegraphing it to him at least two days before
the meeting. Notice of a special meeting also shall state the purpose or
purposes for which the meeting is called. Notice need not be given to any
director who submits a signed waiver of notice before or after the meeting or
who attends the meeting without protesting at the beginning of the meeting the
transaction of any business because the meeting was not lawfully called or
convened. Notice of any adjourned meeting need not be given, other than by
announcement at the meeting at which the adjournment is taken.
2.7 Board or Committee Action Without a Meeting. Any action
required or permitted to be taken by the Board or by any committee of the Board
may be taken without a meeting, if all the members of the Board or the
committee consent in writing to the adoption of a resolution authorizing the
action. The resolution and the written consents by the members of the Board or
the
- 6 -
<PAGE> 7
committee shall be filed with the minutes of the proceedings of the Board or
the committee.
2.8 Participation in Board or Committee Meetings by
Conference Telephone. Any or all members of the Board or any committee of the
Board may participate in a meeting of the Board or the committee by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at the meeting.
2.9 Resignation and Removal of Directors. Any director may
resign at any time by delivering his resignation in writing to the president or
secretary of the corporation, to take effect at the time specified in the
resignation; the acceptance of a resignation, unless required by its terms,
shall not be necessary to make it effective. Any or all of the directors may
be removed at any time, either with or without cause, by vote of a plurality of
the stockholders.
2.10 Vacancies. Any vacancy in the Board, including one
created by an increase in the number of directors, may be filled for the
unexpired term by a majority vote of the remaining directors, though less than
a quorum.
2.11 Compensation. Directors shall receive such compensation
as the Board determines, together with reimbursement of their reasonable
expenses in connection with the performance of
- 7 -
<PAGE> 8
their duties. A director also may be paid for serving the corporation or its
affiliates or subsidiaries in other capacities.
3. COMMITTEES.
3.1 Executive Committee. The Board, by resolution adopted by
a majority of the entire Board, may designate an executive committee of one or
more directors, which shall have all the powers and authority of the Board,
except as otherwise provided in the resolution, section 141(c) of the General
Corporation Law of Delaware or any other applicable law. The members of the
executive committee shall serve at the pleasure of the Board. All action of
the executive committee shall be reported to the Board at its next meeting.
3.2 Other Committees. The Board, by resolution adopted by a
majority of the entire Board, may designate other committees of one or more
directors, which shall serve at the Board's pleasure and have such powers and
duties as the Board determines.
3.3 Rules Applicable to Committees. The Board may designate
one or more directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the committee. In case of
the absence or disqualification of any member of a committee, the member or
members present at a meeting of the committee and not disqualified, whether or
not a quorum, may unanimously appoint another director to act at the meeting in
place of the absent or disqualified
- 8 -
<PAGE> 9
member. All action of a committee shall be reported to the Board at its next
meeting. Each committee shall adopt rules of procedure and shall meet as
provided by those rules or by resolutions of the Board.
4. OFFICERS.
4.1 Number; Security. The executive officers of the
corporation shall be the chairman of the board, the president, one or more vice
presidents (including an executive vice president, if the Board so determines),
a secretary and a treasurer. Any two or more offices may be held by the same
person. The board may require any officer, agent or employee to give security
for the faithful performance of his duties.
4.2 Election; Term of Office. The executive officers of the
corporation shall be elected annually by the Board, and each such officer shall
hold office until the next annual meeting of the Board and until the election
of his successor, subject to the provisions of section 4.4.
4.3 Subordinate Officers. The Board may appoint subordinate
officers (including assistant secretaries and assistant treasurers), agents or
employees, each of whom shall hold office for such period and have such powers
and duties as the Board determines. The Board may delegate to any executive
officer or committee the power to appoint and define the powers and duties of
any subordinate officers, agents or employees.
- 9 -
<PAGE> 10
4.4 Resignation and Removal of Officers. Any officer may
resign at any time by delivering his resignation in writing to the president or
secretary of the corporation, to take effect at the time specified in the
resignation; the acceptance of a resignation, unless required by its terms,
shall not be necessary to make it effective. Any officer elected or appointed
by the Board or appointed by an executive officer or by a committee may be
removed by the Board either with or without cause, and in the case of an
officer appointed by an executive officer or by a committee, by the officer or
committee that appointed him or by the president.
4.5 Vacancies. A vacancy in any office may be filled for the
unexpired term in the manner prescribed in sections 4.2 and 4.3 for election or
appointment to the office.
4.6 The Chairman of the Board. The chairman of the board,
who shall be a director of the corporation, shall be the chief executive
officer of the corporation. He shall preside at all meetings of the Board and
of the stockholders at which he shall be present. He shall have and may
exercise such powers as are, from time to time, assigned to him by the Board
and as may be provided by law.
4.7 The President. The president shall be the chief
operating officer of the corporation. In the absence of the chairman of the
board, he shall preside at all meetings of the Board and of the stockholders.
Subject to the direction and control of the Board, he shall have control of
general and active
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<PAGE> 11
management of the business of the corporation and shall see that all orders and
resolutions of the Board are carried into effect. He may execute contracts,
deeds, and other instruments on behalf of the corporation as are authorized by
the Board. He shall perform such additional functions and duties as the Board
may from time to time prescribe.
4.8 Vice President. Each vice president shall have such
powers and duties as the Board or the president assigns to him.
4.9 The Treasurer. The treasurer shall be the chief
financial officer of the corporation and shall be in charge of the
corporation's books and accounts. Subject to the control of the Board, he
shall have such other powers and duties as the Board or the president assigns
to him.
4.10 The Secretary. The secretary shall be the secretary of,
and keep the minutes of, all meetings of the Board and the stockholders, shall
be responsible for giving notice of all meetings of stockholders and the Board,
and shall keep the seal and, when authorized by the Board, apply it to any
instrument requiring it. Subject to the control of the Board, he shall have
such powers and duties as the Board or the president assigns to him. In the
absence of the secretary from any meeting, the minutes shall be kept by the
person appointed for that purpose by the presiding officer.
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<PAGE> 12
4.11 Salaries. The Board may fix the officers' salaries, if
any, or it may authorize the president to fix the salary of any other officer.
5. SHARES.
5.1 Certificates. The corporation's shares shall be
represented by certificates in the form approved by the Board. Each
certificate shall be signed by the president or a vice president, and by the
secretary or an assistant secretary or the treasurer or an assistant treasurer,
and shall be sealed with the corporation's seal or a facsimile of the seal.
Any or all of the signatures on the certificate may be a facsimile.
5.2 Transfers. Shares shall be transferable only on the
corporation's books, upon surrender of the certificate for the shares, properly
endorsed. The Board may require satisfactory surety before issuing a new
certificate to replace a certificate claimed to have been lost or destroyed.
5.3 Determination of Stockholders of Record. The Board may
fix, in advance, a date as the record date for the determination of
stockholders entitled to notice of or to vote at any meeting of the
shareholders, or to express consent to or dissent from any proposal without a
meeting, or to receive payment of any dividend or the allotment of any rights,
or for the purpose of any other action. The record date may not be more than
60 or
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<PAGE> 13
fewer than 10 days before the date of the meeting or more than 60 days before
any other action.
6. INDEMNIFICATION AND INSURANCE.
6.1 Right to Indemnification. Each person who was or is a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative (a
"proceeding"), by reason of the fact that he, or a person of whom he is the
legal representative, is or was a director or officer of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action or inaction in an
official capacity while serving as director, officer, employee or agent, shall
be indemnified and held harmless by the corporation to the fullest extent
permitted by the General Corporation Law of Delaware, as amended from time to
time, against all costs, charges, expenses, liabilities and losses (including
attorney's fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such
person in connection therewith, and that indemnification shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of his heirs, executors and administrators; provided,
however, that, except as provided in section 6.2, the corporation
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<PAGE> 14
shall indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by that person, only if that proceeding
(or part thereof) was authorized by the Board. The right to indemnification
conferred in these by-laws shall be a contract right and shall include the
right to be paid by the corporation the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however, that, if the
General Corporation Law of Delaware, as amended from time to time, requires,
the payment of such expenses incurred by a director or officer in his capacity
as a director or officer (and not in any other capacity in which service was or
is rendered by that person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding shall be made only upon delivery to the corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced, if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under these by-laws or otherwise.
The corporation may, by action of its Board, provide indemnification to
employees and agents of the corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
6.2 Right of Claimant to Bring Suit. If a claim under
section 6.1 is not paid in full by the corporation within 30 days after a
written claim has been received by the corporation, the claimant may at any
time thereafter bring suit against the corporation to recover the unpaid amount
of the claim and, if
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<PAGE> 15
successful in whole or in part, the claimant also shall be entitled to be paid
the expense of prosecuting that claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred
in defending any proceeding in advance of its final disposition, where the
required undertaking, if any, is required and has been tendered to the
corporation) that the claimant has failed to meet a standard of conduct that
makes it permissible under Delaware law for the corporation to indemnify the
claimant for the amount claimed. Neither the failure of the corporation
(including its Board, its independent legal counsel or its stockholders) to
have made a determination prior to the commencement of such action that
indemnification of the claimant is permissible in the circumstances because he
has met that standard of conduct, nor an actual determination by the
corporation (including its Board, its independent counsel or its stockholders)
that the claimant has not met that standard of conduct, shall be a defense to
the action or create a presumption that the claimant has failed to meet that
standard of conduct.
6.3 Non-Exclusivity of Rights. The right to indemnification
and the payment of expenses incurred in defending a proceeding in advance of
its final disposition conferred in this section 6 shall not be exclusive of any
other right any person may have or hereafter acquire under any statute,
provision of the certificate of incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
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<PAGE> 16
6.4 Insurance. The corporation may maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent of
the corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or not
the corporation would have the power to indemnify such person against that
expense, liability or loss under Delaware law.
6.5 Expenses as a Witness. To the extent any director,
officer, employee or agent of the corporation is by reason of such position, or
a position with another entity at the request of the corporation, a witness in
any action, suit or proceeding, he shall be indemnified against all costs and
expenses actually and reasonably incurred by him or on his behalf in connection
therewith.
6.6 Indemnity Agreements. The corporation may enter into
agreement with any director, officer, employee or agent of the corporation
providing for indemnification to the fullest extent permitted by Delaware law.
7. MISCELLANEOUS.
7.1 Seal. The Board shall adopt a corporate seal, which
shall be in the form of a circle and shall bear the corporation's name and the
year and state in which it was incorporated.
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<PAGE> 17
7.2 Fiscal Year. The Board may determine the corporation's
fiscal year. Until changed by the Board, the last day of the corporation's
fiscal year shall be December 31.
7.3 Voting of Shares in Other Corporations. Shares in other
corporations held by the corporation may be represented and voted by an officer
of this corporation or by a proxy or proxies appointed by one of them. The
Board may, however, appoint some other person to vote the shares.
7.4 Amendments. By-laws may be amended, repealed or adopted
by the directors and, to the extent provided by statute, by the stockholders.
[As amended and restated through June 16, 1995.]
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<PAGE> 1
EXHIBIT 4.2
OHS DRAFT
12/5/96
[FORM OF REPRESENTATIVE'S WARRANT AGREEMENT]
[SUBJECT TO ADDITIONAL REVIEW]
- --------------------------------------------------------------------------------
COMPLETE WELLNESS CENTERS, INC.
AND
NATIONAL SECURITIES CORPORATION
-----------------
REPRESENTATIVE'S
WARRANT AGREEMENT
DATED AS OF ________, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
REPRESENTATIVE'S WARRANT AGREEMENT dated as of _______, 1997
between COMPLETE WELLNESS CENTERS, INC., a Delaware corporation (the
"Company"), and NATIONAL SECURITIES CORPORATION (hereinafter referred to
variously as the "Holder" or the "Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative
warrants ("Warrants") to purchase up to an aggregate 100,000 shares of Common
Stock, $.001665 par value, of the Company and/or 100,000 redeemable common
stock purchase warrants of the Company ("Redeemable Warrants"), each Redeemable
Warrant to purchase one additional share of Common Stock; and
WHEREAS, the Representative has agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof between the Company and the several Underwriters listed therein to act
as the Representative in connection with the Company's proposed public offering
of up to 1,000,000 shares of Common Stock and 1,000,000 Redeemable Warrants
(the "Public Warrants") at a public offering price of $____ per share of Common
Stock and $.10 per Public Warrant (the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representative in consideration for, and as
part of the Representative's compensation in connection with, the
Representative acting as the Representative pursuant to the Underwriting
Agreement;
<PAGE> 3
NOW, THEREFORE, in consideration of the premises, the payment
by the Representative to the Company of an aggregate ten dollars ($10.00), the
agreements herein set forth and other good and valuable consideration, hereby
acknowledged, the parties hereto agree as follows:
1. Grant. The Representative (or its designees) is hereby
granted the right to purchase, at any time from _______, 1998 [one year from
the effective date of the Registration Statement], until 5:30 P.M., New York
time, on _______, 2002 [five years from the effective date of the Registration
Statement], up to an aggregate of 100,000 shares of Common Stock and/or 100,000
Redeemable Warrants at an initial exercise price (subject to adjustment as
provided in Section 8 hereof) of $____ per share of Common Stock [120% of the
initial public offering price per share] and $____ per Redeemable Warrant [120%
of the initial public offering price per Redeemable Warrant], subject to the
terms and conditions of this Agreement. One Redeemable Warrant is exercisable
to purchase one additional share of Common Stock at an initial exercise price
of $_____ [120% of the initial public offering price per share] from _______,
1998 [one year from the effective date of the registration statement] until
5:30 p.m. New York time on _____, 2002 [five years from the effective date of
the registration statement], at which time the Redeemable Warrants shall
expire. Except as set forth herein, the shares of Common Stock and the
Redeemable Warrants issuable upon exercise of the Warrants are in all respects
identical to the shares of Common Stock and the Public Warrants being purchased
by the Underwriters for resale to the public pursuant to the terms and
provisions of the Underwriting Agreement. The shares of Common Stock and the
Redeemable Warrants issuable upon exercise of the Warrants are sometimes
hereinafter referred to collectively as the "Securities."
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<PAGE> 4
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this
Agreement shall be in the form set forth in Exhibit A, attached hereto and made
a part hereof, with such appropriate insertions, omissions, substitutions, and
other variations as required or permitted by this Agreement.
3. Exercise of Warrant.
Section 3.1 Method of Exercise. The Warrants initially are
exercisable at an aggregate initial exercise price (subject to adjustment as
provided in Section 8 hereof) per share of Common Stock and Redeemable Warrant
set forth in Section 6 hereof payable by certified or official bank check in
New York Clearing House funds, subject to adjustment as provided in Section 8
hereof. Upon surrender of a Warrant Certificate with the annexed Form of
Election to Purchase duly executed, together with payment of the Exercise Price
(as hereinafter defined) for the shares of Common Stock and/or Redeemable
Warrants purchased at the Company's principal executive offices in New York
(presently located at 725 Independence Avenue, S.E., Washington, D.C. 20003)
the registered holder of a Warrant Certificate ("Holder" or "Holders") shall be
entitled to receive a certificate or certificates for the shares of Common
Stock so purchased and a certificate or certificates for the Redeemable
Warrants so purchased. The purchase rights represented by each Warrant
Certificate are exercisable at the option of the Holder thereof, in whole or in
part (but not as to fractional shares of the Common Stock and Redeemable
Warrants underlying the Warrants). In the event the Company redeems all of the
Public Warrants (other than the Redeemable Warrants underlying the Warrants),
then the Warrants may only be exercised if such exercise is accompanied by the
simultaneous exercise of the Redeemable Warrant(s) underlying the Warrants
being so exercised. Warrants may be exercised to purchase all or part of the
shares of Common Stock together with an equal or
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<PAGE> 5
unequal number of the Redeemable Warrants represented thereby. In the case of
the purchase of less than all the shares of Common Stock and/or Redeemable
Warrants purchasable under any Warrant Certificate, the Company shall cancel
said Warrant Certificate upon the surrender thereof and shall execute and
deliver a new Warrant Certificate of like tenor for the balance of the shares
of Common Stock and/or Redeemable Warrants purchasable thereunder.
Section 3.2 Exercise by Surrender of Warrant. In addition
to the method of payment set forth in Section 3.1 and in lieu of any cash
payment required thereunder, the Holder(s) of the Warrants shall have the right
at any time and from time to time to exercise the Warrants in full or in part
by surrendering the Warrant Certificate in the manner specified in Section 3.1
hereof. The number of shares of Common Stock to be issued pursuant to this
Section 3.2 shall be equal to the difference between (a) the number of shares
of Common Stock in respect of which the Warrants are exercised and (b) a
fraction, the numerator of which shall be number of shares of Common Stock in
respect of which the Warrants are exercised multiplied by the Exercise Price
and the denominator of which shall be the Market Price (as defined in Section
3.3 hereof) of the Common Stock. The number of Redeemable Warrants to be
issued pursuant to this Section 3.2 shall be equal to the difference between
(a) the number of Redeemable Warrants in respect of which the Warrants are
exercised and (b) a fraction, the numerator of which shall be the number of
Redeemable Warrants in respect of which the Warrants are exercised multiplied
by the Exercise Price and the denominator of which shall be the Market Price
(as defined in Section 3.3 hereof) of the Redeemable Warrants. Solely for the
purposes of this paragraph, Market Price shall be calculated either (i) on the
date on which the form of election attached hereto is deemed to have been sent
to the Company pursuant to Section 14
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<PAGE> 6
hereof ("Notice Date") or (ii) as the average of the Market Prices for each of
the five trading days preceding the Notice Date, whichever of (i) or (ii) is
greater.
Section 3.3 Definition of Market Price. As used herein, the
phrase "Market Price" at any date shall be deemed to be (i) when referring to
the Common Stock, the last reported sale price, or, in case no such reported
sale takes place on such day, the average of the last reported sale prices for
the last three (3) trading days, in either case as officially reported by the
principal securities exchange on which the Common Stock is listed or admitted
to trading or by the Nasdaq Small Cap Market ("Nasdaq Small Cap"), or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange or quoted by the National Association of Securities Dealers Automated
Quotation System ("Nasdaq"), the average closing bid price as furnished by the
National Association of Securities Dealers, Inc. ("NASD") through Nasdaq or
similar organization if Nasdaq is no longer reporting such information, or if
the Common Stock is not quoted on Nasdaq, as determined in good faith (using
customary valuation methods) by resolution of the members of the Board of
Directors of the Company, based on the best information available to it or (ii)
when referring to a Redeemable Warrant, the last reported sales price, or, in
the case no such reported sale takes place on such day, the average of the last
reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the
Redeemable Warrants are listed or admitted to trading or by Nasdaq Small Cap,
or, if the Redeemable Warrants are not listed or admitted to trading on any
national securities exchange or quoted by Nasdaq, the average closing bid price
as furnished by the NASD through Nasdaq or similar organization if Nasdaq is no
longer reporting such information, or if the Redeemable Warrants are not quoted
on Nasdaq or are no longer
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outstanding, the Market Price of a Redeemable Warrant shall equal the
difference between the Market Price of the Common Stock and the Exercise Price
of the Redeemable Warrant.
4. Issuance of Certificates. Upon the exercise of the
Warrants, the issuance of certificates for shares of Common Stock and/or
Redeemable Warrants and/or other securities, properties or rights underlying
such Warrants and, upon the exercise of the Redeemable Warrants, the issuance
of certificates for shares of Common Stock and/or other securities, properties
or rights underlying such Redeemable Warrants shall be made forthwith (and in
any event within five (5) business days thereafter) without charge to the
Holder thereof including, without limitation, any tax which may be payable in
respect of the issuance thereof, and such certificates shall (subject to the
provisions of Sections 5 and 7 hereof) be issued in the name of, or in such
names as may be directed by, the Holder thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any such certificates in
a name other than that of the Holder, and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
The Warrant Certificates and the certificates representing the
shares of Common Stock and the Redeemable Warrants underlying the Warrants and
the shares of Common Stock underlying the Redeemable Warrants (and/or other
securities, property or rights issuable upon the exercise of the Warrants or
the Redeemable Warrants) shall be executed on behalf of the Company by the
manual or facsimile signature of the then Chairman or Vice Chairman of the
Board of Directors or President or Vice President of the Company. Warrant
Certificates shall
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<PAGE> 8
be dated the date of execution by the Company upon initial issuance, division,
exchange, substitution or transfer. Certificates representing the shares of
Common Stock and Redeemable Warrants, and the shares of Common Stock underlying
each Redeemable Warrant (and/or other securities, property or rights issuable
upon exercise of the Warrants) shall be dated as of the Notice Date (regardless
of when executed or delivered) and dividend bearing securities so issued shall
accrue dividends from the Notice Date.
5. Restriction On Transfer of Warrants. The Holder of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to the
distribution thereof; that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the date hereof, except to officers of the Representative.
6. Exercise Price.
Section 6.1 Initial and Adjusted Exercise Price. Except as
otherwise provided in Section 8 hereof, the initial exercise price of each
Warrant shall be $____ [120% of the initial public offering price] per share of
Common Stock and $_____ per Redeemable Warrant [120% of the initial public
offering price per Public Warrant]. The adjusted exercise price shall be the
price which shall result from time to time from any and all adjustments of the
initial exercise price in accordance with the provisions of Section 8 hereof.
Any transfer of a Warrant shall constitute an automatic transfer and assignment
of the registration rights set forth in Section 7 hereof with respect to the
Securities or other securities, properties or rights underlying the Warrants.
Section 6.2 Exercise Price. The term "Exercise Price" herein
shall mean the initial exercise price or the adjusted exercise price, depending
upon the context or unless otherwise specified.
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<PAGE> 9
7. Registration Rights.
Section 7.1 Registration Under the Securities Act of 1933.
The Warrants, the shares of Common Stock and Redeemable Warrants or other
securities issuable upon exercise of the Warrants, and the shares of Common
Stock or other securities issuable upon exercise of the Redeemable Warrants
have not been registered under the Securities Act of 1933, as amended (the
"Act"). The Warrants, and upon exercise in part or in whole of the Warrants,
certificates representing the shares of Common Stock and the Redeemable
Warrants or other securities underlying the Warrants, and, upon exercise in
whole or in part of the Redeemable Warrants, certificates representing the
shares of Common Stock or other securities underlying the Redeemable Warrants
(all of the foregoing hereinafter collectively referred to as the "Warrant
Securities") shall bear a legend substantially similar to the following:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Act"), and may not be offered or sold except pursuant to (i)
an effective registration statement under the Act, (ii) to the
extent applicable, Rule 144 under the Act (or any similar rule
under such Act relating to the disposition of securities), or
(iii) an opinion of counsel, if such opinion shall be
reasonably satisfactory to counsel to the issuer, that an
exemption from registration under such Act is available.
Section 7.2 Piggyback Registration. If, at any time
commencing after the date hereof and expiring seven (7) years thereafter, the
Company proposes to register any of its securities under the Act (other than
pursuant to Form S-4, Form S-8 or a comparable registration statement) it will
give written notice by registered mail, at least thirty (30) days prior to the
filing of each such registration statement, to the Representative and to all
other Holders of the Warrants and/or the Warrant Securities of its intention to
do so. If the Representative or other Holders of the Warrants and/or Warrant
Securities notify the Company within twenty (20)
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<PAGE> 10
business days after receipt of any such notice of its or their desire to
include any such securities in such proposed registration statement, the
Company shall afford the Representative and such Holders of the Warrants and/or
Warrant Securities the opportunity to have any such Warrant Securities
registered under such registration statement.
Notwithstanding the provisions of this Section 7.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
Section 7.3 Demand Registration.
(a) At any time commencing after the date hereof and expiring
five (5) years thereafter, the Holders of the Warrants and/or Warrant
Securities representing a "Majority" (as hereinafter defined) of such
securities (assuming the exercise of all of the Warrants) shall have the right
(which right is in addition to the registration rights under Section 7.2
hereof), exercisable by written notice to the Company, to have the Company
prepare and file with the Securities and Exchange Commission (the
"Commission"), on one occasion, a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for the Representative and Holders, in
order to comply with the provisions of the Act, so as to permit a public
offering and sale of their respective Warrant Securities for nine (9)
consecutive months by such Holders and any other Holders of the Warrants and/or
Warrant Securities who notify the Company within ten (10) days after receiving
notice from the Company of such request.
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<PAGE> 11
(b) The Company covenants and agrees to give written notice
of any registration request under this Section 7.3 by any Holder or Holders to
all other registered Holders of the Warrants and the Warrant Securities within
ten (10) days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2
and subsection (a) of this Section 7.3, at any time commencing after the date
hereof and expiring five (5) years thereafter, any Holder of Warrants and/or
Warrant Securities shall have the right, exercisable by written request to the
Company, to have the Company prepare and file, on one occasion, with the
Commission a registration statement so as to permit a public offering and sale
for nine (9) consecutive months by any such Holder of its Warrant Securities
provided, however, that the provisions of Section 7.4(b) hereof shall not apply
to any such registration request and registration and all costs incident
thereto shall be at the expense of the Holder or Holders making such request.
(d) Notwithstanding anything to the contrary contained
herein, if the Company shall not have filed a registration statement for the
Warrant Securities within the time period specified in Section 7.4(a) hereof
pursuant to the written notice specified in Section 7.3(a) of a Majority of the
Holders of the Warrants and/or Warrant Securities, the Company may, at its
option, upon the written notice of election of a Majority of the Holders of the
Warrants and/or Warrant Securities requesting such registration, repurchase (i)
any and all Warrant Securities of such Holders at the higher of the Market
Price per share of Common Stock and per Redeemable Warrant on (x) the date of
the notice sent pursuant to Section 7.3(a) or (y) the expiration of the period
specified in Section 7.4(a) and (ii) any and all Warrants of such Holders at
such Market Price less the Exercise Price of such Warrant. Such repurchase
shall
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<PAGE> 12
be in immediately available funds and shall close within two (2) days after the
later of (i) the expiration of the period specified in Section 7.4(a) or (ii)
the delivery of the written notice of election specified in this Section
7.3(d).
Section 7.4 Covenants of the Company With Respect to
Registration. In connection with any registration under Section 7.2 or 7.3
hereof, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within thirty (30) days of receipt of any demand
therefor, shall use its best efforts to have any registration statements
declared effective at the earliest possible time, and shall furnish each Holder
desiring to sell Warrant Securities such number of prospectuses as shall
reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling commissions),
fees and expenses in connection with all registration statements filed pursuant
to Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. The
Holder(s) whose Warrant Securities are the subject of such registration
statement will pay all costs, fees and expenses in connection with any
registration statement filed pursuant to Section 7.3(c).
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided that
the Company shall not be obligated to execute or file any general
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<PAGE> 13
consent to service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each person,
if any, who controls such Holders within the meaning of Section 15 of the Act
or Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act,
the Exchange Act or otherwise, arising from such registration statement but
only to the same extent and with the same effect as the provisions pursuant to
which the Company has agreed to indemnify each of the Underwriters contained in
Section 7 of the Underwriting Agreement.
(e) The Holder(s) of the Warrant Securities to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage, expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their successors
or assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 7 of the
Underwriting Agreement pursuant to which the Underwriters have agreed to
indemnify the Company.
- 12 -
<PAGE> 14
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial filing
of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in any registration
statement filed pursuant to Section 7.3 hereof, or permit any other
registration statement to be or remain effective during the effectiveness of a
registration statement filed pursuant to Section 7.3 hereof, without the prior
written consent of the Holders of the Warrants and Warrant Securities
representing a Majority of such securities.
(h) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart, addressed
to such Holder or underwriter, of (i) an opinion of counsel to the Company,
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, an opinion dated the
date of the closing under the underwriting agreement), and (ii) a "cold
comfort" letter dated the effective date of such registration statement (and,
if such registration includes an underwritten public offering, a letter dated
the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in underwritten
public offerings of securities.
- 13 -
<PAGE> 15
(i) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
(j) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriters, copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the NASD. Such
investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable
times and as often as any such Holder or underwriter shall reasonably request.
(k) The Company shall enter into an underwriting agreement
with the managing underwriters selected for such underwriting by Holders
holding a Majority of the Warrant Securities requested to be included in such
underwriting, which may be the Representative. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such
managing underwriter(s), and shall contain such representations, warranties and
covenants by the Company and such other terms as are customarily contained in
agreements of that type used by the managing underwriter(s). The Holders shall
be parties to any underwriting
- 14 -
<PAGE> 16
agreement relating to an underwritten sale of their Warrant Securities and may,
at their option, require that any or all of the representations, warranties and
covenants of the Company to or for the benefit of such underwriter(s) shall
also be made to and for the benefit of such Holders. Such Holders shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriter(s) except as they may relate to such Holders and
their intended methods of distribution.
(l) In addition to the Warrant Securities, upon the written
request therefor by any Holder(s), the Company shall include in the
registration statement any other securities of the Company held by such
Holder(s) as of the date of filing of such registration statement, including
without limitation restricted shares of Common Stock, options, warrants or any
other securities convertible into shares of Common Stock.
(m) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrants or Warrant Securities, shall mean in
excess of fifty percent (50%) of the then outstanding Warrants or Warrant
Securities that (i) are not held by the Company, an affiliate, officer,
creditor, employee or agent thereof or any of their respective affiliates,
members of their family, persons acting as nominees or in conjunction therewith
and (ii) have not been resold to the public pursuant to a registration
statement filed with the Commission under the Act.
8. Adjustments to Exercise Price and Number of Securities.
Section 8.1 Subdivision and Combination. In case the Company
shall at any time subdivide or combine the outstanding shares of Common Stock,
the Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
- 15 -
<PAGE> 17
Section 8.2 Stock Dividends and Distributions. In case the
Company shall pay a dividend in, or make a distribution of, shares of Common
Stock or of the Company's capital stock convertible into Common Stock, the
Exercise Price shall forthwith be proportionately decreased. An adjustment
made pursuant to this Section 8.2 shall be made as of the record date for the
subject stock dividend or distribution.
Section 8.3 Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section 8,
the number of Warrant Securities issuable upon the exercise at the adjusted
exercise price of each Warrant shall be adjusted to the nearest full amount by
multiplying a number equal to the Exercise Price in effect immediately prior to
such adjustment by the number of Warrant Securities issuable upon exercise of
the Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
Section 8.4 Definition of Common Stock. For the purpose of
this Agreement, the term "Common Stock" shall mean (i) the class of stock
designated as Common Stock in the Certificate of Incorporation of the Company
as may be amended as of the date hereof, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value,
or from no par value to par value. In the event that the Company shall after
the date hereof issue securities with greater or superior voting rights than
the shares of Common Stock outstanding as of the date hereof, the Holder, at
its option, may receive upon exercise of any Warrant either the Warrant
Securities or a like number of such securities with greater or superior voting
rights.
- 16 -
<PAGE> 18
Section 8.5 Merger or Consolidation. In case of any
consolidation of the Company with, or merger of the Company with, or merger of
the Company into, another corporation (other than a consolidation or merger
which does not result in any reclassification or change of the outstanding
Common Stock), the corporation formed by such consolidation or merger shall
execute and deliver to the Holder a supplemental warrant agreement providing
that the holder of each Warrant then outstanding or to be outstanding shall
have the right thereafter (until the expiration of such Warrant) to receive,
upon exercise of such Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such consolidation or merger, by a
holder of the number of securities of the Company for which such Warrant might
have been exercised immediately prior to such consolidation, merger, sale or
transfer. Such supplemental warrant agreement shall provide for adjustments
which shall be identical to the adjustments provided in Section 8. The above
provision of this subsection shall similarly apply to successive consolidations
or mergers.
Section 8.6 No Adjustment of Exercise Price in Certain Cases.
No adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the
Warrant Securities issuable upon the exercise of the Warrants;
(b) If the amount of said adjustment shall be less
than two cents (2 cent.) per Warrant Security, provided,
however, that in such case any adjustment that would otherwise
be required then to be made shall be carried forward and shall
be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried
forward, shall amount to at least two cents (2 cent.) per
Warrant Security.
- 17 -
<PAGE> 19
9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holder at the principal executive office of the Company, for
a new Warrant Certificate of like tenor and date representing in the aggregate
the right to purchase the same number of Warrant Securities in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall
not be required to issue certificates representing fractions of shares of
Common Stock or Redeemable Warrants upon the exercise of the Warrants, nor
shall it be required to issue scrip or pay cash in lieu of fractional
interests, it being the intent of the parties that all fractional interests
shall be eliminated by rounding any fraction up to the nearest whole number of
shares of Common Stock or Redeemable Warrants or other securities, properties
or rights.
11. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants and
the Redeemable Warrants, such number of shares of Common Stock or other
securities, properties or rights as shall be issuable upon the exercise
thereof. The Company covenants and agrees that, upon exercise of the
- 18 -
<PAGE> 20
Warrants and payment of the Exercise Price therefor, all shares of Common
Stock, Redeemable Warrants and other securities issuable upon such exercise
shall be duly and validly issued, fully paid, non-assessable and not subject to
the preemptive rights of any stockholder. The Company further covenants and
agrees that upon exercise of the Redeemable Warrants underlying the Warrants
and payment of the respective Redeemable Warrant exercise price therefor, all
shares of Common Stock and other securities issuable upon such exercises shall
be duly and validly issued, fully paid, non-assessable and not subject to the
preemptive rights of any stockholder. As long as the Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Warrants and Redeemable Warrants
and all Redeemable Warrants underlying the Warrants to be listed (subject to
official notice of issuance) on all securities exchanges on which the Common
Stock or the Public Warrants issued to the public in connection herewith may
then be listed and/or quoted on Nasdaq Small Cap or Nasdaq.
12. Notices to Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote
or to consent or to receive notice as a stockholder in respect of any meetings
of stockholders for the election of directors or any other matter, or as having
any rights whatsoever as a stockholder of the Company. If, however, at any
time prior to the expiration of the Warrants and their exercise, any of the
following events shall occur:
(a) the Company shall take a record of the holders of
its shares of Common Stock for the purpose of entitling them
to receive a dividend or distribution payable otherwise than
in cash, or a cash dividend or distribution payable otherwise
than out of current or retained earnings or capital surplus
(in
- 19 -
<PAGE> 21
accordance with applicable law), as indicated by the
accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the
Company or securities convertible into or exchangeable for
shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or
merger) or a sale of all or substantially all of its property,
assets and business as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least thirty (30) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
13. Redeemable Warrants.
The form of the certificate representing Redeemable Warrants
(and the form of election to purchase shares of Common Stock upon the exercise
of Redeemable Warrants and the form of assignment printed on the reverse
thereof) shall be substantially as set forth in
- 20 -
<PAGE> 22
Exhibit "A" to the Warrant Agreement dated as of the date hereof by and between
the Company and Continental Stock Transfer and Trust Company (the "Redeemable
Warrant Agreement"). Each Redeemable Warrant issuable upon exercise of the
Warrants shall evidence the right to initially purchase a fully paid and
non-assessable share of Common Stock at an initial purchase price of $______
[120% of the Public Warrant offering price] from ______ 1998 [one year from the
effective date of the Registration Statement] until 5:30 p.m. New York time on
_________ 2002 [5 years from the effective date of the Registration Statement]
at which time the Redeemable Warrants, unless the exercise period has been
extended, shall expire. The exercise price of the Redeemable Warrants and the
number of shares of Common Stock issuable upon the exercise of the Redeemable
Warrants are subject to adjustment, whether or not the Warrants have been
exercised and the Redeemable Warrants have been issued, in the manner and upon
the occurrence of the events set forth in Section 8 of the Redeemable Warrant
Agreement, which is hereby incorporated herein by reference and made a part
hereof as if set forth in its entirety herein. Subject to the provisions of
this Agreement and upon issuance of the Redeemable Warrants underlying the
Warrants, each registered holder of such Redeemable Warrant shall have the
right to purchase from the Company (and the Company shall issue to such
registered holders) up to the number of fully paid and non-assessable shares of
Common Stock (subject to adjustment as provided herein and in the Redeemable
Warrant Agreement), free and clear of all preemptive rights of stockholders,
provided that such registered holder complies with the terms governing exercise
of the Redeemable Warrant set forth in the Redeemable Warrant Agreement, and
pays the applicable exercise price, determined in accordance with the terms of
the Redeemable Warrant Agreement. Upon exercise of the Redeemable Warrants,
the Company shall forthwith issue
- 21 -
<PAGE> 23
to the registered holder of any such Redeemable Warrant in his name or in such
name as may be directed by him, certificates for the number of shares of Common
Stock so purchased. Except as otherwise provided in this Agreement, the
Redeemable Warrants underlying the Warrants shall be governed in all respects
by the terms of the Redeemable Warrant Agreement. The Redeemable Warrants shall
be transferable in the manner provided in the Redeemable Warrant Agreement, and
upon any such transfer, a new Redeemable Warrant Certificate shall be issued
promptly to the transferee. The Company covenants to, and agrees with, the
Holder(s) that without the prior written consent of the Holder(s), which will
not be unreasonably withheld, the Redeemable Warrant Agreement will not be
modified, amended, canceled, altered or superseded, and that the Company will
send to each Holder, irrespective of whether or not the Warrants have been
exercised, any and all notices required by the Redeemable Warrant Agreement to
be sent to holders of Redeemable Warrants.
14. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holder of the Warrants, to
the address of such Holder as shown on the books of the
Company; or
(b) If to the Company, to the address set forth in
Section 3 hereof or to such other address as the Company may
designate by notice to the Holders.
15. Supplements and Amendments. The Company and the
Representative may from time to time supplement or amend this Agreement without
the approval of any Holders of Warrant Certificates (other than the
Representative) in order to cure any ambiguity, to
- 22 -
<PAGE> 24
correct or supplement any provision contained herein which may be defective or
inconsistent with any provisions herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and the
Representative may deem necessary or desirable and which the Company and the
Representative deem shall not adversely affect the interests of the Holders of
Warrant Certificates.
16. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holders and their respective successors and assigns hereunder.
17. Termination. This Agreement shall terminate at the close
of business on _______, 2004. Notwithstanding the foregoing, the
indemnification provisions of Section 7 shall survive such termination until
the close of business on _______, 2010.
18. Governing Law; Submission to Jurisdiction. This
Agreement and each Warrant Certificate issued hereunder shall be deemed to be a
contract made under the laws of the State of New York and for all purposes
shall be construed in accordance with the laws of said State without giving
effect to the rules of said State governing the conflicts of laws.
The Company, the Representative and the Holders hereby agree
that any action, proceeding or claim against it arising out of, or relating in
any way to, this Agreement shall be brought and enforced in the courts of the
State of New York or of the United States of America for the Southern District
of New York, and irrevocably submits to such jurisdiction, which jurisdiction
shall be exclusive. The Company, the Representative and the Holders hereby
irrevocably waive any objection to such exclusive jurisdiction or inconvenient
forum. Any such process or summons to be served upon any of the Company, the
Representative and the Holders (at the option of the party bringing such
action, proceeding or claim) may be
- 23 -
<PAGE> 25
served by transmitting a copy thereof, by registered or certified mail, return
receipt requested, postage prepaid, addressed to it at the address set forth in
Section 14 hereof. Such mailing shall be deemed personal service and shall be
legal and binding upon the party so served in any action, proceeding or claim.
The Company, the Representative and the Holders agree that the prevailing
party(ies) in any such action or proceeding shall be entitled to recover from
the other party(ies) all of its/their reasonable legal costs and expenses
relating to such action or proceeding and/or incurred in connection with the
preparation therefor.
19. Entire Agreement; Modification. This Agreement
(including the Underwriting Agreement and the Redeemable Warrant Agreement to
the extent portions thereof are referred to herein) contains the entire
understanding between the parties hereto with respect to the subject matter
hereof and may not be modified or amended except by a writing duly signed by
the party against whom enforcement of the modification or amendment is sought.
20. Severability. If any provision of this Agreement
shall be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision of this Agreement.
21. Captions. The caption headings of the Sections of
this Agreement are for convenience of reference only and are not intended, nor
should they be construed as, a part of this Agreement and shall be given no
substantive effect.
22. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Representative and any other registered Holder(s) of the Warrant
Certificates or Warrant Securities any legal or equitable right, remedy or
claim under this Agreement; and this Agreement shall be for the
- 24 -
<PAGE> 26
sole benefit of the Company and the Representative and any other registered
Holders of Warrant Certificates or Warrant Securities.
23. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and such counterparts shall together constitute but
one and the same instrument.
- 25 -
<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
COMPLETE WELLNESS CENTERS, INC.
By:
-------------------------------------
Name:
Title:
Attest:
- ----------------------------
Secretary
NATIONAL SECURITIES CORPORATION
By:
-------------------------------------
Name:
Title:
<PAGE> 28
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT
AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, __________, 2002
No. W-
Warrants to Purchase
____ Shares of Common Stock and/or
____ Redeemable Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that __________, or
registered assigns, is the registered holder of _____________ Warrants to
purchase initially, at any time from __________, 1998 [one year from the
effective date of the Registration Statement] until 5:30 p.m. New York time on
___________, 2002 [five years from the effective date of the Registration
Statement] ("Expiration Date"), up to __________ fully-paid and non-assessable
shares of common stock, $.001665 par value ("Common Stock"), of COMPLETE
WELLNESS CENTERS, INC., a Delaware corporation (the "Company"), and/or _____
Redeemable Warrants of the Company (one Redeemable Warrant entitling the owner
to purchase one fully-paid and non-assessable share of Common Stock) at the
initial exercise price, subject to adjustment in certain events (the "Exercise
Price"), of $______ [120% of the initial public offering price] per share of
Common Stock and $____ [120% of the initial public offering price] per
Redeemable Warrant upon surrender of this Warrant Certificate and payment of
the Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the warrant agreement dated as of _______,
1997 between the Company and NATIONAL SECURITIES
A-1
<PAGE> 29
CORPORATION (the "Warrant Agreement"). Payment of the Exercise Price shall be
made by certified or official bank check in New York Clearing House funds
payable to the order of the Company or by surrender of this Warrant
Certificate.
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the
rights of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and
for all other purposes, and the Company shall not be affected by any notice to
the contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the
Warrant Agreement.
A-2
<PAGE> 30
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of ___________, 1996
COMPLETE WELLNESS CENTERS, INC.
By:
-------------------------------------
Name:
Title:
A-3
<PAGE> 31
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase:
/ / shares of Common Stock;
-----------------------
/ / Redeemable Warrants;
-----------------------
/ / shares of Common Stock together with an equal
----------------------- number of Redeemable Warrants; or
/ / shares of Common Stock together with
-----------------------
Redeemable Warrants.
-----------------------
and herewith tenders in payment for such securities a certified or official
bank check payable in New York Clearing House Funds to the order of Complete
Wellness Centers, Inc. in the amount of $_______________________, all in
accordance with the terms of Section 3.1 of the Representative's Warrant
Agreement dated as of ______________________, 1997 between Complete Wellness
Centers, Inc. and National Securities Corporation. The undersigned requests
that a certificate for such securities be registered in the name of ______
_________________________ whose address is ___________________________________
and that such Certificate be delivered to ____________________________________
whose address is ______________________________________________.
Dated:
Signature
------------------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
-----------------------------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
A-4
<PAGE> 32
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
/ / shares of Common Stock;
-----------------------
/ / Redeemable Warrants;
-----------------------
/ / shares of Common Stock together with an equal
----------------------- number of Redeemable Warrants; or
/ / shares of Common Stock together with
-----------------------
Redeemable Warrants.
-----------------------
and herewith tenders in payment for such securities ________ Warrants all in
accordance with the terms of Section 3.2 of the Representative's Warrant
Agreement dated as of __________________, 1997 between Complete Wellness
Centers, Inc. and National Securities Corporation. The undersigned requests
that a certificate for such securities be registered in the name of
_______________ _________________________________________ whose address is
_________________________________________ and that such Certificate be
delivered to ______________________________________ whose address is
__________________________________________________.
Dated:
Signature
------------------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
-----------------------------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
A-5
<PAGE> 33
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ____________________________________ hereby sells,
assigns and transfers unto
________________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ______________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature:
-------------------------- ------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
----------------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
A-6
<PAGE> 1
EXHIBIT 4.3
OHS
DRAFT
11/11/96
[Form of Warrant Agreement Subject to Additional Review]
================================================================================
COMPLETE WELLNESS CENTERS, INC.
AND
AMERICAN STOCK TRANSFER AND TRUST COMPANY
-------------------
WARRANT AGREEMENT
DATED AS OF ___________ __, 1997
================================================================================
<PAGE> 2
AGREEMENT, dated this ____ day of __________, 1997, by and
among COMPLETE WELLNESS CENTERS, INC., a Delaware corporation (the "Company"),
and AMERICAN STOCK TRANSFER AND TRUST COMPANY, as Warrant Agent (the "Warrant
Agent").
W I T N E S S E T H:
WHEREAS, in connection with (i) the offering to the public of
up to 1,000,000 shares of Common Stock (as defined in Section 1) and 1,000,000
redeemable common stock purchase warrants (the "Warrants"), each warrant
entitling the holder thereof to purchase one additional share of Common Stock,
(ii) the over-allotment option to purchase up to an additional 150,000 shares
of Common Stock and/or 150,000 Warrants (the "Over-allotment Option"), and
(iii) the sale to National Securities Corporation ("National" or the
"Representative") of warrants (the "Representative's Warrants") to purchase up
to 100,000 shares of Common Stock and/or 100,000 Warrants, the Company will
issue up to 1,250,000 Warrants (subject to increase as provided in the
Representative's Warrant Agreement); and
WHEREAS, the Company desires to provide for the issuance of
certificates representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to so act, in
connection with the issuance, registration, transfer, exchange and redemption
of the Warrants, the issuance of certificates representing the Warrants, the
exercise of the Warrants and the rights of the holders thereof.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth and for the purpose of defining the
terms and provisions of the Warrants and the certificates representing the
Warrants and the respective rights and obligations thereunder
<PAGE> 3
of the Company, National, the holders of certificates representing the Warrants
and the Warrant Agent, the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms
shall have the following meanings, unless the context shall otherwise require:
(a) "Act" shall mean the Securities Act of 1933, as
amended.
(b) "Common Stock" shall mean the authorized stock
of the Company of any class, whether now or hereafter authorized, which has the
right to participate in the voting and in the distribution of earnings and
assets of the Company without limit as to amount or percentage.
(c) "Commission" shall mean the Securities and
Exchange Commission.
(d) "Corporate Office shall mean the office of the
Warrant Agent (or its successor) at which at any particular time its business
in New York, New York, shall be administered, which office is located on the
date hereof at 2 Broadway.
(e) "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
(f) "Exercise Date" shall mean, subject to the
provisions of Section 5(b) hereof, as to any Warrant, the date on which the
Warrant Agent shall have received both (i) the Warrant Certificate representing
such Warrant, with the exercise form thereon duly executed by the Registered
Holder thereof or his attorney duly authorized in writing, and (ii) payment in
cash or by official bank or certified check made payable to the Warrant Agent
for the account of the Company, of the amount in lawful money of the United
States of America equal to the applicable Purchase Price (as hereinafter
defined) in good funds.
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(g) "Initial Warrant Exercise Date" shall mean
_____________ __, 1997 [6 months from the effective date of the Registration
Statement].
(h) "Initial Warrant Redemption Date" shall mean
_______________ __, 1998 [18 months from the effective date of the Registration
Statement].
(i) "NASD" shall mean the National Association of
Securities Dealers, Inc.
(j) "Nasdaq" shall mean the Nasdaq Small Cap Market.
(k) "Purchase Price" shall mean, subject to
modification and adjustment as provided in Section 8, $_____ [120% of the
initial public offering price of the Common Stock] and further subject to the
Company's right, in its sole discretion, to decrease the Purchase Price for a
period of not less than 30 days on not less than 30 days' prior written notice
to the Registered Holders and National.
(l) "Redemption Date" shall mean the date (which may
not occur before the Initial Warrant Redemption Date) fixed for the redemption
of the Warrants in accordance with the terms hereof.
(m) "Redemption Price" shall mean the price at which
the Company may, at its option, redeem the Warrants, in accordance with the
terms hereof, which price shall be $0.10 per Warrant, subject to adjustment
from time to time pursuant to the provisions of Section 9 hereof.
(n) "Registered Holder" shall mean the person in
whose name any certificate representing the Warrants shall be registered on the
books maintained by the Warrant Agent pursuant to Section 6.
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<PAGE> 5
(o) "Transfer Agent" shall mean Continental Stock
Transfer and Trust Company, or its authorized successor.
(p) "Underwriting Agreement" shall mean the
underwriting agreement dated ______________ __, 1997 [the date of the
Prospectus] between the Company and the several underwriters listed therein
relating to the purchase for resale to the public of the 1,000,000 shares of
Common Stock and 1,000,000 Warrants.
(q) "Representative's Warrant Agreement" shall mean
the agreement dated as of _______________ __, 1997 [the date of the Prospectus]
between the Company and National relating to and governing the terms and
provisions of the Representative's Warrants.
(r) "Warrant Certificate" shall mean a certificate
representing each of the Warrants substantially in the form annexed hereto as
Exhibit A.
(s) "Warrant Expiration Date" shall mean, unless the
Warrants are redeemed as provided in Section 9 hereof prior to such date, 5:30
p.m. (New York time), on ______________ __, 2002 [60 months after the date of
the Prospectus], or the Redemption Date as defined herein, whichever date is
earlier; provided that if such date shall in the State of New York be a holiday
or a day on which banks are authorized to close, then 5:30 p.m. (New York time)
on the next following day which, in the State of New York, is not a holiday or
a day on which banks are authorized to close. Upon five business days' prior
written notice to the Registered Holders, the Company shall have the right to
extend the Warrant Expiration Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) Each Warrant shall initially entitle the
Registered Holder of the Warrant Certificate representing such Warrant to
purchase at the Purchase Price therefor from the Initial Warrant Exercise Date
until the Warrant Expiration Date one share of Common Stock
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<PAGE> 6
upon the exercise thereof in accordance with the terms hereof, subject to
modification and adjustment as provided in Section 8.
(b) Upon execution of this Agreement, Warrant
Certificates representing the number of Warrants sold pursuant to the
Underwriting Agreement (subject to modification and adjustment as provided in
Section 8) shall be executed by the Company and delivered to the Warrant Agent.
(c) Upon exercise of the Representative's Warrants as
provided therein, Warrant Certificates representing all or a portion of 100,000
Warrants to purchase up to an aggregate of 100,000 shares of Common Stock
(subject to modification and adjustment as provided in Section 8 hereof and in
the Representative's Warrant Agreement), shall be countersigned, issued and
delivered by the Warrant Agent upon written order of the Company signed by its
Chairman of the Board, Chief Executive Officer, President or a Vice President
and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant
Secretary.
(d) From time to time, up to the Warrant Expiration
Date or the Redemption Date, whichever date is earlier, the Warrant Agent shall
countersign and deliver Warrant Certificates in required denominations of one
or whole number multiples thereof to the person entitled thereto in connection
with any transfer or exchange permitted under this Agreement. Except as
provided herein, no Warrant Certificates shall be issued except (i) Warrant
Certificates initially issued hereunder and those issued on or after the
Initial Warrant Exercise Date, upon the exercise of fewer than all Warrants
held by the exercising Registered Holder, (ii) Warrant Certificates issued upon
any transfer or exchange of Warrants, (iii) Warrant Certificates issued in
replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Section 7, (iv) Warrant Certificates issued pursuant to the
Representative's Warrant
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Agreement, and (v) at the option of the Company, Warrant Certificates in such
form as may be approved by its Board of Directors, to reflect any adjustment or
change in the Purchase Price, the number of shares of Common Stock purchasable
upon exercise of the Warrants or the Redemption Price therefor made pursuant to
Section 8 hereof.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially
in the form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be listed, or to conform to usage. The Warrant Certificates shall
be dated the date of issuance thereof (whether upon initial issuance, transfer,
exchange or in lieu of mutilated, lost, stolen or destroyed Warrant
Certificates) and issued in registered form. Warrants shall be numbered
serially with the letter W on the Warrants.
(b) Warrant Certificates shall be executed on behalf
of the Company by its Chairman of the Board, Chief Executive Officer, President
or any Vice President and by its Treasurer or an Assistant Treasurer or its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned.
In case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be
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<PAGE> 8
such officer of the Company before the date of issuance of the Warrant
Certificates or before countersignature by the Warrant Agent and issue and
delivery thereof, such Warrant Certificates, nevertheless, may be countersigned
by the Warrant Agent, issued and delivered with the same force and effect as
though the person who signed such Warrant Certificates had not ceased to be
such officer of the Company. After countersignature by the Warrant Agent,
Warrant Certificates shall be delivered by the Warrant Agent to the Registered
Holder promptly and without further action by the Company, except as otherwise
provided by Section 4(a) hereof.
SECTION 4. Exercise.
(a) Warrants in denominations of one or whole number
multiples thereof may be exercised by the Registered Holder thereof commencing
at any time on or after the Initial Warrant Exercise Date, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein and in the applicable Warrant Certificate. A Warrant shall be deemed to
have been exercised immediately prior to the close of business on the Exercise
Date and the person entitled to receive the securities deliverable upon such
exercise shall be treated for all purposes as the holder, upon exercise
thereof, as of the close of business on the Exercise Date. If Warrants in
denominations other than whole number multiples thereof shall be exercised at
one time by the same Registered Holder, the number of full shares of Common
Stock which shall be issuable upon exercise thereof shall be computed on the
basis of the aggregate number of full shares of Common Stock issuable upon such
exercise. As soon as practicable on or after the Exercise Date and in any
event within five business days after such date, if one or more Warrants have
been exercised, the Warrant Agent on behalf of the Company shall cause to be
issued to the person or persons entitled to receive the same a Common Stock
certificate or certificates for the shares of Common Stock deliverable upon
such
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<PAGE> 9
exercise, and the Warrant Agent shall deliver the same to the person or
persons entitled thereto. Upon the exercise of any one or more Warrants, the
Warrant Agent shall promptly notify the Company in writing of such fact and of
the number of securities delivered upon such exercise and, subject to
subsection (b) below, shall cause all payments of an amount in cash or by check
made payable to the order of the Company, equal to the Purchase Price, to be
deposited promptly in the Company's bank account.
(b) At any time upon the exercise of any Warrants
after one year and one day from the date hereof, the Warrant Agent shall, on a
daily basis, within two business days after such exercise, notify National of
the exercise of any such Warrants and shall, on a weekly basis (subject to
collection of funds constituting the tendered Purchase Price, but in no event
later than five business days after the last day of the calendar week in which
such funds were tendered), remit to National an amount equal to five percent
(5%) of the Purchase Price of such Warrants then being exercised unless
National shall have notified the Warrant Agent that the payment of such amount
with respect to such Warrant is violative of the General Rules and Regulations
promulgated under the Exchange Act, or the rules and regulations of the NASD or
applicable state securities or "blue sky" laws, or the Warrants are those
underlying the Representative's Warrants in which event, the Warrant Agent
shall have to pay such amount to the Company; provided, that the Warrant Agent
shall not be obligated to pay any amounts pursuant to this Section 4(b) during
any week that such amounts payable are less than $1,000 and the Warrant Agent's
obligation to make such payments shall be suspended until the amount payable
aggregates $1,000, and provided further, that, in any event, any such payment
(regardless of amount) shall be made not less frequently than monthly.
Notwithstanding the foregoing, National shall be entitled to receive the
commission contemplated by this Section 4(b)
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<PAGE> 10
as Warrant solicitation agent only if: (i) National has provided actual
services in connection with the solicitation of the exercise of a Warrant by a
Registered Holder and (ii) the Registered Holder exercising a Warrant
affirmatively designates in writing on the exercise form on the reverse side of
the Warrant Certificate that the exercise of such Registered Holder's Warrant
was solicited by National.
(c) The Company shall not be required to issue
fractional shares on the exercise of Warrants. Warrants may only be exercised
in such multiples as are required to permit the issuance by the Company of one
or more whole shares. If one or more Warrants shall be presented for exercise
in full at the same time by the same Registered Holder, the number of whole
shares which shall be issuable upon such exercise thereof shall be computed on
the basis of the aggregate number of shares purchasable on exercise of the
Warrants so presented. If any fraction of a share would, except for the
provisions provided herein, be issuable on the exercise of any Warrant (or
specified portion thereof), the Company shall pay an amount in cash equal to
such fraction multiplied by the then current market value of a share of Common
Stock, determined as follows:
(1) If the Common Stock is listed, or admitted to
unlisted trading privileges on a national securities exchange, or is traded on
Nasdaq, the current market value of a share of Common Stock shall be the
closing sale price of the Common Stock at the end of the regular trading
session on the last business day prior to the date of exercise of the Warrants
on whichever of such exchanges or Nasdaq had the highest average daily trading
volume for the Common Stock on such day; or
(2) If the Common Stock is not listed or admitted to
unlisted trading privileges on any national securities exchange, or listed,
quoted or reported for trading on Nasdaq, but is
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<PAGE> 11
traded in the over-the-counter market, the current market value of a share of
Common Stock shall be the average of the last reported bid and asked prices of
the Common Stock reported by the National Quotation Bureau, Inc. on the last
business day prior to the date of exercise of the Warrants; or
(3) If the Common Stock is not listed, admitted to
unlisted trading privileges on any national securities exchange, or listed,
quoted or reported for trading on Nasdaq, and bid and asked prices of the
Common Stock are not reported by the National Quotation Bureau, Inc., the
current market value of a share of Common Stock shall be an amount, not less
than the book value thereof as of the end of the most recently completed fiscal
quarter of the Company ending prior to the date of exercise, determined by the
members of the Board of Directors of the Company exercising good faith and
using customary valuation methods.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes;
etc.
(a) The Company covenants that it will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issue upon exercise of Warrants, such number of shares of Common
Stock as shall then be issuable upon the exercise of all outstanding Warrants.
The Company covenants that all shares of Common Stock which shall be issuable
upon exercise of the Warrants shall, at the time of delivery thereof, be duly
and validly issued and fully paid and nonassessable and free from all
preemptive or similar rights, taxes, liens and charges with respect to the
issue thereof, and that upon issuance such shares shall be listed on each
securities exchange, if any, on which the other shares of outstanding Common
Stock of the Company are then listed.
(b) The Company covenants that if any securities to
be reserved for the purpose of exercise of Warrants hereunder require
registration with, or approval of, any
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<PAGE> 12
governmental authority under any federal securities law before such securities
may be validly issued or delivered upon such exercise, then the Company will
file a registration statement under the federal securities laws or a
post-effective amendment, use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding and deliver a prospectus which complies with Section
10(a)(3) of the Act, to the Registered Holder exercising the Warrant (except,
if in the opinion of counsel to the Company, such registration is not required
under the federal securities law or if the Company receives a letter from the
staff of the Commission stating that it would not take any enforcement action
if such registration is not effected). The Company will use its best efforts
to obtain appropriate approvals or registrations under state "blue sky"
securities laws with respect to any such securities. However, Warrants may not
be exercised by, or shares of Common Stock issued to, any Registered Holder in
any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or
similar taxes and other governmental charges that may be imposed with respect
to the issuance of Warrants, or the issuance or delivery of any shares of
Common Stock upon exercise of the Warrants; provided, however, that if shares
of Common Stock are to be delivered in a name other than the name of the
Registered Holder of the Warrant Certificate representing any Warrant being
exercised, then no such delivery shall be made unless the person requesting the
same has paid to the Warrant Agent the amount of transfer taxes or charges
incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably
authorized as the Transfer Agent to requisition from time to time certificates
representing shares of Common Stock or other securities required upon exercise
of the Warrants, and the Company will comply with all such requisitions.
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SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other
Warrant Certificates representing an equal aggregate number of Warrants of the
same class or may be transferred in whole or in part. Warrant Certificates to
be exchanged shall be surrendered to the Warrant Agent at its Corporate Office,
and, upon satisfaction of the terms and provisions hereof, the Company shall
execute and the Warrant Agent shall countersign, issue and deliver in exchange
therefor the Warrant Certificate or Certificates which the Registered Holder
making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep, at its office,
books in which, subject to such reasonable regulations as it may prescribe, it
shall register Warrant Certificates and the transfer thereof in accordance with
customary practice. Upon due presentment for registration of transfer of any
Warrant Certificate at such office, the Company shall execute and the Warrant
Agent shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants
of the same class.
(c) With respect to all Warrant Certificates
presented for registration of transfer, or for exchange or exercise, the
subscription or exercise form, as the case may be, on the reverse thereof shall
be duly endorsed or be accompanied by a written instrument or instruments of
transfer and subscription, in form satisfactory to the Company and the Warrant
Agent, duly executed by the Registered Holder thereof or his attorney-in-fact
duly authorized in writing.
(d) A service charge may be imposed by the Warrant
Agent for any exchange or registration of transfer of Warrant Certificates. In
addition, the Company may
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require payment by such Holder of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for
exercise or for exchange in case of mutilated Warrant Certificates shall be
promptly canceled by the Warrant Agent and thereafter retained by the Warrant
Agent until termination of this Agreement.
(f) Prior to due presentment for registration of
transfer thereof, the Company and the Warrant Agent may deem and treat the
Registered Holder of any Warrant Certificate as the absolute owner thereof and
of each Warrant represented thereby (notwithstanding any notations of ownership
or writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company
and the Warrant Agent of evidence satisfactory to them of the ownership of and
the loss, theft, destruction or mutilation of any Warrant Certificate and (in
the case of loss, theft or destruction) of indemnity satisfactory to them, and
(in case of mutilation) upon surrender and cancellation thereof, the Company
shall execute and the Warrant Agent shall (in the absence of notice to the
Company and/or the Warrant Agent that a new Warrant Certificate has been
acquired by a bona fide purchaser) countersign and deliver to the Registered
Holder in lieu thereof a new Warrant Certificate of like tenor representing an
equal aggregate number of Warrants. Applicants for a substitute Warrant
Certificate shall also comply with such other reasonable regulations and pay
such other reasonable charges as the Warrant Agent may prescribe.
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SECTION 8. Adjustment of Purchase Price and Number of Shares
of Common Stock Deliverable.
(a) Except as hereinafter provided, in the event the
Company shall, at any time or from time to time after the date hereof and prior
to the Warrant Expiration Date, issue or sell any shares of Common Stock for a
consideration per share less than the Purchase Price or issue any shares of
Common Stock as a stock dividend to the holders of Common Stock, or subdivide
or combine the outstanding shares of Common Stock into a greater or lesser
number of shares (any such issuance, subdivision or combination being herein
called a "Change of Shares"), then, and thereafter upon each further Change of
Shares, the Purchase Price for the Warrants (whether or not the same shall be
issued and outstanding) in effect immediately prior to such Change of Shares
shall be changed to a price (including any applicable fraction of a cent to the
nearest cent) determined by dividing (i) the sum of (a) the total number of
shares of Common Stock outstanding immediately prior to such Change of Shares,
multiplied by the Purchase Price in effect immediately prior to such Change of
Shares and (b) the consideration, if any, received by the Company upon such
sale, issuance, subdivision or combination, by (ii) the total number of shares
of Common Stock outstanding immediately after such Change of Shares; provided,
however, that in no event shall the Purchase Price be adjusted pursuant to this
computation to an amount in excess of the Purchase Price in effect immediately
prior to such computation, except in the case of a combination of outstanding
shares of Common Stock.
For the purposes of any adjustment to be made in accordance
with this Section 8(a), the following provisions shall be applicable:
(A) In case of the issuance or sale of shares of
Common Stock (or of other securities deemed hereunder to involve the issuance
or sale of shares of Common Stock) for a
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consideration part or all of which shall be cash, the amount of the cash
portion of the consideration therefor deemed to have been received by the
Company shall be (i) the subscription price, if shares of Common Stock are
offered by the Company for subscription, or (ii) the public offering price
(before deducting therefrom any compensation paid or discount allowed in the
sale, underwriting or purchase thereof by underwriters or dealers or others
performing similar services, or any expenses incurred in connection therewith),
if such securities are sold to underwriters or dealers for public offering
without a subscription offering, or (iii) the gross amount of cash actually
received by the Company for such securities, in any other case.
(B) In case of the issuance or sale (otherwise than
as a dividend or other distribution on any stock of the Company, and otherwise
than on the exercise of options, rights or warrants or the conversion or
exchange of convertible or exchangeable securities) of shares of Common Stock
(or of other securities deemed hereunder to involve the issuance or sale of
shares of Common Stock) for a consideration part or all of which shall be other
than cash, the amount of the consideration therefor other than cash deemed to
have been received by the Company shall be the value of such consideration as
determined in good faith by the Board of Directors of the Company, using
customary valuation methods and on the basis of prevailing market values for
similar property or services.
(C) Shares of Common Stock issuable by way of
dividend or other distribution on any stock of the Company shall be deemed to
have been issued immediately after the opening of business on the day following
the record date for the determination of shareholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued without
consideration.
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(D) The reclassification of securities of the Company
other than shares of Common Stock into securities including shares of Common
Stock shall be deemed to involve the issuance of such shares of Common Stock
for a consideration other than cash immediately prior to the close of business
on the date fixed for the determination of security holders entitled to receive
such shares, and the value of the consideration allocable to such shares of
Common Stock shall be determined as provided in subsection (B) of this Section
8(a).
(E) The number of shares of Common Stock at any one
time outstanding shall be deemed to include the aggregate maximum number of
shares issuable (subject to readjustment upon the actual issuance thereof) upon
the exercise of options, rights or warrants and upon the conversion or exchange
of convertible or exchangeable securities.
(b) Upon each adjustment of the Purchase Price
pursuant to this Section 8, the number of shares of Common Stock purchasable
upon the exercise of each Warrant shall be the number derived by multiplying
the number of shares of Common Stock purchasable immediately prior to such
adjustment by the Purchase Price in effect prior to such adjustment and
dividing the product so obtained by the applicable adjusted Purchase Price.
(c) In case the Company shall at any time after the
date hereof issue options, rights or warrants to subscribe for shares of Common
Stock, or issue any securities convertible into or exchangeable for shares of
Common Stock, for a consideration per share (determined as provided in Sections
8(a) and 8(b) and as provided below) less than the Purchase Price in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities, or without consideration (including the
issuance of any such securities by way of dividend or other distribution), the
Purchase Price for the Warrants (whether or not the same shall be issued and
outstanding) in effect immediately prior to the
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issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making the computation in accordance with the provisions of
Sections 8(a) and 8(b) hereof, provided that:
(A) The aggregate maximum number of shares of Common
Stock, as the case may be, issuable or that may become issuable under such
options, rights or warrants (assuming exercise in full even if not then
currently exercisable or currently exercisable in full) shall be deemed to be
issued and outstanding at the time such options, rights or warrants were
issued, for a consideration equal to the minimum purchase price per share
provided for in such options, rights or warrants at the time of issuance, plus
the consideration, if any, received by the Company for such options, rights or
warrants; provided, however, that upon the expiration or other termination of
such options, rights or warrants, if any thereof shall not have been exercised,
the number of shares of Common Stock deemed to be issued and outstanding
pursuant to this subsection (A) (and for the purposes of subsection (E) of
Section 8(a) hereof) shall be reduced by the number of shares as to which
options, warrants and/or rights shall have expired, and such number of shares
shall no longer be deemed to be issued and outstanding, and the Purchase Price
then in effect shall forthwith be readjusted and thereafter be the price that
it would have been had adjustment been made on the basis of the issuance only
of the shares actually issued plus the shares remaining issuable upon the
exercise of those options, rights or warrants as to which the exercise rights
shall not have expired or terminated unexercised.
(B) The aggregate maximum number of shares of Common
Stock issuable or that may become issuable upon conversion or exchange of any
convertible or exchangeable securities (assuming conversion or exchange in full
even if not then currently convertible or exchangeable in full) shall be deemed
to be issued and outstanding at the time of issuance of
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such securities, for a consideration equal to the consideration received by the
Company for such securities, plus the minimum consideration, if any, receivable
by the Company upon the conversion or exchange thereof; provided, however, that
upon the termination of the right to convert or exchange such convertible or
exchangeable securities (whether by reason of redemption or otherwise), the
number of shares of Common Stock deemed to be issued and outstanding pursuant
to this subsection (B) (and for the purposes of subsection (E) of Section 8(a)
hereof) shall be reduced by the number of shares as to which the conversion or
exchange rights shall have expired or terminated unexercised, and such number
of shares shall no longer be deemed to be issued and outstanding, and the
Purchase Price then in effect shall forthwith be readjusted and thereafter be
the price that it would have been had adjustment been made on the basis of the
issuance only of the shares actually issued plus the shares remaining issuable
upon conversion or exchange of those convertible or exchangeable securities as
to which the conversion or exchange rights shall not have expired or terminated
unexercised.
(C) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in
subsection (A) of this Section 8(c), or in the price per share or ratio at
which the securities referred to in subsection (B) of this Section 8(c) are
convertible or exchangeable, such options, rights or warrants or conversion or
exchange rights, as the case may be, to the extent not theretofore exercised,
shall be deemed to have expired or terminated on the date when such price
change became effective in respect of shares not theretofore issued pursuant to
the exercise or conversion or exchange thereof, and the Company shall be deemed
to have issued upon such date new options, rights or warrants or convertible or
exchangeable securities.
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<PAGE> 20
(d) In case of any reclassification or change of
outstanding shares of Common Stock issuable upon exercise of the Warrants
(other than a change in par value, or from par value to no par value, or from
no par value to par value or as a result of a subdivision or combination), or
in case of any consolidation or merger of the Company with or into another
corporation (other than a merger with a subsidiary of the Company in which
merger the Company is the continuing corporation) and which does not result in
any reclassification or change of the then outstanding shares of Common Stock
or other capital stock issuable upon exercise of the Warrants (other than a
change in par value, or from par value to no par value, or from no par value to
par value or as a result of subdivision or combination) or in case of any sale
or conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety, then, as a condition of such
reclassification, change, consolidation, merger, sale or conveyance, the
Company, or such successor or purchasing corporation, as the case may be, shall
make lawful and adequate provision whereby the Registered Holder of each
Warrant then outstanding shall have the right thereafter to receive on exercise
of such Warrant the kind and amount of securities and property receivable upon
such reclassification, change, consolidation, merger, sale or conveyance by a
holder of the number of securities issuable upon exercise of such Warrant
immediately prior to such reclassification, change, consolidation, merger, sale
or conveyance and shall forthwith file at the Corporate Office of the Warrant
Agent a statement signed by its Chief Executive Officer, President or a Vice
President and by its Treasurer or an Assistant Treasurer or its Secretary or an
Assistant Secretary evidencing such provision. Such provisions shall include
provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in Sections 8(a), (b) and (c). The
above provisions of this Section 8(d) shall similarly apply to successive
reclassifications and
19
<PAGE> 21
changes of shares of Common Stock and to successive consolidations, mergers,
sales or conveyances.
(e) Irrespective of any adjustments or changes in the
Purchase Price or the number of shares of Common Stock purchasable upon
exercise of the Warrants, the Warrant Certificates theretofore and thereafter
issued shall, unless the Company shall exercise its option to issue new Warrant
Certificates pursuant to Section 2(e) hereof, continue to express the Purchase
Price per share and the number of shares purchasable thereunder as the Purchase
Price per share and the number of shares purchasable thereunder were expressed
in the Warrant Certificates when the same were originally issued.
(f) After each adjustment of the Purchase Price
pursuant to this Section 8, the Company will promptly prepare a certificate
signed by the Chairman, Chief Executive Officer or President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary,
of the Company setting forth: (i) the Purchase Price as so adjusted, (ii) the
number of shares of Common Stock purchasable upon exercise of each Warrant,
after such adjustment, and (iii) a brief statement of the facts accounting for
such adjustment. The Company will promptly file such certificate with the
Warrant Agent and cause a brief summary thereof to be sent by ordinary first
class mail to each Registered Holder at his last address as it shall appear on
the registry books of the Warrant Agent. No failure to mail such notice nor
any defect therein or in the mailing thereof shall affect the validity thereof
except as to the holder to whom the Company failed to mail such notice, or
except as to the holder whose notice was defective. The affidavit of an
officer of the Warrant Agent or the Secretary or an Assistant Secretary of the
Company that such notice has been mailed shall, in the absence of fraud, be
prima facie evidence of the facts stated therein.
20
<PAGE> 22
(g) No adjustment of the Purchase Price shall be
made as a result of or in connection with (A) the issuance or sale of shares of
Common Stock pursuant to options, warrants, stock purchase agreements and
convertible or exchangeable securities outstanding or in effect on the date
hereof and on the terms described in the final prospectus relating to the
public offering contemplated by the Underwriting Agreement; or (B) the issuance
or sale of shares of Common Stock if the amount of said adjustment shall be
less than $.10, provided, however, that in such case, any adjustment that would
otherwise be required then to be made shall be carried forward and shall be
made at the time of and together with the next subsequent adjustment that shall
amount, together with any adjustment so carried forward, to at least $.10. In
addition, Registered Holders shall not be entitled to cash dividends paid by
the Company prior to the exercise of any Warrant or Warrants held by them.
SECTION 9. Redemption.
(a) Commencing on the Initial Warrant Redemption
Date, the Company may, on 30 days' prior written notice, redeem all the
Warrants at ten cents ($.10) per Warrant, provided, however, that before any
such call for redemption of Warrants can take place, the average closing bid
price for the Common Stock as reported by Nasdaq, if the Common Stock is then
traded on Nasdaq (or the closing sale price, if the Common Stock is then traded
on a national securities exchange) shall have equalled or exceeded $______
[160% of the initial public offering price per share of Common Stock] per share
for any twenty (20) trading days within a period of thirty (30) consecutive
trading days ending on the fifth trading day prior to the date on which the
notice contemplated by (b) and (c) below is given (subject to adjustment in the
event of any stock splits or other similar events as provided in Section 8
hereof).
21
<PAGE> 23
(b) In case the Company shall exercise its right to
redeem all of the Warrants, it shall give or cause to be given notice to the
Registered Holders of the Warrants, by mailing to such Registered Holders a
notice of redemption, first class, postage prepaid, at their last address as
shall appear on the records of the Warrant Agent. Any notice mailed in the
manner provided herein shall be conclusively presumed to have been duly given
whether or not the Registered Holder receives such notice. Not less than five
(5) business days prior to the mailing to the Registered Holders of the
Warrants of the notice of redemption, the Company shall deliver or cause to be
delivered to National a similar notice telephonically and confirmed in writing
together with a list of the Registered Holders (including their respective
addresses and number of Warrants beneficially owned) to whom such notice of
redemption has been or will be given.
(c) The notice of redemption shall specify (i) the
redemption price, (ii) the Redemption Date, which shall in no event be less
than thirty (30) days after the date of mailing of such notice, (iii) the place
where the Warrant Certificate shall be delivered and the redemption price
shall be paid, (iv) if National is engaged as a Warrant solicitation agent,
that National shall receive the commission contemplated by Section 4(b) hereof,
and (v) that the right to exercise the Warrant shall terminate at 5:30 p.m.
(New York time) on the business day immediately preceding the date fixed for
redemption. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of the proceedings for such
redemption except as to a holder (a) to whom notice was not mailed or (b) whose
notice was defective. An affidavit of the Warrant Agent or the Secretary or
Assistant Secretary of the Company that notice of redemption has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.
22
<PAGE> 24
(d) Any right to exercise a Warrant shall terminate
at 5:30 p.m. (New York time) on the business day immediately preceding the
Redemption Date. The redemption price payable to the Registered Holders shall
be mailed to such persons at their addresses of record.
(e) The Company shall indemnify National and each
person, if any, who controls National within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
any of them may become subject under the Act, the Exchange Act or otherwise,
arising from the registration statement or prospectus referred to in Section
5(b) hereof to the same extent and with the same effect (including the
provisions regarding contribution) as the provisions pursuant to which the
Company has agreed to indemnify National contained in Section 7 of the
Underwriting Agreement.
(f) Five business days prior to the Redemption Date,
the Company shall furnish to National (i) an opinion of counsel to the Company,
dated such date and addressed to National, and (ii) a "cold comfort" letter
dated such date addressed to National, signed by the independent public
accountants who have issued a report on the Company's financial statements
included in such registration statement, in each case covering substantially
the same matters with respect to such registration statement (and the
prospectus included therein) and, in the case of such accountants' letter, with
respect to events subsequent to the date of such financial
23
<PAGE> 25
statements, as are customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten public offerings
of securities.
SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in
a ministerial capacity for the Company and National, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder, be
deemed to make any representations as to the validity or value or authorization
of the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be under
any duty or responsibility to any holder of Warrant Certificates to make or
cause to be made any adjustment of the Purchase Price or the Redemption Price
provided in this Agreement, or to determine whether any fact exists which may
require any such adjustments, or with respect to the nature or extent of any
such adjustments, when made, or with respect to the method employed in making
the same. It shall not (i) be liable for any recital or statement of fact
contained herein or for any action taken, suffered or omitted by it in reliance
on any Warrant Certificate or other document or instrument believed by it in
good faith to be genuine and to have been signed or presented by the proper
party or parties, (ii) be responsible for any failure on the part of the
Company to comply with any of its covenants and obligations contained in this
Agreement or in any Warrant Certificate, or (iii) be liable for any act or
omission in connection with this Agreement except for its own negligence, bad
faith or willful misconduct.
24
<PAGE> 26
(c) The Warrant Agent may at any time consult with
counsel satisfactory to it (who may be counsel for the Company or for National)
and shall incur no liability or responsibility for any action taken, suffered
or omitted by it in good faith in accordance with the opinion or advice of such
counsel.
(d) Any notice, statement, instruction, request,
direction, order or demand of the Company shall be sufficiently evidenced by an
instrument signed by the Chairman of the Board of Directors, Chief Executive
Officer, President or any Vice President (unless other evidence in respect
thereof is herein specifically prescribed). The Warrant Agent shall not be
liable for any action taken, suffered or omitted by it in accordance with such
notice, statement, instruction, request, direction, order or demand reasonably
believed by it to be genuine.
(e) The Company agrees to pay the Warrant Agent
reasonable compensation for its services hereunder and to reimburse it for its
reasonable expenses hereunder; the Company further agrees to indemnify the
Warrant Agent and save it harmless from and against any and all losses,
expenses and liabilities, including judgments, costs and counsel fees, for
anything done or omitted by the Warrant Agent in the execution of its duties
and powers hereunder except losses, expenses and liabilities arising as a
result of the Warrant Agent's negligence, bad faith or willful misconduct.
(f) The Warrant Agent may resign its duties and be
discharged from all further duties and liabilities hereunder (except
liabilities arising as a result of the Warrant Agent's own gross negligence or
willful misconduct), after giving 30 days' prior written notice to the Company.
At least 15 days prior to the date such resignation is to become effective, the
Warrant Agent shall cause a copy of such notice of resignation to be mailed to
the Registered Holder of each Warrant Certificate at the Company's expense.
Upon such resignation, or any
25
<PAGE> 27
inability of the Warrant Agent to act as such hereunder, the Company shall
appoint in writing a new warrant agent. If the Company shall fail to make such
appointment within a period of 15 days after it has been notified in writing of
such resignation by the resigning Warrant Agent, then the Registered Holder of
any Warrant Certificate may apply to any court of competent jurisdiction for
the appointment of a new warrant agent. Any new warrant agent, whether
appointed by the Company or by such a court, shall be a bank or trust company
having a capital and surplus, as shown by its last published report to its
stockholders, of not less than $10,000,000 or a stock transfer company. After
acceptance in writing of such appointment by the new warrant agent is received
by the Company, such new warrant agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named herein
as the Warrant Agent, without any further assurance, conveyance, act or deed;
but if for any reason it shall be necessary or expedient to execute and deliver
any further assurance, conveyance, act or deed, the same shall be done at the
expense of the Company and shall be legally and validly executed and delivered
by the resigning Warrant Agent. Not later than the effective date of any such
appointment the Company shall file notice thereof with the resigning Warrant
Agent and shall forthwith cause a copy of such notice to be mailed to the
Registered Holder of each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or
any new warrant agent may be converted or merged, any corporation resulting
from any consolidation to which the Warrant Agent or any new warrant agent
shall be a party, or any corporation succeeding to the corporate trust business
of the Warrant Agent or any new warrant agent shall be a successor warrant
agent under this Agreement without any further act, provided that such
corporation is eligible for appointment as successor to the Warrant Agent under
the provisions of the preceding
26
<PAGE> 28
paragraph. Any such successor warrant agent shall promptly cause notice of its
succession as warrant agent to be mailed to the Company and to the Registered
Holders of each Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and
affiliates, and any of its or their officers or directors, may buy and hold or
sell Warrants or other securities of the Company and otherwise deal with the
Company in the same manner and to the same extent and with like effect as
though it were not Warrant Agent. Nothing herein shall preclude the Warrant
Agent from acting in any other capacity for the Company or for any other legal
entity.
(i) The Warrant Agent shall retain for a period of
two years from the date of exercise any Warrant Certificate received by it upon
such exercise.
SECTION 11. Modification of Agreement.
The Warrant Agent and the Company may by supplemental
agreement make any changes or corrections in this Agreement (i) that they shall
deem appropriate to cure any ambiguity or to correct any defective or
inconsistent provision or manifest mistake or error herein contained; or (ii)
that they may deem necessary or desirable and which shall not adversely affect
the interests of the holders of Warrant Certificates; provided, however, that
this Agreement shall not otherwise be modified, supplemented or altered in any
respect except with the consent in writing of the Registered Holders
representing not less than 66-2/3% of the Warrants then outstanding; provided,
further, that no change in the number or nature of the securities purchasable
upon the exercise of any Warrant, or to increase the Purchase Price therefor or
to accelerate the Warrant Expiration Date, shall be made without the consent in
writing of the Registered Holder of the Warrant Certificate representing such
Warrant, other than such changes as are presently specifically prescribed by
this Agreement as originally
27
<PAGE> 29
executed. In addition, this Agreement may not be modified, amended or
supplemented without the prior written consent of National, other than to cure
any ambiguity or to correct any provision which is inconsistent with any other
provision of this Agreement or to make any such change that is necessary or
desirable and which shall not adversely affect the interests of National and
except as may be required by law.
SECTION 12. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first-class registered or certified mail, postage prepaid,
as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company at 725 Independence Avenue, S.E., Washington, D.C.
20003, Attention: C. Thomas McMillen, Chairman and Chief Executive Officer, or
at such other address as may have been furnished to the Warrant Agent in
writing by the Company; and if to the Warrant Agent, at its Corporate Office.
Copies of any notice delivered pursuant to this Agreement shall also be
delivered to National Securities Corporation, 1001 Fourth Avenue, Suite 2200,
Seattle, Washington 98154-1100, Attention: General Counsel, or at such other
address as may have been furnished to the Company and the Warrant Agent in
writing.
SECTION 13. Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
28
<PAGE> 30
SECTION 14. Binding Effect.
This Agreement shall be binding upon and inure to the benefit
of the Company, National, the Warrant Agent and their respective successors and
assigns and the holders from time to time of Warrant Certificates or any of
them. Nothing in this Agreement is intended or shall be construed to confer
upon any other person any right, remedy or claim, in equity or at law, or to
impose upon any other person any duty, liability or obligation.
SECTION 15. Termination.
This Agreement shall terminate at the close of business on the
Expiration Date of all of the Warrants or such earlier date upon which all
Warrants have been exercised or redeemed, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 10
hereof shall survive such termination.
SECTION 16. Counterparts.
This Agreement may be executed in several counterparts, which
taken together shall constitute a single document.
29
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
[SEAL]
COMPLETE WELLNESS CENTERS, INC.
By:
-----------------------------
Name:
Title:
Attest:
By:
--------------------------
Name:
Title:
AMERICAN STOCK TRANSFER AND
TRUST COMPANY,
As Warrant Agent
By:
-----------------------------
Name:
Title:
<PAGE> 32
EXHIBIT A
No. W __________ VOID AFTER _________, 2002
WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
COMPLETE WELLNESS CENTERS, INC.
CUSIP _______
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, $.001665 par
value, of Complete Wellness Centers, Inc., a Delaware corporation (the
"Company"), at any time between _______________, 1997 (the "Initial Warrant
Exercise Date"), and the Expiration Date (as hereinafter defined) upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of
Continental Stock Transfer and Trust Company, as Warrant Agent, or its
successor (the "Warrant Agent"), accompanied by payment of $_____, [120% of the
initial public offering price of the Common Stock] subject to adjustment (the
"Purchase Price"), in lawful money of the United States of America in cash or
by check made payable to the Warrant Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated
_______________, 1997 [date of the Prospectus], between the Company and the
Warrant Agent.
In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price and the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option of
the Registered Holder, but no fractional interests will be issued. In the case
of the exercise of less than all the Warrants represented hereby, the Company
shall cancel this Warrant Certificate upon the
A-1
<PAGE> 33
surrender hereof and shall execute and deliver a new Warrant Certificate or
Warrant Certificates of like tenor, which the Warrant Agent shall countersign,
for the balance of such Warrants.
The term "Expiration Date" shall mean 5:30 p.m. (New York time)
on the date which is fifty-four (54) months after the Initial Warrant Exercise
Date. If each such date shall in the State of New York be a holiday or a day
on which the banks are authorized to close, then the Expiration Date shall mean
5:30 p.m. (New York time) on the next following day which in the State of New
York is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of this Warrant unless a registration statement under
the Securities Act of 1933, as amended (the "Act"), with respect to such
securities is effective or an exemption thereunder is available. The Company
has covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, use its best efforts to keep such registration statement current, if
required under the Act, while any of the Warrants are outstanding, and deliver
a prospectus which complies with Section 10(a)(3) of the Act to the Registered
Holder exercising this Warrant. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor
representing an equal aggregate number of Warrants, each of such new Warrant
Certificates to represent such number of Warrants as shall be designated by
such Registered Holder at the time of such surrender. Upon due presentment and
payment of any tax or other charge imposed in connection therewith or incident
thereto, for registration of transfer of this Warrant Certificate at such
office, a new Warrant Certificate or Warrant Certificates representing an equal
aggregate number of Warrants will be issued to the transferee in exchange
therefor, subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant
may be redeemed at the option of the Company, at a redemption price of $0.10
per Warrant, at any time commencing after ______________, 1998 [18 months after
the effective date of the Registration Statement], provided that the average
closing bid price for the Common Stock as reported by the Nasdaq Small Cap
Market (or the closing sale price, if the Common Stock is then traded on a
national securities exchange), shall have equalled or exceeded $_________ [160%
of the initial public offering price per share of Common Stock] per share for
any twenty (20) trading days within a period of thirty (30) consecutive trading
days ending on the fifth trading day prior to the Notice of Redemption, as
defined below (subject to adjustment in the event of any stock splits or other
similar events). Notice of redemption (the "Notice of Redemption") shall be
given not later than the thirtieth day before the date fixed for redemption,
all as provided in the Warrant Agreement. On and after the date fixed for
redemption, the Registered Holder shall
A-2
<PAGE> 34
have no rights with respect to the Warrants except to receive the $.01 per
Warrant upon surrender of this Warrant Certificate.
Under certain circumstances, National Securities Corporation may
be entitled to receive an aggregate of five percent (5%) of the Purchase Price
of the Warrants represented hereby.
Prior to due presentment for registration of transfer hereof,
the Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of each Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary, except as
provided in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by
the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by two of its
officers thereunto duly authorized and a facsimile of its corporate seal to be
imprinted hereon.
Dated:
COMPLETE WELLNESS CENTERS, INC.
[SEAL]
By:
----------------------------
Name:
Title:
By:
----------------------------
---------------
Secretary
COUNTERSIGNED:
AMERICAN STOCK TRANSFER AND TRUST COMPANY,
as Warrant Agent
By:
----------------------------------
Authorized Officer
A-3
<PAGE> 35
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise ________________________ Warrants represented by this Warrant
Certificate, and to purchase the securities issuable upon the exercise of such
Warrants, and requests that certificates for such securities shall be issued in
the name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
---------------------------
---------------------------
---------------------------
---------------------------
(please print or type name and address)
and be delivered to
---------------------------
---------------------------
---------------------------
---------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
A-4
<PAGE> 36
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. The exercise of this Warrant was solicited by
National Securities Corporation. / /
2. The exercise of this Warrant was solicited by
_____________________________________. / /
3. The exercise of this Warrant was not solicited. / /
Dated: X
--------------------- ---------------------------------------
---------------------------------------
---------------------------------------
Address
---------------------------------------
Social Security or Taxpayer
Identification Number
---------------------------------------
Signature Guaranteed
---------------------------------------
A-5
<PAGE> 37
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, _______________________________, hereby
sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
(please print or type name and address)
_____________________________________________ of the Warrants represented by
this Warrant Certificate, and hereby irrevocably constitutes and appoints
_____________________________________ Attorney to transfer this Warrant
Certificate on the books of the Company, with full power of substitution in the
premises.
Dated: X
---------------------- -----------------------------------
Signature Guaranteed
-----------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST 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.
A-6
<PAGE> 1
EXHIBIT 10.1
STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement ("Agreement") is made and entered into as
of the 20th day of March, 1995, by and among (i) Complete Wellness Centers,
Inc., a Delaware corporation ("the Corporation"), (ii) C. Thomas McMillen
(hereinafter sometimes referred to as "McMillen") and other holders of the
Corporation's outstanding Common Stock (as defined below), and (iii) the
holders of the Corporation's Series A, 12% Cumulative Convertible Preferred
Stock (the "Preferred Stock") listed on Schedule A attached hereto (the
"Preferred Stockholders"). For purposes hereof, McMillen, the other holders of
outstanding Common Stock, and the Preferred Stockholders are sometimes
individually referred to herein as a "Stockholder" or collectively as the
"Stockholders".
RECITALS
1. The authorized capital stock of the Corporation consists of
Twenty Thousand (20,000) shares of common stock, par value $.01 per share (the
"Common Stock"), and Fifteen Hundred (1,500) shares of Series A, 12% Cumulative
Convertible Preferred Stock, par value $.01 per share.
2. The Stockholders own all of the issued and outstanding Common
Stock and all of the issued and outstanding Preferred Stock, and constitute all
of the stockholders of the Corporation as of the date of this Agreement.
3. The Corporation and the Stockholders believe that it is in the
best interests of the Corporation and of the Stockholders to (i) provide
certain rights of first refusal with respect to any
<PAGE> 2
transfer of Common Stock and/or Preferred Stock (collectively, the "Shares")
now held or hereafter acquired by the Stockholders; (ii) require all
transferees of Shares to become parties to this Agreement, and (iii) provide
the Stockholders with certain rights in the event of any future issuance of
equity securities by the Corporation.
NOW, THEREFORE, in consideration of the above Recitals and the mutual
agreements set forth below, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by all parties, the
parties hereto hereby agree as follows:
1. Transfer Restrictions/Legend.
(a) The terms "Transferred", "Transfer" and all other
derivations thereof shall mean to sell, assign, transfer, divide, combine,
donate, exchange, distribute, mortgage, finance, refinance, pledge, encumber,
hypothecate and/or otherwise dispose of in whole or in part (including, without
limitation, by way of or as a result of a judicial decree or any dissolution,
liquidation, termination, insolvency, bankruptcy, withdrawal, death or
incompetency).
(b) There shall be stamped, typed or printed on each
certificate or document evidencing any Shares a legend restricting Transfer of
such Shares, which legend shall be substantially as follows:
Transfer of the shares represented by this certificate is limited and
restricted in several respects by the provisions of a certain
Stockholders' Agreement dated as of March 20, 1995, a copy of which is
on file in the principal office of
- 2 -
<PAGE> 3
the Corporation. Prospective transferees are referred to that
Stockholders' Agreement for further information. Accordingly, neither
this certificate nor any of the shares of stock of the Corporation
evidenced hereby may be transferred (as that term is defined in the
Stockholders' Agreement) except in compliance with the provisions of
the aforesaid Stockholders' Agreement.
(c) The Corporation agrees, for and on behalf of itself
and its successors and assigns, that (i) it shall not issue, transfer or
reissue any shares of Common Stock or Preferred Stock in violation of the
provisions of this Agreement, and (ii) all certificates representing shares of
Common Stock and Preferred Stock issued to and held by any Stockholder shall
bear a legend in substantially the form specified in Section 1(b) hereof.
2. Rights of First Refusal.
(a) Definitions. The following terms shall have the
following meanings whenever used in this Agreement:
(i) "Bona Fide Offer" shall mean a legally
enforceable offer, in writing, made and signed by an offeror or offerors who is
or are a person or persons or entity or entities financially capable of
carrying out the terms of such Bona Fide Offer.
(ii) "Bona Fide Offeror" shall mean the person or
persons making the Bona Fide Offer.
(iii) "Registered Notice" shall mean notice sent by
registered or certified mail, return receipt requested, and first-class postage
prepaid or by actual delivery by messenger or overnight delivery service; and,
if such Registered Notice is sent with respect to a Bona Fide Offer (as
provided for in Section 2(b)
- 3 -
<PAGE> 4
hereof), such Registered Notice shall contain a true and complete copy of the
Bona Fide Offer, setting forth the number of Shares to be sold by the
Stockholder, the price thereof and all of the terms and conditions thereof,
with the name(s), address(es) (both home and office) and business(es) or other
occupation(s) of the offeror or offerors. Any notice which does not contain
all such requisite information shall not be considered a "Registered Notice"
for the purposes of Section 2(b) hereof.
(iv) "Selling Stockholder" shall mean the
Stockholder who shall have received a Bona Fide Offer pursuant to this Section
2 and who is desirous of selling some or all of his/her Shares pursuant to such
Bona Fide Offer: "Remaining Stockholders" shall mean the Stockholders other
than the Selling Stockholder.
(b) Receipt of Bona Fide Offer by Stockholder/Right of
First Refusal. (i) In the event that a Stockholder shall receive a Bona
Fide Offer to purchase any or all of such Stockholder's Shares, and in the
further event that the Stockholder shall desire to accept such Bona Fide Offer,
such Selling Stockholder shall promptly send Registered Notice to the
Corporation and to the Remaining Stockholders. Such Registered Notice shall
offer to sell such Selling Stockholder's Shares that are the subject of the
Bona Fide Offer to the Remaining Stockholders on terms the same as those in
such Bona Fide Offer (the "Bona Fide Offer Terms"). Each of the Remaining
Stockholders shall then have the right to purchase from the Selling
Stockholder, at the Bona Fide Offer Terms, a pro rata
- 4 -
<PAGE> 5
share of such Shares (based on the number of Shares held by such Remaining
Stockholders) as are subject to such Bona Fide Offer (the "Bona Fide Offer
Shares"); provided that any such purchase must be made within twenty (20) days
after receipt of such Registered Notice. For purposes of this Section 2, the
Corporation and/or a Remaining Stockholder shall accept any offer to purchase
shares, if at all, by notifying the Selling Stockholder, in writing, of its or
his election to purchase such Bona Fide Offer Shares, in the manner set forth
in Section 2(a)(iii) for Registered Notice, and including in such notice a bank
or cashiers' check for the total purchase price of the Bona Fide Offer Shares
to be so purchased.
(ii) To the extent one or more of such Remaining
Stockholders do not purchase their pro rata share of the Bona Fide Offer Shares
as set forth in Section 2(b)(i), such Selling Stockholder shall sell the Bona
Fide Offer Shares to any of the Remaining Stockholders at the Bona Fide Offer
Terms; provided that such Remaining Stockholders purchase such Bona Fide Offer
Shares within ten (10) days after the Selling Stockholder notifies such
Stockholders of their right to purchase such Bona Fide Offer Shares pursuant to
this Section 2(b)(ii).
(iii) If, after the applicable time periods
prescribed in Sections 2(b)(i) or 2(b)(ii), as the case may be, the Remaining
Stockholders do not purchase all of the Bona Fide Offer Shares, the Corporation
shall have the option for a period of fifteen (15) days to purchase any or all
of such Bona Fide Offer Shares upon the Bona Fide Offer Terms.
- 5 -
<PAGE> 6
(iv) If all Bona Fide Offer Shares are not
purchased by the Remaining Stockholders and/or the Corporation pursuant to this
Section 2(b), such Selling Stockholder may sell such Bona Fide Offer Shares to
the Bona Fide Offeror, at the Bona Fide Offer Terms for a period of time not to
exceed forty (40) days from the date the Registered Notice is received by the
Corporation. Any sale of Bona Fide Offer Shares may not be made after such
forty (40) day period, or to a person other than the Bona Fide Offeror without
again complying with the provisions of this Section 2.
(c) Notwithstanding anything in this Section 2 to the
contrary, McMillen shall have the right to transfer to one or more third
party(s) up to an aggregate of 100 shares of Common Stock without regard to the
foregoing obligations or restrictions on transfer, which, until such time as
McMillen shall have transferred the foregoing number of such shares, shall be
inapplicable.
3. Issuance of Equity Securities by the Corporation.
In the event that the Corporation proposes to issue any additional
equity securities in the future other than pursuant to the exercise of options
granted in accordance with the Corporation's Stock Option Plan, the Corporation
shall notify the Stockholders of such intention in writing not less than thirty
(30) days prior to such issuance. The Stockholders shall have the right as a
condition to any such issuance of equity securities by the Corporation, to
purchase from the Corporation on the same terms as such proposed issuance, a
pro rata portion of the equity securities to be so issued, provided that such
Stockholder shall beneficially
- 6 -
<PAGE> 7
own shares of the Corporation's Common Stock or Preferred Stock at the time of
such issuance. Notwithstanding anything herein to the contrary, any and all
rights granted to the Stockholders in this Section 3 shall not apply to any
public offering of equity securities by the Corporation pursuant to a
registration statement filed with the U.S. Securities and Exchange Commission,
in which case the provisions of this Section 3 shall be null and void.
4. Transfers of Shares.
(a) Conditions/Transferee Rights. Subject to the
provisions of Sections 1, 2 and subsections (b) and (c) of this Section 4, any
person (other than the Corporation or a Stockholder) who acquires any Shares,
shall, as a condition to such transfer, become a party to this Agreement and
take such Shares pursuant to all provisions, conditions and covenants of this
Agreement, by executing a supplement to this Agreement in substantially the
form of Exhibit "B" attached hereto and such other documents as the Corporation
may reasonably request. Upon the execution of such supplement and the Transfer
of Shares, such transferee shall have all of the rights and privileges of the
Stockholders under this Agreement, if applicable at the time of such Transfer.
Accordingly, for purposes of this Agreement, the term "Stockholder" shall be
deemed to include any such transferee.
(b) Notice. Prior to any Transfer or attempted Transfer
of any Shares, the holder of such Shares shall, in addition to providing any
notice required pursuant to Section 2 hereof, give written notice to the
Corporation of such holder's intention to
- 7 -
<PAGE> 8
effect such Transfer. Each such notice (i) shall describe the manner and
circumstances of the proposed Transfer, and shall state how the provisions of
this Stockholders' Agreement applicable to such Transfer shall be satisfied,
which statement shall be acceptable to the Corporation in its reasonable
discretion.
(c) Response and Transfer. As promptly as practicable
(but in no event later than three (3) days after the holder delivers such
notice pursuant to Section 4(b)), the Corporation shall review the notice and
any other items provided by the holder with said notice and shall notify the
person who gave such notice whether or not the requirements of Section 4(b)
have been satisfied. If such requirements have been satisfied, such holder
shall be immediately entitled to Transfer such Shares, in accordance with the
terms of the notice delivered by such holder to the Corporation and in
accordance with this Agreement (including adherence to the requirements of
Section 2 hereof regarding rights of first refusal). If such requirements have
not been satisfied, the holder may cure any defect or deficiency and re-submit
such written notice, whereupon the provisions of Section 4(b) shall again
apply. Each certificate or other document evidencing Shares issued upon any
such Transfer shall bear the restrictive legend set forth in Section 1(b),
unless in the opinion of counsel to the Corporation such legend is not
applicable.
- 8 -
<PAGE> 9
5. Election of Director.
The holders of the Preferred Stock, voting together as a class, shall
have the right to elect one director to the Board of Directors of the
Corporation.
6. Termination.
This Agreement shall terminate twenty (20) years from the date hereof
or upon the earlier voluntary written agreement of the Corporation and all then
Stockholders.
7. Integration.
This Agreement sets forth all (and are intended by all parties hereto
to be an integration of all) of the promises, agreements, conditions,
understanding, warranties, representations and covenants among the parties
hereto with respect to the subject matter hereof and no other writings or
agreements, written or oral, express or implied, shall be held to affect the
provisions hereof.
8. Waiver.
No failure of any party to exercise any power, right or remedy given
it hereunder, or to insist upon the strict compliance by any other party with
any obligation, covenant, term, condition, warranty or agreement hereunder, and
no custom or practice at variance with the terms of this Agreement, shall
constitute a waiver of such party's right to demand exact compliance with the
terms hereof at any time and from time to time. Further, no waiver by any
party of any covenant, condition or agreement hereof on the part of any other
party hereto to be kept and/or performed shall be
- 9 -
<PAGE> 10
considered to constitute a waiver of the same or any other covenant, condition
or provision or any subsequent breach thereof.
9. Interpretation.
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Delaware, without giving effect to
the principles of conflicts of law.
10. Partial Invalidity.
Should any immaterial part of this Agreement for any reason be
declared or held invalid, such invalidity shall not affect the validity of any
remaining portion, which remaining portion shall remain in force and effect as
if this Agreement had been executed with the invalid portion thereof
eliminated, and it is hereby declared the intention of the parties hereto that
they would have executed the remaining portion of this Agreement without
including therein any such part, parts or portion which may, for any reason, be
hereafter declared or held invalid.
11. Amendments.
Neither this Agreement nor any provision hereof may be amended,
modified, changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
amendment, modification, change, waiver, discharge or termination is sought.
12. Notices.
All notices pertaining to this Agreement shall be either (a)
hand-delivered or (b) sent by registered or certified mail, return receipt
requested, with first class postage prepaid, (1) if to a
- 10 -
<PAGE> 11
Stockholder, then to the last address of such to the Corporation, then to
Complete Wellness Centers, Inc., 1103 South Carolina Ave., S.E., Washington,
D.C. 20003, Attention: President, with a copy to the Law Firm of Proskauer
Rose Goetz & Mendelsohn, Suite 800, 1233 Twentieth Street, N.W., Washington,
D.C. 20036-2396, Attention: Joseph E. Casson, Esquire, or at any other address
that may be given by one party to all others by notice pursuant to this
Section. Such notices, if sent by registered or certified mail, shall be
deemed to have been delivered at the time of mailing. Any notice which is
required to be delivered within a stated period of time shall be considered
timely if either hand-delivered or postmarked on or before midnight of the last
day of such period.
13. Further Assurance.
Each of the parties hereto agrees hereafter to promptly execute, swear
to, acknowledge under oath, and deliver such further documents and instruments,
and to promptly do such further acts and things, as may be necessary,
appropriate or incidental to carry out the intent and purpose of this
Agreement.
14. Burden and Benefit.
This Agreement is binding upon, and inures to the benefit of, the
parties hereto and their respective spouses, heirs, executors, administrators,
personal and legal representatives, successors and permitted assigns.
15. Counterparts.
This Agreement may be executed and sealed in one or more counterparts
and, in such event, all such counterparts shall
- 11 -
<PAGE> 12
constitute originals and all such counterparts shall constitute a single
agreement.
16. Survival.
All representations, warranties, agreements, covenants and
indemnifications made by the parties or otherwise set forth in this Agreement
shall survive and be effective to the expiration of the applicable statute of
limitations.
IN WITNESS WHEREOF, the Corporation and the Stockholders have executed
and sealed this Agreement, by their duly authorized officers or individually,
as the case may be, all done as of the day and year hereinabove first written.
WITNESS: COMPLETE WELLNESS CENTERS, INC.
By:
- ------------------------ ------------------------------
C. Thomas McMillen
- 12 -
<PAGE> 13
STOCKHOLDERS:
-----------------------------------
C. Thomas McMillen
-----------------------------------
Dr. James Joseph McMillen
-----------------------------------
James K. Gibson
-----------------------------------
Dr. Judy Niemyer
-----------------------------------
Joel Babbit
-----------------------------------
Robert Mrazek
------------------------------------
Peter Kelly
-----------------------------------
George Finley
-----------------------------------
James Whitehead
-----------------------------------
Charles Driesell
-----------------------------------
Sen. Russ Potts
-----------------------------------
Zev Kaplan
-----------------------------------
Pam Shriver
- 13 -
<PAGE> 14
EXHIBIT A
PREFERRED STOCKHOLDERS
Joel Babbit
Peter Kelly
George Finley
James Whitehead
Sen. Russ Potts
Zev Kaplan
Pam Shriver
- 14 -
<PAGE> 15
EXHIBIT B
SUPPLEMENT FOR TRANSFEREES
The undersigned, ___________________________________________
_______________________________ ("Transferee"), as of _________,
19__, hereby:
1. Agrees, pursuant to and in accordance with Section 4(a) of the
Stockholders' Agreement dated as of March 20, 1995 ("Stockholders' Agreement"),
by and among Complete Wellness Centers, Inc. and the Stockholders (as that term
is defined in the Stockholders' Agreement), and as a condition to the transfer
to the undersigned Transferee of the Shares of Common Stock and/or Preferred
Stock (as those terms are defined in the Stockholders' Agreement), in whole or
in part, hereby to become a party to and be deemed a Stockholder for all
purposes of the Stockholders' Agreement.
2. Make all representations and warranties set forth in, and
agrees to all other provisions of, the Stockholders' Agreement.
IN WITNESS WHEREOF, the undersigned Transferee has executed and sealed
this instrument as of the date first written above.
------------------------------
By: (SEAL)
--------------------------
,
------------------ ------
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<PAGE> 1
EXHIBIT 10.2
THIS WARRANT HAS NOT BEEN REGISTERED UNDER FEDERAL OR STATE SECURITIES LAWS.
IT MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION UNDER SUCH
LAWS OR THE AVAILABILITY OF AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH LAWS EVIDENCE BY AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE COMMON STOCK
COMPLETE WELLNESS CENTERS, INC.
THIS CERTIFIES THAT, for value received, __________________ (Holder) is
entitled to purchase, on the terms hereof, _________ shares of common stock,
par value $0.0000555 per share, of Complete Wellness Centers, Inc., a Delaware
corporation (Company), at per share price of $0.01, subject to adjustment as
provided herein.
This Warrant is issued pursuant to the provisions of the Purchase Agreement
dated as of October 4, 1995 (Agreement)relating hereto, and this Warrant and
the common stock issuable upon exercise of this Warrant shall be subject to,
and the Holder shall be bound by, all the provisions of the Agreement, and
shall be deemed to have made the representations and warranties set forth in
Section 2 of the Agreement with respect to the securities evidenced by this
Warrant. Additionally, the following terms shall apply to this Warrant:
1. EXERCISE OF WARRANT.
The terms and conditions upon which this Warrant may be exercised and the
common stock covered hereby (Warrant Stock) may be purchased are as follows:
1.1. Voluntary Exercise. This Warrant may be exercised in full or in part at
any time after October 4, 1996; provided that in no case may this Warrant be
exercised later than 5:00 p.m. eastern time on October 4, 2000 (Expiration
Date), after which time this Warrant shall terminate and shall be void.
1.2. Number of Shares. The number of shares of common stock for which this
Warrant is initially exercisable is ___________, which number is subject to
adjustment pursuant to Section 2 of this Warrant.
1.3. Purchase Price. The per share purchase price for the shares of common
stock to be issued upon exercise of this Warrant shall be $0.01, subject to
adjustment as provided herein.
1.4. Method of Exercise. The exercise of the purchase rights evidenced by this
Warrant shall be effected by (a) the surrender of the Warrant, together with a
duly executed copy of the form of subscription attached hereto, to the Company
at its principal offices and (b) the delivery of the purchase price by check or
bank draft payable to the Company's order or by wire transfer to the
<PAGE> 2
Company's account for the number of shares for which the purchase rights
hereunder are being exercised or any other form of consideration approved by
the Company's board of directors.
1.5. Issuance of Shares. Upon the exercise of the purchase rights evidenced by
this Warrant, a certificate or certificates for the purchased shares shall be
issued to the Holder as soon as practicable.
2. CERTAIN ADJUSTMENTS.
2.1. Common Stock Dividends. If the Company at any time prior to the
expiration of this Warrant shall pay a dividend with respect to common stock
payable in shares of common stock, then the purchase price per share shall be
adjusted, from and after the date of determination of the stockholders entitled
to receive such dividend, to that price determined by multiplying the per share
purchase price in effect by a fraction (i) the numerator of which shall be the
total number of shares of common stock outstanding immediately prior to such
dividend and (ii) the denominator of which shall be the total number of shares
of common stock outstanding immediately after such dividend; provided, however,
that the aggregate purchase price shall not be adjusted.
2.2. Mergers, Consolidations, or Sale of Assets. If at any time there shall be
a capital reorganization (other than a combination or subdivision of Warrant
Stock provided for herein), or a merger or consolidation of the Company with or
into another corporation, or the sale of the Company's properties and assets
as, or substantially as, an entirety to any other person, then, as a part of
such reorganization, merger, consolidation or sale, lawful provision shall be
made so that the Holder shall thereafter be entitled to receive upon exercise
of this Warrant, during the period specified in this Warrant and upon payment
of the purchase price, the number of shares of stock or other securities or
property of the Company or the successor corporation resulting from such
reorganization, merger, consolidation or sale, to which a holder of the common
stock deliverable upon exercise of this Warrant would have been entitled under
the provisions of the agreement in such reorganization, merger, consolidation
or sale if this Warrant had been exercised immediately before that
reorganization, merger, consolidation or sale. In any such case, appropriate
adjustment (as determined in good faith by the Company's board of directors)
shall be made in the application of the provisions of this Warrant with respect
to the rights and interests of the Holder after the reorganization, merger,
consolidation or sale to the end that the provisions of this Warrant (including
adjustment of the purchase price then in effect and the number of shares of
Warrant Stock) shall be applicable after that event, as near as reasonably may
be, in relation to any shares or other property deliverable after that event
upon exercise of this Warrant; provided, however, that the aggregate purchase
price shall not be adjusted.
2.3. Splits and Subdivisions. In the event the Company should at an time or
from time to time fix a record date for the effectuation of a split or
subdivision of the outstanding shares of common stock or the determination of
the holders of common stock entitled to receive a dividend or other
distribution payable in additional shares of common stock or other securities
or rights convertible into, or entitling the holder thereof to receive directly
or indirectly, additional shares of common stock (Common Stock Equivalents)
without payment of any consideration by such holder for the
<PAGE> 3
3
additional shares of common stock or Common Stock Equivalents (including the
additional shares of common stock issuable upon conversion or exercise
thereof), then, as of such record date (or the date of such distribution,
split, or subdivision if no record date is fixed), the purchase price shall be
appropriately decreased and the number of shares of Warrant Stock shall be
appropriately increased in proportion to such increase of outstanding shares;
provided, however, that the aggregate purchase price shall not be adjusted.
2.4. Combination of Shares. If the number of shares of common stock
outstanding at any time after the date hereof is decreased by a combination of
the outstanding shares of common stock, the purchase price per share shall be
appropriately increased and the number of shares of Warrant Stock shall be
appropriately decreased in proportion to such decrease in outstanding shares;
provided, however, that the aggregate purchase price shall not be adjusted.
2.5. Adjustments for Other Distributions. In the event the Company shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Company or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsections 2.1 or 2.3,
then, in each such case for the purpose of this subsection 2.5, upon exercise
of this Warrant the holder hereof shall be entitled to a proportionate share of
any such distribution as though such holder was the holder of the number of
shares of common stock into which this Warrant may be exercised as of the
record date fixed for the determination of the holders of common stock entitled
to receive such distribution; provided, however, that the aggregate purchase
price shall not be adjusted.
2.6. Certificate as to Adjustments. In the case of each adjustment or
readjustment of the purchase price pursuant to this Section 2, the Company will
promptly compute such adjustment or readjustment in accordance with the terms
hereof and cause a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based to be delivered to the holder of this Warrant. The Company will, upon
the written request at any time of the holder of this Warrant, furnish or cause
to be furnished to such holder a certificate setting forth:
(a) Such adjustments and readjustments;
(b) The purchase price at the time in effect; and
(c) The number of shares of Warrant Stock and the amount, if any, of
other property at the time receivable upon exercise of this Warrant.
2.7. Notices of Record Date, etc. In the event of:
(a) Any taking by the Company of a record of the holders of any class
of securities of the Company for the purpose of determining the holders thereof
who are entitled to receive any dividend (other than a cash dividend payable
out of earned surplus at the same rate as that of the
<PAGE> 4
4
last such cash dividend theretofore paid) or other distribution, or any right
to subscribe for, purchase, or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right; or
(b) Any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all or
substantially all of the assets of the Company to any other person or any
consolidation or merger involving the Company; or
(c) Any voluntary or involuntary dissolution, liquidation, or
winding-up of the Company,
the Company will mail to the holder of this Warrant at least twenty (20) days
prior to the earliest date specified therein, a notice specifying:
(i) The date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character
of such dividend, distribution or right; and
(ii) The date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation, or
winding-up is expected to become effective and the record date for determining
stockholders entitled to vote thereon.
3. FRACTIONAL SHARES.
No fractional share shall be issued in connection with any exercise of this
Warrant. In lieu of the issuance of such fractional share, the Company shall
make a cash payment equal to the then fair market value of such fractional
share as determined in good faith by the Company's board of directors.
4. RESERVATION OF COMMON STOCK.
The Company shall at all times reserve and keep available out of its authorized
but unissued shares of commons stock, solely for the purpose of effecting the
exercise of this Warrant, such number of its shares of common stock as shall
from time to time be sufficient to effect the exercise of this Warrant; and if
at any time the number of authorized but unissued shares of common stock shall
not be sufficient to effect the exercise of this Warrant in its entirety, in
addition to such other remedies as shall be available to the holder of this
Warrant, the Company will use its reasonable best efforts to take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of common stock to such number of
shares as shall be sufficient for such purpose.
5. PRIVILEGE OF STOCK OWNERSHIP.
<PAGE> 5
5
Prior to the exercise of this Warrant, the Holder shall not be entitled, by
virtue of holding this Warrant, to any rights of a stockholder of the Company,
including (without limitation) the right to vote, receive dividends or other
distributions, exercise preemptive rights or be notified of stockholder
meetings, and the Holder shall not be entitled to any notice or other
communication concerning the business or affairs of the Company. Nothing in
this Section 5, however, shall limit the right of the Holder to participate in
distributions to the extent set forth in Section 2 or be provided the notices
described in Section 2 if the Holder ultimately exercises this Warrant.
6. LIMITATION OF LIABILITY.
Except as otherwise provided herein, in the absence of affirmative action by
the Holder to purchase the Warrant Stock, no mere enumeration herein of the
rights or privileges of the holder hereof shall give rise to any liability of
such holder for the purchase price or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
7. TRANSFERS AND EXCHANGES.
7.1. Transfers. Subject to the terms and conditions of the Agreement and
compliance with applicable federal and state securities laws, this Warrant is
transferable in whole or in part by the Holder.
7.2. Exchanges. All new warrants issued in connection with transfers or
exchanges shall be identical in form and provision to this Warrant except as to
the number of shares and the identity of the Holder.
8. SUCCESSORS AND ASSIGNS.
The terms and provisions of this Warrant shall be binding upon the Company and
the Holder and their respective successors and assigns, subject to the
restrictions set forth in the Agreement.
9. LOSS, THEFT, DESTRUCTION, OR MUTILATION OF WARRANT.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction, or mutilation of this Warrant, and in case of loss,
theft, or destruction, of indemnity or security reasonably satisfactory to the
Company, and upon reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will make and deliver a new warrant of like tenor and
dated as of such cancellation, in lieu of this Warrant.
<PAGE> 6
6
10. WEEKENDS, HOLIDAYS, ETC.
If the last or appointed day for the taking of any action or the expiration of
any right required or granted herein shall be a Saturday, Sunday, or legal
holiday, then such action may be taken or such right may be exercised on the
next succeeding day that is not a Sunday or legal holiday.
11. GOVERNING LAW
The terms and conditions of this Warrant shall be governed by and construed in
accordance with Delaware law as such laws are applied to agreements which are
entered into solely between Delaware residents and are to be performed entirely
within that state.
[Remainder of this page left blank intentionally]
Dated: October 4, 1995
COMPLETE WELLNESS CENTERS, INC.
By:
-----------------------------
C. Thomas McMillen, President
<PAGE> 7
SUBSCRIPTION
TO: Complete Wellness Centers, Inc.
-------------------------------
-------------------------------
-------------------------------
Ladies and Gentlemen:
The undersigned, _____________________________________, hereby elects to
purchase, pursuant to the provisions of the Warrant dated October 4, 1995 held
by the undersigned, _________ shares of the common stock of Complete Wellness
Centers, Inc., a Delaware corporation, and tenders herewith payment of the
purchase price of such shares in full.
The undersigned hereby represents and warrants that the undersigned is
acquiring such stock for the undersigned's own account and not for resale or
with a view to, or for resale in connection with, the distribution of any part
thereof, and accepts such shares subject to the restrictions of the Purchase
Agreement dated as of October 4, 1995 relating thereto. The undersigned hereby
remakes all representations set forth in Section 2 of the Purchase Agreement.
If the number of shares being purchased hereunder is not all of the shares
covered by the Warrant, the undersigned requests that a new warrant for the
balance of shares covered by such Warrant be registered in the name of and
delivered to the undersigned.
Date:
---------------------
By:
---------------------------
(Signature)
Name:
---------------------------
Address:
---------------------------
---------------------------
<PAGE> 1
EXHIBIT 10.3
THIS NOTE HAS NOT BEEN REGISTERED UNDER FEDERAL OR STATE SECURITIES LAWS. IF
IT IS DEEMED TO BE A SECURITY UNDER SUCH LAWS, IT MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF REGISTRATION UNDER SUCH LAWS OR THE
AVAILABILITY OF AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH LAWS.
PROMISSORY NOTE
$ Washington, DC
August 15, 1996
FOR VALUE RECEIVED, Complete Wellness Centers, Inc., a Delaware corporation
(Maker), promises to pay to the order of__________ ______________________, or
any subsequent holder of this Note (Holder), on or before June 30, 1997, the
principal sum of _____ ______________ dollars ($_______) in such coin or
currency of the United States of America as at the time of payment is legal
tender for the payment of public and private debts and to accrue interest at
the rate specified below on the unpaid balance commencing as of August 15,
1996.
Maker promises to pay simple interest on the unpaid balance at the rate of
twelve (12) percent per annum on each January 1 and April 1 during the term
hereof, commencing January 1, 1997.
This Note shall mature and the entire principal amount hereof and all accrued
but unpaid interest hereon shall become due and payable on June 30, 1997.
This Note may be prepaid at any time, and from time to time, in whole or in
part, without penalty or premium. Any such prepayments shall be applied first
to accrued interest, if any, and then to the reduction of principal.
If Maker shall complete a firm commitment underwritten initial public offering
of its common stock, pursuant to a registration statement (other than a
registration statement on Form S-4 or S-8) filed with the Securities and
Exchange Commission, Maker shall prepay the entire principal amount, without
premium or penalty, and accrued interest on the date Maker receives the
proceeds of the sale of such common stock.
This Note is issued pursuant to, is entitled to the benefits of, and is subject
to the terms of, a Loan and Security Agreement dated as of August 15, 1996
among Maker and the persons named in Schedule I thereto, providing for the
issuance of the Secured Promissory Notes of the Company up to an aggregate
principal amount of $1,100,000.
This Note shall be governed by and construed in accordance with the laws of the
District of Columbia.
<PAGE> 2
IN WITNESS WHEREOF, Maker has executed this Note as of the date and year first
above written.
COMPLETE WELLNESS CENTERS, INC.
By:
-----------------------------
Its:
For Georgia Holders
THIS NOTE HAS BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF CODE SECTION
10-5-9 OF THE "GEORGIA SECURITIES ACT OF 1973," AND MAY NOT BE SOLD OR
TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT
TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.
2
<PAGE> 3
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is entered into as of this 15th day
of August, 1996 by and among the persons listed on Schedule I hereto
(individually a "Lender" and collectively the "Lenders"), and COMPLETE WELLNESS
CENTERS, INC., a Delaware corporation (the "Borrower" or "Debtor").
RECITALS
Each Lender has entered into a Subscription/Purchase Agreement (the
"Purchase Agreement") pursuant to which the Lenders agreed, upon certain terms
and conditions, to purchase notes from the Debtor up to an aggregate principal
amount of $1,100,000 (the "Notes").
The proceeds of the Notes are to be used to finance the medical
integration of chiropractic clinics, to cover costs associated with an initial
public offering, and for general working capital purposes.
In order to induce the Lenders to purchase the Notes, the Debtor has
agreed to assign and pledge as security for repayment of the Notes a first lien
security interest in all of its equipment, fixtures, tangible personal
property, accounts, inventory, patents, copyrights, trademarks, licenses and
certain other related property of the Debtor now owned or hereafter acquired.
The Lenders have required that the Debtor execute this Agreement in order to
evidence the grant of the security interest referred to above and to set forth
their respective rights, remedies, covenants and agreements with respect to the
purchase of the Notes by the Lenders.
NOW, THEREFORE, in consideration of the above and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I. TERMS OF NOTES.
1.1. Purchase of Notes.
Upon waiver or satisfaction of the conditions to the purchase of the
Notes set forth in the Purchase Agreement, each Lender shall purchase from the
Debtor a Note in the principal
<PAGE> 4
amount set opposite its name in Schedule I hereto. The purchase price of the
Notes shall equal the principal amount of the Notes. The Notes shall be issued
under this Agreement and shall be equally and ratably secured by this
Agreement.
1.2. Form and Tenor of Notes.
(a) Each Note shall be in the form of Appendix A hereto.
(b) The Notes shall bear interest, shall mature and become due
and payable, shall be subject to mandatory prepayment and may be prepaid as set
forth therein.
1.3. Equal and Ratable Obligations.
The Notes shall be equal and ratable obligations of the Debtor
and all payments (including optional and mandatory prepayments and payments
from funds received from the enforcement of the security interests granted
hereunder) shall be made to each Holder of the Notes in the proportion the
principal amount of the Notes held by such holder bears to the aggregate entire
principal amount of all Notes then outstanding.
1.4. No Subordination.
The payment of and the security for the Notes shall not be
subordinate to any other indebtedness of the Debtor, now existing or hereafter
incurred, other than Permitted Encumbrances.
1.5. New Notes. The Debtor will at any time, at its expense, at the
request of the holder of any Note, and upon surrender of such Note for such
purpose, issue new Notes in exchange therefor, registered in the name of the
holder or such person or persons as may be designated by such holder, dated the
date to which interest has been paid on the surrendered Note, in denominations
of $25,000 or any integral multiple of $25,000, in an aggregate principal
amount equal to the unpaid principal amount of such Note and substantially in
the form of such Note with appropriate variations.
1.6. Replacement of Notes. Upon receipt of evidence satisfactory to
the Debtor of the loss, theft, destruction or mutilation of any Note and, in
the case of any such loss, theft or destruction, upon delivery of indemnity
satisfactory to the Debtor, or, in the case of any such mutilation, upon
surrender and cancellation of such Note, the Debtor will issue a new Note, of
like tenor, in lieu of, and dated the date to which interest
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<PAGE> 5
has been paid on, such lost, stolen, destroyed or mutilated Note.
1.7 Negotiability, Registration and Transfer of the Notes. The
Notes shall be negotiable, subject to the provisions for registration and
transfer contained in this Agreement and in the Notes, and shall be registered
as to both principal and interest. So long as the Notes shall remain
outstanding, the Debtor shall maintain and keep books for the registration and
transfer of the Notes; and upon presentation thereof for such purpose at such
office, the Debtor shall register the Notes therein (which registration shall
include the address of the Holder of the Notes) and permit the Note to be
transferred thereon.
The Notes shall be transferable only upon the books of the Debtor,
which shall be kept for that purpose at the office of the Debtor, at the
written request of the Holder thereof or his attorney duly authorized in
writing, upon surrender thereof, together with a written instrument of transfer
satisfactory to the Debtor and duly executed by the Holder or his attorney duly
authorized in writing. Upon surrender of the Notes for transfer and acceptance
of this Agreement, in writing, and the obligations and rights hereof by any
transferee of a Note, the Debtor shall issue, in the name of the transferEe, a
new Note or Notes of the same aggregate principal amount, maturity and interest
rate as the surrendered Note. The Debtor shall pay all out-of-pocket costs and
expenses incurred by the Debtor in connection with any such transfer, except a
sum sufficient to pay any tax or governmental charge.
The Debtor may deem and treat the person in whose name the Notes
shall be registered upon the books of the Debtor as the absolute owner of the
Notes, whether the Notes shall be overdue or not, for the purpose of receiving
payment of, or on account of, the principal of, premium, if any, and interest
on, the Notes and for all other purposes, and all such payments so made to any
such registered Holder or upon his order shall be valid and effectual to
satisfy and discharge the liability upon the Notes to the extent of the sum or
sums so paid, and the Debtor shall not be affected by any notice to the
contrary.
The Debtor shall not be required to transfer the Notes on the records
for the Notes within 15 days before any payment is due.
1.8 Payments. All payments of interest on the Notes shall be paid
by check or draft mailed by the Debtor to the holders of the Notes on the date
such payment is due. Payments
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<PAGE> 6
of principal shall be made by wire transfer in immediately available funds,
marked for attention as indicated by the Lender to a bank account designated by
such Lender.
1.9 Note Holders' Rights.
(a) The holders of the Notes recognize that they or their
representatives will act as Secured Party (as defined below). For purposes of
administration of this Agreement, each Lender shall be named as Secured Party
on all financing statements to be filed with respect to the collateral
hereunder and the Lenders hereby agree that they shall hold all security
pledged hereunder for the benefit of the holders of all of the Notes all in
accordance with this Agreement.
(b) All rights and powers of the Secured Party hereunder shall be
exercised by the holders of two-thirds of the principal amount of the Notes
then outstanding; provided, however, that (i) the principal amount of any Note,
the interest payable on any Note and the time any payment must be made under
any Note may not be changed without the consent of the holder of the Note and
(ii) none of the collateral may be released and this Agreement may not be
amended in any material respect (other than to add additional collateral,
rights, powers and duties in favor of the Holders of Notes and to clarify the
existing provisions of this Agreement) without the consent of the holders of
all of the Notes.
ARTICLE II: DEFINITIONS
2.1 As used in this Agreement capitalized terms shall have the
meanings as defined when initially used and the following terms shall have the
following meanings:
(a) "Account" or "Accounts" means any right of the Debtor to
payment for goods of any type or description (including, without limitation,
Inventory, as hereinafter defined) sold or leased, or for services rendered,
which is not evidenced by an Instrument or Chattel Paper, whether or not the
right to payment has been earned by performance, and shall include any and all
contract rights.
(b) "Business Day" means a day which is not a legal holiday in
the District of Columbia and is not a day on which banks are by law or
executive order permitted to close for business.
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<PAGE> 7
(c) "Chattel Paper" means any writing or writings held by the
Debtor, held in the Debtor's name or held for the Debtor, which evidences both
a monetary obligation and a security interest in or lease of specific goods.
(d) "Debtor's Liabilities" means the obligations of the Debtor
to make all payments required to be made under the Notes or this Agreement and
the prompt and faithful compliance and performance of the Debtor of its
obligations under this Agreement.
(e) "Default" or "default" means when used in reference to this
Agreement the failure to observe or perform in any material respect any
obligation, covenant or agreement contained in this Agreement, without regard
to any grace period provided for therein.
(f) "Equipment" means all of the tangible personal property
(other than Inventory) of the Borrower including, but not limited to, fixed
assets, furniture, fixtures, machinery, computers, equipment, leasehold
improvements and all replacements therefor, attachments and accessories
thereto, parts and tools belonging thereto and substitutions therefor.
(g) "Holder" shall mean, with respect to a Note, the registered
holder of the Note on the books of the Debtor, as registrar.
(h) "Instrument" or "Instruments" means any negotiable
instrument, security or other writing held by the Debtor, held in the Debtor's
names or held for the Debtor, which evidences a right to the payment of money
for goods sold or leased, monies invested, or services rendered or to be
rendered or commissions earned or to be earned, which is not itself a security
agreement or lease, and which is of a type which is in the ordinary course of
business transferred by delivery with any necessary endorsement or assignment.
(i) "Inventory" means the inventory of the Debtor of every type
and nature, wherever located, including, without limitation, all supplies and
materials, reusable, disposable or otherwise, whether held for sale, lease or
other disposition, for furnishing to others or for use or consumption in the
business of the Debtor, whether raw materials, work in process, finished goods
or materials or otherwise, whether in the actual or constructive possession or
control of the Debtor, a lessee from the Debtor, or any other third party for
the account of the Debtor, or any other party together with all accessories,
wrappings, attachments, additions, parts and replacements
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<PAGE> 8
therefor and thereto.
(j) "Permitted Encumbrances" (i) means encumbrances approved in
writing by the Lenders, (ii) liens for taxes not delinquent or being contested
in good faith and by appropriate proceedings, (iii) liens in connection with
workers compensation, unemployment insurance or other social security
obligations, (iv) deposits or pledges to secure bids, tenders, contracts (other
than contracts for the payment of money), leases and obligations of like nature
arising in the ordinary course of business, (v) mechanics, materialmens,
landlords, carriers or other like liens arising in the ordinary course of
business with respect to obligations which are not due or which are being
contested in good faith, and (vi) any mortgage, encumbrance or other lien upon,
or security interest in, any property, or interest therein, hereafter acquired
by the Borrower or any Subsidiary which mortgage, encumbrance, lien or security
interest is created contemporaneously with such acquisitions to secure or
provide for the payment or financing of any part of the purchase price thereof,
or the assumption of any mortgage, encumbrance or lien upon, or security
interest in, any such property hereafter acquired existing at the time of such
acquisition, or the acquisition of any such property subject to any mortgage,
encumbrance or lien upon, or security interest in, without the assumption
thereof, provided that (A) the indebtedness secured by any such mortgage,
encumbrance, lien or security interest so created, assumed or existing shall
not exceed 80% of the cost of the property covered thereby to the person
acquiring the same, and (B) each such mortgage, encumbrance, lien or security
interest shall attach only to the property so acquired and fixed improvements
thereon, and (C) the acquisition to which any such mortgage, encumbrance, lien
or security interest relates shall not result in a default under any provision
of this Agreement.
(k) "Purchaser" includes all buyers or lessees of any Inventory
from the Debtor and all customers for whom services have been rendered or
materials furnished by the Debtor.
(l) "Secured Party" shall mean and refer to the holders of the
Notes, as secured party hereunder; provided, however, that for purposes of
exercising remedies and discretion hereunder, the holders of two-thirds of the
principal amount of Notes then outstanding shall control the action of the
Secured Party hereunder. For purposes of the administration of this Agreement,
all notices to the Secured Party shall be mailed to the Lenders at their
addresses set forth in Schedule I hereto.
(m) "Subsidiary" means any corporation, partnership, joint
venture or other entity more than 50% of the
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<PAGE> 9
ownership interests of which is owned by the Debtor or any other Subsidiary of
the Debtor.
ARTICLE III: COLLATERAL
3.1 As collateral security for the Liabilities, the Debtor hereby
grants to the Lenders and their successors and assigns as holders of the Notes,
jointly, for the benefit of the holders of all of the Notes a continuing
security interest in, and transfers to them a security interest in, the
following property (hereinafter sometimes collectively called the
"Collateral"):
(a) all of Debtor's Accounts, including all existing Accounts
and all Accounts hereafter coming into existence; and
(b) all of Debtor's Instruments, regardless of whether they may
be in existence at the present time, may come into existence in the future or
may be executed in the future; and
(c) all of Debtor's Chattel Paper, regardless of whether it may
be in existence at the present time, may come into existence in the future or
may arise in the future; and
(d) all of Debtor's notes, drafts, acceptances, instruments,
documents of title, policies and certificates of insurance, chattel paper,
guaranties and securities now or hereafter received by the Debtor, or in which
the Debtor has or acquires an interest; and
(e) all of Debtor's now owned or hereafter acquired Inventory,
wherever located including all interest of the Debtor now existing or hereafter
arising in goods as to which an Account for goods sold or delivered or services
rendered has arisen or as to which any Chattel Paper has been executed and
delivered to the Debtor; and
(f) all of Debtor's now owned or hereafter acquired Equipment,
wherever located, together with any and all parts, additions, replacements,
accessions and substitutions thereto or therefor and all licenses and other
rights of the Debtor relating thereto, whether in the actual or constructive
possession or control of the Debtor, a lessee from the Debtor or any other
third party for the account of the Debtor; and
7
<PAGE> 10
(g) all of Debtor's now existing or hereafter acquired or
arising documents, general intangibles and any other intangible personal
property of every kind and description including, without limitation, all
choses in action, contracts, trademarks, copyrights, patents, trade names,
trade styles, trade secrets, operating rights, licenses, franchises, leases of
Equipment, leases of real property, leases of other personal property,
registrations, applications and tax refunds; and
(h) all of Debtor's now existing or hereafter created or coming
into existence books and records including, without limitation, ledgers, books
of account, records, computer programs, computer disks or tape files, computer
printouts, computer runs and other computer prepared information; and
(i) all products of the foregoing; and
(j) all cash and non-cash proceeds (including, without
limitation, insurance proceeds) of the foregoing.
ARTICLE IV: COVENANTS, REPRESENTATIONS
AND WARRANTIES
4.1 So long as this Agreement is in effect, and until such time as
all the Debtor's Liabilities shall have been fully paid and discharged, the
Debtor covenants and agrees that it and, to the extent applicable, its
Subsidiaries:
(a) will, when requested by the Secured Party from time to time
give the Secured Party specific assignments of Accounts, Instruments and
Chattel Paper as or after they come into existence, together with schedules
thereof in a form satisfactory to the Secured Party and will, upon request,
execute and deliver to the Secured Party any instrument, document, financing
statement, supplemental agreement, power of attorney, assignment, transfer or
other writing which the Secured Party may deem necessary or desirable to carry
out the purposes of this Agreement, to perfect the Secured Party's security
interest in the Accounts, Instruments, Chattel Paper, Inventory and other
Collateral, or to enable the Secured Party to enforce its security interest in
any of the foregoing;
(b) will maintain, in accordance with sound accounting
practice, accurate records and books of account showing, among other things,
all Accounts, Instruments, Chattel Paper and other Collateral, and the
collections thereon; and the Secured Party, or anyone on their behalf, shall
have the right to
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<PAGE> 11
call at their offices and other places of business during reasonable business
hours at intervals to be determined by them, before or after an Event of
Default hereunder and, without hindrance or delay, to inspect, audit, check and
make extracts from the books, records, ledgers, journals, orders, receipts,
correspondence and other data relating to Accounts, Instruments, Chattel Paper
and other Collateral;
(c) will inform the Secured Party on a regular basis as to
which of the Accounts, Instruments and Chattel Paper, if any, arise out of
contracts with the United States or any department, agency or instrumentality
thereof, and upon the request of the Secured Party, shall execute any
instruments and take any further steps as may be required by the Secured Party
in order that all monies due or to become due under such contract shall be
assigned to the Secured Party, and that notice thereof be given to the
Government under the Federal Assignment of Claims Act to the extent permitted
by law;
(d) will, if requested by the Secured Party, mark its
Instruments and Chattel Paper and all of its records concerning its Accounts,
Instruments and Chattel Paper which have been assigned to the Secured Party in
a manner satisfactory to the Secured Party to show that they have been assigned
to the Secured Party subject to Permitted Encumbrances;
(e) will preserve and maintain its existence in good standing
under the laws of the State of Delaware; and
(f) will maintain the net proceeds of the Notes in an
interest-bearing escrow account the terms of which will allow for the release
of $50,000 each time the Borrower executes a definitive agreement with a
chiropractor to medically integrate a chiropractic clinic; provided, however,
that if $1,100,000 aggregate principal amount of Notes are outstanding on the
date of this Agreement and if the Borrower executes a definitive master license
agreement with Bally Total Fitness Corporation, the terms of the escrow account
will allow for the release of up to $200,000 upon the execution of such
definitive master license agreement to establish clinics as provided therein.
Although the financial covenants set forth herein are continuing
financial covenants, the accounting principles to be applied at any given point
in time shall be the generally accepted accounting principles as in effect as
of the date thereof.
4.2 Any holder may assign or transfer the Notes held by it and may
assign and transfer as collateral security therefor
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<PAGE> 12
its security interest in the whole or any part of the Collateral provided by
the Debtor under this Agreement, subject to the terms of the Notes. Such
transferee shall have the same rights and powers with reference to such
security interest, and to the obligations of the Debtor and the benefit of this
Agreement, as are hereby given to the original Secured Party.
ARTICLE V: EVENTS OF DEFAULT
5.1 The occurrence of any one or more of the following events shall
constitute an Event of Default under this Agreement:
(a) the failure to pay the principal of any of the Notes or to
pay the interest thereon or any other amount due hereunder, for more than 30
days after the same shall become due and payable, as applicable; or
(b) the failure of the Debtor to comply with the obligations of
the Debtor under Sections 4.1(e); or
(c) the failure by the Debtor to observe or perform the
obligations under Article IV (other than those specified in Section 5.1(b))
which failure is not cured within thirty (30) days after notice thereof has
been given by the Secured Party to the Debtor; or
(d) the making or furnishing to the Secured Party of any
representation, warranty or certificate in connection with this Agreement or
any other of the Debtor's Liabilities which is materially inaccurate; or
(e) the making of an assignment for the benefit of its
creditors by the Debtor or any guarantor of any of the Debtor's Liabilities; or
(f) the commencement of proceedings by or against Debtor or any
guarantor of any of the Debtor's Liabilities in bankruptcy or for
reorganization or for the readjustment of debts under the Federal Bankruptcy
Code or under any other law, whether state or federal, now or hereafter
existing for the relief of debtors or the admission, in writing, of any
inability to pay its debts as they mature; or
(g) the appointment of a receiver or trustee for the Debtor or
for any substantial part of any of its assets, or the institution of any
proceedings for the dissolution, or the full or partial liquidation, of the
Debtor.
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If an Event of Default has occurred, the Secured Party shall have the
right to declare payment of the Notes, and all other of the Debtor's
Liabilities to be due and payable forthwith, and thereupon, to avail itself of
such rights with respect to the Collateral pledged hereunder provided in the
Uniform Commercial Code of the District of Columbia regardless of whether such
Code has been enacted in the jurisdiction where rights or remedies are asserted
(including, without limitation, the right to direct notification and the right
to require the Debtor to assemble any Collateral and to make it available to
the Secured Party at a place reasonably convenient to both parties), or as
otherwise provided by law. The parties hereto hereby declare that all Accounts
transferred to the Secured Party hereunder are transferred to secure the Notes
and are not being sold to the Secured Party, regardless of whether any
assignment thereof which is separate from this Agreement is in form absolute.
5.2 (a) Upon the occurrence of an Event of Default hereunder,
Secured Party may foreclose its security interest in the Inventory, Equipment
and/or other Collateral in any way permitted by law, or it may enter any of the
Debtor's premises or other premises without resort to judicial process and
without incurring liability to the Debtor therefor, and the Secured Party may
thereupon, or at any time thereafter, in its discretion, without notice or
demand, except such notice as may be specifically required by law, take the
Inventory, Equipment and/or other Collateral subject to its security interest
and, if removable, remove the same to such place as it may deem advisable, or
it may require the Debtor to make the Inventory, Equipment and/or other
Collateral available to the Secured Party at a convenient place and, with or
without having the Inventory, Equipment and/or other Collateral at the time or
place of sale, the Secured Party may sell the Inventory, Equipment and/or other
Collateral, or any part thereof, at public or private sales, at any time or
place, in one or more sales, at such price or prices and upon such terms,
either for cash, credit or future delivery, as the Secured Party may elect. At
any such sale, the Secured Party may bid for and become the purchaser, and such
sale or sales may be held without demand of performance, notice of intention to
sell, the time or place of sale, or any other matter, except such notice as may
be specifically required by law, it being agreed that any notification required
by Section 9-504 of the Uniform Commercial Code as enacted in the District of
Columbia or in any corresponding provision in the Uniform Commercial Code as
enacted in any other state or by any other law, is reasonably and properly
given if mailed by certified or registered mail, postage prepaid, to the Debtor
at least fifteen (15) days before any sale or other disposition of any of the
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<PAGE> 14
Collateral, and the purchaser at any such sale shall thereafter hold the
Inventory, Equipment and/or other Collateral sold absolutely free from any
claim or right of the Debtor of whatsoever kind, including any equity of
redemption of the Debtor, and such demand, notice, right and equity are hereby
expressly waived and released by the Debtor.
(b) The Secured Party may, at its option, make any payments or
take any other action it may deem necessary or desirable to cure any Event of
Default or to conserve or improve the Collateral, and the Debtor shall, upon
demand, reimburse the Secured Party for all such advances and expenses together
with interest at the default rate borne by the Notes from the date of advance
or payment of the same.
(c) The Secured Party shall receive the proceeds of any such
sale or sales and, after deducting therefrom any and all costs and expenses
incurred in securing possession of Inventory, Equipment and/or other
Collateral, in moving, storing, repairing, finishing the manufacture of and
preparing same for sale, and in connection with the sale thereof, apply the net
proceeds toward the payment of the Debtor's Liabilities, as provided in Section
5.3 hereof.
5.3 All monies collected pursuant to this Article shall, after
payment of the costs and expenses of the collection of such monies and of the
expenses, liabilities and advances incurred or made by the Secured Party,
including interest thereon as provided herein, be applied as follows:
First -- to the payment of all payments of interest then due on the
Notes; provided, however, if the amount is insufficient to pay all such accrued
interest, then payments to the holders of the Notes shall be made in proportion
to the amount of Notes then held by such holders in relation to the total
amount of Notes then outstanding;
Second -- to the payment of all principal of the Notes, without
distinction or priority; provided, however, if the amount collected is
insufficient to pay all of such principal, payments to the holders of the Notes
shall be made in proportion to the principal amount of the Notes then held by
such holders in relation to the principal amount of the Notes then outstanding;
and
Third -- to pay the holders of the Notes, the Secured Party and any
other parties entitled thereto all other of the Debtor's obligations.
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If such net proceeds should be insufficient to pay the same, and should there
be a deficiency, then the Debtor shall forthwith, upon demand, pay such
deficiency to the Secured Party; or if such proceeds be more than sufficient to
pay the same, then in case of a surplus, such surplus shall be accounted for
and paid over to the Debtor to the extent allowed by law and to the extent no
other claim for such surplus has been made by any other party, provided that
there are no Debtor's Liabilities then outstanding, in which event such surplus
shall be applied to such Debtor's Liabilities.
5.4 The Debtor waives presentment, demand for payment, protest,
notice of protest and notice of dishonor with respect to all commercial paper
at any time held by the Secured Party on which it is in any way liable, notice
of nonpayment at maturity of any and all Accounts, Instruments, Chattel Paper
and other Collateral and, except where expressly required hereby, notice of any
action taken by the Secured Party. Exercise of or failure to exercise any
right of the Secured Party shall not affect any subsequent right of the Secured
Party to exercise the same. Whether before or after default, the Secured Party
shall have the right to compromise, extend or renew any Account, Instrument,
Chattel Paper or other Collateral, or to deal with the same in whatever manner
it may deem advisable as provided herein. The Debtor agrees that the Secured
Party shall have no duty or obligation to collect or enforce any Account,
Instrument, Chattel Paper or other Collateral.
5.5 Any delay on the part of the Secured Party in exercising any
power, privilege or right under this Agreement shall not operate as a waiver
thereof, and no single or partial exercise of any power, privilege or right
hereunder shall preclude other or further exercise thereof, or the exercise of
any other power, privilege or right. The waiver by the Secured Party of any
Event of Default hereunder shall not constitute a waiver of any subsequent
defaults or Events of Default, but shall be restricted to the default or Event
of Default so waived. The failure of the Secured Party to enforce any of the
terms and provisions hereof, or its failure to declare an Event of Default
hereunder, shall apply only in the particular instance, and shall not operate
as a continuing waiver. If any part of this Agreement should be contrary to
any law which the Secured Party might seek to apply or enforce, or should be
otherwise defective, the other provisions of this Agreement shall not be
affected thereby, but shall continue in full force and effect. All rights,
remedies and powers of the Secured Party hereunder are irrevocable and
cumulative, and not alternative or exclusive, and shall be in addition to all
other rights, remedies and powers given hereby or by any other instruments or
any laws now existing
13
<PAGE> 16
or hereafter enacted.
ARTICLE VI: MISCELLANEOUS
6.1 This Agreement, and all of the terms, conditions and covenants
herein contained, shall be binding upon the parties hereto and their successors
and assigns, and shall inure to the benefit of the parties hereto and to the
successors and assigns of the Secured Party, but shall not inure to the benefit
of any other person, firm or corporation.
6.2 The laws of the District of Columbia shall govern the
construction of this Agreement and the rights and duties of the parties hereto
with respect to all collateral and all notes and other documents evidencing or
otherwise executed in connection with the loans hereunder.
6.3 This Agreement may not be changed, modified or amended except by
a writing signed by all of the parties hereto.
6.4 A carbon, photographic or other reproduction of this Agreement
or of a financing statement is sufficient as a financing statement and may be
filed as such.
6.5 In the event of conflict between the terms of any of the
documentation relating to this Agreement or the relationships and rights
between the Secured Party and the Debtor hereunder, the Secured Party shall
have the right to elect which of such conflicting terms shall be applicable in
such event of conflict.
6.6 When used in this Agreement, the singular of any word shall
include the plural, the plural shall include the singular, and the use of any
gender shall include all genders.
6.7 All titles and headings of or in this Agreement are for
reference purposes only; they are not intended to nor shall they be construed
to in any way limit the substantive provisions contained in this Agreement or
any part thereof.
6.8 Notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given if delivered or mailed by certified
or registered mail to the parties at their addresses as shown below (in the
case of the Debtor) or on Schedule I hereto (in the case of the Lenders) or to
such other address any party hereto shall designate to the other parties in
writing:
14
<PAGE> 17
Complete Wellness Centers, Inc.
Attention: President
725 Independence Avenue, S.E.
Washington, D.C. 20003
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
Debtor:
------
COMPLETE WELLNESS CENTERS, INC.
By:
--------------------------------
Its:
15
<PAGE> 18
Secured Party:
-------------
-----------------------------------
Signature
-----------------------------------
Print Name
-----------------------------------
Street
-----------------------------------
City, State, Zip
16
<PAGE> 19
THIS WARRANT HAS NOT BEEN REGISTERED UNDER FEDERAL OR STATE SECURITIES LAWS.
IT MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION UNDER SUCH
LAWS OR THE AVAILABILITY OF AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH LAWS EVIDENCED BY AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE COMMON STOCK
COMPLETE WELLNESS CENTERS, INC.
THIS CERTIFIES THAT, for value received, __________________ (Holder) is
entitled to purchase, on the terms hereof, shares of common stock of Complete
Wellness Centers, Inc., a Delaware corporation (Company).
This Warrant is issued pursuant to the provisions of the Subscription/Purchase
Agreement dated as of __________, 1996 (Agreement) relating hereto, and this
Warrant and the common stock issuable upon exercise of this Warrant shall be
subject to, and the Holder shall be bound by, all the provisions of the
Agreement, and shall be deemed to have made the representations and warranties
set forth in Section 4 of the Agreement with respect to the securities
evidenced by this Warrant. Additionally, the following terms shall apply to
this Warrant:
1. EXERCISE OF WARRANT.
The terms and conditions upon which this Warrant may be exercised and the
common stock covered hereby (Warrant Stock) may be purchased are as follows:
1.1. Voluntary Exercise.
(a) This Warrant may be exercised upon or after the first to occur of (i) the
effectiveness of a registration statement (other than a registration statement
on Form S-4 or S-8) under the Securities Act of 1933, as amended, for a firm
commitment underwritten initial public offering of shares of common stock of
the Company or (ii) June 30, 1997. In no case may this Warrant be exercised
later than 5:00 p.m. eastern time on December 31, 1999 (Expiration Date), after
which time this Warrant shall terminate and shall be void.
(b) The Company will mail to the Holder a notice specifying the date on which
the registration statement for any such initial public offering is expected to
be declared effective by the Securities and Exchange Commission (Effective
Date). Such notice shall be mailed at least 60 days prior to the date therein
specified.
1.2. Number of Shares. The number of shares of common stock for which this
Warrant is initially exercisable is (i) that number of shares of common stock
of the Company equal to the quotient obtained by dividing $_________ by the
price per share of common stock offered to the public in
<PAGE> 20
2
an initial public offering subject to Section 1.1(a)(i) hereof, or (ii) if such
an initial public offering is not completed on or before June 30, 1997,
_________ shares of the Company's common stock, par value $0.0000555 per share,
subject to adjustment pursuant to Section 2 of this Warrant.
1.3. Purchase Price. The per share purchase price for the shares of common
stock to be issued upon exercise of this Warrant shall be $0.001, subject to
adjustment as provided herein.
1.4. Method of Exercise. The exercise of the purchase rights evidenced by this
Warrant shall be effected by the following actions if taken within 20 days
after receipt of the notice from the Company of a proposed initial public
offering or, in the absence of such a notice, if taken after June 30, 1997 and
prior to the Expiration Date: (a) the surrender of the Warrant, together with a
duly executed copy of the form of subscription attached hereto, to the Company
at its principal offices and (b) the delivery of the purchase price by check or
bank draft payable to the Company's order or by wire transfer to the Company's
account for the number of shares for which the purchase rights hereunder are
being exercised or any other form of consideration approved by the Company's
board of directors.
1.5. Issuance of Shares. Upon the exercise of the purchase rights evidenced by
this Warrant, a certificate or certificates for the purchased shares shall be
issued to the Holder as soon as practicable. The Holder shall for all purposes
be deemed to have become the holder of record of the number of shares of common
stock evidenced by such certificate from the date on which this Warrant was
surrendered and payment of the purchase price was received by the Company,
regardless of the date of delivery of such certificate.
1.6. Election to Register. If the Holder (a) elects (in accordance with the
terms of Section 6 hereof) to have Warrant Stock covered by a Registration
Statement (as defined in Section 6) relating to an initial public offering
subject to Section 1.1(a)(i) hereof, (b) wishes to exercise this Warrant on the
date of effectiveness of such Registration Statement, and (c) so notifies the
Company prior to the date of such effectiveness (in accordance with the terms
of this Warrant), the Company will arrange to issue to the Holder certificates
representing such Warrant Stock on the date of such effectiveness.
2. CERTAIN ADJUSTMENTS.
The provisions of this Section 2 shall apply if and only if an initial public
offering subject to Section 1.1(a)(i) hereof is not completed on or before June
30, 1997:
2.1. Common Stock Dividends. If the Company at any time prior to the
expiration of this Warrant shall pay a dividend with respect to common stock
payable in shares of common stock, then the purchase price per share shall be
adjusted, from and after the date of determination of the stockholders entitled
to receive such dividend, to that price determined by multiplying the per share
purchase price in effect by a fraction (i) the numerator of which shall be the
total number of shares of common stock outstanding immediately prior to such
dividend and (ii) the denominator
<PAGE> 21
3
of which shall be the total number of shares of common stock outstanding
immediately after such dividend; provided, however, that the aggregate purchase
price shall not be adjusted.
2.2. Mergers, Consolidations, or Sale of Assets. If at any time there shall be
a capital reorganization (other than a combination or subdivision of Warrant
Stock provided for herein), or a merger or consolidation of the Company with or
into another corporation, or the sale of the Company's properties and assets
as, or substantially as, an entirety to any other person, then, as a part of
such reorganization, merger, consolidation or sale, lawful provision shall be
made so that the Holder shall thereafter be entitled to receive upon exercise
of this Warrant, during the period specified in this Warrant and upon payment
of the purchase price, the number of shares of stock or other securities or
property of the Company or the successor corporation resulting from such
reorganization, merger, consolidation or sale, to which a holder of the common
stock deliverable upon exercise of this Warrant would have been entitled under
the provisions of the agreement in such reorganization, merger, consolidation
or sale if this Warrant had been exercised immediately before that
reorganization, merger, consolidation or sale. In any such case, appropriate
adjustment (as determined in good faith by the Company's board of directors)
shall be made in the application of the provisions of this Warrant with respect
to the rights and interests of the Holder after the reorganization, merger,
consolidation or sale to the end that the provisions of this Warrant (including
adjustment of the purchase price then in effect and the number of shares of
Warrant Stock) shall be applicable after that event, as near as reasonably may
be, in relation to any shares or other property deliverable after that event
upon exercise of this Warrant; provided, however, that the aggregate purchase
price shall not be adjusted.
2.3. Splits and Subdivisions. In the event the Company should at an time or
from time to time fix a record date for the effectuation of a split or
subdivision of the outstanding shares of common stock or the determination of
the holders of common stock entitled to receive a dividend or other
distribution payable in additional shares of common stock or other securities
or rights convertible into, or entitling the holder thereof to receive directly
or indirectly, additional shares of common stock (Common Stock Equivalents)
without payment of any consideration by such holder for the additional shares
of common stock or Common Stock Equivalents (including the additional shares of
common stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such distribution, split, or subdivision if no
record date is fixed), the purchase price shall be appropriately decreased and
the number of shares of Warrant Stock shall be appropriately increased in
proportion to such increase of outstanding shares; provided, however, that the
aggregate purchase price shall not be adjusted.
2.4. Combination of Shares. If the number of shares of common stock
outstanding at any time after the date hereof is decreased by a combination of
the outstanding shares of common stock, the purchase price per share shall be
appropriately increased and the number of shares of Warrant Stock subject to
Section 1.2(ii) hereof shall be appropriately decreased in proportion to such
decrease in outstanding shares; provided, however, that the aggregate purchase
price shall not be adjusted.
<PAGE> 22
4
2.5. Adjustments for Other Distributions. In the event the Company shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Company or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsections 2.1 or 2.3,
then, in each such case for the purpose of this subsection 2.5, upon exercise
of this Warrant the holder hereof shall be entitled to a proportionate share of
any such distribution as though such holder was the holder of the number of
shares of common stock into which this Warrant may be exercised as of the
record date fixed for the determination of the holders of common stock entitled
to receive such distribution; provided, however, that the aggregate purchase
price shall not be adjusted.
2.6. Certificate as to Adjustments. In the case of each adjustment or
readjustment of the purchase price pursuant to this Section 2, the Company will
promptly compute such adjustment or readjustment in accordance with the terms
hereof and cause a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based to be delivered to the holder of this Warrant. The Company will, upon
the written request at any time of the holder of this Warrant, furnish or cause
to be furnished to such holder a certificate setting forth:
(a) Such adjustments and readjustments;
(b) The purchase price at the time in effect; and
(c) The number of shares of Warrant Stock and the amount, if any, of
other property at the time receivable upon exercise of this Warrant.
2.7. Notices of Record Date, etc. In the event of:
(a) Any taking by the Company of a record of the holders of any class
of securities of the Company for the purpose of determining the holders thereof
who are entitled to receive any dividend (other than a cash dividend payable
out of earned surplus at the same rate as that of the last such cash dividend
theretofore paid) or other distribution, or any right to subscribe for,
purchase, or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right; or
(b) Any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all or
substantially all of the assets of the Company to any other person or any
consolidation or merger involving the Company; or
(c) Any voluntary or involuntary dissolution, liquidation, or
winding-up of the Company,
the Company will mail to the holder of this Warrant at least five (5) days
prior to the earliest date specified therein, a notice specifying:
<PAGE> 23
5
(i) The date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character
of such dividend, distribution or right; and
(ii) The date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation, or
winding-up is expected to become effective and the record date for determining
stockholders entitled to vote thereon.
3. FRACTIONAL SHARES.
No fractional share shall be issued in connection with any exercise of this
Warrant. In lieu of the issuance of such fractional share, the Company shall
make a cash payment equal to the then fair market value of such fractional
share as determined in good faith by the Company's board of directors.
4. RESERVATION OF COMMON STOCK.
The Company shall at all times reserve and keep available out of its authorized
but unissued shares of commons stock, solely for the purpose of effecting the
exercise of this Warrant, such number of its shares of common stock as shall
from time to time be sufficient to effect the exercise of this Warrant; and if
at any time the number of authorized but unissued shares of common stock shall
not be sufficient to effect the exercise of this Warrant in its entirety, in
addition to such other remedies as shall be available to the holder of this
Warrant, the Company will use its reasonable best efforts to take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of common stock to such number of
shares as shall be sufficient for such purpose.
5. PRIVILEGE OF STOCK OWNERSHIP.
Prior to the exercise of this Warrant, the Holder shall not be entitled, by
virtue of holding this Warrant, to any rights of a stockholder of the Company,
including (without limitation) the right to vote, receive dividends or other
distributions, exercise preemptive rights or be notified of stockholder
meetings, and the Holder shall not be entitled to any notice or other
communication concerning the business or affairs of the Company. Nothing in
this Section 5, however, shall limit the right of the Holder to participate in
distributions to the extent set forth in Section 2 or be provided the notices
described in Section 2 if the Holder ultimately exercises this Warrant.
6. REGISTRATION OF SHARES.
6.1. Definitions. As used in this Section 6, the following terms shall have
the following respective meanings:
(a) "Commission" means the Securities and Exchange Commission, or any
other Federal
<PAGE> 24
6
agency at the time administering the 1933 Act.
(b) "1934 Act" means the Securities Exchange Act of 1934, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
(c) "1933 Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.
(d) "Registration Statement" means a registration statement filed by
the Company with the Commission for a firm commitment underwritten public
offering and sale of common stock of the Company (other than a registration
statement on Form S-4 or Form S-8, or their successors, or any other form for a
limited purpose, or any registration statement covering only securities
proposed to be issued in exchange for securities or assets of another
corporation).
(e) "Registration Expenses" means the expenses described in Section
6.4.
(f) "Registrable Shares" means the Warrant Stock; provided, however,
that the shares of common stock which are Registrable Shares shall cease to be
Registrable Shares upon any sale of such shares pursuant to a Registration
Statement, Section 4(1) of the 1933 Act, Rule 144 under the 1933 Act or
otherwise.
6.2. Registration.
(a) To the extent the Registrable Shares are not covered by an
effective Registration Statement, whenever the Company proposes to file a
Registration Statement covering shares of common stock, it will, prior to such
filing, give written notice to Holder in accordance with Section 1.4 of its
intention to do so and, upon the written request of Holder given within 20 days
after the Company provides such notice, the Company shall use its good faith
efforts to cause all Registrable Shares which the Company has been requested by
Holder to register to be registered under the 1933 Act to the extent necessary
to permit their sale or other disposition in accordance with the intended
methods of distribution specified in the request of Holder; provided that the
Company shall have the right to postpone or withdraw any registration effected
pursuant to this Section 6.2(a) without obligation to Holder.
(b) Notwithstanding any provision in this Section 6.2 to the contrary,
in connection with any offering under this Section 6.2 involving an
underwriting, the Company shall not be required to include any Registrable
Shares in such underwriting unless Holder accepts the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it, and
then only in such quantity as will not, in the sole discretion of the
underwriters, jeopardize the success of the offering by the Company. If in the
sole discretion of the managing underwriter or underwriters the registration of
all, or part of, the Registrable Shares which the Holder has
<PAGE> 25
7
requested to be included would adversely affect such public offering, then the
Company shall be required to include in the underwriting only that number of
Registrable Shares, if any, which the managing underwriter or underwriters
believe may be sold without causing such adverse effect. If the number of
Registrable Shares to be included in the underwriting in accordance with the
foregoing is less than the total number of shares which the Holder has
requested to be included, then the Holder shall participate in the underwriting
pro rata based upon its total ownership of Registrable Shares compared to the
total number of shares held by others pursuant to separate agreements with the
Company for which registration has been requested. Holder shall not transfer
any shares covered by the Registration Statement for up to 90 days if, in the
discretion of the managing underwriter or underwriters, such transfers would
hinder the offering by the Company.
6.3. Allocation of Expenses. The Company will pay all Registration Expenses
of all registrations under this Agreement; provided, however, that if a
registration is withdrawn at the request of the holders requesting such
registration (other than as a result of information concerning the business or
financial condition of the Company which is made known to the holders after the
date on which such registration was requested), each of the holders shall pay
the Registration Expenses of such registration pro rata in accordance with the
number of its Registrable Shares included in such registration. For purposes
of this Section 6, the term "Registration Expenses" shall mean all expenses
incurred by the Company in complying with this Section 6, including, without
limitation, all registration and filing fees, exchange listing fees, printing
expenses, fees and disbursements of counsel for the Company, state Blue Sky
fees and expenses, transfer agent fees, cost of engraving of stock
certificates, costs for mailing and tombstone advertising, cost of preparing
the Registration Statement, related exhibits, amendments and supplements
thereto, underwriting documents, selected dealer agreements, preliminary and
final prospectuses, and the expense of any special audits incident to or
required by any such registration, but excluding underwriting discounts and
selling commissions attributable to the Registrable Shares and the fees and
expenses of the holder's own counsel and accountants, which shall be borne by
such holders.
6.4. Indemnification and Contribution. In the event of any registration of
any of the Registrable Shares under the 1933 Act, pursuant to this Section 6,
the Company will indemnify and hold harmless the seller of such Registrable
Shares against any losses, claims, damages or liabilities, joint or several, to
which such seller may become subject under the 1933 Act, the 1934 Act, state
securities laws or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement under which such Registrable Shares were registered
under the 1933 Act, any preliminary prospectus or final prospectus contained in
the Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse such seller
for any legal or any other expenses reasonably incurred by such seller in
connection with investigating and defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any
<PAGE> 26
8
such loss, claim, damage, liability or expense arises out of or is based upon
any untrue statement or omission made in such Registration Statement,
preliminary prospectus or prospectus, or any such amendment or supplement, in
reliance upon and in conformity with information furnished to the Company by or
on behalf of such seller, specifically for use in the preparation thereof, or
as a result of the failure of such seller, or any agent of such seller, to
deliver any amendments and supplements to any Registration Statement and the
prospectus included in any such Registration Statement.
In the event of any registration of any of the Registrable Shares
under the 1933 Act pursuant to this Agreement, each seller of Registrable
Shares, severally and not jointly will indemnify and hold harmless the Company,
each of its directors and officers and each underwriter and each person, if
any, who controls the Company or any such underwriter within the meaning of the
1933 Act or the 1934 Act, against any losses, claims, damages or liabilities,
joint or several, to which the Company, such directors and officers,
underwriter or controlling person may become subject under the 1933 Act, 1934
Act, state securities laws or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement under which such Registrable Shares
were registered under the 1933 Act, any preliminary prospectus or final
prospectus contained in the Registration Statement, or any amendment or
supplement to the Registration Statement, or arise out of or are based upon any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, if the
statement or omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of such seller,
specifically for use in connection with the preparation of such Registration
Statement, prospectus, amendment or supplement, and each seller of Registrable
Shares will reimburse the Company, each of its directors and officers, each
underwriter and each controlling person, severally and not jointly, for any
legal or other expenses reasonably incurred by the Company, each director and
officer, each underwriter and each controlling person in connection with
investigating and defending any such loss, claim, damage, liability or action.
Each party entitled to indemnification under this Section 6.4 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claims to which indemnity may be sought, and
shall permit the Indemnifying Party to assume the defense of any such claim or
any litigation resulting therefrom; provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, provided, further, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 6. The Indemnified Party may participate in
such defense at such party's expense. No Indemnifying Party, in the defense of
any such claim or litigation shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
of such claim or
<PAGE> 27
9
litigation.
To provide for just and equitable contribution, if (i) an Indemnified
Party makes a claim for indemnification pursuant to Section 6 (subject to the
limitations thereof) but it is found in a final judicial determination, not
subject to further appeal, that such indemnification may not be enforced in
such case, even though this Section 6 expressly provides for indemnification in
such case or (ii) any indemnified or indemnifying party seeks contribution
under the 1933 Act, the 1934 Act, or otherwise, then the Indemnifying Party
shall contribute to the losses, liabilities, claims, damages, and expenses
whatsoever based on relevant equitable considerations such as the relative
fault of such Indemnifying Party(ies) in connection with the facts which
resulted in such losses, liabilities, claims, damages, and expenses.
6.5. Information by Holder. Each holder of Registrable Shares included in a
Registration Statement shall furnish to the Company such information regarding
such holder and the distribution proposed by such holder as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Section 6.
7. LIMITATION OF LIABILITY.
Except as otherwise provided herein, in the absence of affirmative action by
the Holder to purchase the Warrant Stock, no mere enumeration herein of the
rights or privileges of the holder hereof shall give rise to any liability of
such holder for the purchase price or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
8. TRANSFERS AND EXCHANGES.
8.1. Transfers. Subject to the terms and conditions of the Agreement and
compliance with applicable federal and state securities laws, this Warrant is
transferable in whole or in part by the Holder.
8.2. Exchanges. All new warrants issued in connection with transfers or
exchanges shall be identical in form and provision to this Warrant except as to
the number of shares and the identity of the Holder.
9. SUCCESSORS AND ASSIGNS.
The terms and provisions of this Warrant shall be binding upon the Company and
the Holder and their respective successors and assigns, subject to the
restrictions set forth in the Agreement.
10. LOSS, THEFT, DESTRUCTION, OR MUTILATION OF WARRANT.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft,
<PAGE> 28
10
destruction, or mutilation of this Warrant, and in case of loss, theft, or
destruction, of indemnity or security reasonably satisfactory to the Company,
and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new warrant of like tenor and dated as of such
cancellation, in lieu of this Warrant.
11. WEEKENDS, HOLIDAYS, ETC.
If the last or appointed day for the taking of any action or the expiration of
any right required or granted herein shall be a Saturday, Sunday, or legal
holiday, then such action may be taken or such right may be exercised on the
next succeeding day that is not a Sunday or legal holiday.
12. GOVERNING LAW
The terms and conditions of this Warrant shall be governed by and construed in
accordance with Delaware law as such laws are applied to agreements which are
entered into solely between Delaware residents and are to be performed entirely
within that state.
Dated: August 15, 1996
COMPLETE WELLNESS CENTERS, INC.
By:
-----------------------------
Its:
For Georgia Holders
THIS WARRANT HAS BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF CODE
SECTION 10-5-9 OF THE "GEORGIA SECURITIES ACT OF 1973," AND MAY NOT BE SOLD OR
TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT
TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.
<PAGE> 29
SUBSCRIPTION
TO: Complete Wellness Centers, Inc.
-------------------------------
-------------------------------
-------------------------------
Ladies and Gentlemen:
The undersigned, _____________________________________, hereby elects to
purchase, pursuant to the provisions of the Warrant dated August 15, 1996 held
by the undersigned, _________ shares of the common stock of Complete Wellness
Centers, Inc., a Delaware corporation, and tenders herewith payment of the
purchase price of such shares in full.
The undersigned hereby represents and warrants that the undersigned is
acquiring such stock for the undersigned's own account and not for resale or
with a view to, or for resale in connection with, the distribution of any part
thereof, and accepts such shares subject to the restrictions of the
Subscription/Purchase Agreement (Agreement) dated as of ____________, 1996
relating thereto. The undersigned hereby remakes all representations set forth
in Section 4 of the Agreement.
If the number of shares being purchased hereunder is not all of the shares
covered by the Warrant, the undersigned requests that a new warrant for the
balance of shares covered by such Warrant be registered in the name of and
delivered to the undersigned.
Date:
---------------------
By:
---------------------------
(Signature)
Name:
---------------------------
Address:
---------------------------
---------------------------
<PAGE> 1
EXHIBIT 10.5
MANAGEMENT AND SECURITY AGREEMENT
(CWC, INC.)
THIS MANAGEMENT AND SECURITY AGREEMENT (the "Agreement") is entered into
as of the _____ day of ________________, 199_ by and between Complete Wellness
Centers, Inc., a Delaware corporation ("CWC") having its principal office at
725 Independence Avenue, Washington, D.C. 20003, licensed to do business in the
State of ((State)) or shall be so licensed at the time of Integration and
((CWMC_Name)), a ((State)) professional or business corporation, as the case
may be and referred to hereinafter as "Medcorp."
WHEREAS, CWC provides integrated practice consulting and management
services to various healthcare companies either directly or through a designee;
and
WHEREAS, CWC desires to provide comprehensive administrative and other
management services to Medcorp as more particularly described hereinafter; and
WHEREAS Medcorp desires to avail itself of the services rendered by CWC
or CWC's designee on an exclusive basis,
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereto agree as follows:
DEFINITIONS.
"Administrator" is defined as ((CWMC_Name)), a management company with
which CWC shall contract pursuant to a separate agreement (the "Integrated
Contract") to perform the day-to-day Management Services required by Medcorp.
"Advances" are defined as those funds advanced by CWC to Medcorp to fund
costs, operating deficits and expenses at an interest rate of Ten percent (10%)
per annum and secured by appropriate security as determined in CWC's sole
discretion. The Advances are not included in the Loan proceeds and shall be
evidence by appropriate documentation.
"Agreement" is defined as the Management and Security Agreement entered
into by and between Complete Wellness Centers, Inc. and Medcorp, the parties
hereto.
"Collective Advertising" is defined as regional and/or national
advertising and "Yellow Page" advertising for clusters of clinics.
"CWC Fee" is defined as the fair market value of services received by CWC
for goods and services rendered to Medcorp pursuant to Exhibit "A" attached
hereto.
"CWC Services" is defined as all services rendered by CWC such as general
consultation; marketing support; group purchasing; managed care contracts;
ongoing consulting; loan to Medcorp; agreements and protocols with regard to
the Integrated Practice; recruitment of medical doctors plus all Management
Services (as defined hereinafter).
"Confidential Information" is defined as the terms and conditions of this
Agreement or any information of any kind, nature or description concerning any
matters affecting or relating to the business of the other party hereto,
including, without limiting the foregoing, the names of Patients, the prices
paid for goods and services, manner of operation of business or plans or
processes, or any other data or information of any kind, nature or description
which effects or relates to the other's business without regard to whether any
or all of the foregoing would be deemed confidential information or a trade
secret under applicable state law.
"Equipment" is defined as office and medical equipment that the
Administrator owns or in which the Administrator has leasehold rights.
"FEP" is defined as Medicare, Medicaid, CHAMPUS and of CHAMPVA or any
other federal entitlement program.
"Integrated Contract" is defined as that certain Integrated Medical Center
Management and Security Agreement between CWC and the Administrator, inter
alia, pursuant to which the Administrator shall perform the day to day
Management Services required by Medcorp.
"Integrated Practice" is defined as a healthcare practice offering medical
care and chiropractic services, including primary and specialty healthcare, all
in accordance with applicable federal and state laws, rules and regulations.
"Integration Date" is defined as the date when the Medcorp commences
rendering medical services.
"Loan" is defined as that certain loan from CWC to Medcorp, not to exceed
Forty Thousand dollars ($40,000.00). Repayment of the Loan is waived is waived
for the first ninety (90) days after the Integration Date. Payments of interest
only, at the rate of ten percent (10%) per annum, shall commence on the ninety
first (91st) day after the Integration Date and shall be due and payable on the
same day of the next nine (9) months thereafter at which time payments of
principal as well as interest shall be due. Payments of principal plus interest
thereon shall commence immediately thereafter and shall be paid monthly in
forty eight (48) equal, consecutive payments. The Loan shall be due and payable
upon termination of the Integrated Contract and shall be secured by a blanket
lien on all of Medcorp's assets.
"Management Services" are defined as those services as may be necessary or
appropriate to meet the daily operational practice development and
administrative requirements of the Medcorp. Such services shall include but are
not limited to marketing and promotion of the Medcorp's practice, practice
development, supervision of personnel, facilities management, personnel and
human-resource administration, purchasing, billing. collecting and providing
for legal and accounting services. Specifically, Management Services shall
include: 1) record keeping and information provision; 2) billing and
collection; 3) maintenance of Medcorp identity; 4) non-professional personnel
matters; 5) computer systems; 6) equipment, supplies, furnishings; 7)
stationery, business cards and billing forms; 8) continuing education; 9)
scheduling; and 10) training.
"Medcorp" is defined as a professional or business corporation, as the
case may be, operating an Integrated Practice.
"Medcorp Expenses" are defined as including, but not limited to:
a. payroll or other compensation of professional personnel, payroll
taxes, payroll service fees, unemployment insurance and other
withholdings;
b. compensation in an amount equal to ______________________ but not
to exceed Six Thousand Dollars ($6,000.00) per annum, payable in
monthly increments, to an appropriately licensed medical doctor for
serving as Medcorp shareholder and director in such states where
Medcorp is a professional corporation;
c. employee benefits for professional employees (as determined by
Medcorp with Administrator's and CWC's approval);
d. professional liability (malpractice) or other insurance (in such
instances where the Administrator fails to provide the required
coverage for Medcorp);
e. bank fees or lockbox fees; and
f. loan interest and principal payments.
CWC Revenue is not included in Medcorp Expenses.
"Note" is defined as that certain promissory note executed by Medcorp
evidencing the Loan.
"Office Space" is defined as the office space which the Administrator owns
or in which the Administrator has leasehold rights and located at ((Address 1)).
"Patient" is defined as those persons receiving professional services or
related care at the Medcorp's professional employees' request.
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"Professional Employee Identification" is defined as the advertising of
the availability at Medcorp of Medcorp's professional employees in compliance
with appropriate advertising guidelines.
"Restricted Area" is defined as a five (5 ) mile radius if in a rural
area, two (2 ) mile radius if in a suburban area, and ten (10) block radius if
in an urban center of any Integrated Practice to which CWC is furnishing
management services, either directly or indirectly.
"Term" is defined as thirty five (35) years from the date hereof.
"Transition Period" is defined as the first ninety (90) days after
Integration Date.
1. GENERAL PROVISIONS
a. Term of Agreement. This Agreement shall commence on the Integration
Date and shall continue in full force and effect for the Term unless earlier
terminated as provided for herein.
b. Integrated Practice. Within one hundred twenty (120) days of execution
of this Agreement, CWC shall provide the services required for the proper
functioning of an Integrated Practice by the Medcorp.
c. Use of Office Space and Equipment. The Medcorp shall have the right to
use the Office Space and the Equipment in a manner which is necessary and
appropriate for the efficient and effective conduct of an Integrated Practice.
d. Payment of Costs and Expenses. Until such time that the Medcorp
generates cash receipts sufficient to cover Medcorp Expenses or in the event
that the Medcorp is operating at a deficit, CWC shall make Advances to fund
said costs . Such Advances shall be repaid upon termination of the Initial Term
of the Integrated Contract as defined therein.
e. Exclusivity. Medcorp hereby retains CWC as the sole and exclusive
manager of all non-therapeutic services required by Medcorp and CWC accepts
such assignment as provided for herein. CWC is authorized to take such actions
which, in the reasonable exercise of its discretion, it deems necessary or
appropriate in order to meet the daily requirements of Medcorp.
2. CWC OBLIGATIONS
a. Generally. In order to allow the Administrator and Medcorp to operate
on an efficient basis, CWC will provide the CWC Services, in its discretion
and at its own cost (except where otherwise noted), set forth below:
(1) General Consultation. Consultation and seminars with
regard to non-medical matters related to the management of an Integrated
Practice including, but not limited to training of professionals and
advertising.
(2) Computer Software. Initial software, installation , and
initial training (up to sixteen (16) hours) prior to the Integration Date.
(3) Managed Care Contracts. Best efforts to make managed
care contract arrangements available to the Medcorp. CWC reserves the right to
contract with one or more managed care entities on behalf of the Medcorp and to
negotiate a payment rate with respect to any and all such contractual
arrangements, subject to Medcorp and Administrator's approval.
(4) Forms, Stationery, and Business Cards. Initial starter
kit of forms to be used by the Medcorp. CWC shall also provide a thirty (30)
day initial supply of stationery and business cards.
(5) Legal Support and Documentation. Cause the legal
documentation required to establish an Integrated Practice including, but not
limited to the formation of Medcorp (as a business or professional corporation,
as appropriate) and medical and other professional employment and consulting
contracts to be provided. CWC shall cause ongoing legal support and updates to
assist the Administrator in complying with legal, regulatory, protocol and
insurance requirements to be provided.
(6) Advertising and Practice Development Support. Selected
resources in the field of promotion/advertising by making advertising programs,
group purchasing power, practice development support, and Professional Employee
Identification available to Medcorp.
(7) Medical Doctor. Assist in locating, recruiting and
training (non-medical matters) medical doctors on Medcorp's behalf and upon
selection of such medical doctors shall negotiate the terms of their employment
on the Medcorp's behalf.
(8) Office Space and Equipment Sub-Lease. Sublet to Medcorp
pursuant to the terms of a written lease, the Equipment and the Office Space at
fair market value for a period to run concurrent with the duration of the
Integrated Contract but in no event for a period less than one year unless
prevented by circumstances beyond CWC's control.
(9) Lease of CWC Name. Lease the "Complete Wellness Center"
name, or a derivation thereof, to Medcorp for the term of this Agreement.
b. Appointment of Administrator. CWC shall appoint an Administrator to
perform day-to-day services on Medcorp's behalf. The Management Services shall
be performed by the Administrator acting in its best judgement, however,
Administrator shall abide by all operating protocols, procedures, reports and
disclosure requests established jointly by Medcorp, CWC and the Administrator.
c. Billing and Collecting. CWC shall exercise best efforts to prepare and
submit all bills, claim forms and other documentation required for Medcorp to
obtain payment or reimbursement from any and all payors in connection with the
treatment of Patients at the Office.
(1) Appointment as Attorney in Fact. In seeking payment, CWC
shall act as Medcorp's agent and shall indicate on its billhead that it is
billing in the name of Medcorp. Medcorp hereby appoints CWC, for the term
hereof, as its true and lawful attorney in fact, with full power of assignment
and substitution, to bill Patients on Medcorp's behalf; collect accounts
receivable arising out of such billings; and receive payments on behalf of
Medcorp from any and all insurance companies and third party payors, except as
may be precluded by law with respect to FEP accounts. In connection with its
billing activities, CWC may take possession of, and endorse in the name of
Medcorp, any and all notes, drafts and other instruments received by way of
payment.
(2) Payments received by Medcorp. Medcorp shall immediately
remit to CWC any payments received directly from payors for application in
accordance with the terms of this Agreement.
(3) Handling Proceeds of Collection. Medcorp shall not bill
Patients or any third party payors for professional services rendered at the
Office other than as provided for herein. All proceeds shall be deposited by
CWC in accordance with the terms of this Agreement in a bank account(s) of its
selection. CWC may authorize designated signatories with respect to such bank
account(s) as it deems appropriate.
d. Loan to Medcorp. In order to allow the Administrator and Medcorp to
operate on an efficient basis, CWC will provide the Loan to Medcorp as
described herein:
(1) Loan. Loan to Medcorp within five (5) days of
satisfactory Verification (as defined in the Integrated Contract) an amount not
to exceed Forty Thousand Dollars ($40,000.00) at an interest rate of Ten
percent (10%) per annum during the Transition Period for the purpose of
advancing the medical doctor's salary during the Transition Period and for
providing equipment and supplies, including any additional computer hardware
required; leasehold improvements; signage; marketing advertising and
miscellaneous. CWC shall furnish Medcorp with invoices and/or other appropriate
documentation evidencing an expenditure not to exceed Forty Thousand Dollars
($40,000). Medcorp shall execute such documentation as is
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usual and customary for loans of such a nature, including, but not limited to,
the Note which shall be secured by a blanket lien on all Medcorp assets.
3. MEDCORP OBLIGATIONS
a. Sale of Equipment. Medcorp shall sell to Administrator upon
termination of the Integrated Contract and upon repayment of the Loan and
Advance(s), all non-proprietary equipment purchased from the proceeds of the
Loan and/or Advance(s) for the sum of One Dollar ($l.00).
b. Security Interest. So long as any amount of the Loan and/or Advance(s),
interest thereon, or any other sum which may be due under this Agreement and/or
the Integrated Contract remains unpaid, CWC shall have, and Medcorp hereby
grants, a continuing security interest in all assets owned by Medcorp,
including, but not limited to, all accounts receivables (unless otherwise
prohibited by law) due Medcorp, from the date of this Agreement or hereafter
acquired, evidencing any obligation to Medcorp and all accessories thereto,
substitutions therefor and replacements, products and proceeds thereof. Medcorp
agrees that from time to time, at the expense of Medcorp, Medcorp shall
promptly execute and deliver all further instruments and documents, and take
all further action, that may be necessary, or that CWC may reasonably request,
in order to perfect any security interest granted or purported to be granted by
Medcorp herein or to enable CWC to exercise and enforce its rights and
remedies hereunder with respect to the collateral in which a security interest
has been granted. Without limiting the generality of the foregoing, Medcorp
shall execute and file such security agreements, financing or continuation
statements, or amendments thereto, and such other instruments or notices, as
may be necessary or desirable, or as CWC may request, in order to perfect and
preserve the security interest granted or purported to be granted hereby by
Medcorp.
4. BANK ACCOUNTS
a. Bank Account. All funds collected by the Administrator for the account
of the Medcorp shall be deposited in a bank account maintained by the
Administrator for and in the name of the Medcorp. CWC has the right to debit
the bank account of Medcorp for unpaid obligations of Medcorp with respect to
payroll, taxes and the CWC Fee and any unpaid amounts due under the Loan.
5. COMPENSATION
a. CWC Fee. In consideration of the provision of CWC's Services to the
Medcorp as provided for herein, CWC shall be entitled, under the terms and
conditions herein, to the CWC Fee which shall be paid monthly and shall be due
no later than the tenth (10th) day of each month.
6. TERMINATION
a. Termination by CWC. CWC may, at any time at its election, terminate
this Agreement by delivering written notice of termination to the Medcorp upon
the occurrence of any of the following events.
(1) a material breach by Medcorp of any of its obligations
hereunder which, after ten (10) days written notice from CWC, has not been
corrected by CWC; or
(2) the dissolution, liquidation or bankruptcy of the Medcorp,
the appointment of a receiver for the assets of the Medcorp, assignment by the
Medcorp of assets for the benefit of creditors or any action taken or suffered
by the Medcorp (with respect to the Medcorp) under any bankruptcy or insolvency
act; or
(3) The failure by the Medcorp to meet material standards of
managed care payers.
b. Termination by Medcorp. Medcorp may at any time at its election
terminate this Agreement upon the occurrence of any of the following events:
(1) a material breach by CWC of any of its obligations hereunder
which, after ten (10) days' written notice from the Medcorp, has not been
corrected by CWC, or
(2) the dissolution, liquidation or bankruptcy of CWC, the
appointment of a receiver for the assets of CWC, assignment by CWC of assets
for the benefit of creditors or any action taken or suffered by CWC under any
bankruptcy or insolvency act.
c. Effect of Termination. Expiration or early termination of this
Agreement shall not relieve, release or discharge any party hereto from any
obligation, debt or liability which may previously have accrued and which
remains to be performed upon the date of termination.
d. Distribution of Funds. Upon termination of this Agreement, CWC shall
first be paid any amount due under the CWC Fee and shall then be reimbursed for
any amount outstanding under the Loan, Advances and liquidated damages unless
otherwise agreed to in writing by CWC.
7. INSURANCE
a. Malpractice Insurance. Medcorp, at its sale cost and expense shall
provide (unless otherwise provided by professional employee,) keep and maintain
throughout the entire term of this Agreement, professional liability insurance
coverage on the Medcorp and all its professional employees in the minimum
amount of One Million Dollars ($1,000,000.00) for each occurrence and Three
Million Dollars ($3,000,000.00) in the aggregate or as legally required,
whichever amount is greater, written an a company licensed to do business in
the State of Medcorp's incorporation. The insurance policy or policies so
obtained shall name the Administrator and CWC as an additional insured party
thereunder where permitted. Such policy or policies shall also provide for at
least thirty (30) days advance written notice from the insurer as to any
alteration of coverage, cancellation or other termination be given the
Administrator and CWC and to any other person or entity designated by CWC.
b. Other Insurance. Medcorp shall maintain insurance with financially
sound and reputable insurance companies or associations in such amounts and
cowering such risks as are usually carried by companies engaged in the same or
a similar business and similarly situated, which insurance may provide for
reasonable deductibility from coverage thereof. The insurance policy or
policies so obtained shall name the Administrator and CWC as an additional
insured party thereunder where permitted. Such policy or policies shall also
provide for at least thirty (30) days advance written notice from the insurer
as to any alteration of coverage, cancellation or other termination be given
the Administrator and CWC and to any other person or entity designated by CWC.
8. COVENANTS NOT TO COMPETE OR SOLICIT, TRADE SECRETS AND CUSTOMER LISTS.
a. Medcorp's Restrictions During the Term of the Agreement. During the
term of this Agreement neither Medcorp nor any shareholder or partner of
Medcorp, shall operate, manage or otherwise be involved with any other entity
which renders chiropractic or medical services within the Restricted Area.
During the term of this Agreement neither the Administrator and/or Client, nor
any shareholder or partner of the Administrator and/or Client, shall operate,
manage or otherwise be involved with an Integrated Practice without the written
consent of CWC.
b. CWC's Restrictions During the Term of this Agreement. During the term
of this Agreement neither CWC nor any shareholder holding in excess of five
percent (5%) of CWC stock, or partner, shall operate, manage or otherwise be
involved with any other entity which renders chiropractic and/or medical
services within the "Restricted Area" of the Medcorp.
c. Confidential information. Each party hereto acknowledges and agrees
that each will have access to certain Confidential Information and trade
secrets of the other and that such information constitutes valuable, sale,
special and unique property. The parties hereto further acknowledge and agree
that each of them will not, at any time during or after the term hereof, in any
fashion, form, or manner either directly or indirectly, divulge, disclose or
communicate to any person, firm, or corporation in any manner whatsoever,
Confidential Information. During such period, each party hereto shall be
deemed to have a vital and protectable interest in such information and shall
be
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entitled to injunctive relief if necessary to protect against and remedy
wrongful disclosure or use of such information.
d. Irreparable Damage. The parties hereto acknowledge and agree that
consideration has been given to the nature and scope of the business and
activities of both Medcorp and CWC and that the covenants contained in this
Paragraph concerning territorial, substantive and time limitations are in all
respects fair and reasonable in view of the facts involved. In the event that
any court shall determine that the time, substantive and territorial
limitations contained herein are not fair and reasonable, this Agreement shall
nevertheless be enforced as to such time, substantive and territorial limits as
are reasonable.
e. Injunctive Relief. The parties further agree that in the event of the
breach of any provision of this Agreement, and particularly this Paragraph,
each party shall be entitled to a permanent injunction or similar court order
enjoining The breaching party from acting in a fashion contrary to this
Paragraph and that pending such determination the breaching party shall accede
to a temporary restraining order, without prejudice to any other rights that
the non-breaching party may have, all at the breaching party's expense.
f. Independent Agreement. The covenants contained herein shall be
construed as an independent agreement and the existence of any claim which the
breaching party may have against the non-breaching party will not constitute a
defense to the enforcement by the non-breaching party, by injunctive relief or
otherwise, of the provisions contained herein.
9. REPRESENTATIONS
a. FEP. Medcorp hereby represents to CWC that neither the Medcorp nor any
of its professional employees shall render diagnosis, treatment, or evaluation
to insureds of any FEP without first obtaining written authorization from CWC.
In the event that such treatment is rendered, CWC shall be provided with
immediate notice at which time CWC may terminate this Agreement for cause at
CWC's discretion. The parties agree that if a violation of this paragraph
results in termination of this Agreement then the party causing such breach
shall be liable to the other party for any and all damages caused and/or
sustained, including, but not limited to, the payment of any fines, liquidated
damages, attorneys fees, costs and expenses.
b. No Practice of Medicine. The parties hereto acknowledge that neither
the Administrator nor CWC are authorized or qualified to engage in any activity
which may be construed or be deemed to constitute the practice of medicine.
Therefore, and notwithstanding any provision or implication to the contrary
herein, neither CWC nor the Administrator shall engage in any activity which
shall or may be deemed to constitute the practice of medicine, nor shall either
of them in any way supervise or determine the method or standards of the
medical care provided by the Medcorp's professional employees. Specifically,
and without limitation, neither CWC nor the Administrator shall (a) determine
whether or not or when a patient shall be admitted and/or discharged; or (b)
determine or judge the standards and conduct of medical care set by the
Medcorp's professional employees.
c. No Referrals. Neither the Administrator nor CWC shall refer patients
to the Medcorp.
d. Access to Books and Records. The Medcorp agrees to give CWC or CWC's
designee such access to its books, records and data as each may require. Any
information so derived shall be subject to Paragraph 8c.
e. Independent Contracting Parties. Medcorp and CWC are independent
contracting parties and the relationship between them is that of a purchaser
and an independent supplier of non-medical services respectively. Nothing in
this Agreement shall be construed to create a principal-agent,
employer-employee, master-servant, partner or joint venture relationship
between them. The Medcorp shall, at all times, be the sole employer of its
professional personnel, arrange directly with such employees for all salaries
and other remuneration: and be ultimately responsible for the payment of all
applicable federal, state, or local withholding or similar taxes and provision
of worker's compensation and disability insurance, except as otherwise set
forth herein, no party hereto shall have the authority to bind any other party
hereto.
f. Management of the Integrated Healthcare Facilities. Medcorp
acknowledges and agrees that CWC is free to enter into agreements similar to
the one memorialized herein with other persons or other entities.
10. MISCELLANEOUS
a. Assignment. Medcorp shall not assign any of its right, title and
interest under this Agreement without the prior written consent of CWC. For
purposes hereof, any issuance, reissuance, sale, assignment or other
conveyance, or the issuance of warrants, options or rights to subscribe to,
purchase or otherwise acquire any shares of stock in Medcorp or securities
convertible into shares of its stock, or the entry into any contract regarding
same shall constitute an assignment of this Agreement. Such purported
assignment shall be null and void and of no effect whatsoever, Medcorp also
agrees that in the event of involuntary transfer of stock due to death of, or
legal action against, any stockholder, at the election of the non-transferring
entity, this Agreement shall be deemed breached by the other. CWC may assign
any of its rights hereunder.
b. Specific Performance. It is agreed that any breach or evasion of any of
the terms of this Agreement by either party hereto will result in immediate and
irreparable injury to the other party, and recourse to injunction and/or
specific performance, as well as to all other legal or equitable remedies to
which such injured party may be entitled, will be authorized under such
circumstances.
c. Indemnity. Each party hereto hereby agrees to indemnify, defend and
hold the other harmless from and against any and all costs, losses, claims,
demands and liabilities, including reasonable attorneys' fees which arise out
of or relate to any breach by the other of any of the terms and conditions in
this Agreement; any negligent or intentional wrongful act of the other; any act
or omission of the other which constitutes negligence; or any other act not
authorized under the terms of this Agreement. If either party or any of its
shareholders or affiliates is made a party to litigation or obligation or
otherwise incurs any loss or expense as a result of the other's activities
unconnected with the other's business at hereunder, such party shall forthwith
upon demand, reimburse the other party or such individuals for any and all
expenses incurred as a result thereof.
d. Waiver of Breach. The parties understand and intend that each
restriction agreed to hereunder shall be construed as separable and divisible
from every other restriction, and that the unenforceability, in whole or in
part, of any other restriction will not affect the enforceability of the
remaining restrictions. It is further understood that one or more, or all of
such restrictions, may be enforced in whole or in part as the circumstances
warrant. No waiver of any one breach of the restrictions contained in this
Agreement shall be deemed a waiver of any future breach. Each party hereby
acknowledges that it is fully cognizant of the restrictions set forth in this
Agreement and agrees that these provisions shall survive the termination of
this Agreement for any reason.
e. Notices. Except as otherwise provided herein, all requests, demands
and other communications required or permitted hereunder shall be in writing
and shall be deemed to have been given if delivered personally, by prepaid
telex, telegram, FAX or mailed first class, post prepaid, certified United
States Mail, return receipt requested, to the party who is to receive such
notice, request, demand or communication at such party's address as set forth
herein. Any party hereto may change its address for notice by giving to the
other party written notice of such change. Any notice given hereunder shall be
effective (i) if delivered personally, when delivered, (ii) if sent by telex,
telegram or FAX, twenty-four (24) hours after sending, and (iii) if mailed,
seventy-two (72) hours after the date of the mailing.
f. Commitments Binding Only Upon Written Consent. Notwithstanding any
provision herein to the contrary, it is expressly understood and agreed that
neither party hereto shall have the right to make any contracts or commitments
for or on behalf of the other party without the prior written consent of such
other party.
g. Time of Essence. Time is of the essence in regard to the obligations
established hereunder. The parties hereto agree that they shall cooperate in
good faith to accomplish the objectives of this Agreement and, documents and
take such further action as may be reasonably necessary to effectuate the
terms, conditions and purposes of this Agreement.
h. Entire Agreement. This Agreement contains the entire understanding of
The parties with respect to the subject matter hereof,
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supersedes any prior agreement between the parties, and may not be changed or
terminated orally. No change, termination or attempted waiver of any of the
provisions hereof shall be binding unless in writing and signed by the party
against whom the same is sought to be enforced.
i. Successors and Assigns. The provisions of this Agreement are intended
for the regulation of relations among the parties hereto. This Agreement is
not intended for the benefit of creditors or other third parties, and no rights
are granted to such individuals or entities except where expressly referenced
herein.
J. Captions. The headings and captions herein are intended for
convenience reference only, and shall not be deemed interpretative of the
contents of such sections.
k. Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument.
l. Governing Law. All matters concerning the validity and interpretation
of and performance under this Agreement shall be governed by the laws of the
State of Maryland (without regard to the conflict of laws principles thereof)
and venue shall be laid in Montgomery County.
m. Arbitration. Except for any claim based on fraud or seeking injunctive
relief, any controversy, dispute or disagreement arising out of or relating to
this Agreement, or the breach thereof, including without limitation any dispute
concerning the scope of this Arbitration clause, shall be settled by
arbitration, which shall be conducted in Montgomery County, Maryland, in
accordance with the National Health Lawyer's Association ("NHLA") Alternative
Dispute Resolution Service Rules of Procedure of Arbitration. The courts
located in Montgomery County, Maryland, shall have exclusive jurisdiction for
the entry of judgment upon any award rendered by such arbitration panel. The
parties hereto consent to such exclusive jurisdiction and venue.
n. Attorneys' Fees. Anything to the contrary contained herein
notwithstanding, in the event of litigation or arbitration between the parties
hereto, with respect to the subject matter hereof, the prevailing party in such
proceeding shall be entitled to an award of costs and fees, including
reasonable attorneys fees, incurred by reason of such proceeding, including
costs and fees on appeal, if any.
o. No Act Contrary To Law. Nothing herein shall be construed so as to
require the commission of any act contrary to law, and wherever there is any
statute, law, ordinance or regulation which is inconsistent with this
Agreement, such statute, law, ordinance or regulation shall prevail, and, in
such event, the provision herein in conflict automatically shall be cur-railed,
limited or eliminated to the extent necessary to bring it within legal
limitations.
p. Changes in Law and Regulations. In the event any applicable federal.
state or local law or any regulation, order or policy issued under any such law
is changed (or any judicial interpretation thereof is developed or changed) in
a way which will have a material adverse affect on the practical realization of
the benefits anticipated by one or more parties to this Agreement, the
adversely affected party or parties shall notify the other party or parties in
writing of such change and the offset of such change. The parties shall enter
into good faith negotiations to modify this Agreement to compensate for such
change. If an agreement on a method for modifying this Agreement is not
reached within thirty (30) days of such written notice, the matter shall be
submitted to a mediation with a single mediator for mediation in Montgomery
County. Maryland, pursuant to the rules and procedures of the NHLA Alternative
Dispute Resolution Service Rules of Procedure for Mediation.
q. Force Majeure. If any party's ability to perform its obligations
hereunder is limited or prevented in whole or in part due directly to acts of
God, war, invasion, acts of foreign enemy, hostilities (whether war be declared
or not), strikes and/or industrial dispute, delay on the part of a supplier or
transportation delay, such party, without liability of any kind, shall be
excused, discharged, and released from performance to the extent such
performance is limited, delayed or prevented.
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IN WITNESS WHEREOF, the undersigned have hereunto set their hands the day
and year first above written.
((CWMC_Name))
By:
-------------------------------------------
((Title)) ((First_Name)) ((Last_Name)), President
Complete Wellness Centers, Inc., a Delaware
Corporation
By:
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E. Eugene Sharer, President
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EXHIBIT "A"
Office Space rental per annum:
Equipment rental per annum:
Marketing and promotion per annum
Supervision of personnel per annum
Facilities management per annum
Personnel and human-resource administration per annum
Group Purchasing services per annum
Billing and Collection
Forty thousand dollar loan interest cost per annum
General Consultation per annum
Negotiation of managed care contracts per annum
Training professionals in multi-disciplinary protocols per annum
Updates on protocols, public relations, and regulatory and legislative changes
per annum
Provide retail, cluster marketing and public relations campaigns per annum
Assist in locating, recruiting and training (non-medical matters) medical
doctors per annum
Record-Keeping and Information Provision per annum
Hiring of Non-Professional Personnel
Scheduling per annum
Training in systems, procedures and protocols of non-professional personnel per
annum
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EXHIBIT 10.6
INTEGRATED MEDICAL CENTER MANAGEMENT AND SECURITY
AGREEMENT
THIS INTEGRATED MEDICAL CENTER MANAGEMENT AND SECURITY AGREEMENT (the
"Agreement") is entered into as of _______ day of ____________, 19_____, by
and among Complete Wellness Centers, Inc., a Delaware corporation ("CWC"),
((Company)), a sole proprietorship, partnership, business or professional
corporation (the "Existing Chiropractic Practice"), having its principal
office(s) at ((Address1)), ((City)), ((State)) ((PostalCode)) (the "Office
Space"); ((Title)) ((First_Name)) ((Last_Name)), (the "Client"), an individual
licensed to practice chiropractic in the State of ((State)), and who owns or
controls the Existing Chiropractic Practice; and a corporation to be formed and
owned by such Client (the "Administrator"). The Administrator, Client, and
Existing Chiropractic Practice shall be referred to herein collectively as (the
"Affiliated Parties").
WHEREAS CWC provides management services to various health care companies; and
WHEREAS, CWC desires to provide management services to a professional or
business corporation to be formed ("Medcorp") which shall offer medical and
chiropractic services, including primary and specialty care, at the Office
Space, all in accordance with applicable federal and state laws, rules and
regulations (the "Integrated Medical Center"); and
WHEREAS, CWC and Medcorp have entered into or shall enter into a contract for
goods and services whereby CWC shall receive fair market value for those goods
and services rendered by CWC to Medcorp; and
WHEREAS Client shall be employed by Medcorp in his/her capacity as a
chiropractor; and
WHEREAS the Existing Chiropractic Practice and/or Client owns the Office Space
and all the equipment contained therein (the "Equipment") or owns the
respective leasehold rights thereto; and
WHEREAS Client shall lease, or cause the Existing Chiropractic Practice to
lease said Office Space and Equipment to CWC; and
WHEREAS CWC shall lease such Office Space and Equipment to the Medcorp on a
fair market value basis; and
WHEREAS, CWC shall render valuable services to Administrator on an ongoing
basis. CWC shall receive as consideration for its services the following fees
from Administrator:
- - Enrollment Fee: $500 (one time only) payable upon execution of the
Agreement.
- - Operations Fee: $250 per month for the term of the Agreement,
commencing on ______________,19____.
- - Integration Fee: 20% (15% if the Initial Term is 10 years) of the sum
of the collected CWC Revenues and Medcorp Expenses (see definition in
paragraph 5.a.4.ii) until such sum is equal to $500,000 for any year
of the Agreement. For the remainder of that particular year, the
Integration Fee shall be reduced to 10%, for all sums in excess of
$500,000. Such fee shall be payable monthly during the term of the
Agreement.
WHEREAS, Administrator shall receive as compensation for its services all CWC
Revenues defined as all management fees and lease income earned by CWC from
Medcorp based on a fair market value of goods and services but remitted only
when actually collected by CWC;
NOW, THEREFORE, in consideration of the mutual promises and covenants contained
herein, the parties hereto agree as described herein.
1. TERM
The initial term of the Agreement shall commence on the date hereof
and, unless earlier terminated as provided herein or extended by mutual
agreement, shall end on (please check option) (option 1 [ ], Five (5) years
from the date commencing ninety (90) days after medical services are first
rendered at the Integrated Medical Center (the date medical services are first
rendered shall be referred to herein as the "Integration Date") or option 2
[ ], ten (10) years from the date commencing ninety (90) days after the
Integration Date) ("Initial Term"). At the end of the Initial Term of the
Agreement, and upon mutual agreement of the parties hereto, the Administrator
shall have the option to renew the Agreement for four (4) subsequent five (5)
year term(s) (the "Renewal Term(s)") after the expiration of the Initial Term
upon the same terms and conditions contained herein except as modified by
Paragraph 5.b.1. The Renewal Term options shall be deemed automatically
exercised unless written notice of termination is given by any party hereto not
less than thirty (30) days prior to the expiration of the Initial Term or the
particular Renewal Term.
2. GENERAL PROVISIONS
a. Establishment of the Integrated Medical Center. Within thirty (30)
days of execution of the Agreement, the following information (collectively
"Verification") must be submitted by the Affiliated Parties to and be approved
by CWC prior to the establishment of an Integrated Medical Center:
- profiling of the Existing Chiropractic Practice,
- credentialing of the Client,
- landlord written approval of the establishment of an
Integrated Medical Center at the Office Space,
Within one hundred twenty (120) days of execution of the Agreement, CWC shall
provide to the Affiliated Parties and Medcorp the services required for the
establishment of an Integrated Medical Center and the commencement of medical
and chiropractic services at the Integrated Medical Center. Any delay of the
submission of information necessary for Verification by the Affiliated Parties
shall result in like delay in the Integration Date.
b. Employment Agreement. On or before the Integration Date, Client
shall execute an employment agreement with Medcorp for the rendering of
services within the scope of the Client's license to Medcorp under such terms
and conditions as are acceptable to all parties hereto. In addition, Client
shall be paid bonuses throughout the employment term which shall be acceptable
to the Medcorp and all parties hereto. The term of employment shall be
coterminous with the Agreement.
c. Office Space and Equipment. The Client and/or Existing
Chiropractic Practice, as the case may be, hereby leases to CWC the Office
Space (subject to landlord's approval) and the Equipment at the lease rate of
$1.00 per annum for a term that is coterminous with this Agreement. The Client
and/or Existing Chiropractic Practice, as the case may be, hereby authorizes
CWC to lease to Medcorp the Office Space (subject to Landlord approval) and
Equipment as required by Medcorp to operate as an Integrated Medical Center at
the Office Space for a term which shall be coterminous with this Agreement and
for such good and valuable consideration as is provided for in the Medical
Office Sublease (the "Medical Office Sublease") and the Equipment Sublease (the
"Equipment Sublease") between CWC and Medcorp. In the event that such Office
Space and Equipment are in need of replacement or supplementation for any
reason, Administrator shall replace or supplement the same (with CWC's written
approval with respect to an addition or replacement to the Office Space) to the
extent necessary.
d. Ratification of Agreement. The parties hereto agree and
acknowledge that the Administrator is either an existing entity or an entity to
be formed by the Client. Client shall provide CWC with a valid Certificate of
Incorporation or Certificate of Good Standing for the Administrator and shall
cause the Agreement to be ratified by Administrator.
3. CWC OBLIGATIONS
a. General. In order to allow the Integrated Medical Center to be
operated on an efficient basis, CWC will provide the following services, in its
discretion and its cost, (except where otherwise noted) to the Affiliated
Parties and Medcorp, as set forth below:
1) Consultation. During the term of the Agreement CWC will
provide consultation and seminars on non-medical matters related to the
Integrated Medical Center including, but not limited to, billing and
collection, practice development, protocols, training the professionals,
marketing, advertising, etc.
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2) Loan to Medcorp. Within five (5) days of satisfactory
Verification (or sooner upon mutual agreement), CWC shall make available
funding of up to Forty Thousand Dollars ($40,000) at an interest rate of ten
percent (10%) per annum to Medcorp (the "Loan") during the first ninety (90)
days after the Integration Date (the "Transition Period") for the purpose of
providing the below listed items to Medcorp, subject to Administrator's and
CWC's approval and subject to the execution by Medcorp of such documentation as
is usual and customary for loans of such a nature, including, but not limited
to, a promissory note (the "Note") and a blanket lien on all Medcorp's assets.
Administrator agrees that a portion of the Loan shall be used for the purpose
of advancing the salary of the medical doctor employed by the Medcorp during
the Transition Period and that the balance shall be used by CWC on Medcorp's
behalf, to furnish and equip the Medcorp as described herein:
Equipment and supplies including any additional computer hardware
required; leasehold improvements; signage; marketing, advertising; payment of
salary to medical doctor(s) during the Transition Period and miscellaneous.
CWC shall furnish Administrator and Medcorp with invoices and/or other
appropriate documentation evidencing an expenditure of up to Forty Thousand
Dollars ($40,000). Repayment of the Loan and interest thereon is waived during
the Transition Period. Thereafter, interest payments only shall be paid
monthly for the next nine (9) months. Payments of principal plus interest
thereon shall commence on the twelve (12) month anniversary of the Integration
Date and shall be paid monthly thereafter in forty eight (48) equal,
consecutive payments.
In the event that this Agreement terminates sooner for whatever
reason, the Note from Medcorp shall become immediately due and payable. This
Note shall be personally guaranteed by the Client. The Administrator shall
grant a secured lien to CWC against all fees due from CWC.
In the event the Administrator elects not to utilize the Loan, the
costs referenced above shall be the sole responsibility of the Administrator,
with the exception of the payment of salary to the medical doctor during the
Transition Period. With respect to the payment of salary to the medical
doctor, the Administrator shall advance the necessary funds to the Medcorp
("Administrator Advances"). Such Administrator Advances shall be promptly
repaid as funds become available to Medcorp as a result of collections.
3) Payment of Costs and Expenses. Until such time that the
Medcorp generates cash receipts sufficient to cover Medcorp Expenses or in the
event that the Medcorp is operating at a deficit, CWC may, in its sole
discretion, fund said costs, operating deficits and expenses. Such advances
(the "Advances") must be collateralized by the appropriate security as
determined in CWC's sole discretion and shall bear interest at the rate of ten
percent (10%) per annum. This subparagraph shall not be applicable to any Loan
drawdowns. Such Advances shall be repaid upon termination of the Agreement, or
upon expiration of the Initial Term, whichever is sooner.
4) Credentialing. Until the completion of the Transition
Period, CWC will be responsible for the costs of credentialing of all
Professional Employees.
5) Computer Software. Prior to the Integration Date, CWC shall
provide the initial software, installation, and initial training (up to eight
(8) hours) to be used in the Integrated Medical Center. Any subsequent
training shall be at the Administrator's sole expense.
6) Forms, Stationery and Business Cards. CWC shall provide the
initial starter kit of forms to be used by the Integrated Medical Center. CWC
shall also provide a thirty (30) day initial supply of stationery and business
cards.
7) Legal Support and Documentation. CWC shall cause to be
prepared the legal documentation required to establish an Integrated Medical
Center including, but not limited to, the formation of Medcorp (as a business
or professional corporation depending on state law), the formation of
Administrator, the execution of the Management and Security Agreement between
CWC and Medcorp (the "Management Agreement) and the provision of medical and
other professional employment and consulting contracts. CWC shall cause
on-going legal support and updates to assist the Administrator in complying
with legal, regulatory, protocol and insurance requirements to be provided.
8) Advertising and Practice Development Support. CWC shall
provide Medcorp and Administrator with selected resources in the field of
promotion/advertising by making advertising programs, group purchasing power,
practice development support, and Professional Employee identification
available to Medcorp and the Administrator. CWC shall use the funds from the
Collective Advertising Fee to provide such advertising and publicity campaigns
(See paragraph 5.a.3).
9) Managed Care Contracts. CWC shall exercise best efforts
to make managed care contract arrangements available to the Medcorp. CWC
reserves the right to contract with one or more managed care entities on behalf
of the Medcorp and to negotiate a payment rate with respect to any and all
such contractual arrangements, subject to Medcorp and Administrator's approval.
Although CWC shall be obligated under such contracts, said contracts shall be
subject to Administrator's prior approval.
10) Professional Employees. CWC shall assist in locating,
recruiting and training (in non-medical matters) Professional Employees on
Medcorp's behalf and upon selection of such Professional Employees, assist in
negotiating the terms of their employment, with Administrator's approval, on
Medcorp's behalf. Professional Employees are defined as all licensed health
care providers. Costs of recruitment of Professional Employee(s) shall be borne
by the Administrator.
11) Sale of Equipment. CWC shall cause Medcorp to sell to
Administrator, upon termination of the Initial Term or the Renewal Term(s) of
the Agreement and upon repayment of the Loan and Advances, all non-proprietary
equipment purchased from the proceeds of the Loan for the sum of One Dollar
($1).
4. ADMINISTRATOR OBLIGATIONS
a. General. CWC hereby exclusively retains the Administrator, and the
Administrator hereby accepts such retention to provide such services as may be
necessary or appropriate to meet the daily operational, practice development,
and administrative requirements of the Medcorp. Such services shall include but
are not limited to marketing and promotion of the Medcorp's practice, practice
development, supervision of non-professional personnel, facilities
administration, purchasing, billing, collections and causing the provision of
legal and accounting services. The administrative services are to be performed
by the Administrator acting in its best judgment; however, Administrator shall
abide by all operating protocols, procedures, reports and disclosure requests
established jointly by Medcorp, CWC and the Administrator. The Administrator
shall provide the following in its discretion and at its costs (except where
otherwise noted) to Medcorp as set forth below:
1. Record-Keeping and Information Provision. The Administrator
shall use the computer software provided by CWC to maintain accurate records of
Medcorp's operation, including, but not limited to, records related to
revenues, expenses, taxes, inventory, fixed assets, personnel matters, patient
records, billing and collection, patient visits and scheduling, and shall
obtain all required licenses and permits where appropriate.
2. Billing and Collecting. The Administrator shall be
responsible for the billing and collection for services rendered at the Medcorp
and shall bill on behalf of the Medcorp for all such services.
3. Name of Integrated Medical Center. The Administrator shall
maintain appropriate and independent telephone listings, etc. in order to
identify the Integrated Medical Center as of the Integration Date. The
Integrated Medical Center's name shall be used on all signage, stationary, and
other forms of identification. The Existing Chiropractic Practice may continue
to maintain its identification and advertise its telephone number at its own
expense.
4. Professional Personnel Matters. Hiring and firing of
Professional Employees shall be the sole responsibility of the Medcorp. The
form and content of all agreements relative to the hiring and firing of such
Professional Employees and the review of credentialling applications shall be
subject to the joint input, guidance and approval of CWC, Medcorp and the
Administrator.
5. Credentialing. Subsequent to the Transition Period,
Administrator will be responsible for the costs of credentialing of all
Professional Employees through a credentialing firm selected by CWC at a cost
not to exceed $100.00 per Professional Employee.
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6. Non-Professional Personnel Matters. Hiring decisions
relative to non-Professional Employees shall be the sole responsibility of the
Administrator and such employment costs shall be the obligation of the
Administrator.
7. Computer Systems. Subsequent to the initial installation
and training in the use of software by CWC, the Administrator shall maintain
and repair, add, replace and upgrade computer software and pay any software
maintenance and licensing fees. The cost of such software support, updates,
maintenance and training will be borne by the Administrator. (The Administrator
agrees that all trainee personnel are required to be computer literate to the
extent that he/she understands computer system fundamentals and has worked with
computer systems in the past). The Administrator shall also pay communication
costs (i.e. telephone, internet) for such computer hardware and software, the
cost of which will be dependent on the size of the practice and system usage.
The Administrator shall also pay for the hardware support and maintenance. The
Administrator shall cooperate in the conversion to and use of such software for
the Integrated Medical Center. CWC reserves the right, in its sole and absolute
discretion, to install software of its own choosing.
8. Equipment, Supplies, Furnishings and Fixtures. The
Administrator shall have the obligation to order such supplies, including
medical supplies as requested by Medcorp, and maintain and repair such
Equipment, furnishings, and fixtures and to replace and add Equipment
furnishings, and fixtures to meet the reasonable needs of the Medcorp and to
cause it to present a clean and attractive appearance.
9. Stationery/Business Cards, Billing Forms. Commencing thirty
(30) days after Integration, the Administrator will be responsible for the
ordering of all stationery, business cards, and billing and collection forms
previously approved and provided by CWC. CWC has negotiated a group purchasing
agreement with a supplier and shall order such supplies for Administrator on
request.
10. Continuing Education. The Administrator will be
responsible for the establishment of a policy to cause all Professional
Employees to meet their respective obligations concerning continuing
educational requirements under applicable law and licensure standards.
11. Scheduling. The Administrator will schedule patient visits
and activities at the Professional Employee's request.
12. Training. During the term of the Agreement, the
Administrator will be responsible for determining the training needs of its
staff and shall pay for the cost of travel, lodging, meals of all non-medical
personnel to attend seminars to be trained in systems, procedures and protocols
of the Integrated Medical Center.
13. Insurance Coverage.
a. Malpractice Insurance. Administrator, at the
Medcorp's sole cost and expense on or before the Integration Date, shall
provide (unless otherwise provided by Professional Employee and as approved by
CWC) keep and maintain throughout the entire term of the Agreement,
professional liability insurance coverage on the Medcorp and all applicable
Professional Employees in the minimum amount of One Million Dollars
($1,000,000.00) for each occurrence and Three Million Dollars ($3,000,000.00)
in the aggregate or as legally required, whichever amount is greater,
underwritten by a company licensed to do business in the state of Medcorp's
incorporation. The insurance policy or policies so obtained shall name the
Administrator and CWC as an additional insured party thereunder where
permitted. Administrator shall provide to CWC a certificate of insurance
evidencing such coverage. Such policy or policies shall also provide that at
least thirty (30) days advance written notice from the insurer as to any
alteration of coverage, cancellation or other termination be given the
Administrator and CWC and to any other person or entity designated by CWC. In
the event the Administrator does not provide the required professional
liability insurance coverage, CWC shall provide such insurance coverage to
Medcorp at Medcorp's sole cost and expense.
b. Other Insurance. The Administrator, at its sole
cost and expense on or before the Integration Date, shall maintain insurance on
the Medcorp's behalf with financially sound and reputable insurance companies
or associations, in such amounts and covering such risks as are usually carried
by companies engaged in the same or similar business and similarly situated,
including business interruption insurance, which insurance may provide for
reasonable deductibility from coverage thereof. The insurance policy or
policies so obtained shall name the Administrator and CWC as an additional
insured party thereunder where permitted. The Administrator shall provide to
CWC a certificate of insurance evidencing such coverage. Such policy or
policies shall also provide for at least thirty (30) days advance written
notice from the insurer as to any alteration of coverage, cancellation or other
termination be given the Administrator and CWC and to any other person or
entity designated by CWC. In the event the Administrator does not provide
adequate insurance as determined by CWC in its sole discretion, CWC shall
provide such insurance coverage to Medcorp, at Medcorp's sole cost and expense.
14. Individual Permits/Licenses. The Administrator will be
responsible for ensuring the maintenance of all permits and licenses required
to be maintained by the Medcorp and by Professional Employees employed by the
Medcorp during the period of time such Professional Employees provide services
thereat.
15. Payroll Taxes. The Administrator represents and warrants
to CWC each of the following, and shall indemnify CWC and Medcorp and their
respective officers and directors and hold them harmless from all liabilities,
claims, losses, costs and expenses, including without limitation, attorneys'
fees and disbursements, arising out of or resulting from the breach by
Administrator of any of the following with respect to Medcorp. This
subparagraph shall survive termination of the Agreement:
- Administrator, on behalf of Medcorp, will at all times remain current
in payments, with respect to all taxes, including payroll taxes.
- Administrator, on behalf of Medcorp, shall execute an IRS form Power
of Attorney in favor of CWC for the purpose of directing the IRS to
send copies of all notices to CWC.
- Administrator, on behalf of Medcorp, shall at Medcorp's cost and
expense, retain the services of a payroll service with notice to CWC
of default by Medcorp to pay any payroll taxes when due.
16. Advertising and Practice Development. The Administrator
shall be responsible for such practice development and advertising services as
the Administrator may determine from time to time to be reasonably necessary
for the promotion of a healthcare practice, including liaison to the community
in order to apprise individuals and groups of the nature and availability of
professional services thereat.
17. Vendors. The Administrator shall supply CWC with a list
of its utility suppliers and its landlord and request said vendors and
landlord to furnish CWC with notice concerning late payments by Administrator.
b. Operating Expenses. Except as set forth herein, the Administrator
shall be responsible for the payment of all of the costs, expenses and taxes
incurred in connection with the operation of Administrator including salaries,
payroll taxes, benefits, bonuses, rent, practice development and advertising,
supplies, maintenance, continuing education (including travel expenses related
thereto), postage, travel and entertainment, Equipment rental, interest, lease
payments, and all other valid Administrator expenses, and, except as otherwise
provided for herein, shall have the sole and exclusive right to decide whether
and to what extent such expenses are to be incurred.
c. Obligations For Payment. Notwithstanding any provision herein to
the contrary, in the event any item is not paid by Administrator, CWC has the
right, but not the obligation, to make payment on such account on behalf of the
Administrator and to charge any such amount to the Administrator. Such amount
shall be deducted from the Administrative Fee.
d. Applicable Laws and Regulations. The Administrator shall manage the
operations of the Medcorp in accordance with the requirements of applicable law
and professional standards. The laws and regulations with which the
Administrator shall insure compliance include, but are not limited to, all
applicable state and federal statutes, permit and licensing requirements, state
and federal anti-kickback regulations, self-referral and disclosure
requirements and prohibitions.
e. Security Interest. So long as any amount of the Loan, interest
thereon, or any other sum which may be due under the Agreement remains unpaid,
CWC shall have, and Administrator hereby grants, a continuing security interest
in all Administrative Fees (except as otherwise prohibited by law) due
Administrator, from the date of the Agreement or hereafter acquired, evidencing
any obligation to
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Administrator and all accessions thereto, substitutions therefor and
replacements, products and proceeds thereof. Administrator agrees that from
time to time, at the expense of Administrator, Administrator shall promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary, or that CWC may reasonably request, in order to
perfect any security interest granted or purported to be granted by
Administrator herein or to enable CWC to exercise and enforce its rights and
remedies hereunder with respect to the collateral in which a security interest
has been granted.
5. COMPENSATION
a. Compensation to CWC. In consideration of and as reimbursement of
expenses incurred in the provision of services to the Administrator as provided
for herein, Administrator shall pay to CWC the following:
1. Enrollment Fee. Upon execution of the Agreement, the
Existing Chiropractic Practice shall pay CWC a Five Hundred Dollar ($500)
one-time start up fee ("Enrollment Fee") in order to defray the costs of
Verification.
2. Operations Fee. As a minimum guaranteed payment for
goods and services provided by CWC, Administrator shall pay CWC a Two Hundred
and Fifty Dollar ($250) fee ("Operation's Fee") which shall be paid monthly
for the term of the Agreement and shall be due no later than the tenth (10th)
day of each month.
3. Collective Marketing Fee. During the term of the Agreement,
Administrator shall pay to CWC Two Hundred Dollars ($200) per month which
shall be paid no later than the tenth (10th) day of each month beginning the
sixth (6th) month after the Integration Date. CWC shall deposit such funds
into a designated and segregated account to be solely used by CWC for regional
and/or national advertising and public relations campaigns ("Collective
Advertising").
4. Integration Fee. During the term of the Agreement,
Administrator shall pay to CWC, a fee ("Integration Fee") equal to 20% (15% if
the Initial Term is ten (10) years) of the sum of the items listed below
until such sum equals $500,000. Thereafter,, for any year of the Agreement
that the sum of the items listed below exceeds $500,000, the Integration Fee
for the remainder of that particular year shall be reduced to 10%.
(i) collected CWC Revenues (as defined in the recitals).
(ii) Medcorp Expenses ("Medcorp Expenses") which shall include, but not be
limited to:
- Payroll or other compensation of Professional
Employees, payroll taxes, payroll service fees,
unemployment insurance, or other withholdings.
- Compensation in an amount up to Two Thousand Four
Hundred Dollars ($2,400) per annum to a licensed
medical doctor for serving as Medcorp's shareholder
(in the case where Medcorp is a professional
corporation as required by state law), payable
monthly.
- Employee benefits of the Professional Employees (as
determined by Medcorp with Administrator and CWC's
approval).
- Professional liability (malpractice) or other
insurance (in the case where Administrator fails to
provide the required coverage for Medcorp.)
- Bank fees or lockbox fees.
- Loan interest payments.
Medcorp Expenses shall not include CWC Revenues. The Integration Fee shall be
payable no later than the tenth (10th) day of each month.
5. Miscellaneous. A late charge of one and one half
percent (1.5%) per month shall be added to the monthly payment for each and
every month that any or all of Operations, Collective Marketing, and
Integration fees are late. The Enrollment, Operations, Collective Marketing,
and Integration fees (collectively the "CWC Fees") are nonrefundable except as
provided for herein.
b. Compensation to Administrator
1. Administrative Fee. In consideration of and as
reimbursement of expenses incurred in the provision of administrative services
to Medcorp as provided for herein, CWC shall pay to Administrator a fee
("Administrative Fee"). The Administrative Fee shall be remitted to
Administrator monthly based on provisional calculations which shall be subject
to correction from time to time thereafter, but in any and all events, as soon
as reliable financial information is available at the end of each quarter. The
Administrative Fee shall be equal to all of CWC's Revenues but remitted only
when actually collected by CWC. The Administrator agrees and acknowledges that
for accounting purposes, the Administrative Fee shall be divided into two
components: fees received as a result of management services rendered and fees
received as a result of leasing the Office Space and the Equipment.
2. Equity Incentive. In the event that CWC's shares are
publicly traded at any time while the Agreement remains in effect, then subject
to applicable federal and state statutes, laws and regulations, CWC shall
establish an option program for the benefit of current and future clients
(including the Client) and for the current and future Professional Employees of
those corporations with which CWC is in privity.
3. Severance. Upon termination of the Agreement, CWC shall pay
Administrator an amount equal to eighty percent (80%) of CWC's accounts
receivable due from Medcorp less the balance due Medcorp or CWC from
Administrator pursuant to any outstanding liability under the Agreement,
including but not limited to the Loan, Advances and CWC Fees.
6. BANK ACCOUNTS
a. Bank Account. All funds collected by the Administrator for the
account of the Medcorp shall be deposited in a bank account maintained by the
Administrator for and in the name of the Medcorp ("Medcorp Account"). The
Administrator shall transfer all funds, after payment of Medcorp expenses, from
the Medcorp to a second bank account maintained by the Administrator for CWC
("CWC Account"). Such transfer shall be subject to periodic adjustment, at
least quarterly, to reconcile such transfer with the amount owed to CWC by
Medcorp pursuant to the Management Agreement between Medcorp and CWC. The
Administrator may withdraw from the CWC account the Administrator's Fee due to
the Administrator. The Administrator shall provide CWC with a reconciled
monthly statement of both accounts, including a statement of all fees paid
monthly to the Administrator from the CWC account. CWC has the right, but not
the obligation, to debit either account for any unpaid obligations of the
Medcorp or Administrator.
7. COVENANTS
a. Administrator's Covenants. Administrator hereby agrees and
covenants that:
1. The Administrator shall conduct itself in a professional
manner in managing the Medcorp's affairs .
2. The Administrator shall act in good faith and apply as
much time and effort to the administration of the Medcorp as was applied to the
Existing Chiropractic Practice during the year preceding the Agreement.
b. Client's Covenants. Client hereby agrees and covenants that:
1. Client shall conduct himself/herself in a professional
manner with respect to the Administrator's, CWC's and Medcorp's affairs.
2. During the Initial Term and Renewal Terms of the Agreement,
Client shall continue to practice and perform in Medcorp in the same manner as
he/she did at the Existing Chiropractic Practice during the year preceding the
Agreement. In the event that Client wishes to limit or curtail his/her practice
then he/she, with CWC's approval of such chiropractor (which shall not be
unreasonably withheld), may hire a chiropractor to replace him/her with regard
to rendering chiropractic services at Medcorp.
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3. Client hereby authorizes CWC to perform any such credit
reference investigations that CWC (at its own cost) in its sole discretion
deems necessary.
4. Client agrees and acknowledges that the rent owing to the
Client or the Existing Chiropractic Practice, as the case may be, by CWC, if
any, shall be subject to actual collection of rent by CWC from Medcorp as
provided for in the Medical Office Sublease and the Equipment Sublease
respectively.
8. TERMINATION
a. Termination by CWC. CWC may, at any time at its election,
terminate the Agreement by delivering written notice of termination to the
Administrator upon the occurrence of any of the following events:
1. any misallocation, misappropriation or other diversion or
misapplication by the Administrator of funds received by or for the Medcorp
and/or CWC;
2. a material breach by the Administrator of any of the
obligations established hereunder which cannot be corrected or, if such breach
can be corrected, if after ten (10) days' written notice from CWC, such breach
has not been corrected by the Administrator;
3. the dissolution, liquidation or bankruptcy of the
Administrator, the appointment of a receiver for the assets of the
Administrator, assignment by the Administrator of assets for the benefit of
creditors or any action taken or suffered by the Administrator (with respect to
the Administrator) under any bankruptcy or insolvency act;
4. the death of the Administrator's managing shareholder
and/or Client;
5. any act or practice by the Administrator and/or Client
which is damaging or detrimental to the business or reputation of CWC or the
Medcorp, as determined in CWC's sole discretion, any illegal acts, actual or
threatened violation of applicable federal or state laws or regulations;
6. the failure by the Administrator and/or Client to meet
material standards of managed care payers;
7. the failure by Administrator and/or Client to meet or
maintain Verification standards;
8. the failure by the Administrator and/or Client to be
authorized to conduct a business in the manner contemplated herein or qualified
to maintain insurance coverage with respect thereto; or
9. failure to provide medical services at Medcorp for ten (10)
consecutive business days as a result of the Administrator's failure to approve
the requisite Professional Employee employment agreement(s).
b. Termination by Affiliated Parties. The Affiliated Parties may, at
their election, terminate the Agreement by delivering written notice to
terminate to CWC upon the occurrence of any of the following:
1. at any time during the first five (5) business days after
the execution of the Agreement,
2. a material breach by CWC of any of the obligations
established hereunder which cannot be corrected or if such breach can be
corrected, if after ten (10) days written notice from the Administrator, such
breach has not been corrected by CWC.
c. Effect of Termination. Expiration or early termination of the
Agreement shall not relieve, release or discharge any party hereto from any
obligation, debt or liability which may previously have accrued and which
remains to be performed upon the date of termination.
9. COVENANTS NOT TO COMPETE OR SOLICIT; TRADE SECRETS AND CUSTOMER LISTS.
a. Affiliated Parties' Restrictions During the Term of the Agreement.
During the term of the Agreement neither the Affiliated Parties, nor any
shareholder or partner of the Affiliated Parties, shall operate, manage or
otherwise be involved with any other entity which renders chiropractic or
medical services within a ten (10) block radius if in an urban center, within
a two (2) mile radius if in a suburban area, and within a five (5) mile radius
if in a rural area of any Integrated Practice to which CWC is providing
management services, either directly or indirectly (the "Restricted Area") with
the exception of chiropractic services rendered through or by the Existing
Chiropractic Practice. During the term of the Agreement, neither the Affiliated
Parties, nor any shareholder or partner of the Affiliated Parties shall
operate, manage or otherwise be involved with an integrated medical center
without the written consent of CWC.
b. CWC's Restrictions During the Term of the Agreement. During the
term of the Agreement neither CWC, nor any officer or director, shall operate,
manage or otherwise be involved with any other entity which renders
chiropractic and/or medical services within the "Restricted Area" of the
Medcorp.
c. Affiliated Parties' Restriction after the Term of the Agreement. In
the event that CWC terminates the Agreement pursuant to paragraphs 8a(1),
8a(2), 8a(3), 8a(5), 8a(6), 8a(7), 8a(8) or 8a(9) herein, then the Client
agrees that for a period of two (2) years after such termination, neither the
Affiliated Parties nor any entity in which the Affiliated Parties have an
equity ownership either directly or indirectly, shall operate, manage or
otherwise engage in the operation of any healthcare practice offering medical
services, including primary and specialty healthcare within the Restricted
Area. Client may, however, resume operation of his/her Existing Chiropractic
Practice.
d. Right of First Refusal. The Administrator or the Existing
Chiropractic Practice shall afford CWC the right of first refusal with respect
to any proposed sale of the Administrator or the Existing Chiropractic Practice
or any controlling interest herein while the Agreement remains in effect. In
the event that the Administrator or the Existing Chiropractic Practice receives
or elicits a bona fide offer to purchase the Administrator or the Existing
Chiropractic Practice or any controlling interest therein, it shall cause such
offer to be communicated in writing to CWC, which shall thereupon have fifteen
(15) days after the receipt of the communication to match or decline to match
the offer. If CWC shall decline to match the offer, the Administrator or
Existing Chiropractic Practice, as the case may be, shall have ninety (90) days
in which to close the transaction in accordance with the terms of the offer. If
the transaction shall not have closed within such 90-day period, the
Administrator or Existing Chiropractic Clinic shall be obliged to treat the
offer as a new offer and to comply again with the provisions contained herein.
In any event, this paragraph is subject to Paragraph 11(c).
e. Confidential Information. All the parties hereto acknowledge and
agree that each will have access to certain confidential information and trade
secrets of the other. Such confidential information and trade secrets include
but are not limited to the names of patients, forms, referral relationships,
protocols, billing and collection procedures, managed care relationships, etc.
The parties hereto further acknowledge and agree that each of them will not, at
any time during or after the term hereof, in any fashion, form, or manner
either directly or indirectly, divulge, disclose or communicate to any person,
firm, or corporation in any manner whatsoever, such confidential information.
During such period, each party hereto shall be deemed to have a vital and
protectable interest in such information and shall be entitled to injunctive
relief if necessary to protect against and remedy wrongful disclosure or use of
such information.
f. Irreparable Damage. The parties hereto acknowledge and agree that
consideration has been given to the nature and scope of the business and
activities of both the Affiliated Parties and CWC and that the covenants
contained in this Paragraph 9 concerning territorial, substantive and time
limitations are in all respects fair and reasonable in view of the facts
involved. In the event that any court shall determine that the time,
substantive and territorial limitations contained herein are not fair and
reasonable, the Agreement shall nevertheless be enforced as to such time,
substantive and territorial limits as are reasonable.
g. Injunctive Relief. The parties further agree that in the event of
the breach of any provision of the Agreement, and particularly Paragraph 9
hereof, each party shall be entitled to a permanent injunction or similar court
order enjoining the breaching party from acting in a fashion contrary to
Paragraph 9 and that pending such determination the breaching party shall
accede to a temporary restraining order, without prejudice to any other rights
that the non-breaching party may have, all at the breaching party's expense.
h. Independent Agreement. The covenants contained in Paragraph 9 shall
be construed as an independent agreement and the existence of any claim which
the breaching party may have against the non-breaching party will not
5
<PAGE> 6
constitute a defense to the enforcement by the non-breaching party, by
injunctive relief or otherwise, of the provisions of Paragraph 9.
i. Continuation of Chiropractic Practice. All the foregoing
not-withstanding, Client may, at his/her discretion, reactivate his/her
chiropractic practice at any location upon termination of the Agreement for any
reason whatsoever.
10. REPRESENTATIONS
a. FEP. Administrator hereby represents to CWC that neither the
Medcorp nor any of its Professional Employees shall render diagnosis,
treatment, or evaluation to insureds of any federal entitlement program such as
Medicare, Medicaid, CHAMPUS and/or CHAMPVA ("FEP") without first obtaining
written authorization from CWC. In the event that such treatment is rendered,
CWC shall be provided with immediate notice at which time CWC may terminate the
Agreement for cause at CWC's discretion. The parties agree that if a violation
of this paragraph results in termination of the Agreement, then the party
causing such breach shall be liable to the other parties for any and all
damages caused and/or sustained, including, but not limited to, the payment of
any fines, damages, attorneys fees, costs and expenses.
b. Professional Services. Client may render healthcare services to
any FEP insured patient under his/her own auspices and for his/her own benefit
through the Existing Chiropractic Practice. However, Client shall cease
rendering such services on his/her own behalf and render such services on
behalf of Medcorp in the event that CWC has agreed in writing to the provision
by Medcorp of such services.
c. No Practice of Medicine. The parties hereto acknowledge that the
parties hereto are not authorized or qualified to engage in any activity which
may be construed or be deemed to constitute the practice of medicine.
Therefore, and notwithstanding any provision or implication to the contrary
herein, the Administrator shall not engage in any activity which shall or may
be deemed to constitute the practice of medicine, nor shall it in any way
supervise or determine the methods or standards of the medical care provided by
the Medcorp's Professional Employees. Specifically, and without limitation, the
Administrator shall not (a) determine whether or not or when a patient shall be
admitted and/or discharged; or (b) determine or judge the standards and conduct
of medical care set by the Medcorp's Professional Employees.
d. No Referrals. Neither the Administrator nor CWC shall refer
patients to the Medcorp.
e. Access to Books and Records. The Medcorp and the Affiliated Parties
agree to give to the other, or the other's designee, such access to its books,
records and data as each may require including records related to the Existing
Chiropractic Practice. The Existing Chiropractic Practice agrees to authorize
CWC to perform any such audits that CWC in its sole discretion (and at its own
cost) deems necessary. Any information so derived shall be subject to Paragraph
9e.
f. Independent Contracting Parties. The Administrator and CWC are
independent contracting parties and the relationship between them is that of a
purchaser and an independent supplier of non-medical services respectively.
Nothing in the Agreement shall be construed to create a principal-agent,
employer-employee, master-servant, partner or joint venture relationship
between them. The Medcorp shall, at all times, be the sole employer of its
Professional Employees; arrange directly with such Professional Employees for
all salaries and other remuneration; and be ultimately responsible for the
payment of all applicable federal, state, or local withholding or similar taxes
and provision of worker's compensation and disability insurance.
g. Administration of Other Integrated Healthcare Facilities. The
Affiliated Parties acknowledge and agree that CWC is free to enter into
agreements similar to the one memorialized herein with other persons or other
entities.
11. MISCELLANEOUS
a. Ancillary Services. Upon mutual agreement between CWC and Medcorp,
CWC, through its subsidiaries or affiliated entities, may supply to the
Administrator radiology, diagnostic and other ancillary services for use by the
Medcorp. The Administrator shall provide to CWC such patient information and
materials, including insurance information, as CWC shall require in order to
provide for the proper billing of such services in accordance with applicable
legal requirements and limitations.
b. Compliance with Law. Upon written request of any regulatory
agency, or any of their duly authorized representatives, the Administrator
shall make available the contracts, books, documents and records needed to
verify the nature, extent and cost of services provided hereunder. Such
inspection shall be available for a period of seven years after the rendering
of services under the Agreement. If the Administrator performs any of its
duties hereunder through a subcontract with a value of Ten Thousand Dollars
($10,000) or more over a twelve (12) month period, the Administrator shall
include this provision or one similar in character and content in such
subcontract.
c. Assignment. The Affiliated Parties shall not assign any of their
respective rights, title and interest under the Agreement without the prior
written consent of CWC. For purposes hereof, any issuance, reissuance, sale,
assignment or other conveyance, or the issuance of warrants, options or rights
to subscribe to, purchase or otherwise acquire any shares of stock in the
respective Affiliated Parties or securities convertible into shares of their
respective stock, or the entry into any contract regarding same shall
constitute an assignment of the Agreement. Such purported assignment shall be
null and void and of no effect whatsoever. The Affiliated Parties also agree
that in the event of involuntary transfer of stock due to death of, or legal
action against, any stockholder, at the election of CWC, the Agreement shall be
deemed terminated unless otherwise agreed to in writing by CWC. CWC may assign
any of its rights hereunder.
d. Specific Performance. It is agreed that any breach or evasion of
any of the terms of the Agreement by any party hereto will result in immediate
and irreparable injury to the other parties, and recourse to injunction and/or
specific performance, as well as to all other legal or equitable remedies to
which such injured parties may be entitled, will be authorized under such
circumstances.
e. Indemnity. Each party hereto hereby agrees to indemnify, defend and
hold the other harmless from and against any and all costs, losses, claims,
demands and liabilities, including reasonable attorneys' fees which arise out
of or relate to any breach by the other of any of the terms and conditions in
the Agreement; any negligent or intentional wrongful act of the other; any act
or omission of the other which constitutes negligence; or any other act not
authorized under the terms of the Agreement. If any party or any of its
shareholders or affiliates is made a party to litigation or obligation or
otherwise incurs any loss or expense as a result of the other's activities
unconnected with the other's business hereunder, such parties shall forthwith
upon demand, reimburse the other party or such individuals for any and all
expenses incurred as a result thereof.
f. Waiver of Breach. The parties understand and intend that each
restriction agreed to hereunder shall be construed as separable and divisible
from every other restriction, and that the unenforceability, in whole or in
part, of any other restriction will not affect the enforceability of the
remaining restrictions. It is further understood that one or more, or all of
such restrictions, may be enforced in whole or in part as the circumstances
warrant. No waiver of any one breach of the restrictions contained in the
Agreement shall be deemed a waiver of any future breach. Each party hereby
acknowledges that it is fully cognizant of the restrictions set forth in the
Agreement and agrees that these provisions shall survive the termination of the
Agreement for any reason.
g. Notices. Except as otherwise provided herein, all requests,
demands and other communications required or permitted hereunder shall be in
writing and shall be deemed to have been given if delivered personally, by
prepaid telex, telegram, FAX or mailed first class, postage prepaid, certified
United States Mail, return receipt requested, to the party who is to receive
such notice, request, demand or communication at such party's address as set
forth herein. Any party hereto may change its address for notice by giving to
the other party written notice of such change. Any notice given hereunder
shall be effective (i) if delivered personally, when delivered, (ii) if sent by
telex, telegram or FAX, twenty-four (24) hours after sending, and (iii) if
mailed, seventy-two (72) hours after the date of the mailing.
h. Commitments Binding Only Upon Written Consent. Notwithstanding any
provision herein to the contrary, it is expressly understood and agreed that no
party hereto shall have the right to make any contracts or commitments for or
on behalf of any other party without the prior written consent of such other
party.
i. Time of Essence. Time is of the essence in regard to the
obligations established hereunder. The parties hereto agree that they shall
cooperate in good faith to accomplish the objectives of the Agreement and its
related documents and take such further action as may be reasonably necessary
to effectuate the terms, conditions and purposes of the Agreement.
6
<PAGE> 7
j. Entire Agreement. The Agreement contains the entire understanding
of the parties with respect to the subject matter hereof, supersedes any prior
agreement between the parties, and may not be changed or terminated orally. No
change, termination or attempted waiver of any of the provisions hereof shall
be binding unless in writing and signed by the party against whom the same is
sought to be enforced.
k. Successors and Assigns. The provisions of the Agreement are
intended for the regulation of relations among the parties hereto. The
Agreement is not intended for the benefit of creditors or other third parties,
and no rights are granted to such individuals or entities except where
expressly referenced herein.
l. Captions. The headings and captions herein are intended for
convenience reference only, and shall not be deemed interpretative of the
contents of such sections.
m. Execution in Counterparts. The Agreement may be executed in one or
more counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument.
n. Governing Law. All matters concerning the validity and
interpretation of and performance under the Agreement shall be governed by the
laws of the State of Maryland (without regard to the conflict of laws
principles thereof) and venue shall be laid in Montgomery County.
o. Arbitration. Except for any claim based on fraud or seeking
injunctive relief, any controversy, dispute or disagreement arising out of or
relating to the Agreement, or the breach thereof, including without limitation
any dispute concerning the scope of this arbitration clause, shall be settled
by arbitration, which shall be conducted in Montgomery County, Maryland, in
accordance with the National Health Lawyer's Association ("NHLA") Alternative
Dispute Resolution Service Rules of Procedure of Arbitration. The courts
located in Montgomery County, Maryland, shall have exclusive jurisdiction for
the entry of judgment upon any award rendered by such arbitration panel. The
parties hereto consent to such exclusive jurisdiction and venue.
p. Attorneys' Fees. Anything to the contrary contained herein
notwithstanding, in the event of litigation or arbitration between the parties
hereto, with respect to the subject matter hereof, the prevailing party in such
proceeding shall be entitled to an award of costs and fees, including
reasonable attorneys fees, incurred by reason of such proceeding, including
costs and fees on appeal, if any.
q. No Act Contrary To Law. Nothing herein shall be construed so as to
require the commission of any act contrary to law, and wherever there is any
statute, law, ordinance or regulation which is inconsistent with the Agreement,
such statute, law, ordinance or regulation shall prevail, and, in such event,
the provision herein in conflict automatically shall be curtailed, limited or
eliminated to the extent necessary to bring it within legal limitations.
r. Changes in Law and Regulations. In the event any applicable
federal, state or local law or any regulation, order or policy issued under any
such law is changed (or any judicial interpretation thereof is developed or
changed) in a way which will have a material adverse effect on the practical
realization of the benefits anticipated by one or more parties to the
Agreement, the adversely affected party or parties shall notify the other party
or parties in writing of such change and the effect of such change. The
parties shall enter into good faith negotiations to modify the Agreement to
compensate for such change. If an agreement on a method for modifying the
Agreement is not reached within thirty (30) days of such written notice, the
matter shall be submitted to a mediation with a single mediator for mediation
in Montgomery County, Maryland, pursuant to the rules and procedures of the
NHLA Alternative Dispute Resolution Service Rules of Procedure for Mediation.
s. Force Majeure. If any party's ability to perform its obligations
hereunder is limited or prevented in whole or in part due directly to acts of
God, war, invasion, acts of foreign enemy, hostilities (whether war be declared
or not), strikes and/or industrial dispute, delay on the part of a supplier or
transportation delay, such party, without liability of any kind, shall be
excused, discharged, and released from performance to the extent such
performance is limited, delayed or prevented.
7
<PAGE> 8
IN WITNESS WHEREOF, the undersigned have hereunto set their hands the day and
year first above written.
COMPLETE WELLNESS CENTERS, INC. ("CWC")
By:
--------------------------------------------------------
(SIGNATURE)
Name: E. Eugene Sharer
------------------------------------------------------
Title: President
------------------------------------------------------
Address: 725 Independence Ave., S.E.
---------------------------------------------------
City, State, Zip: Washington, D.C. 20003
------------------------------------------
Telephone, Fax: (202) 543-6800/ 543-5360
---------------------------------------------
"CLIENT"
((Title)) ((First_Name)) ((Last_Name))
- -----------------------------------------------------------------------------
Address: ((Address1))
----------------------------------------------------
City, State, Zip: ((City)), ((State)) ((PostalCode))
------------------------------------------------------------
Telephone, Fax: ((Phone))/((Fax))
---------------------------------------------
Social Security Number
-------------------------------------
"ADMINISTRATOR", A CORPORATION TO BE FORMED
By:
--------------------------------------------------------
(SIGNATURE)
Name: ((Title)) ((First_Name)) ((Last_Name))
------------------------------------------------------------------------
Title:
------------------------------------------------------
Address: ((Address1))
----------------------------------------------------
City, State, Zip: ((City)), ((State)) ((PostalCode))
------------------------------------------------------------
Telephone, Fax: ((Phone))/((Fax))
---------------------------------------------
"EXISTING CHIROPRACTIC PRACTICE"
By:
--------------------------------------------------------
(SIGNATURE)
Name: ((Title)) ((First_Name)) ((Last_Name))
------------------------------------------------------------------------
Title:
------------------------------------------------------
Address: ((Address1))
----------------------------------------------------
City, State, Zip: ((City)), ((State)) ((PostalCode))
------------------------------------------------------------
Telephone, Fax: ((Phone))/((Fax))
---------------------------------------------
Taxpayer I.D. Number
---------------------------------------
8
<PAGE> 1
EXHIBIT 10.7
CHIROPRACTOR
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as of the
day of __________, 19__, by and between ((CWMC_Name)), a ((State)) corporation
to be formed for the purposes of conducting an integrated healthcare practice
("Employer") having its principal office at ((Address1)), ((City)), ((State))
((PostalCode)) (the "Office"), and ((Title)) ((First_Name)) ((Last_Name)), an
individual licensed to practice chiropractic in the State of ((State)), or
("Employee").
W I T N E S S E T H:
WHEREAS Employer is a corporation duly licensed in the State of
((State)) and which provides integrated healthcare services; and
WHEREAS Employer wishes to employ Employee, an individual who is
actively practicing and is duly licensed to provide chiropractic services in the
state of ((State)), on an exclusive basis, as an employee of Employer to provide
chiropractic services subject to the rules thereof and the standards of the
profession in effect in the State of ((State)); and
WHEREAS Employee desires to render such services to Employer; and
WHEREAS Employee is the President of the Management Company (defined
herein) rendering administrative services to Employer,
NOW, THEREFORE, in consideration of the representations, warranties and
mutual covenants set forth herein, the parties hereto hereby agree as follows:
1. EMPLOYMENT REPRESENTATIONS. Upon the terms and subject to the
conditions set forth herein, Employer hereby employs Employee as a licensed
Chiropractor and Employee hereby accepts such employment and represents to
Employer that he is presently licensed and qualified to engage in the practice
of chiropractic in the State of ((State)); that he is not presently subject to
any pending disciplinary investigation or proceeding nor knows of any reason why
his license to so practice may be suspended, revoked, or otherwise impaired.
2. TERM. The term of employment under this Agreement (the "Employment
Term") shall be for a period of five years commencing on the Integration Date as
defined in that certain Integrated Medical Center Management and Security
Agreement ("Integrated Contract") dated of even date herewith to which the
Employee named herein is a party , unless earlier terminated under the terms
hereof (the "Commencement Date"); provided, that Employee must complete and
submit any credentialling application provided to Employee by Employer and must
present his qualifications as set forth in Paragraph 1 hereof to Employer prior
to the Commencement Date in order for this Agreement to become effective and for
the Employment Term to commence. This Agreement shall automatically renew
concomitant with the Integrated Contract unless ((Title)) ((First_Name))
((Last_Name)) exercises his option to hire a replacement chiropractor pursuant
to Paragraph 7b(2) of the Integrated Contract.
3. INDEPENDENT JUDGEMENT. Although Employee is an employee of Employer
under the terms of this Agreement, Employee shall retain independent discretion
and exercise independent judgment in the manner and means of providing services
in regard to the diagnosis and treatment of patients treated. Employee
recognizes, acknowledges and agrees that Administrator shall manage all
non-medical aspects of Employer's practice.
4. SCOPE OF DUTIES.
a. Full Time and Exclusive Employment. During the period of
his employment under the terms hereof, Employee will devote his full working
time and efforts to the performance of his duties on behalf of the Employer.
b. General Activities. Employee will render his services to
Employer as a licensed Chiropractor and in such capacity he shall perform such
duties as are customary in such practice of Chiropractic.
c. Conduct. Employee will at all times conduct himself in
compliance with all federal, state and local laws, rules and regulations and
canons of professional ethics.
d. Location of Employment. Employee shall perform his duties
hereunder at the "Office".
e. Billing. The Employer shall perform, or cause to have
performed, billing and collection functions for all services provided by the
Employee. The Employee hereby authorizes the Employer to accept, or refuse to
accept, on Employee's behalf, any assignment of insurance benefits from any
patient receiving treatment from the Employee pursuant to this Agreement. At
Employer's request, Employee shall list and designate with such insurance or
third party payor the Employer's address and designated officer as the sole
address to which all payment(s) or payment voucher(s) for treatment rendered by
the Employee shall be mailed. This Agreement constitutes an assignment by the
Employee to the Employer of all funds owing or collected for treatment rendered
by the Employee pursuant to this Agreement (the "Receivables") so long as such
assignment is not in violation of any law or statute. The Employee shall take
all steps necessary to assist in the billing and collection of funds due for
services rendered by the Employee. All funds collected with respect to services
provided pursuant to this Agreement shall be the exclusive property of the
Employer.
f. Patient Records. Employee shall maintain adequate and
complete records with regard to services rendered to patients. Nothing herein
contained shall be construed to prevent any patient from requesting transfer of
his/her records to Employee upon the termination of this Agreement, and such
materials or photocopies thereof shall be delivered to Employee upon the written
request of the subject patient, which request shall be honored promptly. Upon
termination of this Agreement, Employee shall receive copies of such patient
records that he is legally required to retain. Such records shall include the
records of all patients to whom Employee has personally rendered treatment
and/or who have requested in writing that their records be released to ((Title))
((First_Name)) ((Last_Name)). Employer will facilitate Employee in obtaining
these written
<PAGE> 2
authorizations by providing all patients with such written authorization
forms at the time of their first visit to Employer. The Employer shall
keep all original records.
g. Professional Services. ((Title)) ((First_Name))
((Last_Name)) may render healthcare services to Medicare, Medicaid, CHAMPUS,
CHAMPVA and any other federal entitlement program insured under his own auspices
and for his own benefit. However, Medcorp retains to itself the right to render
such services pursuant to Paragraph 10b of the Integrated Contract and upon
thirty (30) days notice by Medcorp to ((Title)) ((First_Name)) ((Last_Name)),
((Title)) ((First_Name)) ((Last_Name)) shall cease rendering such services on
his own behalf and render such services on behalf of Medcorp.
5. SALARY. In consideration of the services to be rendered by Employee
hereunder, and as full compensation therefor, Employer agrees to pay Employee,
and Employee agrees to accept from Employer, a salary at the rate of One
Thousand Dollars ($1,000.00) per month during the first three months of this
Agreement and per month thereafter during the Employment Term (the "Salary"),
which dollar amount shall be prorated for the actual days employed during such
period to the extent that the Agreement is earlier terminated. Such Salary shall
be payable in accordance with the Employer's normal payroll policies, but not
less often than monthly. Such Salary shall be subject to withholding for
applicable taxes to the extent required by law. Any amounts due to the Employee
from any previous employment or pursuant to his activities on behalf of the
Administrator will not affect the terms of this Paragraph.
6. EMPLOYMENT BENEFITS. During the term of his employment hereunder,
Employee shall be entitled to vacation, sick leave, health benefits, and
maternity leave as determined by the Administrator.
a. Malpractice Insurance. Payment of the premiums for the
Employee's malpractice insurance; provided, that such insurance shall be in such
coverage amount and placed with such insurance carrier as shall be approved by
Employer; and provided, further, that such malpractice insurance shall not cover
Employee during the performance of any activities not directly related to the
Employee's employment by Employer.
7. TERMINATION OF EMPLOYMENT.
a. Termination by Employer. Employer may, at any time at its
election, terminate this Agreement forthwith by delivering written notice of
termination to the Administrator upon the occurrence of any of the following
events:
(1) any misallocation, misappropriation or other
diversion or misapplication by the Employee of funds received by or for the
Employer and/or CWC;
(2) a material breach by the Employee of any of
the obligations established hereunder which cannot be corrected or, if such
breach can be corrected, if after ten days' written notice from Employer such
breach has not been corrected by the Employee;
(3) the death of the Employee;
(4) any act or practice by the Employee which is\
damaging or detrimental to the business or reputation of Employer, including but
not limited to illegal acts, actual or threatened violation of applicable
federal or state laws or regulations;
(5) the failure by the Employee to meet material
standards of managed care payors;
(6) the failure by Employee to meet or maintain
profiling or credentialling standards;
(7) the disability or legal incapacity of the
Employee; or
(8) for "Cause". The term "Cause" as used herein
shall mean that Employee (i) has been found, in the reasonable belief of
Employer, to suffer chronic dependency on drugs or alcohol; (ii) in carrying out
his duties hereunder, has committed gross neglect or gross misconduct; (iii) has
become legally disqualified to practice Chiropractic in the State of ((State)) ,
or has been put on probation by the ((State)) State Board, or has had his
license to practice Chiropractic in the State of ((State)) suspended or revoked;
or (iv) is unable to obtain the appropriate malpractice insurance covering his
professional conduct, in coverage amounts and/or with insurance carriers
acceptable to Employer.
b. Automatic Termination. This Agreement is intended to be
coterminous with the Integrated Contract. Accordingly, in the event that the
Integrated Contract is terminated for whatever reason, this Agreement shall also
terminate unless the parties elect by an agreement in writing to continue it in
effect. This subparagraph shall not relieve any party of responsibility for
wrongful termination of the Integrated Contract or this Agreement.
c. Employee's Termination. Employee may terminate this
Agreement at any time upon two (2) weeks notice to Employer upon a material
breach by the Employer of any of the obligations established hereunder which
cannot be corrected or, if such breach can be corrected, if after ten days'
written notice from Employee such breach has not been corrected by the Employer.
d. Effect of Termination. Expiration or early termination of
this Agreement shall not relieve, release or discharge any party hereto from any
obligation, debt or liability which may previously have accrued and which
remains to be performed upon the date of termination.
e. Distribution of Records. Upon termination, Employee shall
receive copies of such patient records that he is legally required to retain.
Such records shall include the records of all patients to whom ((Title))
((First_Name)) ((Last_Name)) has personally rendered treatment and/or who have
requested in writing that their records be released to Employee. Employer will
facilitate Employee in obtaining these written authorizations by providing all
patients with such written authorization forms at the time of their first visit
to Employer. Employer shall keep all original records.
f. Post-Termination Cooperation Re Accounts. For a period of
two (2) years after termination of this
<PAGE> 3
Agreement, Employee shall cooperate fully and assist Employer in efforts to
collect all accounts receivable for services performed by Employee while
employed by Employer, including without limitation, transferring all funds
actually paid or made payable to Employee with respect to such accounts
receivable, and appearing in any court of law within which any cause of action
is brought to seek enforcement of Employer's right to collect on any and all
such accounts. Employee agrees to notify Employer, in writing, of a change of
address of Employee's business or residence during such two (2) year period so
that Employer will be able to locate Employee to carry out the terms of this
Paragraph. Employee shall receive up to two hundred and fifty dollars ($250.00)
per day for providing assistance under the terms of this Paragraph and, in
addition, Employer shall reimburse Employee for all reasonable costs and
expenses incurred by Employee, as approved in advance in writing by Employer,
relating to such assistance. The terms and conditions of this Paragraph shall
survive termination of this Agreement.
8. COVENANTS NOT TO COMPETE OR SOLICIT, TRADE SECRETS AND
CUSTOMER LISTS.
a. Confidential Information. Employee acknowledges and agrees
that he will have access to certain confidential information and trade secrets
of the Employer and that such information constitutes valuable, sole, special
and unique property of Employer. Employee further acknowledges and agrees that
Employee will not, at any time during or after the term hereof, in any fashion,
form, or manner either directly or indirectly, divulge, disclose or communicate
to any person, firm, or corporation in any manner whatsoever, the terms and
conditions of this Agreement or any information of any kind, nature or
description concerning any matters affecting or relating to the business of
Employer, including, without limiting the foregoing, the names of patients, the
prices which Employer pays for goods and services and/or sells goods or
services, Employer's manner of operation of Employers business or its plans or
processes, or any other data or information of any kind, nature or description
which affects or relates to Employer's business without regard to whether any or
all of the foregoing would be deemed confidential information or a trade secret
under applicable state law ("Confidential Information"). During such period,
Employer shall be deemed to have a vital and protectable interest in such
information and shall be entitled to injunctive relief if necessary to protect
against and remedy wrongful disclosure or use of such information.
b. Irreparable Damage. The parties hereto acknowledge and
agree that consideration has been given to the nature and scope of the business
and activities of both the Employee and the Employer and that the covenants
contained in this Paragraph 8 concerning territorial, substantive and time
limitations are in all respects fair and reasonable in view of the facts
involved. In the event that any court shall determine that the time, substantive
and territorial limitations contained herein are not fair and reasonable, this
Agreement shall nevertheless be enforced as to such time, substantive and
territorial limits as are reasonable.
c. Injunctive Relief. The parties further agree that in the
event of the breach of any provision of this Agreement, and particularly
Paragraph 8 hereof, each party shall be entitled to a permanent injunction or
similar court order enjoining the breaching party from acting in a fashion
contrary to Paragraph 8 and that pending such determination the breaching party
shall accede to a temporary restraining order, without prejudice to any other
rights that the non-breaching party may have, all at the breaching party's
expense.
d. Independent Agreement. The covenants contained in Paragraph
8 shall be construed as an independent agreement and the existence of any claim
which the breaching party may have against the non-breaching party will not
constitute a defense to the enforcement by the non-breaching party.
e. Continuation of Chiropractic Practice. All the foregoing
notwithstanding, Employee may, at his discretion, reactivate his own
chiropractic practice at any location upon termination of this Agreement for any
reason whatsoever. The Employee may also continue to maintain and advertise his
own telephone number at his own personal cost and expense during the term of
this Agreement and may continue to so use said telephone number upon termination
of this Agreement. This provision shall survive the termination of this
Agreement.
9. MISCELLANEOUS
a. Specific Performance. It is agreed that any breach or
evasion of any of the terms of this Agreement by either party hereto will result
in immediate and irreparable injury to the other party, and recourse to
injunction and/or specific performance, as well as to all other legal or
equitable remedies to which such injured party may be entitled, will be
authorized under such circumstances.
b. Indemnity. Employee hereby agrees to indemnify, defend and
hold Employer harmless from and against any an all costs, losses, claims,
demands and liabilities, including reasonable attorneys' fees which arise out of
or relate to any breach by Employee of any of the terms and conditions in this
Agreement; any negligent or intentional wrongful act of Employee; any act or
omission of Employee which constitutes professional negligence; or any other act
of Employee not authorized under the terms of this Agreement. If Employer or any
of its shareholders or affiliates is made a party to litigation or obligation or
otherwise incurs any loss or expense as a result of Employee's activities
unconnected with Employer's business at the Medcorp, Employee shall forthwith
upon demand, reimburse Employer or such individuals for any and all expenses
incurred as a result thereof.
c. Waiver of Breach. The parties understand and intend that
each restriction agreed to by Employee under the terms of this Agreement shall
be construed as separable and divisible from every other restriction, and that
the unenforceability, in whole or in part, of any other restriction will not
affect the enforceability of the remaining restrictions. It is further
understood that one or more, or all of such restrictions, may be enforced in
whole or in part as the circumstances warrant. No waiver of any one breach of
the restrictions contained in this Agreement shall be deemed a waiver of any
future breach. Employee hereby acknowledges that it is fully cognizant of the
restrictions set forth in Paragraph 8 of this Agreement and agrees that these
provisions shall survive the termination of this Agreement for any reason.
<PAGE> 4
d. Notices. Except as otherwise provided herein, all requests,
demands and other communications required or permitted hereunder shall be in
writing and shall be deemed to have been given if delivered personally, by
prepaid telex, telegram, facsimile ("FAX") or mailed first class, return receipt
requested, to the party who is to receive such notice, request, demand or
communication at such party's address as set forth on the signature page hereof.
Any party hereto may change its address for notice by giving to the other party
written notice of such change. Any notice given hereunder shall be effective (i)
if delivered personally, when delivered, (ii) if sent by telex, telegram or FAX,
twenty-four (24) hours after sending, and (iii) if mailed, seventy-two (72)
hours after the date of the mailing.
e. Commitments Binding only upon Written Consent.
Notwithstanding any provision herein to the contrary, it is expressly understood
and agreed that Employee shall not have the right to make any contracts or
commitments for or on behalf of Employer without the prior written consent of
Employer.
f. Time of Essence. Time is of the essence in regard to the
obligations established hereunder. The parties hereto agree that they shall
cooperate in good faith to accomplish the objectives of this Agreement and,
documents and take such further action as may be reasonably necessary to
effectuate the terms, conditions and purposes of this Agreement.
g. Entire Agreement. This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof,
supersedes any prior agreement between the parties, and may not be changed or
terminated orally. No change, termination or attempted waiver of any of the
provisions hereof shall be binding unless in writing and signed by the party
against whom the same is sought to be enforced.
h. Modification. This Agreement shall not be changed, modified
or amended, except by a writing signed by the parties hereto and this Agreement
may not be discharged except by performance in accordance with its terms or by a
writing signed by the parties hereto.
i. Successors and Assigns. This Agreement is binding upon and
shall inure to the benefit of the respective heirs, legal representatives,
successors and assigns of the Employer. The services to be provided by Employee
herein are of a personal nature and may not be assigned by him in whole or in
part.
j. Exclusive Rights. The rights and the obligations of the
Employee under this Agreement are exclusive except as otherwise provided herein,
however this Agreement shall not be construed to prevent the Employer from
simultaneously retaining, contracting with, or otherwise obtaining professional
services from any other person or entity.
k. Severability. In the event that any one or more of the
provisions of this Agreement shall be declared to be illegal or unenforceable
under any law, rule or regulation of any government having jurisdiction over the
parties hereto, such illegality or unenforceability shall not affect the
validity and enforceability of the other provisions of this Agreement.
l. Captions. The headings and captions herein are intended for
convenient reference only, and shall not be deemed to be interpretative of the
contents of such sections.
m. Execution in Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall constitute an original and all
of which together shall constitute one and the same instrument.
n. Governing Law. All matters concerning the validity and
interpretation of and performance under this Agreement shall be governed by the
laws of the State of ((State)) (without regard to the conflict of laws
principles thereof).
o. Arbitration. Any controversy, dispute or disagreement
arising out of or relating to this Agreement, or the breach thereof, shall be
settled by arbitration, which shall be conducted in ((City)), State of
((State)), in accordance with the National Health Lawyer's Association ("NHLA")
Alternative Dispute Resolution Service Rules of Procedure for Arbitration, and
judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof.
p. No Act Contrary to Law. Nothing herein shall be construed
so as to require the commission of any act contrary to law, and wherever there
is any statute, law, ordinance or regulation which is inconsistent with this
Agreement, such statute, law, ordinance or regulation shall prevail, and, in
such event, the provision herein in conflict automatically shall be curtailed,
limited or eliminated to the extent necessary to bring it within legal
limitations.
IN WITNESS WHEREOF, the parties hereto have executed this document or caused its
execution by a duly authorized officer, all as of the day and year first above
written.
(CWMC Name) a (State) corporation to be formed
By:
----------------------------------------
E. Eugene Sharer, President
Employee
BY:
----------------------------------------
(Title)(First Name)(Last Name)
<PAGE> 1
EXHIBIT 10.8
MEDICAL DOCTOR
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is entered into this _____
day of _____________________________, 199___, between ________, a __________
corporation ("Employer"), and _______, an individual or professional
corporation ("Employee").
RECITALS
A. Employer is a professional corporation which provides
healthcare services in the State of __________ at the office located at
_______________ the ("Office"). Employer wishes to employ Employee, an
individual who is actively practicing and is duly licensed to provide medical
services in the State of __________, as an employee to treat the patients of
the Office, subject to the rules thereof and the standards of the profession in
effect in the State where the Office is located.
B. Employee is willing to be employed by Employer, and Employer
is willing to employ Employee, all in accordance with the terms, covenants and
conditions hereinafter set forth.
C. Employee is willing to be employed by Employer and perform
all duties and services incident to his position, and such other duties as may
be prescribed by the Board of Directors of the Company from time to time.
NOW, THEREFORE, in consideration of the mutual premises and
covenants herein contained, the parties hereto agree as follows:
1. NATURE OF EMPLOYMENT
1.1 Engagement. Employer does hereby employ and engage
Employee as a Doctor of Medicine at the Office. Employee shall provide services
within the parameters regulating professionals in the State in which the Office
is located, as established in applicable federal and State local statutes,
rules, regulations and ethical standards; perform such other duties as
customarily are performed by a professional holding such a position.
1.2 Promotion Of Services. Employee shall exercise best
efforts to promote the Office and the services rendered therein to the extent
permitted by law, the applicable canons of professional ethics and the policies
and procedures of Employer.
1.3 Application Form. Employee will complete and timely
submit an Credentialing Application provided to Employee by Employer.
1.4 Call Schedule. Employee shall be available at all reasonable
times as mutually agreed upon by Employee and Employer and shall be "on call"
and capable of being available via phone or fax within one (1) hour after being
called by Employer during established "on call" time periods.
1.5 Insurance Coverage. Employee shall, during the term of this
Agreement, be and remain qualified for insurance coverage under a policy or
policies of professional liability malpractice insurance with a nationally
recognized insurance carrier, under terms acceptable to Employer. Employee shall
provide and maintain, or cause to be provided and maintained, during the term of
this Agreement, professional liability malpractice coverage with a nationally
recognized insurance carrier, under terms acceptable to Employer, in an
aggregate amount of not less than one million dollars ($1,000,000.00) per
occurrence and three million dollars ($3,000,000.00) annual aggregate. Such
insurance shall be purchased by Employee, naming and insuring Employee, Employer
and the officers and directors of Employer, jointly and severally, from and
against any and all liability, costs, damages, expenses and attorneys' fees
resulting from or attributable to professional acts and/or omissions of Employee
at or through the Office as authorized under the terms of this Agreement.
<PAGE> 2
1.6 Working Hours. Employee shall devote Employee's best
efforts to the practice of medicine pursuant to the terms of this Agreement.
Standard working hours for Employee at the Office shall be as follow:
Day Time
-----------------------------------
-----------------------------------
-----------------------------------
1.7 Additional Employment. The Employee shall devote his best
efforts to the practice of medicine pursuant to the terms of this Agreement. The
Employer may, during the term of this Agreement, otherwise engage in the
practice of medicine outside of the Company, provided that such practice does
not interfere with Employee's abilities to discharge Employee's obligations
under this Agreement.
1.8 Personal Services Contract. This is a personal services
contract between the parties, and, as a result, Employee may not assign or
delegate any rights, duties or obligations established herein without the prior
written consent of Employer, which consent may be withheld in Employer's sole
and absolute discretion. Employer may assign this Agreement, in whole or in
part, in its sole and absolute discretion without the consent of Employee.
2. MANNER OF PERFORMANCE
2.1 Performance Standards. Employee agrees that Employee
shall at all times faithfully, industriously and to the best of Employee's
ability, perform all of the duties required hereunder to the reasonable
satisfaction of Employer. Such duties shall be rendered at the Office as
hereinabove set forth, and at such other place or places as Employer shall in
good faith require. Employee agrees to comply with all standards established by
or on behalf of Employer for the purpose of attempting to ensure the quality of
patient care provided in or through the Office.
2.2 Not Applicable
2.3 Not Applicable
2.2 Management of Practice. Employee recognizes,
acknowledges and agrees that Employer's professional practice is managed by
Complete Wellness Centers, Inc. ("Manager") pursuant to that certain Management
Agreement between Employer and Manager ("the Management Agreement"), the general
provisions of which have been made known to Employee, and Employee will abide by
the terms and conditions contained therein to the extent that such terms are
known by Employee and directed to the provision of professional services at the
Office. In addition, several of the management services have been subcontracted
to ____________("Clinic Manager"). As part of the Management Agreement, the
Manager and the Clinic Manager shall provide and maintain, or cause to be
provided and maintained, during the term of this Agreement, such facilities,
equipment and supplies as it deems necessary for the performance by the
Employer of the duties required under this Agreement.
2.3 Rules and Regulations. Employee shall observe and comply
with all rules, regulations, policies, procedures and protocols of Employer and
shall faithfully carry out the orders and directions of its officers and
directors. Employee acknowledges and agrees that Employer has final authority
with regard to the acceptance of patients and the fees to be charged to such
patients with respect to professional services rendered at or through the
Office.
2.4 Claims Processing. Employee shall cooperate with
Employer in providing information, data, documents and forms needed to process
bills, charges or claims arising out of the professional services rendered to
patients at the Office.
2.5 Utilization Review and Quality Assurance. Employee shall
practice in a manner consistent with, and remain subject to, any utilization or
quality assurance review processes which Employer may institute in regard to its
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<PAGE> 3
practice.
2.6 Medical Records. Employee shall maintain adequate and
complete records in regard to services rendered to patients. Upon the expiration
or termination of this Agreement, Employer shall retain all patient records and
charts, provided that copies thereof shall be made available to Employee and the
patient in accordance with law and prudent medical practice in order to permit
the continuity of patient care and protect the confidentiality of patient
medical information.
2.7 Patient Consent. Prior to undertaking any treatment
regimen or implementing any treatment plan, Employee shall examine the patient
to determine that the procedure(s) provided thereby are suitable; where
necessary, inform the patient of the nature of the risks of and alternatives to
such procedure(s); where appropriate, secure authorization and consent to such
action and obtain for Employer's files such written consents and forms as may be
required by federal, state and local law or prudent medical practice.
2.8 Patient Accounts. All patients shall be and remain the
patients of Employer, provided that Employee shall exercise independent
responsibility for the care and treatment of such individuals to the extent
professional services are rendered pursuant to this Agreement. In the event any
patient is deemed by operation of law or otherwise to be a patient of Employee,
Employee shall and hereby does (i) irrevocably assign all accounts receivable
from the treatment of such individuals to Employer, and (ii) irrevocably appoint
Employer as the agent and true and lawful attorney-in-fact, with full power of
assignment and substitution, to bill patients on Employee's behalf; to collect
accounts receivable from all payors; and to take possession of and endorse in
Employee's name all notes, drafts or instruments received by way of payment for
such services (except where prohibited by law or regulation). Employer shall
perform, either itself or pursuant to an agreement with another individual or
entity, billing and collections for all services provided by Employee. The
Employee hereby authorizes the Employer to accept, on behalf of the Employee,
any assignment of insurance benefits (e.g., Medicare, Blue Cross/Blue Shield,
etc.) from the Employee pursuant to this Agreement. At the request of the
Employer, Employee shall list and designate with such insurance or other third
party payor programs the address of the Employer, to the attention of such
office(s) of the Employer as the Employer shall designate, or such other address
at the Employer may designate, as the sole addressee to which all payment(s) or
payment voucher(s) for services performed by the Employee shall be mailed. This
Agreement shall constitute an assignment by the Employee to the Employer for all
funds owing or collected for services rendered by the Employee pursuant to this
Agreement, and the Employee shall take all additional steps reasonably requested
by the Employer to assist in the billing and collection of funds due for
services rendered by the Employee. All funds collected with respect to services
provided pursuant to this Agreement shall be the exclusive property of the
Employer.
2.9 Independent Judgment. Although Employee is an employee of
Employer under the terms of this Agreement, Employee shall retain independent
discretion and exercise independent judgment in the manner and means of
providing services in regard to the diagnosis and treatment of patients treated
at the Office. Employee is under the control of Employer as to the results of
his work and not as to the means by which such results are accomplished.
3. TERM
3.1 Term. Except as otherwise provided herein, the term of
this Agreement shall be for a period of days (the "Initial Term"), unless
terminated as hereinafter provided, and thereafter automatically shall renew for
successive one-year terms unless earlier terminated as provided for herein.
3.2 Not Applicable
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<PAGE> 4
4. COMPENSATION AND BENEFITS
4.1 Compensation. Employee shall be compensated at a rate of
$ dollars per hour, payable, as earned every other Friday, one week in advance,
during the term of this Agreement. The Employee Compensation shall be subject to
increase at any time, in Employer's sole discretion based upon Employee's level
of performance under the terms of this Agreement and such other relevant factors
as Employer may reasonably apply.
4.2 Not Applicable
4.3 Not Applicable
4.4 Sole Benefits. Employee acknowledges that the compensation
and benefits established pursuant to this Section shall be the sole
consideration provided by Employer for the services provided under the terms of
this Agreement. Employee shall not solicit or accept payment from any patient,
government entitlement program or third party payor for services rendered
pursuant to this Agreement.
4.5 Reimbursement. Expenses incurred by Employee on
Employer's behalf at Employer's written direction shall be reimbursed in full
where approved in advance. In the event an expense paid on behalf of, or
reimbursement contributed to, Employee is determined not to be an allowable tax
deduction or credit of Employer and such determination is acceded to by Employer
or rendered final by the State or federal taxing authority or court with final
jurisdiction, Employee shall forthwith, upon ten (10) days' prior written notice
and without regard to whether this Agreement shall then be terminated, reimburse
Employer for the full amount of the out-of-pocket loss incurred by Employer as a
result of any such disallowance.
5. NONDISCLOSURE OF INFORMATION CONCERNING CONFIDENTIAL BUSINESS
INFORMATION, PATIENT RECORDS AND TRADE SECRETS
5.1 Employee Position. Employee recognizes that Employee's
position with Company requires considerable responsibility and trust, and, in
reliance on Employee's loyalty, the Company may entrust Employee with highly
sensitive confidential, restricted and proprietary information involving Trade
Secrets and Confidential Information.
5.2 Trade Secrets and Confidential Information. For the
purposes of this Agreement, a "Trade Secret" is any scientific or technical
information, design, process, procedure, formula or improvement that is valuable
and not generally known to competitors of the Company. "Confidential
Information" is any data or information, other than Trade Secrets, that is
important, competitively sensitive, and not generally known by the public,
including, but not limited to, the Company's initial development plans, bidding
and pricing procedures, market strategies, internal performance statistics,
financial data, confidential personnel information concerning employees of the
Company, supplier data, operational or administrative plans, policy manuals, and
terms and conditions of contracts and agreements. The terms "Trade Secret" and
"Confidential Information" shall not apply to information which is (i) already
in Employee's possession at the time of employment (unless such information was
used in connection with formulating the Company's initial business plan,
obtained by Employee from the Company or was obtained by Employee in the course
of Employee's employment by the Company), (ii) received by Employee from a third
party with no restriction on disclosure, or (iii) required to be disclosed by
any applicable law.
5.3 Confidential Information. Employee acknowledges and agrees
that he will have access to certain confidential information and trade secrets
of the Employer and that such information constitutes valuable, special and
unique property of Employer. Employee further acknowledges and agrees that
Employee will not, at any time during or after the term hereof, in any fashion,
form, or manner, either directly or indirectly, divulge, disclose or communicate
to any person, firm, or corporation, in any manner whatsoever, the terms and
conditions of this Agreement or any information of any kind, nature or
description concerning any matters affecting or relating to the business of the
Employer, including, without limiting the foregoing, the names of patients, the
prices which Employer pays for goods or services or at which it provides
services or sells products or goods, Employer's manner of operation referring
services or
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<PAGE> 5
business of the Employer, plans or processes, or any other data or information
of any kind, nature or description which affects or relates to Employer's
business, without regard to whether any or all of the foregoing would be deemed
confidential information or a trade secret under applicable State law
("Confidential Information").
5.4 Patient Information. Employee agrees that:
5.4.1 all patient names, addresses, telephone numbers,
files, and records (collectively, "Patient Records") are and shall remain in the
custody and control of Employer, and, except as necessary and permitted for
insurance or other purposes directly related to the operation of the Office or
proper patient care, or as authorized by law or patient consent, Employee shall
not remove, copy, transfer, or transmit to any person, natural or corporate, any
Patient Records at any time;
5.4.2 each Patient Record has a reasonable value to
Employer of $5,000.00, and for each record, or any portion thereof, which
Employee attempts to obtain and/or actually does obtain in contravention of this
Section, the sum of $5,000.00 shall be paid to Employer as liquidated damages.
The referenced sum shall be due and payable immediately upon the date of the
violation or attempted violation of this Section, with such sum to bear interest
at the maximum allowable legal rate from the due date to the actual date of
payment in full; and
5.4.3 an actual or attempted violation of any provision
of this Section by Employee, either directly or indirectly, shall be grounds for
immediate termination of this Agreement.
5.5 Injunctive Relief. Employee recognizes and agrees that a
violation of any of the provisions contained in this Section may cause
irreparable damage and substantial loss to the goodwill of the Employer to
Employer. The knowledge of the Employee of these matters would enable the
Employee, upon termination of this Agreement, to compete with the Corporation.
The exact amount of such damage of which may be impossible to ascertain, and
that, for such reason, among others, Employer shall be entitled to an injunction
without the necessity of posting bond therefor in order to restrain any further
violation of such provisions. Such right to an injunction shall be in addition
to, and not in limitation of, any other rights and remedies Employer may have
against Employee, whether in law or equity, otherwise available under the terms
of the is Agreement or under federal, state and local statutes, rules and
regulation, including, but not limited to, the recovery of damages. The terms
and conditions of this Section shall survive termination of this Agreement.
6. COVENANT NOT TO COMPETE
6.1 Not Applicable
6.2 Not Applicable
6.3 Not Applicable
7. COVENANT NOT TO SOLICIT
Not Applicable
8. REPRESENTATIONS AND WARRANTIES
8.1 Representations and Warranties. Employee represents and
warrants that he or she:
8.1.1 is and shall remain at all times during the term
of this Agreement a professional licensed to provide services in the State in
which the Office is located;
8.1.2 is not subject to any restriction that would
prohibit entering into this Agreement, is fully able
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<PAGE> 6
to perform each of the terms, conditions and covenants hereof, and is not
restricted or prohibited from entering into or performing any of the terms or
conditions hereof; and
8.1.3 is able to execute and perform under this Agreement
without violating or breaching any agreement between Employee and any other
person or entity.
8.2 Accuracy of Representations. Employee acknowledges and
agrees that the truth and accuracy of the representations and warranties
contained herein constitute a condition precedent to Employer's obligation to
provide compensation pursuant to the terms and conditions of this Agreement.
8.3 Cooperation In Dispute Resolution. Employee recognizes that
certain disputes may arise between Employer and third parties, the resolution of
which may require the cooperation of Employee, including, but not limited to,
Employee's providing factual information and giving depositions and testimony in
judicial and administrative proceedings. Employee shall, during the term hereof
and at all times after termination, cooperate with Employer to allow it to
advance its position with respect to such disputes. Employer shall pay Employee
UP TO $250 per day for such assistance and to reimburse Employee for all
out-of-pocket expenses incurred in connection with such cooperation, provided
that Employee obtains Employer's agreement in advance so to do and provides
Employer with an itemized written account of such reimbursable expenses. The
terms and conditions of this Section shall survive termination of this
Agreement.
9. INDEMNITY
Employee hereby agrees to indemnify, defend and hold Employer
harmless from and against any and all costs, losses, claims, demands and
liabilities, including reasonable attorneys' fees and costs, which arise out of
or relate to any breach by Employee of any of the terms or conditions of this
Agreement; any negligent or intentional wrongful act of Employee; any act or
omission of Employee which constitutes professional negligence; or any other act
of Employee not authorized under the terms of this Agreement. If Employer or any
of its shareholders or affiliates is made a party to any litigation or
obligation or otherwise incurs any loss or expense as a result of Employee's
activities unconnected with Employer's business at the Office, Employee shall
forthwith upon demand reimburse Employer or such individuals for any and all
expenses incurred as a result thereof. The terms and conditions of this Section
shall survive termination of this Agreement.
10. TERMINATION
10.1 Termination By Employer. Employer shall have the right
to terminate Employee's employment hereunder forthwith upon, or at any time
after, the occurrence of one or more of the following events:
10.1.1 Nonperformance of Employee's duties as an Employee
for whatever reason, including Employee's disability for which Employer can make
no reasonable accommodation. The term "disability" shall mean, for purposes of
this Agreement, the inability of Employee to perform full-time regular duties as
contemplated hereunder on account of a physical or mental condition for a period
of 30 consecutive days, but shall exclude infrequent and temporary incapacity
due to ordinary illness;
10.1.2 Employee's theft or other act of dishonesty;
10.1.3 The death of Employee;
10.1.4 The attempt by Employee to alienate, encumber, sell,
transfer, assign, hypothecate or pledge to any person, natural or corporate,
shares of stock of Employer, if then holding any, without the Employer's express
written consent or in violation of law or in a manner prohibited by the Articles
of Incorporation of Employer, the Bylaws of Employer, the Staff Bylaws, the
shareholder agreements affecting the shares of stock of the Employer, or the
provisions of this Agreement;
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<PAGE> 7
10.1.5 The inability of Employee to qualify for malpractice
insurance upon terms acceptable to, with an insurance carrier approved by,
Employer as required herein;
10.1.6 A determination by Employer that Employee has
acted in a manner contrary to the canons of professional ethics or the
provisions of the Staff Bylaws or the Management Agreement, as such provisions
or documents may be modified from time to time;
10.1.7 The unlawful harassment of other employees
(including sexual harassment) or the conviction of Employee of a felony or other
crime involving moral turpitude;
10.1.8 The abuse of drugs or alcohol;
10.1.9 The suspension, revocation or cancellation of
the Employee's right to practice as a professional in the State in which
services are provided hereunder;
10.1.10 The discovery by Employer that any of the
information contained in the Credentialing Application is incorrect or false as
of the date of completion;
10.1.11 The material breach by Employee of any of the
provisions, representations, warranties or covenants established herein, or the
repeated failure by Employee to comply with the policies and procedures of
Employer or observe the orders and directions of its officers and directors;
10.1.12 A material adverse change in the business or
economic prospects of Employer, as determined in Employer's discretion;
10.1.13 Upon the provision of thirty (30) days' prior
written notice;
10.1.14 Not Applicable
10.1.15 Not Applicable
10.1.16 Not Applicable
10.2 Termination By Employee. Thereafter, Employee may
terminate this Agreement on thirty (30) days' prior written notice. Employee
agrees that if Employee breaches this Section, Employee will be liable, in
addition to any other rights and remedies at law, for all of Employer's lost
profits as a result of the breach, the costs incurred in obtaining the personnel
necessary to staff the Office as a proximate cause of the breach, and attorneys'
fees incurred as a result of any legal action brought to enforce the terms of
this Agreement.
10.3 Duties Upon Termination. Employee hereby irrevocably
agrees to return to Employer any and all copies of forms, documents or records
which contain Confidential Information forthwith upon termination of this
Agreement. Employer shall, as of the effective date of termination of
this Agreement, be released of any responsibility or obligation hereunder
except payment of compensation and benefits accrued to the effective date of
such termination.
11. POST-TERMINATION DUTIES
11.1 Not Applicable
11.2 Not Applicable
-7-
<PAGE> 8
12. MISCELLANEOUS
12.1 Not Applicable
12.2 Enforcement. Employer and Employee acknowledge that
Employee will be providing services hereunder which are of a personal, special,
unique, unusual and extraordinary character. In recognition thereof, Employee
agrees that, under certain circumstances, a breach of this Agreement cannot
reasonably be compensated in damages and that Employer shall, under such
circumstances, be entitled to injunctive relief. However, no remedy made
available by virtue of this Section shall be exclusive of any other remedy
available to the litigant, and each and every remedy hereunder shall be in
addition to all other remedies available at law or in equity.
12.3 Not Applicable
12.4 Not Applicable
12.5 Not Applicable
12.6 Commitments Binding Only Upon Written Consent.
Notwithstanding any provision herein to the contrary, it is expressly understood
and agreed that Employee shall not have the right to make any contracts or
commitments for or on behalf of Employer or the Office without the prior written
consent of Employer.
12.7 Not Applicable
12.8 Waiver. No waiver or modification of this Agreement or any
covenant, condition, or limitation herein shall be valid unless in writing and
duly executed by the parties hereto, and no evidence of any waiver or
modification shall affect this Agreement, or the rights or obligations of any
party hereunder, unless such waiver or modification is in writing and duly
executed by the parties hereto. The parties hereto further agree that the
provisions of this Section may not be waived except as herein set forth.
12.9 Governing Law; Headings. This Agreement and performance
hereunder shall be construed and enforced, and all lawsuits and special
proceedings arising out of or related hereto shall be conducted, in accordance
with the laws of the State in which services are rendered by Employee pursuant
to this Agreement. The Section and Paragraph headings contained herein are for
convenient reference only and shall not affect the meaning or interpretation of
this Agreement.
12.10 Blue Lining; Severability. In the event any provision
of this Agreement is held to be unenforceable or invalid under the laws of the
United States or the State in which services are rendered by Employee pursuant
to this Agreement, the parties hereto agree that such provision shall
automatically be deemed modified for purposes of performance of this Agreement
to the extent necessary to render it lawful and enforceable, or if such
modification is not possible without materially altering the intent of the
parties hereto, that such provision shall automatically be deemed severed from
this Agreement. The validity of the remaining provisions of this Agreement shall
not be affected by any such modification or severance.
12.11 Not Applicable
12.12 Not Applicable
12.13 Not Applicable
12.14 Not Applicable
12.15 Not Applicable
-8-
<PAGE> 9
12.16 Not Applicable
12.17 Not Applicable
12.18 Not Applicable
IN WITNESS WHEREOF, the parties hereto have executed this instrument, or caused
its execution by a duly authorized officer, all as of the day and year first
above written.
"EMPLOYER"
-----------------------------------
[Name of Employer]
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
Address:
-----------------------------------
-----------------------------------
-----------------------------------
"EMPLOYEE"
-----------------------------------
[Name of Employee]
-----------------------------------
[Signature]
Address:
-----------------------------------
-----------------------------------
-----------------------------------
-9-
<PAGE> 1
EXHIBIT 10.9
PHYSICAL THERAPIST
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as
of the 25th day of June, 1996, by and between __________, a ____________
corporation with an office at ______________________, ___________, ________
_____________ ("Employer"), and __________ ________, __________, an individual
residing at____________________________________________________ ("Employee").
W I T N E S S E T H:
WHEREAS Employer is a corporation duly licensed in the State
of ____________ and which provides healthcare services at its office located at
_____________________ (the "Office") and
WHEREAS Employer wishes to employ Employee, an individual who is
actively practicing and is duly licensed and registered to provide physical
therapy in the State of ____________, as an employee of Employer to provide
physical therapy services subject to the rules thereof and the standards of the
profession in effect in the State of ______________, and
WHEREAS Employee desires to render such services to Employer,
NOW, THEREFORE, in consideration of the representations, warranties and
mutual covenants set forth herein, the parties hereto hereby agree as follows:
SECTION I - REPRESENTATIONS
1. Representations. Upon the terms and subject to the conditions set
forth herein, Employer hereby employs Employee as a registered physical
therapist and Employee hereby accepts such employment and represents to Employer
that he/she is presently licensed, registered and qualified to engage in the
practice of physical therapy in the State of ___________________.
2. Management of Practice. Employee recognizes, acknowledges and agrees
that Complete Wellness Centers, Inc. or its designee ("Management Company")
shall manage all non-therapeutic aspects of Employer's practice.
3. Independent Judgement. Although Employee is an employee of Employer
under the terms of this Agreement, Employee shall retain independent discretion
and exercise independent judgement in the manner and means of providing services
in regard to the diagnosis and treatment of patients treated.
4. Professional Conduct. Employee will at all times conduct
himself/herself in compliance with all federal, state and local laws, rules and
regulations, canons of professional ethics, and the non-physical therapy rules
and regulations of the Employer.
SECTION II - SCOPE OF DUTIES
1. Services. Employee will render his/her services to Employer as a
licensed and registered physical therapist and in such capacity he/she shall
perform such duties as are customary in the practice of physical therapy and as
are assigned to him/her from time to time by Employer. Such duties shall include
but not be limited to conducting office examinations and consultations,
obtaining such continuing professional education as is necessary to maintain
professional qualifications, and performing evening and weekend on-call coverage
as shall be reasonably assigned to him.
2. Additional Locations. Employee will serve at such other locations as
may be directed by Employer (the "Other Location"). Such Other Location shall
not be located more than twenty-five (25) miles from the Office, unless mutually
agreed upon and designated in writing.
3. Billing. The Employer shall perform, or cause to have performed,
billing and collection functions for all services provided by the Employee. The
Employee hereby authorizes the Employer to accept, or refuse to accept, on
Employee's behalf, any assignment of insurance benefits from any patient
receiving service from the Employee pursuant to this Agreement. At Employer's
request, Employee shall list and designate with such insurance or third party
payor the Employer's address and designated officer as the sole address to which
all payment(s) or payment voucher(s) for services performed by the Employee
shall be mailed. This Agreement constitutes an assignment by the Employee to the
Employer of all funds owing or collected for services rendered by the Employee
pursuant to this Agreement (the "Receivables") so long as such assignment is not
in violation of any law or statute. The Employee shall take all steps necessary
to assist in the billing and collection of funds due for services rendered by
the Employee. All funds collected with respect to services provided pursuant to
this Agreement shall be the exclusive property of the Employer.
4. Post-Termination Cooperation Re Receivables. For a period of two (2)
years after termination of this Agreement, Employee shall cooperate fully and
assist Employer in efforts to collect all Receivables for services performed by
Employee while employed by Employer, including without limitation, transferring
all funds actually paid or made payable to Employee with respect to such
Receivables, and appearing in any court of law within which any cause of action
is brought to seek enforcement of Employer's right to collect on any and all
such Receivables. Employee agrees to notify Employer, in writing, of a change of
address of Employee's business or residence during such two (2) year period so
that Employer will be able to locate Employee to enforce the terms of this
Section . Employee shall receive up to two hundred and fifty dollars ($250.00)
per day for providing assistance under the terms of this Section and, in
addition, Employer shall reimburse Employee for all reasonable costs and
expenses incurred by Employee, as approved in advance in writing by Employer,
relating to such assistance. The terms and conditions of this Section shall
survive termination of this Agreement.
SECTION III - TERM OF EMPLOYMENT
1. Term. The term of employment under this Agreement (the "Employment
Term") shall be for the one-year period commencing the date hereof, unless
earlier terminated under the terms hereof; provided, that Employee must complete
and submit any credentialling application provided to Employee by Employer in
order for this Agreement to become effective and for the Employment Term to
commence.
2. Probationary Term. During the first one hundred twenty (120) days of
the Employment Term of this Agreement, Employee acknowledges and agrees that
he/she shall be on probation, and that during such time period or within fifteen
(15) days after the conclusion of such probationary period, this Agreement may
be terminated at the sole discretion of Employer with or without cause.
Thereafter, this Agreement shall remain in effect for the term set forth in
Section III 1 hereof, unless earlier terminated as provided for herein.
SECTION IV - COMPENSATION AND BENEFITS
1.Compensation. Employee shall be compensated at a rate of $________
per ________ less any appropriate deductions, payable as earned, payable in
accordance with Employer's normal payroll policies during the term of this
Agreement (the "Salary").
2. Benefits. Employee shall be entitled to those benefits, if any, as
described in Exhibit "A" attached hereto.
3. Sole Benefits. Employee acknowledges that the compensation and
benefits established pursuant to this Section shall be the sole consideration
provided by Employer for the services provided under the terms of this
Agreement. Employee shall not solicit or accept payment from any patient,
government entitlement program or third party payor for services rendered
pursuant to this Agreement.
4. Reimbursement. Expenses incurred by Employee on Employer's behalf at
Employer's discretion shall be reimbursed in full where approved in writing, in
advance. In the event an expense paid on behalf of, or reimbursement contributed
to, Employee is determined not to be an allowable tax deduction or credit of
Employer and such determination is acceded to by Employer or rendered final by
the state or federal taxing authority or court with final jurisdiction, Employee
shall, forthwith, upon ten (10) days' prior written notice and without regard to
whether this Agreement shall then be terminated, reimburse Employer for the full
amount of the out-of-pocket loss incurred by Employer as a result of any such
disallowance.
SECTION V - INSURANCE
1. Malpractice Insurance. Employer shall at its own cost and expense,
provide and keep in force a malpractice insurance policy or policies of standard
form in the State of ______________, with limits of not less than One Million
($1,000,000.00) Dollars per occurrence and Three Million ($3,000,000.00) Dollars
in the aggregate.
SECTION VI - PATIENT RELATIONSHIP
1. Confidential Information. Employee acknowledges and agrees that
he/she will have access to certain confidential information and trade secrets of
the Employer and that such information constitutes valuable, sole, special and
unique property of Employer. Employee further acknowledges and agrees that
Employee will not, at any time during or after the term hereof, in any fashion,
form, or manner either directly or indirectly, divulge, disclose or communicate
to any person, firm, or corporation in any manner whatsoever, the terms and
conditions of this Agreement or any information of any kind, nature or
description concerning any matters affecting or relating to the business of
Employer, including, without limiting the foregoing, the names of patients, the
prices which Employer pays for goods and services and/or sells goods or
services, Employer's manner of operation of Employers business or its plans or
processes, or any other data or information of any kind, nature or description
which affects or relates to Employer's business without regard to whether any or
all of the
<PAGE> 2
foregoing would be deemed confidential information or a trade secret under
applicable state law ("Confidential Information").
2. Patient Accounts. All patients shall be and remain the patients of
Employer provided that Employee shall exercise independent responsibility for
the care and treatment of such individuals to the extent professional services
are rendered pursuant to this Agreement. In the event any patient is deemed by
operation of law or otherwise to be patient of Employee, Employee shall and
hereby does (i) irrevocably assign all Receivables from the treatment of such
individuals to Employer, and (ii) irrevocably appoints Employer as the agent and
true and lawful attorney-in-fact, with full power of assignment and substitution
where legally permissible, to bill patients on Employee's behalf; to collect
Receivables from all payors; and to take possession of and endorse in Employee's
name, all notes, drafts or instruments received by way of payment for such
services (except where prohibited by law or regulation).
(a) Employee agrees that each patient account has a reasonable
value to Employer of five thousand dollars ($5,000.00), and for each record, or
any portion thereof, which Employee attempts to obtain and/or actually does
obtain in contravention of this Section, the sum of Five Thousand dollars
($5,000.00) shall be paid to Employer as liquidated damages. The referenced sum
shall be due and payable immediately upon the date of the violation or attempted
violation of this Section , with such sum to bear interest at the maximum
allowable legal rate from the due date to the actual date of payment in full.
(b) Paragraph VI 2a notwithstanding, Employee shall maintain
adequate and complete records with regard to services rendered to patients. Upon
the termination of Employee's employment hereunder, all patient files, records
and charts shall remain with Employer, and Employee shall have no right to
retain such materials; provided, however, that nothing herein contained shall be
construed to prevent any patient from requesting transfer of his/her records to
Employee upon the termination of this Agreement, and such materials or
photocopies thereof shall be delivered to Employee upon the written request of
the subject patient, which request shall be honored promptly upon the payment to
Employer by Employee of all reasonable costs, if any, for reproduction and
mailing of any such materials. Employer will send invoices to all patients for
any services rendered by Employee prior to termination of his/her employment
hereunder, and Employer will have the right to collect the full amounts thereof
for its own account.
SECTION VII - COVENANT NOT TO COMPETE
During the term of this Agreement and thereafter the Employee
shall not take any action whatsoever which may or might disturb the existing
business relationship of the Employer with any of Employer's patients.
1. Restrictions. The Employee agrees that in the event Employer and
Employee fail to extend this Agreement, then Employee covenants and agrees that
for a period of one (1) year after the termination of his/her employment
hereunder (the "Restricted Period"), he/she will not: (i) practice from an
office located within a five (5) mile radius if in a rural area, two (2) mile
radius if in a suburban area, and ten (10) block radius if in an urban center
from Employer's Office or (ii) solicit, directly or indirectly, for treatment by
Employee, or by any other doctor other than those employed by or who are
shareholders of Employer, any persons who were patients of Employer during the
Employment Term.
2. Irreparable Damages. The parties hereto acknowledge and agree that
consideration has been given to the nature and scope of the business and
activities of Employer and that the covenants contained in this Section
concerning territorial, substantive and time limitations are in all respects
fair and reasonable in view of the facts involved. In the event that any court
shall determine that the time, substantive and territorial limitations contained
herein are not fair and reasonable, this Agreement shall nevertheless be
enforced as to such time, substantive and territorial limits as are reasonable.
The parties further agree that Employer will be irreparably damaged in the event
of a breach of any of the covenants set forth in this Section , and,
accordingly, Employee agrees that such covenants shall be specifically
enforceable and that, in addition to any other remedies, any breach or
threatened breach thereof may be enjoined by any court of competent jurisdiction
located in the State of _____________.
3. Injunctive Relief. The parties further agree that in the event of
the breach of any provision of this Agreement, and particularly Section VII
hereof, Employer shall be entitled to a permanent injunction or similar court
order enjoining the Employee from acting in a fashion contrary to Section VII
and that pending such determination the Employee shall accede to a temporary
restraining order, without prejudice to any other rights that the Employer may
have, all at Employee's expense.
4. Independent Agreement. The covenants contained in Section VII shall
be construed as an independent agreement and the existence of any claim which
the Employee may have against the Employer will not constitute a defense to the
enforcement by the Employer, by injunctive relief or otherwise, of the
provisions of Section VII.
SECTION VIII - TERMINATION OF EMPLOYMENT
1. Disability of Employee. Notwithstanding anything in this Agreement
to the contrary, Employer is hereby given the option to terminate Employee's
employment in the event that Employee, during the employment term hereunder,
becomes disabled to the extent that he/she is unable fully to perform his/her
customary duties hereunder ("Disability"). Such option shall be exercised by
Employer by giving notice, pursuant to Section IX 4 herein, to Employee of
Employer's intention to terminate Employee's employment due to his/her
Disability. Such termination shall take place on the fifteenth (15th) day
following the mailing of such notice.
For purposes of this Agreement, Employee shall be deemed to
have become Disabled if, during the term of his/her employment hereunder, he/she
is disabled as defined in Employer's disability plan, if any; provided, however,
in the event that Employer does not maintain a disability plan, then to
establish a status of Disability there must be a written certification of such
Disability by a qualified medical doctor agreed to by Employer and Employee. In
the absence of agreement, each party shall nominate a qualified medical doctor
and the two doctors shall select a third doctor, who shall make the
determination as to the Employee's Disability.
2. Termination by Employer for Cause. Notwithstanding any other
provision of this Agreement, Employer may terminate Employee's employment for
cause immediately upon the determination and notification to Employee thereof
("Cause Termination Date"). Upon such determination and notification, Employee's
right to receive the Salary shall cease, and Employee shall be entitled to
receive only such Salary as shall have been earned through the period ending
with the Cause Termination Date.
The term "Cause" as used herein shall mean that Employee (i)
has committed a serious act (such as embezzlement) against Employer, with the
intention of enriching himself/herself at the expense of Employer, or has failed
to substantially perform his/her duties and responsibilities hereunder or
otherwise committed a material breach of any of the terms of this Agreement, or
has been convicted of any criminal act involving moral turpitude; or (ii) has
been found, in the reasonable belief of Employer, to suffer chronic dependency
on drugs or alcohol; or (iii) in carrying out his/her duties hereunder, has
committed gross neglect or gross misconduct; or (iv) has become legally
disqualified to practice physical therapy in the State of ____________, or has
been put on probation by the State licensing authority for physical therapists,
or has had his/her license to practice physical therapy in the State of State
suspended or revoked; or (v) is unable to obtain physical therapy malpractice
insurance covering his/her professional conduct, in coverage amounts and/or with
insurance carriers acceptable to Employer and upon such terms as are acceptable
to the Employer or (iv) there has occurred a material adverse change in the
business or economic prospects of Employer as determined solely by Employer; or
(vii) Employer has ceased providing services at the Office and Employee's
services are not required at any Other Location.
3. Voluntary Termination. Either Employer or Employee may terminate the
employment relationship provided for under the terms of this Agreement, for any
reason and at any time during the Employment Term, on no less than thirty (30)
days prior written notice to the other party hereto, with the last day of such
notice period (unless such period shall be shortened or extended by mutual
agreement) being the Termination Date. In the event of such voluntary
termination, Employee shall receive a pro rata portion of the Salary, and pay
for accrued but unused vacation days, through and including the Termination
Date. Any rights and benefits Employee may have under any employee benefit plans
and programs of Employer shall be determined in accordance with the terms of
such plans and programs.
SECTION IX - MISCELLANEOUS
1. Specific Performance. It is agreed that any breach or evasion of any
of the terms of this Agreement by either party hereto will result in immediate
and irreparable injury to the other party, and recourse to injunction and/or
specific performance, as well as to all other legal or equitable remedies to
which such injured party may be entitled, will be authorized under such
circumstances.
2. Indemnity. Employee hereby agrees to indemnify, defend and hold
Employer harmless from and against any an all costs, losses, claims, demands and
liabilities, including reasonable attorneys' fees which arise out of or relate
to any breach by Employee of any of the terms and conditions in this Agreement;
any negligent or intentional wrongful act of Employee; any act or omission of
Employee which constitutes professional negligence; or any other act of Employee
not authorized under the terms of this Agreement. If Employer or any of its
shareholders or affiliates is made a party to litigation or obligation or
otherwise incurs any loss or expense as a result of Employee's activities
unconnected with Employer's business, Employee shall forthwith upon demand,
reimburse Employer or such individuals for any and all expenses incurred as a
result thereof.
3. Waiver of Breach. The parties understand and intend that each
<PAGE> 3
restriction agreed to by Employee under the terms of this Agreement shall be
construed as separable and divisible from every other restriction, and that the
unenforceability, in whole or in part, of any other restriction will not affect
the enforceability of the remaining restrictions. It is further understood that
one or more, or all of such restrictions, may be enforced in whole or in part as
the circumstances warrant. No waiver of any one breach of the restrictions
contained in this Agreement shall be deemed a waiver of any future breach.
Employee hereby acknowledges that he/she is fully cognizant of the restrictions
set forth in this Agreement and agrees that these provisions shall survive the
termination of this Agreement for any reason.
4. Notices. Except as otherwise provided herein, all requests,
demands and other communications required or permitted hereunder shall be in
writing and shall be deemed to have been given if delivered personally, by
prepaid telex, telegram, facsimile ("FAX") or mailed first class, postage
prepaid, certified United States Mail, return receipt requested, to the party
who is to receive such notice, request, demand or communication at such party's
address as set forth on the signature page hereof. Any party hereto may change
its address for notice by giving to the other party written notice of such
change. Any notice given hereunder shall be effective (i) if delivered
personally, when delivered, (ii) if sent by telex, telegram or FAX, twenty-four
(24) hours after sending, and (iii) if mailed, seventy-two (72) hours after the
date of the mailing.
5. Commitments Binding Only Upon Written Consent. Notwithstanding any
provision herein to the contrary, it is expressly understood and agreed that
Employee shall not have the right to make any contracts or commitments for or on
behalf of Employer without the prior written consent of Employer.
6. Time of Essence. Time is of the essence in regard to the obligations
established hereunder. The parties hereto agree that they shall cooperate in
good faith to accomplish the objectives of this Agreement and, documents and
take such further action as may be reasonably necessary to effectuate the terms,
conditions and purposes of this Agreement.
8. Successors and Assigns. The provisions of this Agreement are
intended only for the regulation of relations among the parties hereto. This
Agreement is not intended for the benefit of creditors or other third parties,
and no rights are granted to such individuals or entities except where expressly
referenced herein. However, Employer may, in its sole discretion, assign this
Agreement by sale or otherwise, and the benefits and obligations of this
Agreement shall inure to its successors and/or assigns.
9. Non-Exclusive Rights. The rights and the obligations of the Employer
under this Agreement are non-exclusive, and this Agreement shall not be
construed to prevent the Employer from simultaneously retaining, contracting
with, or otherwise obtaining professional services from any other person or
entity.
10. Captions. The headings and captions herein are intended for
convenience reference only, and shall not be deemed to be interpretative of the
contents of such sections.
11. Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument.
12. Governing Law. All matters concerning the validity and
interpretation of and performance under this Agreement shall be governed by the
laws of the State of State (without regard to the conflict of laws principles
thereof).
13. Arbitration. Any controversy, dispute or disagreement arising out
of or relating to this Agreement, or the breach thereof, shall be settled by
arbitration, which shall be conducted in the County of __________, State of
___________, in accordance with the National Health Lawyer's Association
("NHLA") Alternative Dispute Resolution Service Rules of Procedure for
Arbitration, and judgment on the award rendered by the arbitrator may be entered
in any court having jurisdiction thereof.
14. No Act Contrary To Law. Nothing herein shall be construed so as to
require the commission of any act contrary to law, and wherever there is any
statute, law, ordinance or regulation which is inconsistent with this Agreement,
such statute, law, ordinance or regulation shall prevail, and, in such event,
the provision herein in conflict automatically shall be curtailed, limited or
eliminated to the extent necessary to bring it within legal limitations.
IN WITNESS WHEREOF, the parties hereto have executed this document or
caused its execution by a duly authorized officer, all as of the day and year
first above written.
<PAGE> 4
____________________________
By:_________________________
, President
Employee
By:_________________________
<PAGE> 5
EXHIBIT "A"
<PAGE> 1
EXHIBIT 10.10
ACUPUNCTURIST
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as
of the __________ day of ____________________________, 19 ______, by and between
_____________________, a ______ corporation with an office at __________
("Employer"), and _____________________________________________________________,
an individual residing at ______________________________________________________
("Employee").
W I T N E S S E T H:
WHEREAS Employer is a corporation duly licensed in the State of
_____________ and which provides healthcare services at its office located at
________________________________ (the "Office") and
WHEREAS Employer wishes to employ Employee, an individual who is
actively practicing and is duly licensed to provide acupuncture in the State of
____________, as an employee of Employer to provide acupuncture services
subject to the rules thereof and the standards of the profession in effect in
the State of ____________, and
WHEREAS Employee desires to render such services to Employer,
NOW, THEREFORE, in consideration of the representations, warranties and
mutual covenants set forth herein, the parties hereto hereby agree as follows:
SECTION I - REPRESENTATIONS
1. Representations. Upon the terms and subject to the conditions set
forth herein, Employer hereby employs Employee as a licensed acupuncturist and
Employee hereby accepts such employment and represents to Employer that he/she
is presently licensed and qualified to engage in the practice of acupuncture in
the State of ____________.
2. Management of Practice. Employee recognizes, acknowledges and agrees
that Complete Wellness Centers, Inc. or its designee ("Management Company")
shall manage all non-therapeutic aspects of Employer's practice.
3. Independent Judgement. Although Employee is an employee of Employer
under the terms of this Agreement, Employee shall retain independent discretion
and exercise independent judgement in the manner and means of providing services
in regard to the diagnosis and treatment of patients treated.
4. Professional Conduct. Employee will at all times conduct
himself/herself in compliance with all federal, state and local laws, rules and
regulations, canons of professional ethics, and the non-acupuncture rules and
regulations of the Employer.
SECTION II - SCOPE OF DUTIES
1. Services. Employee will render his/her services to Employer as a
licensed acupuncturist and in such capacity he/she shall perform such duties as
are customary in the practice of acupuncture and as are assigned to him/her from
time to time by Employer. Such duties shall include but not be limited to
conducting office examinations and consultations, obtaining such continuing
professional education as is necessary to maintain professional qualifications,
and performing evening and weekend on-call coverage as shall be reasonably
assigned to him.
2. Additional Locations. Employee will serve at such other locations as
may be directed by Employer (the "Other Location"). Such Other Location shall
not be located more than twenty-five (25) miles from the Office, unless mutually
agreed upon and designated in writing.
3. Billing. The Employer shall perform, or cause to have performed,
billing and collection functions for all services provided by the Employee. The
Employee hereby authorizes the Employer to accept, or refuse to accept, on
Employee's behalf, any assignment of insurance benefits from any patient
receiving service from the Employee pursuant to this Agreement. At Employer's
request, Employee shall list and designate with such insurance or third party
payor the Employer's address and designated officer as the sole address to which
all payment(s) or payment voucher(s) for services performed by the Employee
shall be mailed. This Agreement constitutes an assignment by the Employee to the
Employer of all funds owing or collected for services rendered by the Employee
pursuant to this Agreement (the "Receivables") so long as such assignment is not
in violation of any law or statute. The Employee shall take all steps necessary
to assist in the billing and collection of funds due for services rendered by
the Employee. All funds collected with respect to services provided pursuant to
this Agreement shall be the exclusive property of the Employer.
4. Post-Termination Cooperation Re Receivables. For a period of two (2)
years after termination of this Agreement, Employee shall cooperate fully and
assist Employer in efforts to collect all Receivables for services performed by
Employee while employed by Employer, including without limitation, transferring
all funds actually paid or made payable to Employee with respect to such
Receivables, and appearing in any court of law within which any cause of action
is brought to seek enforcement of Employer's right to collect on any and all
such Receivables. Employee agrees to notify Employer, in writing, of a change of
address of Employee's business or residence during such two (2) year period so
that Employer will be able to locate Employee to enforce the terms of this
Section. Employee shall receive up to two hundred and fifty dollars ($250.00)
per day for providing assistance under the terms of this Section and, in
addition, Employer shall reimburse Employee for all reasonable costs and
expenses incurred by Employee, as approved in advance in writing by Employer,
relating to such assistance. The terms and conditions of this Section shall
survive termination of this Agreement.
SECTION III - TERM OF EMPLOYMENT
1. Term. The term of employment under this Agreement (the "Employment
Term") shall be for the one-year period commencing the date hereof, unless
earlier terminated under the terms hereof; provided, that Employee must complete
and submit any credentialling application provided to Employee by Employer in
order for this Agreement to become effective and for the Employment Term to
commence.
2. Probationary Term. During the first one hundred twenty (120) days of
the Employment Term of this Agreement, Employee acknowledges and agrees that
he/she shall be on probation, and that during such time period or within fifteen
(15) days after the conclusion of such probationary period, this Agreement may
be terminated at the sole discretion of Employer with or without cause.
Thereafter, this Agreement shall remain in effect for the term set forth in
Section III 1 hereof, unless earlier terminated as provided for herein.
SECTION IV - COMPENSATION AND BENEFITS
1.Compensation. Employee shall be compensated at a rate of $__________
____ per ________ less any appropriate deductions, payable as earned, payable in
accordance with Employer's normal payroll policies, during the term of this
Agreement (the "Salary").
2. Benefits. Employee shall be entitled to those benefits, if any, as
described in Exhibit "A" attached hereto.
3. Sole Benefits. Employee acknowledges that the compensation and
benefits established pursuant to this Section shall be the sole consideration
provided by Employer for the services provided under the terms of this
Agreement. Employee shall not solicit or accept payment from any patient,
government entitlement program or third party payor for services rendered
pursuant to this Agreement.
4. Reimbursement. Expenses incurred by Employee on Employer's behalf at
Employer's discretion shall be reimbursed in full where approved in writing, in
advance. In the event an expense paid on behalf of, or reimbursement contributed
to, Employee is determined not to be an allowable tax deduction or credit of
Employer and such determination is acceded to by Employer or rendered final by
the state or federal taxing authority or court with final jurisdiction, Employee
shall, forthwith, upon ten (10) days' prior written notice and without regard to
whether this Agreement shall then be terminated, reimburse Employer for the full
amount of the out-of-pocket loss incurred by Employer as a result of any such
disallowance.
SECTION V - INSURANCE
1. Malpractice Insurance. Employer shall at its own cost and expense,
provide and keep in force a malpractice insurance policy or policies of standard
form in the State of ____________, with limits of not less than One Million
($1,000,000.00) Dollars per occurrence and Three Million ($3,000,000.00) Dollars
in the aggregate.
SECTION VI - PATIENT RELATIONSHIP
1. Confidential Information. Employee acknowledges and
<PAGE> 2
agrees that he/she will have access to certain confidential information and
trade secrets of the Employer and that such information constitutes valuable,
sole, special and unique property of Employer. Employee further acknowledges and
agrees that Employee will not, at any time during or after the term hereof, in
any fashion, form, or manner either directly or indirectly, divulge, disclose or
communicate to any person, firm, or corporation in any manner whatsoever, the
terms and conditions of this Agreement or any information of any kind, nature or
description concerning any matters affecting or relating to the business of
Employer, including, without limiting the foregoing, the names of patients, the
prices which Employer pays for goods and services and/or sells goods or
services, Employer's manner of operation of Employers business or its plans or
processes, or any other data or information of any kind, nature or description
which affects or relates to Employer's business without regard to whether any or
all of the foregoing would be deemed confidential information or a trade secret
under applicable state law ("Confidential Information").
2. Patient Accounts. All patients shall be and remain the patients of
Employer provided that Employee shall exercise independent responsibility for
the care and treatment of such individuals to the extent professional services
are rendered pursuant to this Agreement. In the event any patient is deemed by
operation of law or otherwise to be patient of Employee, Employee shall and
hereby does (i) irrevocably assign all Receivables from the treatment of such
individuals to Employer, and (ii) irrevocably appoints Employer as the agent and
true and lawful attorney-in-fact, with full power of assignment and substitution
where legally permissible, to bill patients on Employee's behalf; to collect
Receivables from all payors; and to take possession of and endorse in Employee's
name, all notes, drafts or instruments received by way of payment for such
services (except where prohibited by law or regulation).
(a) Employee agrees that each patient account has a reasonable
value to Employer of five thousand dollars ($5,000.00), and for each record, or
any portion thereof, which Employee attempts to obtain and/or actually does
obtain in contravention of this Section , the sum of Five Thousand dollars
($5,000.00) shall be paid to Employer as liquidated damages. The referenced sum
shall be due and payable immediately upon the date of the violation or attempted
violation of this Section , with such sum to bear interest at the maximum
allowable legal rate from the due date to the actual date of payment in full.
(b) Paragraph VI 2a notwithstanding, Employee shall maintain
adequate and complete records with regard to services rendered to patients. Upon
the termination of Employee's employment hereunder, all patient files, records
and charts shall remain with Employer, and Employee shall have no right to
retain such materials; provided, however, that nothing herein contained shall be
construed to prevent any patient from requesting transfer of his/her records to
Employee upon the termination of this Agreement, and such materials or
photocopies thereof shall be delivered to Employee upon the written request of
the subject patient, which request shall be honored promptly upon the payment to
Employer by Employee of all reasonable costs, if any, for reproduction and
mailing of any such materials. Employer will send invoices to all patients for
any services rendered by Employee prior to termination of his/her employment
hereunder, and Employer will have the right to collect the full amounts thereof
for its own account.
SECTION VII - COVENANT NOT TO COMPETE
During the term of this Agreement and thereafter the Employee
shall not take any action whatsoever which may or might disturb the existing
business relationship of the Employer with any of Employer's patients.
1. Restrictions. The Employee agrees that in the event Employer and
Employee fail to extend this Agreement, then Employee covenants and agrees that
for a period of one (1) year after the termination of his/her employment
hereunder (the "Restricted Period"), he/she will not: (i) practice from an
office located within a five (5) mile radius if in a rural area, two (2) mile
radius if in a suburban area, and ten (10) block radius if in an urban center
from Employer's Office or (ii) solicit, directly or indirectly, for treatment by
Employee, or by any other doctor other than those employed by or who are
shareholders of Employer, any persons who were patients of Employer during the
Employment Term.
2. Irreparable Damages. The parties hereto acknowledge and agree that
consideration has been given to the nature and scope of the business and
activities of Employer and that the covenants contained in this Section
concerning territorial, substantive and time limitations are in all respects
fair and reasonable in view of the facts involved. In the event that any court
shall determine that the time, substantive and territorial limitations contained
herein are not fair and reasonable, this Agreement shall nevertheless be
enforced as to such time, substantive and territorial limits as are reasonable.
The parties further agree that Employer will be irreparably damaged in the event
of a breach of any of the covenants set forth in this Section , and,
accordingly, Employee agrees that such covenants shall be specifically
enforceable and that, in addition to any other remedies, any breach or
threatened breach thereof may be enjoined by any court of competent jurisdiction
located in the State of ______.
3. Injunctive Relief. The parties further agree that in the event of
the breach of any provision of this Agreement, and particularly Section VII
hereof, Employer shall be entitled to a permanent injunction or similar court
order enjoining the Employee from acting in a fashion contrary to Section VII
and that pending such determination the Employee shall accede to a temporary
restraining order, without prejudice to any other rights that the Employer may
have, all at Employee's expense.
4. Independent Agreement. The covenants contained in Section VII shall
be construed as an independent agreement and the existence of any claim which
the Employee may have against the Employer will not constitute a defense to the
enforcement by the Employer, by injunctive relief or otherwise, of the
provisions of Section VII.
SECTION VIII - TERMINATION OF EMPLOYMENT
1. Disability of Employee. Notwithstanding anything in this Agreement
to the contrary, Employer is hereby given the option to terminate Employee's
employment in the event that Employee, during the employment term hereunder,
becomes disabled to the extent that he/she is unable fully to perform his/her
customary duties hereunder ("Disability"). Such option shall be exercised by
Employer by giving notice, pursuant to Section IX 4 herein, to Employee of
Employer's intention to terminate Employee's employment due to his/her
Disability. Such termination shall take place on the fifteenth (15th) day
following the mailing of such notice.
For purposes of this Agreement, Employee shall be deemed to
have become Disabled if, during the term of his/her employment hereunder, he/she
is disabled as defined in Employer's disability plan, if any; provided, however,
in the event that Employer does not maintain a disability plan, then to
establish a status of Disability there must be a written certification of such
Disability by a qualified medical doctor agreed to by Employer and Employee. In
the absence of agreement, each party shall nominate a qualified medical doctor
and the two doctors shall select a third doctor, who shall make the
determination as to the Employee's Disability.
2. Termination by Employer for Cause. Notwithstanding any other
provision of this Agreement, Employer may terminate Employee's employment for
cause immediately upon the determination and notification to Employee thereof
("Cause Termination Date"). Upon such determination and notification, Employee's
right to receive the Salary shall cease, and Employee shall be entitled to
receive only such Salary as shall have been earned through the period ending
with the Cause Termination Date.
The term "Cause" as used herein shall mean that Employee (i)
has committed a serious act (such as embezzlement) against Employer, with the
intention of enriching himself/herself at the expense of Employer, or has failed
to substantially perform his/her duties and responsibilities hereunder or
otherwise committed a material breach of any of the terms of this Agreement, or
has been convicted of any criminal act involving moral turpitude; or (ii) has
been found, in the reasonable belief of Employer, to suffer chronic dependency
on drugs or alcohol; or (iii) in carrying out his/her duties hereunder, has
committed gross neglect or gross misconduct; or (iv) has become legally
disqualified to practice acupuncture in the State of ______, or has been put on
probation by the State licensing authority for acupuncturists, or has had
his/her license to practice acupuncture in the State of ______ suspended or
revoked; or (v) is unable to obtain acupuncture malpractice insurance covering
his/her professional conduct, in coverage amounts and/or with insurance carriers
acceptable to Employer and upon such terms as are acceptable to the Employer or
(iv) there has occurred a material adverse change in the business or economic
prospects of Employer as determined solely by Employer; or (vii) Employer has
ceased providing services at the Office and Employee's services are not required
at any Other Location.
3. Voluntary Termination. Either Employer or Employee may terminate the
employment relationship provided for under the terms of this Agreement, for any
reason and at any time during the Employment Term, on no less than thirty (30)
days prior written notice to the other party hereto, with the last day of such
notice period (unless such period shall be shortened or extended by mutual
agreement) being the Termination Date. In the event of such voluntary
termination, Employee shall receive a pro rata portion of the Salary, and pay
for accrued but unused vacation days, through and including the Termination
Date. Any rights and benefits Employee may have under any employee benefit plans
and programs of Employer shall be determined in
<PAGE> 3
accordance with the terms of such plans and programs.
SECTION IX - MISCELLANEOUS
1. Specific Performance. It is agreed that any breach or evasion of any
of the terms of this Agreement by either party hereto will result in immediate
and irreparable injury to the other party, and recourse to injunction and/or
specific performance, as well as to all other legal or equitable remedies to
which such injured party may be entitled, will be authorized under such
circumstances.
2. Indemnity. Employee hereby agrees to indemnify, defend and hold
Employer harmless from and against any an all costs, losses, claims, demands and
liabilities, including reasonable attorneys' fees which arise out of or relate
to any breach by Employee of any of the terms and conditions in this Agreement;
any negligent or intentional wrongful act of Employee; any act or omission of
Employee which constitutes professional negligence; or any other act of Employee
not authorized under the terms of this Agreement. If Employer or any of its
shareholders or affiliates is made a party to litigation or obligation or
otherwise incurs any loss or expense as a result of Employee's activities
unconnected with Employer's business, Employee shall forthwith upon demand,
reimburse Employer or such individuals for any and all expenses incurred as a
result thereof.
3. Waiver of Breach. The parties understand and intend that each
restriction agreed to by Employee under the terms of this Agreement shall be
construed as separable and divisible from every other restriction, and that the
unenforceability, in whole or in part, of any other restriction will not affect
the enforceability of the remaining restrictions. It is further understood that
one or more, or all of such restrictions, may be enforced in whole or in part as
the circumstances warrant. No waiver of any one breach of the restrictions
contained in this Agreement shall be deemed a waiver of any future breach.
Employee hereby acknowledges that he/she is fully cognizant of the restrictions
set forth in this Agreement and agrees that these provisions shall survive the
termination of this Agreement for any reason.
4. Notices. Except as otherwise provided herein, all requests, demands
and other communications required or permitted hereunder shall be in writing and
shall be deemed to have been given if delivered personally, by prepaid telex,
telegram, facsimile ("FAX") or mailed first class, postage prepaid, certified
United States Mail, return receipt requested, to the party who is to receive
such notice, request, demand or communication at such party's address as set
forth on the signature page hereof. Any party hereto may change its address for
notice by giving to the other party written notice of such change. Any notice
given hereunder shall be effective (i) if delivered personally, when delivered,
(ii) if sent by telex, telegram or FAX, twenty-four (24) hours after sending,
and (iii) if mailed, seventy-two (72) hours after the date of the mailing.
5. Commitments Binding Only Upon Written Consent. Notwithstanding any
provision herein to the contrary, it is expressly understood and agreed that
Employee shall not have the right to make any contracts or commitments for or on
behalf of Employer without the prior written consent of Employer.
6. Time of Essence. Time is of the essence in regard to the obligations
established hereunder. The parties hereto agree that they shall cooperate in
good faith to accomplish the objectives of this Agreement and, documents and
take such further action as may be reasonably necessary to effectuate the terms,
conditions and purposes of this Agreement.
7. Entire Agreement. This Agreement contains the entire understanding
of the parties with respect to the subject matter hereof, supersedes any prior
agreement between the parties, and may not be changed or terminated orally. No
change, termination or attempted waiver of any of the provisions hereof shall be
binding unless in writing and signed by the party against whom the same is
sought to be enforced.
8. Successors and Assigns. The provisions of this Agreement are
intended only for the regulation of relations among the parties hereto. This
Agreement is not intended for the benefit of creditors or other third parties,
and no rights are granted to such individuals or entities except where expressly
referenced herein. However, Employer may, in its sole discretion, assign this
Agreement by sale or otherwise, and the benefits and obligations of this
Agreement shall inure to its successors and/or assigns.
9. Non-Exclusive Rights. The rights and the obligations of the Employer
under this Agreement are non-exclusive, and this Agreement shall not be
construed to prevent the Employer from simultaneously retaining, contracting
with, or otherwise obtaining professional services from any other person or
entity.
10. Captions. The headings and captions herein are intended for
convenience reference only, and shall not be deemed to be interpretative of the
contents of such sections.
11. Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument.
12. Governing Law. All matters concerning the validity and
interpretation of and performance under this Agreement shall be governed by the
laws of the State of ___________ (without regard to the conflict of laws
principles thereof).
13. Arbitration. Any controversy, dispute or disagreement arising out
of or relating to this Agreement, or the breach thereof, shall be settled by
arbitration, which shall be conducted in the County of ____________, State of
____________, in accordance with the National Health Lawyer's Association
("NHLA") Alternative Dispute Resolution Service Rules of Procedure for
Arbitration, and judgment on the award rendered by the arbitrator may be entered
in any court having jurisdiction thereof.
14. No Act Contrary To Law. Nothing herein shall be construed so as to
require the commission of any act contrary to law, and wherever there is any
statute, law, ordinance or regulation which is inconsistent with this Agreement,
such statute, law, ordinance or regulation shall prevail, and, in such event,
the provision herein in conflict automatically shall be curtailed, limited or
eliminated to the extent necessary to bring it within legal limitations.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this document or caused its
execution by a duly authorized officer, all as of the day and year first above
written.
_______________________________________
By: ___________________________________
, President
Employee:
By: ___________________________________
Complete Wellness Centers, Inc.
_______________________________________
E. Eugene Sharer
<PAGE> 5
EXHIBIT "A"
<PAGE> 1
EXHIBIT 10.11
NUTRITION COUNSELOR
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as of the
________ day of _______________, 19__, by and between _____________, a
__________ corporation with an office at ______________ ("Employer"), and
__________________________________, an individual residing at ("Employee").
W I T N E S S E T H:
WHEREAS Employer is a corporation duly licensed in the State of
________________ and which provides healthcare services at its office located at
__________________________ (the "Office") and
WHEREAS Employer wishes to employ Employee, an individual who is
actively practicing and is duly licensed to provide nutrition counseling in the
State of ____________, as an employee of Employer to provide nutrition
counseling services subject to the rules thereof and the standards of the
profession in effect in the State of _____________, and
WHEREAS Employee desires to render such services to Employer,
NOW, THEREFORE, in consideration of the representations, warranties and
mutual covenants set forth herein, the parties hereto hereby agree as follows:
SECTION I - REPRESENTATIONS
1. Representations. Upon the terms and subject to the conditions set
forth herein, Employer hereby employs Employee as a licensed nutrition counselor
and Employee hereby accepts such employment and represents to Employer that
he/she is presently licensed and qualified to engage in the practice of
nutrition counseling in the State of ______________.
2. Management of Practice. Employee recognizes, acknowledges and agrees
that Complete Wellness Centers, Inc. or designee ("Management Company") shall
manage all non-therapeutic aspects of Employer's practice.
3. Independent Judgement. Although Employee is an employee of Employer
under the terms of this Agreement, Employee shall retain independent discretion
and exercise independent judgement in the manner and means of providing services
in regard to the diagnosis and treatment of patients treated.
4. Professional Conduct. Employee will at all times conduct
himself/herself in compliance with all federal, state and local laws, rules and
regulations, canons of professional ethics, and the non-nutrition counseling
rules and regulations of the Employer.
SECTION II - SCOPE OF DUTIES
1. Services. Employee will render his/her services to Employer as a
licensed nutrition counselor and in such capacity he/she shall perform such
duties as are customary in the practice of nutrition counseling and as are
assigned to him/her from time to time by Employer. Such duties shall include but
not be limited to conducting office examinations and consultations, obtaining
such continuing professional education as is necessary to maintain professional
qualifications, and performing evening and weekend on-call coverage as shall be
reasonably assigned to him.
2. Additional Locations. Employee will serve at such other locations as
may be directed by Employer (the "Other Location"). Such Other Location shall
not be located more than twenty-five (25) miles from the Office, unless mutually
agreed upon and designated in writing.
3. Billing. The Employer shall perform, or cause to have performed,
billing and collection functions for all services provided by the Employee. The
Employee hereby authorizes the Employer to accept, or refuse to accept, on
Employee's behalf, any assignment of insurance benefits from any patient
receiving service from the Employee pursuant to this Agreement. At Employer's
request, Employee shall list and designate with such insurance or third party
payor the Employer's address and designated officer as the sole address to which
all payment(s) or payment voucher(s) for services performed by the Employee
shall be mailed. This Agreement constitutes an assignment by the Employee to the
Employer of all funds owing or collected for services rendered by the Employee
pursuant to this Agreement (the "Receivables") so long as such assignment is not
in violation of any law or statute. The Employee shall take all steps necessary
to assist in the billing and collection of funds due for services rendered by
the Employee. All funds collected with respect to services provided pursuant to
this Agreement shall be the exclusive property of the Employer.
4. Post-Termination Cooperation Re Receivables. For a period of two (2)
years after termination of this Agreement, Employee shall cooperate fully and
assist Employer in efforts to collect all Receivables for services performed by
Employee while employed by Employer, including without limitation, transferring
all funds actually paid or made payable to Employee with respect to such
Receivables, and appearing in any court of law within which any cause of action
is brought to seek enforcement of Employer's right to collect on any and all
such Receivables. Employee agrees to notify Employer, in writing, of a change of
address of Employee's business or residence during such two (2) year period so
that Employer will be able to locate Employee to enforce the terms of this
Section . Employee shall receive up to two hundred and fifty dollars ($250.00)
per day for providing assistance under the terms of this Section and, in
addition, Employer shall reimburse Employee for all reasonable costs and
expenses incurred by Employee, as approved in advance in writing by Employer,
relating to such assistance. The terms and conditions of this Section shall
survive termination of this Agreement.
SECTION III - TERM OF EMPLOYMENT
1. Term. The term of employment under this Agreement (the "Employment
Term") shall be for the one-year period commencing the date hereof, unless
earlier terminated under the terms hereof; provided, that Employee must complete
and submit any credentialling application provided to Employee by Employer in
order for this Agreement to become effective and for the Employment Term to
commence.
<PAGE> 2
2. Probationary Term. During the first one hundred twenty (120) days of
the Employment Term of this Agreement, Employee acknowledges and agrees that
he/she shall be on probation, and that during such time period or within fifteen
(15) days after the conclusion of such probationary period, this Agreement may
be terminated at the sole discretion of Employer with or without cause.
Thereafter, this Agreement shall remain in effect for the term set forth in
Section III 1 hereof, unless earlier terminated as provided for herein.
SECTION IV - COMPENSATION AND BENEFITS
1.Compensation. Employee shall be compensated at a rate of $___________
per __________ less any appropriate deductions, payable as earned, payable in
accordance with Employer's normal payroll policies during the term of this
Agreement (the "Salary").
2. Benefits. Employee shall be entitled to those benefits, if any, as
described in Exhibit "A" attached hereto.
3. Sole Benefits. Employee acknowledges that the compensation and
benefits established pursuant to this Section shall be the sole consideration
provided by Employer for the services provided under the terms of this
Agreement. Employee shall not solicit or accept payment from any patient,
government entitlement program or third party payor for services rendered
pursuant to this Agreement.
4. Reimbursement. Expenses incurred by Employee on Employer's behalf at
Employer's discretion shall be reimbursed in full where approved in writing, in
advance. In the event an expense paid on behalf of, or reimbursement contributed
to, Employee is determined not to be an allowable tax deduction or credit of
Employer and such determination is acceded to by Employer or rendered final by
the state or federal taxing authority or court with final jurisdiction, Employee
shall, forthwith, upon ten (10) days' prior written notice and without regard to
whether this Agreement shall then be terminated, reimburse Employer for the full
amount of the out-of-pocket loss incurred by Employer as a result of any such
disallowance.
SECTION V - INSURANCE
1. Malpractice Insurance. Employer shall at its own cost and expense,
provide and keep in force a malpractice insurance policy or policies of standard
form in the State of _____________, with limits of not less than One Million
($1,000,000.00) Dollars per occurrence and Three Million ($3,000,000.00) Dollars
in the aggregate.
SECTION VI - PATIENT RELATIONSHIP
1. Confidential Information. Employee acknowledges and agrees that
he/she will have access to certain confidential information and trade secrets of
the Employer and that such information constitutes valuable, sole, special and
unique property of Employer. Employee further acknowledges and agrees that
Employee will not, at any time during or after the term hereof, in any fashion,
form, or manner either directly or indirectly, divulge, disclose or communicate
to any person, firm, or corporation in any manner whatsoever, the terms and
conditions of this Agreement or any information of any kind, nature or
description concerning any matters affecting or relating to the business of
Employer, including, without limiting the foregoing, the names of patients, the
prices which Employer pays for goods and services and/or sells goods or
services, Employer's manner of operation of Employers business or its plans or
processes, or any other data or information of any kind, nature or description
which affects or relates to Employer's business without regard to whether any or
all of the foregoing would be deemed confidential information or a trade secret
under applicable state law ("Confidential Information").
2. Patient Accounts. All patients shall be and remain the patients of
Employer provided that Employee shall exercise independent responsibility for
the care and treatment of such individuals to the extent professional services
are rendered pursuant to this Agreement. In the event any patient is deemed by
operation of law or otherwise to be patient of Employee, Employee shall and
hereby does (i) irrevocably assign all Receivables from the treatment of such
individuals to Employer, and (ii) irrevocably appoints Employer as the agent and
true and lawful attorney-in-fact, with full power of assignment and substitution
where legally permissible, to bill patients on Employee's behalf; to collect
Receivables from all payors; and to take possession of and endorse in Employee's
name, all notes, drafts or instruments received by way of payment for such
services (except where prohibited by law or regulation).
(a) Employee agrees that each patient account has a reasonable
value to Employer of five thousand dollars ($5,000.00), and for each record, or
any portion thereof, which Employee attempts to obtain and/or actually does
obtain in contravention of this Section , the sum of Five Thousand dollars
($5,000.00) shall be paid to Employer as liquidated damages. The referenced sum
shall be due and payable immediately upon the date of the violation or attempted
violation of this Section , with such sum to bear interest at the maximum
allowable legal rate from the due date to the actual date of payment in full.
(b) Paragraph VI 2a notwithstanding, Employee shall maintain
adequate and complete records with regard to services rendered to patients. Upon
the termination of Employee's employment hereunder, all patient files, records
and charts shall remain with Employer, and Employee shall have no right to
retain such materials; provided, however, that nothing herein contained shall be
construed to prevent any patient from requesting transfer of his/her records to
Employee upon the termination of this Agreement, and such materials or
photocopies thereof shall be delivered to Employee upon the written request of
the subject patient, which request shall be honored promptly upon the payment to
Employer by Employee of all reasonable costs, if any, for reproduction and
mailing of any such materials. Employer will send invoices to all patients for
any services rendered by Employee prior to termination of his/her employment
hereunder, and Employer will have the right to collect the full amounts thereof
for its own account.
SECTION VII - COVENANT NOT TO COMPETE
During the term of this Agreement and thereafter the Employee
shall not take any action whatsoever which may or might disturb the existing
business relationship of the Employer with any of Employer's patients.
<PAGE> 3
1. Restrictions. The Employee agrees that in the event Employer and
Employee fail to extend this Agreement, then Employee covenants and agrees that
for a period of one (1) year after the termination of his/her employment
hereunder (the "Restricted Period"), he/she will not: (i) practice from an
office located within a five (5) mile radius if in a rural area, two (2) mile
radius if in a suburban area, and ten (10) block radius if in an urban center
from Employer's Office or (ii) solicit, directly or indirectly, for treatment by
Employee, or by any other doctor other than those employed by or who are
shareholders of Employer, any persons who were patients of Employer during the
Employment Term.
2. Irreparable Damages. The parties hereto acknowledge and agree that
consideration has been given to the nature and scope of the business and
activities of Employer and that the covenants contained in this Section
concerning territorial, substantive and time limitations are in all respects
fair and reasonable in view of the facts involved. In the event that any court
shall determine that the time, substantive and territorial limitations contained
herein are not fair and reasonable, this Agreement shall nevertheless be
enforced as to such time, substantive and territorial limits as are reasonable.
The parties further agree that Employer will be irreparably damaged in the event
of a breach of any of the covenants set forth in this Section, and, accordingly,
Employee agrees that such covenants shall be specifically enforceable and that,
in addition to any other remedies, any breach or threatened breach thereof may
be enjoined by any court of competent jurisdiction located in the State of
_____________.
3. Injunctive Relief. The parties further agree that in the event of
the breach of any provision of this Agreement, and particularly Section VII
hereof, Employer shall be entitled to a permanent injunction or similar court
order enjoining the Employee from acting in a fashion contrary to Section VII
and that pending such determination the Employee shall accede to a temporary
restraining order, without prejudice to any other rights that the Employer may
have, all at Employee's expense.
4. Independent Agreement. The covenants contained in Section VII shall
be construed as an independent agreement and the existence of any claim which
the Employee may have against the Employer will not constitute a defense to the
enforcement by the Employer, by injunctive relief or otherwise, of the
provisions of Section VII.
SECTION VIII - TERMINATION OF EMPLOYMENT
1. Disability of Employee. Notwithstanding anything in this Agreement
to the contrary, Employer is hereby given the option to terminate Employee's
employment in the event that Employee, during the employment term hereunder,
becomes disabled to the extent that he/she is unable fully to perform his/her
customary duties hereunder ("Disability"). Such option shall be exercised by
Employer by giving notice, pursuant to Section IX 4 herein, to Employee of
Employer's intention to terminate Employee's employment due to his/her
Disability. Such termination shall take place on the fifteenth (15th) day
following the mailing of such notice.
For purposes of this Agreement, Employee shall be deemed to
have become Disabled if, during the term of his/her employment hereunder, he/she
is disabled as defined in Employer's disability plan, if any; provided, however,
in the event that Employer does not maintain a disability plan, then to
establish a status of Disability there must be a written certification of such
Disability by a qualified medical doctor agreed to by Employer and Employee. In
the absence of agreement, each party shall nominate a qualified medical doctor
and the two doctors shall select a third doctor, who shall make the
determination as to the Employee's Disability.
2. Termination by Employer for Cause. Notwithstanding any other
provision of this Agreement, Employer may terminate Employee's employment for
cause immediately upon the determination and notification to Employee thereof
("Cause Termination Date"). Upon such determination and notification, Employee's
right to receive the Salary shall cease, and Employee shall be entitled to
receive only such Salary as shall have been earned through the period ending
with the Cause Termination Date.
The term "Cause" as used herein shall mean that Employee (i)
has committed a serious act (such as embezzlement) against Employer, with the
intention of enriching himself/herself at the expense of Employer, or has failed
to substantially perform his/her duties and responsibilities hereunder or
otherwise committed a material breach of any of the terms of this Agreement, or
has been convicted of any criminal act involving moral turpitude; or (ii) has
been found, in the reasonable belief of Employer, to suffer chronic dependency
on drugs or alcohol; or (iii) in carrying out his/her duties hereunder, has
committed gross neglect or gross misconduct; or (iv) has become legally
disqualified to practice nutrition counseling in the State of ______________,
or has been put on probation by the _____________ licensing authority for
nutrition counselors, or has had his/her license to practice nutrition
counseling in the State of _____________ suspended or revoked; or (v) is unable
to obtain nutrition counseling malpractice insurance covering his/her
professional conduct, in coverage amounts and/or with insurance carriers
acceptable to Employer and upon such terms as are acceptable to the Employer or
(iv) there has occurred a material adverse change in the business or economic
prospects of Employer as determined solely by Employer; or (vii) Employer has
ceased providing services at the Office and Employee's services are not required
at any Other Location.
3. Voluntary Termination. Either Employer or Employee may terminate the
employment relationship provided for under the terms of this Agreement, for any
reason and at any time during the Employment Term, on no less than thirty (30)
days prior written notice to the other party hereto, with the last day of such
notice period (unless such period shall be shortened or extended by mutual
agreement) being the Termination Date. In the event of such voluntary
termination, Employee shall receive a pro rata portion of the Salary, and pay
for accrued but unused vacation days, through and including the Termination
Date. Any rights and benefits Employee may have under any employee benefit plans
and programs of Employer shall be determined in accordance with the terms of
such plans and programs.
SECTION IX - MISCELLANEOUS
1. Specific Performance. It is agreed that any breach or evasion of any
of the terms of this Agreement by either party hereto will result in immediate
and irreparable injury to the other party, and recourse to injunction and/or
specific performance, as well as to
<PAGE> 4
all other legal or equitable remedies to which such injured party may be
entitled, will be authorized under such circumstances.
2. Indemnity. Employee hereby agrees to indemnify, defend and hold
Employer harmless from and against any an all costs, losses, claims, demands and
liabilities, including reasonable attorneys' fees which arise out of or relate
to any breach by Employee of any of the terms and conditions in this Agreement;
any negligent or intentional wrongful act of Employee; any act or omission of
Employee which constitutes professional negligence; or any other act of Employee
not authorized under the terms of this Agreement. If Employer or any of its
shareholders or affiliates is made a party to litigation or obligation or
otherwise incurs any loss or expense as a result of Employee's activities
unconnected with Employer's business, Employee shall forthwith upon demand,
reimburse Employer or such individuals for any and all expenses incurred as a
result thereof.
3. Waiver of Breach. The parties understand and intend that each
restriction agreed to by Employee under the terms of this Agreement shall be
construed as separable and divisible from every other restriction, and that the
unenforceability, in whole or in part, of any other restriction will not affect
the enforceability of the remaining restrictions. It is further understood that
one or more, or all of such restrictions, may be enforced in whole or in part as
the circumstances warrant. No waiver of any one breach of the restrictions
contained in this Agreement shall be deemed a waiver of any future breach.
Employee hereby acknowledges that he/she is fully cognizant of the restrictions
set forth in this Agreement and agrees that these provisions shall survive the
termination of this Agreement for any reason.
4. Notices. Except as otherwise provided herein, all requests, demands
and other communications required or permitted hereunder shall be in writing and
shall be deemed to have been given if delivered personally, by prepaid telex,
telegram, facsimile ("FAX") or mailed first class, postage prepaid, certified
United States Mail, return receipt requested, to the party who is to receive
such notice, request, demand or communication at such party's address as set
forth on the signature page hereof. Any party hereto may change its address for
notice by giving to the other party written notice of such change. Any notice
given hereunder shall be effective (i) if delivered personally, when delivered,
(ii) if sent by telex, telegram or FAX, twenty-four (24) hours after sending,
and (iii) if mailed, seventy-two (72) hours after the date of the mailing.
5. Commitments Binding Only Upon Written Consent. Notwithstanding any
provision herein to the contrary, it is expressly understood and agreed that
Employee shall not have the right to make any contracts or commitments for or on
behalf of Employer without the prior written consent of Employer.
6. Time of Essence. Time is of the essence in regard to the obligations
established hereunder. The parties hereto agree that they shall cooperate in
good faith to accomplish the objectives of this Agreement and, documents and
take such further action as may be reasonably necessary to effectuate the terms,
conditions and purposes of this Agreement.
7. Entire Agreement. This Agreement contains the entire understanding
of the parties with respect to the subject matter hereof, supersedes any prior
agreement between the parties, and may not be changed or terminated orally. No
change, termination or attempted waiver of any of the provisions hereof shall be
binding unless in writing and signed by the party against whom the same is
sought to be enforced.
8. Successors and Assigns. The provisions of this Agreement are
intended only for the regulation of relations among the parties hereto. This
Agreement is not intended for the benefit of creditors or other third parties,
and no rights are granted to such individuals or entities except where expressly
referenced herein. However, Employer may, in its sole discretion, assign this
Agreement by sale or otherwise, and the benefits and obligations of this
Agreement shall inure to its successors and/or assigns.
9. Non-Exclusive Rights. The rights and the obligations of the Employer
under this Agreement are non-exclusive, and this Agreement shall not be
construed to prevent the Employer from simultaneously retaining, contracting
with, or otherwise obtaining professional services from any other person or
entity.
10. Captions. The headings and captions herein are intended for
convenience reference only, and shall not be deemed to be interpretative of the
contents of such sections.
11. Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument.
12. Governing Law. All matters concerning the validity and
interpretation of and performance under this Agreement shall be governed by the
laws of the State of ____________ (without regard to the conflict of laws
principles thereof).
13. Arbitration. Any controversy, dispute or disagreement arising out
of or relating to this Agreement, or the breach thereof, shall be settled by
arbitration, which shall be conducted in the County of ___________, State of
____________, in accordance with the National Health Lawyer's Association
("NHLA") Alternative Dispute Resolution Service Rules of Procedure for
Arbitration, and judgment on the award rendered by the arbitrator may be entered
in any court having jurisdiction thereof.
14. No Act Contrary To Law. Nothing herein shall be construed so as to
require the commission of any act contrary to law, and wherever there is any
statute, law, ordinance or regulation which is inconsistent with this Agreement,
such statute, law, ordinance or regulation shall prevail, and, in such event,
the provision herein in conflict automatically shall be curtailed, limited or
eliminated to the extent necessary to bring it within legal limitations.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this document or
caused its execution by a duly authorized officer, all as of the day and year
first above written.
By: ______________________________
, President
Employee
By: _______________________________
Complete Wellness Center, Inc.
By: _______________________________
E. Eugene Sharer, President
<PAGE> 6
EXHIBIT "A"
<PAGE> 1
EXHIBIT 10.12
FITNESS SPECIALIST
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as
of the _______ day of ____________________________, 19 ____, by and between
Complete Wellness Medical Center of, _______________________________________ a
Florida corporation with an office at 507 South Paula Drive ("Employer"), and
____________________________________ an individual residing at
______________________________________________________________________________
___________________________________ ("Employee").
W I T N E S S E T H:
WHEREAS Employer is a corporation duly licensed in the State of
Florida and which provides healthcare services at its office located at
_______________ (the "Office") and
WHEREAS Employer wishes to employ Employee, an individual who is
actively practicing and is duly certified to provide fitness training in the
State of Florida, as an employee of Employer to provide fitness training
services subject to the rules thereof and the standards of the profession in
effect in the State of Florida, and
WHEREAS Employee desires to render such services to Employer,
NOW, THEREFORE, in consideration of the representations, warranties
and mutual covenants set forth herein, the parties hereto hereby agree as
follows:
SECTION I - REPRESENTATIONS
1. Representations. Upon the terms and subject to the conditions set
forth herein, Employer hereby employs Employee as a certified fitness
specialist and Employee hereby accepts such employment and represents to
Employer that he/she is presently certified and qualified to engage in the
practice of fitness training in the State of Dunedin.
2. Management of Practice. Employee recognizes, acknowledges and
agrees that Complete Wellness Centers, Inc. or its designee ("Management
Company") shall manage all non-therapeutic aspects of Employer's practice.
3. Independent Judgement. Although Employee is an employee of Employer
under the terms of this Agreement, Employee shall retain independent discretion
and exercise independent judgement in the manner and means of providing
services in regard to the diagnosis and treatment of patients treated.
4. Professional Conduct. Employee will at all times conduct
himself/herself in compliance with all federal, state and local laws, rules and
regulations,canons of professional ethics, and the non-fitness training rules
and regulations of the Employer.
SECTION II - SCOPE OF DUTIES
1. Services. Employee will render his/her services to Employer as a
certified fitness specialist and in such capacity he/she shall perform such
duties as are customary in the practice of fitness training and as are assigned
to him/her from time to time by Employer. Such duties shall include but not be
limited to conducting office examinations and consultations, obtaining such
continuing professional education as is necessary to maintain professional
qualifications, and performing evening and weekend on-call coverage as shall be
reasonably assigned to him.
2. Additional Locations. Employee will serve at such other locations
as may be directed by Employer (the "Other Location"). Such Other Location
shall not be located more than twenty-five (25) miles from the Office, unless
mutually agreed upon and designated in writing.
3. Billing. The Employer shall perform, or cause to have performed,
billing and collection functions for all services provided by the Employee. The
Employee hereby authorizes the Employer to accept, or refuse to accept, on
Employee's behalf, any assignment of insurance benefits from any patient
receiving service from the Employee pursuant to this Agreement. At Employer's
request, Employee shall list and designate with such insurance or third party
payor the Employer's address and designated officer as the sole address to
which all payment(s) or payment voucher(s) for services performed by the
Employee shall be mailed. This Agreement constitutes an assignment by the
Employee to the Employer of all funds owing or collected for services rendered
by the Employee pursuant to this Agreement (the "Receivables") so long as such
assignment is not in violation of any law or statute. The Employee shall take
all steps necessary to assist in the billing and collection of funds due for
services rendered by the Employee. All funds collected with respect to
services provided pursuant to this Agreement shall be the exclusive property of
the Employer.
4. Post-Termination Cooperation Re Receivables. For a period of two
(2) years after termination of this Agreement, Employee shall cooperate fully
and assist Employer in efforts to collect all Receivables for services
performed by Employee while employed by Employer, including without limitation,
transferring allfunds actually paid or made payable to Employee with respect to
such Receivables, and appearing in any court of law within which any cause of
action is brought to seek enforcement of Employer's right to collect on any and
all such Receivables. Employee agrees to notify Employer, in writing, of a
change of address of Employee's business or residence during such two (2) year
period so that Employer will be able to locate Employee to enforce the terms of
this Section. Employee shall receive up to two hundred and fifty dollars
($250.00) per day for providing assistance under the terms of this Section and,
in addition, Employer shall reimburse Employee for all reasonable costs and
expenses incurred by Employee, as approved in advance in writing by Employer,
relating to such assistance. The terms and conditions of this Section shall
survive termination of this Agreement.
SECTION III - TERM OF EMPLOYMENT
1. Term. The term of employment under this Agreement (the
"Employment Term") shall be for the one-year period commencing the date hereof,
unless earlier terminated under the terms hereof; provided, that Employee must
complete and submit any credentialling application provided to Employee by
Employer in order for this Agreement to become effective and for the Employment
Term to commence.
2. Probationary Term. During the first one hundred twenty (120) days
of the Employment Term of this Agreement, Employee acknowledges and agrees that
he/she shall be on probation, and that during such time period or within
fifteen (15) days after the conclusion of such probationary period, this
Agreement may be terminated at the sole discretion of Employer with or without
cause. Thereafter, this Agreement shall remain in effect for the term set
forth in Section III 1 hereof, unless earlier terminated as provided for
herein.
SECTION IV - COMPENSATION AND BENEFITS
1. Compensation. Employee shall be compensated at a rate of
$__________________ per ___________ less any appropriate deductions, payable as
earned, payable in accordance with Employer's normal payroll policies during
the term of this Agreement (the "Salary").
2. Benefits. Employee shall be entitled to those benefits, if any, as
described in Exhibit "A" attached hereto.
3. Sole Benefits. Employee acknowledges that the compensation and
benefits established pursuant to this Section shall be the sole consideration
provided by Employer for the services provided under the terms ofthis
Agreement. Employee shall not solicit or accept payment from any patient,
government entitlement program or third party payor for services rendered
pursuant to this Agreement.
4. Reimbursement. Expenses incurred by Employee on Employer's behalf
at Employer's discretion shall be reimbursed in full where approved in writing,
in advance. In the event an expense paid on behalf of, or reimbursement
contributed to, Employee is determined not to be an allowable tax deduction or
credit of Employer and such determination is acceded to by Employer or rendered
final by the state or federal taxing authority or court with final
jurisdiction, Employee shall, forthwith, upon ten (10) days' prior written
notice and without regard to whether this Agreement shall then be terminated,
reimburse Employer for the full amount of the out-of-pocket loss incurred by
Employer as a result of any such disallowance.
<PAGE> 2
SECTION V - INSURANCE
1. Malpractice Insurance. Employer shall at its own cost and expense,
provide and keep in force a malpractice insurance policy or policies of
standard form in the State of Florida, with limits of not less than One Million
($1,000,000.00) Dollars per occurrence and Three Million ($3,000,000.00)
Dollars in the aggregate.
SECTION VI - PATIENT RELATIONSHIP
1. Confidential Information. Employee acknowledges and agrees
that he/she will have access to certain confidential information and trade
secrets of the Employer and that such information constitutes valuable, sole,
special and unique property of Employer. Employee further acknowledges and
agrees that Employee will not, at any time during or after the term hereof, in
any fashion, form, or manner either directly or indirectly, divulge, disclose
or communicate to any person, firm, or corporation in any manner whatsoever,
the terms and conditions of this Agreement or any information of any kind,
nature or description concerning any matters affecting or relating to the
business of Employer, including, without limiting the foregoing, the names of
patients, the prices which Employer pays for goods and services and/or sells
goods or services, Employer's manner of operation of Employers business or its
plans or processes, or any other data or information of any kind, nature or
description which affects or relates to Employer's business without regard to
whether any or all of the foregoing would be deemed confidential information or
a trade secret under applicable state law ("Confidential Information").
2. Patient Accounts. All patients shall be and remain the patients of
Employer provided that Employee shall exercise independent responsibility for
the care and treatment of such individuals to the extent professional services
are rendered pursuant to this Agreement. In the event any patient is deemed by
operation of law or otherwise to be patient of Employee, Employee shall and
hereby does (i) irrevocably assign all Receivables from the treatment of such
individuals to Employer, and (ii) irrevocably appoints Employer as the agent
and true and lawful attorney-in-fact, with full power of assignment and
substitution where legally permissible, to bill patients on Employee's behalf;
to collect Receivables from all payors; and to take possession of and endorse
in Employee's name, all notes, drafts or instruments received by way of payment
for such services (except where prohibited by law or regulation).
(a) Employee agrees that each patient account has a reasonable
value to Employer of five thousand dollars ($5,000.00), and for each record, or
any portion thereof, which Employee attempts to obtain and/or actually does
obtain in contravention of this Section, the sum of Five Thousand dollars
($5,000.00) shall be paid to Employer as liquidated damages. The referenced sum
shall be due and payable immediately upon the date of the violation or
attempted violation of this Section, with such sum to bear interest at the
maximum allowable legal rate from the due date to the actual date of payment in
full.
(b) Paragraph VI 2a notwithstanding, Employee shall maintain
adequate and complete records with regard to services rendered to patients.
Upon the termination of Employee's employment hereunder, all patient files,
records and charts shall remain with Employer, and Employee shall have no right
to retain such materials; provided, however, that nothing herein contained
shall be construed to prevent any patient from requesting transfer of his/her
records to Employee upon the termination of this Agreement, and such materials
or photocopies thereof shall be delivered to Employee upon the written request
of the subject patient, which request shall be honored promptly upon the
payment to Employer by Employee of all reasonable costs, if any, for
reproduction and mailing of any such materials. Employer will send invoices to
all patients for any services rendered by Employee prior to termination of
his/her employment hereunder, and Employer will have the right to collect the
full amounts thereof for its own account.
SECTION VII - COVENANT NOT TO COMPETE
During the term of this Agreement and thereafter the Employee
shall not take any action whatsoever which may or might disturb the
existingbusiness relationship of the Employer with any of Employer's patients.
1. Restrictions. The Employee agrees that in the event Employer and
Employee fail to extend this Agreement, then Employee covenants and agrees that
for a period of one (1) year after the termination of his/her employment
hereunder (the "Restricted Period"), he/she will not: (i) practice from an
office located within a five (5) mile radius if in a rural area, two (2 ) mile
radius if in a suburban area, and ten (10) block radius if in an urban center
from Employer's Office or (ii) solicit, directly or indirectly, for treatment
by Employee, or by any other doctor other than those employed by or who are
shareholders of Employer, any persons who were patients of Employer during the
Employment Term.
2. Irreparable Damages. The parties hereto acknowledge and agree that
consideration has been given to the nature and scope of the business and
activities of Employer and that the covenants contained in this Section
concerning territorial, substantive and time limitations are in all respects
fair and reasonable in view of the facts involved. In the event that any court
shall determine that the time, substantive and territorial limitations
contained herein are not fair and reasonable, this Agreement shall nevertheless
be enforced as to such time, substantive and territorial limits as are
reasonable. The parties further agree that Employer will be irreparably
damaged in the event of a breach of any of the covenants set forth in this
Section, and, accordingly, Employee agrees that such covenants shall be
specifically enforceable and that, in addition to any other remedies, any
breach or threatened breach thereof may be enjoined by any court of competent
jurisdiction located in the State of Florida.
3. Injunctive Relief. The parties further agree that in the event of
the breach of any provision of this Agreement, and particularly Section VII
hereof, Employer shall be entitled to a permanent injunction or similar court
order enjoining the Employee from acting in a fashion contrary to Section VII
and that pending such determination the Employee shall accede to a temporary
restraining order, without prejudice to any other rights that the Employer may
have, all at Employee's expense.
4. Independent Agreement. The covenants contained in Section VII shall
be construed as an independent agreement and the existence of any claim which
the Employee may have against the Employer will not constitute a defense to the
enforcement by the Employer, by injunctive relief or otherwise, of the
provisions of Section VII.
SECTION VIII - TERMINATION OF EMPLOYMENT
1. Disability of Employee. Notwithstanding anything in this Agreement
to the contrary, Employer is hereby given the option to terminate Employee's
employment in the event that Employee, during the employment term hereunder,
becomes disabled to the extent that he/she is unable fully to perform his/her
customary duties hereunder ("Disability"). Such option shall be exercised by
Employer by giving notice, pursuant to Section IX 4 herein, to Employee of
Employer's intention to terminate Employee's employment due to his/her
Disability. Such termination shall take place on the fifteenth (15th) day
following the mailing of such notice.
For purposes of this Agreement, Employee shall be deemed to
have become Disabled if, during the term of his/her employment hereunder,
he/she is disabled as defined in Employer's disability plan, if any; provided,
however, in the event that Employer does not maintain a disability plan, then
to establish a status of Disability there must be a written certification of
such Disability by a qualified medical doctor agreed to by Employer and
Employee. In the absence of agreement, each party shall nominate a qualified
medical doctor and the two doctors shall select a third doctor, who shall make
the determination as to the Employee's Disability.
2. Termination by Employer for Cause. Notwithstanding any other
provision of this Agreement, Employer may terminate Employee's employment for
cause immediately upon the determination and notification to Employee thereof
("Cause Termination Date"). Upon such determination and notification,
Employee's right to receive the Salary shall cease, and Employee shall be
entitled to receive only such Salary as shall have been earned through the
period ending with the Cause Termination Date.
The term "Cause" as used herein shall mean that Employee (i)
has committed a serious act (such as embezzlement) against Employer, with the
intention of enriching himself/herself at the expense of Employer, or has
failed to substantially perform his/her duties and responsibilities hereunder
or otherwise committed a material breach of any of
<PAGE> 3
the terms of this Agreement, or has been convicted of any criminal act
involving moral turpitude; or (ii) has been found, in the reasonable belief of
Employer, to suffer chronic dependency on drugs or alcohol; or (iii) in
carrying out his/her duties hereunder, has committed gross neglect or gross
misconduct; or (iv) has become legally disqualified to practice fitness
training in the State of Florida, or has been put on probation by the Florida
licensing authority for fitness specialists, or has had his/her license to
practice fitness training in the State of Florida suspended or revoked; or (v)
is unable to obtain fitnesstraining malpractice insurance covering his/her
professional conduct, in coverage amounts and/or with insurance carriers
acceptable to Employer and upon such terms as are acceptable to the Employer or
(iv) there has occurred a material adverse change in the business or economic
prospects of Employer as determined solely by Employer; or (vii) Employer has
ceased providing services at the Office and Employee's services are not
required at any Other Location.
3. Voluntary Termination. Either Employer or Employee may terminate
the employment relationship provided for under the terms of this Agreement, for
any reason and at any time during the Employment Term, on no less than thirty
(30) days prior written notice to the other party hereto, with the last day of
such notice period (unless such period shall be shortened or extended by mutual
agreement) being the Termination Date. In the event of such voluntary
termination, Employee shall receive a pro rata portion of the Salary, and pay
for accrued but unused vacation days, through and including the Termination
Date. Any rights and benefits Employee may have under any employee benefit
plans and programs of Employer shall be determined in accordance with the terms
of such plans and programs.
SECTION IX - MISCELLANEOUS
1. Specific Performance. It is agreed that any breach or evasion of
any of the terms of this Agreement by either party hereto will result in
immediate and irreparable injury to the other party, and recourse to injunction
and/or specific performance, as well as to all other legal or equitable
remedies to which such injured party may be entitled, will be authorized under
such circumstances.
2. Indemnity. Employee hereby agrees to indemnify, defend and hold
Employer harmless from and against any an all costs, losses, claims, demands
and liabilities, including reasonable attorneys' fees which arise out of or
relate to any breach by Employee of any of the terms and conditions in this
Agreement; any negligent or intentional wrongful act of Employee; any act or
omission of Employee which constitutes professional negligence; or any other
act of Employee not authorized under the terms of this Agreement. If Employer
or any of its shareholders or affiliates is made a party to litigation or
obligation or otherwise incurs any loss or expense as a result of Employee's
activities unconnected with Employer's business, Employee shall forthwith upon
demand, reimburse Employer or such individuals for any and all expenses
incurred as a result thereof.
3. Waiver of Breach. The parties understand andintend that each
restriction agreed to by Employee under the terms of this Agreement shall be
construed as separable and divisible from every other restriction, and that the
unenforceability, in whole or in part, of any other restriction will not affect
the enforceability of the remaining restrictions. It is further understood
that one or more, or all of such restrictions, may be enforced in whole or in
part as the circumstances warrant. No waiver of any one breach of the
restrictions contained in this Agreement shall be deemed a waiver of any future
breach. Employee hereby acknowledges that he/she is fully cognizant of the
restrictions set forth in this Agreement and agrees that these provisions shall
survive the termination of this Agreement for any reason.
4. Notices. Except as otherwise provided herein, all requests,
demands and other communications required or permitted hereunder shall be in
writing and shall be deemed to have been given if delivered personally, by
prepaid telex, telegram, facsimile ("FAX") or mailed first class, postage
prepaid, certified United States Mail, return receipt requested, to the party
who is to receive such notice, request, demand or communication at such party's
address as set forth on the signature page hereof. Any party hereto may change
its address for notice by giving to the other party written notice of such
change. Any notice given hereunder shall be effective (i) if delivered
personally, when delivered, (ii) if sent by telex, telegram or FAX, twenty-four
(24) hours after sending, and (iii) if mailed, seventy-two (72) hours after the
date of the mailing.
5. Commitments Binding Only Upon Written Consent. Notwithstanding any
provision herein to the contrary, it is expressly understood and agreed that
Employee shall not have the right to make any contracts or commitments for or
on behalf of Employer without the prior written consent of Employer.
6. Time of Essence. Time is of the essence in regard to the
obligations established hereunder. The parties hereto agree that they shall
cooperate in good faith to accomplish the objectives of this Agreement and,
documents and take such further action as may be reasonably necessary to
effectuate the terms, conditions and purposes of this Agreement.
7. Entire Agreement. This Agreement contains the entire understanding
of the parties with respect to the subject matter hereof, supersedes any prior
agreement between the parties, and may not be changed or terminated orally. No
change, termination or attempted waiver of any of the provisions hereof shall
be binding unless in writing and signed by the party against whom the same is
sought to be enforced.
8. Successors and Assigns. The provisions of this Agreement are
intended only for the regulation of relations among the parties hereto. This
Agreement is not intended for the benefit of creditors or other third parties,
and no rights are granted to such individuals or entities except where
expressly referenced herein. However, Employer may, in its sole discretion,
assign this Agreement by sale or otherwise, and the benefits and obligations of
this Agreement shall inure to its successors and/or assigns.
9. Non-Exclusive Rights. The rights and the obligations of the
Employer under this Agreement are non-exclusive, and this Agreement shall not
be construed to prevent the Employer from simultaneously retaining, contracting
with, or otherwise obtaining professional services from any other person or
entity.
10. Captions. The headings and captions herein are intended for
convenience reference only, and shall not be deemed to be interpretative of the
contents of such sections.
11. Execution in Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall constitute an original and all of
which together shall constitute one and the same instrument.
12. Governing Law. All matters concerning the validity and
interpretation of and performance under this Agreement shall be governed by the
laws of the State of Florida (without regard to the conflict of laws principles
thereof).
13. Arbitration. Any controversy, dispute or disagreement arising out
of or relating to this Agreement, or the breach thereof, shall be settled by
arbitration, which shall be conducted in the County of Pinellas, State of
Florida, in accordance with the National Health Lawyer's Association ("NHLA")
Alternative Dispute Resolution Service Rules of Procedure for Arbitration, and
judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof.
14. No Act Contrary To Law. Nothing herein shall be construed so as to
require the commission of any act contrary to law, and wherever there is any
statute, law, ordinance or regulation which is inconsistent with this
Agreement, such statute, law, ordinance or regulation shall prevail, and, in
such event, the provision herein in conflict automatically shall be curtailed,
limited or eliminated to the extent necessary to bring it within legal
limitations.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this document or caused
its execution by a duly authorized officer, all as of the day and year first
above written.
Complete Wellness Medical Center of Paula Drive, Dunedin, Inc.
By:
------------------------------
Employee
By:
------------------------------
<PAGE> 5
EXHIBIT "A"
<PAGE> 1
EXHIBIT 10.13
PROMISSORY NOTE
(CWC, INC..)
$40,000.00
-----------------------
FOR VALUE RECEIVED, the undersigned, an ((State)) corporation having
its principal office at ((Address1)), ((City)), ((State)) ((PostalCode)), and
for purposes of identification referred to herein as "Medcorp" hereby promises
to pay to the order of Complete Wellness Centers, Inc., a Delaware corporation
("CWC"), at its office at 725 Independence Avenue, SE Washington, DC 20003, in
lawful money of the United States and in immediately available funds, the
aggregate unpaid principal amount of all advances made hereunder which are not
to exceed Forty Thousand Dollars ($40,000.00) which is to be repaid no later
than five years from the date hereof (the "Maturity Date") and to pay interest
(computed on the basis of a year of 365 days for the actual number of days
elapsed) from the date of this Promissory Note (the "Note") on the outstanding
principal balance of this Note, at an interest rate of ten percent (10%) per
annum.
This Note is issued pursuant to and is subject to the terms and
provisions of that certain Management and Security Agreement of even date
herewith, between Medcorp and CWC as the same may be amended, modified or
supplemented from time to time (the "Agreement") and is the Note referred to
therein. All capitalized terms not defined herein shall have the same
definition as contained in the Agreement. The Note shall be secured by a
blanket lien on all Medcorp assets, including, but not limited to all Medcorp's
accounts receivables.
Repayment of the Note is waived for the first ninety (90) days after
the Integration Date; payments of interest only, shall commence on the ninety
first (91st) day after the Integration Date and shall be due and payable on the
same day of the next nine (9) months thereafter at which time payments of
principal as well as interest shall be due.
The principal amount of the Note shall then be amortized over the
remainder of the term of the Agreement and shall be paid in addition to the
interest payments. In any event, the Note shall be due and payable upon
termination of the Agreement.
The books, records and copies of invoices and receipts of CWC shall be
evidence of any advance hereunder, the outstanding principal balance hereof,
accrued interest hereon, and any payment of principal or interest hereunder.
The Agreement contains provisions for acceleration of the maturity
hereof upon the happening of certain stated events.
In the event of a default in the terms and provisions of this Note or
the Agreement, the whole amount of principal and interest shall, at the option
of the holder of this Note, become immediately due and payable without
diligence, demand, presentment, protest or notice of any kind whatsoever.
Medcorp promises to pay costs of collection and reasonable attorneys' fees,
including, but not limited to, such fees as are incurred at the appellate
level, if default is made in the payment of this Note. The right to plead any
and all statutes of limitation as a defense to this Note or to any agreement to
pay the same, is hereby expressly waived by the undersigned to the full extent
permitted by law.
Any amount of principal hereof which is not paid when due, whether at
the stated Maturity Date, by acceleration, or otherwise, shall bear interest
from the date when due until said principal amount is paid in full, payable on
demand, at a rate per annum at all times equal to the maximum legal rate of
interest in the State of ((State)) or if no such rate then exists, then at the
highest lawful rate of interest permitted under such other applicable law of
CWC's choice in effect on the date thereof (the "Maximum Rate").
<PAGE> 2
Notwithstanding anything contained in this Note to the contrary, CWC
shall never be deemed to have contracted for or to be entitled to receive,
collect or apply as interest on the Note, any amount in excess of the amount
permitted and calculated at the Maximum Rate, and, in the event CWC ever
receives, collects or applies as interest any amount in excess of the amount
permitted and calculated at the Maximum Rate, such amount which would be
excessive interest shall be applied to the reduction of the unpaid principal
balance of this Note, and, if the principal balance of this Note is paid in
full, any remaining excess shall forthwith be paid to the Medcorp. In
determining whether or not the interest paid or payable under any specific
contingency exceeds the Maximum Rate, CWC and Medcorp shall, to the maximum
extent permitted under applicable law, (i) characterize any non-principal
payment (other than payments which are expressly designated as interest
payments hereunder) as an expense, fee or premium, rather than as interest,
(ii) exclude voluntary prepayments and the effect thereof, and (iii) spread the
total amount of interest throughout the entire contemplated term of the Note.
If payment of principal or interest under this Note shall become due
on a Saturday, Sunday or legal holiday under the laws of the State of
((State)), such payment shall be made on the next succeeding business day and
such extension of time shall in such case be included in computing interest in
connection with such payment.
This Note may be prepaid at any time without penalty.
Nothing herein shall limit any right granted to CWC by any other
instrument or by law or equity.
This Note shall be governed by the laws of the State of Maryland.
IN WITNESS WHEREOF, the undersigned has caused this Note to be
executed by its officer or officers thereunto duly authorized and directed by
appropriate corporate authority.
((CWMC_Name))
by:
---------------------------------------
(Medcorp President), President
<PAGE> 1
EXHIBIT 10.14
ABSOLUTE, UNCONDITIONAL, IRREVOCABLE
AND {PRIVATE}
LIMITED CONTINUING GUARANTY OF PAYMENT
THIS ABSOLUTE, UNCONDITIONAL, IRREVOCABLIE AND LIMITED CONTINUING
GUARANTY OF PAYMENT ("Guaranty') is made on this _____ day of __________,
19_____.
WITNESSETH:
WHEREAS, Complete Wellness Centers, Inc., a corporation organized
under the laws of the State of Delaware (the "Company") has or will make a loan
in the amount of Forty Thousand dollars ($40,000.00) to ______________________
(the "Debtor"), whose principal address is _______________________ (the
"Loan"); and
WHEREAS, the undersigned (hereinafter referred to individually and
collectively as the "Guarantor" has represented and warranted to the Company
that it will be benefited if such Loan is extended to the Debtor and/or in the
transactions being funded with such Loan; and
WHEREAS, the company has declined to make such Loan to the Debtor
unless each Guarantor executes and delivers to the Company this Guaranty;
NOW, THEREFORE, in order to induce the company to make such Loan to
the Debtor and in consideration of other good and valuable consideration the
receipt of which each Guarantor hereby acknowledges, each Guarantor agrees as
follows.
1. Guaranteed Obligations. The Guarantor guarantees the payment to the
Company of the Loan which may now or hereafter be due to the Company from the
Debtor.
2. Guaranty Absolute, Unconditionally, Irrevocable and Continuing. The
Guarantor as direct obligor and not merely as surety, hereby absolutely and
unconditionally irrevocably guarantees to the Company, independently of the
Debtor the full and complete payment when due (by acceleration or at stated
maturity) of the Loan. The obligation of each Guarantor hereunder in respect
of the Loan is absolute and unconditional irrespective of the genuiness
provision of law which might otherwise constitute a defense or discharge of a
Guarantor or hinder prompt enforcement of this Guaranty. This Guaranty shall
be a continuing guaranty and shall cover and secure any amount at any time
owing in respect of the Loan. Each Guarantor hereby irrevocably waives any
right to require that the Company proceed against the Debtor or any other
person, or proceed against or exhaust any collateral or security which the
Company may now or hereafter hold as security for provision of law which might
otherwise constitute a defense or discharge of a Guarantor or hinder prompt
enforcement of this Guaranty. This Guaranty shall be a continuing guaranty and
shall cover and secure any amount at any time owing in respect of the Loan.
Each Guarantor hereby irrevocably waives any right to require that the
Companyproceed against the Debtor or any other person, or proceed against or
exhaust any collateral or security which the Company may now or hereafter hold
as security for the Loan prior to collecting from such Guarantor hereunder.
The Guaranty of each Guarantor hereunder shall continue to be effective, or
shall be reinstated, as the case may be, if at any time any payment to the
Company in respect of the Loan shall be rescinded or must otherwise be returned
for any reason whatsoever, including without limitation upon the insolvency,
bankruptcy or reorganization of the person or entity making such payment, all
as though such payment had not been made. The Guarantor acknowledges that no
oral or other agreements, understandings, representations or warranties exist
with respect to this Guaranty or with respect to the obligations of the
Guarantor under this Guaranty, except as specifically set forth in this
Guaranty.
3. Payment. If the Debtor shall default in any payment when due
under the Loan (by acceleration, upon maturity or otherwise), each Guarantor
shall pay to the Company immediately upon demand the full amount of such
payment in lawful currency of the United States of America and in immediately
available funds. All such payments shall be made without setoff, deduction or
withholding for any reason whatsoever, and shall be final and free from any
claim or counterclaim of any other Guarantor or the Debtor. Demand upon each
Guarantor shall be made by the Company by notice to such Guarantor as provided
herein, setting forth the amount due and demanding payment. All sums payable
by each Guarantor hereunder shall be paid to the Company at 725 Independence
Avenue, Washington, DC 20003 (or at such other location as shall be designated
by the Company in its notice to Guarantor) on the first working day in
Washington, DC ("Business Day"), following the date notice is transmitted by
telecopy of by telex with confirmed answer back or is delivered personally to
such Guarantor, or three (3) days after notice is mailed to such Guarantor
demanding payment.
4. Waiver. Each Guarantor hereby irrevocably waives notice of
the extension and/or modification of the documents evidencing the Loan
guaranteed by this Guaranty, or of the acceptance of this Guaranty, as well as
protest, presentment, diligence, demand for payment (except as specified in
Section 3 above), notice of default, nonpayment or dishonor of any Loan
payment, and any other notice whatsoever except as expressly provided in this
Guaranty.
5. Hold Harmless. Each Guarantor agrees to indemnity and hold the
Company harmless upon demand for all expenses, losses, consequences or damages
of the Company arising from or relating to any claim, demand,. action or
proceeding by whomsoever brought in connection with or relating to this
Guaranty or the Loan, including without limitation the payment of any court
costs, the reasonable fees and expenses of legal counsel, whether in-house or
outside counsel, and any other costs of collection incurred by the Company. In
addition, each Guarantor agrees to payany documentary stamp taxes, intangible
taxes of other taxes (except for federal or Maryland franchise or income taxes
based on the Company's net income) which may now or hereafter apply to the Loan
or any security therefore, and each Guarantor agrees to indemnify and hold the
Company harmless upon demand from and against any liability, costs, attorney's
fees, penalties, interest or expenses relating to any such taxes, as and when
the same may be incurred. Each Guarantor further agrees to pay the Company on
demand., and to indemnify and hold the Company harmless against, any and all
other present or future taxes, levies, imposts, deductions, charges and
withholdings imposed in connection with the Loan by the laws or governmental
authorities of any jurisdiction other than the State of Maryland or the United
States of America, and all payments to the Company under this Guaranty shall be
made free and clear thereof and without deduction therefore. All amounts
payable to the Company hereunder shall bear interest from the date they are
expended by the Company until payment in full at the highest lawful rate then
permitted by applicable law in the State of Maryland, or if no such rate then
exists, at the highest lawful rate permitted under such other applicable law of
Company's choice in effect on the date thereof.
6. Notices. Any notice of demand required or permitted to be
given hereunder to any Guarantor shall be in writing and shall be: (a)
personally delivered; (b) transmitted by postage prepaid, first class mail,
(first class airmail if international); or (e) transmitted by telecopy or by
telex with confirmed answer back to the address for such Guarantor registered
from time to time on the Company's books. Such notice shall be deemed
effective at the time of transmission; provided, however, that notice sent by
mail shall be effective on the third day after mailing.
7. Statement of Account. Any statement of account maintained by
the Company in the ordinary course of business and that is binding on the
Debtor shall also be binding upon the Guarantor. Said statement of account
shall be admissible, as evidence against the Guarantor to the same extent that
it would be admissible against the Debtor but shall not be subject to any
<PAGE> 2
defenses that Debtor might assert against the Company.
8. Acceleration. In the event that there has been a default under
the terms of the Loan by the Debtor, the Company may, in its sole discretion,
accelerate the unpaid balance of the Loan at any time and declare said amount
to be immediately due and owing.
9. Severability. Any provision of this Guaranty which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction
only, be effective only to the extent of such prohibition or unenforceability,
without invalidating the remaining provisions hereof or affecting the validity
or enforceability of such other provision in any other jurisdiction. In the
event that any law invalidating sucha provision may be waived, it is hereby
waived by each Guarantor to the fullest extent permitted by law in order that
this Guaranty shall be deemed to be valid and binding agreement enforceable
against such Guarantor in accordance with its terms.
10. Governing Law; Jurisdiction. The provisions of this Guaranty,
and all rights and obligations hereunder, shall be governed by and construed in
accordance with the laws of the State of Maryland without giving effect to the
conflicts of laws provisions thereof, which is the place of negotiation,
delivery and performance hereof. For any action or proceeding relating to or
arising from this Guaranty, the Company and each Guarantor hereby, to the
fullest extent permitted by law: (a) submits to the jurisdiction of the state
and federal courts in the State of Maryland; (b) waives any immunity or
exemption of any property, wherever located, from garnishment, levy, execution,
seizure or attachment prior to or in execution of judgment, or sale under
execution or other process for the collection of debts; (c) agrees that the
venue of any such action or proceeding may be laid in Montgomery County (in
addition to any place in which any collateral for the Loan which is the subject
of such action or proceeding is then located, or where payment of such Loan
should have been made by the Debtor) and waives any claim that the same is in
inconvenient forum; and (e) stipulates that service of process in any such
action or proceeding shall be properly made if mailed by any form of registered
or certified mail (airmail if international), postage prepaid, to the address
then registered in the Company's books for such Guarantor, and that any process
so served shall be effective ten days after mailing; provided, however, that
the foregoing shall not limit the Company's right to serve legal process in any
other manner permitted by law or to bring any such action or proceeding in any
other court of competent jurisdiction.
JURY TRIAL WAIVER.
EACH GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT
(S)HE OR IT MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION BASED
HEREIN, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS ABSOLUTE,
UINCONDITIONAL AND CONTINUING GUARANTUY OF PAYMENT, OR OUT OF OR IN CONNECTION
WITH ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION THEREWITH, OR ANY
COURSE OF CONDUCT COURSE OF DEALINGM STATEMENT (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OR COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OR OMISSIONS OF ANY PARTY. GUARANTOR FURTHER ACKNOWLEDGES
THAT THIS JURY TRIAL WAIVER PROVISION HAS BEEN EXPLAINED TO IT/HIM/HER COUNSEL
AND THAT IT/HE/SHE UNDERSTANDS AND AGREES TO SAME.
IN WITNESS WHEREOF, each Guarantor has executed and delivered
this Guaranty of the day and year first above written.
--------------------
(Signature)
--------------------
Print Name
--------------------
Social Security No.
--------------------
Street Address
--------------------
<PAGE> 3
City, State, Zip
-------------------
Telephone No.
STATE OF
----------
COUNTY OF
The foregoing instrument was sworn to, subscribed and acknowledged
before me this __________ day of __________, 19_____, by _____________________,
individually.
- ------------------------------
Notary Public, State of
My commission Expires:
<PAGE> 1
EXHIBIT 10.15
MEDICAL OFFICE SUB-LEASE
THIS SUB-LEASE made as of the this _____ day of _____________________,
19__ (the "Lease"), by and between ((CWMC_Name)), a ((State)) professional
corporation with offices at ((Address1)) (the "Lessee") and Complete Wellness
Centers, Inc., a Delaware corporation licensed to do business in the state of
((State)) (the Lessor").
W I T N E S S E T H:
WHEREAS the Lessor currently owns certain leasehold rights to office
space located at ((Address1)) (the "Premises or "Office") and
WHEREAS Lessee desires to let office space at the Premises in
connection with it's operation of a medical practice at the Premises; and
WHEREAS the Lessor desires to let such office space to the Lessee under
the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the parties hereto agree as
follows:
1. PREMISES. The Lessor hereby leases to Lessee and Lessee
hires from Lessor the Premises. Together with the Premises, Lessor hereby leases
to Lessee for the term hereof all fixtures, furnishings and furniture
appertaining thereto (but subject to any and all liens, financing statements,
conditional sales contracts, etc., and to the terms of any equipment leases
pertaining thereto). Further, Lessor agrees to provide to the Lessee the
management services, personnel, equipment and supplies (hereinafter called the
"CWC Services" described in the Management and Security Agreement of even date
herewith by and between Lessor as "Manager" and Lessee as "Medcorp" therein (the
"Management Agreement"), to which this Lease is annexed and made a part.
2. TERM. The term of this Lease shall be for a period to run
concurrent with the term of that certain Integrated Medical Center Management
and Security Agreement (the "Integrated Agreement") dated of even date herewith
by and among Lessor, ((CWMC_Name)) and (but in no event for a period of less
than one (1) year).
3. RENT. The rent to be paid by Lessee to Lessor for the
Premises during the term hereof shall be in the amount, and paid in the manner,
as follows:
a. From and as of the date hereof and until one year
from the date hereof (the "Anniversary Date"), the sum of ____________ dollars
($__________) per annum.
b. The parties hereto shall mutually agree upon a
revised rent on or before two months prior to the Anniversary Date of each Lease
year (the "Revision Date"). If the parties fail to reach an agreement with
regard to the revised rent before the Revision Date of any Lease year, then the
Lessor may, in its sole discretion, determine the revised rent by giving written
notice thereof to the Lessee on or before ten days prior to the Anniversary Date
of the Lease year. In the event that the Lessee is dissatisfied with such
revised rent, the Lessee's sole recourse shall be to notify the Lessor, within
ten days after receipt of notice of the revised rent, of the Lessee's intention
to terminate this Lease as of the sixtieth (60th) day from the date the notice
is sent. Failure to so notify the Lessor of its termination of this Lease shall
be deemed to be an acceptance by the Lessee of the revised rent, and the Lessee
shall thereupon be obligated to make timely payments of the revised rent to the
Lessor.
c. The rent shall be payable in monthly installments.
Payment of the rent shall be made by the Lessor, in its capacity as manager of
the Lessee's business pursuant to the Management Agreement, by drawing a check
or wire transfer or other bank transfer payable to the Lessor on the Lessee's
account maintained by the Management Company pursuant to Section 2b of the
Management Agreement.
d. The Lessor and Lessee agree that upon termination
or expiration of this Lease for any reason, the Lessor, as Manager, will
continue to collect as agent of the Lessee, (pursuant to Section 2b of the
Management Agreement) all of the Lessee's then outstanding accounts receivable
for professional and ancillary services rendered and will continue to be paid
from receipts therefrom any amounts outstanding from the Lessee pursuant to this
Lease and/or the Management Agreement until all such amounts then or
subsequently due the Lessor shall have been repaid in full.
4. TERMINATION This Lease may be terminated upon the happening
of any of the following events:
a. This Lease shall terminate automatically in the
event that any ground lease, over lease or other lease (underlying lease") by
which Lessor has an interest in the Premises is canceled, terminated or
otherwise expires. Lessor shall give written notice to Lessee of the
cancellation, termination or expiration of any underlying lease and shall
specify therein the date of termination, which shall be the same as the date of
termination of said underlying lease.
b. This Lease shall terminate automatically upon the
termination of the Integrated Agreement and/or Management Agreement for any
reason whatsoever.
c. This Lease shall terminate automatically at such
time as the Lessee does not qualify for any reason as a professional
corporation, including but not limited to the death or disqualification to
practice medicine of every shareholder. For these and all other purposes, the
determination of a physician's qualification to practice medicine vel non shall
be made by the Lessee and/or by the applicable governmental and professional
regulatory agencies, and the Lessor shall in no way make or contribute to such a
determination.
d. The Lessor may, at its sole option, immediately
terminate this Lease:
(1) in the event that the Lessee shall fail
to make any payment or perform any duty or obligation imposed on it by this
Lease or by the Management Agreement, or shall otherwise default under this
Lease or under the Management Agreement, or shall otherwise give rise to a right
of the Lessor to terminate the Management Agreement pursuant to the provisions
thereof, and such default or occurrence shall continue for a period of ten (10)
days after notice thereof has been given to the Lessor by the Lessor; or
(2) upon the occurrence of a "change in
control" of either the Lessor or of the Lessee; for these purposes, a "change of
control" of a corporation shall have been deemed to have occurred (a) upon the
merger or consolidation of said corporation with or into another corporation or
entity, and irrespective of whether said corporation is the surviving entity;
(b) upon the sale, transfer or other disposition of a significant portion of the
assets of the corporation; (c) if any person or group of persons becomes the
beneficial owner, directly or indirectly, of securities of the corporation
representing fifty percent (50%) or more of the then outstanding securities of
the corporation (whether by purchase or acquisition of such securities or by
agreement to act in concert with respect to such securities or otherwise); or
(d) if any person or entity owning or controlling more than fifty percent (50%)
of the outstanding securities of the corporation at any time ceases to own of
record or beneficially at least fifty percent (50%) of the then outstanding
securities of the corporation; or
(3) if the license to practice medicine of
any physician who is a member of or is associated with the Lessee is suspended
or revoked by any administrative agency of the State of ((State)) or a petition
is filed by any administrative agency of the State of State seeking to suspend
or revoke such license on any grounds, including but not limited to improper
medical practice or improper conduct by such physician, unless such physician
is immediately terminated
<PAGE> 2
from any association with the Lessee and the Premises; or
(4) if any physician who is a member of or
is associated with the Lessee is convicted of a felony, unless such physician is
immediately terminated from any association with the Lessee and with the
Premises; or
(5) upon the filing of a petition in
voluntary bankruptcy or an assignment for the benefit of creditors by the
Lessee, or upon other action taken or suffered, voluntarily or involuntarily,
under any Federal or State law for the benefit of insolvents by the Lessee,
except for the filing of a petition in involuntary bankruptcy against the
Lessee, with the dismissal thereof within thirty (30) days thereafter;
(6) If Lessee defaults in fulfilling any of
the covenants of this Lease including the covenants for the payment of rent or
additional rent; or if the demised Premises become vacant or deserted; or if the
demised Premises are damaged by reason of negligence or carelessness of Lessee,
its agents, employees or invitees; or if any execution or attachment shall be
issued against Lessee or any of Lessee's property whereupon the demised Premises
shall be taken or occupied by someone other than Lessee; or if Lessee shall make
default with respect to any other agreement between Lessor and Lessee; or if
Lessee shall fail to move into or take possession of the Premises within fifteen
(15) days after the commencement of the term of this Lease, of which fact Lessor
shall be the sole judge; then, in any one or more of such events, upon Lessor
serving a written ten (10) days' notice upon Lessee specifying the nature of
said default and upon the expiration of said ten (10) days, if Lessee shall have
failed to comply with or remedy such default, or if the said default or omission
complained of shall be of a nature that the same cannot be completely cured or
remedied within the said ten (10) day period, and shall not thereafter with
reasonable diligence and in good faith proceed to remedy or cure such default,
then Lessor may serve a written three (3) days notice of cancellation of this
Lease upon Lessee, and upon the expiration of said three (3) days, this Lease
and the term thereunder shall end and expire as fully and completely as if the
expiration of the three (3) day period were the day herein definitely fixed for
the end and expiration of this Lease and the term thereof and Lessee shall then
quit and surrender the demised Premises to Lessor but Lessee shall remain liable
as hereinafter provided; or
(7) if the notice provided for in Paragraph
4d(7) hereof shall have been given, and the term shall expire as aforesaid; then
and in such event Lessor may without notice, re-enter the demised Premises
either by force or otherwise, and dispossess Lessee by summary proceedings or
otherwise, and the legal representative of Lessee or other occupant of demised
Premises and remove their effects and hold the Premises as if this Lease had not
been made, and Lessee hereby waives the service of notice of intention to
re-enter or to institute legal proceedings to that end. If Lessee shall make
default hereunder prior to the date fixed as the commencement of any renewal or
extension of this Lease, Lessor may cancel and terminate such renewal or
extension agreement by written notice.
No failure or delay on the part of any party to
exercise its right of termination hereunder for any one or more causes shall be
considered to prejudice said party's right of termination for such or any other
subsequent cause. Termination or cancellation of this Lease for any reason
whatsoever shall in no way release any party from any payments, obligations or
liabilities arising prior to termination or arising from acts or failures to act
on or before the date of termination or otherwise due after termination pursuant
to the terms of either this Lease or the Management Agreement. Furthermore, no
termination of this Lease or of the Management Agreement shall in any way affect
the survival; of any right, duty, or obligation which is expressly stated
elsewhere in this Lease or in the Management Agreement to survive such
termination.
5. ASSIGNMENT\SUBLETTING. Lessee may not, without the prior
written consent of the Lessor, assign this Lease or any of the Lessee's interest
therein, directly or indirectly, in whole or in part; nor may Lessee underlet,
further sublet, or suffer or permit the Premises, or any part thereof, to be
used by others, without the prior written consent of Lessor in each instance.
For purposes of this paragraph 5, the term "assign" shall mean sell, assign,
mortgage, hypothecate, pledge, create a security interest in or lien upon,
encumber, give, place in trust, or otherwise voluntarily or involuntarily
transfer. Any assignment or subletting by Lessee in violation of this paragraph
shall be null and void and of no effect whatsoever.
6. LESSOR'S CONSENT. In any instance wherein Lessee requires
the prior written consent of the Lessor, the granting or withholding of such
consent shall be within the sole and absolute discretion of the Lessor, without
limitation.
7. ALTERATIONS. Lessee shall make no changes in or to the
demised Premises of any nature without Lessor's prior written consent. Subject
to the prior written consent of Lessor, and to the provisions of this paragraph,
Lessee at Lessee's expense, may make alterations, installations, additions or
improvements which are non-structural and which do not affect utility services
or plumbing and electrical lines, in or to the interior of the demised Premises
by using contractors or mechanics first approved by Lessor. All fixtures and all
panelling, partitions, railing and like installations, installed in the Premises
at any time, either by Lessee or Lessor on Lessee's behalf (including trade
fixtures), shall become the property of Lessee and shall remain upon and be
surrendered with the demised Premises unless Lessor, by notice to Lessee no
later than twenty (20) days prior to the date fixed as the termination of this
Lease, elects to have them removed by Lessee, in which event, the same shall be
removed from the Premises by Lessee forthwith, at Lessee's expense. Upon removal
from the Premises of any installations as may be required by Lessor, Lessee
shall immediately and at its expense, repair and restore the Premises to the
condition existing prior to installation and repair any damage to the demised
Premises or the building due to such removal. All property permitted or required
to be removed by Lessee at the end of the term remaining in the Premises after
Lessee's removal shall be deemed abandoned and may, at the election of the
Lessor, either be retained as Lessor's property or may be removed from the
Premises by Lessee at Lessee's expense. Lessee shall, before making any
alterations, additions, installations or improvements, at its expense, obtain
all permits, approvals and certificates required by any governmental or
quasi-governmental bodies and (upon completion) certificates of final approval
thereof and shall deliver promptly duplicates of all such permits, approvals and
certificates to Lessor and Lessee agrees to carry and will cause Lessee's
contractors and sub-contractors to carry such worker's compensation, general
liability, personal and property damage insurance as Lessor may require. Lessee
agrees to obtain and deliver to Lessor, written and unconditional waivers of
mechanic's liens upon the real property in which the demised Premises are
located, for all work, labor and services to be performed and materials to be
furnished in connection with such work, signed by all contractors,
sub-contractors, materialmen and laborers to become involved in such work.
Notwithstanding the foregoing, if any mechanic's lien is filed against the
demised Premises, or the building of which the same forms a part, for work
claimed to have been done for, or materials furnished to, Lessee, whether or not
done pursuant to this paragraph, the same shall be discharged by Lessee within
ten (10) days thereafter, at Lessee's expense, by payment thereof or by filing
the bond required by law.
8. REPAIRS. Lessor shall, on behalf of Lessee, and at Lessee's
cost and expense, maintain and repair the public portions of the building, both
exterior and interior. The expense thereof incurred by Lessor shall be
collectable as additional rent from Lessee, after rendition of a bill or
statement therefor, and payable in the same manner as set forth herein for the
payment of rent. Lessee shall, throughout the term of this Lease, take good care
of the demised Premises and the fixtures and appurtenances therein and at
Lessee's sole cost and expense, make all non-structural repairs thereto as and
when needed to preserve them in good working order and condition, reasonable
wear and tear, obsolescence and damage from the elements, fire or other
casualty, excepted. Notwithstanding the foregoing, all damage or injury to the
demised Premises or to any other part of the building, or to its fixtures,
equipment and appurtenances, whether requiring structural or non-structural
repairs, caused by or resulting from carelessness, omission, neglect or improper
conduct of Lessee, Lessee's servants, agents, employees, invitees or licensees,
shall be repaired promptly by Lessee at its sole cost and expense, to the
satisfaction of Lessor reasonably exercised. Lessee shall also repair all damage
to the building and the demised Premises caused by the moving of Lessee's
fixtures, furniture or equipment. All the aforesaid repairs shall be of quality
or class equal to the original work or construction. If Lessee fails after ten
days notice to proceed with due diligence to make repairs required to be made by
Lessee, the same may be made by Lessor at the expense of Lessee and the expenses
thereof incurred by Lessor shall be collectible as additional rent after
rendition of a bill or statement therefor. Lessee shall give Lessor prompt
notice of any defective condition in any plumbing, heating system or electrical
lines located in, servicing or passing through the demised Premises and
following such notice, Lessor shall remedy the condition with due diligence, on
behalf of and at the expense of Lessee, which expense shall be collectible as
additional rent and shall be payable in the same manner as is rent hereunder, as
aforesaid. Except as is specifically provided for in Paragraph 11 or elsewhere
in this Lease, there shall be no allowance to Lessee for a diminution of rental
value and no liability on the part of Lessor by reason of inconvenience,
annoyance or injury to business arising from Lessor, Lessee or others making or
failing to make any repairs, alterations, additions or improvements in or to any
portion of the building or the demised Premises or in and to the fixtures,
appurtenances or equipment thereof. The provisions of this Paragraph 8 with
respect to the making of repairs shall not apply in the case of fire or other
casualty which is addressed in Paragraph 11 hereof.
<PAGE> 3
9. WINDOW CLEANING. Lessee will not clean, nor require,
permit, suffer or allow any window in the demised Premises to be cleaned, from
the outside in violation of Section 202 of the Labor Law or any other applicable
law or of the rules of any municipal or other governmental agency, board or body
having or asserting jurisdiction.
10. SUBORDINATION. This Lease is subject and subordinate to
all ground or underlying leases and to all mortgages which may now or hereafter
affect such leases or the real property of which demised Premises are a part and
to all renewals, modifications, consolidations, replacements and extensions of
any such underlying leases and mortgages. This clause shall be self-operative
and no further instrument of subordination shall be required by any ground or
underlying lessee or by any mortgagee, affecting any Lease or the real property
of which the demised Premises are a part. In confirmation of such subordination,
Lessee shall execute promptly any certificate that Lessor may request.
11. DESTRUCTION, FIRE AND OTHER CASUALTY. If the demised
Premises or any part thereof shall be damaged by fire or other casualty, Lessee
shall give immediate notice thereof to Lessor and this Lease shall continue in
full force and effect except as hereinafter set forth:
a. If the demised Premises are partially damaged or
rendered partially unusable by fire or other casualty, then the rent shall be
apportioned from the day following the casualty until such repair shall be
substantially completed, according to the part of the Premises which is usable,
subject to Lessor's right to elect not to repair the same as hereinafter
provided.
b. If the demised Premises are totally damaged or
rendered wholly unusable by fire or other casualty, then the rent shall be
proportionately paid up to the time of the casualty and shall thenceforth cease
until the date when the Premises shall have been repaired and restored by
Lessor, subject to Lessor's right to elect not to repair the same as hereinafter
provided.
c. If the demised Premises are rendered wholly
unusable, or if Lessor shall elect not to repair partially damaged or partially
unusable portions of the Premises or (whether or not the demised premises are
damaged in whole or in part) if the building shall be so damaged that Lessor
shall decide to demolish it or to rebuild it, then, in any of such events,
Lessor may elect to terminate this Lease by written notice to Lessee given
within 90 days after such fire or casualty specifying a date for the expiration
of the Lease, which date shall not be more than 60 days after the giving of such
notice, and upon the date specified in such notice the term of this Lease shall
expire as fully and completely as if such date were the date set forth above for
the termination of this Lease and Lessee shall forthwith quit, surrender and
vacate the Premises without prejudice however, to Lessor's rights and remedies
against Lessee under the Lease provisions in effect prior to such termination,
and any rent and additional rent owing shall be paid up to such date and any
payments of rent made by Lessee which were on account of any period subsequent
to such date shall be appropriately apportioned and/or returned to the Lessee.
Unless Lessor shall serve a termination notice as provided for herein, Lessor
shall make the repairs and restorations under the conditions of Paragraph 11 a.
and 11 b. hereof, with all reasonable expedition subject to delays due to
adjustment of insurance claims, labor troubles and causes beyond Lessor's
control.
d. In any such event wherein Lessor elects to restore
or repair damage to the Premises as aforesaid, Lessor may require, as a
prerequisite to its obligation to make such repairs and restoration, that Lessee
agrees to such adjustment(s) in the rent payable hereunder as would, in the sole
discretion of Lessor, reimburse Lessor for the actual, out-of-pocket cost and
expense to Lessor of the performance of such repairs or restoration.
e. Nothing contained hereinabove shall relieve Lessee
from liability that may exist as a result of damage from fire or other casualty.
Notwithstanding the foregoing, each party shall look first to any insurance in
its favor before making any claim against the other party for recovery for loss
or damage resulting from fire or other casualty, and to the extent that such
insurance is in force and collectible and to the extent permitted by law, Lessor
and Lessee each hereby releases and waives all right of recovery against the
other or any one claiming through or under each of them by way of subrogation or
otherwise. The foregoing release and waiver shall be in force only if both
releasors' insurance policies contain a clause providing that such a release or
waiver shall not invalidate the insurance and also, provided that such a policy
can be obtained without additional premiums. Lessee acknowledges that Lessor
will not carry insurance on Lessee's furniture and/or furnishings or any
fixtures or equipment, improvements, or appurtenances removable by Lessee and
agrees that Lessor will not be obligated to repair any damage thereto or replace
the same.
12. EMINENT DOMAIN. If the whole or any part of the demised
Premises shall be acquired or condemned by eminent domain for any public or
quasi public use or purpose, then and in that event, the rent payable hereunder
shall be paid up to the time of such taking and the term of this Lease shall
cease and terminate from the date of title vesting in such proceeding and Lessee
shall have no claim for the value of any unexpired term of said Lease.
13. ACCESS TO PREMISES. Lessor or Lessor's agents shall have
the right (but shall not be obligated) to enter the demised Premises in any
emergency at any time, and, at other reasonable times, to examine the same and
to make such repairs, replacements and improvements as Lessor may deem necessary
and reasonably desirable to the demised Premises or to any other portion of the
building or which Lessor may elect to perform following Lessee's failure to make
repairs or perform any work which Lessee is obligated to perform under this
Lease, or for the purpose of complying with laws, regulations and other
directions of governmental authorities. Lessee shall permit Lessor to use and
maintain and replace pipes and conduits in and through the demised Premises and
to erect new pipes and conduits therein. Lessor may, during the progress of any
work in the demised Premises, take all necessary materials and equipment into
said Premises without the same constituting an eviction nor shall the Lessee be
entitled to any abatement of rent while such work is in progress nor to any
damages by reason of loss or interruption of business or otherwise. Throughout
the term hereof Lessor shall have the right to enter the demised Premises at
reasonable hours for the purpose of showing the same to prospective purchasers
or mortgagees of the Premises or of the building of which same are a part and
during the last six months of the term for the purpose of showing same to
prospective tenants and may, during said six months period, place upon the
Premises the usual notice "To Let" and "For Sale" which notice Lessee shall
permit to remain thereon without molestation. If Lessee is not present to open
and permit an entry into the Premises, Lessor or Lessor's agents may enter the
same whenever such entry may be necessary or permissible by master key or
forcibly and provided reasonable care is exercised to safeguard Lessee's
property and such entry shall not render Lessor or its agents liable therefor,
nor in any event shall the obligations of Lessee hereunder be affected.
14. REMEDIES OF LANDLORD. In case of any default, re-entry,
expiration and/or dispossess by summary proceedings or otherwise, (a) the rent
shall become due thereupon and be paid up to the time of such re-entry,
dispossess and/or expiration, together with such expenses as Lessor may incur
for legal expenses, attorneys' fees, brokerage and/or putting the demised
Premises in good order, or for preparing the same for re-rental; Lessor may
re-let the Premises or any part or parts thereof, either in the name of Lessor
or otherwise, for a term or terms, which may at Lessor's option be less than or
exceed the period which would otherwise have constituted the balance of the term
of this Lease and may grant concessions or free rent or charge a higher rental
than that in this Lease, and/or (c) Lessee or the legal representatives of the
Lessee shall also pay Lessor as liquidated damages for the failure of Lessee to
observe and perform said Lessee's covenants herein contained, any deficiency
between the rent hereby reserved and/or covenanted to be paid and the net
amount, if any, of the rents collected on account of the Lease for each month of
the period which would otherwise have constituted the balance of the term of
this Lease. The failure or refusal of Lessor to re-let the Premises or any part
or parts thereof shall not release or affect Lessee's liability for damages. In
computing such liquidated damages there shall be added to the said deficiency
such expenses as Lessor may incur in connection with re-letting such as legal
expenses, attorneys' fees, brokerage and/or putting the demised Premises in good
order, or for preparing the same for re-letting. Any such liquidated damages
shall be paid in monthly installments by Lessee on the rent day specified in
this Lease and any suit brought to collect the amount of the deficiency for any
month shall not prejudice in any way the rights of Lessor to collect the
deficiency for any subsequent month by a similar proceeding. Lessor, in putting
the demised Premises in good order or preparing the same for re-rental may, at
Lessor's option, make such alterations, repairs, replacements and/or decorations
in the demised Premises as Lessor, in Lessor's sole judgment, considers
advisable and necessary for the purpose of re-letting the demised Premises, and
the making of such alterations, repairs, replacements and/or decorations shall
not operate or be construed to release Lessee from liability hereunder as
aforesaid. Lessor shall in no event be liable in any way whatsoever for failure
to re-let the demised Premises, or in the event that the demised Premises are
re-let, for failure to collect the rent thereof under
<PAGE> 4
such re-letting, and in no event shall Lessee be entitled to receive any excess,
if any, of such net rents collected over the sums payable by Lessee to Lessor
hereunder. In the event of a breach or a threatened breach by Lessee of any of
the covenants or provisions hereof, Lessor shall have the right of injunction
and the right to invoke any remedy allowed at law or in equity as if re-entry,
summary proceedings and other remedies were not herein provided for. Mention in
this Lease of any particular remedy, shall not preclude Lessor from any other
remedy, in law or in equity. Lessee hereby expressly waives any and all rights
of redemption granted by or under any present or future laws in the event of
Lessee being evicted or dispossessed for any cause, or in the event of Lessor
obtaining possession of the demised Premises, by reason of the violation by
Lessee of any of the covenants and conditions of this Lease, or otherwise.
15. NO REPRESENTATIONS BY LANDLORD. Neither Lessor nor
Lessor's agents have made any representations or promises with respect to the
physical condition of the building, the land upon which it is erected or the
demised Premises, the rents, leases, expenses of operation or any other matter
or thing affecting or related to the Premises except as herein expressly set
forth and no rights, easements or licenses are acquired by the Lessee by
implication or otherwise except as expressly set forth in the provisions of this
Lease. Lessee has inspected the building and the demised Premises and is
thoroughly acquainted with their condition, and agrees to take the same "as is"
and acknowledges that the taking of possession of the demised Premises by Lessee
shall be conclusive evidence that the said Premises and the building of which
the same form a part were in good and satisfactory condition at the time such
possession was so taken, except as to latent defects. All understandings and
agreements heretofore made between the parties hereto are merged in this Lease,
and the Management Agreement to which it is annexed, which alone fully and
completely express the agreement between Lessor and Lessee and any executory
agreement hereafter made shall be ineffective to change, modify, discharge or
effect an abandonment of it in whole or in part, unless such executory agreement
is in writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
16. END OF TERM. Upon the expiration or other termination of
the term of this Lease, Lessee shall quit and surrender to Lessor the demised
Premises, broom clean, in good order and condition, ordinary wear excepted, and
Lessee shall remove all its property. Lessee's obligation to observe or perform
this covenant shall survive the expiration or other termination of this Lease.
If the last day of this Lease or any renewal thereof, falls on Sunday, this
Lease shall expire at noon on the preceding Saturday unless it be a legal
holiday in which case it shall expire at noon on the preceding business day.
17. QUIET ENJOYMENT. Lessor covenants and agrees with Lessee
that upon Lessee paying the rent and additional rent and observing and
performing all the terms, covenants and conditions, on Lessee's part to be
observed and performed, and Lessee's observing and performing all the terms,
covenants and conditions on Lessee's part to be performed under the Management
Agreement, Lessee may peaceably and quietly enjoy the Premises hereby demised,
subject, nevertheless, to the terms and conditions of this Lease including, but
not limited to, Paragraph 16 hereof and to the ground leases, underlying leases
and mortgages herein before and hereinafter mentioned.
18. INABILITY TO PERFORM. This Lease and the obligation of
Lessee to pay rent hereunder and perform all of the other covenants and
agreements hereunder on the part of Lessee to be performed shall in no way be
affected, impaired or excused because Lessor is unable to fulfill any of its
obligations under this Lease or to supply or is delayed in supplying any service
expressly or impliedly to be supplied or is unable to make, or is delayed in
making any repair, additions, alterations or decorations or is unable to supply
or is delayed in supplying any equipment or fixtures if Lessor is prevented or
delayed from so doing by reason of strike or labor troubles or any cause
whatsoever including, but not limited to, government preemption in connection
with a National Emergency or by reason of any rule, order or regulation of any
department or subdivision thereof or any government agency or by reason of the
conditions of supply and demand which have been or are affected by war or other
emergency.
19. SERVICES. Lessor shall provide all essential services to
the Premises (e.g. water, electricity, gas, heat, air conditioning, etc.) on
behalf of and at the expense of the Lessee, the cost of which services shall be
included within the rent payable by Lessee hereunder (and the increase in which
costs shall be included in any adjustments to the rent made pursuant to
Paragraph 3 hereof. Lessor may require Lessee, at any time, to arrange with the
utility companies supplying such services to have accounts therefor established
in the name of the Lessee, after which Lessee shall pay the charges therefor
directly to such utility companies.
20. RULES AND REGULATIONS. Lessee and Lessee's servants
employees, agents, visitors, and licensees shall observe faithfully, and comply
strictly with, the Rules and Regulations of the building and such other
reasonable Rules and Regulations as Lessor or Lessor's agents may from time to
time adopt. Notice of any additional rules and regulations shall be given in
such manner as Lessor may elect. The right to dispute the reasonableness of any
additional Rule or Regulation upon Lessee's part shall be deemed waived unless
the same shall be asserted by service of a notice, in writing upon Lessor within
ten (10) days after the giving of notice thereof. Nothing in this Lease
contained shall be construed to impose upon Lessor any duty or obligation to
enforce the Rules and Regulations or terms, covenants or conditions in any other
Lease, as against any other tenant and Lessor shall not be liable to Lessee for
violation of the same by any other tenant, its servants, employees, agents,
visitors or licensees.
21. SECURITY. Lessee has deposited with Lessor the sum of
twice the monthly rent as security for the faithful performance and observance
by Lessee of the terms, provisions and conditions of this Lease; it is agreed
that in the event Lessee defaults in respect of any of the terms, provisions and
conditions of this Lease, including, but not limited to, the payment of rental
and additional rent, Lessor may use, apply or retain the whole or any part of
the security so deposited to the extent required for payment of any rent and
additional rent or any other sum as to which Lessee is in default or for any sum
which Lessor may expend or may be required to expend by reason of Lessee's
default in respect of any of the terms, covenants and conditions of this Lease,
including but not limited to, any damages or deficiency accrued before or after
summary proceedings or other re-entry by Lessor. In the event that Lessee shall
fully and faithfully comply with all of the terms, provisions, covenants and
conditions of this Lease, the security shall be returned to the Lessee after the
date fixed as the end of the Lease and after delivery of entire possession of
the demised Premises to Lessor. In the event of a sale of the land and building
or leasing of the building, of which the demised Premises form a part, Lessor
shall have the right to transfer the security to the vendee or lessee and Lessor
shall thereupon be released by Lessee from all liability for the return of such
security; and Lessee agrees to look to the new Lessor solely for the return of
such security; and it is agreed that the provisions hereof shall apply to every
transfer or assignment made of the security to a new lessor. Lessee further
covenants that it will not assign or encumber or attempt to assign or encumber
the monies deposited herein as security and that neither Lessor nor its
successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance.
22. INSURANCE AND INDEMNITY.
a. Lessee, prior to commencing occupancy of the
Premises, shall obtain, and shall maintain throughout the term of this Lease and
any renewals thereof, a policy of comprehensive general liability insurance
covering the Premises, with minimum limits of One Million ($1,000,000.00)
dollars per occurrence for personal injury, death and/or property damage, and
Three Million ($3,000,000.00) dollars aggregate, written with a company licensed
to do business in the State of State and satisfactory to Lessor. Lessor shall be
named as an additional insured under said policy. Lessee shall provide Lessor
with a certificate evidencing such coverage prior to taking occupancy, which
certificate shall set forth on its face:
(1) that Lessor is an additional insured;
(2) that such policy may not be terminated
or canceled for any reason, shall not expire by its term and may not be altered
or modified in any way without Lessor receiving at least thirty (30) days prior
written notice of any of same; and
(3) that Lessee is covered for contractual
obligations, including specifically its obligations to indemnify Lessor, as set
forth hereinafter and in the Management Agreement.
b. Lessee hereby indemnifies, holds harmless and
agrees to defend Lessor from and against any and all liability, losses, damages,
claims, causes of action and expenses associated therewith (including reasonable
attorneys' fees), of whatsoever nature and by whomsoever asserted arising,
directly or
<PAGE> 5
indirectly, out of any bodily injury, death or property damage occurring in, on
or about (or claimed to have been occurred in, on or about) the Premises, or the
Land, or the building of which the Premises are a part, or the sidewalks
adjacent thereto, during the term of this Lease or any renewal thereof. This
provision shall survive the expiration or sooner termination of this Lease.
23. SPECIFIC SUPERIOR INSTRUMENTS.
In addition to the subordination set forth in
Paragraph 10 hereof, and without in any way limiting the generality of the
foregoing, it is agreed and understood that this Lease is subject and
subordinate to those matters which are set forth in Exhibit "A" annexed hereto
and made a part hereof.
Lessee acknowledges receipt of true and complete
copies of each and every document or instrument relative to the matters set
forth herein and represents that it is aware of the terms and provisions of each
of same and that this Lease is subordinate thereto.
Although this clause is self-operative and no further
instruments are necessary to confirm same, Lessee will deliver to Lessor, upon
request, such instruments as may be required by Lessor or the holders of any of
the instruments set forth in Exhibit "B" to evidence the subordination of this
Lease thereto. If Lessee shall fail to execute any such instrument provided by
Lessor within five (5) business days after request by Lessor, Lessor may execute
same as attorney-in-fact for Lessee and Lessee hereby appoints Lessor as same.
24. ENTIRE AGREEMENT; NO MODIFICATION. This Lease (including
the Management Agreement to which it is attached and which is incorporated
herein by reference) and the Exhibits annexed hereto and made a part hereof, if
any, constitute the entire agreement between the parties hereto with respect to
the subject matter hereof, there being no representation, warranty or other
agreement not herein expressly set forth or provided for. No change,
modification, or amendment of or addition to this Agreement shall be valid
unless in writing and executed by all of the parties hereto.
25. NOTICES. Any and all notices, designations, consents,
offers, acceptances or any other communication provided for herein shall be
given in writing by registered or certified mail to the parties at the addresses
shown above. Each such communication shall be deemed to have been given at the
time it is mailed at any regularly maintained post office.
26. NO WAIVER. No course of dealing nor any delay on the part
of any party in exercising any rights hereunder or under the Management
Agreement shall operate as a waiver of any of such rights. No waiver of any
default or breach of this Lease or of the Management Agreement shall be deemed a
continuing waiver or waiver of any other breach or default hereunder or under
the Management Agreement.
27. SEVERABILITY. If any provision of this Lease or the
application of any such provision to any party or in any circumstances shall be
determined by any court or regulatory authority of competent jurisdiction to be
invalid and unenforceable to any extent, the remainder of this Lease or the
application of such provision or provisions to such entity or circumstances
other than those to which it is so determined to be invalid and unenforceable,
shall not be affected thereby and shall be valid and enforceable to the fullest
extent of the law.
28. BINDING EFFECT. This Lease shall inure to the benefit of
the parties hereto and, except as otherwise provided herein, their respective
successors and assigns as permitted herein. Nothing in this Lease, express or
implied, is intended to or shall confer on any person other than the parties
hereto, or (to the extent not prohibited) their respective successors or
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Lease.
29. GOVERNING LAW. This Lease shall be interpreted and given
effect in accordance with the laws of the State of State without giving effect
to the conflict of laws provisions thereof.
30. CONFLICT WITH MANAGEMENT AGREEMENT. This Lease being
attached to and made a part of the Management Agreement, is intended to
complement and not to conflict with or in any way limit the terms and provisions
of the Management Agreement. Accordingly, in the event of any conflict or
inconsistency between the terms and provisions hereof and those of the
Management Agreement, those of the Management Agreement will control.
32. SECTION HEADINGS. The section headings in this Lease are
for convenience only, and are not to be construed as part of this Lease.
<PAGE> 6
IN WITNESS WHEREOF, the undersigned have hereunto set their hands the
day and year first above written.
WITNESS:
((CWMC_Name))
- ----------------- by:
-----------------------
, President
Complete Wellness Centers, Inc.
- ----------------- by:
-----------------------
E. Eugene Sharer, President
State of ((State))
County of ((County))
On this ____ day of ______________, 19__ before me personally came, to
me known, who being by me duly sworn, did depose and say that he resides at;
that he is the president of ((CWMC_Name)), the corporation described in, and
which executed the foregoing instrument as Lessee; that he knows the seal of
said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by order of the Board of Directors of said
corporation, and that he signed his name thereto by like order.
---------------------------------
NOTARY PUBLIC
State of Maryland
County of Montgomery
On this ____ day of ________, 19__ before me personally came E. Eugene
Sharer, to me known, who being by me duly sworn, did depose and say that he
resides at 12404 Beall Spring Road, Potomac, MD 20854; that he is the president
of Complete Wellness Centers, Inc., the corporation described in, and which
executed, the foregoing instrument, as Lessor; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the Board of Directors and said corporation,
and that he signed his name thereto by like order.
---------------------------------
NOTARY PUBLIC
<PAGE> 1
EXHIBIT 10.16
EQUIPMENT SUB-LEASE
EQUIPMENT SUB-LEASE made this __ day of _______ , 19__ (the "Lease"),
by and between Complete Wellness Centers, Inc., a Delaware corporation having
its principal place of business at 725 Independence Avenue, Washington, DC
20003 ("Lessor") and ((CWMC_Name)), a ((State)) chartered professional
corporation having its principal place of business at ((Address1)) ("Lessee").
TERMS AND CONDITIONS OF LEASE
1. LEASE. Lessor hereby leases to Lessee, and Lessee hereby hires and
takes from Lessor the personal property described in Exhibit "A" attached
(hereinafter, with all replacement parts, additions, repairs, and accessories
incorporated therein and/or affixed thereto, referred to as "Equipment") upon
the following terms and conditions.
2. TERMS OF RENTAL.
A. Term. This Lease is for a term to run concurrent with the term of
that certain Integrated Medical Center Management and Security Agreement (the
"Integrated Agreement") dated of even date herewith by and among Lessor,
((CWMC_Name)) and (but in no event for a period of less than one (1) year).
B. Annual Rental. The annual rental payment for the Equipment shall be
$________, payable in arrears, in twelve consecutive monthly installments, plus
applicable taxes thereon, as follows:
<TABLE>
<S> <C> <C>
Month 1 Month 5 Month 9
---------- ----------- ------------
Month 2 Month 6 Month 10
---------- ----------- ------------
Month 3 Month 11
---------- ------------
Month 7
-----------
Month 4 Month 12
---------- ------------
Month 8
-----------
</TABLE>
Thereafter, annual rental payments shall be adjusted for additional one
year terms pursuant to negotiation between the Lessor and the Lessee, but in no
event shall the adjusted rental payment rate be less than the rental rate
described herein.
3. DESTRUCTION OF EQUIPMENT. If any Equipment is totally destroyed, the
liability of the Lessee to pay rent therefor may be discharged by paying to the
Lessor all the rent due thereon, plus all the rent to become due thereon less
the net amount of the recovery, if any, actually received by Lessor from
insurance or otherwise for such loss or damage. Lessor shall not be obligated to
undertake, by litigation or otherwise, the collection of any claim against any
person for loss or damage of the Equipment. Except as expressly provided in this
paragraph, the total or partial destruction of any Equipment, or total or
partial loss of use or possession thereof to Lessee, shall not release or
relieve Lessee from the duty to pay the rent herein provided.
4. NO WARRANTIES BY LESSOR; MAINTENANCE, COMPLIANCE WITH LAWS AND
INSURANCE. LESSOR, NOT BEING THE MANUFACTURER OF THE EQUIPMENT, NOR
MANUFACTURER'S AGENT, MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR
IMPLIED, AS TO THE FITNESS, QUALITY, DESIGN, CONDITION, CAPACITY, SUITABILITY,
MERCHANTABILITY OR PERFORMANCE OF THE EQUIPMENT OR OF THE MATERIAL OR
WORKMANSHIP THEREOF, IT BEING AGREED THAT THE EQUIPMENT IS LEASED "AS IS" AND
THAT ALL SUCH RISKS, AS BETWEEN THE LESSOR AND THE LESSEE, ARE TO BE BORNE BY
THE LESSEE AT ITS SOLE RISK AND EXPENSE. Lessee accordingly agrees not to assert
any claim whatsoever against the Lessor based thereon. Lessee further agrees,
regardless of cause, not to assert any claim whatsoever against the Lessor for
loss of anticipatory profits or consequential damages. Lessor shall have no
obligation to install, erect, test, adjust, or service the Equipment. No oral
agreement, guaranty, promise, condition, representation, or warranty shall be
binding; all prior conversations, agreements, or representations related hereto
and/or to the Equipment are integrated herein, and no modification hereof shall
be binding unless in writing signed by Lessor. Lessee agrees, at its own cost
and expense, (a) to pay all shipping charges and other expenses incurred in
connection with the shipment of the Equipment by the Seller to the Lessee; (b)
to pay all charges and expenses in connection with the operation of each item of
Equipment; (c) to comply with all governmental laws, ordinances, regulations,
requirements, and rules with respect to the use, maintenance, and operation of
each item of Equipment; (d) to maintain at all times public liability, property
damage, fire with extended coverage, theft, and comprehensive insurance in an
amount satisfactory to Lessor, protecting Lessor's interest as it may appear,
delivering to Lessor evidence of such insurance coverage; all insurance policies
shall provide that no cancellation thereof shall be effective without 30 days
prior written notice to Lessor, and (e) to make all repairs and replacements
required to be made to maintain the Equipment in good condition, reasonable wear
and tear excepted.
5. TAXES. Lessee agrees that, during the term of this Lease, in
addition to the rent and all other amounts provided herein to be paid, it will
promptly pay all taxes, assessments, and other governmental charges (including
penalties and interest, if any, and fees for titling or registration, if
required) levied or assessed, (a) upon the interest of the Lessee in the
Equipment or upon the use or operation thereof; or on the earnings arising
therefrom, and (b) against Lessor on account of its acquisition or ownership of
the Equipment or any part thereof, or the use or operation thereof or the
leasing thereof to the Lessee, or the rent herein provided for, or the earnings
arising therefrom, exclusive, however, of any taxes based on net income of
Lessor. Lessee agrees to file, in behalf of Lessor, all required tax returns and
reports concerning the Equipment with all appropriate governmental agencies, and
within not more than 45 days after the due date of such filing to send Lessor
confirmation, in form satisfactory to Lessor, of such filing.
6. LESSOR'S TITLE, RIGHT OF INSPECTION, AND IDENTIFICATION OF
EQUIPMENT: Title to the Equipment shall at all times remain in the Lessor and
Lessee will at all times protect and defend, at its own cost and expense, the
title of Lessor from and against all claims, liens, and legal processes of
creditors of the Lessee and keep all the Equipment free and clear from all such
claims, liens, and processes. The Equipment is and shall remain personal
property. Upon the expiration or termination of this Lease: (i) the Lessee at
Lessee's sole expense shall return the Equipment unencumbered to Lessor at the
place where the rent is payable or to such other place as Lessor and Lessee
agree upon, and in the same condition as when received by Lessee, reasonable
wear and tear resulting from use thereof alone excepted, or (ii) in lieu of
returning the Equipment to the Lessor, Lessee agrees that Lessee will, upon
request of Lessor, store the Equipment on Lessee's premises, at an inside
location protected from the weather and elements, without charge to Lessor for a
period of 180 days following the date of expiration or termination of this
Lease. During such storage period Lessee shall not use the Equipment for any
purpose. Upon expiration of such storage period Lessee shall not use the
Equipment for any purpose. Upon expiration of such storage period Lessee will
return the Equipment to the Lessor in accordance with the provisions of (i)
above. Lessor shall have the right from time to time during reasonable business
hours to enter upon the Lessee's premises or elsewhere for the purpose of
confirming the existence, condition, and the proper maintenance of the Equipment
during any period of storage. Lessor shall also have the right to demonstrate
and show the Equipment to others. The foregoing rights of entry are subject to
any applicable governmental laws, regulations and rules concerning industrial
security. Lessee shall, upon the request of Lessor, and at its own expense
firmly affix to the Equipment, in a conspicuous place, such a decal or metal
plate as shall be supplied by Lessor showing Lessor as the owner and lessor of
such Equipment.
7. POSSESSION, PLACE OF USE, AND CHANGES IN LOCATION OF EQUIPMENT. So
long as Lessee shall not be in default under this Lease it shall be entitled to
the possession and use of the Equipment in accordance with the terms of this
Lease. The Equipment shall be used in the conduct of the lawful business of the
Lessee and shall be kept at the address of Lessee set forth above. The Lessee
shall not, without Lessor's prior written consent, remove the Equipment from
such location, part with possession or control of the Equipment or attempt to
purport to sell, pledge, mortgage, or otherwise encumber any of the Equipment or
otherwise
<PAGE> 2
dispose of or encumber any interest under this Lease.
8. PERFORMANCE OF OBLIGATIONS OF LESSEE BY LESSOR. In the event that
the Lessee shall fail duly and promptly to perform any of its obligations under
the provisions of paragraphs 4, 5, and 6 of this Lease, the Lessor may, at its
option, perform the same for the account of Lessee without thereby waiving such
default, and any amount paid or expense incurred (including reasonable
attorney's fees), penalty, or other liability incurred by Lessor in such
performance, together with interest at the rate of 1 1/2% per month thereon
until paid by the Lessee to the Lessor, shall be payable by the Lessee upon
demand as additional rent for the Equipment.
9. DEFAULT. An event of default shall occur if: (a) Lessee fails to pay
when due any installment of rent and such failure continues for a period of 10
days, (b) Lessee shall fail to perform or observe any covenant, condition, or
agreement to be performed or observed by it hereunder and such failure continues
uncured for 15 days after written notice thereof to Lessee by Lessor, (c) Lessee
ceases doing business as a going concern, makes an assignment for the benefit of
creditors, admits in writing its inability to pay its debts as they become due,
files a voluntary petition in bankruptcy, is adjudicated a bankrupt or an
insolvent, files a petition seeking for itself any reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar arrangement
under any present or future statute, law, or regulation or files an answer
admitting the material allegations of a petition filed against it in any such
proceeding, consents to or acquiesces in the appointment of a trustee, receiver,
or liquidator of it or of all or any substantial part of its assets or
properties, or if it or its shareholders shall take any action looking to its
dissolution or liquidation, (d) within 60 days after the commencement of any
proceedings against Lessee seeking reorganization, arrangement, readjustment,
liquidation, dissolution, or similar relief under any present or future state,
law, or regulation, such proceedings shall not have been dismissed, or if within
60 days after the appointment without Lessee's written consent of any trustee,
receiver, or liquidator of it or of all or any substantial part of its assets
and properties, such appointment shall not be vacated, or (e) Lessee attempts to
remove, sell, transfer, encumber, part with possession, or sublet the Equipment
or any item thereof.
Upon the occurrence of an event of default, Lessor shall have all the
rights and remedies provided by applicable law and by this Lease.
Notwithstanding that this agreement is a Lease and title to the Equipment is at
all times in Lessor, Lessor may nevertheless at its option choose those rights
and remedies of a secured party under the Uniform Commercial Code. In addition,
Lessor, at its option, may: (a) declare all unpaid rentals and other sums due
and to become due hereunder immediately due and payable; (b) proceed by
appropriate court action or actions or other proceedings either at law or in
equity to enforce performance by Lessee of any and all covenants of this Lease
and to recover damages for the breach thereof; (c) demand that Lessee deliver
the Equipment forthwith to Lessor at Lessee's expense at such place as Lessor
may designate; and (d) without notice, liability or legal process, enter by
itself and/or its agents into any premises of or under control or jurisdiction
of Lessee or any agent of Lessee where the Equipment may be or by Lessor is
believed to be, and repossess all or any item thereof, disconnecting and
separating all thereof from any other property and using all force necessary and
permitted by applicable law so to do, Lessee hereby expressly waiving all
further rights to possession of the Equipment and all claims for injuries
suffered through or loss caused by such repossession.
Notwithstanding recovery of the Equipment by Lessor, Lessor shall,
nevertheless, also be entitled to recover immediately as liquidated damages for
loss of the bargain and not as penalty any unpaid rent that accrued on or before
the occurrence of the event of the event of default plus an amount equal to the
difference between the present value, as of the date of the occurrence of such
event of default, of the aggregate rent reserved hereunder for the unexpired
term of this Lease and the then present value of the aggregate rental value of
all Equipment for such unexpired term which the Lessor reasonably estimates to
be obtainable for the use of all of the Equipment during such unexpired term. If
any statute governing the proceeding in which such damages are to be proved
specifies the amount of such claim, Lessor shall be entitled to prove as and for
damages for the breach an amount equal to that allowed under such statute. The
provisions of this paragraph shall be without prejudice to any rights given to
the Lessor by such statute to prove for any amounts allowed thereby. Should any
proceedings be instituted by or against Lessor hereunder and/or for possession
of any or all of the Equipment or for any other relief, Lessee shall pay a
reasonable sum as attorney's fees.
No remedy of Lessor hereunder shall be exclusive of any remedy herein
or by law provided, but each shall be cumulative and in addition to every other
remedy.
10. INDEMNITY. Lessee agrees that Lessor shall not be liable to Lessee
for, and Lessee shall indemnify and save Lessor harmless from and against any
and all liability, loss, damage, expense, causes of action, suits, claims, or
judgments arising from or caused directly or indirectly by: (a) Lessee's failure
to promptly perform any of its obligations under the provisions of paragraphs 4,
5, and 6 of this Lease, or (b) injury to person or property resulting from or
based upon the actual or alleged use, operation, delivery, or transportation of
any or all of the Equipment or its location or condition, or (c) inadequacy of
the Equipment, or any part thereof, for any purpose or any deficiency or defect
therein or the use or maintenance thereof or any repairs, servicing or
adjustments thereto or any delay in providing or failure to provide any thereof
or any interruption or loss of service or use thereof or any loss of business;
and shall, at its own cost and expense, defend any and all suits which may be
brought against Lessor, either alone or in conjunction with others upon any such
liability or claim or claims and shall satisfy, pay, and discharge any and all
judgments and fines that may be recovered against Lessor in any such action or
actions, provided, however, that Lessor shall give Lessee written notice of any
such claim or demand.
11. ASSIGNMENT, NOTICES, REMEDIES, AND WAIVERS. This Lease and all
rights of Lessor hereunder shall be assignable by Lessor without Lessee's
consent, but Lessee shall not be obligated to any assignee of the Lessor except
after written notice of such assignment from the Lessor. Without the prior
written consent of Lessor, the Lessee shall not assign this Lease or its
interests hereunder or enter into any sublease with respect to the Equipment
covered hereby, it being agreed Lessor will not unreasonably withhold its
consent to a sublease of the Equipment. All notices relating hereto shall be
delivered in person to an officer of the Lessor or Lessee or shall be mailed
registered to Lessor or Lessee at its respective address above shown or at any
later address last known to the sender. No remedy of Lessor hereunder shall be
exclusive of any other remedy herein or by law provided, but each shall be
cumulative and in addition to every other remedy. A waiver of a default shall
not be a waiver of any other or a subsequent default.
12. FURTHER ASSURANCES. Lessee shall execute and deliver to Lessor,
upon Lessor's request, such instruments and assurances as Lessor deems necessary
or advisable for the confirmation or perfection of this Lease and Lessor's
rights hereunder, including the filing or recording of this agreement at
Lessor's option.
13. LEASE IRREVOCABILITY. This Lease is irrevocable for the full term
hereof and for the aggregate rentals hereinabove reserved and the rent shall not
abate by reason of termination of Lessee's right of possession and/or the taking
of possession by the Lessor or for any other reason, and delinquent installments
of rent shall bear interest at 1 1/2% per month if not prohibited by law,
otherwise at the highest lawful contract rate.
14. RENEWAL. Any renewal privilege shown above shall be exercised by
the Lessee giving the Lessor a notice in writing and paying the Lessor the
amount of the renewal rental, at least 30 days prior to the commencement of the
renewal term of the Lease. Upon such notification and payment, this Lease shall
be renewed for the stated renewal term at the stated renewal rental with the
other provisions and conditions of the Lease continuing unchanged.
15. NO PURCHASE OPTION. Lessee shall have no option to purchase or
otherwise acquire title to or ownership of any of the Equipment and shall have
only the right to use the same under and subject to the term and provisions of
this Lease.
<PAGE> 3
UNDERSIGNED AGREE TO ALL TERMS AND CONDITIONS SET FORTH ABOVE AND IN WITNESS
WHEREOF, THEY HEREBY EXECUTE THIS LEASE.
Complete Wellness Center, Inc. ((CWMC_Name))
by: by:
------------------------------- ---------------------------
E. Eugene Sharer, President , President
<PAGE> 4
EXHIBIT "A"
Description of Leased Equipment
OTHER
MAKE KIND MODEL NO. SERIAL NO. PERTINENT I.D.
<PAGE> 1
EXHIBIT 10.17
July 1, 1996
Mr. C. Thomas McMillen
1103 South Carolina Avenue, S.E.
Washington, D.C. 20003
Dear Mr. McMillen,
This letter, when accepted by you in a manner hereinafter provided, will
evidence the agreement among Complete Wellness Centers, Inc., a Delaware
Corporation (the "Company") and Mr. C. Thomas McMillen (the "Employee") for the
provision of certain services to be rendered by Employee to the Company (the
"Agreement"), all under the following terms and conditions to wit:
1. EMPLOYMENT DUTIES
The Company shall employ Employee as Chairman and Chief Executive Officer.
Employee shall report to the Board of Directors.
Employee shall devote his time and best efforts on a substantially full time
basis to the business and affairs of the Company. Employee shall devote at
least forty (40) hours per week to the business and affairs of the Company.
(Nothing in this Agreement shall prohibit Employee from time to time engaging
in other business arrangements and/or possessing an interest in other business
ventures of any and every type and description subject to the provisions of
Section 4.)
2. EMPLOYMENT TERM
This Agreement shall commence on July 1, 1996, and shall end on March 31, 1999
(the "Employment Term") unless extended by the Company and Employee in writing
or unless sooner terminated in accordance with the provisions of this
Agreement.
3. COMPENSATION, EXPENSES, ETC.
In consideration of performance of the services and activities hereby, the
Company shall pay Employee compensation as follows:
A. An initial base salary of ninety thousand dollars ($90,000)
per annum, payable semi-monthly in arrears. At such time as
the Company closes its initial public offering, the base
salary shall be increased to one hundred fifty thousand
dollars ($150,000) per annum.
B. Employee shall receive an additional performance bonus (the
"Bonus") equal to thirty
<PAGE> 2
percent (30%) of the Company's Bonus Fund, in accordance with
the Company's 1995 Bonus Plan for Key Executives. For the
purpose of this Section 3, the "Bonus Fund" shall be equal to
at least ten percent (10%) of the Company's pre-tax income.
The maximum bonus fund is $5 million.
C. The use of a Company car and payment of related expenses
including gas, insurance, maintenance, etc.
D. Four (4) weeks of compensated vacation which shall vest
ratably throughout the year.
E. The Company shall make available such health benefits and any
other benefits as it makes available to its executive
employees.
F. Upon termination of this Agreement pursuant to Section 5(i)
and 5(ii), Employee shall receive a severance payment equal to
twelve (12) times the Employee's monthly compensation pursuant
to Section 3(A) for the month prior to termination. Such
severance shall be payable in twelve (12) monthly
installments, beginning in the second calendar month following
the month in which termination occurs.
G. The Company shall provide Employee with an office and
secretarial services comparable to those of its other
executive employees.
The Company shall deduct the usual withholding taxes from
Employee's compensation consistent with standard practices and
applicable federal and state laws.
The Company shall reimburse Employee for any documented out of
pocket expenses incurred in connection with the duties and
responsibilities described herein, subject to the Company's
policies.
4. COVENANT NOT TO COMPETE; NOT TO SOLICIT
A. During the Employment Term and for one (1) year thereafter,
the Employee will not without the prior written permission of
the Company in each instance directly or indirectly carry on
or participate in a business the same as or similar to or in
competition with that conducted or engaged in by the Company
or any of its subsidiaries or affiliates.
B. The term "carry on or participate in a business the same as or
similar to that conducted or engaged in by the Company or any
of its subsidiaries or affiliates" shall include the Employee,
directly or indirectly, doing any of the following listed
acts, other than carrying on or engaging in activities
expressly permitted under this Agreement:
(i) carrying on or engaging in any such business
as a principal, or solely or jointly with
others as a director, officer, agent,
employee, consultant or partner, or
stockholder or limited partner owning more
than five percent (5%) of the stock or equity
interests in or securities convertible into
more than five percent (5%) of the stock
2
<PAGE> 3
of or equity interests in any corporation,
association or limited partnership; or
(ii) as agent or principal carrying on or engaging
in any activities or negotiations with
respect to the acquisition or disposition of
any such business; or
(iii) lending credit or money for the purpose of
establishing or operating any such business;
or
(iv) giving advice to any other person, firm,
association, corporation or other entity
engaging in any such business; or
(v) lending or allowing his name or reputation to
be used in any such business; or
C. In the event of a breach or threatened breach by the Employee
of the provisions of this Section 4, the Company shall be
entitled to injunctive relief against the Employee. Nothing
herein shall be construed as prohibiting the Company from
pursuing any other remedies available to the Employer for such
breach or threatened breach, including without limitation the
recovery of damages from the Employee.
D. During the Employment Term and for one (1) year thereafter,
the Employee will not without the prior written permission of
the Company in each instance will not solicit, or attempt to
solicit and employ any employee of the Company or any of its
subsidiaries or affiliates, or commit an act the primary
purpose of which is to induce employee of the Company or any
of its subsidiaries or affiliates to leave such employment or
significantly interfere with, disrupt or attempt to disrupt
any past, present or prospective relationship, contractual or
otherwise, relating to the business activities between the
Company or any of its subsidiaries or affiliates and their
respective prospects.
E. The parties hereto consider the restrictions contained in this
Section 4 to be reasonable. If, however, such restrictions
are found by any court having jurisdiction to be unreasonable
because they are (or any of them is) too broad, then such
restrictions shall nevertheless remain effective, but shall be
considered amended as to protection of business, time or
geographic area in whatever manner is considered reasonable by
that court and, as so amended, shall be enforced.
F. The provisions of this Section 4 shall survive the expiration
or termination, for any reason, or this Agreement and shall be
separately enforceable.
5. TERMINATION
This Agreement may be terminated prior to the end of the Employment Term,
(i) by the written agreement between Company and Employee;
(ii) by the death of Employee or his disability for a period of one
hundred and twenty (120) consecutive days or the adjudicated
mental incompetency of Employee; or
(iii) by the Company for cause, where "cause" shall mean for purpose
of this Agreement:
(a) a violation by Employee of any material
provision of this Agreement, a breach of
fiduciary duty, manifest incompetence, plan
dereliction or neglect of duty, or conduct;
involving moral turpitude, where such
violation, activity, or conduct is not
remedied by Employee within thirty, (30) days
of written notice from the
3
<PAGE> 4
Company
(b) employee's conviction of a felony
6. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
A. The Employee agrees that he will not, during the Employment
Term or thereafter, make use of, divulge or otherwise
disclose, directly or indirectly, any trade or business secret
(including, without limitation, any customer list, data,
records or financial information constituting a trade or
business secret) concerning the business or policies of the
Company or any of its subsidiaries or affiliates which he may
have learned as a result of his employment during the
Employment Term or prior thereto as shareholder, employee,
officer and/or director or the Company except to the extent
such use or disclosure is necessary to the performance of this
Agreement and in furtherance of the Company's best interest.
The provisions of this Section 5 shall survive the expiration
or termination, for any reason, of this Agreement.
B. The Employee shall not during the Employment Term or for one
(1) year thereafter make use of, divulge or otherwise
disclose, directly or indirectly, any confidential information
concerning the business or policies of the Company or any of
its subsidiaries or affiliates which he may have learned while
a shareholder, employee, officer and/or director of the
Company.
C. In the event of a breach or threatened breach by the Employee
of the provisions of this Section 6, the Company shall be
entitled to an injunction restraining the Employee from
disclosing, in whole or in part, any such trade or business
secret and/or any such confidential information, or from
rendering any services to a person, firm, corporation,
association, or other entity to whom any such trade or
business secret and/or any such confidential information, in
whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein shall be construed as prohibiting
the Company from pursuing any other remedies available to the
Company for such breach or threatened breach, including
without limitation the recovery of damages from the Employee.
D. The provisions of this Section 6 shall survive the expiration
or termination, for any reason, of this Agreement and shall be
separately enforceable.
7. AMENDMENT
This Agreement may be amended only by the written agreement of the Company and
Employee.
8. SUCCESSORS AND ASSIGNS
The Company's rights and obligations under this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the Company; and
the Company may delegate all or any part of its rights and obligations
hereunder to any affiliate or subsidiary of the Company.
4
<PAGE> 5
The Employee acknowledges and agrees that this Agreement is personal to him and
his rights and interests hereunder may not be assigned, nor may his obligations
and duties hereunder be delegated with exception of the voting rights assigned
to Employee's spouse by Employee.
9. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws
of the State of Maryland.
10. ENTIRE AGREEMENT
This Agreement supersedes any and all other agreements, either oral or written
heretofore made with respect to the subject matter hereof.
11. SEVERABILITY
Any provision of this Agreement which is found to be unenforceable in any
jurisdiction, shall, as to such jurisdiction only, be ineffective to the extent
of such unenforceability, without invalidating or otherwise affecting the
remaining provisions hereof. If any of the covenants against competition
contained in Section 4 are found by a court having jurisdiction to be
unreasonable in duration, geographical scope, or character of restriction, the
covenant shall not be rendered unenforceable thereby, but rather the duration,
geographical scope, or character of restriction of said covenant shall
respectively be reduced or modified to render the covenant reasonable and the
covenant shall be enforced as modified.
12. COUNTERPARTS
This Agreement may be executed simultaneously in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. This Agreement shall be binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of the parties reflected hereon as signatories.
13. NOTICES
All notices required or permitted under this Agreement shall be in writing and
shall be deemed effective upon personal delivery or upon deposit in the United
States Post Office, by registered or certified mail, postage prepaid, addressed
to:
(i) Employee at the address shown above, or at such other address
or addresses as Employee shall designate to the Company in
accordance with this Section, or
(ii) Company at the address set forth on the above letterhead, or
at such other address as the Company shall designate to
Employee in accordance with this section.
14. PRONOUNS
Whenever the context may require, any pronouns used in this Agreement shall
include the
5
<PAGE> 6
corresponding masculine, feminine or neuter forms and the singular form of
nouns and pronouns shall include the plural and vice versa.
15. MISCELLANEOUS
A. No delay or omission by the Company or Employee in exercising
any right under this Agreement shall operate as a waiver of
that or any other right. A waiver or consent given by the
Company or Employee on any one occasion shall be effective
only in that instance and shall not be construed as a bar or
waiver of any right on any other occasion.
B. The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or
affect the scope or substance of any of this Agreement.
6
<PAGE> 7
* * *
If the foregoing accurately sets out our agreement with regard to the above,
please indicate your acceptance by executing and returning two copies of this
letter to the undersigned.
Very truly yours,
COMPLETE WELLNESS CENTERS, INC.
Board of Directors
- -------------------------
Robert Mrazek
- -------------------------
Robert Libauer
- -------------------------
James Joseph McMillen
- -------------------------
E. Eugene Sharer
Accepted and agreed to this _____ day of ____________________, 1996
- -------------------------
C. Thomas McMillen
"Employee"
7
<PAGE> 1
EXHIBIT 10.18
March 21, 1996
Mr. Eugene Sharer
12404 Beall Spring Road
Potomac, MD 20854
Dear Mr. Sharer,
This letter, when accepted by you in a manner hereinafter provided, will
evidence the agreement among Mr. E. Eugene Sharer (the "Employee") and Complete
Wellness Centers, Inc., a Delaware corporation (the "Company") for the
provision of certain services to be rendered by Employee to the Company (the
"Agreement"), all under the following terms and conditions to wit:
1. EMPLOYMENT DUTIES
The Company shall employ Employee as President and Chief Operating Officer.
Employee shall report to the Chairman of the Board and Chief Executive Officer,
subject in all events to the control and supervision of the Board of Directors.
Employee shall devote his time and best efforts on a substantially full time
basis to the business and affairs of the Company.
2. EMPLOYMENT TERM
This Agreement shall commence on April 1, 1996, and shall end on March 31, 1999
(the "Employment Term") unless extended by the Company and Employee in writing
or unless sooner terminated in accordance with the provisions of this
Agreement.
3. COMPENSATION, EXPENSES, ETC.
In consideration of performance of the services and activities hereby, the
Company shall pay Employee compensation as follows:
A. An initial base salary at such time as the Company closes its
initial public offering of one hundred fifty thousand dollars
($150,000) per annum payable semi - monthly in arrears.
B. Employee shall receive an additional performance bonus (the
"Bonus") equal to thirty percent (30%) of the Company's Bonus
Fund, in accordance with the Company's 1995 Bonus Plan for Key
Executives. For the purpose of this Section 3, the "Bonus
Fund" shall be equal to at least ten percent (10%) of the
Company's pre-tax income. The
<PAGE> 2
maximum bonus fund is $5 million.
C. An automobile and parking allowance of one thousand dollars
($1,000) per month.
D. Four (4) weeks of compensated vacation which shall vest
ratably throughout the year.
E. The Company shall make available such health benefits and any
other benefits as it makes available to its executive
employees.
F. Upon termination of this Agreement pursuant to Section 6(i)
and 6(ii), Employee shall receive a severance payment equal to
twelve (12) times the Employee's monthly compensation pursuant
to Section 3(A) for the month prior to termination. Such
severance shall be payable in twelve (12) monthly
installments, beginning in the second calendar month following
the month in which termination occurs.
G. The Company shall provide Employee with an office and
secretarial services comparable to those of its other
executive employees.
The Company shall deduct the usual withholding taxes from
Employee's compensation consistent with standard practices and
applicable federal and state laws.
The Company shall reimburse Employee for any documented out of
pocket expenses incurred in connection with the duties and
responsibilities described herein, subject to the Company's
policies.
4. STOCK OPTIONS
Employee will be granted, on April 1, 1996, options (the "Options") to purchase
three hundred fifty thousand (350,000) shares of the Company's common stock at
an exercise price of $.01 per share under the Company's Stock Option Plan. Such
Options represent the right to purchase approximately ten percent (10%) of the
fully diluted outstanding shares of the company as of March 15, 1996. The
Options will be evidenced by a stock option agreement and will vest with
respect to 50,000 options on April 1, 1996, 100,000 options on April 1, 1997,
100,000 options on April 1, 1998, and 100,000 options on March 31, 1999 and
shall be exercisable for a period of five years from April 1, 1996.
However, in the event the Agreement is terminated pursuant to Sections 7(i),
(ii), (iii) or demotion by CWC or succeeding entity, existing unexercised stock
options shall immediately vest and shall be exercisable through March 31, 2001.
5. BOARD OF DIRECTOR APPOINTMENT
Employee shall be appointed to the Company's Board of Directors by May 15,
1996.
2
<PAGE> 3
6. OFFICE LOCATION
On or before December 31, 1996, the Company shall move its executive office to
the state of Maryland to a location mutually agreed upon by the Company and
Employee.
7. TERMINATION
This Agreement may be terminated prior to the end of the Employment Term,
(i) by the written agreement between Company and Employee;
(ii) by the death of Employee or his disability for a period of one
hundred and twenty (120) consecutive days or the adjudicated
mental incompetency of Employee; or
(iii) by the Company for cause, where "cause" shall mean for purpose
of this Agreement:
(a) a violation by Employee of any material
provision of this Agreement, a breach of
fiduciary duty, manifest incompetence, plan
dereliction or neglect of duty, or conduct;
involving moral turpitude, where such
violation, activity, or conduct is not
remedied by Employee within thirty, (30) days
of written notice from the Company
(b) employee's conviction of a felony
8. COVENANT NOT TO COMPETE; NOT TO SOLICIT
A. During the Employment Term and for one (1) year thereafter,
the Employee will not without the prior written permission of
the Company in each instance directly or indirectly carry on
or participate in a business the same as or similar to or in
competition with that conducted or engaged in by the Company
or any of its subsidiaries or affiliates.
B. The term "carry on or participate in a business the same as or
similar to that conducted or engaged in by the Company or any
of its subsidiaries or affiliates" shall include the Employee,
directly or indirectly, doing any of the following listed
acts, other than carrying on or engaging in activities
expressly permitted under this Agreement:
(i) carrying on or engaging in any such business
as a principal, or solely or jointly with
others as a director, officer, agent,
employee, consultant or partner, or
stockholder or limited partner owning more
than five percent (5%) of the stock or equity
interests in or securities convertible into
more than five percent (5%) of the stock of
or equity interests in any corporation,
association or limited partnership; or
(ii) as agent or principal carrying on or engaging
in any activities or negotiations with
respect to the acquisition or disposition of
any such business; or
(iii) lending credit or money for the purpose of
establishing or operating any such business;
or
(iv) giving advice to any other person, firm,
association, corporation or other entity
engaging in any such business; or
(v) lending or allowing his name or reputation to
be used in any such business; or
3
<PAGE> 4
C. In the event of a breach or threatened breach by the Employee
of the provisions of this Section 7, the Company shall be
entitled to injunctive relief against the Employee. Nothing
herein shall be construed as prohibiting the Company from
pursuing any other remedies available to the Employer for such
breach or threatened breach, including without limitation the
recovery of damages from the Employee.
D. During the Employment Term and for one (1) year thereafter,
the Employee will not without the prior written permission of
the Company in each instance will not solicit, or attempt to
solicit and employ any employee of the Company or any of its
subsidiaries or affiliates, or commit an act the primary
purpose of which is to induce employee of the Company or any
of its subsidiaries or affiliates to leave such employment or
significantly interfere with, disrupt or attempt to disrupt
any past, present or prospective relationship, contractual or
otherwise, relating to the business activities between the
Company or any of its subsidiaries or affiliates and their
respective prospects.
E. The parties hereto consider the restrictions contained in this
Section 7 to be reasonable. If, however, such restrictions
are found by any court having jurisdiction to be unreasonable
because they are (or any of them is) too broad, then such
restrictions shall nevertheless remain effective, but shall be
considered amended as to protection of business, time or
geographic area in whatever manner is considered reasonable by
that court and, as so amended, shall be enforced.
F. The provisions of this Section 7 shall survive the expiration
or termination, for any reason, or this Agreement and shall be
separately enforceable.
9. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
A. The Employee agrees that he will not, during the Employment
Term or thereafter, make use of, divulge or otherwise
disclose, directly or indirectly, any trade or business secret
(including, without limitation, any customer list, data,
records or financial information constituting a trade or
business secret) concerning the business or policies of the
Company or any of its subsidiaries or affiliates which he may
have learned as a result of his employment during the
Employment Term or prior thereto as shareholder, employee,
officer and/or director or the Company except to the extent
such use or disclosure is necessary to the performance of this
Agreement and in furtherance of the Company's best interest.
The provisions of this Section 8 shall survive the expiration
or termination, for any reason, of this Agreement.
B. The Employee shall not during the Employment Term or for one
(1) year thereafter make use of, divulge or otherwise
disclose, directly or indirectly, any confidential information
concerning the business or policies of the Company or any of
its subsidiaries or affiliates which he may have learned while
a shareholder, employee, officer and/or director of the
Company.
C. In the event of a breach or threatened breach by the Employee
of the provisions of this
4
<PAGE> 5
Section 7, the Company shall be entitled to an injunction
restraining the Employee from disclosing, in whole or in part,
any such trade or business secret and/or any such confidential
information, or from rendering any services to any person,
firm, corporation, association, or other entity to whom any
such trade or business secret and/or any such confidential
information, in whole or in part, has been disclosed or is
threatened to be disclosed. Nothing herein shall be construed
as prohibiting the Company from pursuing any other remedies
available to the Company for such breach or threatened breach,
including without limitation the recovery of damages from the
Employee.
D. The provisions of this Section 8 shall survive the expiration
or termination, for any reason, of this Agreement and shall be
separately enforceable.
10. AMENDMENT
This Agreement may be amended only by the written agreement of the Company and
Employee.
11. SUCCESSORS AND ASSIGNS
The Company's rights and obligations under this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the Company; and
the Company may delegate all or any part of its rights and obligations
hereunder to any affiliate or subsidiary of the Company.
The Employee acknowledges and agrees that this Agreement is personal to him and
his rights and interests hereunder may not be assigned, nor may his obligations
and duties hereunder be delegated with exception of the voting rights assigned
to Employee's spouse by Employee.
12. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws
of the State of Maryland.
13. ENTIRE AGREEMENT
This Agreement supersedes any and all other agreements, either oral or written
heretofore made with respect to the subject matter hereof.
14. SEVERABILITY
Any provision of this Agreement which is found to be unenforceable in any
jurisdiction, shall, as to such jurisdiction only, be ineffective to the extent
of such unenforceability, without invalidating or otherwise affecting the
remaining provisions hereof. If any of the covenants against competition
contained in Section 8 are found by a court having jurisdiction to be
unreasonable in duration, geographical scope, or character of restriction, the
covenant shall not be rendered unenforceable thereby, but rather the duration,
geographical scope, or character of restriction of said covenant shall
respectively be reduced or modified to render the covenant reasonable and the
covenant shall be enforced as modified.
5
<PAGE> 6
15. COUNTERPARTS
This Agreement may be executed simultaneously in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. This Agreement shall be binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of the parties reflected hereon as signatories.
16. NOTICES
All notices required or permitted under this Agreement shall be in writing and
shall be deemed effective upon personal delivery or upon deposit in the United
States Post Office, by registered or certified mail, postage prepaid, addressed
to:
(i) Employee at the address shown above, or at such other address
or addresses as Employee shall designate to the Company in
accordance with this Section, or
(ii) Company at the address set forth on the above letterhead, or
at such other address as the Company shall designate to
Employee in accordance with this section.
17. PRONOUNS
Whenever the context may require, any pronouns used in this Agreement shall
include the corresponding masculine, feminine or neuter forms and the singular
form of nouns and pronouns shall include the plural and vice versa.
18. MISCELLANEOUS
A. No delay or omission by the Company or Employee in exercising
any right under this Agreement shall operate as a waiver of
that or any other right. A waiver or consent given by the
Company or Employee on any one occasion shall be effective
only in that instance and shall not be construed as a bar or
waiver of any right on any other occasion.
B. The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or
affect the scope or substance of any of this Agreement.
6
<PAGE> 7
* * *
If the foregoing accurately sets out our agreement with regard to the above,
please indicate your acceptance by executing and returning two copies of this
letter to the undersigned.
Very truly yours,
COMPLETE WELLNESS CENTERS, INC.
By:
----------------------------
C. Thomas McMillen
Chairman and CEO
Accepted and agreed to this ___ day of _________________, 1996.
- -----------------
E. Eugene Sharer
"Employee"
7
<PAGE> 1
EXHIBIT 10.19
January 1, 1996
Danielle Milano, M.D.
131 E. 31 St., #6F
New York, NY 10016
Dear Dr. Milano:
This letter, when accepted by you in a manner hereinafter provided, will
evidence the agreement (the "Agreement") between Dr. Milano (the "Employee")
and Complete Wellness Centers, Inc., a Delaware corporation, (the "Company"),
for the provision of certain services to be rendered by Employee to the Company
all under the following terms and conditions to wit:
1. EMPLOYMENT DUTIES
The Company shall employ Employee as Vice President of Medical Affairs for
oversight and management of the medical operations of the Company's Clinics
(where "Clinic" shall mean any facility purchased or managed by the Company or
its affiliates through which health care services are rendered). Employee shall
report to the President, subject in all events to the control and supervision
of the Board of Directors.
Employee shall devote her time and best efforts on a substantially full time
basis to the business and affairs of the Company.
2. EMPLOYMENT TERM
This Agreement shall commence on January 1, 1996, and shall end on December 31,
1998 (the "Employment Term") unless extended by the Company and Employee in
writing or unless sooner terminated in accordance with the provisions of this
Agreement.
3. COMPENSATION, EXPENSES, ETC.
In consideration of performance of the services and activities hereby, the
Company shall pay Employee compensation as follows:
A. Effective October 1, 1996, an initial base salary of one
hundred twenty thousand dollars ($120,000) per annum, payable
semi-monthly in arrears. Six thousand dollars ($6,000) per
month of such base compensation shall be accrued until such
time the Company closes its initial public offering at which
time all accrued salary shall be payable in full.
B. Employee shall receive an additional performance bonus (the
"Bonus") equal to ten percent (10%) of the Company's Bonus
Fund, in accordance with the Company's 1995 Bonus Plan for Key
Executives. For the purpose of this Section 3, the "Bonus
Fund" shall be equal to
<PAGE> 2
at least ten percent (10%) of the Company's pre-tax income.
The maximum bonus fund is $5 million.
C. Employee shall receive an additional bonus of one thousand
dollars ($1,000), payable one time, for every professional
corporation managed by the Company that Employee is the
licensed shareholder and shall be initiated after the Company
closes its initial public offering and which will be paid by
the professional corporation.
D. At such time as the Company closes its initial public
offering, an automobile and parking allowance of five hundred
dollars ($500) per month.
E. Four (4) weeks of compensated vacation which shall vest
ratably throughout the year.
F. The Company shall make available such health benefits and any
other benefits as it makes available to its executive
employees.
G. Upon termination of this Agreement pursuant to Section 5(i)
and 5(ii), Employee shall receive a severance payment equal to
six (6) times the Employee's monthly compensation pursuant to
Section 3(A) for the month prior to termination. Such
severance shall be payable in six (6) monthly installments,
beginning in the second calendar month following the month in
which termination occurs.
H. The Company shall provide Employee with an office and
secretarial services comparable to those of its other
executive employees.
The Company shall deduct the usual withholding taxes from Employee's
compensation consistent with standard practices and applicable federal and
state laws.
The Company shall be entitled to receive any compensation paid to Employee as a
result of services rendered by Employee in any of the Company's affiliated
clinics, or as a result of the Employee serving as the shareholder of a
professional corporation managed by the Company.
The Company shall reimburse Employee for any documented out of pocket expenses
incurred in connection with the duties and responsibilities described herein,
subject to the Company's policies.
4. STOCK OPTIONS
Employee will be granted options to purchase one hundred and forty thousand
(140,000) shares of the Company's common stock at an exercise price of one cent
($.01) per share under the Company's Stock Option Plan. These options will vest
with respect to 50,000 options on October 1, 1996, 45,000 options on October 1,
1997, and 45,000 options on September 30, 1998. These options shall be
exercisable for a period of five (5) years from the date hereof. However, in
the event the Agreement is terminated, such options, shall be exercisable for a
period of three (3) months form the date of
2
<PAGE> 3
termination.
5. TERMINATION
This Agreement may be terminated prior to the end of the Employment Term,
(i) by the written agreement between Company and Employee;
(ii) by the death of Employee or his disability for a period of one
hundred and twenty (120) consecutive days or the adjudicated
mental incompetency of Employee; or
(iii) by the Company for cause, where "cause" shall mean for purpose
of this Agreement:
(a) a violation by Employee of any material
provision of this Agreement, a breach of
fiduciary duty, manifest incompetence, plan
dereliction or neglect of duty, or conduct;
involving moral turpitude, where such
violation, activity, or conduct is not
remedied by Employee within thirty, (30) days
of written notice from the Company
(b) employee's conviction of a felony.
6. COVENANT NOT TO COMPETE; NOT TO SOLICIT
A. During the Employment Term and for one (1) year thereafter,
the Employee will not without the prior written permission of
the Company in each instance directly or indirectly carry on
or participate in a business the same as or similar to or in
competition with that conducted or engaged in by the Company
or any of its subsidiaries or affiliates.
B. The term "carry on or participate in a business the same as or
similar to that conducted or engaged in by the Company or any
of its subsidiaries or affiliates" shall include the Employee,
directly or indirectly, doing any of the following listed
acts, other than carrying on or engaging in activities
expressly permitted under this Agreement:
(i) carrying on or engaging in any such business
as a principal, or solely or jointly with
others as a director, officer, agent,
employee, consultant or partner, or
stockholder or limited partner owning more
than five percent (5%) of the stock or equity
interests in or securities convertible into
more than five percent (5%) of the stock of
or equity interests in any corporation,
association or limited partnership; or
(ii) as agent or principal carrying on or engaging
in any activities or negotiations with
respect to the acquisition or disposition of
any such business; or
(iii) lending credit or money for the purpose of
establishing or operating any such business;
or
(iv) giving advice to any other person, firm,
association, corporation or other entity
engaging in any such business; or
(v) lending or allowing his name or reputation to
be used in any such business; or
C. In the event of a breach or threatened breach by the Employee
of the provisions of this Section 6, the Company shall be
entitled to injunctive relief against the Employee. Nothing
herein shall be construed as prohibiting the Company from
pursuing any other remedies available to the Employer for such
breach or threatened breach, including without limitation the
recovery of damages from the Employee.
3
<PAGE> 4
D. During the Employment Term and for one (1) year thereafter,
the Employee will not without the prior written permission of
the Company in each instance will not solicit, or attempt to
solicit and employ any employee of the Company or any of its
subsidiaries or affiliates, or commit an act the primary
purpose of which is to induce employee of the Company or any
of its subsidiaries or affiliates to leave such employment or
significantly interfere with, disrupt or attempt to disrupt
any past, present or prospective relationship, contractual or
otherwise, relating to the business activities between the
Company or any of its subsidiaries or affiliates and their
respective prospects.
E. The parties hereto consider the restrictions contained in this
Section 6 to be reasonable. If, however, such restrictions
are found by any court having jurisdiction to be unreasonable
because they are (or any of them is) too broad, then such
restrictions shall nevertheless remain effective, but shall be
considered amended as to protection of business, time or
geographic area in whatever manner is considered reasonable by
that court and, as so amended, shall be enforced.
F. The provisions of this Section 6 shall survive the expiration
or termination, for any reason, or this Agreement and shall be
separately enforceable.
7. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
A. The Employee agrees that he will not, during the Employment
Term or thereafter, make use of, divulge or otherwise
disclose, directly or indirectly, any trade or business secret
(including, without limitation, any customer list, data,
records or financial information constituting a trade or
business secret) concerning the business or policies of the
Company or any of its subsidiaries or affiliates which he may
have learned as a result of his employment during the
Employment Term or prior thereto as shareholder, employee,
officer and/or director or the Company except to the extent
such use or disclosure is necessary to the performance of this
Agreement and in furtherance of the Company's best interest.
The provisions of this Section 7 shall survive the expiration
or termination, for any reason, of this Agreement.
B. The Employee shall not during the Employment Term or for one
(1) year thereafter make use of, divulge or otherwise
disclose, directly or indirectly, any confidential information
concerning the business or policies of the Company or any of
its subsidiaries or affiliates which he may have learned while
a shareholder, employee, officer and/or director of the
Company.
C. In the event of a breach or threatened breach by the Employee
of the provisions of this Section 7, the Company shall be
entitled to an injunction restraining the Employee from
disclosing, in whole or in part, any such trade or business
secret and/or any such confidential information, or from
rendering any services to any person, firm, corporation,
association, or other entity to whom any such trade or
business secret and/or any such confidential information, in
whole or in part, has been disclosed or is threatened to be
4
<PAGE> 5
disclosed. Nothing herein shall be construed as prohibiting
the Company from pursuing any other remedies available to the
Company for such breach or threatened breach, including
without limitation the recovery of damages from the Employee.
D. The provisions of this Section 7 shall survive the expiration
or termination, for any reason, of this Agreement and shall be
separately enforceable.
8. AMENDMENT
This Agreement may be amended only by the written agreement of the Company and
Employee.
9. SUCCESSORS AND ASSIGNS
The Company's rights and obligations under this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the Company; and
the Company may delegate all or any part of its rights and obligations
hereunder to any affiliate or subsidiary of the Company.
The Employee acknowledges and agrees that this Agreement is personal to him and
his rights and interests hereunder may not be assigned, nor may his obligations
and duties hereunder be delegated with exception of the voting rights assigned
to Employee's spouse by Employee.
10. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws
of the State of Maryland.
11. ENTIRE AGREEMENT
This Agreement supersedes any and all other agreements, either oral or written
heretofore made with respect to the subject matter hereof.
12. SEVERABILITY
Any provision of this Agreement which is found to be unenforceable in any
jurisdiction, shall, as to such jurisdiction only, be ineffective to the extent
of such unenforceability, without invalidating or otherwise affecting the
remaining provisions hereof. If any of the covenants against competition
contained in Section 9 are found by a court having jurisdiction to be
unreasonable in duration, geographical scope, or character of restriction, the
covenant shall not be rendered unenforceable thereby, but rather the duration,
geographical scope, or character of restriction of said covenant shall
respectively be reduced or modified to render the covenant reasonable and the
covenant shall be enforced as modified.
5
<PAGE> 6
13. COUNTERPARTS
This Agreement may be executed simultaneously in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. This Agreement shall be binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of the parties reflected hereon as signatories.
14. NOTICES
All notices required or permitted under this Agreement shall be in writing and
shall be deemed effective upon personal delivery or upon deposit in the United
States Post Office, by registered or certified mail, postage prepaid, addressed
to:
(i) Employee at the address shown above, or at such other address
or addresses as Employee shall designate to the Company in
accordance with this Section, or
(ii) Company at the address set forth on the above letterhead, or
at such other address as the Company shall designate to
Employee in accordance with this section.
15. PRONOUNS
Whenever the context may require, any pronouns used in this Agreement shall
include the corresponding masculine, feminine or neuter forms and the singular
form of nouns and pronouns shall include the plural and vice versa.
16. MISCELLANEOUS
A. No delay or omission by the Company or Employee in exercising
any right under this Agreement shall operate as a waiver of
that or any other right. A waiver or consent given by the
Company or Employee on any one occasion shall be effective
only in that instance and shall not be construed as a bar or
waiver of any right on any other occasion.
B. The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or
affect the scope or substance of any of this Agreement.
6
<PAGE> 7
* * *
If the foregoing accurately sets out our agreement with regard to the above,
please indicate your acceptance by executing and returning two copies of this
letter to the undersigned.
Very truly yours,
COMPLETE WELLNESS CENTERS, INC.
By:
-------------------------------
C. Thomas McMillen
Chairman and President
Accepted and agreed to this ___ day of _________________, 1995.
- --------------------
Danielle Milano, MD
"Employee"
7
<PAGE> 1
EXHIBIT 10.20
October 1, 1996
Mr. Michael Brigante
17 Daniel Drive
Belle Mead, NJ 08502
Dear Mr. Brigante:
This letter, when accepted by you in a manner hereinafter provided, will
supersede the prior Consulting Agreement dated March 11, 1996 between Mr.
Brigante and Complete Wellness Centers, Inc., a Delaware corporation (the
"Company"), and will evidence the agreement among the Company and Mr. Brigante
(the "Employee") for the provision of certain services to be rendered by
Employee to the Company (the "Agreement"), all under the following terms and
conditions to wit:
1. EMPLOYMENT DUTIES
The Company shall employ Employee as Vice President of Finance and Chief
Financial Officer. Employee shall report to the President and Chief Operating
Officer, subject in all events to the control and supervision of the Board of
Directors.
Employee shall devote his time and best efforts on a substantially full time
basis to the business and affairs of the Company.
2. EMPLOYMENT TERM
This Agreement shall commence on October 1, 1996, and shall end on September
30, 1999 (the "Employment Term") unless extended by the Company and Employee in
writing or unless sooner terminated in accordance with the provisions of this
Agreement.
3. COMPENSATION, EXPENSES, ETC.
In consideration of performance of the services and activities hereby, the
Company shall pay Employee compensation as follows:
A. An initial base salary of sixty thousand dollars ($60,000) per
annum, payable semi-monthly in arrears. At such time as the
initial public offering is closed, the base salary shall be
increased to ninety five thousand dollars ($95,000) per annum,
payable semi-monthly in arrears.
B. Employee shall receive an additional performance bonus (the
"Bonus") equal to ten percent (10%) of the Company's Bonus
Fund, in accordance with the Company's 1995
<PAGE> 2
Bonus Plan for Key Executives. For the purpose of this Section
3, the "Bonus Fund" shall be equal to at least ten percent
(10%) of the Company's pre-tax income. The maximum bonus fund
is $5 million.
C. At such time as the Company closes its initial public
offering, an automobile and parking allowance of five hundred
dollars ($500) per month.
D. Four (4) weeks of compensated vacation which shall vest
ratably throughout the year.
E The Company shall make available such health benefits and any
other benefits as it makes available to its executive
employees.
F. Upon termination of this Agreement pursuant to Section 5(i)
and 5(ii), Employee shall receive a severance payment equal to
six (6) times the Employee's monthly compensation pursuant to
Section 3(A) for the month prior to termination. Such
severance shall be payable in twelve (12) monthly
installments, beginning in the second calendar month following
the month in which termination occurs.
G. The Company shall provide Employee with an office and
secretarial services comparable to those of its other
executive employees.
The Company shall deduct the usual withholding taxes from
Employee's compensation consistent with standard practices and
applicable federal and state laws.
The Company shall reimburse Employee for any documented out of
pocket expenses incurred in connection with the duties and
responsibilities described herein, subject to the Company's
policies.
4. STOCK OPTIONS
The non-qualified stock options granted to Mr. Brigante pursuant to the
Consulting Agreement shall be transferred to Mr. Brigante pursuant to this
Agreement under the same terms and conditions. Under the Consulting Agreement,
Consultant received non-qualified option to purchase up to one hundred twenty
thousand (120,000) shares of the Company's common stock (the "Options") at an
exercise price of one cent ($.01) per share, under the Company's Stock Option
Plan which shall be evidenced by a stock option agreement. Sale of the shares
of common stock issued to Consultant upon the exercise of the Options may be
subject to limitations pursuant to Rule 144 under the Securities Act of 1933.
The Options shall vest with respect to 33 1/3% on October 1, 1996, 33 1/3% on
October 1, 1997, and 33 1/3% on September 30, 1998 and shall be exercisable for
a period of five (5) years from the date of this Agreement. However, in the
event this Agreement is terminated, the Options shall be exercisable for a
period of three (3) months from the date of termination.
5. TERMINATION
This Agreement may be terminated prior to the end of the Employment Term,
2
<PAGE> 3
(i) by the written agreement between Company and Employee;
(ii) by the death of Employee or his disability for a period of one
hundred and twenty (120) consecutive days or the adjudicated
mental incompetency of Employee; or
(iii) by the Company for cause, where "cause" shall mean for purpose
of this Agreement:
(a) a violation by Employee of any material
provision of this Agreement, a breach of
fiduciary duty, manifest incompetence, plan
dereliction or neglect of duty, or conduct;
involving moral turpitude, where such
violation, activity, or conduct is not
remedied by Employee within thirty, (30) days
of written notice from the Company
(b) employee's conviction of a felony.
6. COVENANT NOT TO COMPETE; NOT TO SOLICIT
A. During the Employment Term and for one (1) year thereafter,
the Employee will not without the prior written permission of
the Company in each instance directly or indirectly carry on
or participate in a business the same as or similar to or in
competition with that conducted or engaged in by the Company
or any of its subsidiaries or affiliates.
B. The term "carry on or participate in a business the same as or
similar to that conducted or engaged in by the Company or any
of its subsidiaries or affiliates" shall include the Employee,
directly or indirectly, doing any of the following listed
acts, other than carrying on or engaging in activities
expressly permitted under this Agreement:
(i) carrying on or engaging in any such business
as a principal, or solely or jointly with
others as a director, officer, agent,
employee, consultant or partner, or
stockholder or limited partner owning more
than five percent (5%) of the stock or equity
interests in or securities convertible into
more than five percent (5%) of the stock of
or equity interests in any corporation,
association or limited partnership; or
(ii) as agent or principal carrying on or engaging
in any activities or negotiations with
respect to the acquisition or disposition of
any such business; or
(iii) lending credit or money for the purpose of
establishing or operating any such business;
or
(iv) giving advice to any other person, firm,
association, corporation or other entity
engaging in any such business; or
(v) lending or allowing his name or reputation to
be used in any such business; or
C. In the event of a breach or threatened breach by the Employee
of the provisions of this Section 6, the Company shall be
entitled to injunctive relief against the Employee. Nothing
herein shall be construed as prohibiting the Company from
pursuing any other remedies available to the Employer for such
breach or threatened breach, including without limitation the
recovery of damages from the Employee.
D. During the Employment Term and for one (1) year thereafter,
the Employee will not without the prior written permission of
the Company in each instance will not solicit, or attempt to
solicit and employ any employee of the Company or any of its
subsidiaries or affiliates, or commit an act the primary
purpose of which is to induce employee of the
3
<PAGE> 4
Company or any of its subsidiaries or affiliates to leave such
employment or significantly interfere with, disrupt or attempt
to disrupt any past, present or prospective relationship,
contractual or otherwise, relating to the business activities
between the Company or any of its subsidiaries or affiliates
and their respective prospects.
E. The parties hereto consider the restrictions contained in this
Section 9 to be reasonable. If, however, such restrictions
are found by any court having jurisdiction to be unreasonable
because they are (or any of them is) too broad, then such
restrictions shall nevertheless remain effective, but shall be
considered amended as to protection of business, time or
geographic area in whatever manner is considered reasonable by
that court and, as so amended, shall be enforced.
F. The provisions of this Section 6 shall survive the expiration
or termination, for any reason, or this Agreement and shall be
separately enforceable.
7. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
A. The Employee agrees that he will not, during the Employment
Term or thereafter, make use of, divulge or otherwise
disclose, directly or indirectly, any trade or business secret
(including, without limitation, any customer list, data,
records or financial information constituting a trade or
business secret) concerning the business or policies of the
Company or any of its subsidiaries or affiliates which he may
have learned as a result of his employment during the
Employment Term or prior thereto as shareholder, employee,
officer and/or director or the Company except to the extent
such use or disclosure is necessary to the performance of this
Agreement and in furtherance of the Company's best interest.
The provisions of this Section 7 shall survive the expiration
or termination, for any reason, of this Agreement.
B. The Employee shall not during the Employment Term or for one
(1) year thereafter make use of, divulge or otherwise
disclose, directly or indirectly, any confidential information
concerning the business or policies of the Company or any of
its subsidiaries or affiliates which he may have learned while
a shareholder, employee, officer and/or director of the
Company.
C. In the event of a breach or threatened breach by the Employee
of the provisions of this Section 7, the Company shall be
entitled to an injunction restraining the Employee from
disclosing, in whole or in part, any such trade or business
secret and/or any such confidential information, or from
rendering any services to any person, firm, corporation,
association, or other entity to whom any such trade or
business secret and/or any such confidential information, in
whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein shall be construed as prohibiting
the Company from pursuing any other remedies available to the
Company for such breach or threatened breach, including
without limitation the recovery of damages from the Employee.
D. The provisions of this Section 7 shall survive the expiration
or termination, for any reason,
4
<PAGE> 5
of this Agreement and shall be separately enforceable.
8. AMENDMENT
This Agreement may be amended only by the written agreement of the Company and
Employee.
9. SUCCESSORS AND ASSIGNS
The Company's rights and obligations under this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the Company; and
the Company may delegate all or any part of its rights and obligations
hereunder to any affiliate or subsidiary of the Company.
The Employee acknowledges and agrees that this Agreement is personal to him and
his rights and interests hereunder may not be assigned, nor may his obligations
and duties hereunder be delegated with exception of the voting rights assigned
to Employee's spouse by Employee.
10. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws
of the State of Maryland.
11. ENTIRE AGREEMENT
This Agreement supersedes any and all other agreements, either oral or written
heretofore made with respect to the subject matter hereof.
12. SEVERABILITY
Any provision of this Agreement which is found to be unenforceable in any
jurisdiction, shall, as to such jurisdiction only, be ineffective to the extent
of such unenforceability, without invalidating or otherwise affecting the
remaining provisions hereof. If any of the covenants against competition
contained in Section 5 are found by a court having jurisdiction to be
unreasonable in duration, geographical scope, or character of restriction, the
covenant shall not be rendered unenforceable thereby, but rather the duration,
geographical scope, or character of restriction of said covenant shall
respectively be reduced or modified to render the covenant reasonable and the
covenant shall be enforced as modified.
13. COUNTERPARTS
This Agreement may be executed simultaneously in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. This Agreement shall be binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of the parties reflected hereon as signatories.
5
<PAGE> 6
14. NOTICES
All notices required or permitted under this Agreement shall be in writing and
shall be deemed effective upon personal delivery or upon deposit in the United
States Post Office, by registered or certified mail, postage prepaid, addressed
to:
(i) Employee at the address shown above, or at such other address
or addresses as Employee shall designate to the Company in
accordance with this Section, or
(ii) Company at the address set forth on the above letterhead, or
at such other address as the Company shall designate to
Employee in accordance with this section.
15. PRONOUNS
Whenever the context may require, any pronouns used in this Agreement shall
include the corresponding masculine, feminine or neuter forms and the singular
form of nouns and pronouns shall include the plural and vice versa.
16. MISCELLANEOUS
A. No delay or omission by the Company or Employee in exercising
any right under this Agreement shall operate as a waiver of
that or any other right. A waiver or consent given by the
Company or Employee on any one occasion shall be effective
only in that instance and shall not be construed as a bar or
waiver of any right on any other occasion.
B. The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or
affect the scope or substance of any of this Agreement.
6
<PAGE> 7
* * *
If the foregoing accurately sets out our agreement with regard to the above,
please indicate your acceptance by executing and returning two copies of this
letter to the undersigned.
Very truly yours,
COMPLETE WELLNESS CENTERS, INC.
By:
----------------------------
E. Eugene Sharer
President and COO
Accepted and agreed to this ___ day of _________________, 1996.
- -----------------
Michael Brigante
"Employee"
7
<PAGE> 1
EXHIBIT 10.21
August 26, 1996
Dr. Eric Kaplan
4727 Marlwood Lane
North Palm Beach, FL 33418
Dear Dr. Kaplan,
This letter, when accepted by you in a manner hereinafter provided, will
evidence the agreement among Complete Wellness Centers, Inc., a Delaware
Corporation (the "Company") and Dr. Eric Kaplan (the "Employee") for the
provision of certain services to be rendered by Employee to the Company (the
"Agreement"), all under the following terms and conditions to wit:
1. EMPLOYMENT DUTRES
The Company shall employ Employee as Senior Director for Operations and
Development. Employee shall report to the President and Chief Operating
Officer subject in all events to the control and supervision of the Board of
Directors.
Employee shall devote his time and best efforts on a substantially full time
basis to the business and affairs of the Company. It is understood by Employee
and Company that Employee shall be primarily located in Florida but shall be
available for travel to the Company's Headquarters office, field operations,
and developmental prospects as needed and for up to three working, days per
week, limited to a maximum of ten working days per month.
Engagement. Company hereby employs Eric S. Kaplan with principal
responsibilities as follows:
(i) the integration and oversight of the search and acquisition
and/or management of chiropractic clinics and their
integration with medical professionals and services
("Integration"),
(ii) the development of medical clinics that integrate
traditional medical professionals with alternative medical
providers including chiropractic ("Integrated Medical
Centers"),
(iii) the development of ancillary services to be offered at the
Integrated Medical Centers.
2. EMPLOYMENT TERM
This Agreement shall commence on August 26, 1996, and shall end three years
from date of inception (the "Employment Term") unless extended by the Company
and Employee in writing or unless sooner terminated in accordance with the
provisions of this Agreement. The term of this Agreement is coterminous with
the Consulting Agreement between the Company and J.E.M., Inc.
<PAGE> 2
3. COMPENSATION, EXPENSES, ETC.
In consideration of performance of the services and activities hereby, the
Company shall pay Employee compensation as follows:
A. A base salary of four thousand ($4,000) per month, which shall accrue
until such time as the Company closes its initial public offering.
Upon the close of the Company's initial public offering, all accrued
salary shall be paid in full. At such time, the base salary shall be
increased to forty eight thousand dollars ($48,000) per annum, in
cash, paid semi-monthly in arrears.
B. Employee shall receive a performance bonus (the "Bonus") equal to
twenty percent (20%) of the Company's Bonus Fund, in accordance with
the Company's 1995 Bonus Plan for Key Executives. For the purpose of
this Section 3, the "Bonus Fund" shall be equal to at least ten
percent (10%) of the Company's pre-tax income. Such bonus shall be
paid within ninety (90) days after the end of each Company fiscal
year which shall be December 31.
C. After the initial public offering is closed, an automobile allowance
of five hundred dollars ($500) per month.
D. Four (4) weeks of compensated personal leave which shall vest ratably
throughout the year.
E. Upon termination of this Agreement pursuant to Sections 5a or 5b,
Employee shall receive a severance payment equal to Sixty Thousand
dollars ($60,000). Such severance shall be payable in six (6) equal
monthly installments beginning in the second calendar month following
the month in which termination occurs.
F. The Company shall provide Employee with an office and secretarial
services comparable to those of its other executive employees after
the initial public offering. Until such public offering is closed,
Employee shall work out of his home.
G. The Company shall provide Employee with such medical and other
benefits as the Company shall make available to its executive
employees.
The Company shall deduct the usual withholding taxes from Employee's
compensation consistent with standard practices and applicable federal and
state laws.
The Company shall reimburse Employee for any documented out of pocket expenses
incurred in connection with the duties and responsibilities described herein,
subject to the Company's policies.
<PAGE> 3
4. STOCK OPTIONS
Employee will be granted upon execution of this Agreement options (the
"Options") to purchase one hundred forty thousand (140,000) shares of the
Company's common stock at an exercise price of $.20 per share under the
Company's Incentive Stock Option Plan. The Options will be evidenced by a
stock option agreement and will vest with respect to 40,000 options on August
26, 1996, 50,000 options on August 26, 1997, and 50,000 options on August 26,
1998 and shall be exercisable for a period of five years from August 26, 1996.
However, in the event the Agreement is terminated pursuant to Sections 5a, b,
c, or d, such Options shall be exercisable for a period of three (3) months
from the date of termination, if they vested prior to termination.
5. TERMINATION
This Agreement may be terminated prior to the end of the Employment Term,
a) by the written mutual agreement between Company and Employee;
b) by the death of Employee or Ws disability (with the exception of his
present disability) for a period of one hundred and twenty (120)
consecutive days or the adjudicated mental incompetency of Employee-
or
C) by the Company for cause, where "cause" shall mean for purpose of
this Agreement:
1) a violation by Employee of any material provision of this
Agreement, a breach of fiduciary duty, manifest incompetence,
gross negligence of duty or conduct; where such violation,
activity, or conduct is not remedied by Employee within thirty
(30) days of written notice from the Company.
2) Employee's conviction of a felony; or
d) by the Company or Employee if the initial public offering is not
closed by January 3 1, 1997.
e) by Employee within 30 days following the initial public offering;
6. COVENANT NOT TO COMPETE, NOT TO SOLICIT
6.1 This Section 6.1 A and B shall apply to Termination Sections 5a, 5b,
or 5c and not 5d, or 5e. Section 6.1 C shall apply under all
conditions of Section 5.
A. During the Employment Term and for six (6) months thereafter,
the Employee will not without the prior written permission of the Company
(which shall not be unreasonably withheld in the event of participation by
Employee in a business activity that is not directly related to the Company's
or any of its subsidiaries' or affiliates' line of business), in each instance
directly or indirectly carry on or participate in a business the same as or
similar to or in competition with that conducted or engaged in by the Company
or any of its subsidiaries or affiliates.
<PAGE> 4
B. The term "carry on or participate in a business the same as or
similar to that conducted or engaged in by the Company or any of its
subsidiaries or affiliates" shall include the Employee, directly or indirectly,
doing any of the following listed acts, other than carrying on or engaging in
activities expressly permitted under this Agreement.
(i) Carrying on or engaging in any such business as a
principal, or solely or jointly with others as a director, officer, agent,
employee, consultant or partner, or stockholder or limited partner owning more
than five percent (5%) of the stock or equity interests in or securities
convertible into more than five percent (5%) of the stock of or equity
interests in any corporation, association or limited partnership; or
(ii) As agent or principal carrying on or engaging in any
activities or negotiations with respect to the acquisition or disposition of
any such business; or
(iii) Lending credit or money for the purpose of establishing or
operating any such business; or
(iv) Giving advice to any other firm, association, corporation
or other entity engaging in any such business; or
(v) Lending or allowing his name or reputation to be used in
any such business; without Company's approval; or
C. In the event of a breach or threatened breach by the Employee of
the provisions of this Section 6, the Company shall be entitled to injunctive
relief against the Employee. Nothing herein shall be construed as prohibiting
the Company from pursuing any other remedies available to the Employer for such
breach or threatened breach, including without limitation the recovery of
damages from the Employee.
6.2 During the Employment Term and for one (1) year thereafter, the Employee
will not without the prior written permission of the Company in each instance
will not solicit, or attempt to solicit and employ any employee of the Company
or any of its subsidiaries or affiliates, or commit an act the primary purpose
of which is to induce any employee of the Company or any of its subsidiaries or
affiliates to leave such employment or significantly interfere with, disrupt or
attempt to disrupt any past, present or prospective relationship, contractual
or otherwise, relating to the business activities between the Company or any of
its subsidiaries or affiliates and their respective prospects.
6.3 The parties hereto consider the restrictions contained in this Section 6
to be reasonable. If, however, such restrictions are found by any court having
jurisdiction to be unreasonable because they are (or any of them is) too broad,
then such restrictions shall nevertheless remain effective, but shall be
considered amended as to protection of business, time or geographic area in
whatever manner is considered reasonable by that court and, as so amended,
shall be enforced.
6.4 The provisions of this Section 6 shall survive the expiration or
termination, for any reason, of this Agreement and shall be separately
enforceable.
7 NON-DISCLOSURE OF CONFRDENTIAL INFORMATION
<PAGE> 5
A. The Employee agrees that he will not, during the Employment Term or
thereafter, make use of, divulge or otherwise disclose, directly or
indirectly, any trade or business secret (including, without
limitation, any customer list, data, records or financial information
constituting a trade or business secret) concerning the business or
policies of the Company or any of its subsidiaries or affiliates
which he may have learned as a result of his employment during the
Employment Term or prior thereto as shareholder, employee, officer
and/or director or the Company except to the extent such use or
disclosure is necessary to the performance of this Agreement and in
furtherance of the Company's best interest. The provisions of this
Section 7 shall survive the expiration or termination, for any
reason, of this Agreement. However, any material brought to the
Company by Employee is Employee's sole property which may be utilized
by the Company during the term of this Agreement.
B. The Employee shall not during the Employment Term or for six (6)
months thereafter make use of, divulge or otherwise disclose,
directly or indirectly, any confidential information concerning the
business or policies of the Company or any of its subsidiaries or
affiliates which he may have learned while a shareholder, employee,
officer and/or director of the Company.
C. In the event of a breach or threatened breach by the Employee of the
provisions of this Section 7, the Company shall be entitled to an
injunction restraining the Employee from disclosing, in whole or in
part, any such trade or business secret and/ or any such confidential
information, or from rendering any services to any person, firm,
corporation association, or other entity to whom any such trade or
business secret and/or any such confidential information, in whole or
in part, has been disclosed or is threatened to be disclosed.
Nothing herein shall be construed as prohibiting the Company from
pursuing any other remedies available to the Company for such breach
or threatened breach, including without limitation the recovery of
damages from the Employee.
D. The provisions of this Section 7 shall survive the expiration or
termination, for any reason, of this Agreement and shall be
separately enforceable.
8. AMENDMENT
This Agreement may be amended only by the written agreement of the Company and
Employee.
9. SUCCESSORS AND ASSIGNS
The Company's rights and obligations under this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the Company; and
the Company may delegate all or any part of its rights and obligations
hereunder to any affiliate or subsidiary of the Company.
<PAGE> 6
The Employee acknowledges and agrees that this Agreement is personal to him and
Its rights and interests hereunder may not be assigned, nor may his obligations
and duties hereunder be delegated.
10. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws
of the State of 5 Maryland.
11. ENTIRE AGREEMENT
This Agreement supersedes any and all other agreements, either oral or written
heretofore made with respect to the subject matter hereof
12. SEVERABILITY
Any provision of this Agreement which is found to be unenforceable in any
jurisdiction, shall, as to such jurisdiction only, be ineffective to the extent
of such unenforceability, without invalidating or otherwise affecting the
remaining provisions hereof If any of the covenants against competition
contained in Section 6 are found by a court having jurisdiction to be
unreasonable in duration, geographical scope, or character of restriction, the
covenant shall not be rendered unenforceable thereby, but rather the duration,
geographical scope, or character of restriction of said covenant shall
respectively be reduced or modified to render the covenant reasonable and the
covenant shall be enforced as modified.
13. COUNTERPARTS
This Agreement may be executed simultaneously in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. This Agreement shall be binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of the parties reflected hereon as signatories.
14. NOTICES
All notices required or permitted under this Agreement shall be in writing and
shall be deemed effective upon personal delivery or upon deposit in the United
States Post Office, by registered or certified mail, postage prepaid, addressed
to:
a) Employee at the address shown above, or at such other address or
addresses as Employee shall designate to the Company in accordance with this
Section, or
b) Company at the address set forth on the above letterhead, or at
such other address as the Company shall designate to Employee in accordance
with this section.
<PAGE> 7
15. PRONOUNS
Whenever the context may require, any pronouns used in this Agreement shall
include the corresponding masculine, feminine or neuter forms and the singular
form of nouns and pronouns shall include the plural and vice versa.
16. MISCELLANEOUS
(1) No delay or omission by the Company or Employee in exercising any
right under this Agreement shall operate as a waiver of that or any other
right. A waiver or consent given by the Company or Employee on any one
occasion shall be effective only in that instance and shall not be construed as
a bar or waiver of any right on any other occasion.
(2) The captions of the sections of this Agreement are for convenience of
reference only and in no way define, limit or affect the scope or substance of
any of this Agreement.
If the foregoing accurately sets out our agreement with regard to the above,
please indicate your acceptance by executing and returning two copies of this
letter to the undersigned.
Very truly yours,
COMPLETE WELLNESS CENTERS, INC Accepted and agreed to this _____ day
of 1996.
By:
--------------------------------- -------------------------------------
E. Eugene Sharer Eric Kaplan, D.C.
President and Chief Operating
Officer
<PAGE> 1
EXHIBIT 10.22
October 29, 1996
Kats Management, LLC
6200 South 58th
Lincoln, Nebraska 68516
Gentlemen:
This letter sets forth the terms and conditions of the contract (the
"Agreement") among Kats Management, LLC (Consultant), and Complete Wellness
Centers, Inc., a Delaware corporation (the "Company"), pursuant to which the
Consultant will serve as an acquisition and integration consultant to the
Company. This letter is a binding agreement among the parties. The terms of the
Agreement are as follows:
1. TERM
The term of this Agreement shall commence on November 1, 1996 and shall
continue for five (5) years unless sooner terminated in accordance with Section
4.
2. CONSULTANT'S RESPONSIBILITIES
A. Duties.
(i) Affiliation Consultant
Consultant agrees to act as an affiliation consultant
on behalf of the Company. As such, Consultant will act for the
purpose of identifying and bringing to successful contract
closure certain chiropractors and their chiropractic clinics
willing to establish a new business or professional
corporation therein to provide integrated medical and
chiropractic services (the "Integrated Medical Center"), in
accordance with the Company's business plan as it may change
from time to time. The terms of the integration contract with
the chiropractic office and chiropractor will be set forth in
a separate contract between the Company and the chiropractic
clinic/chiropractor in the Integrated Medical Center
Management and Security Agreement (the "Integration
Contract"). In the performance of it's duties as an
affiliation consultant, Consultant shall report to the Senior
Director of Operations and Development and shall coordinate
its efforts
1
<PAGE> 2
with the Director of Integration and Acquisition and a
consultant to the Company, J.K. Gibson & Associates, Inc.
Consultant should have no obligation under this agreement to
compensate James K. Gibson or J. K. Gibson & Associates, Inc.
In the performance of its duties, Consultant must provide to
the Company at a minimum the personal services of Dr. David
Kats. Dr. Kats will be responsible for contact with potential
integration candidates, distribution of Company materials to
such candidates, gathering information from candidates as may
be requested by the Company, undertaking such activity as may
be required to cause candidate to sign an Integration
Contract, and satisfying such obligations as may be reasonably
required or directed by the Company for the purpose of
advancing the Company's business plan. Notwithstanding
anything herein to the contrary, Dr. Kats shall have no
authority, express or implied, to bind the Company to any
obligation, contract or commitment whatsoever, including, but
not limited to, an Integration Contract, unless and until such
Integration Contract is expressly adopted, authorized or
ratified by the Company.
(ii) Integration Consultant
Consultant agrees to act as an integration consultant
on behalf of the Company. As such, Consultant will act for the
purpose of assisting the Company in the development of its
Integrated Medical Centers. As part of the Agreement, the
Company's Integrated Medical Centers' professionals and staff
during the term of the Integration Contract, shall have the
right, at no cost to the Integrated Medical Centers or its
professionals and staff unless otherwise indicated and not
including travel and housing and other miscellaneous travel
expenses, to attend all Consultant's seminars and to receive
in a manner similar to Consultant lifetime clients all doctor
and staff manuals, access to Top-Flight for the customary
price, bi-monthly newsletters, and tapes ("Kats Services").
Such services shall not include personal or phone consulting
by Consultant. In the performance of duties as an integration
consultant, Consultant shall report to the Senior Director of
Operations and Development and must provide to the Company, at
a minimum, the personal services of Dr. David Kats.
3. COMPENSATION
In consideration of performance and activities herein, the Company shall pay as
follows:
A. Commissions. For each binding Integration Contract executed by the
Company during the engagement as a direct result of Consultant's
efforts, a commission in the amount equal to twenty percent (20%) of
the Integration Fee (as defined in the Integration Contract and
excluding any Enrollment, Operations or Collective Advertising Fees)
received by the Company during the initial term of the
2
<PAGE> 3
Integration Contract. If the Integration Contract is terminated after
the initial term, Consultant shall receive the same proportional
amount of the outstanding receivables due the Company. The initial
term of the Integration Contract is defined as either the five (5)
year or ten (10) year term. Any commission earned under this section
shall be payable to Consultant within thirty (30) days of collection
by the Company. The Company maintains a log of clients and contacts
which documents the commission eligibility of the Company consultants.
Letters of intent and/or contact reports are used to evidence the
eligibility. In cases where multiple consultants may have had
interface with prospective clients, the Senior Director of Operations
and Development shall decide the allocation. It is expressly
understood that if a Kats Management client joins the Company, the
result is predominantly due to Consultant's effort and Consultant
shall be given commission eligibility. Additionally, if a prospective
client is not a Kats Management client and has not had Company or
another consultant contact in the past six months, Consultant shall be
given commission eligibility.
B. Fees.
(i) For each Integration Contract executed by the
Company in which the chiropractor is a lifetime
client of Consultant, a fee of three hundred fifty
dollars ($350.00) per year, payable to Consultant
during the initial term of the Integration Contract.
Consultant will continue to provide practice
development service to such chiropractor(s).
or
(ii) For each Integration Contract executed by the
Company in which the chiropractor is a regular client
of Consultant, a fee of two hundred fifty dollars
($250.00) per month, payable to Consultant during the
initial term of the Integration Contract commencing
during the first full month after execution of such
Integration Contract. Consultant will continue to
provide practice development services to such
chiropractor(s).
C. Bonus. A bonus of ten thousand dollars ($10,000) for each of the
first five (5) Integration Contracts executed by the Company and five
thousand dollars ($5,000) for each of the next twenty-five (25)
Integrated Contracts executed by the Company as a direct result of
Consultant's efforts. Said bonuses payable to the Consultant, forty
five (45) days with respect to the first five (5) Integration
Contracts and ninety (90) days with respect to the next twenty-five
(25) Integration Contracts, after the execution of such Integration
Contracts provided the Integration Contract is still in effect.
D. Stock Options. On November 1, 1996, Consultant shall receive
non-qualified options to purchase up to eleven thousand (11,000)
shares of the Company's Common Stock (the "Options") at an exercise
price of 75% of the initial public offering price, under the Company's
1994 Stock Option Plan which shall be evidenced by a stock option
agreement. Sale of the Options may be subject to limitations pursuant
to Rule 144 under the Securities Act of 1933. The Options
3
<PAGE> 4
shall vest with respect to 3700 options on November 1, 1997, 3700
options on November 1, 1998, and 3600 options on November 1, 1999 and
shall be exercisable for a period of five (5) years from the date of
this Agreement. However, in the event this Agreement is terminated,
the vested Options shall be exercisable for a period of three (3)
months from the date of termination.
E. Continued Payment. It is expressly understood that the term of
this contract is for five years unless otherwise terminated according
to Section 4, but that the payment of all monies due under Section 3
shall continue to be paid during the duration of the initial term of
the Integration Contract.
F. Miscellaneous. The Company shall reimburse Consultant for any
documented out of pocket expenses incurred in connection with the
responsibilities described herein, subject to the requirement of prior
written approval of such expense. Also, it is expressly understood
that if 50 or more non-Kats Management clients attend(s) regular Kats
Management seminars, Consultant shall be entitled to recover its hard
costs from the Company.
4. TERMINATION
This Agreement may be terminated prior to the end of the term:
A. by a written agreement among Consultant and Company;
B. by the Company in the event of the death of David J. Kats or
his disability for a period of one hundred and twenty (120)
consecutive days or the adjudicated mental incompetence of
David J. Kats
C. by the Company or Consultant for Cause, where "Cause" shall
mean breach of fiduciary duty or of the provisions of this
Agreement, manifest incompetence, plain dereliction or neglect
of duty persisted in after warning, or conviction of any
future felony or conduct involving moral turpitude by Company
or Consultant.
5. COVENANT NOT TO COMPETE
A. During the Consulting Term and one (1) year thereafter, the
Consultant will not without the prior written permission of
the Company in each instance directly or indirectly carry on
or participate in a business the same as or similar to or in
competition with that conducted or engaged in by the Company
or any of its subsidiaries or affiliates.
B. The term "carry on or participate in a business the same as or
similar to that conducted or engaged in by the Company or any
of its subsidiaries or affiliates" shall include the
Consultant, directly or indirectly, doing any of the following
listed
4
<PAGE> 5
acts, other than carrying on or engaging in activities
expressly permitted under this Agreement:
(i) carrying on or engaging in any such business
as a principal, or solely or jointly with
others as a director, officer, agent,
employee, consultant or partner, or
stockholder or limited partner owning more
than five percent (5%) of the stock or equity
interests in or securities convertible into
more than five percent (5%) of the stock of
or equity interests in any corporation,
association or limited partnership; or
(ii) as agent or principal carrying on or engaging
in any activities or negotiations with
respect to the acquisition or disposition of
any such business; or
(iii) lending credit or money for the purpose of
establishing or operating any such business;
or
(iv) giving advice to any other person, firm,
association, corporation or other entity
engaging in any such business; or
(v) lending or allowing his name or reputation to
be used in any such business;
C. In the event of a breach or threatened breach by the
Consultant of the provisions of this Section 5, the Company
shall be entitled to injunctive relief against the Consultant.
Nothing herein shall be construed as prohibiting the Company
from pursuing any other remedies available to the Company for
such breach or threatened breach, including without limitation
the recovery of damages from the Consultant.
D. During the Consulting Term and for one (1) year thereafter,
the Consultant will not without the prior written permission
of the Company in each instance will not solicit, or attempt
to solicit and employ any employee of the Company or any of
its subsidiaries or affiliator, or commit an act the primary
purpose of which is to induce employee of the Company or any
of its subsidiaries or affiliates to leave such employment or
significantly interfere with, disrupt or attempt to disrupt
any past, present or prospective relationship, contractual or
otherwise, relating to the business activities between the
Company or any of its subsidiaries or affiliates and their
respective prospects.
E. The parties hereto consider the restrictions contained in this
Section 5 to be reasonable. If, however, such restrictions
are found by any court having jurisdiction to be unreasonable
because they are (or any of them is) too broad, then such
restrictions shall nevertheless remain effective, but shall be
considered amended as to protection of business, time or
geographic area in whatever manner is considered reasonable by
that court and, as so amended, shall be enforced.
F. The provisions of this Section 5 shall not include any
services of the type provided by Consultant as of the date of
execution of this Agreement (which shall exclude any
integration services).
5
<PAGE> 6
G. The provisions of this Section 5 shall not include any
services of the type provided by an affiliate of the
Consultant, Integrated Physicians Management Company, LLC,
with respect to only the nine (9) clinics identified in
Exhibit A
H. The provisions of this Section 5 shall survive the expiration
or termination, for any reason, or this Agreement and shall be
separately enforceable.
6. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
A. The Consultant agrees that he will not, during the Consulting
Term or thereafter, make use of, divulge or otherwise
disclose, directly or indirectly, any trade or business secret
(including, without limitation, any customer list, data,
records or financial information constituting a trade or
business secret) concerning the business or policies of the
Company or any of its subsidiaries or affiliates which he may
have learned as a result of his employment during the
Consulting Term or prior thereto as shareholder, employee,
officer and/or director or the Company except to the extent
such use or disclosure is necessary to the performance of this
Agreement and in furtherance of the Company's best interest.
The provisions of this Section 6 shall survive the expiration
or termination, for any reason, of this Agreement.
B. The Consultant shall not during the Consulting Term or for one
(1) year thereafter make use of, divulge or otherwise
disclose, directly or indirectly, any confidential information
concerning the business or policies of the Company or any of
its subsidiaries or affiliates which he may have learned while
a shareholder, employee, officer and/or director of the
Company.
C. In the event of a breach or threatened breach by the
Consultant of the provisions of this Section 6, the Company
shall be entitled to an injunction restraining the Consultant
from disclosing, in whole or in part, any such trade or
business secret and/or any such confidential information, or
from rendering any services to any person, firm, corporation,
association, or other entity to whom any such trade or
business secret and/or any such confidential information, in
whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein shall be construed as prohibiting
the Company from pursuing any other remedies available to the
Company for such breach or threatened breach, including
without limitation the recovery of damages from the
Consultant.
D. The provisions of this Section 6 shall survive the expiration
or termination, for any reason, of this Agreement and shall be
separately enforceable.
7. INDEPENDENT CONTRACTOR
6
<PAGE> 7
Consultant is and shall remain an independent contractor at all times with
respect to its performance hereunder, and shall have no right or authority to
assume or create any obligation, express or implied, on behalf of the Company
without the prior written consent of the Company as the case may be, in each
instance. Nothing in this Agreement shall be construed as creating the
relationship of employer and employee, master and servant, or principal and
agent, nor that of partnership or joint venture.
8. FEES AND EXPENSES
The Company and Consultant shall pay their own costs incidental to the
execution of the Agreement, including attorney's fees, accountants, etc.
9. DISCRETION TO OFFER, DICTATE TERMS AND SIGN INTEGRATION CONTRACTS
Notwithstanding (i) any provision that may be expressly or implicitly set forth
herein, inferred, established by operation of law, or otherwise created, or
(ii) any oral or written statements, omissions, representations or warranties
that may be issued, omitted, uttered or signed by representatives of the
Company or otherwise, or (iii) any efforts or time which Consultant may
undertake or expend in the course of the engagement hereunder, each of the
parties hereto expressly recognize and agree that the Company shall have full,
final and absolute discretion to decide whether to offer, accept or sign an
Integration Contract with acquisition candidates and clusters identified by
Consultant. However acceptance of an integrated contract from the Company will
not be unreasonably withheld and whether to establish, modify, limit or
withdraw any of the terms or conditions of any Integration Contract which it
may enter into through Consultant or any other agent or representative during
the term of engagement as an acquisition consultant or thereafter.
10. AMENDMENT
This Agreement may be amended only by the written agreement of the Company and
Consultant.
11. SUCCESSORS AND ASSIGNS
The Company's rights and obligations under this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the Company; and
the Company may delegate all or any part of its rights and obligations
hereunder to any affiliate or subsidiary of the Company.
The Consultant acknowledges and agrees that this Agreement and its rights and
interest hereunder may not be assigned, nor may its obligation and duties
hereunder be delegated.
12. INDEMNIFICATION
7
<PAGE> 8
Company agrees to indemnify and hold Consultant (including David J. Kats)
harmless from and against any and all claims, actions, damages and liabilities
whatsoever, asserted by any person or entity against Consultant, which claim,
action, damage or liability results from or arises out of, the Company's
negligent or intentional failure to perform or abide by agreements or
obligations created as a result of the performance of the Consultant under the
terms of this contract.
Consultant agrees to indemnify and hold harmless the Company (and the Company's
Officers and Director) from and against any and all claims, damages and
liabilities whatsoever, asserted by any person or entity, resulting by reason
of the intentional or unauthorized wrongful conduct of Consultant, David K.
Kats, and/or any employee or agent.
13. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws
of the State of Maryland.
14. ENTIRE AGREEMENT
This Agreement supersedes any and all other agreements, either oral or written
heretofore made with respect to the subject matter hereof.
15. SEVERABILITY
Any provision of this Agreement which is found to be unenforceable in any
jurisdiction, shall, as to such jurisdiction only, be ineffective to the extent
of such unenforceability, without invalidating or otherwise affecting the
remaining provisions hereof. If any of the covenants against competition
contained in Section 5 are found by a court having jurisdiction to be
unreasonable in duration, geographical scope, or character of restriction, the
covenant shall not be rendered unenforceable thereby, but rather the duration,
geographical scope, or character of restriction of said covenant shall
respectively be reduced or modified to render the covenant reasonable and the
covenant shall be enforced as modified.
16. COUNTERPARTS
This Agreement may be executed simultaneously in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. This Agreement shall be binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of the parties reflected hereon as signatories.
17. NOTICES
8
<PAGE> 9
All notices required or permitted under this Agreement shall be in writing and
shall be deemed effective upon personal delivery or upon deposit in the United
States Post Office, by registered or certified mail, postage prepaid, addressed
to:
A. Consultant at the address shown above, or at such other
address or addresses as Consultant shall designate to the
Company in accordance with this Section,
or
B. Company at the address set forth on the above letterhead, or
at such other address as the Company shall designate to
Consultant in accordance with this section.
18. PRONOUNS
Whenever the context may require, any pronouns used in this Agreement shall
include the corresponding masculine, feminine or neuter forms and the singular
form of nouns and pronouns shall include the plural and vice versa.
19. MISCELLANEOUS
A. No delay or omission by the Company or Consultant in
exercising any right under this Agreement shall operate as a
waiver of that or any other right. A waiver or consent given
by the Company or Consultant on any one occasion shall be
effective only in that instance and shall not be construed as
a bar or waiver of any right on any other occasion.
B. The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or
affect the scope or substance of any of this Agreement.
9
<PAGE> 10
* * *
If the foregoing accurately sets out our agreement with regard to the above,
please indicate your acceptance by executing and returning two copies of this
letter to the undersigned.
Very truly yours,
COMPLETE WELLNESS CENTERS, INC.
By:
-------------------------------
E. Eugene Sharer
President and COO
Accepted and agreed to this ___ day of _________________, 1996.
- ---------------------
David J. Kats, DC
Managing Member
Kats Management, LLC
10
<PAGE> 1
EXHIBIT 10.23
CONSULTING AGREEMENT
This Amended and Restated Agreement (the "Agreement"), dated as of
August 1, 1996, is entered into by and between Complete Wellness Corporation, a
Delaware Corporation (the "Company"), and J.E.M., Inc., a Delaware Corporation
("JEM").
WITNESSETH
WHEREAS, the Company desires to engage JEM to provide consulting
services.
WHEREAS, JEM shall employ Eric S. Kaplan, D. C., an employee for the
purposes of this Agreement; and
WHEREAS, JEM desires to employ Eric S. Kaplan, D.C. and provide the
aforescribed services, subject to the terms hereof.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, company, and JEM agree as
follows:
1. ENGAGEMENT. Company hereby engages and retains JEM as
follows:
(a) the integration and recruitment of chiropractic clinic with
medical professionals and services("Integration"),
(b) the development of medical clinics that integrate traditional
medical professionals with alternative providers including chiropractic
("Integrated Medical Centers"),
(c) the development of ancillary services to be offered at the
Integrated Medical Center.
Consultant shall report to the president and chief operating officer, subject
in all events to the control and supervision of the Board of Directors.
Consultant shall provide that Eric S. Kaplan, D.C., devote his time and
efforts on a substantially full time basis to the business and affairs of the
Company. It is understood by Consultant and Company that Consultant shall be
primarily located in Florida, but shall be available for travel to the
Company's office, field operations, and developmental projects as needed. Such
travel shall not exceed three (3) working days per week. It is also understood
by Consultant and Company that Eric S. Kaplan, D.C., shall attend the Harvard
Executive Training Program during the months of September and October 1998 and
shall be available to the Company only on weekends during such period.
2. TERM. The term of the Agreement shall commence, on August 1,
1996, and shall terminate on July 31, 1999, unless sooner terminated in
accordance with the terms hereof, or unless extended by a written agreement
between the Company and JEM.
The Agreement may be terminated prior to the end of its term for any of the
following reasons:
(a) a written agreement between JEM and Company;
(b) the death or adjudicated mental incompetency or disability of
Eric S. Kaplan, D.C. for a period of ninety (90) consecutive days;
(c) by the Company for Cause, where "Cause" shall mean (i) a
violation by JEM of any material provision of this Agreement, where such
violation by JEM of any material provision of this Agreement, where such
violation is not remedied by JEM within thirty (30) days of written notice from
the Company or (ii) Eric S. Kaplan, D.C.'s conviction of a felony.
<PAGE> 2
(d) in the event the Company does not close its initial public
offering on or before February 28, 1997.
3. COMPENSATION, EXPENSES, ETC. In consideration of performance
of the services and activities hereby, the Company shall pay Consultant
compensation as follows:
(a) an initial fee four thousand dollars ($4,000) per month,
payable semimonthly, in arrears until such time as the Company closes its
initial public offering. At such time, the base salary shall be increased to
one hundred twenty thousand dollars ($120,000) per annum, payable semimonthly,
in arrears,
(b) consultant shall receive a performance bonus (the "Bonus")
equal to twenty percent (20%) of the Company's Bonus Fund in accordance with
the Company's 1996 Bonus Plan. For purposes of this Section 3, the "Bonus Fund"
shall be equal to ten percent (10%) of the Company's pre-tax income (determined
in accordance with generally accepted accounting principles by the Company's
auditors) within ninety (90) days after the fiscal year (which is December 31),
up to a maximum aggregate bonus fund of five million dollars ($5,000,000) and
payable on the same basis as other executives of the Company subject to the
Bonus Fund,
(c) after the initial public offering is closed, the Consultant
shall receive an automobile allowance of five hundred dollars ($500) per month,
(d) after the initial public offering is closed, the Company will
allow the Consultant four (4) weeks of compensated vacation which shall vest
ratably throughout the year,
(e) after the initial public offering is closed, the Company shall
provide the Consultant with an office and secretarial services comparable to
those of its other executive employees,
(f) upon termination of this Agreement pursuant to sections 2a or
2b and upon the close of the initial public offering, Consultant shall receive
a severance payment equal to twelve (12) times the Consultant's monthly
compensation pursuant to section 3a for the month prior to termination. Such
severance shall be payable in twelve (12) monthly installments, beginning in
the second calendar month following the month in which termination occurs,
4. STOCK OPTIONS. Consultant's grant of stock option pursuant to
the Agreement dated September , 1995 will be reduced to one hundred forty
thousand (140,000) options ("Options"), giving the consultant the right to
purchase one hundred forty thousand (140,000) shares of the Company's common
stock at an exercise price of $.01 per share under the Company's 1994 Stock
Option Plan. The options will be evidenced by a stock option agreement and
will vest with respect to 30,000 options on August 1, 1996 30,000 options on
August 1, 1997, 30,000 options on August 1, 1998, and 30,000 options on July
31, 1999 and shall be exercisable for a period of five years from August 1,
1996.
However, in the event the Agreement is terminated pursuant to section 2,a,b, or
c, such options shall be exercisable for a period of three (3) months from the
date of termination if they vested prior to termination.
5. REIMBURSEMENT OF EXPENSES. The Company shall reimburse JEM
for any documented out of pocket expenses incurred in connection with the
duties and responsibilities described herein, subject to Company's policy with
respect to such expenses, and which are considered reasonable and customary in
the fulfillment of the duties described herein.
6. INDEPENDENT CONTRACTOR. The parties hereto presently believe
and intend that JEM shall be classified, for tax purposes, as an independent
contractor. Accordingly, JEM shall be responsible for all state and federal
taxes incurred in connection with income received for services rendered under
this Agreement. The Company shall not be responsible for any withholding of or
contribution to such taxes.
7. COVENANT NOT TO COMPETE.
(a) JEM covenants and agrees that during the term of this
Agreement and in the event of the Company's close of its initial public
offering, for a period of one (1) year thereafter, JEM shall not, directly or
indirectly:
<PAGE> 3
1. operate or own any interest in any business which
has significant (viewed in relation to the business of the Company) activities
relating to the acquisition, ownership, management of, or consultation
regarding chiropractic and medical care, rehabilitation, physical therapy,
occupational therapy, acupuncture, and/or diagnostic facilities (individually
or collectively the "Clinic") other than affiliates of the Company or up to
five percent (5%) of the equity securities of a publicly traded company.
2. compete with the Company or its subsidiaries or
affiliates in the operation or development of any Clinic within the forty-eight
(48) contiguous states of the United States of America.
3. be employed by or consult with any business which
owns, manages, operates, or engages in the consulting business regarding
Clinics if JEM's employment duties or consultation (other than insignificant
or non-competitive activities) involves Clinic operations.
4. solicit or attempt to solicit any employee of the
Company, or commit an act the primary purpose of which is to induce any
employee of the Company or any of its affiliates to leave the Company's employ,
or significantly interfere with, disrupt or attempt to disrupt any past,
present, or prospective relationship, contractual or otherwise, relating to the
Company's business activities between the Company and its prospects, customers
and suppliers.
Nothing in this subsection (a) will preclude JEM from continuing to provide
management services to chiropractic practices in which JEM had a financial,
contractual or developmental interest prior to the execution of this Agreement
or to which the Company otherwise agrees to in writing.
(b) The parties hereto consider the restrictions contained in
Section 6 to be reasonable. If, however, such restrictions are found by any
court having jurisdiction to be unreasonable because they are (or any of them
is) too broad, then such restriction or restrictions shall nonetheless remain
effective, but shall be considered amended as to protection of business, time,
or geographic area in whatever manner is considered reasonable by that court
and, as so amended, shall be enforced.
(c) The provisions of this section, in the event of the Company's
completion of its initial public offer, shall survive the termination, for any
reason, of this Agreement and shall be separately enforceable.
7. DISCLOSURE OF CONFIDENTIAL INFORMATION. JEM recognizes and
acknowledges that JEM's duties hereunder shall require JEM to have knowledge
of matters unique to the Company, including trade secrets as to processes,
pricing and other matters, and lists of the Company's prospects, customers and
suppliers. JEM acknowledges that such information, processes and lists are
valuable, special and unique assets of the Company's business. Accordingly,
Consultant shall not, during the term of this agreement, and for a period of
one (1) year thereafter, disclose any such information, processes, or lists to
any reason or purpose whatsoever, except for the Company's benefit as
determined in accordance with normal corporate processes. JEM agrees not to
disclose the existence or nature of this Agreement to any third party without
the written approval of the Company. The provisions of this Section 9 shall
survive the termination, for any reason, of this Agreement and shall be
separately enforceable.
8. REPRESENTATION AND WARRANTY. JEM hereby represents and
warrants to Company that JEM has the right to enter into and perform this
Agreement will not violate or constitute a breach of any other agreement or
obligation to which JEM may be a party or otherwise bound. To the fullest
extent permitted by law, JEM agrees to indemnify and hold harmless Company form
and against all damages, losses, costs, and expenses (including reasonable
attorneys' fees and expenses) that may be incurred by the Company by reason of
any violation or breach of this Section 8.
9. AMENDMENT. This Agreement may be amended only by the written
agreement of Company and JEM.
10. ASSIGNMENT. The rights and obligations of Company under this
Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of Company. JEM, may not, however, assign or otherwise
delegate the duties and obligations required hereunder.
<PAGE> 4
11. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the state.
12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original , but all of which
together shall constitute one and the same instrument. This Agreement shall be
binding when one or more counterparts hereof, individually or taken together,
shall bear the signature of the parties reflected hereon as signatories.
13. ENTIRE AGREEMENT. This Agreement supersedes any and all other
agreements, either oral or written, between the parties hereto relating to the
subject matter hereof.
13. NOTICES. All notices required or permitted under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the United States Post Office, by registered or
certified mail, receipt requested, postage prepaid, addressed to Company or to
JEM, as the case may be, at the addresses listed below, or at such other
addresses as either party may designate to the other in accordance with this
Section 16.
<TABLE>
<S> <C>
If to Company:
Complete Wellness Centers, Inc.
725 Independence Ave., SE
Washington, D.C. 20003
attn: President
If to JEM:
J.E.M., Inc.
attn: President
4727 Marlwood Lane
North Palm Beach, FL 33418
</TABLE>
15. PRONOUNS. Whenever the context may require, any pronouns used
in this agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural
and vice versa.
16. THIRD PARTY BENEFICIARIES. None of the provisions of this
Agreement shall be for the benefit of or enforceable by any third party who is
not a signatory to this Agreement.
17. MISCELANEOUS.
(a) No delay or omission by the Company or JEM in exercising any
right under this Agreement shall operate as a waiver of that or any other
right. A waiver or consent given by the Company or JEM on any one occasion
shall be effective only in that instance and shall not be construed as a bar
or waiver of any right on any other occasion.
(b) The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope
or substance of this Agreement.
<PAGE> 5
* * *
IN WITNESS WHEREOF, Company and JEM have executed this instrument, or caused
its execution by a duly authorized officer, as of the day and year first above
written.
COMPLETE WELLNESS CENTERS, INC.
By:
--------------------------
Name: C. Thomas McMillen
Title: President
("Company")
J.E.M., INC.
By:
--------------------------
Name: Bonnie Kaplan
Title:
-----------------------
(J.E.M.)
<PAGE> 1
EXHIBIT 10.24
COMPLETE WELLNESS CENTERS, INC.
1994 STOCK OPTION PLAN
SECTION 1. PURPOSE.
This 1994 Stock Option Plan is intended to provide incentives: (a) to the
officers and other employees of Complete Wellness Centers, Inc. (the "Company")
by providing such employees with opportunities to purchase stock in the Company
pursuant to options granted hereunder that qualify as "incentive stock options"
under Section 422(b) of the Internal Revenue Code of 1986, as amended; (b) to
the officers and other employees of the Company by providing such persons with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which do not qualify as "incentive stock options;" and (c) to
consultants and certain other persons rendering services to the Company by
providing such persons with opportunities to purchase stock in the Company
pursuant to options granted hereunder which do not qualify as "incentive stock
options."
SECTION 2. DEFINITIONS.
(a) "Agreements" shall have the meaning ascribed to the term as
set forth in Section 6 hereof.
(b) "Board of Directors" means the Board of Directors of the
Company.
(c) "Common Stock" means the common stock, $.0000555 par value per
share, of the Company.
(d) "Company" means Complete Wellness Centers, Inc., a Delaware
corporation.
(e) "Employee" means every individual performing services for the
Company if the relationship between him/her and the person for whom he/she
performs such services is the legal relationship of employer and employee as
determined in accordance with Section 3401(c) of Internal Revenue Code and
Treasury Regulations promulgated thereunder. A member of the Board of
Directors in his/her sole capacity as such is not an Employee.
(f) "Incentive Stock Option" means a right granted pursuant to
this Plan to purchase Common Stock that satisfies the requirements of Section
422 of the Internal Revenue Code.
(g) "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended.
(h) "Nonqualified Stock Option" means a right granted pursuant to
this Plan to purchase Common Stock that does not satisfy the requirements of
Section 422 of the Internal Revenue Code.
1
<PAGE> 2
(i) "Option" means a right granted pursuant to this Plan to
purchase Common Stock which may be either an Incentive Stock Option or a
Nonqualified Stock Option as determined by the Board of Directors.
(j) "Optionee" means an individual who has received an Option
under the Plan.
(k) "Plan" means this stock option plan authorizing the granting of
stock Options.
(l) "Plan Administrators" shall have the meaning ascribed to the
term as set forth in Section 5 hereof.
(m) "Reserved Shares" shall have the meaning ascribed to the term
as set forth in Section 3 hereof.
SECTION 3. SHARES SUBJECT TO THE PLAN.
Subject to adjustments pursuant to Section 8 of the Plan, no more than
one million two hundred thousand (1,200,000) shares in the aggregate of the
Company's Common Stock (the "Reserved Shares") may be issued pursuant to the
Plan to eligible participants. The number of the Reserved Shares shall be
reduced by the number of Options granted under the Plan. The Reserved Shares
may be made available from authorized but unissued Common Stock of the Company,
from Common Stock of the Company held as treasury stock, from any shares which
may become available due to the expiration, cancellation or other termination
of any Option previously granted by the Company, or from any combination of the
foregoing.
SECTION 4. ELIGIBILITY.
The individuals eligible to receive Options under this Plan shall be
such valued Employees of the Company, and such consultants and certain other
persons rendering services to the Company, as the Board of Directors may from
time to time determine and select. Employees shall be eligible to receive both
Incentive Stock Options and Nonqualified Stock Options. Consultants and
certain other persons rendering services to the Company shall be eligible to
receive Nonqualified Stock Options.
An Optionee may hold more than one Option. No Employee of the Company
is eligible to receive any Incentive Stock Options if such Employee, at the
time the option is granted, owns, beneficially or of record, in excess of 10%
of the outstanding voting stock of the Company or a subsidiary thereof;
provided, however, that such Employee will be eligible to receive an Incentive
Stock Option if at the time such Option is granted the Option price is at least
110% of the fair market value (determined with regard to Section 422(c)(7) of
the Internal Revenue Code) of the stock subject to the Option and such Option
by its terms is not exercisable after the
2
<PAGE> 3
expiration of five (5) years from the date such Option is granted.
Pursuant to Section 422(d) of the Internal Revenue Code, no Option
granted pursuant to this Plan shall be treated as an Incentive Stock Option to
the extent that the aggregate fair market value (determined at the time the
Option was granted) of Common Stock with respect to which Options (that
otherwise qualify as Incentive Stock Options) are exercisable for the first
time by an Employee during any calendar year (under all plans of the Company
and its subsidiaries) exceeds $100,000.
SECTION 5. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by those members of the Board
of Directors, or by a committee appointed by the Board of Directors, (in either
event, the "Plan Administrators") who are disinterested persons within the
meaning of Rule 16b-3(c)(2)(i) of the Securities Exchange Act of 1934, as
amended ("Disinterested Persons").
(b) The Plan Administrators shall have the power, subject to, and
within the limits of, the express provisions of the Plan:
(i) To determine from time to time which eligible persons shall be
granted Options under the Plan, and the time when any Option
shall be granted to them;
(ii) To determine the number of Options to be granted to any
person;
(iii) To grant Incentive Stock Options, Nonqualified Stock Options,
or both, under the Plan to such persons;
(iv) To determine the duration and purposes of leaves of absence
which may be granted to Optionees without constituting a
termination of their employment for purposes of the Plan;
(v) To prescribe the terms and provisions of each Option granted
under the Plan (which need not be identical);
(vi) To determine the maximum period during which Options may be
exercised;
(vii) To construe and interpret the Plan and Options granted under
it, and to establish, amend, and revoke rules and regulations
for its administration; and
3
<PAGE> 4
(viii) Generally, to exercise such powers and to perform such acts as
are deemed necessary or expedient to promote the best
interests of the Company with respect to the Plan.
(c) Notwithstanding the foregoing, neither the Board of Directors,
any committee thereof nor any person designated pursuant to paragraph (d) below
may take any action which would cause any Plan Administrator to cease to be a
Disinterested Person with regard to this Plan or any other stock option or
other equity plan of the Company.
(d) The Plan Administrators, in the exercise of these powers, may
correct any defect or supply any omission, or reconcile any inconsistency in
the Plan, or in any Option, in the manner and to the extent it shall deem
necessary or expedient to make the Plan fully effective. All determinations of
the Plan Administrators shall be made by majority vote. Subject to any
applicable provisions of the Company's By-laws, all decisions made by the Plan
Administrators pursuant to the provisions of the Plan and related orders or
resolutions of the Plan Administrators shall be final, conclusive and binding
on all persons, including the Company, stockholders of the Company, Employees
and Optionees.
(e) The Plan Administrators may designate the Secretary of the
Company, or other employees of the Company or competent professional advisors,
to assist in the administration of this Plan and may grant authority to such
persons to execute agreements or other documents on behalf of the Plan
Administrators.
(f) The Plan Administrators may employ such legal counsel,
consultants and agents as they may deem desirable for the administration of
this Plan and may rely upon any opinion received from any such counsel or
consultant and any computation received from any such consultant or agent. No
present or former Plan Administrator shall be liable for any action or
determination made in good faith with respect to this Plan or any Option
granted hereunder. To the maximum extent permitted by applicable law and the
Company's Certificate of Incorporation and By-laws, each present or former Plan
Administrator shall be indemnified and held harmless by the Company against any
cost or expenses (including counsel fees) or liability (including any sum paid
in settlement of a claim with the approval of the Company) arising out of any
act or omission to act in connection with this Plan unless arising out of such
person's own fraud or bad faith. Such indemnification shall be in addition to
any rights of indemnification the person may have as a director, officer or
employee or under the Certificate of Incorporation of the Company, the By-laws
of the Company or otherwise. Expenses incurred by the Plan Administrators in
the engagement of such counsel, consultant or agent shall be paid by the
Company.
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SECTION 6. OPTION TERMS AND CONDITIONS.
The Options granted under the Plan shall be evidenced by written
Option Agreements (the "Agreements") consistent with the terms of the Plan
which shall be executed by the Company and the Optionee. The Agreements, in
such form as the Plan Administrators shall from time to time approve, shall,
incorporate the following terms and conditions:
(a) Time of Exercise. Options shall be exercisable in accordance
with the terms of the Agreements as approved by the Plan Administrators from
time to time. Incentive Stock Options may be exercised only if, at all times
during the period that begins on the date of the granting of the Incentive
Stock Option and that ends on the day three (3) months before the date of such
exercise, the Optionee was an Employee of the Company; provided, however, that
if the Optionee is "disabled" within the meaning of Section 22(e) of the
Internal Revenue Code, then the end of the preceding post-employment exercise
period shall be extended to one (1) year.
(b) Purchase Price. Except as otherwise provided in Section 4
hereof, the purchase price per share of Common Stock deliverable upon the
exercise of an Incentive Stock Option shall not be less than the fair market
value of the Common Stock on the date the Option is granted. The purchase
price per share of Common Stock deliverable upon the exercise of a Nonqualified
Stock Option shall be determined by the Plan Administrators in their sole
discretion.
(c) Method of Exercise. In order to exercise an Option in whole
or in part, the Optionee shall give written notice to the Company at its
principal place of business of such exercise, stating the number of shares with
respect to which the Option is being exercised. Such notice shall be
accompanied by full payment of the purchase price thereof in cash. The
exercise date of the Option shall be the date the Company receives such notice
with any necessary accompaniments in satisfactory order.
(d) Transferability. An Option shall not be transferable by the
Optionee other than at death and an Option granted to such Optionee is
exercisable, during his lifetime, only by such Optionee.
The Agreements may also contain such other terms, provisions, and
conditions consistent with the Plan and applicable provisions of the Internal
Revenue Code as the Plan Administrators may determine are necessary or proper.
SECTION 7. RIGHTS OF STOCKHOLDERS AND OPTIONEE.
An Optionee shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such Option,
unless and until: (a) the Option shall have been exercised pursuant to the
terms thereof; (b) the Company
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shall have issued and delivered the shares to the Optionee; and (c) the
Optionee's name shall have been entered as a stockholder of record on the books
of the Company. Thereupon, the Optionee shall have full voting and other
ownership rights with respect to such shares.
SECTION 8. ADJUSTMENTS IN THE EVENT OF CHANGES IN THE
CAPITAL STRUCTURE, REORGANIZATION ANTI-DILUTION OR
ACCOUNTING CHANGES.
(a) Changes in Capital Structure. In the event of a change in the
corporate structure or shares of the Company, the Plan Administrators (subject
to any required action by the stockholders) shall make such equitable
adjustments designed to protect against dilution as they may deem appropriate
in the number and kind of shares authorized by the Plan and, with respect to
outstanding Options in the number and kind of shares covered thereby and in the
exercise price of such Options on the dates granted. For the purpose of this
Section, a change in the corporate structure or shares of the Company shall
include, but is not limited to, changes resulting from a recapitalization,
stock split, consolidation, rights offering, stock dividend, reorganization, or
liquidation.
(b) Reorganization-Continuation of the Plan. Upon the effective
date of the dissolution or liquidation of the Company, or a reorganization,
merger or consolidation of the Company with one or more corporations in which
the Company is not the surviving corporation, or of a transfer of substantially
all of the Company's property or more than 80% of the then outstanding shares
of the Company to another corporation not controlled by the Company's
stockholders, the Plan and any Option previously granted under the Plan shall
terminate unless provision be made in writing in connection with such
transaction for the continuation of the Plan and for the assumption of the
Options previously granted, or for the substitution of new Options covering the
shares of a successor employer corporation, or a parent or subsidiary thereof,
with appropriate adjustments (in accordance with the applicable provisions of
the Internal Revenue Code) as to the number and kind of shares and price per
share, in which event the Plan and the Options previously granted or new
Options substituted therefor shall continue in the manner and under the terms
as provided.
(c) Reorganization-Termination of the Plan. In the event of a
dissolution, liquidation, reorganization, merger, consolidation, transfer of
assets or transfer of shares, as provided in Section 8(b) above, and if
provision is not made in such transaction for the continuance of the Plan and
for the assumption of Options previously granted or the substitution of new
Options covering the shares of a successor employer corporation or a parent or
subsidiary thereof, then an Optionee under the Plan shall be entitled to
written notice prior to the effective date of any such transactions stating
that rights under his Option must be exercised within
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thirty (30) days of the date of such notice or they will be terminated.
SECTION 9. GENERAL RESTRICTIONS.
Each Option shall be subject to the requirement that, if at any time
the Plan Administrators shall determine, in their discretion, that the listing
or qualification of the shares or other securities subject to such Option upon
any securities exchange, or under any state or federal law or the consent or
approval of any government regulatory body, is necessary or desirable as a
condition of, or in connection with the granting thereof or the issue or
purchase of shares or payments of any amount thereunder, such Option may not be
exercised in whole or in part and no amounts may be received thereunder unless
such listing, qualification, consent or approval shall have been effected or
obtained free of any conditions unacceptable to the Plan Administrators.
SECTION 10. EMPLOYMENT.
Nothing in this Plan shall be deemed to grant any right of continued
employment to a participating employee or to limit or waive any rights of the
Company to terminate such employment at any time, with or without cause.
SECTION 11. AMENDMENT.
Subject to the provisions of Sections 5(c) and 5(d) hereof, the Board
of Directors of the Company shall have the power to amend or revise the terms
of this Plan or any part thereof without further action of the stockholders;
provided, however, that no such amendment shall impair any Option or deprive
any Optionee of shares that may have been granted to him under the Plan without
his consent; and provided, further, that no such amendment shall, without
stockholder approval:
(a) increase the aggregate number of the Reserved Shares for the
purpose of the Plan;
(b) change the class of individuals eligible to receive Options
under the Plan;
(c) extend the maximum period during which any Option may be
granted or exercised;
(d) reduce the Option price per share under any Option below fair
market value; or
(e) extend the term of the Plan.
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SECTION 12. EFFECTIVE DATE AND TERMINATION OF PLAN.
(a) The effective date of the Plan shall be April 15, 1995;
provided, however, in the event that the Plan is not approved by the voting
stockholders of the Company on or before December 31, 1994, the Plan and all
Options granted and to be granted hereunder shall be null and void and the
Company shall have no obligation of any nature whatsoever to any employee or
other person arising out of the Plan or any options granted or to be granted
hereunder.
(b) The Board of Directors of the Company may terminate the Plan
at any time with respect to any shares that are not subject to Options. Unless
terminated earlier by the Board of Directors, the Plan shall terminate on April
15, 2004, and no Options shall be granted under this Plan after it has been
terminated. Termination of this Plan shall not affect the right and obligation
of any Optionee with respect to Options granted prior to termination.
SECTION 13. WITHHOLDING TAXES.
Whenever under the Plan shares are to be issued in satisfaction of
Options granted hereunder, the Company shall have the right to require the
recipient to make arrangements to remit to the Company an amount sufficient to
satisfy federal, state and local withholding tax requirements, if any, prior to
or following the delivery of any certificate or certificates for such shares.
SECTION 14. QUALIFICATION.
This Plan is adopted pursuant to, and is intended to comply with, the
applicable provisions of the Internal Revenue Code and the regulations
thereunder. Incentive Stock Options granted pursuant to this Plan are intended
to be "incentive stock options" as that term is defined in Section 422 of the
Internal Revenue Code and the regulations thereunder. In the event this Plan
or any Incentive Stock Option granted pursuant to this Plan is in any way
inconsistent with the applicable legal requirements of the Internal Revenue
Code or any regulation thereunder, this Plan and any Incentive Stock Option
granted pursuant to this Plan shall be deemed automatically amended as of the
date hereof to conform to such legal requirements, if such conformity can be
achieved by amendment.
SECTION 15. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
Each Employee who receives an Incentive Stock Option must agree to
notify the Company in writing immediately after the Employee makes a
disqualifying disposition of any Common Stock acquired pursuant to the exercise
of an Incentive Stock Option. For purposes of this Plan, a "disqualifying
disposition" is any disposition (including any sale) of such Common Stock
before the later of (i) two years after the date the
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Employee was granted the Incentive Stock Option, or (ii) one year after the
date the Employee acquired Common Stock by exercising the Incentive Stock
Option.
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EXHIBIT 10.25
COMPLETE WELLNESS CENTERS, INC.
1996 STOCK OPTION PLAN
1. PURPOSE.
This 1996 Stock Option Plan is intended to provide incentives: (a) to
the officers and other employees of Complete Wellness Centers, Inc. (the
"Company") or any of its subsidiaries by providing such employees with
opportunities to purchase stock in the Company pursuant to options granted
hereunder that qualify as "incentive stock options" under Section 422(b) of the
Internal Revenue Code of 1986, as amended; (b) to the officers and other
employees of the Company or any of its subsidiaries by providing such persons
with opportunities to purchase stock in the Company pursuant to options granted
hereunder which do not qualify as "incentive stock options;" and (c) to
consultants and certain other persons rendering services to the Company or any
of its subsidiaries (including without limitation members of the Scientific
Advisory Board) by providing such persons with opportunities to purchase stock
in the Company pursuant to options granted hereunder which do not qualify as
"incentive stock options."
2. DEFINITIONS.
(a) "Agreements" shall have the meaning ascribed to the term as
set forth in Section 6 hereof.
(b) "Board of Directors" means the Board of Directors of the
Company.
(c) "Common Stock" means the common stock, $.0001665 par value per
share, of the Company.
(d) "Company" means Complete Wellness Centers, Inc., a Delaware
corporation.
(e) "Employee" means every individual performing services for the
Company or any subsidiary if the relationship between him/her and the person
for whom he/she performs such services is the legal relationship of employer
and employee as determined in accordance with Section 3401(c) of Internal
Revenue Code and Treasury Regulations promulgated thereunder. Neither a
member of the Board of Directors in his/her sole capacity as such, nor a
member of the Scientific Advisory Board in his/her sole capacity as such, is
an Employee.
(f) "Fair market value" of a share of Common Stock as of any date
shall be determined for purposes of this Plan as follows: (i) if the Common
Stock is listed on a securities exchange or quoted through the Automated
Quotation National Market System of the National Association of Securities
Dealers, Inc. (NASDAQ), the fair market value shall equal the mean between the
high and low sales prices on such exchange or through such market system, as
the case may be, on such day or in the absence of reported sales on such day,
the mean between the closing reported bid and asked prices on such exchange or
through such market system, as the case may be, on such day, (ii) if the Common
Stock is not listed or quoted as described in the preceding clause but is
quoted through NASDAQ (but not through the National Market System), the fair
market value shall equal the mean
<PAGE> 2
between the closing bid and asked prices as quoted by the National Association
of Securities Dealers, Inc., through NASDAQ for such day, and (iii) if the
Common Stock is not listed or quoted on a securities exchange or through
NASDAQ, then the fair market value shall be determined by such other method as
the Plan Administrators determine to be reasonable and consistent with
applicable requirements of the Internal Revenue Code and the regulations issued
thereunder applicable to incentive options; provided, however, that if pursuant
to clause (i) or (ii) fair market value is to be determined based upon the mean
of bid and asked prices and the Plan Administrators determine that such mean
does not properly reflect fair market value, then the fair market value shall
be determined by the Plan Administrators as provided in clause (iii).
(g) "Incentive Stock Option" means a right granted pursuant to
this Plan to purchase Common Stock that satisfies the requirements of Section
422 of the Internal Revenue Code.
(h) "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended.
(i) "Nonqualified Stock Option" means a right granted pursuant to
this Plan to purchase Common Stock that does not satisfy the requirements of
Section 422 of the Internal Revenue Code.
(j) "Option" means a right granted pursuant to this Plan to
purchase Common Stock which may be either an Incentive Stock Option or a
Nonqualified Stock Option as determined by the Board of Directors.
(k) "Optionee" means an individual who has received an Option
under the Plan.
(l) "Plan" means this stock option plan authorizing the granting
of stock Options.
(m) "Plan Administrators" shall have the meaning ascribed to the
term as set forth in Section 5 hereof.
(n) "Reserved Shares" shall have the meaning ascribed to the term
as set forth in Section 3 hereof.
(o) "Scientific Advisory Board" means the advisory panel
consisting of individuals with experience in the areas of scientific, clinical,
and regulatory strategy and standards that will meet periodically and consult
with the Board of Directors and management of the Company.
(p) "Subsidiary" or "subsidiaries" means any subsidiary(ies) of
the Company now existing or which become such after the effective date of the
Plan.
3. SHARES SUBJECT TO THE PLAN.
Subject to adjustments pursuant to Section 8 of the Plan, no more than
two hundred thousand (200,000) shares in the aggregate of the Company's Common
Stock (the "Reserved Shares") may be issued pursuant to the Plan to eligible
participants. The number of the Reserved Shares shall be reduced by the number
of Options granted under the Plan. The Reserved Shares may be made
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<PAGE> 3
available from authorized but unissued Common Stock of the Company, from Common
Stock of the Company held as treasury stock, from any shares which may become
available due to the expiration, cancellation or other termination of any
Option previously granted by the Company, or from any combination of the
foregoing.
4. ELIGIBILITY.
The individuals eligible to receive Options under this Plan shall be
such valued Employees of the Company or any of its subsidiaries, and such
consultants and certain other persons rendering services to the Company or any
of its subsidiaries (including without limitation members of the Scientific
Advisory Board), as the Board of Directors may from time to time determine and
select. Employees shall be eligible to receive both Incentive Stock Options
and Nonqualified Stock Options. Consultants and certain other persons
rendering services to the Company shall be eligible to receive Nonqualified
Stock Options.
An Optionee may hold more than one Option. No Employee of the Company
or any of its subsidiaries is eligible to receive any Incentive Stock Options
if such Employee, at the time the option is granted, owns, beneficially or of
record, in excess of 10% of the outstanding voting stock of the Company or any
of its subsidiaries; provided, however, that such Employee will be eligible to
receive an Incentive Stock Option if at the time such Option is granted the
Option price is at least 110% of the fair market value (determined with regard
to Section 422(c)(7) of the Internal Revenue Code) of the stock subject to the
Option and such Option by its terms is not exercisable after the expiration of
five (5) years from the date such Option is granted.
Pursuant to Section 422(d) of the Internal Revenue Code, no Option
granted pursuant to this Plan shall be treated as an Incentive Stock Option to
the extent that the aggregate fair market value (determined at the time the
Option was granted) of Common Stock with respect to which Options (that
otherwise qualify as Incentive Stock Options) are exercisable for the first
time by an Employee during any calendar year (under all plans of the Company
and its subsidiaries) exceeds $100,000.
5. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by those members of the Board
of Directors, or by a committee appointed by the Board of Directors, (in either
event, the "Plan Administrators") who are disinterested persons within the
meaning of Rule 16b-3(c)(2)(i) of the Securities Exchange Act of 1934, as
amended ("Disinterested Persons").
(b) The Plan Administrators shall have the power, subject to, and
within the limits of, the express provisions of the Plan:
(i) To determine from time to time which eligible persons
shall be granted Options under the Plan, and the time
when any Option shall be granted to them;
(ii) To determine the number of Options to be granted to
any person;
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(iii) To grant Incentive Stock Options, Nonqualified Stock
Options, or both, under the Plan to such persons;
(iv) To determine the duration and purposes of leaves of
absence which may be granted to Optionees without
constituting a termination of their employment for
purposes of the Plan;
(v) To prescribe the terms and provisions of each Option
granted under the Plan (which need not be identical);
(vi) To determine the maximum period during which Options
may be exercised;
(vii) To construe and interpret the Plan and Options
granted under it, and to establish, amend, and revoke
rules and regulations for its administration; and
(viii) Generally, to exercise such powers and to perform
such acts as are deemed necessary or expedient to
promote the best interests of the Company and its
subsidiaries with respect to the Plan.
(c) Notwithstanding the foregoing, neither the Board of Directors,
any committee thereof nor any person designated pursuant to paragraph (d) below
may take any action which would cause any Plan Administrator to cease to be a
Disinterested Person with regard to this Plan or any other stock option or
other equity plan of the Company.
(d) The Plan Administrators, in the exercise of these powers, may
correct any defect or supply any omission, or reconcile any inconsistency in
the Plan, or in any Option, in the manner and to the extent it shall deem
necessary or expedient to make the Plan fully effective. All determinations of
the Plan Administrators shall be made by majority vote. Subject to any
applicable provisions of the Company's Bylaws, all decisions made by the Plan
Administrators pursuant to the provisions of the Plan and related orders or
resolutions of the Plan Administrators shall be final, conclusive and binding
on all persons, including the Company and its subsidiaries, stockholders of the
Company, Employees and Optionees.
(e) The Plan Administrators may designate the Secretary of the
Company, or other employees of the Company or competent professional advisors,
to assist in the administration of this Plan and may grant authority to such
persons to execute agreements or other documents on behalf of the Plan
Administrators.
(f) The Plan Administrators may employ such legal counsel,
consultants and agents as they may deem desirable for the administration of
this Plan and may rely upon any opinion received from any such counsel or
consultant and any computation received from any such consultant or agent. No
present or former Plan Administrator shall be liable for any action or
determination made in good faith with respect to this Plan or any Option
granted hereunder. To the maximum extent permitted by applicable law and the
Company's Certificate of Incorporation and Bylaws, each present or former Plan
Administrator shall be indemnified and held harmless by the Company against any
cost or
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<PAGE> 5
expenses (including counsel fees) or liability (including any sum paid in
settlement of a claim with the approval of the Company) arising out of any act
or omission to act in connection with this Plan unless arising out of such
person's own fraud or bad faith. Such indemnification shall be in addition to
any rights of indemnification the person may have as a director, officer or
employee or under the Certificate of Incorporation of the Company, the Bylaws
of the Company or otherwise. Expenses incurred by the Plan Administrators in
the engagement of such counsel, consultant or agent shall be paid by the
Company.
6. OPTION TERMS AND CONDITIONS.
The Options granted under the Plan shall be evidenced by written
Option Agreements (the "Agreements") consistent with the terms of the Plan
which shall be executed by the Company and the Optionee. The Agreements, in
such form as the Plan Administrators shall from time to time approve, shall,
incorporate the following terms and conditions:
(a) Time of Exercise. Options shall be exercisable in accordance
with the terms of the Agreements as approved by the Plan Administrators from
time to time. Incentive Stock Options may be exercised only if, at all times
during the period that begins on the date of the granting of the Incentive
Stock Option and that ends on the day three (3) months before the date of such
exercise, the Optionee was an Employee of the Company or any of its
subsidiaries; provided, however, that if the Optionee is "disabled" within the
meaning of Section 22(e) of the Internal Revenue Code, then the end of the
preceding post-employment exercise period shall be extended to one (1) year.
(b) Purchase Price. Except as otherwise provided in Section 4
hereof, the purchase price per share of Common Stock deliverable upon the
exercise of an Incentive Stock Option shall not be less than the fair market
value of the Common Stock on the date the Option is granted. The purchase
price per share of Common Stock deliverable upon the exercise of a Nonqualified
Stock Option shall be determined by the Plan Administrators in their sole
discretion.
(c) Method of Exercise. In order to exercise an Option in whole
or in part, the Optionee shall give written notice to the Company at its
principal place of business of such exercise, stating the number of shares with
respect to which the Option is being exercised. Such notice shall be
accompanied by full payment of the purchase price thereof. The exercise date
of the Option shall be the date the Company receives such notice with any
necessary accompaniments in satisfactory order.
(d) Method of Payment. The purchase price shall be paid for (i)
in cash or by certified check or bank draft or money order payable to the order
of the Company or (ii) with the consent of the Plan Administrators, and to the
extent permitted by them (not later than the time of grant, in the case of an
Incentive Stock Option), through delivery of shares of Common Stock having a
fair market value on the date of exercise equal to the purchase price (but only
if such shares have been held by the Option holder for a period of time
sufficient to prevent a pyramid exercise that would create a charge to the
Company's earnings) or (iii) any combination of the foregoing methods of
payment.
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<PAGE> 6
(e) Transferability. An Option shall not be transferable by the
Optionee other than at death and an Option granted to such Optionee is
exercisable, during his lifetime, only by such Optionee.
The Agreements may also contain such other terms, provisions, and
conditions consistent with the Plan and applicable provisions of the Internal
Revenue Code as the Plan Administrators may determine are necessary or proper.
7. RIGHTS OF STOCKHOLDERS AND OPTIONEE.
An Optionee shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such Option,
unless and until: (a) the Option shall have been exercised pursuant to the
terms thereof; (b) the Company shall have issued and delivered the shares to
the Optionee; and (c) the Optionee's name shall have been entered as a
stockholder of record on the books of the Company. Thereupon, the Optionee
shall have full voting and other ownership rights with respect to such shares.
8. ADJUSTMENTS IN THE EVENT OF CHANGES IN THE CAPITAL STRUCTURE,
REORGANIZATION ANTI-DILUTION OR ACCOUNTING CHANGES.
(a) Changes in Capital Structure. In the event of a change in the
corporate structure or shares of the Company, the Plan Administrators (subject
to any required action by the stockholders) shall make such equitable
adjustments designed to protect against dilution as they may deem appropriate
in the number and kind of shares authorized by the Plan and, with respect to
outstanding Options in the number and kind of shares covered thereby and in the
exercise price of such Options on the dates granted. For the purpose of this
Section, a change in the corporate structure or shares of the Company shall
include, but is not limited to, changes resulting from a recapitalization,
stock split, consolidation, rights offering, stock dividend, reorganization, or
liquidation.
(b) Reorganization--Continuation of the Plan. Upon the effective
date of the dissolution or liquidation of the Company, or a reorganization,
merger or consolidation of the Company with one or more corporations in which
the Company is not the surviving corporation, or of a transfer of substantially
all of the Company's property or more than 80% of the then outstanding shares
of the Company to another corporation not controlled by the Company's
stockholders, the Plan and any Option previously granted under the Plan shall
terminate unless provision be made in writing in connection with such
transaction for the continuation of the Plan and for the assumption of the
Options previously granted, or for the substitution of new Options covering the
shares of a successor employer corporation, or a parent or subsidiary thereof,
with appropriate adjustments (in accordance with the applicable provisions of
the Internal Revenue Code) as to the number and kind of shares and price per
share, in which event the Plan and the Options previously granted or new
Options substituted therefor shall continue in the manner and under the terms
as provided.
(c) Reorganization--Termination of the Plan. In the event of a
dissolution, liquidation, reorganization, merger, consolidation, transfer of
assets or transfer of shares, as provided in Section 8(b) above, and if
provision is not made in such transaction for the continuance of the Plan and
for
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<PAGE> 7
the assumption of Options previously granted or the substitution of new Options
covering the shares of a successor employer corporation or a parent or
subsidiary thereof, then an Optionee under the Plan shall be entitled to
written notice prior to the effective date of any such transactions stating
that rights under his Option must be exercised within thirty (30) days of the
date of such notice or they will be terminated.
9. GENERAL RESTRICTIONS.
Each Option shall be subject to the requirement that, if at any time
the Plan Administrators shall determine, in their discretion, that the listing
or qualification of the shares or other securities subject to such Option upon
any securities exchange, or under any state or federal law or the consent or
approval of any government regulatory body, is necessary or desirable as a
condition of, or in connection with the granting thereof or the issue or
purchase of shares or payments of any amount thereunder, such Option may not be
exercised in whole or in part and no amounts may be received thereunder unless
such listing, qualification, consent or approval shall have been effected or
obtained free of any conditions unacceptable to the Plan Administrators.
10. EMPLOYMENT.
Nothing in this Plan shall be deemed to grant any right of continued
employment to a participating employee or to limit or waive any rights of the
Company or any of its subsidiaries to terminate such employment at any time,
with or without cause.
11. AMENDMENT.
Subject to the provisions of Sections 5(c) and 5(d) hereof, the Board
of Directors of the Company shall have the power to amend or revise the terms
of this Plan or any part thereof without further action of the stockholders;
provided, however, that no such amendment shall impair any Option or deprive
any Optionee of shares that may have been granted to him under the Plan without
his consent; and provided, further, that no such amendment shall, without
stockholder approval:
(a) increase the aggregate number of the Reserved Shares for the
purpose of the Plan;
(b) change the class of individuals eligible to receive Options
under the Plan;
(c) extend the maximum period during which any Option may be
granted or exercised;
(d) reduce the Option price per share under any Incentive Stock
Option below fair market value; or
(e) extend the term of the Plan.
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12. EFFECTIVE DATE AND TERMINATION OF PLAN.
(a) The effective date of the Plan shall be October 9, 1996;
provided, however, in the event that the Plan is not approved by the voting
stockholders of the Company on or before October 8, 1997, the Plan and all
Options granted and to be granted hereunder shall be null and void and the
Company shall have no obligation of any nature whatsoever to any employee or
other person arising out of the Plan or any options granted or to be granted
hereunder.
(b) The Board of Directors may terminate the Plan at any time with
respect to any shares that are not subject to Options. Unless terminated
earlier by the Board of Directors, the Plan shall terminate on September 30,
2006, and no Options shall be granted under this Plan after it has been
terminated. Termination of this Plan shall not affect the right and obligation
of any Optionee with respect to Options granted prior to termination.
13. WITHHOLDING TAXES.
Whenever under the Plan shares are to be issued in satisfaction of
Options granted hereunder, the Company shall have the right to require the
recipient to make arrangements to remit to the Company an amount sufficient to
satisfy federal, state and local withholding tax requirements, if any, prior to
or following the delivery of any certificate or certificates for such shares.
14. QUALIFICATION.
This Plan is adopted pursuant to, and is intended to comply with, the
applicable provisions of the Internal Revenue Code and the regulations
thereunder. Incentive Stock Options granted pursuant to this Plan are intended
to be "incentive stock options" as that term is defined in Section 422 of the
Internal Revenue Code and the regulations thereunder. In the event this Plan
or any Incentive Stock Option granted pursuant to this Plan is in any way
inconsistent with the applicable legal requirements of the Internal Revenue
Code or any regulation thereunder, this Plan and any Incentive Stock Option
granted pursuant to this Plan shall be deemed automatically amended as of the
date hereof to conform to such legal requirements, if such conformity can be
achieved by amendment.
15. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
Each Employee who receives an Incentive Stock Option must agree to
notify the Company in writing immediately after the Employee makes a
disqualifying disposition of any Common Stock acquired pursuant to the exercise
of an Incentive Stock Option. For purposes of this Plan, a "disqualifying
disposition" is any disposition (including any sale) of such Common Stock
before the later of (i) two years after the date the Employee was granted the
Incentive Stock Option, or (ii) one year after the date the Employee acquired
Common Stock by exercising the Incentive Stock Option.
8
<PAGE> 1
EXHIBIT 10.26
COMPLETE WELLNESS CENTERS, INC.
1996 RESTRICTED STOCK OPTION PLAN
FOR HEALTH CARE PROFESSIONALS
1. The Purpose of the Plan. This 1996 Restricted Stock Option
Plan (the "Plan") is intended to provide an opportunity for licensed health
care professionals affiliated with Complete Wellness Centers, Inc., a Delaware
corporation ("Company"), to acquire shares of the Company's common stock,
$.0001665 par value per share ("Common Stock"). The Plan provides for the
grant of options which are not intended to qualify as incentive stock options,
as defined in Section 422 of the Internal Revenue Code of 1986, as amended
("Restricted Stock Options").
2. Stock Subject to the Plan. The maximum numbers of shares of
Common Stock which may be issued under Restricted Stock Options granted under
the Plan shall be 100,000 which may be either authorized and unissued shares of
Common Stock or shares of Common Stock held in the treasury of the Company, as
shall be determined by the Board of Directors of the Company. If a Restricted
Stock Option expires or terminates for any reason without being exercised in
full, the unpurchased shares of Common Stock subject to such Restricted Stock
Option shall again be available for purposes of the Plan.
3. Administration of the Plan. This Plan shall be administered
by the Board of Directors of the Company or a committee appointed by the Board
of Directors for the administration of the Plan, in the discretion of the Board
of Directors. As used herein, the term "Committee" refers to such committee
or, in the absence of appointment of such committee, to the Board of Directors.
The Committee shall have full authority in its discretion to determine the
eligible licensed health care professionals to whom Restricted Stock Options
shall be granted and the terms and provisions of Restricted Stock Options,
subject to the Plan. In making such determinations, the Committee may take
into account such factors which the Committee deems relevant. Subject to the
provisions of the Plan, the Committee shall have full and conclusive authority
to interpret the Plan; to prescribe, amend and rescind rules and regulations
relating to the Plan; to determine the terms and provisions of the Restricted
Stock Option agreements (which need not be identical); to determine the
restrictions on
<PAGE> 2
transferability of Common Stock acquired upon exercise of Restricted Stock
Options; and to make all other determinations necessary or advisable for the
proper administration of the Plan.
4. Terms and Conditions of Options. Subject to the following
provisions, all Restricted Stock Options shall be in such form and upon such
terms and conditions as the Committee, in its discretion, may from time to time
determine.
(a) Option Price. The option price per share shall in no event be
less than 85% of the fair market value per share of Common Stock on the date
the Restricted Stock Option is granted. "Fair market value" of a share of
Common Stock as of any date shall be determined for purposes of the Plan as
follows: (i) if the Common Stock is listed on a securities exchange or quoted
through the Automated Quotation National Market System of the National
Association of Securities Dealers, Inc. (NASDAQ), the fair market value shall
equal the mean between the high and low sales prices on such exchange or
through such market system, as the case may be, on such day or in the absence
of reported sales on such day, the mean between the closing reported bid and
asked prices on such exchange or through such market system, as the case may
be, on such day, (ii) if the Common Stock is not listed or quoted as described
in the preceding clause but is quoted through NASDAQ (but not through the
National Market System), the fair market value shall equal the mean between the
closing bid and asked prices as quoted by the National Association of
Securities Dealers, Inc., through NASDAQ for such day, and (iii) if the Common
Stock is not listed or quoted on a securities exchange or through NASDAQ, then
the fair market value shall be determined by such other method as the Committee
determines to be reasonable; provided, however, that if pursuant to clause (i)
or (ii) fair market value is to be determined based upon the mean of bid and
asked prices and the Committee determine that such mean does not properly
reflect fair market value, then the fair market value shall be determined by
the Committee as provided in clause (iii).
(b) Date of Grant. For purposes of this subparagraph (b), the
date a Restricted Stock Option is granted shall be the date on which the
Committee has approved the terms and conditions of a stock option agreement
evidencing the Restricted Stock Option ("Option Agreement") and has determined
the recipient of the Restricted Stock Option and the number of shares covered
by the Restricted Stock Option and has taken all such other action as is
necessary to complete the grant of
2
<PAGE> 3
the Restricted Stock Option.
(c) Restricted Stock Option Term. No Restricted Stock Option
shall be exercisable after the expiration of ten years from the date the
Restricted Stock Option is granted.
(d) Payment. Payment for all shares of Common Stock purchased
pursuant to exercise of a Restricted Stock Option shall be made in cash or, if
approved by the Committee either at the time of grant or at the time of
exercise, by delivery of Common Stock of the Company at its fair market value
on the date of delivery. Such payment shall be made at the time that the
Restricted Stock Option or any part thereof is exercised, and no shares shall
be issued until full payment therefor has been made. The holder of a
Restricted Stock Option shall, as such, have none of the rights of a
stockholder.
(e) Nontransferability of Restricted Stock Options. Restricted
Stock Options shall not be transferable or assignable except by will or by the
laws of descent and distribution and shall be exercisable, during the holder's
lifetime, only by the holder.
(f) Disability. If the holder of a Restricted Stock Option ceases
to be affiliated with the Company as a result of a disability as defined under
Section 22(e) of the Code ("Disability"), Restricted Stock Options held by the
holder may be exercised at any time during the 12-month period following the
Disability, subject to any vesting schedule and the other terms and conditions
of the holder's Option Agreement.
6. Changes in Capitalization; Merger; Liquidation.
6.1. The number of shares of Common Stock subject to Restricted Stock
Options, the number of shares of Common Stock as to which Restricted Stock
Options may be granted, the number of shares covered by each outstanding
Restricted Stock Option and the price per share of each outstanding Restricted
Stock Option shall be proportionately adjusted for (i) any increase or decrease
in the number of issued shares of Common Stock resulting from a subdivision or
combination of shares, (ii) the payment of a stock dividend in shares of Common
Stock to holders of outstanding shares of Common Stock or (iii) any other
increase or decrease in the number of such shares effected without receipt of
consideration by the Company.
If the Company shall be the surviving corporation in any merger, share
exchange or
3
<PAGE> 4
consolidation, recapitalization, reclassification of shares or similar
reorganization, the holder of each outstanding Restricted Stock Option shall be
entitled to purchase, at the same times and upon the same terms and conditions
as are then provided in the Restricted Stock Option, the number and class of
shares of Common Stock or other securities to which a holder of the number of
shares of Common Stock at the time of such transaction would have been entitled
to receive as a result of such transaction. Upon a merger, share exchange,
consolidation or other business combination in which the Company is not the
surviving corporation, the surviving corporation shall substitute another award
of restricted stock options with equivalent value to outstanding Restricted
Stock Options in a transaction to which Section 424(a) of the Code is
applicable.
In the event of a change in the Company's shares of Common Stock into
the same number of shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be Common Stock within
the meaning of the Plan.
A dissolution or liquidation of the Company shall cause each
outstanding Restricted Stock Option to terminate.
6.2. In the event of any such changes in capitalization of the
Company, the Committee may make such additional adjustments in the number and
class of shares of Common Stock or other securities with respect to which
Restricted Stock Options are outstanding and with respect to future grants of
Restricted Stock Options as the Committee in its sole discretion shall deem
equitable or appropriate, subject to the provisions of this Section 6.
6.3. The existence of the Plan and the Restricted Stock Options
granted Pursuant to the Plan shall not affect in any way the right or power of
the Company to make or authorize any adjustment, reclassification,
reorganization or other change in its capital or business structure, any
merger, share exchange or consolidation of the Company, any issue of debt or
equity securities having preferences or priorities as to the Common Stock or
the rights thereof, the dissolution or liquidation of the Company, any sale or
transfer of all or any part of its business or assets, or any other corporate
act or proceeding.
7. Termination and Amendment of the Plan. The Plan shall
terminate on the date ten years after adoption of the Plan by the Board of
Directors, and no Restricted Stock Options shall be
4
<PAGE> 5
granted under the Plan after that date, but Restricted Stock Options granted
before termination of the Plan shall remain exercisable thereafter until they
expire or lapse according to their terms. The Plan may be terminated, modified
or amended by the stockholders or the Board of Directors of the Company;
provided, however, that no such termination, modification or amendment without
the consent of the holder of a Restricted Stock Option shall adversely affect
his or her rights under such Restricted Stock Option.
5
<PAGE> 1
EXHIBIT 10.28
MASTER LICENSE AGREEMENT
THIS MASTER LICENSE AGREEMENT ("Agreement") is entered into as of
____________________________________, 1996, by and between Bally Total Fitness
Corporation, a Delaware corporation ("Licensor"), and Complete Wellness
Centers, Inc., a Delaware corporation ("Licensee").
RECITALS:
A. WHEREAS, Licensor owns and operates a number of health club
facilities throughout the United States of America (collectively, the "Clubs");
B. WHEREAS, Licensor and Licensee desire to have Licensee develop and
manage complete wellness centers offering physical and occupational therapy,
chiropractic and outpatient medical treatment within certain mutually agreed
upon Clubs for the purposes set forth in Section 10 below (collectively, the
"Centers"); and
C. WHEREAS, Licensor and Licensee desire to enter into this Agreement
to document the relationship between the parties with respect to the licensing,
from time to time, of a specified area within certain Clubs to Licensee for use
as a Center and to consolidate future licensing arrangements between the
parties all upon the terms and conditions set out below.
WITNESSETH:
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements of Licensor and Licensee hereinafter set forth and other good and
valuable consideration and intending to be legally bound hereby, Licensor and
Licensee hereby agree as follows:
1. RIGHT TO DEVELOP THE CENTERS. Subject to the terms and conditions
herein set forth, Licensor hereby agrees to grant to Licensee during the term
of this Agreement a license revocable in accordance with the terms of this
Agreement (collectively and individually, "License") to develop, occupy and
manage Centers in those certain areas (collectively and individually, the
"License Area") located in available sites which are offered by Licensor and
accepted by Licensee located within such Clubs as Licensor and Licensee shall,
from time to time, agree upon at which time a description of such License Area
(which shall consist of an area containing between 1,500 and 2,000 square feet)
and its location within the Club for each License granted hereunder shall be
placed on Exhibit "A" attached hereto and made a part hereof. Exhibit A shall
be amended from time to time as set forth in this Agreement. The description
set out on Exhibit A is for the convenience of the parties only. Licensor
shall have the right, at its cost and expense, to relocate from time to time
any License Area to another reasonably comparable area within the applicable
Club provided that such relocation shall be made in consultation with Licensee.
This License does not grant Licensee any possessory right to the License Area
or the Clubs. Prior to the granting of
<PAGE> 2
any individual License, Licensee shall be given the opportunity to inspect the
proposed License Area and agrees to accept the same "AS IS" with no
modifications by Licensor required.
2. TERM. Unless earlier terminated as set out herein, the initial
term of this Agreement shall commence on the date this Agreement shall have
been executed by the last of the parties hereto and shall expire on the fifth
(5th) anniversary thereof. At the expiration of the initial term, the term
shall automatically be extended for additional one (l)-year periods (not to
exceed five (5) such one (l)-year extensions) unless either party gives the
other written notice of its election to terminate this Agreement, which notice
must be given at least four (4) months prior to the date of the next automatic
extension and which termination will be effective as of the expiration of the
initial term or the then current automatic extension, period, as the case may
be; provided, however, if as of such expiration date the term bf any License
has not yet expired, then the terms of this Agreement shall continue in full
force and effect with respect to such Licenses until all such Licenses have
expired. For purposes hereof, "Term" shall mean the initial term as same may
be extended pursuant to the terms hereof. As used herein, the term 'License
Year" shall mean and refer to each consecutive full twelve (1 2) calendar month
period during the Term of, the Agreement, commencing on the first day of the
Term of the Agreement. Unless earlier terminated as set out herein, each
License hereunder shall be for a period (a) commencing upon the earlier to
occur of (i) the date which is sixty (60) days after the Permits pertaining to
construction are issued and (ii) commencement of business in the License Area
(the "Rent Commencement Date") and (b) ending five (5) years thereafter;
provided, however, that Licensee shall be subject to and bound by all of the
terms of this Agreement commencing as of the earliest of the date Licensee
takes possession of, applies for building permits for, or begins any
construction on the applicable License Area or on the date of grant as
evidenced by the amendment of Exhibit A to include the applicable License Area.
An individual License will automatically and immediately terminate upon
Licensor's (or any of its subsidiaries', affiliates' or franchisees') ceasing
to operate the applicable Club or when the lease or other possessory agreement
therefor terminates and Licensor shall give notice to Licensee of the happening
of any such event.
3. LICENSEFEE. Licensee shall owe Licensor a monthly license
fee("License Fee") in an amount equal to $10 per square foot per year during
the first l2 months from and after the Rent Commencing Date. Thereafter, the
License Fee will be the greater of $ 1 5 per square foot per year or 1 2.5 % of
the Cash Receipts (as defined below) of the Licensee's fees which are derived
from the Center which shall be payable as follows:
(a) Licensee agrees that it will furnish to Licensor, not
later than the 1 5th day following the end of each calendar month during the
Term of this Agreement a true, accurate and correct statement of Cash Receipts
and billings for products, services and transactions made at, upon or from the
Center by Licensee during such calendar month, which has been certified as true
and correct by an officer of Licensee (the "Statement").
(b) Concurrently with each Statement, Licensee shall pay to
Licensor an amount equal to 12.5% of all Cash Receipts for transactions made
in, upon, or from the License Area by Licensee which are for the period covered
by the Statement. Notwithstanding anything herein to
<PAGE> 3
the contrary, in no event shall any License Fee for any month be in an amount
less than $.84 per square foot during the initial 12-month term or $1.25 per
square foot thereafter.
(c) Notwithstanding anything herein to the contrary, there
shall be no abatement, apportionment or suspension of the License Fee except as
set forth in Section 7 below.
(d) Commencing at least one (1) month prior to each
anniversary of this Agreement, the parties shall renegotiate in good faith and
mutually determine the percentage used to calculate the License Fee payable
hereunder for the immediately following year. If the parties are unable to
agree upon a new License Fee percentage, then the License Fee percentage in
effect at any time renegotiation commenced shall remain; provided, however, the
parties shall continue to be obligated to meet every year to attempt in good
faith to renegotiate such percentage.
Licensee agrees to provide Licensor with quarterly and annual
financial statements covering the operations hereunder. Such statement is due
by the 30th day after the end of each calendar quarter or fiscal year, as the
case may be. For the purpose of ascertaining the amounts payable as the
License Fee, Licensee agrees to prepare and keep at its main office for a
period of not less than three (3) years following the end of each License Year,
adequate and accurate records of all billings for products or services, Cash
Receipts and other transactions on or from the Center by Licensee. Licensee
further agrees to keep at its main office for at least three (3) years
following the end of each License Year, the gross income, sales, or any other
Municipal, State or Federal tax returns with respect to said License Years and
all pertinent original records. Pertinent original records shall include, but
not be limited to: (i) sales journals, (ii) bank statements, (iii) monthly
ledgers, and (iv) all other records normally examined by an independent
certified accountant pursuant to generally accepted accounting principles in
connection with auditing Licensee's billings, revenues and receipts. Licensor
at all reasonable times during business hours, upon reasonable prior notice,
shall have the right, at Licensor's expense, through any accountant or auditor,
to inspect, examine and make copies of all or any of Licensee's books and
records aforesaid relating to Licensee's billings and Cash Receipts which
pertain to the Centers. Licensor agrees to keep all information relating to
Licensee and Licensee's Statements in strict confidence (except that such
information may be disclosed to Licensor's landlord, prospective purchasers,
mortgagees and taxing authorities, if necessary, or if required to be disclosed
pursuant to any legal proceedings, governmental requests or similar process).
Upon reasonable prior notice and during normal business hours,
Licensor may at any time (but not more frequently than twice each License Year)
have an audit made of the foregoing records of Licensee and to the extent
Licensee has or can reasonably obtain same, all records associated with the
operation of the Center, by an accountant to be selected and paid for by
Licensor. Licensee shall render all reasonable assistance to such accountant
and provide access to all such records which may be necessary to conduct a full
and complete audit of Licensee's billings and Cash Receipts. If it is
determined that the actual billings and Cash Receipts for any period covered by
a Statement exceeds the amount thereof reported in said Statement by three
percent (3%) or more, (i) Licensee shall pay all of Licensor's out-of-pocket
costs of said audit and (ii) it shall be an Event of Default pursuant to
Section 21. Licensee agrees to keep such records relating to any License Year
available for audit for a period of at least three (3) years following the
close
<PAGE> 4
of said License Year. Any sums due for such period as a result of such audit
shall constitute additional License Fees due and shall be paid by Licensee
within ten (10) days of notification of any such deficiency and, if such audit
establishes that Licensee's Statement for such License Year was understated by
three percent (3%) or more and Licensee has not shown, to Licensor's reasonable
satisfaction, that Licensee has undertaken reasonable measures to prevent the
reoccurrence of such understatement, Licensee shall also pay Licensor a charge
equal to ten percent (10%) of the additional License Fees due as liquidated
damages and not as a penalty. Failure to make an audit in any License Year
shall not prejudice Licensor's right to examine prior License Years' records
and collect additional License Fees due for such License Year. With respect to
any License Year in which the accountant conducting a Cash Receipts audit
determines in good faith that Licensee has failed to maintain the hereinabove
specified records (except for any records destroyed or lost due to events
beyond Licensee's control), Licensee agrees to pay to Licensor the cost of such
audit but such payment by Licensee shall not preclude Licensor from seeking
remedies to require specific performance from Licensee pertaining to Cash
Receipts records.
As used herein, the term "Cash Receipts" means the total amount of all
cash payments (including cash payments received as finance charges and/or
interest) received by Licensee in each License Year or partial License Year
during the term of this Agreement in respect of (i) all transactions made by
Licensee in, upon or from the Center in each month, less the total of (ii) all
checks returned unpaid from the drawee bank, or refunds made in the normal or
usual conduct of Licensee's business, provided that the transaction resulting
in such return or refund was included in Cash Receipts initially, and also,
less (iii) any sales tax, use tax, excise tax, retailer's occupational tax or
similar tax which is collected by Licensee from its customers and paid to any
State, Federal or local authority provided that said taxes are separately
charged for. In computing Cash Receipts, all transactions of any type on
credit (whether extended by Licensee or by any other party such as, without
limitation, credit card issuers) shall be included in Cash Receipts.
The License Fee shall be paid to the address set out in Section 20
hereof to the attention of the Accounts Receivable Department.
Licensor and Licensee acknowledge and agree that the License Fee is
consistent with the value of the License Area for general commercial purposes
as determined in an arm's-length transaction and that the License Fee has not
been determined in a manner that takes into account the volume or value of any
referrals or business otherwise generated between Licensor and Licensee, if
any, or reflects any additional value that any party would attribute to the
License Area as a result of its proximity or convenience to Licensor.
All costs and expenses (including telephone charges) incurred by
Licensee to operate and promote its business shall be paid in a timely manner
by Licensee except that general utility costs and routine facility maintenance
(exclusive of maintenance of the License Area which shall remain Licensee's
obligation) shall be paid by Licensor; provided, however, in the event the
Center generates any waste material which cannot be disposed of in the ordinary
course of Licensor's garbage disposal, Licensee shall be responsible for
disposal of its own waste at its sole cost and expense.
<PAGE> 5
4. PERMITS AND INDEMNITY. Upon receipt of Licensor's and any required
third party's written consent in accordance with Section 5 below, Licensee
shall, at its sole cost and expense, promptly and diligently apply for and
obtain all governmental and other applicable licenses, permits and approvals
(the "Permits") required for the construction, installation, existence, repair,
use, operation and removal of the Center and shall indemnify, defend and hold
Licensor harmless from and against any and all costs, liabilities, claims,
causes of action and expenses, including attorneys' and other professional
fees, arising wholly or in part, directly or indirectly, from (a) any failure
of Licensee to obtain such licenses, permits and approvals or (b) any violation
of any applicable law, ordinance, code, rule or regulation or directive of any
governmental authority or agreement by which the Club may be bound relating to
the construction, installation, existence, repair, removal, use or operation of
the Center. Licensee agrees to promptly provide Licensor with copies of all
such licenses, permits and approvals. In the event Licensee is unable to
obtain all Permits necessary for the construction of the License Area or
operation of the Center within ninety (90) days after the initial application
therefor, either party shall have the right to terminate the applicable License
upon notice to the other. Licensor shall reasonably cooperate with Licensee's
efforts to obtain Permits at Licensee's sole cost and expense.
5. APPROVAL OF PLANS; QUALITY AND MANNER OF WORK. Licensee shall not
commence any alteration of the License Area until final plans and
specifications therefor have been approved in writing by Licensor and all
necessary Permits have been obtained. Licensee shall provide Licensor with
plans and specifications for work it intends to do within the License Area
within thirty (30) days after the parties have agreed upon the selection of
such License Area and Licensor agrees to either approve or disapprove (with
reasons therefor) such plans within sixty (60) days after receipt thereof. In
the event any third party consent is required for the proposed alterations and
improvements, any consent given by Licensor shall be conditional upon receiving
such third party's consent and Licensor agrees to seek such consent reasonably
promptly and Licensee shall cooperate with Licensor"s efforts to obtain such
third party's consent. Upon Licensee's request, Licensor shall provide copies
of such third party consents. Licensee agrees to reimburse Licensor for its
reasonable out-ofpocket expenses incurred in having third parties review
Licensee's plans and specifications or provide consent. Promptly after
Licensor approves the plans and specifications for the Work, Licensee shall
promptly and diligently apply for and pursue all necessary Permits and upon
receipt thereof, Licensee shall promptly and diligently alter the License Area
at its sole cost and expense in accordance with the plans and specifications
approved BY Licensor and in accordance with all applicable laws, ordinances,
codes, rules and regulations, the Permits and the directives of all
governmental authorities having jurisdiction thereover and all agreements by
which the License Area may be bound. All construction work performed by or on
behalf of Licensee in connection with this Agreement (the "Work") shall be
diligently completed, shall conform in material and workmanship to that of the
Club, shall use new materials and shall be in compliance with all building
codes and regulations and all insurance requirements of Licensor's and
Licensee's respective insurance companies. Notwithstanding anything contained
herein to the contrary, all Work to the applicable License Area must be
completed by Licensee within sixty (60) days after issuance of all necessary
Permits; subject, however, to reasonable extensions necessitated by acts of
god, acts of war and labor activities unrelated to performance of Work at the
Center.
<PAGE> 6
Any additional Work shall be in accordance with the terms and
conditions of this Section 5 and must receive Licensor's prior written consent.
Licensee shall not have the right to make any improvements or alterations which
are structural in nature or which affect any portion of the Club (except the
License Area) or the exterior of the Club in which it is located without
Licensor's prior written consent which may be withheld in Licensor's sole and
absolute discretion. Licensee covenants and agrees that it shall use all
reasonable efforts to minimize any interference with the operation of the Club
and the Club's patrons use and enjoyment thereof during the performance of the
Work and shall, if directed by a Licensor representative, work only during
those hours which are less disruptive to the operation of the Club provided any
such decrease in work hours shall be added to the period of time which Licensee
has to complete the Work.
Licensee will use its best efforts to assure that all Work shall be
performed by personnel who will not, either by the conduct of their work or by
their presence on the License Area, cause or lead to, directly or indirectly,
any strike, picketing, handbilling, labor dispute, work slowdown or boycott
affecting the License Area, the Club, the building in which same is located, or
any part thereof; and Licensee shall indemnify, defend and hold Licensor
harmless from and against any and all loss, damage, cost, expense, liability,
claim and cause of action resulting from or arising out of any such strike,
picketing, handbilling, labor dispute, work slowdown or boycott. Without
limiting Licensor's rights and remedies, in the event any personnel performing
any portion of the Work shall cause or lead to, directly or indirectly, any
strike, picketing, handbilling, labor dispute, work slowdown or boycott
affecting the License Area, the Club, the building in which same is located, or
any part thereof, Licensee shall use its best efforts to cause such personnel
to permanently leave the License Area within six (6) hours after Licensor's
oral or written request therefor.
6. NON-INTERFERENCE. In constructing, installing, repairing,
maintaining, using, operating or removing the Center, Licensee shall not
interfere, and will not permit Licensee's clients, agents or employees to
interfere, with access to or the use and operation of the License Area or the
Club and shall cause each of them to observe all rules and regulations of each
Club.
7. MAINTENANCE AND REPAIRS. Licensee, at its sole cost and expense,
shall promptly repair any and all damage caused to the Club (including the
License Area) by the construction, installation, repair, maintenance,
existence, use or operation of the Center and shall exercise its best efforts
to keep the License Area free of all debris resulting therefrom. Licensee
shall, at its sole cost and expense, maintain the Center in a good, clean,
sightly and safe condition and shall promptly make all repairs and replacements
from time to time necessary to keep the Center in such condition. In the event
Licensor ceases operating any Club due to the making of repairs, alterations or
remodeling or for any other reason, then upon notice (and Licensor shall give
ten (10) days' prior notice if reasonably practicable), Licensee will close the
applicable Center during the time the Club is closed and the License Fee shall
abate proportionally during such period when the Club is so closed.
8. PAYMENT FOR CONSTRUCTION. Licensee shall pay in full for all labor
and materials supplied or furnished in connection with the construction,
installation maintenance, repair and
<PAGE> 7
removal of the Center and in connection with repairs to the License Area
required to be made by Licensee hereunder, and shall, upon request, promptly
furnish to Licensor such evidence of the payment thereof as Licensor shall
reasonably request. Licensee shall procure performance and labor and material
payment bonds, naming Licensor as co-obligee, in an amount, form and substance
and with a company satisfactory to Licensor in its reasonable discretion, to
insure performance and completion of all construction done by Licensee at the
Club.
9. LIENS. If any mechanics or other lien shall at any time be filed
against the License Area by reason of any labor, services or materials
performed or furnished, or alleged to have been performed or furnished, to or
for the benefit of Licensee or in connection with the Center, Licensee shall
cause the same to be discharged of record or bonded to the satisfaction of
Licensor within ten (1 0) days after notice of the filing thereof. Licensee
shall indemnify, defend and save Licensor harmless from and against any and all
liability and expense, including attorneys' and other professional fees,
arising from or related to, wholly or in part, directly or indirectly, any
labor, services or materials performed or furnished or alleged to have been
performed or furnished, to or for the benefit of Licensee or in connection with
the Center, regardless of whether such work or material has improved or
increased the value of the License Area.
10. USE AND OPERATION OF THE CENTER. The Center shall be used solely
as a physical, occupational therapy, chiropractic and outpatient medical center
managed by Licensee during the business hours of the Club pursuant to the terms
of this Agreement. Licensee shall manage the Center and shall be responsible
for its day-today operations. Licensee shall operate the Center as a business
separate and distinct from the Club and shall be solely responsible for all
legal, contractual, and business obligations and operations of the Center. The
operations of the Center shall not interfere with the operation of the Club
except in a de minimus way. Clients of the Center shall have the right to use
the facilities of the Club (including the bathrooms and showers), but only when
accompanied by a Center staff member, and only to the extent such use is part
of the treatment or therapy administered by the Center. Clients of the Center
shall have no priority or preference over the members of the Club with respect
to the use of any Club facilities or equipment and shall not be permitted to
use any babysitting facilities, racquetball courts or tennis courts. Licensee
shall at all times, at its sole cost and expense, maintain its equipment and
facilities in a clean, wholesome, and sanitary condition. Licensee shall cause
each Center to be operated in each License Area during the entire term of this
Agreement with due diligence and efficiency. Licensee. shall require all of
Licensee's clients and/or invitees and the patients, clients and/or invitees of
anyone claiming through Licensee to sign a waiver of liability regarding their
use of the Club which is acceptable to Licensor.
11. RULES AND REGULATIONS. Licensee and its employees, agents,
contractors, and clients shall observe all rules and regulations of the Club
and shall park their vehicles only in those areas designated by Licensor, if
any. All clients, patients, agents, contractors, subcontractors,
representatives, employees, and invitees of Licensee, and the use and operation
of the Center, shall be subject to such rules and regulations as Licensor may
from time to time promulgate, including, but not limited to, the rules and
regulations of the Club and restrictions on the hours of use, and rules and
regulations imposed upon Licensor by its landlord or any other agreement by
which the Club may be bound so long as those rules and regulations which are
promulgated by
<PAGE> 8
Licensor do not unreasonably interfere with Licensee's use of the Center. Upon
request from Licensee, Licensor shall provide copies of all rules and
regulations then in effect at the Club.
12. ADVERTISING. Licensee may generally advertise and promote its
business within the Club, at its own cost and expense after receiving
Licensor's prior approval, which Licensor shall have no obligation to grant;
provided, however, Licensee shall have the right to install signage within the
License Area and directional signage which may be visible within the Club
subject to Licensor's reasonable consent as to size and location. Licensor
shall have the right to approve, in advance, any and all advertising or
promotion of the Center which refers to the Licensor's facility, its name, or
trademarks or service marks or which is disseminated to Licensor's members.
Licensee shall have the right to approve in advance, any and all advertising or
promotion of the Club which refers to Licensee's name, trademarks, or service
marks. Licensee and Licensor shall make all efforts to protect the other's
rights in any trademarks, service marks, or copyrighted material used in any
advertisement or promotion of the Center or the Club. Licensee shall not issue
any press release (broadcast or print) relating to this Agreement or the
License arising hereunder without the prior written approval of Licensor.
13. WAIVER OF LIABILITY. Notwithstanding anything contained herein to
the contrary, neither Licensor nor its agents, employees or representatives
shall be responsible or liable to Licensee, Licensee's or its sublicensee's
clients, patients, agents, contractors, subcontractors, representatives,
employees or invitees or to anyone claiming by, through or under Licensee, and
Licensee hereby waives all claims for damage or injury to persons or property,
loss of business and any and all other losses or damages sustained by Licensee
or any person claiming by, through or under Licensee, resulting, wholly or in
part, directly or indirectly, from the construction, installation, existence,
use, operation and/or removal of the Center except if caused by the gross
negligence or willful misconduct of Licensor, its agents or employees.
14. COMPLIANCE WITH LAWS. Licensee, at its sole cost and expense,
shall construct, develop, manage and cause the Center to be operated in a
manner that complies with (a) all federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations and ordinances
affecting the Center and the operation thereof, including, without limitation,
any of the foregoing which require the licensing or accreditation of physical
therapists and other personnel, or which relate to physical therapy or other
medical services, or the Americans with Disabilities Act, or the Occupational
Safety and Health Act, whether or not any such statutes, laws, rules, orders,
regulations or ordinances which may be hereafter enacted involve a change of
policy on the part of the governmental body enacting the same, and (b) all
rules, orders and regulations of the National Board of Fire Underwriters and
Licensor's fire insurance rating organization or other bodies exercising
similar functions in connection with the prevention of fire or the correction
of hazardous conditions.
15. INDEMNIFICATION.
(a) Licensee shall indemnify, defend and save Licensor
harmless from and against any and all claims, actions, demands, damages,
liabilities and expenses, including attorneys' and other professional fees, in
connection with loss of life, personal injury and/or damage to
<PAGE> 9
property arising from or related to, wholly or in part, directly or indirectly,
the construction, installation, existence, use, operation and/or removal of the
Center or any part thereof, and any activities of Licensee's or its
sublicensee's clients, patients, agents, contractors, subcontractors,
representatives, employees and invitees in the Club or on or about the License
Area except to the extent caused by the gross negligence or willful misconduct
of Licensor, its agents, employees or contractors.
(b) Licensor shall indemnify, defend and save Licensee
harmless from and against any and all claims, actions, damages, liabilities and
expenses, including reasonable attorneys' and other professional fees, in
connection with loss of life, personal injury and/or damage to property to the
extent caused by the gross negligence or willful misconduct of Licensor, its
agents, employees or contractors (but specifically excluding the patients,
invitees, employees, contractors and agents of Licensee or of anyone claiming
through Licensee) in the Club (exclusive of the License Area) except to the
extent caused by the acts, omissions or negligence of Licensee, its agents,
employees or contractors.
16. INSURANCE. Licensee shall obtain and keep in force, at its sole
cost and expense and shall ensure that its sublesees maintain in full force and
effect, the following: (a) comprehensive general liability insurance, including
insurance against assumed or contractual liability, with respect to the Center,
with a combined single limit of not less than One Million Dollars ($1,000,000)
per occurrence, Two Million Dollars ($2,000,000) aggregate and Three Million
Dollars ($3,000,000) in umbrella coverage with respect to bodily injury,
personal injury, death and property damage, and shall name Licensor as an
additional insured on such coverage; (b) worker's compensation insurance as
required by law; and (c) professional liability insurance coverage in such
coverage amounts and with such insurance companies as shall be acceptable to
Licensor in its reasonable discretion; provided, however, that in no event
shall such professional liability insurance coverage be less than One Million
Dollars ($ 1,000,000) per occurrence; provided, further, however, if pursuant
to the second paragraph of Section 25 below Licensee has an independent
operator provide the services described in Section 10 at the Center, such
independent operator and not Licensee shall maintain the professional liability
insurance coverage required pursuant to this subsection (c). If Licensee
obtains a claims-made professional liability insurance policy hereunder,
Licensee shall purchase and maintain, at Licensee's sole cost and expense,
extended coverage protection (commonly known as "tail coverage") insurance for
not less than a period of twenty-one (21) years after the earlier of either the
termination or expiration of this Agreement to assure protection against claims
made after Licensee's professional liability insurance coverage under this
Agreement has expired. A certificate of each such policy, together with a
photocopy of each policy, shall be deposited with Licensor prior to the
commencement of construction or operation of the Center. Such certificates
shall state that such coverages shall not be amended, modified, cancelled or
reduced without at least thirty (30) days written notice to Licensor. Prior to
the expiration or termination of any such policy, Licensee shall deliver to
Licensor a certificate of the new or renewal policy, together with a copy of
the rider covering the Center.
17. TERMINATION. At Licensor's election, all alterations,
improvements and fixtures (excluding Licensee's trade fixtures, personal
property and equipment) shall become the property
<PAGE> 10
of Licensor and remain in each License Area upon the expiration or earlier
termination of the applicable License in which event they shall all be in good
condition, reasonable wear and tear excepted; provided, however, Licensor shall
have the right to notify Licensee that it will require the License Area to be
restored to the condition it was in immediately prior to the performance of
Licensee's Work in which event Licensee shall, within ten (10) days after the
expiration or termination of the applicable License, remove all items required
by Licensor to be removed, restore the License Area to its original condition,
repair any damage caused by such removal, remove all debris caused thereby and
leave the License Area broom-clean. Notwithstanding anything contained herein
to the contrary, the terms of this Section 17 shall survive the expiration or
earlier termination of this Agreement or the applicable License. At the
expiration or earlier termination of each License, Licensee shall promptly
surrender all keys for the License area to Licensor.
18. SELF-HELP. If Licensee shall fail to perform any obligation
required to be performed by Licensee pursuant to this Agreement, then, in
addition to and not in lieu of any other right or remedy available to Licensor,
Licensor may perform any such obligation, on behalf and at the sole cost and
expense of Licensee, and the reasonable cost of such performance, together with
interest thereon from the date of such expenditure, shall be payable by
Licensee to Licensor upon demand. Said interest shall be at the rate of twelve
percent (1 2%) per annum or the highest interest rate permitted by applicable
law, whichever is less.
19. SURVIVAL OF OBLIGATIONS. Notwithstanding anything to the contrary
contained herein, the expiration of the term of this Agreement, whether by
lapse of time or otherwise, shall not relieve Licensor or Licensee from their
obligations accruing prior to the expiration of the term.
20. NOTICES. Any notice, request, demand, approval or consent given
or required to be given under this Agreement shall be in writing and shall be
deemed to have been given on the third (3rd) business day following the date on
which the same shall have been mailed by United States registered or certified
mail, return receipt requested, or one (1) business day following deposit with
a nationally recognized overnight courier service, with all postal charges
prepaid, addressed as follows:
<TABLE>
<S> <C>
To Licensor: Bally Total Fitness Corporation
8700 W. Bryn Mawr Avenue Fifth Floor
Chicago, Illinois 60631
Attention: Director of Property Management
With a copy to:
Bally Total Fitness Corporation
8700 West Bryn Mawr
Second Floor
Chicago, Illinois 60631
Attention: General Counsel
</TABLE>
<PAGE> 11
<TABLE>
<S> <C>
To Licensee: Complete Wellness Centers, Inc. 725 Independence Avenue, S.E.
Washington, D.C. 20003 Attention: President
With a copy to:
Deborah Green, Esq.
666 Lexington Avenue
Suite 206
Mount Kisco, NY 10549
</TABLE>
Either party may, at any time, change its address for the above purposes by
sending a notice to the other party in accordance with the terms hereof, but
such notice of change of address shall only be effective upon receipt.
21. DEFAULT. If Licensee shall fail to pay the License Fee or any sum
of money under this Agreement within ten (10) days after notice the same is
due; or if Licensee shall fail to perform any other obligation of Licensee to
be performed under the terms of this Agreement, and such failure shall continue
for more than ten (10) days after notice thereof, then each such breach shall
be deemed an event of default hereunder ("Event of Default"). The occurrence
of each of the following shall also each be considered an Event of Default
hereunder: (a) any misrepresentation of fact made by Licensee including, but
not limited to, any misrepresentation with respect to the status of Licensee as
an independent contractor; (b) if Licensee (i) makes an assignment for the
benefit of creditors, (ii) becomes insolvent, (iii) is declared a bankrupt,
(iv) has voluntarily filed a Petition in Bankruptcy or is the subject of any
involuntary Petition in Bankruptcy, or (v) files a Petition for the appointment
of a receiver for Licensee's business, provided in the event of an involuntary
filing same is not removed within ninety (90) days; (c) if any lawsuit is
brought against Licensor by virtue of Licensee's use or occupancy of the
License Area and Licensee fails to cause such lawsuit to be dismissed within
one hundred twenty (1 20) days or fails to post a bond sufficient to protect
the interests of Licensor; (d) Licensee's (i) failure to initially open any
Center for business within one hundred twenty (1 20) days after the receipt of
all approvals, third party consents and Permits; (e) vacation, abandonment, or
desertion of any License Area; (f) failure to operate its business in any
License Area or failure or refusal to maintain the business hours as set out
herein; provided, however, it shall not be a default if such closure is due to
a fire or other casualty whereby the License Area cannot reasonably be operated
and provided, further, Licensee thereafter repairs and re-opens the License
area as diligently as possible; or (g) Licensee's understatement of the License
Fee for any License by hnore than ten percent (1 0%) in any License Year
provided it shall not be a default if Licensee shows that such understatement
was the result of obvious clerical error and reasonable measures have been
taken to prevent its reoccurrence.
Upon the occurrence of an Event of Default, Licensor shall have the
right to immediately terminate the applicable License involved in any such
Event of Default by giving written notice thereof to Licensee in which event:
(A) the term of such License shall expire and terminate with the same force and
effect as though the date of such notice was the date fixed for the expiration
of
<PAGE> 12
such License term and all rights of Licensee pursuant to such License shall
expire and terminate and Licensor shall be entitled to recover from Licensee,
as liquidated damages and not as a penalty, a sum equal to $1 5,000 for each
defaulting License; (B) Licensor shall have the right to declare due and
payable and sue for and recover all License Fees and all other sums due and
owing Licensor regarding such License as of such termination date; (C) Licensor
shall have the right to recover all reasonable legal fees and other expenses
incurred by Licensor in connection with the enforcement of any of Licensor's
rights and remedies hereunder; and/or (D) Licensor shall be entitled to such
other remedies as may be available to it at law or in equity.
Upon the occurrence of the greater of (1) five (5) Events of Default
or (11) Events of Default pursuant to at least five percent (5%) of the then
existing Licenses, a "Master Default" shall be deemed to have occurred and
Licensor shall have the right to any or all of the following remedies: (aa) to
immediately terminate this Agreement; (bb) to immediately terminate any or all
Licenses granted hereunder by giving written notice thereof to Licensee in
which event (X) the term thereof shall expire and terminate with the same force
and effect as though the date of such notice was the date fixed for the
expiration of such License term and all rights of Licensee pursuant to such
License shall expire and terminate and Licensor shall be entitled to recover
from Licensee, as liquidated damages and not as a penalty, a sum equal to
$10,000 for each License so terminated; (Y) Licensor shall have the right to
declare due and payable and sue for and recover all License Fees and all other
sums due and owing Licensor as of such termination date(s); and/or (Z) recover
all reasonable legal fees and other expenses incurred by Licensor in connection
with the enforcement of any of Licensor's rights and remedies hereunder; and/or
(cc) to such other remedies as may be available to it at law or in equity.
22. NO WAIVER. No waiver of any covenant or condition or of the breach
of any covenant or condition to be performed by either party shall be taken to
constitute a waiver of any subsequent breach of such covenant or condition by
such party nor to justify or authorize the non-observance on any other occasion
of the same or of any other covenant or condition of this Agreement. The
acceptance of the License Fee by Licensor at any time when Licensee is in
default under any covenant or condition of this Agreement shall not be
construed as a waiver of such default or of Licensor's right to terminate this
Agreement on account of such default, nor shall any waiver or indulgence
granted by either party to the other party be taken as an estoppel against the
party granting such waiver or indulgence.
23. NO INTEREST IN PROPERTY: NO JOINT VENTURE. This Agreement is
intended to grant a license only and is not intended nor shall it be construed
as granting any interest or estate in the License Area or the Club. This
Agreement is not intended to create, nor shall it be construed to create, a
joint venture between Licensor and Licensee. All trademarks, trade names,
service marks and copyrights of Licensor are to remain its property and are not
at any time to be utilized, distributed, copied, or otherwise employed or
acquired by Licensee except with Licensor's prior written approval. Licensee
acknowledges that the name, reputation, and goodwill of Licensor constitute
valuable and unique assets. All trademarks, trade names, service marks and
copyrights of Licensee are to remain its property and are not at any time to be
utilized, distributed, copied, or otherwise employed or acquired by Licensor
except with Licensee's prior written approval. Licensor acknowledges that the
name, reputation, and goodwill of Licensee constitute valuable
<PAGE> 13
and unique assets. Licensee represents and warrants that neither it nor any
individual, corporation, partnership or other entity which is controlled by, or
under common control with Licensee, or which owns 50% or more of the equity of
the Licensee, is controlled by or under common control with, or will become
controlled by or under common control with, any person who has been convicted
of or granted immunity from prosecution for any crime relating to moral
turpitude.
24. NO OBLIGATION TO MAKE REFERRALS. Licensor shall have no
obligation to Licensee to refer any persons to Licensee or the Center for
treatment, consultation, or any otherreason. Licensee shall have no obligation
to refer any persons to Licensor for membership in the Club or any other
reason.
25. ASSIGNMENT. Licensor desires Licensee to manage the Center based
upon Licensee's reputation and marketing ability, thus Licensee shall not
assign this Agreement nor the license granted herein, in whole or in part, nor
sublicense any part or all of it without the prior written consent of Licensor,
which consent Licensor shall not unreasonably withhold. Licensee agrees that
the withholding by Licensor of its consent of such proposed assignment or
sublease will not be deemed "unreasonable" if, among other reasonable criteria
to be examined by Licensor: (a) the net worth of the proposed subtenant or
assignee is materially less than that of Licensee; (b) the proposed subtenant
or assignee does not have a business reputation or standing in the community as
good as that of Licensee (or Licensee's principals); (c) the intended use of
the License Area by subtenant or assignee is different from the use permitted
by Section 10 above; (d) the use of the License Area by the proposed subtenant
or assignee would violate any laws, ordinances or governmental regulations; (e)
the use of the License Area by the proposed subtenant or assignee would violate
any other agreements or leases affecting the Club; (f) the assignment or
sublease i@ for less than all of the License Area; or (g) an Event of Default
has occurred under this Agreement or any License. Any change in ownership or
management of Licensee, including the sale or transfer of all or a substantial
portion of the capital stock of Licensee (except that Licensee shall have the
right to "go public" and have its stock publicly traded on a U.S. stock
exchange) or all or any substantial portion of the assets of Licensee, shall
constitute an unpermitted assignment of this Agreement.
Notwithstanding the foregoing, Licensee shall have the right to assign
this Agreement or any License to any corporation, venture or entity provided
that Licensee is and remains the managing partner thereof or holds a
controlling interest therein or is a wholly-owned subsidiary of Licensee. Any
assignment or sublease shall require that the proposed assignee shall enter
into a written agreement with Licensor pursuant to which the assignee assumes
all of the obligations imposed on the Licensee under this Agreement. No
assignment or sublease shall relieve Licensee of or effectuate a release or
assignment of Licensee's liabilities under the terms of this Agreement and
Licensee shall in all events, be and remain liable to the Licensor throughout
the entire Term hereof and of the Licenses. Furthermore, Licensee has the
right to transfer certain of its duties and obligations under this Agreement to
an independent operator provided that (i) an officer of Licensee certifies in
writing to Licensor that Licensee has made an informed determination that each
such independent operator is qualified to operate a Center and has not been
convicted of (or pled nolo contendere to) any felony or any act involving moral
turpitude, and (ii) Licensee obtains
<PAGE> 14
the prior written consent of Licensor to each such transfer, which consent
Licensor may give or withhold in its sole and absolute discretion, and (iii)
Licensee remains primarily liable to Licensor for the performance of all of its
obligations and duties under this Agreement and any License. If an approved
independent operator no longer acts as an independent operator of Licensee, for
whatever reason, Licensee will continue to be obligated to perform under all of
the terms and conditions of this Agreement. Licensee shall require that a
sufficient number of fully trained and competent personnel are employed for the
operation of each Center.
26. SUBORDINATION AND TERMINATION RIGHT.
(a) If any Club is leased or subleased to Licensor as tenant
or subtenant or if Licensor's operation of any Club is subject to any
management or other operating agreement, then this Agreement shall be subject
and subordinate to each and every term and condition of any such lease,
sublease and/or each and every other agreement which binds Licensor or pertains
to the Clubs. Upon request, Licensor shall provide to Licensee copies or an
abstract of relevant provisions of such agreement.
(b) In the event Licensor subleases or assigns its lease for
any Club after the commencement of a License for such Club, Licensor will so
notify Licensee. Licensor (or its successor, sublessee or assign) shall then
have thirty (30) days to notify Licensee that it is terminating the License for
the applicable License Area in which event Licensee shall be entitled to
receive from such terminating entity an amount equal to one hundred percent
(100%) of the then unamortized cost of that portion of Licensee's approved
alterations and improvements made hereunder (which shall not include furniture,
trade fixtures, equipment, merchandise or other personal property installed in
the License Area) for which Licensee has provided Licensor with paid invoices
plus the sum of $1,000. The cost of such approved alterations and improvements
shall be amortized on a straight line basis over the initial term of the
applicable License.
(c) If after the second full License Year, Licensee's Cash
Receipts for any Center is less than $250,000 for any six (6)-month period
covered by two of Licensee's consecutive quarterly financial statements,
Licensor shall have the right to terminate the License for such Center;
provided, however, Licensor agrees that it shall not exercise such termination
right so long as Licensee shall pay License Fees for such Center in an amount
equal to the License Fees that would be owed if the Cash Receipts for such
Center for such two (2) consecutive quarters were at least $250,000. The right
to terminate the License for such Center shall be exercised by Licensor giving
written notice to Licensee within sixty (60) days after Licensor's receipt of
Licensee's quarterly financial statement setting forth the Cash Receipts for
such quarter, and shall be effective ninety (90) days after such notice. In
the event any Club is closed pursuant to Paragraph 7 above, the $250,000 amount
specified in this paragraph shall be prorated based upon the duration of such
closure.
27. CONFIDENTIALITY. During the term of this Agreement, Licensee may
receive, have access to, or learn of documents, records and information of a
confidential and proprietary nature to Licensor, all of which would not be
otherwise readily available to Licensee except for the licenses created by this
Agreement. Licensee acknowledges that such information and similar data
<PAGE> 15
is not generally known to the trade, is of a confidential nature, and is an
asset of Licensor. Any information or data which becomes known to the public
through no fault of Licensee, is disclosed to Licensee by a third party who is
not under any obligation of confidentiality to Licensor, or which Licensee has
knowledge of through no fault of its own prior to disclosure by Licensor of
such information or data to it, shall not be considered confidential under this
section. Licensee agrees, on behalf of itself and its directors, officers,
shareholders, employees and operators that it shall not disclose, give, sell or
otherwise transfer or make available, directly or indirectly, such confidential
information and data to any third party. Licensee shall limit the
dissemination of such confidential information or data within its organization
to those individuals whose duties justify the need to know such information and
shall require those individuals to protect and preserve the confidential and
proprietary nature of such information and data in accordance with this
section. Upon request of Licensor at any time, and upon the termination or
expiration of this Agreement for any reason, Licensee shall promptly return all
such confidential information and data, and any copies or Reproductions
thereof, and work papers containing portions thereof, to Licensor at Licensee's
expense, and Licensee agrees to make no further use of such confidential
information and data. Licensee agrees that, if its agreements in this section
are breached, a remedy in law may be inadequate and, therefore, without
limiting any other remedy available at law or in equity, an injunction,
specific performance or other forms of equitable relief or money damages or any
combination thereof shall be available to Licensor.
28. GOVERNING LAW. This Agreement shall be governed by and
interpreted according to the laws of the State of Illinois with respect to
contracts entered into therein and to be performed therein.
29. LANDFORD'S CONSENT. Licensor and Licensee agree that the
effectiveness of a License is contingent upon obtaining the consent thereto of
Licensor's landlord or sublandlord, if required, pursuant to Licensor's lease
or other agreement by which the License Area may be bound. Licensor shall
exercise reasonable diligence to obtain the consent of such landlord.
30. CAPTIONS. The paragraph captions and headings of this Agreement
are for convenience of reference only and in no way shall be used to construe
or modify the provisions of this Agreement.
31. BINDING EFFECT. By its execution hereof, the individual executing
this Agreement on behalf of the parties hereof represents that he or she is
duly authorized to do so and that all proceedings required to authorize the
execution hereof have been duly and properly taken and that this Agreement
constitutes a legal, valid, binding, and enforceable obligation of such party.
This Agreement and the covenants and conditions herein contained shall inure to
the benefit of and be binding upon the parties hereto, their respective heirs,
executors, personal representatives, successors and assigns.
32. WHOLE AGREEMENT. This Agreement shall constitute the entire
agreement between the parties and supersedes all prior and contemporaneous
negotiations and/or representations by either party hereto. This Agreement may
not be varied, modified or amended except by an agreement in writing duly
signed by the parties.
<PAGE> 16
33. JOINT AND SEVERAL. If Licensee is a partnership or other business
organization, the members of which are subject to personal liability or if
Licensee is two (2) or more individuals or entities, the liability of each such
member, individual or entity, shall be deemed joint and several.
IN WITNESS WHEREOF, the parties hereto have executed this Li6ense as
of the date first above written.
<TABLE>
<S> <C>
LICENSOR:
BALLY TOTAL FITNESS CORPORATION
By:
-----------------------------------------------
Its: Senior Vice President
Date: , 1996
----------------------------------
LICENSEE:
COMPLETE WELLNESS CENTERS, INC.
By:
------------------------------------------------
Its:
Date: , 1996
-------------------------------------
</TABLE>
<PAGE> 17
EXHIBIT A
<TABLE>
<S> <C> <C>
Location of License
Club License Area Grant Date
- ---- ------------ ----------
</TABLE>
19
<PAGE> 1
EXHIBIT 10.29
MANAGEMENT SUBCONTRACT AGREEMENT
This MANAGEMENT SUBCONTRACT AGREEMENT (the "Agreement") is entered
into as of November 1, 1996 between Integrated Physicians Management Co., LLC,
a Nebraska limited liability corporation ("IPM") and Complete Wellness Centers,
Inc., a Delaware corporation ("CWC").
WHEREAS, IPM has executed management agreements with nine (9)
chiropractic clinics (the "Clinics") and chiropractors (the "Participants"),
collectively identified on Exhibit A, in order to establish an integrated
facility on the premises of the Clinics capable of providing medical and
chiropractic services.
WHEREAS, IPM provides management services to professional corporations
established (the PC's) in order to provide said integrated services and to
Participants who have established integrated facilities with IPM's assistance.
WHEREAS, CWC is qualified by experience to provide assistance to IPM
in managing the PC's and providing management services to the Participants.
WHEREAS, IPM wishes to engage CWC on an exclusive basis to provide
management services to the PC's and Participants on IPM's behalf.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereby agree as follows:
1) CWC OBLIGATIONS
a. In General
IPM hereby retains CWC as the sole and exclusive
manager of the PC's or Participants, and CWC hereby accepts
such assignment. CWC shall provide, to the reasonable
satisfaction of IPM and in accordance with all applicable
federal and state laws and regulations, such services as may
be necessary or appropriate to meet the requirements to be
provided by IPM as stipulated in the Integrated Facility
Agreements between IPM and the Clinics and Participants as
identified on Exhibit B, with the exception that CWC shall not
be responsible for any Covered Costs as defined in said
Integrated Facility Agreements.
1
<PAGE> 2
b. Operating Expenses
Except as set forth herein, CWC shall not be
responsible for the payment of costs and expenses incurred in
connection with the operations of the PC's except for the
payment of three hundred dollars ($300) per month payable to
Donald Janda, MD for services as the shareholder of Integrated
Physicians of Nebraska, PC.
c. Management of other Integrated Facilities
IPM acknowledges and agrees that CWC is free to
provide management services to other integrated facilities.
2) COMPENSATION
a. Submanagement Fee
For providing services described herein, CWC shall
earn a submanagement fee (the "Submanagement Fee") equal to:
One hundred percent (100%) of the collected revenues
IPM is entitled to receive pursuant to and during the term of
the Integrated Facility Agreements minus a payment to IPM of
twenty percent (20%) of said collected revenues (the "IPM
Fee").
b. Payment of Fees
CWC shall be entitled to receive said renumeration
under the same terms and conditions as IPM is entitled to as
specified in the Integrated Facility Agreements. The IPM Fee
shall be payable by CWC monthly.
3) TERM
The term of this Agreement shall commence on the date hereof, and unless
earlier terminated as provided for in Section 4 or extended by mutual agreement
shall end upon the termination of all Integrated Facility Agreements.
4) TERMINATION
This Agreement may be terminated prior to the end of the term:
A. by a written agreement among IPM and CWC,
B. by the IPM or CWC for Cause, where "Cause" shall mean breach
of fiduciary duty or of the provisions of this Agreement,
manifest incompetence, plain dereliction or neglect of duty
persisted in after warning, or conviction of any felony or
conduct involving moral turpitude by IPM or CWC.
2
<PAGE> 3
5) INDEPENDENT CONTRACTOR
CWC is and shall remain an independent contractor at all times with respect to
its performance hereunder, and shall have no right or authority to assume or
create any obligation , express or implied, on behalf of IPM without the prior
written consent of IPM as the case may be, in each instance. Nothing in this
Agreement shall be construed as creating the relationship of employer and
employee, master and servant, or principal and agent, nor that of partnership
or joint venture.
6) FEES AND EXPENSES
IPM and CWC shall pay their own costs incidental to the execution of the
Agreement, including attorney's fees, accountants, etc.
7) AMENDMENT
This Agreement may be amended only by the written agreement of IPM and CWC.
8) SUCCESSORS AND ASSIGNS
IPM and CWC acknowledge and agree that this Agreement and its rights and
interest hereunder may not be assigned, nor may its obligation and duties
hereunder be delegated without the written consent of the Clinics and
Participants.
9) INDEMNIFICATIONS
IPM agrees to indemnify and hold CWC harmless from and against any and all
claims, actions, damages and liabilities whatsoever, asserted by any person or
entity against CWC, which claim, action, damage or liability results from or
arises out of IPM's negligent or intentional failure to perform or abide by
agreements or obligations created as a result of the performance of CWC under
the terms of this Agreement. In addition, IPM agrees to indemnify and hold CWC
harmless from and against any and all claims, actions, damages, and
liabilities, including but not limited to legal proceedings, asserted by any
party to the Integrated Facility Agreements, which claim, action, damage or
liability results from or arises out of IPM's failure to secure written
consents from said party(s) to the delegation of responsibilities pursuant to
this Agreement.
CWC agrees to indemnify and hold harmless IPM from and against any and all
claims, damages and liabilities whatsoever, asserted by any person or entity,
resulting by reason of the intentional or unauthorized wrongful conduct of CWC.
3
<PAGE> 4
10) GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws
of the State of Maryland.
11) ENTIRE AGREEMENT
This Agreement supersedes any and all other agreements, either oral or written
heretofore made with respect to the subject matter hereof.
12) SEVERABILITY
Any provision of this Agreement which is found to be uneforceable in any
jurisdiction, shall, as to such jurisdiction only, be ineffective to the extent
of such uneforceability, without invalidating or otherwise affecting the
remaining provisions hereof.
13) COUNTERPARTS
This Agreement may be executed simultaneously in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. This Agreement shall be binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of the parties reflected hereon as signatories.
14) NOTICES
All notices required or permitted under this Agreement shall be in writing and
shall be deemed effective upon personal delivery or upon deposit in the United
States Post Office, by registered or certified mail, postage prepaid, addressed
to:
A. CWC at the address shown above, or at such other address or
addresses as CWC shall designate to IPM in accordance with
this section.
or
B. IPM at the address set forth on the above letterhead, or at
such other address as the IPM shall designate to CWC in
accordance with this section.
15) PRONOUNS
Whenever the context may require, any pronouns used in this Agreement shall
include the corresponding masculine, feminine or neuter form of nouns and
pronouns shall include the plural and vice versa.
16) MISCELLANEOUS
A. No delay or omission by IPM or CWC in exercising any right
under this Agreement shall operate as a waiver of that or any
other right. A waiver or
4
<PAGE> 5
consent given by IPM or CWC on any one occasion shall be
effective only in that instance and shall not be construed as
a bar or waiver of any right in any other occasion.
B. The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or
affect the scope or substance of any or this Agreement.
5
<PAGE> 6
IN WITNESS WHEREOF, IPM and CWC have executed this instrument, or
caused its execution by a duly authorized officer, as of the day and
year first above written.
INTEGRATED PHYSICIANS MANAGEMENT CO., LLC
By
-----------------------------
David J. Kats, DC
Managing Member
COMPLETE WELLNESS CENTERS, INC.
By
-----------------------------
E. Eugene Sharer
President and COO
6
<PAGE> 7
EXHIBIT "A"
Dr. Brian Brockman
Ihle Chiropractic Clinic, PC
2506 North 72nd St.
Omaha, NE 68134
(402) 397-3339 (ofc)
(402) 399-9271 (fax)
Dr. Gary Elsasser
Elasser Chiropractic
11906 "I" St.
Omaha, NE 68137
(402) 333-0352 (ofc)
(402) 333-0731 (fax)
Dr. Ritch Miller
Downtown Chiropractic
Health Center, PC
2111 Douglas St.
Omaha, NE 68102
(402) 345-7500 (ofc)
(402) 345-5228 (fax)
Dr. James Rouse
Rouse and Associates
308 East Northland Ave.
Appleton, WI 54911
(414) 731-7113 (ofc)
(414) 731-7118 (fax)
Dr. Ray Roddan
Procare Chiropractic Clinic
1075 Brookwood Dr.
Green Bay, WI 54304
(414) 496-6000 (ofc)
(414) 496-0998 (fax)
Dr. Terry Shaw
Quincy Back & Neck Care Center
1114 Broadway
Quincy, IL 62301
(217) 224-3757 (ofc)
(217) 224-5941 (fax)
Dr. Lyle Koca
Koca Chiropractic Clinic
721 N. 120th St.
Omaha, NE 68154
(402) 496-4570 (ofc)
(402) 496-0062 (fax)
Dr. Jeff Clark
Clark Chiropractic Clinic
10041 Maple St., Ste. B
Omaha, NE 68134
(402) 393-0566 (ofc)
(402) 393-6261 (fax)
Dr. Chandler George
Family Chiropractic Clinic
215 SE 17th Ave.
Mineral Wells, TX 76067
(817) 328-1244 (ofc)
(817) 325-4291 (fax)
7
<PAGE> 8
EXHIBIT "B"
8
<PAGE> 1
EXHIBIT 10.30
CHIROPRACTOR
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as
of the _______ day of ____________________________, 19______, by and between
((CWMC_Name)), a ((State)) corporation with an office at ((Address1)),
((City)), ((State)) ((PostalCode)) ("Employer"), and ((FirstName))
((LastName)), D.C., an individual residing at ((Address2)) ("Employee").
W I T N E S S E T H:
WHEREAS Employer is a corporation duly licensed in the State of
((State)) and which provides healthcare services at its office located at
((Address1)), ((City)), ((State)) ((PostalCode)) (the "Office") and
WHEREAS Employer wishes to employ Employee, an individual who is
actively practicing and is duly licensed to provide chiropractic services in
the State of ((State)), as an employee of Employer to provide chiropractic
services subject to the rules thereof and the standards of the profession in
effect in the State of ((State)), and
WHEREAS Employee desires to render such services to Employer,
NOW, THEREFORE, in consideration of the representations, warranties
and mutual covenants set forth herein, the parties hereto hereby agree as
follows:
SECTION I - REPRESENTATIONS
1. Representations. Upon the terms and subject to the conditions set
forth herein, Employer hereby employs Employee as a licensed chiropractor and
Employee hereby accepts such employment and represents to Employer that he/she
is presently licensed and qualified to engage in the practice of chiropractic
in the State of ((State)).
2. Independent Judgement. Although Employee is an employee of Employer
under the terms of this Agreement, Employee shall retain independent discretion
and exercise independent judgement in the manner and means of providing
services in regard to the diagnosis and treatment of patients treated.
3. Professional Conduct. Employee will at all times conduct
himself/herself in compliance with all federal, state and local laws, rules and
regulations, canons of professional ethics, and the non-chiropractic rules and
regulations of the Employer.
SECTION II - SCOPE OF DUTIES
1. Services. Employee will render his/her services to Employer as a
licensed chiropractor and in such capacity he/she shall perform such duties as
are customary in the practice of chiropractic and as are assigned to him/her
from time to time by Employer. Such duties shall include but not be limited to
conducting office examinations and consultations, obtaining such continuing
professional education as is necessary to maintain professional qualifications,
and performing evening and weekend on-call coverage as shall be reasonably
assigned to him.
2. Billing. The Employer shall perform, or cause to have performed,
billing and collection functions for all services provided by the Employee. The
Employee hereby authorizes the Employer to accept, or refuse to accept, on
Employee's behalf, any assignment of insurance benefits from any patient
receiving service from the Employee pursuant to this Agreement. At Employer's
request, Employee shall list and designate with such insurance or third party
payor the Employer's address and designated officer as the sole address to
which all payment(s) or payment voucher(s) for services performed by the
Employee shall be mailed. This Agreement constitutes an assignment by the
Employee to the Employer of all funds owing or collected for services rendered
by the Employee pursuant to this Agreement (the "Receivables") so long as such
assignment is not in violation of any law or statute. The Employee shall take
all steps necessary to assist in the billing and collection of funds due for
services rendered by the Employee. All funds collected with respect to
services provided pursuant to this Agreement shall be the exclusive property of
the Employer.
3. Post-Termination Cooperation. For a period of two (2) years after
termination of this Agreement, Employee shall cooperate fully and assist
Employer in efforts to collect all Receivables for services performed by
Employee while employed by Employer, including without limitation, transferring
all funds actually paid or made payable to Employee with respect to such
Receivables, and appearing in any court of law within which any cause of action
is brought to seek enforcement of Employer's right to collect on any and all
such Receivables. Employee agrees to notify Employer, in writing, of a change
of address of Employee's business or residence during such two (2) year period
so that Employer will be able to locate Employee to enforce the terms of this
Section. Employee shall receive up to two hundred and fifty dollars ($250.00)
per day for providing assistance under the terms of this Section and, in
addition, Employer shall reimburse Employee for all reasonable costs and
expenses incurred by Employee, as approved in advance in writing by Employer,
relating to such assistance. The terms and conditions of this Section shall
survivetermination of this Agreement.
SECTION III - TERM OF EMPLOYMENT
1. Term. The term of employment under this Agreement (the
"Employment Term") shall be for the one-year period commencing the date hereof,
unless earlier terminated under the terms hereof; provided, that Employee must
complete and submit any credentialling application provided to Employee by
Employer in order for this Agreement to become effective and for the Employment
Term to commence.
2. Probationary Term. During the first one hundred twenty (120) days
of the Employment Term of this Agreement, Employee acknowledges and agrees that
he/she shall be on probation, and that during such time period or within
fifteen (15) days after the conclusion of such probationary period, this
Agreement may be terminated at the sole discretion of Employer with or without
cause. Thereafter, this Agreement shall remain in effect for the term set
forth in Section III 1 hereof, unless earlier terminated as provided for
herein.
SECTION IV - COMPENSATION AND BENEFITS
1.Compensation. Employee shall be compensated at a rate of
$_____________ per ___________less any appropriate deductions, payable as
earned, payable in accordance with Employer's normal payroll policies, during
the term of this Agreement (the "Salary").
2. Benefits. Employee shall be entitled to those benefits, if any, as
described in Exhibit "A" attached hereto.
3. Sole Benefits. Employee acknowledges that the compensation and
benefits established pursuant to this Section shall be the sole consideration
provided by Employer for the services provided under the terms of this
Agreement. Employee shall not solicit or accept payment from any patient,
government entitlement program or third party payor for services rendered
pursuant to this Agreement.
4. Reimbursement. Expenses incurred by Employee on Employer's behalf
at Employer's discretion shall be reimbursed in full where approved in writing,
in advance. In the event an expense paid on behalf of, or reimbursement
contributed to, Employee is determined not to be an allowable tax deduction or
credit of Employer and such determination is acceded to by Employer or rendered
final by the state or federal taxing authority or court with final
jurisdiction, Employee shall, forthwith, upon ten (10) days' prior written
notice and without regard to whether this Agreement shall then be terminated,
reimburseEmployer for the full amount of the out-of-pocket loss incurred by
Employer as a result of any such disallowance.
<PAGE> 2
SECTION V - INSURANCE
1. Malpractice Insurance. Employer shall at its own cost and expense,
provide and keep in force a malpractice insurance policy or policies of
standard form in the State of ((State)), with limits of not less than One
Million ($1,000,000.00) Dollars per occurrence and Three Million
($3,000,000.00) Dollars in the aggregate.
SECTION VI - PATIENT RELATIONSHIP
1. Confidential Information. Employee acknowledges and agrees that
he/she will have access to certain confidential information and trade secrets
of the Employer and that such information constitutes valuable, sole, special
and unique property of Employer. Employee further acknowledges and agrees that
Employee will not, at any time during or after the term hereof, in any fashion,
form, or manner either directly or indirectly, divulge, disclose or communicate
to any person, firm, or corporation in any manner whatsoever, the terms and
conditions of this Agreement or any information of any kind, nature or
description concerning any matters affecting or relating to the business of
Employer, including, without limiting the foregoing, the names of patients, the
prices which Employer pays for goods and services and/or sells goods or
services, Employer's manner of operation of Employers business or its plans or
processes, or any other data or information of any kind, nature or description
which affects or relates to Employer's business without regard to whether any
or all of the foregoing would be deemed confidential information or a trade
secret under applicable state law ("Confidential Information").
2. Patient Accounts. All patients shall be and remain the patients of
Employer provided that Employee shall exercise independent responsibility for
the care and treatment of such individuals to the extent professional services
are rendered pursuant to this Agreement. In the event any patient is deemed by
operation of law or otherwise to be patient of Employee, Employee shall and
hereby does (i) irrevocably assign all Receivables from the treatment of such
individuals to Employer, and (ii) irrevocably appoints Employer as the agent
and true and lawful attorney-in-fact, with full power of assignment and
substitution where legally permissible, to bill patients on Employee's behalf;
to collect Receivables from all payors; and to take possession of and endorse
in Employee's name, all notes,drafts or instruments received by way of payment
for such services (except where prohibited by law or regulation).
(a) Employee agrees that each patient account has a reasonable
value to Employer of five thousand dollars ($5,000.00), and for each record, or
any portion thereof, which Employee attempts to obtain and/or actually does
obtain in contravention of this Section, the sum of Five Thousand dollars
($5,000.00) shall be paid to Employer as liquidated damages. The referenced sum
shall be due and payable immediately upon the date of the violation or
attempted violation of this Section, with such sum to bear interest at the
maximum allowable legal rate from the due date to the actual date of payment in
full.
(b) Paragraph VI 2a notwithstanding, Employee shall maintain
adequate and complete records with regard to services rendered to patients.
Upon the termination of Employee's employment hereunder, all patient files,
records and charts shall remain with Employer, and Employee shall have no right
to retain such materials; provided, however, that nothing herein contained
shall be construed to prevent any patient from requesting transfer of his/her
records to Employee upon the termination of this Agreement, and such materials
or photocopies thereof shall be delivered to Employee upon the written request
of the subject patient, which request shall be honored promptly upon the
payment to Employer by Employee of all reasonable costs, if any, for
reproduction and mailing of any such materials. Employer will send invoices to
all patients for any services rendered by Employee prior to termination of
his/her employment hereunder, and Employer will have the right to collect the
full amounts thereof for its own account.
SECTION VII - COVENANTS NOT TO COMPETE OR SOLICIT.
1. Confidential Information. Employee acknowledges and agrees that he
will have access to certain confidential information and trade secrets of the
Employer and that such information constitutes valuable, sole, special and
unique property of Employer. Employee further acknowledges and agrees that
Employee will not, at any time during or after the term hereof, in any fashion,
form, or manner either directly or indirectly, divulge, disclose or communicate
to any person, firm, or corporation in any manner whatsoever, the terms and
conditions of this Agreement or any information of any kind, nature or
description concerning any matters affecting or relating to the business of
Employer, including, without limiting the foregoing, the names of patients, the
prices which Employer pays for goods and services and/or sells goods or
services, Employer's manner of operation of Employers business or its plans or
processes, or any other data or information of any kind, nature or description
which affects or relates to Employer's business without regard to whether any
or all ofthe foregoing would be deemed confidential information or a trade
secret under applicable state law ("Confidential Information"). During such
period, Employer shall be deemed to have a vital and protectable interest in
such information and shall be entitled to injunctive relief if necessary to
protect against and remedy wrongful disclosure or use of such information.
2. Irreparable Damage. The parties hereto acknowledge and agree that
consideration has been given to the nature and scope of the business and
activities of both the Employee and the Employer and that the covenants
contained in this Paragraph 8 concerning territorial, substantive and time
limitations are in all respects fair and reasonable in view of the facts
involved. In the event that any court shall determine that the time,
substantive and territorial limitations contained herein are not fair and
reasonable, this Agreement shall nevertheless be enforced as to such time,
substantive and territorial limits as are reasonable.
3. Injunctive Relief. The parties further agree that in the event of
the breach of any provision of this Agreement, and particularly Paragraph 8
hereof, each party shall be entitled to a permanent injunction or similar court
order enjoining the breaching party from acting in a fashion contrary to
Paragraph 8 and that pending such determination the breaching party shall
accede to a temporary restraining order, without prejudice to any other rights
that the non-breaching party may have, all at the breaching party's expense.
4. Independent Agreement. The covenants contained in this Paragraph
shall be construed as an independent agreement and the existence of any claim
which the breaching party may have against the non-breaching party will not
constitute a defense to the enforcement by the non-breaching party.
5. Continuation of Chiropractic Practice. All the foregoing
notwithstanding, Employee may, at his discretion, reactivate his own
chiropractic practice at any location upon termination of this Agreement for
any reason whatsoever. The Employee may also continue to maintain and advertise
his own telephone number at his own personal cost and expense during the term
of this Agreement and may continue to so use said telephone number upon
termination of this Agreement. This provision shall survive the termination of
this Agreement.
SECTION VIII - TERMINATION OF EMPLOYMENT
1. Disability of Employee. Notwithstanding anything in this Agreement
to the contrary, Employer is hereby given the option to terminate Employee's
employment in the event that Employee, during theemployment term hereunder,
becomes disabled to the extent that he/she is unable fully to perform his/her
customary duties hereunder ("Disability"). Such option shall be exercised by
Employer by giving notice, pursuant to Section IX 4 herein, to Employee of
Employer's intention to terminate Employee's employment due to his/her
Disability. Such termination shall take place on the fifteenth (15th) day
following the mailing of such notice.
For purposes of this Agreement, Employee shall be deemed to have
become Disabled if, during the term of his/her employment hereunder, he/she is
disabled as defined in Employer's disability plan, if any; provided, however,
in the event that Employer does not maintain a disability plan, then to
establish a status of Disability there must be a written certification of such
Disability by a qualified medical doctor agreed to by Employer and Employee.
In the absence of agreement, each party shall nominate a qualified medical
doctor
<PAGE> 3
and the two doctors shall select a third doctor, who shall make the
determination as to the Employee's Disability.
2. Termination by Employer for Cause. Notwithstanding any other
provision of this Agreement, Employer may terminate Employee's employment for
cause immediately upon the determination and notification to Employee thereof
("Cause Termination Date"). Upon such determination and notification,
Employee's right to receive the Salary shall cease, and Employee shall be
entitled to receive only such Salary as shall have been earned through the
period ending with the Cause Termination Date.
The term "Cause" as used herein shall mean that Employee (i) has
committed a serious act (such as embezzlement) against Employer, with the
intention of enriching himself/herself at the expense of Employer, or has
failed to substantially perform his/her duties and responsibilities hereunder
or otherwise committed a material breach of any of the terms of this Agreement,
or has been convicted of any criminal act involving moral turpitude; or (ii)
has been found, in the reasonable belief of Employer, to suffer chronic
dependency on drugs or alcohol; or (iii) in carrying out his/her duties
hereunder, has committed gross neglect or gross misconduct; or (iv) has become
legally disqualified to practice chiropractic in the State of ((State)), or has
been put on probation by the ((State)) State Board of Chiropractic Examiners,
or has had his/her license to practice chiropractic in the State of ((State))
suspended or revoked; or (v) is unable to obtain chiropractic malpractice
insurance covering his/her professional conduct, in coverage amounts and/or
with insurance carriers acceptable to Employer and upon such terms as are
acceptable to the Employer or (iv) there has occurred a material adverse change
in the business or economic prospects of Employer as determined solely by
Employer; or(vii) Employer has ceased providing services at the Office and
Employee's services are not required at any Other Location.
3. Voluntary Termination. Either Employer or Employee may terminate
the employment relationship provided for under the terms of this Agreement, for
any reason and at any time during the Employment Term, on no less than thirty
(30) days prior written notice to the other party hereto, with the last day of
such notice period (unless such period shall be shortened or extended by mutual
agreement) being the Termination Date. In the event of such voluntary
termination, Employee shall receive a pro rata portion of the Salary, and pay
for accrued but unused vacation days, through and including the Termination
Date. Any rights and benefits Employee may have under any employee benefit
plans and programs of Employer shall be determined in accordance with the terms
of such plans and programs.
SECTION IX - MISCELLANEOUS
1. Specific Performance. It is agreed that any breach or evasion of
any of the terms of this Agreement by either party hereto will result in
immediate and irreparable injury to the other party, and recourse to injunction
and/or specific performance, as well as to all other legal or equitable
remedies to which such injured party may be entitled, will be authorized under
such circumstances.
2. Indemnity. Employee hereby agrees to indemnify, defend and hold
Employer harmless from and against any an all costs, losses, claims, demands
and liabilities, including reasonable attorneys' fees which arise out of or
relate to any breach by Employee of any of the terms and conditions in this
Agreement; any negligent or intentional wrongful act of Employee; any act or
omission of Employee which constitutes professional negligence; or any other
act of Employee not authorized under the terms of this Agreement. If Employer
or any of its shareholders or affiliates is made a party to litigation or
obligation or otherwise incurs any loss or expense as a result of Employee's
activities unconnected with Employer's business, Employee shall forthwith upon
demand, reimburse Employer or such individuals for any and all expenses
incurred as a result thereof.
3. Waiver of Breach. The parties understand and intend that each
restriction agreed to by Employee under the terms of this Agreement shall be
construed as separable and divisible from every other restriction, and that the
unenforceability, in whole or in part, of any other restriction will not affect
the enforceability of the remaining restrictions. It is further understoodthat
one or more, or all of such restrictions, may be enforced in whole or in part
as the circumstances warrant. No waiver of any one breach of the restrictions
contained in this Agreement shall be deemed a waiver of any future breach.
Employee hereby acknowledges that he/she is fully cognizant of the restrictions
set forth in this Agreement and agrees that these provisions shall survive the
termination of this Agreement for any reason.
4. Notices. Except as otherwise provided herein, all requests,
demands and other communications required or permitted hereunder shall be in
writing and shall be deemed to have been given if delivered personally, by
prepaid telex, telegram, facsimile ("FAX") or mailed first class, postage
prepaid, certified United States Mail, return receipt requested, to the party
who is to receive such notice, request, demand or communication at such party's
address as set forth on the signature page hereof. Any party hereto may change
its address for notice by giving to the other party written notice of such
change. Any notice given hereunder shall be effective (i) if delivered
personally, when delivered, (ii) if sent by telex, telegram or FAX, twenty-four
(24) hours after sending, and (iii) if mailed, seventy-two (72) hours after the
date of the mailing.
5. Commitments Binding Only Upon Written Consent. Notwithstanding any
provision herein to the contrary, it is expressly understood and agreed that
Employee shall not have the right to make any contracts or commitments for or
on behalf of Employer without the prior written consent of Employer.
6. Time of Essence. Time is of the essence in regard to the
obligations established hereunder. The parties hereto agree that they shall
cooperate in good faith to accomplish the objectives of this Agreement and,
documents and take such further action as may be reasonably necessary to
effectuate the terms, conditions and purposes of this Agreement.
7. Entire Agreement. This Agreement contains the entire understanding
of the parties with respect to the subject matter hereof, supersedes any prior
agreement between the parties, and may not be changed or terminated orally. No
change, termination or attempted waiver of any of the provisions hereof shall
be binding unless in writing and signed by the party against whom the same is
sought to be enforced.
8. Successors and Assigns. The provisions of this Agreement are
intended only for the regulation of relations among the parties hereto. This
Agreement is not intended for the benefit of creditors or other third parties,
and no rights are granted to such individuals or entities except where
expressly referenced herein. However, Employer may,in its sole discretion,
assign this Agreement by sale or otherwise, and the benefits and obligations of
this Agreement shall inure to its successors and/or assigns.
9. Non-Exclusive Rights. The rights and the obligations of the
Employer under this Agreement are non-exclusive, and this Agreement shall not
be construed to prevent the Employer from simultaneously retaining, contracting
with, or otherwise obtaining professional services from any other person or
entity.
10. Captions. The headings and captions herein are intended for
convenience reference only, and shall not be deemed to be interpretative of the
contents of such sections.
11. Execution in Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall constitute an original and all of
which together shall constitute one and the same instrument.
12. Governing Law. All matters concerning the validity and
interpretation of and performance under this Agreement shall be governed by the
laws of the State of ((State)) (without regard to the conflict of laws
principles thereof).
13. Arbitration. Any controversy, dispute or disagreement arising out
of or relating to this Agreement, or the breach thereof, shall be settled by
arbitration, which shall be conducted in the County of ((county)), State of
((State)), in accordance with the National Health Lawyer's Association
<PAGE> 4
("NHLA") Alternative Dispute Resolution Service Rules of Procedure for
Arbitration, and judgment on the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof.
14. No Act Contrary To Law. Nothing herein shall be construed so as to
require the commission of any act contrary to law, and wherever there is any
statute, law, ordinance or regulation which is inconsistent with this
Agreement, such statute, law, ordinance or regulation shall prevail, and, in
such event, the provision herein in conflict automatically shall be curtailed,
limited or eliminated to the extent necessary to bring it within legal
limitations.
IN WITNESS WHEREOF, the parties hereto have executed this document or
caused its execution by a duly authorized officer, all as of the day and year
first above written.
((CWMC_Name))
By:
------------------------------
, President
Employee:
By:
------------------------------------------
((FirstName)) ((LastName)), ((Job))
Complete Wellness Centers, Inc.
By:
---------------------------------------
E. Eugene Sharer, President
<PAGE> 5
EXHIBIT "A"
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated July 18, 1996, except
for Notes 1, 5 and 7 as to which the date is November 13, 1996 in the
Registration Statement (Form SB-2 No. 333-XXX) and related Prospectus of
Complete Wellness Centers, Inc. for the registration of 1,000,000 shares of its
common stock and 1,000,000 redeemable common stock purchase warrants.
Ernst & Young LLP
Washington, D.C.
December 18, 1996
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