<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
COMPLETE WELLNESS CENTERS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
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------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE> 3
COMPLETE WELLNESS CENTERS, INC.
666 ELEVENTH STREET, N.W., SUITE 200
WASHINGTON, D.C. 20001
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
TELEPHONE NO.: (202) 639-9700
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD AUGUST 11, 1998
You are hereby notified that a Special Meeting of Shareholders (the
"Special Meeting") of Complete Wellness Centers, Inc. (the "Company") will be
held at the offices of Complete Wellness Centers Inc., Suite 200, 666 Eleventh
Street, N.W., Washington, D.C., on August 11, 1998 at 10:00 a.m., local time,
to consider and act upon the following matters:
1. To approve for purposes of the shareholder approval policy of the
NASDAQ Small Cap Market, the issuance of the Company's Common Stock and
Convertible Preferred Stock pursuant to the terms of the Second Supplement to
the Investment Agreement dated as of July 2, 1998, a copy of which is attached
as EXHIBIT 1, hereto, and the issuance of shares of Common Stock issuable upon
the conversion of shares of Convertible Preferred Stock;
2. To approve and authorize an amendment to the Company's Certificate of
Incorporation to increase the number of shares of Common Stock authorized for
issuance by the Company from 10,000,000 to 50,000,000; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on June 30, 1998 will
be entitled to vote at the Special Meeting or any adjournment thereof. The stock
transfer books of the Company will remain open.
By Order of the Board of Directors,
Ryan Knoll, Secretary
Washington, D.C.
July 20, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN
ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF
THE PROXY IS MAILED IN THE UNITED STATES.
<PAGE> 4
COMPLETE WELLNESS CENTERS, INC.
666 Eleventh Street, N.W.
Washington, D.C. 20001
SOLICITATION AND VOTING OF PROXIES
July 20, 1998
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Complete Wellness Centers, Inc. (the
"Company") for use at the Special Meeting of Shareholders to be held at the
offices of the Company on August 11, 1998 at 10:00 a.m. and at any adjournment
of that meeting (the "Special Meeting"). All proxies will be voted in
accordance with the shareholders' instructions, and if no choice is specified,
the proxies will be voted in favor of the matters set forth in the accompanying
Notice of Special Meeting. Any proxy may be revoked by a shareholder at any
time before its exercise by delivery of written revocation or a subsequently
dated proxy to the Secretary of the Company, or by voting in person at the
Special Meeting. It is expected that this proxy statement and accompanying
proxy card will first be mailed to shareholders on or about July 22, 1998.
RECORD DATE AND VOTING SECURITIES
The Board of Directors has fixed June 30, 1998 as the record date for
determining shareholders who are entitled to vote at the Special Meeting. At
the close of business on June 30, 1998 there were outstanding and entitled to
vote 2,227,057 shares of common stock of the Company, $.0065 par value per
share ("Common Stock"). At the Special Meeting each share of the Common Stock
is entitled to one vote; the outstanding Preferred Stock of the Company is not
entitled to vote. Therefore the total number of votes eligible to be cast at
the Special Meeting is 2,227,057.
The Company's By-laws provide that a quorum consists of the representation
in person or by proxy at a meeting of shareholders entitled to vote a majority
of the votes that are entitled to be cast at the meeting. Abstentions and
broker non-votes will be counted for the purpose of determining the presence or
absence of a quorum. "Broker non-votes" are shares held by brokers or nominees
which are present in person or represented by proxy, but which are not voted on
a particular matter because instructions have not been received from the
beneficial owner. The effect of abstentions and broker non-votes on proposals
to be brought before the Special Meeting is discussed below.
The affirmative vote of shares constituting a majority of the votes of
Common Stock represented, entitled to vote and voting at the Special Meeting is
required to approve Proposal 1 in the
<PAGE> 5
accompanying Notice of Special Meeting ("Proposal 1") and the affirmative vote
of shares constituting a majority of the votes of all Common Stock outstanding
are required to approve Proposal 2 in the accompanying Notice of Special
Meeting ("Proposal 2").
Shares of Common Stock represented in person or by proxy at the Special
Meeting (including shares which abstain from or do not vote with respect to one
or more of the matters presented at the Special Meeting) will be tabulated by
the Secretary. Abstentions will be treated as shares that are present for
purposes of determining the number of shares present and entitled to vote with
respect to any particular matter, but which are not voted with respect to such
matter. If a broker holding stock in "street name" does not have discretionary
authority as to certain shares to vote on a particular matter, those shares
will be considered as not voting with respect to such matter.
The Board of Directors and management of the Company deem Proposals 1 and 2
described herein to be in the best interest of the Company and its shareholders
and recommend that the shareholders approve such proposals. All directors and
executive officers of the Company named in the table below intend to vote their
shares of Common Stock in favor of such proposals.
PRINCIPAL AND MANAGEMENT SHAREHOLDERS
The following table sets forth certain information as of June 30, 1998 with
respect to all of the Company's voting shares directly or indirectly owned or
deemed beneficially owned, as determined under the rules of the Securities and
Exchange Commission, by each shareholder known to the Company to own
beneficially more than 5% of the outstanding shares of a class of voting
securities of the Company, by each director, by each of the executive officers
as required under Item 402(a)(3) of Regulation S-K under the Securities Act of
1933, as amended (the "Securities Act"), and by all current directors and
executive officers of the Company and its subsidiaries as a group. In
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), a person is deemed to be the beneficial owner,
for purposes of this table, of any shares of the Company if he or she has or
shares voting power or investment power with respect to such security or has
the right to acquire beneficial ownership at any time within 60 days of June
30, 1998. As used herein "voting power" is the power to vote or direct the
voting of shares and "investment power" is the power to dispose of or direct
the disposition of shares. Except as indicated in the notes following the table
below, each person named has sole voting and investment power with respect to
the shares listed as being beneficially owned by such person.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
ACQUIRABLE PERCENT OF
NAME AND ADDRESS CURRENTLY OWNED WITHIN 60 DAYS (1) OUTSTANDING
---------------- --------------- ------------------ -----------
<S> <C> <C> <C>
C. Thomas McMillen
666 11th St., NW, Ste. 200
Washington, DC 20001 394,500 (2) 33,333 (3) 18.9
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C> <C>
Robert J. Mrazek
301 Constitution Ave., NE
Washington, DC 20003 (4) 16,500 7,500 (5) 1.1
E. Eugene Sharer
666 11th St., NW, Ste. 200
Washington, DC 20001 (6) 83,334 10,000 (7) 4.2
James J. McMillen, MD
4004 Miller Road
St. Joseph, MO 64505 (8) 6,000 7,500 (9) *
Janice Peterson
984 N. 1800 Road
Lawrence, KS 66049 93,500 0 4.2
Eric S. Kaplan, DC
4727 Marlwood Lane
Palm Beach Gardens, FL
33418 23,506 63,331 (10) 3.8
Michael T. Brigante
17 Daniel Drive
Belle Meade, NJ 08502 32,867 4,120 1.7
Wexford Spectrum
Investors, LLC
411 West Putnam Avenue
Greenwich, CT 06830 0 570,000 (11) 20.4
Imprimis Investors, LLC
411 West Putnam Avenue
Greenwich, CT 06830 0 2,280,000 (11) 50.6
Frederick B. Simon
C/o 411 West Putnam Avenue
Greenwich, CT 06830 (12) 0 3,750 (13) *
Sergio Vallejo, DMD
4335 Highland Park Road
Lakeland, FL 33813 0 3,750 (13) *
All directors and
executive officers
as a group (8 persons) 556,707 133,284 29.2
</TABLE>
* Less than 1%.
(1) Reflects number of shares of Common Stock acquirable upon exercise of
options or warrants.
(2) 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.
(3) Includes 16,667 shares subject to stock options which become exercisable
on July 30, 1998; 16,666 shares subject to stock options which became
exercisable in April 1998;
(4)(8)Mr. Mrazek and Dr. McMillen have each given Mr. McMillen an
irrevocable proxy to vote their respective shares until December 31, 2000.
<PAGE> 7
(5) Includes 3,750 shares subject to stock options that become exercisable
on July 25, 1998 and 3,750 shares subject to stock options that became
exercisable on July 25, 1997.
(6) Subsequent to the record date of this proxy, Mr. Sharer was granted
10,000 shares of common stock in connection with his appointment to the
position of Vice Chairman of the Company.
(7) Includes 10,000 shares subject to stock options that became exercisable
in April 1998.
(9) Includes 3,750 shares subject to stock options that become exercisable on
July 25, 1998 and 3,750 shares subject to stock options that became
exercisable on July 25, 1997.
(10) Includes 15,002 shares subject to stock options which became exercisable
in April 1997; 15,003 shares subject to stock options which became
exercisable in April 1998; 7,867 shares subject to stock options which
become exercisable on July 25, 1998; 8,799 shares subject to stock
options which become exercisable on July 25, 1998; 16,660 shares subject
to stock options which became exercisable on August 26, 1998.
(11) Does not include the Convertible Preferred Stock dividend of 3,521 shares
of Convertible Preferred Stock nor 80,000 shares of Common Stock issued to
Imprimis Investors LLC and 880 shares of Convertible Preferred Stock nor
20,000 shares of Common Stock issued to Wexford Spectrum Investors LLC.
Exercisable for shares of the Common Stock commencing January 3, 1999
upon conversion of the Convertible Preferred Stock at an exercise price
equal to the lesser of $1.75 per share or 75% of the average closing
"bid" price of the Common Stock for the twenty consecutive trading days
prior to the date of conversion of the Convertible Preferred Stock into
Common Stock. The Convertible Preferred Stock was issued by the Company
on July 2, 1998 in connection with the exchange of $5,000,000 principal
amount of Senior Redeemable Preferred Stock and 2,850,000 Common Stock
Purchase Warrants originally sold through a private offering to Wexford
Spectrum Investors LLC and Imprimis Investors LLC which closed on
January 12, 1998. Imprimis Investors LLC is an investor in the equity
pool funding the aforementioned transaction administrated by Wexford
Spectrum Investors LLC. The Convertible Preferred Stock bears a
dividend of 8% per annum from January 12, 1998 as to 20,000 shares and
from January 27, 1998 as to 80,000 shares through December 31, 2000,
provided that the dividend is currently paid on a quarterly basis or at
10% per annum if paid through the issuance of additional shares of
Convertible Preferred Stock. After December 31, 2000, the dividend on
the Preferred Stock is 12% per annum. The Company has the right to
redeem all of the Convertible Preferred Stock on or prior to January 3,
1999 upon paying $5 million plus accrued dividends from the date of
original investment at the rate of 12% per annum. The Company issued
20,000 shares of Convertible Preferred Stock to Wexford Spectrum
Investors LLC and 80,000 shares of Convertible Preferred Stock to Imprimis
Investors LLC.
(12) Mr. Simon is a Managing Director of Wexford Spectrum Investors LLC.
(13) Includes 3,750 shares subject to stock options that became exercisable
on May 26, 1998.
On the Record Date, the number of shareholders of the Company's Common
Stock was estimated to be approximately 950.
PROPOSAL 1--APPROVAL OF CONVERTIBLE PREFERRED PRIVATE PLACEMENT
INTRODUCTION
In June 1998 the Company received notification from Nasdaq that due to the
Company's insufficient net tangible assets, the Company would be delisted from
the Nasdaq SmallCap Market (the "SmallCap Market") unless it raised the
necessary additional capital. Nasdaq rules require that the Company have net
tangible assets in excess of $2 million. At May 31, 1998 the Company had a
deficit of approximately $1,600,000. If the Company fails to meet SmallCap
Market listing requirements, including the requirement that the Company have
tangible net assets in excess of $2 million, the Company would be subject to
delisting. If delisted from the SmallCap Market, the Company would attempt to
become listed on another stock exchange where it is able to meet the listing
requirements of such other exchange or to arrange for the Common Stock to be
traded on the
<PAGE> 8
Nasdaq OTC electronic bulletin board. The Company had previously completed a
private placement of $5 million of Senior Redeemable Preferred Stock pursuant to
an Investment Agreement dated December 19, 1997 (the "Investment Agreement") and
supplemented on January 12, 1998 (the "Old Preferred Stock"). However, because
the holders of the Old Preferred Stock were granted mandatory redemption rights
commencing in 2001, the Old Preferred Stock was classified for financial
reporting purposes as debt rather than equity. Accordingly, the Board of
Directors negotiated an agreement with the holders of the Old Preferred Stock to
exchange the Old Preferred Stock for new Convertible Preferred Stock with no
mandatory redemption provision. Consequently, the new Convertible Preferred
Stock will be classified as equity for financial reporting purposes, thereby
increasing the Company's net tangible assets, and in turn enabling the Company
to maintain its listing on the SmallCap Market. The Board of Directors executed
a Second Supplement to the Investment Agreement on July 2, 1998 (herein, the
"Exchange Agreement") pursuant to which the Company issued the Convertible
Preferred Stock and 100,000 shares of Common Stock (the "Convertible Preferred
Private Placement").
GENERAL
As of July 2, 1998, the Company completed the Convertible Preferred Private
Placement pursuant to the Exchange Agreement. All of the securities sold in the
Convertible Preferred Private Placement were issued solely to accredited
investors under the Securities Act. The Convertible Preferred Stock is
convertible into Common Stock commencing January 3, 1999 at the rate equal to
the lesser of $1.75 per share or 75% of the average closing "bid" price of the
Company's publicly traded Common Stock for the twenty consecutive trading days
immediately prior to the date of conversion.
The exact maximum number of shares of Common Stock that could be issuable
as a result of the 1998 Convertible Preferred Private Placement issuances
cannot currently be determined because it is subject to adjustment mechanisms
which cause the number of shares of Common Stock issuable to be dependent on
future events, principally consisting of the future trading prices of the
Common Stock, the conversion decisions of holders of the Convertible Preferred
Stock, whether the Company pays cash dividends on the Convertible Preferred
Stock and whether the Company opts to redeem the Convertible Preferred Stock
within six months from the date of its issuance. If the Company does not redeem
the Convertible Preferred Stock on or prior to January 3, 1999, and if the
holders of all of the Convertible Preferred Stock elect to convert, at the
maximum conversion price of $1.75 per share, there would be 2,857,143 new
Shares of Common stock issued to the holders of the Convertible Preferred
Stock. The number of shares of Common Stock issuable as a result of the
Convertible Preferred Private Placement Issuances will, generally, vary
inversely with the market price of the Common Stock. Depending among other
things, on the market price of the Common Stock and the timing of conversion of
Convertible Preferred Stock, however, given the maximum conversion price, the
conversion of Convertible Preferred Stock would require the issuance of more
than 20% of the Common Stock presently outstanding.
The Common Stock is listed on the Nasdaq SmallCap Market and accordingly
certain corporate activities are governed by the Nasdaq rules. Those rules
require the Company to seek shareholder approval for any issuance of Common
Stock equal to 20% or more of the voting power outstanding before the issuance
for less than the greater of the book or market value of the stock. Taken
together with the 100,000 shares of Common Stock issued pursuant to the
Convertible Preferred Private Placement, if all of the Convertible Preferred
Stock is converted into Common
<PAGE> 9
Stock, it would exceed 20% of the voting power outstanding before its issuance
and, therefore, in order to be in compliance with the Nasdaq SmallCap Market
rules, the vote of the Company's shareholders' is required to approve the
issuance of the Common Stock and Convertible Preferred Stock pursuant to the
Convertible Preferred Stock Placement and the issuance of Common Stock upon
conversion of the Convertible Preferred Stock.
SUMMARY OF TRANSACTION TERMS
Set forth below is a summary of the material terms of the Convertible
Preferred Private Placement, which summary is qualified by reference to the
full text of the underlying documents which are attached as exhibits to this
proxy statement.
CONVERTIBLE PREFERRED STOCK PLACEMENT
Pursuant to the terms of the Exchange Agreement, the Company exchanged and
issued in a private placement to two accredited investors, Wexford Spectrum
Investors, LLC and Imprimis Investors, LLC (collectively, "Wexford") for $50
per share an aggregate of 100,000 restricted shares of a newly-established
series of preferred stock, designated as Senior Convertible Preferred Stock, in
exchange for the cancellation of 100,000 of Old Preferred Stock and 2,850,000
Warrants which were originally issued in January 1998 for $5 million in the
aggregate. As additional consideration for their agreement to enter into the
Exchange Agreement, the Company issued Wexford 100,000 shares of Common Stock
("Issued Common Stock").
Each share of Convertible Preferred Stock is entitled to receive dividends,
payable quarterly on March 31, June 30, September 30 and December 31 of each
year, when and as declared by the Company's Board of Directors, at the rate of
8% per annum through December 31, 2000 (or at 10% per annum if paid through the
issuance of additional Convertible Preferred Stock) and at 12% per annum
thereafter in preference to any payment made on any shares of Common Stock or
any other class or series of capital stock of the Company. Such dividends
accrue from day to day whether or not earned or declared. Any dividend payable
after the date of issuance of the Convertible Preferred Stock may be paid (i)
in additional shares of Convertible Preferred Stock valued at $50 per share, or
(ii) upon proper notice, in cash. Each share of Convertible Preferred Stock is
also entitled to a liquidation preference of $50 per share, plus any accrued
but unpaid dividends and any amounts owing as a result of a failure by the
Company to file an effective registration statement within the prescribed
period (see discussion below), in preference to any other class or series of
capital stock of the Company. Except to determine whether such stock is
entitled to its liquidation preference under certain circumstances, and as
provided by applicable law, holders of shares of Convertible Preferred Stock
have no voting rights.
Commencing six months after the date of issuance, the Convertible Preferred
Stock may be converted into Common Stock. The number of shares of Common Stock
issuable upon conversion of shares of Convertible Preferred Stock will equal
the liquidation preference of the shares being converted divided by the
then-effective conversion price applicable to the Common Stock (the "Conversion
Price"). The Conversion Price as of any date after the six-month
<PAGE> 10
period following the date of issuance will be the lesser of (a) $1.75 per share,
and (b) the average closing "bid" trading price of the Common Stock during the
twenty consecutive trading days immediately preceding the date of conversion.
The Conversion Price is at all times also subject to customary anti-dilution
adjustment for events such as stock splits, stock dividends, reorganizations and
certain mergers affecting the Common Stock. Until January 3, 1999, the Company
shall have the right, but not the obligation, to redeem the Convertible
Preferred Stock upon payment of the liquidation preference of $50 per share ($5
million in the aggregate), plus dividends accrued at the rate of 12% per annum
from the date of original investment by Wexford into the Old Preferred Stock
(the "Redemption Right").
The Company has agreed to register the Issued Common Stock and the shares
of Common Stock issuable upon conversion of the Convertible Preferred Stock,
including shares payable as dividends thereon, for resale under the Securities
Act of 1993, as amended, upon demand of Wexford which may be made up to five
times. Any delay in having the related registration statement declared
effective by the Commission beyond the applicable period, or any unavailability
to the holders of the Convertible Preferred Stock of a current prospectus after
such period, will require the Company to pay to the holders, in cash, 1% of the
total purchase price of the Convertible Preferred Stock, or $50,000 in the
aggregate, for each 30-day period of the delay (pro rated for any shorter
period).
Under the Exchange Agreement, if the Company has not exercised its
Redemption Right prior to January 3, 1999 and redeemed all of the Convertible
Preferred Stock, or if Proposals 1 and 2, as described below, are not approved
by the shareholders upon the request of the outstanding shares of Convertible
Preferred Stock, the Board of Directors has agreed to take any action
necessary, including calling a special meeting of shareholders, to elect
designees of the holders of a majority of the outstanding shares of Convertible
Preferred Stock to the Board of Directors such that such designees shall
constitute a majority of the Board of Directors.
Receipt of the Shareholder Approval is not a condition to the transactions
contemplated by the Second Supplement and, other than as specifically
contemplated by the Second Supplement or by the Amended Certificate, a failure
to obtain the shareholder approval shall have no effect on the transaction's
contemplated thereby or the obligations of the Company thereunder. However,
the failure to obtain such shareholder approval to the issuance of the
Convertible Preferred Stock, the issued Common Stock and the shares of Common
Stock issuable upon conversion could jeopardize the NASDAQ Small Cap Market
listing of the Common Stock.
EFFECT ON OUTSTANDING COMMON STOCK
The issuance of the issued Common Stock and the Common Stock upon the
conversion of the Convertible Preferred Stock will have no effect on the rights
or privileges of existing holders of Common Stock or Preferred Stock except
that the economic interests and voting rights of each shareholder will be
diluted as a result of such issuance.
As noted above, the exact number of shares of Common Stock issuable upon
conversion of the Convertible Preferred Stock cannot currently be determined
but such issuances will vary inversely with the market price of the Common
Stock, and such shares will be converted at the rate of the lesser of (a) $1.75
per share, and (b) at a discount of 75% of the average closing "bid" price for
the Company's publicly traded Common stock for the twenty consecutive trading
days prior to the conversion date. The current holders of Common Stock will be
diluted by issuances of Common Stock upon conversion of the Convertible
Preferred Stock to an extent that depends on the future market price of the
Common Stock, the timing of conversions of the Convertible Preferred Stock, the
extent to which the Company pays cash dividends on the Convertible Preferred
Stock
<PAGE> 11
and exercise of the related placement agent warrants, and whether the Company
opts to redeem the Convertible Preferred Stock prior to conversion. The
potential effects of any such dilution on the existing shareholders of the
Company include (i) the possible right of the holders of the Convertible
Preferred Stock to control the Company and elect its Board of Directors and
(ii) the significant diminution of the current shareholders' economic and
voting interests in the Company.
VOTE REQUIRED
The approval of the Convertible Preferred Private Placement requires the
affirmative vote of the holders constituting a majority of the votes of Common
Stock entitled to vote and present at the Special Stockholders' Meeting, in
person or by proxy.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" PROPOSAL 1.
PROPOSAL 2
APPROVAL AND AUTHORIZATION OF AN AMENDMENT
TO THE COMPANY'S CERTIFICATE OF INCORPORATION
The authorized capital stock of the Company consists of 2,000,000 shares of
Preferred Stock, $.01 par value, 104,401 of which are outstanding and
10,000,000 shares of Common Stock, $.0065 par value, 2,227,057 shares of which
were outstanding and 7,772,943 shares of which were held in treasury as of June
30, 1998. In addition, as of June 30, 1998, approximately (i) 474,559 shares of
Common Stock were reserved for issuance upon the exercise of outstanding stock
options, (ii) 2.875 million shares of Common Stock were reserved for issuance
with respect to the Company's Wexford Warrants, and (iii) 1,306,442 million
shares of Common Stock were reserved for issuance with respect to outstanding
warrants. Under the terms of the Exchange Agreement, the Wexford Warrants were
cancelled and the Convertible Preferred Stock was issued granting the holder
the right to convert into Common Stock at the rate equal to the lesser of $1.75
per share or 75% of the average closing "bid" price of the Company's publicly
traded Common Stock for the twenty consecutive trading days immediately prior
to the date of conversion. Consequently, if the first exercise price of $1.75
per share is utilized, the Convertible Preferred Stock can be converted into at
least 2.875 million shares of Common Stock.
The Board of Directors considers the proposed increase in the number of
authorized shares of Common Stock necessary to give the Company the ability to
issue shares of Common Stock in connection with financing activities as well as
for other general corporate purposes, including employee stock options, without
the expense and delay incidental to obtaining stockholder approval of an
increase in the number of authorized shares at the time of such action (unless
such approval is otherwise then required for a particular issuance by
applicable law or by the rules of any stock exchange on which the Company's
securities may then be listed). In addition, the Board of Directors considers
the proposed increase in the number of authorized shares of Common Stock
<PAGE> 12
necessary to fulfill its obligation noted above to reserve a sufficient number
of shares of Common Stock with respect to a conversion of the Convertible
Preferred Stock. In addition, pursuant to the terms of the Convertible Preferred
Stock, without the consent of the holders of a majority of the Convertible
Preferred Stock, the Company is prohibited from issuing any shares of Common
Stock (otherwise than pursuant to commitments existing at the time the
Convertible Preferred Stock was issued or for the purpose of redeeming the
Convertible Preferred Stock) or any rights, options, convertible securities or
other contract obligations to issue Common Stock.
Except as noted above, the Company does not currently have any agreements
with respect to the issuance of its common stock relating to either capital
raising or acquisitions although it is pursuing a public offering or private
placement of its securities for the purpose of raising additional capital. In
addition, while the Company has no current plans to make any acquisition, and
its strategic plans include the integration of prior acquisitions, it is
possible that the Company will make additional acquisitions in the future using
shares of its Common Stock as consideration. Any decision to issue additional
shares of Common Stock will depend on various factors, including the Company's
capital needs and the price of its Common Stock.
The Board of Directors has adopted a resolution approving amending the
Certificate of Incorporation to effect the aforementioned increase, subject to
stockholder approval. Upon stockholder approval, all 40,000,000 additional
authorized shares would be issuable in the discretion of the Board of Directors
without further stockholder action, unless applicable law requires such
approval. If the proposed amendment is approved, the increase in the number of
authorized shares of Common Stock could enable the Board of Directors to render
more difficult or discourage an attempt by another person or entity to obtain
control of the Company in the future. Such additional shares could be issued by
the Board of Directors in a public or private sale, merger or similar
transaction, increasing the number of outstanding shares and thereby diluting
the equity interest and voting power of a person or entity attempting to obtain
control of the Company. In addition, the issuance of shares otherwise than on a
pro rata basis to all current stockholders would reduce the current
stockholders' proportionate interests in the Company and could therefore be
dilutive to the financial and voting interests of current stockholders.
However, in any such event, stockholders wishing to maintain their interests
may be able to do so through normal market purchases.
The first paragraph of Article IV of the Company's Restated Certificate of
Incorporation would be amended to read as follows:
"The total authorized number of shares of the Corporation shall be
52,000,000 shares, consisting of 50,000,000 shares designated as Common Stock,
$.0065 par value, and 2,000,000 shares designated as Preferred Stock, $.01 par
value."
The Board of Directors of the Company believes that it is essential for
the Company to have additional authorized but unissued shares of Common Stock to
provide flexibility to act promptly with respect to public and private
financings, acquisitions, stock dividends and other general corporate purposes.
<PAGE> 13
As reported by the Company in its filings with the Securities and
Exchange Commission (the "Commission"), the Company had significant losses in
fiscal 1997 of approximately $4,176,433 and an unaudited net loss from
operations in the first quarter of fiscal 1998 of approximately $435,806, and
will need additional cash to meet its commitments. Without an increase in the
authorized number of shares of Common Stock, the Company believes it may not be
able to raise additional cash, because the number of shares of Common Stock
currently authorized is inadequate to permit the Company to issue a sufficient
number of additional shares of Common Stock, warrants to purchase Common Stock
or Preferred Stock convertible into Common Stock, to raise additional capital.
This amendment will, in the opinion of the Board of Directors, increase
the Company's financial flexibility in attempting to raise additional cash. The
Board of Directors of the Company believes that the complexity of business
financing and acquisition transactions requires greater flexibility in the
Company's capital structure than now exists. This amendment will permit the
Company to offer additional shares of Common Stock or Preferred Stock that are
convertible into Common Stock, from time to time, as determined by the Board
for proper corporate purposes. Such purposes could include, without limitation,
issuance in public or private sales for cash as a means of obtaining capital
for use in the Company's business and operations, as part or all of the
consideration for acquisitions by the Company of other businesses or
properties, and issuance under employee benefit plans.
Although it has not entered into any agreements, the Company is actively
pursuing a public offering or private placement of its securities for the
purpose of obtaining additional capital. The Company intends to enter into
future financing transactions in order to raise capital pursuant to which it
would issue (or obligate itself to issue) some of the shares of Common Stock
that would be authorized if this Proposal is approved. The precise terms of
such transactions, however, have not as yet been determined. Furthermore, the
Company can give no assurance even if the proposed amendment is adopted, that
the Company will be successful in raising additional capital.
Approval of the increase now will eliminate delays, give management
greater flexibility in negotiating terms and conditions and reduce the expense
that otherwise would be incurred if stockholder approval were needed on short
notice to increase the authorized number of shares of Common Stock for possible
future transactions involving the issuance of additional shares. However, the
rules of the National Association of Securities Dealers, Inc. governing
corporations with securities listed on the Nasdaq SmallCap Market would require
stockholder approval by a majority of the total votes cast in person or by
proxy prior to the issuance of designated securities (a) where the issuance
would result in a change of control of the Company, (b) in connection with the
acquisition of the stock or assets of another company if an affiliate of the
Company has certain interlocking interests with the company to be acquired or
where the Company issues twenty percent or more of its outstanding shares or
(c) in connection with a transaction other than a public offering involving the
sale or issuance of twenty percent or more of the Common Stock or voting power
outstanding before the issuance at less than the book value or market value of
the Company's shares at that time, subject to certain exceptions or application
to Nasdaq if delay in the issuance would impair the financial viability of the
Company.
<PAGE> 14
The additional shares of Common Stock may be issued, subject to certain
exceptions, by the Company's Board of Directors at such times, in such amounts
and on such terms as the Board may determine, without further approval of the
stockholders. Any such issuance could reduce the current stockholders'
proportionate interests in the Company, depending on the number shares issued
and the purpose, terms and conditions of the issuance. Stockholders have no
preemptive rights to subscribe for additional shares.
Issuance of additional shares could discourage attempts to acquire control
of the Company by tender offer or other means. In such a case, stockholders
might be deprived of benefits that could result from such an attempt, such as
realization of a premium over the market price of their shares in a tender offer
or the temporary increase in market price that could result from such an
attempt. Also, the issuance of stock to persons friendly to the Board of
Directors could make it more difficult to remove incumbent management and
directors from office. Under the Exchange Agreement, if Proposal 2 for the
increase in authorized shares of Common Stock is not approved by the
shareholders by August 31, 1998, upon the request of the outstanding shares of
Convertible Preferred Stock, the Board of Directors has agreed to take any
action necessary, including calling a special meeting of shareholders, to elect
designees of the holders of a majority of the outstanding shares of Convertible
Preferred Stock to the Board of Directors such that such designees shall
constitute a majority of the Board of Directors.
The Board of Directors believes that the need to obtain additional
financing and the flexibility to respond to opportunities for acquisitions or
joint ventures offered by the amendment outweighs any of its potential
disadvantages. Without this flexibility, the Company's ability to implement the
business plan currently in process could be severely compromised or rendered
unsuccessful.
VOTE REQUIRED
The approval of the amendment of the Company's Restated Certificate of
Incorporation requires the affirmative vote of the holders of a majority of all
of the outstanding shares of Common Stock entitled to vote.
CONSEQUENTLY, ABSTENTIONS AND BROKER NON-VOTES WILL HAVE THE EFFECT OF A VOTE
AGAINST THE PROPOSED AMENDMENT.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" PROPOSAL 2.
OTHER MATTERS
Management does not know of any other matters which may come before the
Special Meeting. However, if any other matters are properly presented to the
meeting, it is the intention of the persons named in the accompanying proxy to
vote, or otherwise act, in accordance with their judgment on such matters.
<PAGE> 15
The Company has made this solicitation. All costs of solicitation of proxies
will be borne by the Company. In addition to solicitations by mail, the
Company's directors, officers and other employees, without additional
remuneration, may solicit proxies by telephone, facsimile, telegraph and
personal interviews. Brokers, custodians and fiduciaries will be requested to
forward proxy soliciting material to the owners of stock held in their names,
and the Company will reimburse them for their out-of-pocket expenses in this
regard.
SHAREHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
Any shareholder desiring to present a proposal for consideration at the
Company's 1999 annual meeting of shareholders and included in the Company's
proxy statement, must submit the proposal to the Company so that it is received
at the executive offices of the Company not later than December 31, 1998. Any
shareholder desiring to submit a proposal should consult applicable regulations
of the Securities and Exchange Commission.
By Order of the Board of Directors,
Ryan Knoll, Secretary
July 20, 1998
THE BOARD OF DIRECTORS HOPES THAT SHAREHOLDERS WILL ATTEND THE SPECIAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING ENVELOPE. YOUR PROMPT
RESPONSE WILL GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND WILL BE
APPRECIATED. SHAREHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR SHARES
PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
<PAGE> 16
COMPLETE WELLNESS CENTERS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) C. Thomas McMillen and E. Eugene Sharer,
or either or them, as Proxies, each with the power to appoint his substitute,
and hereby authorizes them to represent and to vote, as designated below, all
the shares of capital stock of Complete Wellness Centers, Inc. held of record
by the undersigned on June 30, 1998, at the Special Meeting of Shareholders to
be held on August 11, 1998, or any adjournment thereof.
The proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is given, this proxy
will be voted FOR all proposals. Attendance of the undersigned at the meeting
or at any adjournment thereof will not be deemed to revoke this proxy unless
the undersigned shall revoke this proxy in writing.
================================================================================
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
Please sign this proxy exactly as your name appears on the books of Complete
Wellness Centers, Inc. Joint owners should each sign personally. Trustees and
other fiduciaries should indicate the capacity in which they sign, and where
more than one name appears, a majority must sign. If a corporation, this
signature should be that of an authorized officer who should state his or her
title.
================================================================================
/x/ PLEASE MARK VOTES AS IN THIS EXAMPLE
(1) To approve the Convertible Preferred Private Placement and the
Convertible Preferred Stock Issuance, as described in the Company's Proxy
Statement dated July 20, 1998.
/ / For / / Against / / Abstain
(2) To approve the Amendment to the Company's Certificate of Incorporation to
increase the authorized capital to 50,000,000 shares of Common Stock, $.0065
par value per share, and 2,000,000 shares of Preferred Stock, $.01 par value
per share.
/ / For / / Against / / Abstain
(3) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
Please be sure to sign and date this Proxy. Date
-----------------------------------------------------------------
-----------------------------------------------------------------
Shareholder sign here Co-owner sign here
<PAGE> 17
EXHIBIT I
SECOND SUPPLEMENT TO INVESTMENT AGREEMENT
SECOND SUPPLEMENT TO INVESTMENT AGREEMENT, dated as of July 2, 1998
(this "Second Supplement"), among Complete Wellness Centers, Inc., a Delaware
corporation (the "Company"), Imprimis Investors LLC ("Imprimis") and Wexford
Spectrum Investors LLC (together with Imprimis, the "Investors").
WHEREAS, the Company and the Investors are parties to the Investment
Agreement, dated as of December 19, 1997, as previously supplemented by the
Supplement to Investment Agreement, dated as of January 12, 1998 (such
Supplement, the "First Supplement" and such Investment Agreement, as
supplemented by the First Supplement, the "Investment Agreement"). Capitalized
terms used in this Second Supplement without definition shall have the meanings
ascribed to them in the Investment Agreement; and
WHEREAS, in order to permit the Company to meet certain requirements for
the continued listing of the Common Stock on the NASDAQ SmallCap Market, the
Company and the Investors desire to restructure the Investors' investment in the
Company in the manner provided in this Second Supplement.
1. The Certificate of Designations, Preferences and Rights providing
for the terms of a new series of Senior Convertible Preferred Stock (the "New
Preferred Stock") in the form of Exhibit A hereto shall be filed with the
Secretary of State of the State of Delaware on the date hereof (the "New
Certificate"), the New Certificate having been approved by the Board of
Directors of the Company and by the Investors as the holders of all outstanding
shares of the Senior Preferred Stock of the Company (the "Old Preferred Stock").
New certificates representing validly issued, fully paid and nonassessable
shares of New Preferred Stock with accrued dividends as provided in the New
Certificate are being issued to the Investors, with a certificate representing
80,000 shares of the New Preferred Stock being issued to Imprimis and a
certificate representing 20,000 shares of New Preferred Stock being issued to
Wexford. The Investors shall return to the Company the certificates representing
the
<PAGE> 18
Old Preferred Stock as originally issued and the Company shall file with the
Secretary of State of the State of Delaware a Certificate of Decrease to
evidence the decrease to zero the number of authorized shares of the Old
Preferred Stock.
2. The Warrants shall be cancelled and returned to the Company by the
Investors.
3. In consideration of the Investors' agreement to exchange the Old
Preferred Stock for the New Preferred Stock as provided for in Section 1 and to
cancel the Warrants as provided for in Section 2, an aggregate of 100,000
validly issued, fully paid and nonassessable shares of Common Stock (the "Issued
Common Stock") are being issued to the Investors, with a certificate
representing 80,000 shares of the Issued Common Stock being issued to Imprimis
and a certificate representing 20,000 shares of Issued Common Stock being issued
to Wexford.
4. The Issued Common Stock and the Common Stock issuable upon
conversion of the New Preferred Stock as amended by Section 1 (the "Issuable
Common Stock"), together with any securities that may be issued in respect
thereof, shall constitute "Registrable Securities" for purposes of the
Registration Rights Agreement and the Registration Rights Agreement shall be
modified to increase the number of "Demand Registrations" for which the Company
pays the expenses of the holders of Registrable Securities from two to five.
5. Matters relating to the issuance and sale of the Issued Common
Stock, the exchange of the Old Preferred Stock for the New Preferred Stock and
the issuance of the Issuable Common Stock upon conversion thereof and the
execution and delivery by the Company of this Second Supplement shall be
addressed in an opinion from Epstein Becker & Green, P.C., special counsel to
the Company, dated the date hereof and substantially in the form of the opinion
of such firm previously provided under the Investment Agreement and otherwise
acceptable to the Investors.
6. The issuance and sale of the Issued Common Stock, the exchange of
the Old Preferred Stock for the New Preferred Stock and cancellation of the
Warrants
2
<PAGE> 19
shall take place as soon as practicable after execution of this Second
Supplement, subject to (a) the delivery by the Company to the Investors of a
copy of the New Certificate certified by the Secretary of State of the State of
Delaware, (b) the execution and delivery by the Company to the Investors of the
certificates representing the Issued Common Stock and the New Preferred Stock,
(c) the payment by the Company to the Investors of $25,000 in partial
satisfaction of its obligation to reimburse the Investors for the reasonable
fees and expenses of their legal counsel under Section 9, (d) the delivery to
the Investors of the opinion referenced in Section 5, (e) the delivery by the
Investors to the Company of the certificates representing the Old Preferred
Stock and the Warrants, and (f) confirmation by the Company, which it hereby
makes, that the Company's representations and warranties contained in the
Investment Agreement were true and complete in all material respects when given
and that, apart from information contained in SEC Reports filed prior to the
date hereof or other written information that has been provided by the Company
to the Investors prior to the date hereof, there are no matters that would
require any material changes to such representations and warranties were they
being deemed to be given as of the date hereof, with such representations and
warranties deemed to cover as Capital Stock the New Preferred Stock, the Issued
Common Stock and the Issuable Common Stock and all information provided by the
Company to the Investors since January 12, 1998, including without limitation
all SEC Reports, all historical or projected financial information and all
information relating to any governmental investigation of or affecting the
Company, its practices or its employees. Although the transactions contemplated
by this Second Supplement shall be deemed to have occurred as of the date
hereof, the delivery by the Company of the certificates pursuant to clause (b),
the payment pursuant to clause (c) and the opinion pursuant to clause (d) shall
occur not later than July 6, 1998 and the delivery by the Investors of the
certificates pursuant to clause (e) shall occur promptly following such delivery
by the Company.
7. Notwithstanding the provision in Section 7 of the First Supplement
to the contrary, from and after the date hereof and for so long as any New
Preferred Stock remains outstanding, all of the "Negative Covenants" provided
for in Section VIII of the Investment
3
<PAGE> 20
Agreement shall be reinstated and remain in full force and effect, except that
the exercise of the Company's optional redemption right under the New Preferred
Stock shall not be prohibited under Section VIII (E).
8. The Company shall, as soon as possible, but no later than 30 days
after the date hereof and in accordance with its certificate of incorporation
and by-laws and any applicable laws or rules, seek to obtain any and all
requisite shareholder approval (the "Shareholder Approval") of the increase in
its authorized shares of Common Stock to 50,000,000 and the issuance of the
Issued Common Stock and the Issuable Common Stock and provide evidence
reasonably satisfactory to the Investors that the Shareholder Approval shall
have been obtained. The Company shall submit to the Investors for their prior
approval copies of the resolutions or written consents pursuant to which the
shareholders will evidence the Shareholder Approval and any and all other
documents to be sent to shareholders in connection with seeking the Shareholder
Approval. Receipt of the Shareholder Approval is not a condition to the
transactions contemplated by this Second Supplement and, other than as
specifically contemplated by this Second Supplement or by the Amended
Certificate, a failure to obtain the Shareholder Approval shall have no effect
on the transactions contemplated hereby or the obligations of the Company
hereunder.
9. The Company confirms that it will promptly reimburse the Investors
for the reasonable fees and expenses of their legal counsel in connection with
this Second Supplement, the transactions contemplated hereby and the discussions
between the Company and the Investors through the date hereof arising out of the
Investment Agreement.
10. The Investors agree that, during the period prior to January 3,
1999, the Investors shall take no action with respect to the Company or its
affiliates, directors or employees based upon the Investors' allegations of
breach of the Investment Agreement or misrepresentations by the Company prior to
the date hereof. The Investors hereby agree to waive any claims based on such
alleged breaches and misrepresentations in the event that all of the New
Preferred Stock is redeemed by the Company within the time frame contemplated by
the New Certifi-
4
<PAGE> 21
cate. The Company acknowledges that, by entering into this Second Supplement,
the Investors have not waived any rights or claims that they may have relating
to any such alleged breaches or misrepresentations other than under the
circumstances contemplated by the immediately preceding sentence.
11. The Investors have acquired and shall hold the New Preferred Stock
for their own account for investment only and not with a view to, or for resale
in connection with, the public sale or distribution thereof except pursuant to
sales registered under the Securities Act of 1933, as amended, or pursuant to an
exemption from registration provided thereunder. The Investors and their
affiliates agree not to short sell or to write any type of put options against
shares of the Common Stock and the Investors and their affiliates represent and
warrant that they will not use, directly or indirectly, any use shares of
Issuable Common Stock to cover any short sale position or put position in the
Common Stock that existed prior to or from the date hereof.
12. Except as modified pursuant to this Second Supplement, all terms
and provision of the Investment Agreement shall remain in full force and effect.
5
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplement to be duly executed as of the date first written above.
COMPLETE WELLNESS
CENTERS, INC.
BY /s/ C. THOMAS MCMILLEN
----------------------------------------
Name: C. Thomas McMillen
Title: Chairman & CEO
IMPRIMIS INVESTORS LLC
BY /s/ FREDERICK SIMON
----------------------------------------
Name: Frederick Simon
Title: Senior Vice President
WEXFORD SPECTRUM
INVESTORS LLC
BY /s/ FREDERICK SIMON
----------------------------------------
Name: Frederick Simon
Title: Senior Vice President
6
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplement to be duly executed as of the date first written above.
COMPLETE WELLNESS
CENTERS, INC.
BY [SIG]
----------------------------------------
Name:
Title:
IMPRIMIS INVESTORS LLC
BY
----------------------------------------
Name:
Title:
WEXFORD SPECTRUM
INVESTORS LLC
BY
----------------------------------------
Name:
Title:
6
<PAGE> 24
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS
OF THE
SENIOR CONVERTIBLE PREFERRED STOCK
($.01 Par Value)
OF
COMPLETE WELLNESS CENTERS, INC.
------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------------------
The undersigned DOES HEREBY CERTIFY that the following resolution was
duly adopted on July 2, 1998 by the Board of Directors (the "Board") of Complete
Wellness Centers, Inc., a Delaware corporation (hereinafter called the
"Corporation"), in accordance with the provisions of Section 151 of the General
Corporation Law of the State of Delaware:
RESOLVED that pursuant to authority expressly granted to and
vested in the Board by provisions of the Certificate of Incorporation of
the Corporation (the "Certificate of Incorporation"), the issuance of a
series of Preferred Stock, par value $.01 per share (the "Preferred
Stock"), which shall consist of up to 134,500 of the 2,000,000 shares of
Preferred Stock which the Corporation now has authority to issue, be,
and the same hereby is, authorized, and the powers, designations,
preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, of
the shares of such series (in addition to the powers, designations,
preferences and relative, participating, optional or other
<PAGE> 25
special rights, and the qualifications, limitations or restrictions
thereof, set forth in the Certificate of Incorporation which may be
applicable to the Preferred Stock) are fixed as follows:
(i) The designation of such series of the Preferred Stock
authorized by this resolution shall be the Senior Convertible Preferred Stock
(the "Senior Convertible Preferred Stock"). The total number of shares of the
Senior Convertible Preferred Stock shall be 134,500.
(ii) Holders of shares of Senior Convertible Preferred Stock
will be entitled to receive, when and as declared by the Board out of assets of
the Corporation legally available for payment, an annual cash dividend per share
equal to (A) in the case of dividends accruing on or prior to December 31, 2000,
8% of the Liquidation Preference (as defined below) thereof on the relevant
dividend payment date payable in cash or, if such payment in cash is not then
made, 10% of the Liquidation Preference thereof on the relevant dividend payment
date payable in additional shares of Senior Convertible Preferred Stock (which
may include fractional shares) and (B) in the case of dividends accruing after
December 31, 2000, 12% of the Liquidation Preference thereof on the relevant
payment date payable in cash, in each case accruing, with respect to 20,000
shares of Senior Convertible Preferred Stock outstanding, from January 12, 1998,
and with respect to 80,000 of Senior Convertible Preferred Stock outstanding,
from January 27, 1998, and payable in quarterly installments on March 31, June
30, September 30 and December 31, commencing March 31, 1998 (each a "dividend
payment date"). Unless full dividends on the Senior Convertible Preferred Stock
have been paid, no dividends (other than in Common Stock of the Corporation) may
be paid or declared and set aside for payment or other distribution made upon
the Common Stock or on any other stock of the Corporation, nor may any Common
Stock or any other stock of the Corporation be redeemed, purchased or otherwise
acquired for any consideration (or any payment made to or available for a
sinking fund for the redemption of any shares of such stock). Dividends payable
on the Senior Convertible Preferred Stock for any period less than the full
dividend period will be computed on the basis of a 360-day year consisting of
twelve 30-day months. For purposes of this paragraph (ii), "Liquidation
Preference" shall have the meaning set forth in
2
<PAGE> 26
paragraph (iii) below with the relevant dividend payment date being deemed to be
the date of final distribution.
(iii) The shares of Senior Convertible Preferred Stock shall
rank prior to the shares of Common Stock and of any other class of stock of the
Corporation, so that in the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the holders of the Senior
Convertible Preferred Stock shall be entitled to receive out of the assets of
the Corporation available for distribution to its stockholders, whether from
capital, surplus or earnings, before any distribution is made to holders of
shares of Common Stock or any other such stock, an amount equal to the stated
amount thereof of $50 per share (or proportionate amount thereof in the case of
any fractional shares of Senior Convertible Preferred Stock) plus an amount
equal to all dividends (whether or not earned or declared) accumulated and
unpaid on the shares of Senior Convertible Preferred Stock to the date of final
distribution, such determination to be made, in the event that dividends remain
unpaid as to one or more dividend payment dates, by deeming the amount of any
dividend not paid on the relevant dividend payment date as having been added to
the stated amount of the underlying share as of such dividend payment date (the
amount as so determined, the "Liquidation Preference" of a share of Senior
Convertible Preferred Stock). After payment of the full amount of the
Liquidation Preference, the holders of shares of Senior Convertible Preferred
Stock will not be entitled to any further participation in any distribution of
assets by the Corporation. If, upon any liquidation, dissolution or winding up
of the Corporation, the assets of the Corporation, or proceeds thereof,
distributable among the holders of shares of Senior Convertible Preferred Stock
shall be insufficient to pay in full the preferential amount aforesaid, then
such assets, or the proceeds thereof, shall be distributable among such holders
ratably in accordance with the respective amounts which would be payable on such
shares if all amounts payable thereon were payable in full. For the purposes
hereof, neither a consolidation or merger of the Corporation with or into any
other corporation, nor a merger of any other corporation with or into the
Corporation, nor a sale or transfer of all or any part of the Corporation's
assets for cash or securities shall be considered a
3
<PAGE> 27
liquidation, dissolution or winding up of the Corporation.
(iv) The shares of Senior Convertible Preferred Stock will be
optionally redeemable by the Corporation as provided in this paragraph (iv):
(A) The shares of Senior Convertible Preferred Stock
shall be optionally redeemable in whole but not in part during
the period from July 2, 1998 through January 3, 1999.
(B) The redemption price for shares of Senior
Convertible Preferred Stock being redeemed shall be the
Liquidation Preference for the shares being redeemed determined
as if the date of final distribution were the date on which the
payment of the redemption price is made and as if the dividends
thereon shall have accrued thereon at a rate of 12% per annum,
with respect to 20,000 shares of Senior Convertible Preferred
Stock outstanding, from January 12, 1998, and with respect to
80,000 of Senior Convertible Preferred Stock outstanding, from
January 27, 1998.
(v) At the option of the holder thereof and upon surrender
thereof for conversion to the Corporation at its corporate headquarters at any
time on or after January 3, 1999 or, should the Corporation fail to receive the
Shareholder Approval (as defined below) on or prior to August 31, 1998, on or
after August 31, 1998, each share of Senior Convertible Preferred Stock will be
convertible into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing the (x) the Liquidation Preference of such
share determined as of the date of conversion by (y) the lower of $1.75 and 75%
of the Current Market Price Per Share determined as of the trading day
immediately prior to the date of conversion, the Conversion Rate being subject
to adjustment as hereinafter provided:
(A) In case the Corporation shall on or after January
12, 1998 (1) pay a dividend in shares of its capital stock, (2)
subdivide its outstanding shares of Common Stock into a greater
number of shares, (3) combine its outstanding shares of Common
Stock into a smaller
4
<PAGE> 28
number of shares, or (4) issue by reclassification of its shares
of Common Stock any shares of its capital stock, the Conversion
Rate in effect immediately prior thereto shall be adjusted so
that the holder of a share of Senior Convertible Preferred Stock
surrendered for conversion after the record date fixing
stockholders to be affected by such event, shall be entitled to
receive upon conversion the number of such shares of Common
Stock which such holder would have been entitled to receive
after the happening of such event had such share of Senior
Convertible Preferred Stock been converted immediately prior to
such record date. Such adjustment shall be made whenever any of
such events shall happen, but shall also be effective
retroactively as to shares of Senior Convertible Preferred Stock
converted between such record date and the date of the happening
of any such event.
(B) In case the Corporation shall on or after January
12, 1998 issue rights or warrants to all holders of its Common
Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Current Market
Price Per Share of Common Stock at the record date mentioned
below, the number of shares of Common Stock into which each
share of Senior Convertible Preferred Stock shall thereafter be
convertible shall be determined by multiplying the number of
shares of Common Stock into which such share of Senior
Convertible Preferred Stock was theretofore convertible by a
fraction, the numerator of which shall be the number of shares
of Common Stock outstanding on the date of issuance of such
rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and the
denominator of which shall be the number of the shares of Common
Stock outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering
price of the total number of shares so offered would purchase at
such Current Market Price Per Share. Such adjustment shall be
made whenever
5
<PAGE> 29
such rights or warrants are issued, but shall also be effected
retroactively as to shares of Senior Convertible Preferred Stock
converted between the record date for the determination of
stockholders entitled to receive such rights or warrants and the
date such rights or warrants are issued.
(C) In case the Corporation shall on or after January
12, 1998 distribute to all holders of its Common Stock evidences
of its indebtedness or assets (excluding any cash dividend or
distribution made out of current or retained earnings) or rights
to subscribe other than as set forth in subparagraph (B) above,
then in each such case the number of shares of Common Stock into
which each share of Senior Convertible Preferred Stock shall
thereafter be convertible shall be determined by multiplying the
number of shares of Common Stock into which such share was
theretofore convertible by a fraction, the numerator of which
shall be the Current Market Price Per Share of the Common Stock
on the record date fixed by the Board for such distribution, and
the denominator of which shall be such Current Market Price Per
Share of the Common Stock less the then fair market value (as
determined by the Board, whose determination shall be
conclusive) of the portion of the assets, evidences of
indebtedness or subscription rights so distributed applicable to
one share of the Common Stock. Such adjustment shall be made
whenever any such distribution is made, but shall also be
effective retroactively as to shares of Senior Convertible
Preferred Stock converted between the record date for the
determination of stockholders entitled to receive such
distribution and the date such distribution is made.
(D) For the purpose of any computation under this
paragraph (v), the "Current Market Price Per Share" of Common
Stock at any date shall be deemed to be the average of the
closing sale prices for the 20 consecutive trading days before
the day in question. The closing sale price for each day shall
be reported by
6
<PAGE> 30
the NASDAQ Stock Market or as reported by any successor central
market system.
(E) No adjustment in the conversion rate shall be
required unless such adjustment would require an increase or
decrease of at least 1% in such rate; provided, however, that
any adjustments which by reason of this subparagraph (E) are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under
this paragraph (v) shall be made to the nearest one-hundredth of
a share.
(F) No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon the
conversion of any share of Senior Convertible Preferred Stock.
If the conversion thereof results in a fraction, an amount equal
to such fraction multiplied by the Current Market Price Per
Share of Common Stock as of the conversion date shall he paid to
such holder in cash by the Corporation.
(G) In case the Corporation shall on or after January
12, 1998 enter into any consolidation, merger or other
transaction in which the shares of Common Stock are exchanged
for or changed into other stock or securities, cash and/or any
other property, then in each such case each share of Senior
Convertible Preferred Stock remaining outstanding at the time of
consummation of such transaction shall thereafter be convertible
into the kind and amount of such stock or securities, cash
and/or other property receivable upon consummation of such
transaction by a holder of the number of shares of Common Stock
into which such shares of Senior Convertible Preferred Stock
might have been converted immediately prior to consummation of
such transaction, assuming in each case that such holder of
Common Stock failed to exercise rights of election, if any, as
to the kind or amount of securities, cash or other property
receivable upon consummation of such transaction (provided that
if the kind or amount of securities, cash or other property
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<PAGE> 31
receivable upon consummation of such transaction is not the same
for each non-electing share, then the kind and amount of
securities, cash or other property receivable upon consummation
of such transaction for each non-electing share shall be deemed
to be the kind and amount as receivable per share by a plurality
of the non-electing shares).
(H) As used in this Certificate, "Shareholder Approval"
means any and all requisite approval of the shareholders of the
Corporation of the increase in its authorized shares of Common
Stock to 50,000,000 and the issuance of the Common Stock upon
conversion of the Senior Convertible Preferred Stock or as
contemplated by the Second Supplement to Investment Agreement,
dated as of July 2, 1998, among the Corporation, Imprimis
Investors LLC and Wexford Spectrum Investors LLC.
(vi) For so long as any shares of Senior Convertible Preferred
Stock remain outstanding, the Corporation will not, either directly or
indirectly or through merger or consolidation with any other
corporation, without the affirmative vote at a meeting or the written
consent with or without a meeting of the holders of at least 66-2/3
percent in number of shares of the Senior Convertible Preferred Stock
then outstanding, amend, alter or repeal any of the provisions of the
Certificate of Incorporation (including this resolution) so as to affect
adversely the preferences, special rights or powers of the Senior
Convertible Preferred Stock or of the holders thereof.
(vii) To convert any Senior Convertible Preferred Stock into
Common Stock, the holder shall give written notice to the Company (which
notice may be given by facsimile transmission) that the holder elects to
convert the same. Promptly thereafter such holder shall surrender the
Senior Convertible Preferred Stock at the office of the Company or of
any transfer agent for such stock. The Company shall, as soon as
practicable after receipt of such notice, issue and deliver to or upon
the order of such holder a certificate or certificates for the number of
shares of Common Stock to which the holder shall be entitled, and a new
stock certificate represent-
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<PAGE> 32
ing the remaining shares of Senior Convertible Preferred Stock (if any)
not converted. The Company shall use its reasonable best efforts to
effectuate any such issuance within 72 hours and to transmit the shares
of Common Stock by messenger or overnight delivery service to the
address designated by such holder. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date
such notice of conversion is received by the Company. The person or
persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder
or holders of such shares at the close of business on such date.
(viii) The holders of shares of Senior Convertible Preferred
Stock will be entitled to representation on the Corporation's Board of
Directors as provided in this paragraph (viii):
(A) For so long as any shares of Senior Convertible
Preferred Stock remain outstanding, the Corporation shall take
such action as shall be necessary to ensure that at least one
designee of the holders of Senior Convertible Preferred Stock
shall be duly elected to serve as a director of the Corporation.
Thereafter, such holders shall no longer be entitled for a
designee to serve as a director of the Corporation.
(B) In the event that the Corporation shall fail either
to (a) receive the Shareholder Approval on or prior to August
31, 1998, or (b) redeem all of the Senior Convertible Preferred
Stock pursuant to paragraph (iv) hereof on or prior to January
3, 1999, the Corporation shall, if and when requested by the
holders of a majority of the outstanding shares of the Senior
Convertible Preferred Stock to do so, take any action necessary,
including calling a special meeting, to elect designees of the
holders of a majority of the outstanding shares of the Senior
Convertible Preferred Stock to the Board of Directors such that
such designees shall constitute a majority of such Board of
Directors. Thereafter, for so long as any shares of Senior
Convertible Preferred
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<PAGE> 33
Stock remain outstanding, the Corporation shall take such action
as shall be necessary to ensure that such designees or successor
designees shall be duly elected to serve as directors of the
Corporation.
IN WITNESS WHEREOF, Complete Wellness Centers, Inc. has caused
this Certificate to be made under the seal of the Corporation and signed
by C. Thomas McMillen, Chairman, and attested by E. Eugene Sharer,
President, this 2nd day of July, 1998.
COMPLETE WELLNESS CENTERS,
INC.
Attest: By: /s/ C. THOMAS MCMILLEN
-----------------------------
/s/ E.E. SHARER
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