SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO 13d-
1(a) AND AMENDMENTS THERETO FILED PURSUANT TO 13d-2(a)
COMPLETE WELLNESS CENTERS, INC.
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(Name of Issuer)
Common Stock, par value $.0001665 per share
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(Title of Class and Securities)
20452H4-10-3
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(CUSIP Number of Class of Securities)
Howard E. Sullivan, Esq.
411 West Putnam Avenue, Suite 125
Greenwich, Connecticut 06830
(203) 862-7400
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(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications)
Copy to:
Randall H. Doud, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
(212) 735-3000
January 13, 1998
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Statement because of
Rule 13d-1(b)(3) or (4), check the following: ( )
See Rule 13d-1(a) for other parties to whom copies are to be sent.
CUSIP No. 20452H4-10-3 13D
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1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON.
Imprimis Investors LLC
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) (X)
(b) ( )
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3. SEC USE ONLY
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4. SOURCE OF FUNDS
WC
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e)
( )
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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NUMBER OF 7. SOLE VOTING POWER -0-
SHARES
BENEFICIALLY 8. SHARED VOTING POWER
OWNED BY 2,280,000
EACH 9. SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON 10 SHARED DISPOSITIVE POWER
WITH 2,280,000
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11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
2,280,000
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12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES ( )
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13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
45.6% (based on 2,149,286 shares of Common Stock
outstanding on January 12, 1998 and 2,850,000 shares of
Common Stock issuable to the Reporting Person and the
other Reporting Persons filing this Schedule 13D)
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14. TYPE OF REPORTING PERSON
OO
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CUSIP No. 20452H4-10-3 13D
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1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON.
Wexford Spectrum Investors LLC
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) (X)
(b) ( )
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3. SEC USE ONLY
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4. SOURCE OF FUNDS
WC
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e)
( )
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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NUMBER OF 7. SOLE VOTING POWER -0-
SHARES
BENEFICIALLY 8. SHARED VOTING POWER
OWNED BY 570,000
EACH 9. SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON 10 SHARED DISPOSITIVE POWER
WITH 570,000
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11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
570,000
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12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES ( )
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13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
11.4%(based on 2,149,286 shares of Common Stock
outstanding on January 12, 1998 and 2,850,000 shares of
Common Stock issuable to the Reporting Person and the
other Reporting Persons filing this Schedule 13D)
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14. TYPE OF REPORTING PERSON
OO
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13D
CUSIP No. 20452H4-10-3
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1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON.
Wexford Management LLC
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) (X)
(b) ( )
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3. SEC USE ONLY
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4. SOURCE OF FUNDS
AF
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e)
( )
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
Connecticut
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NUMBER OF 7. SOLE VOTING POWER -0-
SHARES
BENEFICIALLY 8. SHARED VOTING POWER
OWNED BY 2,850,000
EACH 9. SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON 10 SHARED DISPOSITIVE POWER
WITH 2,850,000
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11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
2,850,000
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12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES ( )
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13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
57.0% (based on 2,149,286 shares of Common Stock
outstanding on January 12, 1998 and 2,850,000 shares of
Common Stock issuable to the Reporting Person and the
other Reporting Persons filing this Schedule 13D)
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14. TYPE OF REPORTING PERSON
OO
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CUSIP No. 20452H4-10-3 13D
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1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON.
Joseph M. Jacobs
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) (X)
(b) ( )
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3. SEC USE ONLY
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4. SOURCE OF FUNDS
AF
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e)
( )
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
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NUMBER OF 7. SOLE VOTING POWER -0-
SHARES
BENEFICIALLY 8. SHARED VOTING POWER
OWNED BY 2,850,000
EACH 9. SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON 10 SHARED DISPOSITIVE POWER
WITH 2,850,000
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11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
2,850,000
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12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES ( )
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13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
57.0% (based on 2,149,286 shares of Common Stock
outstanding on January 12, 1998 and 2,850,000 shares of
Common Stock issuable to the Reporting Person and the
other Reporting Persons filing this Schedule 13D)
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14. TYPE OF REPORTING PERSON
IA
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CUSIP No. 20452H4-10-3 13D
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1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON.
Charles E. Davidson
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) (X)
(b) ( )
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3. SEC USE ONLY
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4. SOURCE OF FUNDS
AF
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e)
( )
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
- ------------------------------------------------------------------------------
NUMBER OF 7. SOLE VOTING POWER -0-
SHARES
BENEFICIALLY 8. SHARED VOTING POWER
OWNED BY 2,850,000
EACH 9. SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON 10 SHARED DISPOSITIVE POWER
WITH 2,850,000
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11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
2,850,000
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12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES ( )
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13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
57.0% (based on 2,149,286 shares of Common Stock
outstanding on January 12, 1998 and 2,850,000 shares of
Common Stock issuable to the Reporting Person and the
other Reporting Persons filing this Schedule 13D)
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14. TYPE OF REPORTING PERSON
IN
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Item 1. Security and Issuer.
This statement relates to the shares of common stock, par
value $.0001665 per share (the "Common Stock"), of Complete
Wellness Centers, Inc. a Delaware corporation (the "Company"). The
Company has its principal executive offices at 725 Independence
Avenue, Washington, D.C. 20003.
Item 2. Identity and Background.
(a) This statement is being filed by (i) Imprimis Investors
LLC, a limited liability company organized under the laws
of the State of Delaware ("Imprimis"), (ii) Wexford
Spectrum Investors LLC, a limited liability company
organized under the laws of the State of Delaware
("Wexford"), (iii) Wexford Management LLC, a Connecticut
limited liability company ("Wexford Management"), (iv)
Charles E. Davidson and (v) Joseph M. Jacobs (the
individuals and entities referred to above, collectively,
the "Reporting Persons") with respect to shares of Common
Stock beneficially owned by the Reporting Persons.
(b) The principal business and office address for the
Reporting Persons is c/o Wexford Management LLC, 411 West
Putnam Avenue, Greenwich, Connecticut 06830.
(c) Imprimis is a Delaware limited liability company, the
members of which are private investment funds. The
principal business of Imprimis is investments.
Wexford is a Delaware limited liability company,
the members of which are private investment funds. The
principal business of Wexford is investments.
Wexford Management is the manager of Imprimis and
Wexford. Wexford Management also serves as investment
manager or sub-advisor to the members of Imprimis and
Wexford.
Charles E. Davidson is chairman and a controlling member
of Wexford Management. Mr. Davidson also is a controlling
person or an investor in a number of private companies,
including certain members of Imprimis, Wexford and their
controlling persons.
Joseph M. Jacobs is president, managing member and a
controlling member of Wexford Management. Mr. Jacobs
also is a controlling person or an investor in a number
of private companies, including certain members of
Imprimis, Wexford and their controlling persons.
(d) None of the Reporting Persons has during the last five
years been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors).
(e) None of the Reporting Persons was a party to a civil
proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or
mandating activities subject to, federal of state
securities laws or finding any violation with respect to
such laws.
(f) Mr. Davidson and Mr. Jacobs are United States citizens.
Item 3. Source and Amount of Funds or Other Consideration.
On January 13, 1998, Imprimis acquired from the Company common
stock purchase warrants (the "Warrants") to purchase 2,280,000
shares common stock, par value .0001665 per share, of the Company
(the "Common Stock"), at an initial exercise price of $1.75 per
share, and 80,000 shares of senior redeemable preferred stock, par
value $.01 per share (the "Preferred Stock"), of the Company. On
the same date, Wexford acquired from the Company Warrants to
purchase 570,000 shares of Common Stock and 20,000 shares of the
Preferred Stock. See Item 6 for a description of certain
provisions of the Warrants and the Preferred Stock. See Item 6 for
additional information concerning the terms of the Preferred Stock
and the Warrants and certain agreements entered into by the Company
in connection therewith.
To acquire the Warrants and the Preferred Stock, Imprimis and
Wexford made initial payments to the Company of $800,000 and
$200,000, respectively, on January 13, 1998, and will make
additional payments to the Company of $3,200,000 and $800,000,
respectively, on January 27, 1998, net of fees and expense
reimbursement payable by the Company to Imprimis and Wexford.
Approximately $500,000 of the initial payment of Imprimis was
funded by the repayment by the Company of a loan made by Imprimis
on December 19, 1997. The funds used by Imprimis and Wexford to
make such loan, such initial payments and such additional payments,
as the case may be, came from or will come from the working
capital of Imprimis and Wexford.
Item 4. Purpose of Transaction.
The Reporting Persons have acquired the Warrants for
investment purposes pursuant to an Investment Agreement, dated as
of December 19, 1997 and supplemented as of January 12, 1998, among
the Company, Wexford and Imprimis (as supplemented, the "Investment
Agreement") and have obtained certain registration rights with
respect to the Common Stock issuable upon exercise of the Warrants
pursuant to a Registration Rights Agreement, dated as of January
12, 1998 (the "Registration Rights Agreement"). In connection
with the transactions described above, the Company agreed that a
designee of Wexford and Imprimis will be appointed to the Board of
Directors of the Company as soon as practicable. Frank S. Plimpton,
an officer of Wexford Management, is expected to be elected
pursuant to such agreement. The Company has agreed that, for so
long as the Preferred Stock remains outstanding, the Company shall
take such action as shall be necessary to ensure that at least one
designee of the holders of Preferred Stock shall be duly elected to
serve as a director of the Company. See Item 6 for additional
information concerning the terms of the Preferred Stock, the
Warrants, the Investment Agreement and the Registration Rights
Agreement.
The Reporting Persons do not have any plans or proposals,
other than those described in the preceding paragraph, which relate
to or would result in any of the actions or transactions specified
in clauses (a) through (j) of Item 4 of Schedule 13D. The
Reporting Persons reserve the right to acquire or dispose of Common
Stock, the Warrants, or the Preferred Stock or to formulate other
purposes, plans or proposals regarding the Company or the Common
Stock, the Warrants or the Preferred Stock held by the Reporting
Persons to the extent deemed advisable in light of general
investment policies, market conditions and other factors.
Item 5. Interest in Securities of the Issuer.
The Reporting Persons may be deemed to beneficially own the
respective percentages and numbers of outstanding shares of Common
Stock set forth below. Such percentages have been calculated using
information obtained from the Company on the basis of 2,149,286
shares of Common Stock issued and outstanding on January 12, 1998
and 2,850,000 issuable pursuant to the Warrants. Such calculations
exclude the 2,079,146 shares of Common Stock that according to
information obtained from the Company were issuable pursuant to
other warrants and options as of January 12, 1998.
A. Imprimis
(a) Aggregate number of shares of Common Stock beneficially
owned: 2,280,000 (all of which is attributable to
the Warrants)
Percentage: 45.6%
(b) 1. Sole power to vote or to direct to vote: -0-
2. Shared power to vote or to direct to vote: 2,280,000
3. Sole power to dispose or to direct the
disposition: -0-
4. Shared power to dispose or to direct the
disposition: 2,280,000
(c) Other than the transactions described in Item 4 of this
Schedule 13D, there were no transactions by Imprimis
during the past 60 days.
(d) Not applicable.
(e) Not applicable.
B. Wexford Spectrum Investors LLC
(a) Aggregate number of shares of Common Stock beneficially
owned: 570,000 (all of which is attributable to the
Warrants)
Percentage: 11.4%
(b) 1. Sole power to vote or to direct to vote: -0-
2. Shared power to vote or to direct to vote: 570,000
3. Sole power to dispose or to direct the
disposition: -0-
4. Shared power to dispose or to direct the
disposition: 570,000
(c) Other than the transactions described in Item 4 of this
Schedule 13D, there were no transactions by Wexford
during the past 60 days.
(d) Not applicable.
(e) Not applicable.
C. Wexford Management
(a) Aggregate number of shares of Common Stock beneficially
owned: 2,850,000 (all of which are attributable to the
Warrants)
Percentage: 57.0%
(b) 1. Sole power to vote or to direct to vote: -0-
2. Shared power to vote or to direct to vote: 2,850,000
3. Sole power to dispose or to direct the
disposition: -0-
4. Shared power to dispose or to direct the
disposition: 2,850,000
(c) Other than the transactions described in Item 4 of this
Schedule 13D, there were no transactions by Wexford
Management during the past 60 days.
(d) Not applicable.
(e) Not applicable.
C. Joseph M. Jacobs
(a) Aggregate number of shares of Common Stock beneficially
owned: 2,850,000 (all of which are attributable to the
Warrants)
Percentage: 57.0%
(b) 1. Sole power to vote or to direct to vote: -0-
2. Shared power to vote or to direct to vote: 2,850,000
3. Sole power to dispose or to direct the
disposition: -0-
4. Shared power to dispose or to direct the
disposition: 2,850,000
(c) Other than the transactions described in Item 4 of this
Schedule 13D, there were no transactions by Mr. Jacobs
during the past 60 days.
(d) Not applicable.
(e) Not applicable.
D. Charles E. Davidson
(a) Aggregate number of shares of Common Stock beneficially
owned: 2,850,000 (all of which are attributable to the
Warrants)
Percentage: 57.0%
(b) 1. Sole power to vote or to direct to vote: -0-
2. Shared power to vote or to direct to vote: 2,850,000
3. Sole power to dispose or to direct the
disposition: -0-
4. Shared power to dispose or to direct the
disposition: 2,850,000
(c) Other than the transactions described in Item 4 of this
Schedule 13D, there were no transactions by Mr. Davidson
during the past 60 days.
(d) Not applicable.
(e) Not applicable.
Wexford Management may, by reason of its status as manager of
Imprimis and Wexford, be deemed to own beneficially the Common
Stock of which Imprimis and Wexford possess beneficial ownership.
Each of Charles E. Davidson and Joseph M. Jacobs may, by
reason of his status as a controlling person of Wexford Management,
be deemed to own beneficially the Common Stock of which Imprimis
and Wexford possesses beneficial ownership.
Each of Charles E. Davidson, Joseph M. Jacobs and Wexford
Management shares the power to vote and to dispose of the shares of
Common Stock Imprimis and Wexford beneficially own.
Item 6. Contracts, Arrangements, Understandings or Relationships
With Respect to Securities of the Issuer.
See Items 2, 3, 4, and 5 above.
The Investment Agreement provides for certain standard
affirmative covenants and certain standard negative covenants
restricting actions that may be taken by the Company for so long as
any of the Preferred Stock and Warrants remain outstanding. The
Investment Agreement also gives Wexford and Imprimis the right to
approve the budget of the Company and requires the Company to
maintain a "key man" insurance policy insuring the life of C.
Thomas McMillen, the Chairman of the Company. Pursuant to the
Investment Agreement, the Company issued $500,000 of senior secured
notes on December 19, 1998 to Imprimis, all of which were repaid on
January 13, 1998 from the proceeds of Wexford's and Imprimis'
investment in the Preferred Stock and Warrants.
The Registration Rights Agreement provides that the Company
will, at any time after May 31, 1998, and when requested in writing
by Imprimis and Wexford, use its best efforts to promptly register
with the Securities and Exchange Commission all shares of Common
Stock issuable pursuant to the Warrants requested to be registered.
Wexford and Imprimis may make two such demands for registration at
the expense of the Company, and may make a third demand
registration, provided that they pay the expenses. Wexford and
Imprimis are also entitled to certain piggyback registration
rights.
Subject to the limitations described below, the Warrants are
exercisable for 2,850,000 shares of Common Stock at an exercise
price per Warrant of $1.75 at any time through January 12, 2005,
with the number of shares and exercise price subject to customary
antidilution adjustments and a $0.25 reduction in the exercise
price if the Company fails to register Common Stock for which the
Warrants can be exercised pursuant to the Registration Rights
Agreement.
The Company may redeem Warrants exercisable for 300,000 shares
of Common Stock (subject to antidilution adjustment) upon the
occurrence of each of the following triggers, in each case at a
redemption price of $0.01 per Warrant: (a) prior to January 1,
1999, if all of the Preferred Stock has been redeemed or
repurchased by the Company prior to such date; (b) prior to March
31, 2000, if pre-tax earnings per share of the Common Stock for the
fiscal year 1999 equals or exceeds $1.25 on a fully diluted basis;
(c) prior to March 31, 2000, if pre-tax earnings per share of
Common Stock for the combined fiscal years 1998 and 1999 equals or
exceeds $1.90 on a fully diluted basis; (d) prior to March 31,
2001, if pre-tax earnings per share of Common Stock for the fiscal
year 2000 equals or exceeds $2.00 on a fully diluted basis; and (e)
prior to March 31, 2001, if pre-tax earnings per share of Common
Stock for the combined fiscal years 1998, 1999 and 2000 equals or
exceeds $4.10 on a fully diluted basis. Wexford and Imprimis may
not exercise Warrants such that the Warrants available for
redemption on any of those dates falls below the requisite number,
with the effect that as of the date of this Schedule 13D Wexford
and Imprimis together may only exercise Warrants for 1,350,000 of
the aggregate of 2,850,000 shares of Common Stock issuable under
the Warrants. Wexford and Imprimis have agreed not to exercise
Warrants at any time that, after giving effect to such exercise,
they would together own in excess of 50% of the then outstanding
shares of Common Stock.
The rights of holders of the Preferred Stock are set forth in
a Certificate of Designation, Preferences and Rights filed with the
Secretary of State of Delaware on January 12, 1998 (the
"Certificate of Designation"). The Preferred Stock ranks prior to
the Common Stock or any other class of stock of the Company, has an
initial aggregate liquidation preference of $5,000,000 and provides
for the payment of quarterly dividends from January 13, 1998 (in
the case of 20% of the shares) or January 27, 1998 (in the case of
80% of the shares). Dividends accruing through December 31, 2000
will be payable at a per annum rate of 8% of the liquidation
preference if payable in cash or 10% of the liquidation preference
if payable in additional shares of Preferred Stock rate. Dividends
accruing after December 31, 2000 will be payable at a per annum
rate of 12% of the liquidation preference.
The Preferred Stock is mandatorily redeemable at its
liquidation preference plus accrued but unpaid dividends to the
redemption date on the earlier of December 31, 2000 and the date of
completion of any financing greater than $5,000,000 by the Company
or any of its subsidiaries after the initial date of issuance of
the Preferred Stock (excluding for such purposes up to $3,500,000
in proceeds received upon the exercise of certain warrants of the
Company previously issued). The Preferred Stock is also
mandatorily redeemable at its liquidation preference plus accrued
but unpaid dividends to the redemption date in the event of a
breach by the Company of its agreements under the Investment
Agreement or the Certificate of Designation. The Certificate of
Designation also provides that the Company shall take necessary
actions to ensure that a designee of the holders of Preferred Stock
is on the Board of Directors of the Company for so long as the
Preferred Stock is outstanding.
The Investment Agreement, the Registration Rights Agreement,
the Warrants and the Certificate of Designation have been filed as
exhibits to this Schedule 13D and are hereby incorporated by
reference.
Except as described above, there are no contracts,
arrangements, understandings or relationships (legal or otherwise)
among the persons named in Item 2 or between such persons and any
other person with respect to any securities of the Company,
including but not limited to, transfer or voting of any such
securities, finder's fees, joint ventures, loan or option
arrangements, puts or calls, guarantees of profits, division of
profits or loss, or the giving or withholding of proxies.
Item 7. Material to be Filed as Exhibits.
Exhibit I -- Investment Agreement Among Complete
Wellness Centers, Inc., Imprimis
Investors LLC, and Wexford Spectrum
Investors LLC, dated as of December
19, 1997, without Exhibits
Exhibit II -- Promissory Note
Exhibit III -- Pledge Agreement, dated as of
December 19, 1997, between Complete
Wellness Centers, Inc. and Imprimis
Investors LLC
Exhibit IV -- Form of Security Agreement, dated as
of December 19, 1997, between
subsidiary of Complete Wellness
Centers, Inc. and Imprimis Investors
LLC
Exhibit V -- Supplement to the Investment
Agreement, dated January 12, 1998,
without Exhibits
Exhibit VI -- Warrant, dated January 12, 1998,
issued to Imprimis Investors LLC,
without Exhibits
Exhibit VII -- Warrant, dated January 12, 1998,
issued to Wexford Spectrum Investors
LLC, without Exhibits
Exhibit VIII -- Registration Rights Agreement, dated
as of January 12, 1998, By and Among
Complete Wellness Centers, Inc.,
Imprimis Investors LLC and Wexford
Spectrum Investors LLC
Exhibit IX -- Certificate of Designation,
Preferences and Rights of the Senior
Redeemable Preferred Stock ($.01 Par
Value) of Complete Wellness Centers,
Inc., filed with the Secretary of
State of Delaware on January 12, 1998
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement
is true, complete and correct.
Date: January 23, 1998
IMPRIMIS INVESTORS LLC
By: /s/ Arthur H. Amron
---------------------------
Name: Arthur H. Amron
Title: Vice President
WEXFORD SPECTRUM INVESTORS LLC
By: /s/ Arthur H. Amron
---------------------------
Name: Arthur H. Amron
Title: Vice President
WEXFORD MANAGEMENT LLC
By: /s/ Arthur H. Amron
---------------------------
Name: Arthur H. Amron
Title: Senior Vice President
/s/ Charles E. Davidson
------------------------------
/s/ Joseph M. Jacobs
------------------------------
/s/ Joseph M. Jacobs
EXHIBIT I
INVESTMENT AGREEMENT
AMONG
COMPLETE WELLNESS CENTERS, INC.,
IMPRIMIS INVESTORS LLC,
AND
WEXFORD SPECTRUM INVESTORS LLC
DATED AS OF DECEMBER 19, 1997
TABLE OF CONTENTS
PAGE
I. AUTHORIZATION OF NOTES...................................... 1
II. SALE AND PURCHASE OF THE NOTES, THE
PREFERRED STOCK AND THE WARRANTS......................... 2
A. OBLIGATION TO INVEST IN THE NOTES.................. 2
B. INVESTMENT DATE.................................... 2
C. INTEREST RATE
LIMITATION........................................ 3
D. PROPOSED INVESTMENT IN THE PREFERRED
STOCK AND THE WARRANTS.......................... 3
III. CONDITIONS TO THE INVESTMENT................................... 4
A. DOCUMENTS REQUIRED................................ 4
B. OPINIONS OF COUNSEL............................... 11
C. PAYMENT OF ACCRUED FEES AND EXPENSES.............. 11
D. REPRESENTATIONS AND WARRANTIES.................... 12
E. NO DEFAULT........................................ 12
F. INVESTMENT PERMITTED BY APPLICABLE
REQUIREMENTS OF LAW, ETC........................ 12
G. NO LITIGATION OR OTHER PROCEEDINGS................ 12
H. NO MATERIAL ADVERSE CHANGE........................ 13
IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............. 13
A. ORGANIZATION; POWER AND AUTHORITY;
CAPITALIZATION; WARRANTS........................ 13
B. AUTHORIZATION, ENFORCEABILITY, ETC................ 15
C. DISCLOSURE........................................ 15
D. ORGANIZATION AND OWNERSHIP OF SHARES
OF SUBSIDIARIES, ETC. .......................... 16
E SEC REPORTS........................................16
F. FINANCIAL STATEMENTS.............................. 17
G. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC...... 18
H. GOVERNMENTAL AUTHORIZATIONS, ETC.................. 19
I. LITIGATION........................................ 20
J. TAXES............................................. 20
K. TITLE TO PROPERTY; LEASES......................... 21
L. SECURITY INTERESTS, ETC........................... 22
M. LICENSES, PERMITS, ETC............................ 22
N. ERISA............................................. 23
O. PRIVATE OFFERING BY THE COMPANY................... 23
P. USE OF PROCEEDS; MARGIN REGULATIONS............... 23
Q. STATUS UNDER CERTAIN STATUTES..................... 24
R. SECURITIES ACT MATTERS............................ 25
S. EMPLOYEE AND LABOR MATTERS........................ 25
T. ENVIRONMENTAL MATTERS............................. 26
U. NO BURDENSOME AGREEMENTS.......................... 27
V. EXISTING INDEBTEDNESS; FUTURE LIENS............... 28
W. SOLVENCY.......................................... 28
X. RELATED PARTY TRANSACTIONS........................ 29
Y. MATERIAL CONTRACTS................................ 29
Z. PARI PASSU OBLIGATIONS............................ 30
AA. NO SIGNIFICANT SUBSIDIARIES....................... 31
AB. NO POWER OF ATTORNEY.............................. 31
V. REPRESENTATIONS AND COVENANTS OF EACH OF
THE INVESTORS............................................ 31
A. PURCHASE FOR INVESTMENT........................... 31
B. ACCREDITED INVESTORS.............................. 31
C. POWER AND AUTHORITY............................... 32
VI. PREPAYMENTS AND REDEMPTIONS OF THE NOTES................... 32
A. OPTIONAL PREPAYMENTS OF THE NOTES................. 32
B. OFFER TO REPURCHASE NOTES AND REDUCE
COMMITMENTS IN RESPECT OF A CHANGE OF
CONTROL......................................... 32
C. MANDATORY REDEMPTIONS OF THE NOTES................ 34
D. ALLOCATION OF PARTIAL PREPAYMENTS................. 36
E. MATURITY; SURRENDER, ETC.......................... 36
F. CANCELLATION OF NOTES............................. 36
G. PAYMENT OF TRANSACTION FEE........................ 36
VII. AFFIRMATIVE COVENANTS...................................... 37
A. SHAREHOLDERS' MEETING; INFORMATION
STATEMENT........................................37
B. INFORMATION COVENANTS............................. 38
C. COMPLIANCE WITH LAW............................... 42
D. MAINTENANCE OF INSURANCE.......................... 43
E. MAINTENANCE OF PROPERTIES......................... 43
F. PAYMENT OF TAXES AND CLAIMS;
PERFORMANCE OF MATERIAL OBLIGATIONS. ........... 43
G. PRESERVATION OF CORPORATE EXISTENCE,
ETC............................................. 44
H. MAINTENANCE OF BOOKS AND RECORDS;
INSPECTION; CONFIDENTIALITY..................... 45
I. USE OF PROCEEDS................................... 46
J. SEARCH REPORTS.................................... 46
VIII. NEGATIVE COVENANTS............................................ 47
A. LIMITATIONS ON TRANSACTIONS WITH
AFFILIATES..................................... 47
B. LIMITATIONS ON LIENS.............................. 47
C. LIMITATIONS ON INDEBTEDNESS....................... 50
D. LIMITATIONS ON SALE-LEASEBACK
TRANSACTIONS.................................... 51
E. LIMITATIONS ON RESTRICTED PAYMENTS................ 52
F. LIMITATIONS ON FUNDAMENTAL CHANGES,
ASSET SALES, ACQUISITIONS, ETC.................... 52
G. LIMITATIONS ON INVESTMENTS, ETC................... 55
H. LIMITATION ON ISSUANCE OF CAPITAL
STOCK........................................... 56
I. LIMITATION ON MODIFICATIONS OF
INDEBTEDNESS; MODIFICATIONS OF
CERTIFICATE OF INCORPORATION, BYLAWS
AND CERTAIN OTHER AGREEMENTS; ETC. ............... 56
J. LIMITATIONS ON CONDUCT OF BUSINESS................ 57
K. LIMITATIONS ON ACCOUNTING CHANGES
AND CHANGES IN FISCAL YEAR. ...................... 58
L. LIMITATIONS ON SPECULATIVE
TRANSACTIONS.................................... 58
M. LIMITATIONS ON CAPITAL EXPENDITURES............... 58
IX. EVENTS OF DEFAULT.............................................. 58
A. EVENTS OF DEFAULT................................. 58
B. ACCELERATION...................................... 62
C. OTHER REMEDIES.................................... 63
D. RESCISSION........................................ 63
E. RESTORATION OF RIGHTS AND REMEDIES................ 63
F. NO WAIVERS OR ELECTION OF REMEDIES,
ETC............................................. 64
X. REGISTRATION; EXCHANGE; SUBSTITUTION OF
NOTES........................................................ 64
A. REGISTRATION OF NOTES............................. 64
B. TRANSFER AND EXCHANGE OF NOTES.................... 65
C. REPLACEMENT OF NOTES.............................. 67
XI. PAYMENTS ON NOTES.............................................. 67
XII. EXPENSES, INCREASED COSTS AND
INDEMNIFICATION, ETC. ....................................... 68
A. TRANSACTION EXPENSES.............................. 68
B. INDEMNITY......................................... 69
C. SURVIVAL.......................................... 72
XIII. SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; ENTIRE AGREEMENT............................... 72
XIV. AMENDMENT AND WAIVER.......................................... 73
A. REQUIREMENTS...................................... 73
B. SOLICITATION OF HOLDERS OF NOTES.................. 73
C. BINDING EFFECT, ETC............................... 73
D. NOTES HELD BY COMPANY, ETC........................ 74
XV. NOTICES....................................................... 74
A. GENERAL................................................ 74
XVI. REPRODUCTION OF DOCUMENTS..................................... 75
XVII. MISCELLANEOUS................................................. 76
A. SUCCESSORS AND ASSIGNS............................ 76
B. PAYMENTS DUE ON NON-BUSINESS DAYS................. 76
C. SATISFACTION REQUIREMENT.......................... 76
D. SEVERABILITY...................................... 77
E. CONSTRUCTION; ACCOUNTING TERMS, ETC............... 77
F. COMPUTATION OF TIME PERIODS....................... 77
G. EXECUTION IN COUNTERPARTS......................... 78
H. GOVERNING LAW; SUBMISSION TO
JURISDICTION, ETC............................... 78
I. WAIVER OF JURY TRIAL.............................. 79
SCHEDULES
Schedule IA Information Relating to the Investors
Schedule IB Defined Terms
Schedule IC Other Obligors
Schedule II(D)(2) Use of Proceeds
Schedule II(D)(3) Preferred Stock Term Sheet
Schedule II(D)(4) Warrant Term Sheet
Schedule IV(A) Capitalization
Schedule IV(D) Subsidiaries
Schedule IV(F) Financial Statements
Schedule IV(H) Governmental Authorizations,etc.
Schedule IV(I) Litigation
Schedule IV(J) Taxes
Schedule IV(M) Licenses, Permits, etc.
Schedule IV(S) Employee and Labor Matters
Schedule IV(T) Environmental Matters
Schedule IV(V) Existing Indebtedness
Schedule IV(Y) Material Contracts
Schedule IV(Z) Pari Passu Obligations
Schedule IV(AA) No Significant Subsidiaries
Schedule VIII(B) Existing Liens
Schedule VIII(E) Management and Consulting Agreements
Schedule VIII(G) Existing Investments
EXHIBITS
Exhibit A Form of Note
Exhibit B Form of Security Agreement (Other Obligors)
Exhibit C Form of Security Agreement (Company)
Exhibit D Form of Solvency Certificate
Exhibit E Forms of Opinion of Special Counsel for the Company
Exhibit F Form of Compliance Certificate
COMPLETE WELLNESS CENTERS, INC.
725 Independence Avenue, SE
Washington, D.C. 20003
INVESTMENT AGREEMENT, dated as of December 19, 1997
(this "Agreement"), 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 desires to issue and sell to
Imprimis, and Imprimis desires to purchase from the Company, $500,000 in
aggregate principal amount of the Company's Senior Secured Fixed Rate
Bridge Notes due March 31, 1998, the proceeds of which will be used by
the Company, among other thinhs, to complete its pending acquisition of
the assets of Nutri/System, L.P. (the "Acquisition") through the
Company's wholly-owned subsidiary, Complete Weight Management, Inc., a
Delaware corporation (the "Acquisition Subsidiary"), which will hold such
assets; and
WHEREAS, the Company desires to issue and sell to the
Investors, and, subject to the satisfactory completion of their due
diligence concerning the Company and the Acquisition and the negotiation
of satisfactory documentation, the Investors desires to purchase from
the Company, (a) 100,000 shares (the "Preferred Stock") of Series B
preferred stock, par value $.01 per share, of the Company with a
liquidation preference of $50.00 per share, and (b) Common Stock Purchase
Warrants (the "Warrants) to purchase 2,850,000 shares (the "Common
Stock") of common stock, par value $.0001665 per share,of the Company, in
each case upon the terms and conditions set forth in Section II(D).
I. AUTHORIZATION OF NOTES.
The Company has authorized the issue and sale of
$500,000 in aggregate principal amount of Senior Secured Fixed Rate
Bridge Notes due March 31, 1998 (such Notes delivered pursuant to Section
II and any such Notes issued in substitution therefor pursuant to Section
X being, collectively, the "Notes"). Each of the Notes shall be in
substantially the form of Exhibit A attached hereto, with such
amendments, supplements and other modifications thereto, if any, as shall
be approved from time to time by the Investors and the Company.
Capitalized terms used in this Agreement, unless otherwise defined in
this Agreement, shall have the meanings specified in Schedule II attached
hereto; and references in this Agreement to a "Schedule" or an "Exhibit"
are, unless otherwise specified herein, references to a Schedule or an
Exhibit attached to this Agreement.
II. SALE AND PURCHASE OF THE NOTES, THE PREFERRED STOCK
AND THE WARRANTS.
A. OBLIGATION TO INVEST IN THE NOTES.
Subject to the terms and conditions of this Agreement,
the Company will issue and sell to Imprimis, and Imprimis will purchase
from the Company on the Investment Date, Notes in the aggregate principal
amounts of $500,000 at the purchase price of 100% of the aggregate
principal amount thereof. The Notes purchased and sold under this Section
II(A) and repaid or prepaid may not be repurchased and resold. The
Company agrees to record the Notes on the Register referred to in Section
X(B). The Company agrees to execute and deliver to Imprimis a promissory
note in registered form to evidence its purchase hereunder and registered
as provided in Section X(B) (herein, a "Registered Note"), dated the
Investment Date, payable to Imprimis and otherwise duly completed. Notes
other than Registered Notes shall be null and void and shall be returned
to the Company. A Registered Note may not be exchanged for a promissory
note that is not a Registered Note.
B. INVESTMENT DATE.
The sale and purchase of the Notes shall occur at the
offices of Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue,
New York, New York 10022, at or before 1:00 P.M. (New York City time) on
December 19, 1997 or on such other Business Day thereafter as may be
agreed upon among the Company and the Investors (the "Investment Date").
On the Investment Date, subject to the fulfillment of the applicable
conditions set forth in Section 3, the Company will deliver to Imprimis
the Note to be purchased by it on the Investment Date in the form of a
single Note (or such greater number of Notes in denominations of at least
$25,000 or integral multiples of $25,000 in excess thereof as it may
request), dated such Investment Date and registered in the name of
Imprimis (or in the name of its nominee), against delivery by Imprimis to
the Company or their order of same day funds in the amount of the
aggregate purchase price therefor.
C. INTEREST RATE LIMITATION.
Notwithstanding any provisions of this Agreement, the
Notes or the other Note Documents, in no event shall the amount of
interest paid or agreed to be paid by the Company exceed an amount
computed at the highest rate of interest permissible under applicable
law. If, from any circumstances whatsoever, fulfillment of any provi-
sion of this Agreement, the Notes or the other Note Documents at the time
performance of such provision shall be due, shall involve exceeding the
interest rate limitation validly prescribed by law which a court of
competent jurisdiction may deem applicable hereto, then, ipso facto, the
obligations to be fulfilled shall be reduced to an amount computed at the
highest rate of interest permissible under applicable law, and if for any
reason whatsoever any Investor shall ever receive as interest an amount
which would be deemed unlawful under such applicable law such interest
shall be automatically applied to the payment of principal of the Notes
outstanding hereunder (whether or not then due and payable), without
prepayment charge, premium or penalty, and not to the payment of
interest, or shall be refunded to the Company if such principal and all
other obligations of the Company to such Investor have been paid in full.
D. PROPOSED INVESTMENT IN THE PREFERRED STOCK AND THE WARRANTS.
The Company and the Investors will use reasonable
efforts to develop definitive documentation relating to the Investors'
proposed investment in the Preferred Stock and the Warrants on or prior
to December 31, 1997 and otherwise in accordance with the following terms
and conditions:
1. The cash purchase price payable by the
Investors for the Preferred Stock and the Warrants shall be
$5,000,000, net of a transaction fee of $100,000 payable by the
Company to the Investors on the date of issuance of the
Preferred Stock and the Warrants;
2. The net proceeds from the issuance and sale
of the Preferred Stock and Warrants shall be used as may be
agreed between the parties;
3. The Preferred Stock shall be on
substantially the terms set forth in Schedule II(D)(3) attached
hereto;
4. The Warrants shall be on substantially the
terms set forth on Schedule II(D)(4) attached hereto;
5. The Investors will be given customary
demand and piggy back registration rights relating to the Common
Stock issuable upon exercise of the Warrants, with no demand
being permitted prior to May 31, 1997; and
6. The Investors' commitment to purchase the
Preferred Stock and the Warrants is subject to satisfactory
completion of their due diligence concerning the Company and the
Acquisition and the negotiation of satisfactory documentation
and to any requisite shareholder approvals for the issuance of
the Warrants and the shares of Common Stock issuable pursuant
thereto.
III. CONDITIONS TO THE INVESTMENT.
Imprimis' obligation to purchase and pay for the Notes
to be sold on the Investment Date is subject to the fulfillment to
Imprimis' satisfaction, on or prior to the Investment Date, of the
following conditions:
A. DOCUMENTS REQUIRED.
Imprimis shall have received the following documents,
each dated as of the Investment Date (except as otherwise specified
below) and in the form of the respective Exhibit attached hereto, if any,
or otherwise in form and substance satisfactory to Imprimis:
1. Investment Agreement. This Agreement
duly executed by the Company and each of the Investors.
2. Notes. Notes, registered in the name
of Imprimis, in the aggregate principal amounts of
$500,000, duly executed by the Company.
3. Security Agreements.
a. Security agreements, each in substantially
the form of Exhibit B attached hereto (the security
agreements delivered pursuant to this subsection, as
amended, supplemented or otherwise modified from time
to time in accordance with the terms thereof and
Section XIV, the "Subsidiary Security Agreements"),
duly executed by each of the Other Obligors, together
with proper financing statements (Form UCC-1 or a
comparable form) or the equivalent thereof under the
Uniform Commercial Code (or similar law or statute) of
all jurisdictions that may be necessary or that
Imprimis may deem desirable in order to perfect and
protect the liens and security interests created under
the Subsidiary Security Agreements, covering the
Collateral described therein, in each case completed in
a manner satisfactory to Imprimis and duly executed by
each of the Other Obligors, as applicable;
b. A security agreement, in substantially the
form of Exhibit C attached hereto (the security
agreements delivered pursuant to this subsection, as
amended, supplemented or otherwise modified from time
to time in accordance with the terms thereof and
Section XIV, the "Company Security Agreement" and
together with the Subsidiary Security Agreements, the
"Security Agreements"), duly executed by the Company,
together with a stock certificate or certificates for
the shares of capital stock of the Acquisition
Subsidiary pledged pursuant thereto; and
c. evidence that all other actions
that may be necessary or that Imprimis may deem
desirable in order to perfect and protect the Liens and
security interests created under the Security
Agreements have been taken or will be taken in
accordance with the terms of the Note Documents.
4. Corporate Approvals and Other Similar
Documentation. Certified copies of the resolutions of the boards
of directors of the Company and the Acquisition Subsidiary
approving the Acquisition and each of the Note Documents to
which it is a party, the issuance and sale of the Notes and the
other transactions contemplated hereby and thereby and all
documents evidencing other necessary corporate action, including
by the Other Obligors, with respect to each Note Document, the
issuance and sale of the Notes and the other transactions
contemplated hereby and thereby.
5. Organizational Documents. A copy of the
certificate of incorporation and by-laws of each of the Company,
the Acquisition Subsidiary and the Other Obligors, and each
amendment thereto, certified as of the Investment Date by the
Secretary of State of Delaware as being a true and complete copy
thereof.
6. Good Standing Certificates. A copy of (a) a
certificate of the Secretary of State of Delaware, dated the
Investment Date, listing the certificate of incorporation of
the Company and the Acquisition Subsidiary and each amendment
thereto on file in the office of such Secretary of State and
certifying that (i) such amendments are the only amendments
to the organizational documents of the Company and the
Acquisition Subsidiary, (ii) each of the Company and the
Acquisition Subsidiary has paid all franchise taxes (or the
equivalent thereof) to the date of such certificate and (iii)
each of the Company and the Acquisition Subsidiary is duly
incorporated and in good standing under the laws of such State
and (b) a certificate of the Secretary of State of Florida,
dated the Investment Date, listing the certificate of
incorporation of the Other Obligors and each amendment thereto
on file in the office of such Secretary of State and certifying
that (i) such amendments are the only amendments to the
organizational documents of the Other Obligors, (ii) each of the
Other Obligors has paid all franchise taxes (or the equivalent
thereof) to the date of such certificate and (iii) each of the
Other Obligors is duly incorporated and in good standing under
the laws of such State .
7. Foreign Qualification Certificates. Copies
of certificates of the Secretary of State (or the equivalent
Governmental Authority) of each jurisdiction in which any of the
Company, the Acquisition Subsidiary or the Other Obligors is
qualified as a foreign corporation, dated reasonably near the
Investment Date, in each case stating that each of the Company,
the Acquisition Subsidiary and the Other Obligors is duly
qualified and in good standing as a foreign corporation in such
jurisdiction and has filed all annual reports required to be
filed, and paid all franchise taxes (or the equivalent thereof)
required to be paid, in such jurisdiction to the date of such
certificate.
8. Secretary's Certificate. A certifi-
cate from the secretary or an assistant secretary
each of the Company, the Acquisition Subsidiary and
the Other Obligors certifying:
a. the absence of any amendments to the
certificate of incorporation of such company
since the date of the Secretary of State's
certificate referred to in subsection (5) of
this Section III(A);
b. the completeness and accuracy of the
resolutions of the board of directors of such company
and all documents evidencing other necessary corporate
action thereof referred to in subsection (4) of this
Section III(A);
c. the completeness and accuracy of the bylaws
of such company as in effect on the date the
resolutions of the board of directors of such company
referred to in subsection (4) of this Section III(A)
were adopted and on the Investment Date (a copy of
which shall be attached to such certificate);
d. the names and true signatures of the
officers of such company authorized to sign each of the
Note Documents to which it is or is to be a party and
the other agreements, instruments and other documents
to be delivered hereunder or thereunder; and
e. such other matters as Imprimis shall
specify relating to the existence and good standing of
such company and the corporate and other necessary
authority for, and the validity of, each of the Note
Documents to which it is or is to be a party and any
other matters relevant to any of the foregoing.
9. Officer's Certificate. A certificate of
each of the Company, the Acquisition Subsidiary, signed and the
Other Obligors, signed on behalf of each such company by the
Senior Financial Officer thereof (the statements made in which
certificate shall be true on and as of the Investment Date),
certifying as to:
a. the due organization and good
standing of such company and each of its Subsidiaries
in their respective jurisdictions of organization and
the absence of any proceeding for the dissolution or
liquidation of such company or any of its Subsidiaries;
b. the completeness and accuracy of
all of the representations and warranties made by such
company in this Agreement and the other Note Documents
to which it is or is to be a party, before and after
giving effect to the issue and sale of the Notes and to
the application of the proceeds therefrom as
contemplated by Section IV(O)(1) on the Investment
Date;
c. the absence of any event occur-
ring and continuing, or resulting from the issue and
sale of the Notes or the consummation of any of the
other transactions contemplated hereby, that
constitutes a Default or an Event of Default;
d. neither such company nor any of
its Subsidiaries having changed its jurisdiction of
organization, having been a party to any merger,
consolidation or other similar transaction or having
issued or sold any shares of its capital stock (or
other ownership or profit interests therein), or any
warrants, options or other rights therefor, at any time
following the date of the most recent unaudited
consolidated financial statements of such company and
its Subsidiaries referred to in Section IV(E)(1);
e. the absence of any existing or, to
the best of his knowledge, threatened event or
circumstance applicable to such company or any of its
Subsidiaries that could reasonably be expected to
impair the ability of such Company to repay the Notes;
and
f. the satisfaction of all condi-
tions precedent by such Company to the issuance and
sale of the Notes on and as of the Investment Date.
10. Solvency Certificates. A certificate from
the chief financial officer of each of the Company and the
Acquisition Subsidiary, in substantially the form of Exhibit D
attached hereto, attesting to the Solvency of each such company
and its Subsidiaries, taken as a whole, immediately before and
immediately after giving effect to the Note Documents and all of
the transactions contemplated hereby or thereby to occur on or
about the Investment Date and assuming the sale and purchase of
Notes on such date in an aggregate principal amount of $500,000.
11. Financial Information. Copies of (a) the
audited consolidated financial statements of the Company and its
Subsidiaries referred to in Section IV(E)(1), accompanied by an
unqualified opinion of Ernst & Young LLP, independent
accountants of the Company, and (b) the unaudited financial
statements of the Company and its Subsidiaries referred to in
Section IV(E)(1), together with a certificate of a Senior
Financial Officer of the Company with respect thereto.
12. Consents. Certified copies of all
Governmental Authorizations, and all consents, approvals and
authorizations of, and notices to and other actions by, all
Persons with whom the Company, the Acquisition Subsidiary, or
any of their respective Subsidiaries has any contractual
obligations, as shall be required for the execution, delivery or
performance of this Agreement and the other Note Documents or
the consummation of the issuance and sale of the Notes or any of
the other transactions contemplated hereby or thereby.
13. Existing Indebtedness. Certified copies of
all of the agreements, instruments and other documents
evidencing or setting forth the terms and conditions of the
Indebtedness of the Company, the Acquisition Subsidiary and
their respective Subsidiaries existing on the Investment Date
and in an aggregate amount of at least $100,000 (all of which
Indebtedness is described on Schedule IV(U) attached hereto).
14. UCC Searches. Certified copies of requests
for copies or information on Form UCC-11, listing all effective
financing statements which name as debtor the Other Obligors,
the Company or the Acquisition Subsidiary, tax liens and
judgment liens, together with copies of such financing
statements, none of which, except as otherwise agreed to in
writing by Imprimis, shall cover any of the Collateral.
15. Foreign Qualifications. A certificate,
dated as of a date not more than 10 Business Days prior to the
Investment Date, of the appropriate official(s) of the states of
incorporation and each state of foreign qualification of the
Company, the Acquisition Subsidiary and their respective
Subsidiaries, certifying as to the subsistence in good standing
of, and the payment of taxes by, such Person in such states and
listing all charter documents of such Person on file with such
official(s);
16. Acquisition. A complete and accurate copy
of the agreements pursuant to which the Acquisition is being
consummated, together with such evidence of the completion of
the Acquisition as Imprimis shall reasonably request; and
17. Additional Documentation. Such other
information as Imprimis may reasonably request.
B. OPINIONS OF COUNSEL.
Imprimis shall have received the favorable opinions,
dated the Investment Date, of (a) Epstein Becker & Green, P.C., special
counsel for the Company, in substantially the form of Exhibit E-1
attached hereto or otherwise in form and substance satisfactory to
Imprimis, and addressing such other matters as Imprimis (or its counsel)
may reasonably request (and the Company hereby instructs its special
counsel to deliver such opinion to Imprimis), and (b) Jacob & Weingarten,
special counsel for the Company, in substantially the form of Exhibit E-2
attached hereto or otherwise in form and substance satis factory to
Imprimis, and addressing such other matters as Imprimis (or its counsel)
may reasonably request (and the Company hereby instructs its special
counsel to deliver such opinion to Imprimis).
C. PAYMENT OF ACCRUED FEES AND EXPENSES.
Without limiting the provisions of Section XII(A), accrued fees
and expenses incurred by the Investors in connection with the
transactions contemplated by this Agreement and the other Note Documents
(including, without limitation, the accrued fees and expenses of special
counsel to the Investors), in an amount up to $75,000, to be paid by the
Company on or prior to the Investment Date shall have been paid
D. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of each of the
Obligors contained in this Agreement and each of the other Note Documents
shall be complete and correct on the Investment Date, before and after
giving effect to the issue and sale of the Notes and to the application
of the proceeds therefrom as contemplated by Section IV(O)(1).
E. NO DEFAULT.
After giving effect to the issue and sale of the Notes
and to the application of the proceeds therefrom as contemplated by
Section IV(O)(1), no Default or Event of Default shall have occurred and
be continuing.
F. INVESTMENT PERMITTED BY APPLICABLE REQUIREMENTS OF LAW, ETC.
The purchase of and any payment for the Notes to be
purchased on the Investment Date (a) shall be permitted by the applicable
Requirements of Law of each jurisdiction to which such Investor is
subject, (b) shall not violate any applicable Requirements of Law
(including, without limitation, Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System) and (c) shall not subject such
Investor to any tax, penalty or other liability under or pursuant to any
applicable Requirements of Law.
G. NO LITIGATION OR OTHER PROCEEDINGS.
Except as disclosed in the SEC Reports or as described
on Schedule IV(H) attached hereto, there shall exist no action, suit,
investigation, litigation or proceeding pending or, to the best knowledge
of the Company, threatened against or affecting any of the Obligors or
any of their respective Subsidiaries or any of the property or assets
thereof in any court or before any arbitrator or by or before any other
Governmental Authority of any kind that (a) either individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect
or (b) challenges the legality, validity, binding effect or
enforceability of this Agreement or any of the other Note Documents or
the consummation of the sale and purchase of the Notes or any of the
other transactions contemplated hereby or thereby.
H. NO MATERIAL ADVERSE CHANGE.
Except as disclosed in the SEC Reports or as described
on Schedule IV(E)(2) attached hereto, since December 31, 1996, there
shall not have occurred (in the judgment of the Investors) a material
adverse change in the business, condition (financial or otherwise),
operations, results of operations, assets, property, liabilities or
prospects of the Company, the Acquisition Subsidiary or their respective
Subsidiaries.
IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the
Investors that as of the Investment Date:
A. ORGANIZATION; POWER AND AUTHORITY; CAPITALIZATION; WARRANTS.
The Company and each of its Subsidiaries are Persons
duly organized, validly existing and in good standing under the laws of
their respective jurisdictions of organization and are duly qualified as
foreign corporations or other entities and are in good standing in each
other jurisdiction in which the ownership, lease or operation of their
property and assets or the conduct of their businesses requires such
qualification, other than any such jurisdiction in which the failure to
be so qualified or in good standing, either individually or in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect. The Company and each of its Subsidiaries have all corporate and
other necessary power and authority, and the legal right, to own or to
hold under lease all of the property and assets they purport to own or
hold under lease and to conduct the business they conduct and propose to
conduct. Each of the Obligors has all corporate and other necessary power
and authority, and the legal right, to execute and deliver this
Agreement, the Notes and the other Note Documents to which it is or is to
be a party, to perform its Obligations hereunder and thereunder and to
consummate all of the transactions contemplated hereby and thereby,
including the Acquisition. On the Investment Date after giving effect to
the transactions contemplated hereunder to occur on the Investment Date,
the authorized Capital Stock of the Company, the Acquisition Subsidiary
and the Other Obligors will consist of the securities described in
Schedule IV(A) hereto, all of which, in the case of the Capital Stock of
the Acquisition Subsidiary and the Other Obligors, is owned beneficially
and of record by the Company. Except for the possible issuance of the
Preferred Stock and any shares of Common Stock pursuant to the Warrants
and as disclosed in the SEC Reports or as set forth on Schedule IV(A)
hereto, there are no other shares of Capital Stock of the Company, the
Acquisition Subsidiary or the Other Obligors outstanding and no other
outstanding options, warrants, convertible or exchangeable securities,
subscriptions, rights (including pre-emptive rights), stock appreciation
rights, calls or commitments of any character whatsoever to which either
the Company, the Acquisition Subsidiary or the Other Obligors is a party
or may be bound requiring the issuance or sale of shares of any Capital
Stock of the Company, the Acquisition Subsidiary or the Other Obligors,
and there are no contracts or other agreements by which any of the
Company is or may become bound to issue additional shares of its capital
stock or any options, warrants, convertible or exchangeable securities,
subscriptions, rights (including preemptive rights), stock appreciation
rights, calls or commitments of any character whatsoever relating to such
shares. The Company has authorized, subject to requisite shareholder
approvals, the issuance of (a) the Preferred Stock, (b) the Warrants, and
(c) such number of shares of Common Stock as shall be necessary to permit
the Company to comply with its obligations to issue Common Stock upon
exercise of the Warrants, and has duly reserved such number of shares of
Common Stock solely for such purpose. The Preferred Stock and the Common
Stock to be delivered upon exercise of the Warrants, in each case if and
when issued, will be duly authorized, issued and outstanding, fully-paid
and non-assessable and will be issued free of any preemptive rights.
After giving effect to the transactions contemplated hereby and in the
Note Documents and the issuance to the Investors of, and payment of
consideration for, the Preferred Stock and the Warrants, all of the
issued and outstanding Capital Stock of the Company is and will be
validly issued, fully paid and non-assessable and free of all liens,
pledges and preemptive rights. The Warrants, if and when issued, will
evidence the right to purchase a number of shares of Common Stock equal
to 40.25% of the outstanding Common Stock on a fully diluted basis as of
the date of their issuance, taking into account any and all antidilution
adjustments necessitated by the issuance of any securities under this
Agreement.
B. AUTHORIZATION, ENFORCEABILITY, ETC.
This Agreement and each of the other Note Documents
have been duly authorized by all necessary corporate action (including,
without limitation, all necessary shareholder action) on the part of each
of the Obligors intended to be a party thereto. This Agreement has been,
and the Notes and each of the other Note Documents, when delivered
hereunder, will have been, duly executed and delivered by each of the
Obligors intended to be a party thereto. This Agreement constitutes, and
the Notes and each of the other Note Documents, when delivered hereunder,
will constitute, the legal, valid and binding obligations of each of the
Obligors intended to be a party thereto, enforceable against such Obligor
in accordance with their respective terms, except as such enforceability
may be limited by the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally.
C. DISCLOSURE.
All of the information furnished by or on behalf of any
of the Obligors or any of their respective Subsidiaries in writing to the
Investors pursuant to or in connection with this Agreement or any of the
other Note Documents or any other document, certificate or other writing
furnished to the Investors in connection with the sale and purchase of
the Notes or any of the other transactions contemplated hereby is
complete and correct in all material respects as of the date on which
such information was so provided; and all such information does not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made therein, in light of
the circumstances under which any such statements were made, not
misleading. All financial projections and forecasts that have been
prepared by the Company or any of its Subsidiaries and made available to
the Investors have been prepared in good faith based upon reasonable
assumptions and represented, at the time each such financial projection
or forecast was delivered to the Investors, such company's best estimate
of its future financial performance (it being recognized by the Investors
that such financial projections or forecasts are not to be viewed as
facts and that the actual results during the period or periods covered by
any such financial projections or forecasts may differ materially from
the projected or forecasted results).
D. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES, ETC.
Schedule IV(D) attached hereto sets forth all of the
Subsidiaries of the Company as of the Investment Date, showing, as to
each such Subsidiary, the correct name thereof, the jurisdiction of its
organization and the percentage of shares of each class of its capital
stock or similar equity interests outstanding that are owned by the
applicable company and/or one or more of its Subsidiaries. All of the
outstanding shares of capital stock or similar equity interests of each
Subsidiary shown on Schedule IV(D) attached hereto have been validly
issued, are fully paid and nonassessable and are owned by such company
and/or one or more of its Subsidiaries, free and clear of all Liens.
E. SEC REPORTS
The Company has filed, pursuant to the Securities Act
or the Exchange Act, as the case may be, all material forms, statements,
reports and documents (including all exhibits, amendments and supplements
thereto) (the "SEC Reports) required to be filed with respect to the
business and operations of the Company under each of the Securities Act
and the Exchange Act, and the respective rules and regulations
thereunder, and all of the SEC Reports complied in all material respects
with all applicable requirements of the Securities Act or the Exchange
Act, as the case may be, and the appropriate act and the rules and
regulations thereunder in effect on the date each such report was filed.
At the respective dates they were filed, none of the SEC Reports
contained 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. The consolidated financial statements, including
the schedules and notes thereto, of the Company included in the SEC
Reports complied as to form in all material respects with the applicable
accounting requirements and the published rules and regulations of the
SEC with respect thereto, fairly present the consolidated financial
position, results of operations and cash flows of the Company as of the
dates or for the periods indicated therein, subject, in the case of the
unaudited statements, to normal year-end adjustments and the absence of
certain footnote disclosures. All of the consolidated financial
statements referred to above in this subsection, including the schedules
and notes thereto, have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the
respective periods covered thereby (except as may be indicated therein or
in the notes thereto).
F. FINANCIAL STATEMENTS.
1. The audited consolidated balance sheets of
the Company and its Subsidiaries as of December 31, 1995 and
December 31, 1996 and the related audited consolidated
statements of operations, stockholders' equity and cash flows of
the Company and their respective Subsidiaries for the Fiscal
Years ended December 31, 1995 and December 31, 1996, in each
case including the schedules and notes thereto and accompanied
by an opinion of Ernst & Young LLP, the independent accountants
of the Company, and the consolidated balance sheets of the
Company and its Subsidiaries as of September 30, 1997 and the
related consolidated statements of operations, stockholders'
equity and cash flows of the Company and its Subsidiaries for
the nine-month period then ended, duly certified by a Senior
Financial Officer of the Company, copies of all of which have
been furnished to the Investors, and fairly present (subject, in
the case of such balance sheet as of September 30, 1997 and such
statements of operations, stockholders' equity and cash flows
for the nine month period then ended, to normal year-end audit
adjustments and the inclusion of footnotes) the consolidated
financial condition of the Company and its Subsidiaries as at
such dates and the consolidated results of operations and cash
flows of the Company and its Subsidiaries for the respective
periods ended on such dates. All of the financial statements
referred to above in this subsection, including the schedules
and notes thereto, have been prepared in accordance with
generally accepted accounting principles applied consistently
throughout the respective periods covered thereby (except as may
be indicated therein or in the notes thereto).
2. Except as disclosed in the SEC Reports or
as set forth on Schedule IV(F)(2) attached hereto, since
December 31, 1996, there has been (i) no material adverse change
in the business, condition (financial or otherwise), operations,
results of operations, assets, property, liabilities or
prospects of the Company or its Subsidiaries, and (ii) no
development, event or circumstance relating to or affecting the
Company or any of its Subsidiaries that, either individually or
in the aggregate, has had or could reasonably be expected to
have a Material Adverse Effect, provided that no development,
event or circumstance set forth on Schedule IV(F)(2) has had or
could reasonably be expected to have a Material Adverse Effect
of the type described in clauses (b) or (c) of the definition
thereof.
3. There are no liabilities or obligations of
the Company or any of its Subsidiaries of any nature whatsoever
(whether absolute, contingent, accrued or otherwise and whether
or not due) that, either individually or in the aggregate, could
reasonably be expected to be material to the Company, either
individually or together with its Subsidiaries, in each case
except for those liabilities and obligations that are fully
disclosed in the unaudited consolidated financial statements of
the Company referred to in subsection (1) of this Section IV(F)
or on Schedule IV(F)(2) or IV(F)(3) attached hereto.
G. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.
The execution, delivery and performance by each of the
Obligors of each of the Note Documents to which it is or is to be a party
and the consummation of the sale and purchase of the Notes and the other
transactions contemplated hereby and thereby do not (a) contravene such
Obligor's certificate of incorporation or bylaws (or similar
organizational documents), (b) violate any Requirement of Law, (c)
conflict with or result in the breach of, or constitute a default under,
any loan or purchase agreement, indenture, mortgage, deed of trust,
lease, instrument, contract or other agreement binding on or affecting
such Obligor, any of its Subsidiaries or any of their respective property
or assets the violation or breach of which, either individually or in the
aggregate, could reasonable be expected to have a Material Adverse Effect
or (d) except for the Liens created under the Collateral Documents,
result in or require the creation or imposition of any Lien upon or with
respect to any of the property or assets of such Obligor or any of its
Subsidiaries. Neither of the Obligors nor any of their respective
Subsidiaries is in violation of any of the terms of its certificate of
incorporation or bylaws (or similar organizational documents) or any
Requirement of Law or in breach of any loan or purchase agreement,
indenture, mortgage, deed of trust, lease, instrument, contract or other
agreement referred to in the immediately preceding sentence, the
violation or breach of which, either individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.
H. GOVERNMENTAL AUTHORIZATIONS, ETC.
1. Except as disclosed in the SEC Reports, the
Company and, except as set forth on Schedule IV(H)(1), each of
its Subsidiaries and employees (i) own or possess all of the
Governmental Authorizations that are necessary to own or lease
and operate their respective property and assets and to conduct
their respective businesses as presently conducted, except where
and to the extent that the failure to obtain or maintain in
effect any such Governmental Authorization, either individually
or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect, and (ii) have not received any notice
relating to or threatening the revocation, termination,
cancellation, denial, impairment or modification of any such
Governmental Authorization, nor is the Company or any of its
Subsidiaries in violation or contravention of, or in default
under, any such Governmental Authorization.
2. Except for requisite shareholder approvals
and SEC approvals requisite in connection with the filing of
documents related thereto, no Governmental Authorization, and no
consent, approval or authorization of, or notice to, or other
action by, any other Person, is required for the due execution,
delivery, recordation, filing or performance by any of the
Obligors of this Agreement or any of the other Note Documents to
which it is or is to be a party, or for the consummation of the
sale and purchase of the Notes or any of the other transactions
contemplated hereby and thereby, except for such Governmental
Authorizations, and such consents, approvals, authorizations,
notices and other actions, as are described on Schedule IV(H)(2)
attached hereto, all of which have been obtained or made on or
prior to the Investment Date and are in full force and effect or
will be obtained or made in accordance with the terms of the
Note Documents and, thereafter, will be in full force and
effect.
I. LITIGATION.
Except as described on Schedule IV(I) attached hereto,
there is no action, suit, investigation, litigation or proceeding pending
or, to the best knowledge of the Company, threatened against or affecting
any of the Obligors or any of their respective Subsidiaries or any of the
property or assets thereof in any court or before any arbitrator or by or
before any other Governmental Authority of any kind that (a) either
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect or (b) challenges the legality, validity, binding
effect or enforceability of this Agreement or any of the other Note
Documents or the consummation of the sale and purchase of the Notes or
any of the other transactions contemplated hereby or thereby, including
the Acquisition.
J. TAXES.
1. Each of the Obligors and, except as set
forth on Schedule IV(J), each of their respective Subsidiaries,
have filed or caused to be filed all tax returns and reports
that are required to have been filed in any jurisdiction, and
have paid all taxes shown to be due and payable on such returns
and all taxes shown to be due and payable on any assessments of
which such Obligor or such Subsidiary, as the case may be, has
received notice and all other taxes, assessments, levies, fees
and other governmental charges imposed upon any of the Obligors
or any of their respective Subsidiaries, or their property,
assets, income or franchises, to the extent such taxes,
assessments, levies, fees and other charges have become due and
payable and before they have become delinquent, except for
taxes, assessments, levies, fees or other governmental charg-
es the amount, applicability or validity of which is being
contested in good faith and by appropriate proceedings
diligently conducted and with respect to which such Obligor or
such Subsidiary, as the case may be, has established reserves in
accordance with GAAP in effect from time to time.
2. As of the Investment Date, neither any of
the Obligors nor any of their respective Subsidiaries or
Affiliates has entered into an agreement or waiver or been
requested to enter into an agreement or waiver extending any
statute of limitations relating to the payment or collection of
taxes of any such Obligor or any such Subsidiary or Affiliate,
or is aware of any circumstances that would cause the taxable
years or other taxable periods of any of the Obligors or any of
their respective Subsidiaries or Affiliates not to be subject to
the normally applicable statute of limitations.
3. Neither the Company nor any of its
Subsidiaries is or at any time has been a member of an
affiliated, consolidated, combined or unitary group other than
such group of which the Company is the common parent (within the
meaning of Section 1504(a)(1) of the Internal Revenue Code).
4. None of the Obligors is an S corporation
with the meaning of Section 1361 of the Internal Revenue Code.
K. TITLE TO PROPERTY; LEASES.
The Obligors and each of their respective Subsidiaries
have good and sufficient title to, or a valid and enforceable leasehold
interest in, all of their respective property and assets that, either
individually or in the aggregate, are material, in each case free and
clear of all Liens other than the Liens expressly permitted under
Section VIII(B). All leases under which any of the Obligors or any of
their respective Subsidiaries are a lessor or a lessee are valid and
subsisting and are in full force and effect in all material respects.
L. SECURITY INTERESTS, ETC.
Each of the Collateral Documents create valid and
perfected first priority Liens on and security interests in the
Collateral (subject to Permitted Liens) in favor of Imprimis, securing
the payment of the Notes and all of the other Obligations of the Obligors
under or in respect of the Note Documents. All filings and other actions
necessary to perfect and protect such Liens and security interests have
been duly made or taken and are in full force and effect or will be duly
made or taken in accordance with the terms of the Note Documents; and all
filing and recording fees and taxes have been duly paid.
M. LICENSES, PERMITS, ETC.
1. The Company and, except as set forth on
Schedule IV(M)(1), each of its Subsidiaries and employees own or
possess all of the licenses, permits, franchises,
authorizations, consents and approvals, and own or have the
legal right to use all of the patents, copyrights, service
marks, trademarks and trade names (or other rights thereto),
that are necessary to own or lease and operate their respective
property and assets and to conduct their respective businesses
as presently conducted, without known conflict with the rights
of any other Person. Except as described on Part 1 of Schedule
IV(M) attached hereto, no action, suit, investigation,
litigation or proceeding of any Person is pending or, to the
best knowledge of the Company, is threatened challenging the use
of any such license, permit, franchise, authorization, consent,
approval, patent, copyright, service mark, trademark, trade name
or other right, or the validity or effectiveness thereof.
2. No product or service of the Company or,
except as set forth on Schedule IV(M)(2), any of its
Subsidiaries, materially infringes on any license, permit,
franchise, authorization, consent, approval, patent, copyright,
service mark, trademark, trade name or other right owned by any
other Person.
3. There is no material violation by any
Person of any right of the Company or, except as set forth on
Schedule IV(M)(3), any of its Subsidiaries, with respect to any
license, permit, franchise, authorization, consent, approval,
patent, copyright, service mark, trademark, trade name or other
right owned or used by the Company or, except as set forth on
Schedule IV(M)(3), any such Subsidiary.
N. ERISA.
1. The Company has not established, does not
maintain or sponsor, and is not required to contribute to any
ERISA Plan.
O. PRIVATE OFFERING BY THE COMPANY.
1. Neither the Company nor any Person acting
on their behalf has taken, or will take, any action that would
subject the issuance and sale of the Notes to the registration
requirements of Section 5 of the Securities Act.
2. Neither the Company nor any Person acting
on their behalf has directly or indirectly offered or sold the
Notes by any form of general solicitation or general
advertising, including, without limitation, any advertisement,
article, notice or other communication published in any
newspaper, magazine or similar media or any broadcast over
television or radio or any seminar or meeting whose attendees
have been invited by any form of general solicitation or general
advertising (within the meaning of Rule 502(c) of Regulation D
under the Securities Act).
P. USE OF PROCEEDS; MARGIN REGULATIONS.
1. The proceeds received from the sale of the
Notes will be used by the Company solely (i) to pay the
transaction costs and expenses incurred in connection with the
sale of the Notes as set forth in Schedule IV(P) hereof, (ii) to
complete the Acquisition, (iii) for working capital purposes of
the Acquisition Subsidiary and (iv) for general and
administrative expenses of the Company.
2. Neither the Company nor any of its
Subsidiaries is engaged in the business of extending credit for
the purpose of purchasing or carrying any "margin stock" (within
the meaning of Regulation G or U of the Board of Governors of
the Federal Reserve System (12 CFR 207)). No part of the
proceeds from the sale of the Notes will be used, directly or
indirectly, for the purpose of purchasing or carrying any
margin stock or for the purpose of purchasing, carrying or
trading in any securities under such circumstances as to involve
the Company in a violation of Regulation X of the Board of
Governors of the Federal Reserve System (12 CFR 224) or to
involve any broker or dealer in a violation of Regulation T of
the Board of Governors of the Federal Reserve System (12 CFR
220). Margin stock does not constitute more than 25% of the
value of the consolidated property and assets of the Company or
its Subsidiaries and the Company does not have any present
intention that margin stock will constitute more than 25% of the
value of such consolidated property and assets. None of the
transactions contemplated by this Agreement and the Note
Documents (including, without limitation, the direct and
indirect use of proceeds of the Notes) will violate or result in
a violation of the Securities Act or the Exchange Act or any of
the rules and regulations promulgated thereunder or in such
Regulation G, T, U or X, as applicable.
Q. STATUS UNDER CERTAIN STATUTES.
1. Neither the Company nor any of its
Subsidiaries is subject to regulation under the Investment
Company Act of 1940, as amended, the Public Utility Act of 1935,
as amended, or the Federal Power Act, as amended.
2. Neither the Company nor any of its
Subsidiaries is an "investment company", or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an
"investment company" (each as defined in the Investment Company
Act of 1940, as amended). Neither the sale and purchase of the
Notes nor the application of the proceeds therefrom or the
repayment thereof by the Company, nor the consummation of any
of the other transactions contemplated hereby, will violate any
provision of such Act or any rule, regulation or order of the
Securities and Exchange Commission thereunder.
3. Neither the Company nor any of its
Subsidiaries is a "holding company," or a "subsidiary company"
of a "holding company", or an "affiliate" of a "holding company"
or of a "subsidiary company" of a "holding company" (each within
the meaning of the Public Utility Holding Company Act of 1935,
as amended).
4. Neither the Company nor any of its
Subsidiaries is a "personal holding company" (as defined in
Section 542 of the Internal Revenue Code).
5. The Company and each of its Subsidiaries
are current with all reports and documents, if any, required to
be filed with any securities commission or similar agency of any
applicable jurisdiction and are in compliance with all
applicable rules and regulations of such commissions and
agencies.
R. SECURITIES ACT MATTERS.
Subject to the accuracy of the Investors'
representations in V(A) and (V)(B), the offer, sale and issuance of the
Notes, the Preferred Stock and the Warrants to the Investors as
contemplated by this Agreement and the issuance and delivery of the
shares of Common Stock upon exercise of the Warrants are and will be
exempt from the registration and prospectus delivery requirements of the
Securities Act.
S. EMPLOYEE AND LABOR MATTERS.
Except as set forth in Schedule IV(S), during the three
years preceding the Investment Date, there has been no strike, work
stoppage, slowdown or other material labor dispute or grievance involving
the Company or any of its Subsidiaries or their respective employees, nor
is any such action, dispute or grievance pending or to the knowledge of
the Company, after due inquiry, threatened against the Company or any of
its Subsidiaries as of the Investment Date. Except as set forth in
Schedule IV(S), as of the Investment Date, neither the Company nor any of
its Subsidiaries is a party to any collective bargaining agreement and
has no knowledge after due inquiry of any pending or threatened effort to
organize any of their employees. Except as set forth in Schedule IV(S),
there are no pending retaliatory or wrongful discharge claims or
employment discrimination charges or complaints or administrative or
judicial complaints arising therefrom pending against the Company or any
of its Subsidiaries or against any of their employees before any
Governmental Authority, which have had or could reasonably be expected to
have a Material Adverse Effect, nor to the knowledge of the Company after
due inquiry are any such charges or complaints threatened against the
Company or any of its Subsidiaries. The Company and its Subsidiaries are
in compliance with all applicable statutes and orders relating to the
employment of labor, including, without limitation, any provision thereof
relating to wages, bonuses, collective bargaining agreements, equal pay,
occupational safety and health, equal employment opportunity and wrongful
or retaliatory termination of employment, except for such noncompliance
as in the aggregate would not result in a Material Adverse Effect.
T. ENVIRONMENTAL MATTERS.
Except as described on Schedule IV(T) attached hereto:
1. The operations and properties (whether
owned or eased) of the Company and each of its Subsidiaries
comply in all material respects with all Environmental Laws and
Environmental Permits, and all necessary Environmental Permits
have been obtained and are in full force and effect for all of
the operations and properties of the Company and each such
Subsidiary. All past noncompliance with any such Environmental
Laws or Environmental Permits, if any, has been resolved without
ongoing material obligations or costs to the Company or any of
its Subsidiaries. To the best knowledge of the Company, no
circumstances exist that, either individually or in the
aggregate, could reasonably be expected (i) to form the basis of
an Environmental Action against the Company or any of its
Subsidiaries or any of their properties or (ii) to cause any
such property to be subject to any restrictions on ownership,
occupancy, use or transferability under any Environmental Law.
2. There is no asbestos or asbestos-containing
material On any property owned or operated by the Company or any
of its Subsidiaries in violation of applicable Environmental Law
that could reasonably be expected to give rise to liability
thereunder.
3. Neither the Company nor any of its
Subsidiaries is undertaking, nor has any of them completed,
either individually or together with other potentially
responsible parties, any investigation or assessment or remedial
or response action relating to any actual or threatened release,
discharge or disposal of Hazardous Materials at any site,
location or operation, either voluntarily or pursuant to the
order of any Governmental Authority or the requirements of any
Environmental Law; and all Hazardous Materials generated, used,
treated, handled or stored at, or released, discharged or
disposed of on, or transported to or from, any property owned or
operated by the Company or any of its Subsidiaries have been
disposed of in a manner that does not violate, and could not
reasonably be expected to give rise to liability under, any
applicable Environmental Law.
4. Neither the Company nor any of its
Subsidiaries has received any notice from any Governmental
Authority regarding any violation or alleged violation of,
noncompliance or alleged noncompliance with, or liability or
potential liability under or in respect of, any Environmental
Law or Environmental Permit by the Company or any such
Subsidiary, nor does the Company or any such Subsidiary have
knowledge or have any reason to believe that any such notice
will be received or is being threatened.
U. NO BURDENSOME AGREEMENTS.
Neither the Company nor any of its Subsidiaries is a
party to any loan or purchase agreement, indenture, mortgage, deed of
trust, lease, instrument, contract or other agreement or subject to any
Requirement of Law or any charter or corporate or other similar
restriction that, either individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
V. EXISTING INDEBTEDNESS; FUTURE LIENS.
1. The SEC Reports, together with Schedule
IV(V) attached hereto, set forth a complete and correct list of
all outstanding Indebtedness of the Company and each of its
Subsidiaries as of the Investment Date after giving effect to
the Acquisition and the maturity dates of all such Indebtedness.
Neither the Company nor any of its Subsidiaries is in default,
and no waiver of default is currently in effect, in the payment
of any principal of or interest on any Indebtedness of the
Company or any such Subsidiary, and no event or condition exists
with respect to any Indebtedness of the Company or any such
Subsidiary that would permit (or that with notice or the lapse
of time, or both, would permit) one or more Persons to cause
such Indebtedness to become due and payable, or would require an
offer to prepay, redeem, repurchase, purchase or defease such
Indebtedness to be made, in each case prior to its stated
maturity or its regularly scheduled dates of payment.
2. Neither the Company nor any of its
Subsidiaries has agreed or consented to cause or permit in the
future (upon the happening of a contingency or otherwise) any of
its property or assets, whether now owned or hereafter acquired,
to be subject to a Lien not expressly permitted under Section
VIII(B).
W. SOLVENCY.
The Company is and the Company and its Subsidiaries,
taken as a whole, are, and upon giving effect to the issuance and sale of
all of the Notes and the other transactions contemplated hereby,
including the Acquisition, will be, Solvent.
X. RELATED PARTY TRANSACTIONS.
Except as set forth in the SEC Reports:
1. no officer or director of the Company or
any of its subsidiaries and no member of the immediate family of
any officer or director thereof is indebted to the Company or
any of its Subsidiaries in any amount, nor is the Company or any
of its Subsidiaries indebted to (or committed to make loans or
extend or guarantee credit to or otherwise to make Investments
in) any of them;
2. to the best knowledge of the Company,
neither any officer or director of any of the Company or any
of its Subsidiaries nor any member of the immediate family of
any officer or director thereof has any direct or indirect
ownership or profit interest in any corporation or other entity
with which the Company or any of its Subsidiaries is affiliated
or with which the Company or any of its Subsidiaries has an
ongoing business relationship, or in any corporation or other
entity that competes with the Company or any of its
Subsidiaries, that exceeds 1% of the aggregate ownership and
profit interests therein; and
3. no officer or director of the Company or
any of its Subsidiaries and no member of the immediate family of
any officer or director thereof has any direct or indirect
financial interest in any material contract of the Company or
any of its Subsidiaries.
Y. MATERIAL CONTRACTS.
1. Except for the agreements, contracts,
plans, leases, arrangements and commitments set forth in the SEC
Reports or in Schedule IV(Y) attached hereto, neither the
Company nor any of its Subsidiaries is a party or subject to any
agreement, contract, plan, lease, arrangement or commitment that
(i) is material to the business, condition (financial or
otherwise), operations, results of operations, assets, property
or liabilities of the Company and its Subsidiaries, taken as a
whole, (ii) provides for the purchase in excess of $100,000 of
materials, supplies, goods, services, equipment or other
property or assets, except in the ordinary course of business,
(iii) involves any partnership, joint venture or other similar
arrangement or (iv) restricts the Company or any of its
Subsidiaries from engaging in or competing in any line of
business, with any Person or, except for limitations in standard
contracts, forms of which have been furnished to the Investors,
in any geographic area.
2. Each agreement, contract, plan, lease,
arrangement and commitment disclosed or required to be disclosed
pursuant to clause (1) of this Section IV(X) is the legal, valid
and binding obligation of the Company or its applicable
Subsidiary, enforceable against the Company or such Subsidiary
in accordance with its terms, and is in full force and effect;
and neither Company nor any of its Subsidiaries or, to the best
knowledge of the Company, any other party thereto is in
default in any material respect under the terms of any such
agreement, contract, plan, lease, arrangement or commitment.
Z. PARI PASSU OBLIGATIONS.
The Obligations for the payment of money of the Company
under this Agreement and the other Note Documents rank senior in right of
payment to all other Obligations for the payment of money of the Company
other than the outstanding Indebtedness of or to be assumed, in connec-
tion with the Acquisition, by the Company described on Schedule IV(Z)
attached hereto and any purchase money Indebtedness of the Company
incurred pursuant to Section VIII(C)(3). The Obligations for the payment
of money of the Company under this Agreement and the other Note Docu-
ments rank at least pari passu in right of payment with all outstanding
Indebtedness of the Company described on Schedule IV(Z) attached hereto
and all purchase money Indebtedness of the Company incurred pursuant to
Section VIII(C)(3).
AA. NO SIGNIFICANT SUBSIDIARIES.
Except as set forth on Schedule IV(AA), none of the
Subsidiaries of the Company is a "significant subsidiary" within the
meaning of Regulation S-X promulgated by the Securities and Exchange
Commission under the Securities Act.
AB. NO POWER OF ATTORNEY.
Neither the Company nor any of its Subsidiaries has
granted a power of attorney to any Person that would allow such Person to
sign or file any financing statement, mortgage, indenture, document,
agreement or other instrument that grants or creates a Lien on any
Collateral or any of the Company' or its Subsidiaries' assets.
V. REPRESENTATIONS AND COVENANTS OF THE INVESTORS.
A. PURCHASE FOR INVESTMENT.
You represent that you are purchasing the Notes for
your own account or for one or more separate accounts maintained by you,
in each case for investment and not with a view to the distribution
thereof or with any present intention of distributing or selling the
Notes; provided that the disposition of your property shall at all times
be within your control.
B. ACCREDITED INVESTORS.
You are an "accredited investor" (as defined in Rule
501 of Regulation D under the Securities Act) and by reason of your
business and financial experience, and the business and financial
experience of those Persons retained to advise you with respect to your
investment in the Notes and the Warrants, and you, together with such
advisors, have such knowledge, sophistication and experience in financial
and business matters as to be capable of evaluating the merits and risks
of the prospective investment, and are able to bear the economic risk of
such investment and, at the present time, are able to afford a complete
loss of such investment.
You have had the opportunity to ask questions of and
receive answers from the Company concerning the terms and conditions of
the Notes and other related matters. You further acknowledge that the
Company has made available to you or your representatives all documents
and information relating to an investment in the Notes requested by or on
behalf of you.
C. POWER AND AUTHORITY.
You confirm that you have the legal right and power and
all authority required to execute and deliver and to carry out the terms
of this Agreement and all other documents or instruments required hereby
to which you are a party.
VI. PREPAYMENTS AND REDEMPTIONS OF THE NOTES.
A. OPTIONAL PREPAYMENTS OF THE NOTES.
The Company may, at their option, upon not less than
five Business Days' prior written notice to the holders of the Notes,
prepay all or any part of the Notes, in an aggregate principal amount of
$100,000 (or, if less, the remaining aggregate principal amount of all
Notes outstanding at such time), at a purchase price in cash equal to
100% of the aggregate principal amount of the Notes so prepaid, plus all
accrued and unpaid interest thereon, if any, to the date of such
prepayment. Each notice of an optional prepayment of the Notes pursuant
to this Section VI(A) shall specify the date fixed for such prepayment,
the aggregate principal amount of the Notes to be prepaid on such date,
the principal amount of each Note held by such holder to be prepaid
(determined in accordance with Section VI(D)) and the interest to be paid
on the prepayment date with respect to such principal amount being
prepaid, and shall state that such prepayment is to be made pursuant to
this Section VI(A).
B. OFFER TO REPURCHASE NOTES AND REDUCE COMMITMENTS IN RESPECT OF A
CHANGE OF CONTROL.
1. Upon the occurrence of a Change of Control,
each holder of the Notes will have the right to require the
Company to repurchase all or any portion of the Notes of such
holder pursuant to an offer made in the manner described below
(each, a "Change of Control Offer"), at a purchase price in cash
equal to 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest thereon, if any, to the date of such
repurchase (the "Change of Control Payment"). Within three
Business Days following any Change of Control, the Company shall
deliver a notice, by facsimile confirmed the same day by
overnight courier service, to each holder of the Notes stating:
a. that the Change of Control
Offer is being made pursuant to this Section VI(B)
and that all Notes tendered shall be accepted
for repurchase;
b. the parties, and the events or
circumstances giving rise, to the Change of
Control for which such Change of Control Offer
is being made, in reasonable detail;
c. the repurchase price for the
Note or Notes of such holder and the Change of
Control Repurchase Date therefor;
d. that any Note not tendered for
repurchase shall continue to accrue interest
in accordance with the terms thereof;
e. that, unless the Company defaults
in the payment of the Change of Control Payment, all
Notes accepted for repurchase pursuant to the Change of
Control Offer shall cease to accrue interest after the
Change of Control Repurchase Date; and
f. that holders whose Notes are being
tendered for repurchase only in part shall be issued
new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection with
the repurchase of the Notes as a result of a Change of Control. Any
holder of the Notes that elects to have all or a portion of its Notes
repurchased as part of the Change of Control Offer shall deliver notice
to the Company of its election at least five Business Days prior to the
scheduled Change of Control Repurchase Date. Any holder of a Note that
does not deliver to the Company notice accepting the Change of Control
Offer at least three Business Days prior to the Change of Control
Repurchase Date shall be deemed to have rejected such Change of Control
Offer. Notwithstanding the foregoing provisions of this Section VI(B)(1),
the failure of the Company to deliver the notice referred to in the third
sentence of this Section VI(B)(1) to any holder of the Notes shall not
affect or impair the obligation of the Company to purchase any Note from
such holder on the applicable Change of Control Repurchase Date.
2. On a date that is no earlier than 30 days
nor later than 60 days from the date that the Company deliver or
cause to be delivered notice of the Change of Control to the
holders or, if the Company fail to deliver such notice or cause
such notice to be delivered, on the date that is 30 days after
the occurrence of such Change of Control (the "Change of Control
Repurchase Date"), the Company (i) shall, to the extent lawful,
accept for repurchase all Notes or portions thereof properly
tendered in response to the Change of Control Offer, (ii) shall
pay to each of the holders of the Notes so accepted the Change
of Control Payment for its Notes and (iii) shall deliver to each
holder of Notes that only tendered a portion of its Notes new
Notes equal in aggregate principal amount to the unpurchased
portion of the Notes surrendered, if any, by such holder.
C. MANDATORY REDEMPTIONS OF THE NOTES.
1. Upon receipt by any of the Company or any
of its Subsidiaries of the Net Cash Proceeds from (i) the
issuance or incurrence by the Company or any of its Subsidiaries
of any Indebtedness (other than Indebtedness issued or incurred
pursuant to any of Sections VIII(C)(3) through VIII(C)(8) and
(ii) the sale or issuance by such Company or any of its
Subsidiaries of any shares of its capital stock (or other
ownership or profit interests therein) (other than any such sale
or issuance arising pursuant to those option and incentive
plans as in effect on the Investment Date and set forth on Part
2 of Schedule IV(A) attached hereto), any securities convertible
into or exchangeable for shares of its capital stock (or other
ownership or profit interests therein) or any warrants,
options or other rights for the purchase or acquisition of any
shares of its capital stock (or other ownership or profit
interests therein), the Company shall redeem outstanding Notes
in an amount equal to the lesser of (1) 100% of the aggregate
principal amount of all Notes outstanding on the date of such
redemption and (2) the amount of such Net Cash Proceeds, in
either case plus all accrued and unpaid interest on the
principal amount of the Notes so redeemed to the date of such
redemption and all fees, expenses and other payments due and
payable to the holders of the Notes under the Note Documents on
such date, provided, however, that the obligation pursuant to
subsection (ii) of this paragraph shall not arise from the sale
or issuance by the Company of capital stock pursuant to the
exercise of stock options or warrants (the "Existing Rights
Securities") issued under the warrant agreements and stock
option plans (the "Existing Rights Agreements") disclosed in the
SEC Reports for so long as the aggregate Net Cash Proceeds
received by the Company as a result of such issuances is less
than $500,000 and provided, further, that the terms of the
Existing Rights Securities, including the exercise or conversion
prices thereof, and the Existing Rights Agreements have not been
amended since the date on which they were issued.
2. Upon receipt by the Company or any of its
Subsidiaries of Net Cash Proceeds from any Asset Sale (other
than Asset Sales effected in the ordinary course of the
Company's or the applicable Subsidiary's business consistent
with past practice), the Company shall redeem outstanding Notes
in an amount equal to the lesser of (i) 100% of the aggregate
principal amount of all Notes outstanding on the date of such
redemption and (ii) the amount of such Net Cash Proceeds, in
either case plus all accrued and unpaid interest on the
principal amount of the Notes so redeemed to the date of such
redemption and all fees, expenses and other payments due and
payable to the holders of the Notes under the Note Documents on
such date.
D. ALLOCATION OF PARTIAL PREPAYMENTS.
In the case of each partial prepayment, repurchase or
redemption of the Notes pursuant to Section VI(A), VI(B), or VI(C), the
principal amount of the Notes to be prepaid, repurchased or redeemed
shall be allocated (in integral multiples of $1,000) among all of the
Notes at the time outstanding in proportion, as nearly as practicable, to
the respective unpaid principal amounts thereof not theretofore called
for prepayment, repurchase or redemption, with adjustments to the extent
practicable to compensate for any prior prepayments, repurchases or
redemptions not made exactly in such proportion.
E. MATURITY; SURRENDER, ETC.
In the case of each prepayment, repurchase or
redemption of the Notes pursuant to Section VI(A), VI(B) or VI(C), the
principal amount of each Note to be pre-paid, repurchased or redeemed
shall mature and become due and payable on the date fixed for such
prepayment, repurchase or redemption, together with accrued and unpaid
interest on such principal amount to such date. From and after such date,
unless the Company shall fail to pay such principal amount when so due
and payable, together with the accrued and unpaid interest thereon as
aforesaid, interest on such principal amount shall cease to accrue. Any
Note prepaid, redeemed or repurchased in full shall be surrendered to an
authorized representative of the Company and canceled and shall not be
reissued, and no Note shall be issued in lieu of any prepaid, repurchased
or redeemed principal amount of any Note.
F. CANCELLATION OF NOTES.
The Company will promptly cancel all Notes acquired by
it pursuant to any payment, prepayment or purchase of Notes in accordance
with the terms of this Agreement and the Notes, and no Notes may be
issued in substitution or exchange for any such Notes.
G. PAYMENT OF TRANSACTION FEE.
Simultaneously with the repayment or prepayment in full
of the Notes, the Company will pay to Imprimis a transaction fee of
$25,000.
VII. AFFIRMATIVE COVENANTS.
From the date of this Agreement and, thereafter, so
long as any of the Notes shall be outstanding, the Company will at all
times perform and comply, and will cause each of its Subsidiaries to
perform and comply, with each of the following covenants:
A. SHAREHOLDER APPROVAL.
1. The Company shall, as soon as possible, but no later
than 30 days after the Investment Date and in accordance with its
certificate of incorporation, by-laws, the applicable rules of the
National Association of Securities Dealers, Inc. and the Nasdaq Stock
Market ("NASDAQ"), and any Requirements of Law, seek to obtain any and
all requisite shareholder approvals of the issuance of Common Stock of
the Company pursuant to the Warrants and provide evidence reasonably
satisfactory to the Investors that such approvals have been obtained. The
Company shall submit to the Investors for their prior approval copies of
the resolutions or written consents under which shareholders pursuant to
which the shareholders will evidence such approval and any and all other
documents to be sent to shareholders in connection with seeking such
approval.
2. In the event that the Company shall fail to receive
the shareholder approvals or to provide to the Investors satisfactory
evidence thereof as contemplated by Section VII(A)(1), in either case on
or prior to January 31, 1998, in addition to Imprimis' right to demand
immediate repayment of the principal amount of the Notes, together with
accrued but unpaid interest, as provided in Article IX, and in addition
to the Preferred Stock and the Warrants to be acquired pursuant to
Article II, the Company shall issue on January 31, 1998 to Imprimis
pursuant to documentation reasonably acceptable to Imprimis five year
nonredeemable warrants to purchase 250,000 shares of Common Stock with
(A) an exercise price per share equal to $1 and 11/16 (the closing price
for the Common Stock on NASDAQ on December 18, 1997), subject to
customary antidilution adjustment for economic or other dilution, and (B)
immediate demand registration rights relating to the Common Stock
issuable pursuant to such warrants.
B. INFORMATION COVENANTS.
The Company will furnish to each holder of the Notes:
1. Copies of each SEC Report filed by the
Company within three days of such a filing including, if
applicable, the consolidated financial statements of the Company
and its Subsidiaries filed with any such SEC Report and an
opinion of Ernst & Young LLP or such other accountants, as the
case may be, (i) to the effect that such consolidated finan-
cial statements have been prepared in accordance with generally
accepted accounting principles in effect for the Fiscal Year
covered thereby and consistently applied and (ii) that is not
limited as to the scope of the audit; and
2. Compliance Certificate. At the time of
delivery of the consolidated financial statements of the Company
and its Subsidiaries provided for in Sections VII(B)(1), a
compliance certificate of the Company, in substantially the form
of Exhibit E hereto, duly certified by a Senior Financial
Officer thereof, (i) stating that, to the best of such Senior
Financial Officer's knowledge after due inquiry, no Default or
Event of Default has occurred and is continuing or, if a Default
or an Event of Default has occurred and is continuing, a
statement as to the nature thereof and the action that the
Company have taken and propose to take with respect thereto, and
(ii) setting forth a description in reasonable detail of all of
the changes, if any, from GAAP in the generally accepted
accounting principles applied in the preparation of such
financial statements.
3. Auditor's Reports. Promptly upon receipt
thereof, copies of all "management letters" or other written
reports submitted to the Company or any of its Subsidiaries by
Ernst & Young LLP or any other independent accountants of the
Company or any of its Subsidiaries in connection with each
annual, interim or special audit of its financial statements
made by such accountants (including, without limitation, any
comment letter submitted by such accountants to management of
the Company or any such Subsidiary in connection with their
annual audit and any reports addressing internal accounting
controls of the Company or any such Subsidiary submitted by such
accountants), and all responses of the management of the
Company or such Subsidiary thereto.
4. SEC and Other Reports. Promptly upon
transmission or receipt thereof, (a) copies of any filings and
registrations with, and any reports or notices to or from, the
Securities and Exchange Commission or any successor agency
thereto, and copies of all financial statements, proxy
statements, notices and reports that the Company or any of its
Subsidiaries shall send to any holder of Indebtedness owed by
the Company or any of its Subsidiaries pursuant to the terms of
the documentation governing such Indebtedness or to any trustee,
agent or other representative therefor and (b) copies of all
press releases and other statements made available by the
Company or any of its Subsidiaries to the public.
5. Notice of Default, Etc. Promptly, and in
any event within three Business Days after a Responsible Officer
obtains actual knowledge thereof, notice of the occurrence of
(a) each Default or Event of Default, or any event, development
or occurrence that, either individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect,
setting forth in reasonable detail the nature of such Default or
Event of Default or event, development or occurrence and the
action that the Company have taken and propose to take with
respect thereto, (b) any actual or threatened revocation,
termination, cancellation, denial or impairment of, or refusal
to renew or extend, or modification or other change to, any
Governmental Authorization necessary or desirable for the
Company or any of its Subsidiaries to own or lease and operate
their respective property and assets or to conduct their
respective businesses as conducted or as proposed to be
conducted and (c) a Change of Control or any change in the
members of the board of directors of, or any material change in
the management of, the Company or any of its Subsidiaries.
6. Litigation. Promptly after the commencement
thereof, notice of all actions, suits, investigations,
litigations and proceedings of the types described in Section
IV(I) in any court or before any arbitrator or by or before any
Governmental Authority of any kind binding upon or affecting the
Company or any of the Subsidiaries or any of their respective
property or assets.
7. Environmental Matters. Promptly and in any
event within three Business Days after a Responsible Officer of
the Company obtains knowledge thereof, notice of the occurrence
of one or more of the following:
a. any pending or threatened Envi-
ronmental Action against the Company or any of
its Subsidiaries or any of the property owned
or operated by the Company or any such Subsid-
iary;
b. any condition or occurrence on or
arising from any property owned or operated by the
Company or any of its Subsidiaries that (i) results or
is alleged to have resulted in noncompliance by the
Company or any such Subsidiary with any applicable
Environmental Law or (ii) could reasonably be expected
to form the basis of an Environmental Action against
the Company or any such Subsidiary or any of their
respective property; and
c. the taking of any removal or
remedial action in response to the actual or alleged
presence of any Hazardous Material on any property
owned or operated by the Company or any of its
Subsidiaries as required by any Environmental Law, any
Environmental Permit or any Governmental Authority.
All such notices shall describe in reasonable detail
the nature of the claim, investigation, condition, occurrence, removal or
remedial action and the Company's or such Subsidiary's response thereto.
In addition, the Company will provide you with copies of all reports,
notices and written information to and from the United States
Environmental Protection Agency or any state or local agency responsible
for environmental matters, all communications with any Person (other than
its attorneys) relating to any Environmental Action of which notice is
required to be given pursuant to this subsection (k), and such detailed
reports of any such Environmental Action as the Required Holders may from
time to time reasonably request.
8. Insurance Compliance Certificate. Within 20
days after the end of each Fiscal Year, the Company shall
furnish a compliance certificate by the Company, duly certified
by a Senior Financial Officer thereof, stating that the Company
and its Subsidiaries have in full force and effect insurance
coverage with reputable insurers which, in respect of, amounts,
premiums, types and risks insured, constitutes adequate coverage
against all risks customarily insured against by companies
comparable to the Company and its Subsidiaries.
9. Indebtedness Documents. Promptly after the
occurrence thereof or the request therefor, copies of any
amendment, waiver or other modification of the terms of any of
the Indebtedness of the Company or any of its Subsidiaries and
outstanding in an aggregate amount of at least $100,000, or any
notice of default delivered thereunder.
10. Acquisitions. Promptly after the
occurrence thereof in the case of material acquisitions, or upon
request therefor in the case of non-material acquisitions,
copies of all documents executed in connection with any such
acquisition by the Company or any of its Subsidiaries or
prepared by the Company in connection with such acquisition.
11. Requested Information. With reasonable
promptness, such other information and documents relating to the
condition (financial or otherwise), business, operations,
results of operations, performance, property, assets or
liabilities of the Company or any of its Subsidiaries as may
from time to time be reasonably requested by the Required
Holders.
C. COMPLIANCE WITH LAW.
1. The Company will and will use its best
efforts to cause each of its Subsidiaries to (a) comply with all
Requirements of Law to which each of them and their respective
property and assets are subject and all applicable restrictions
imposed on each of them and their property and assets by any
Governmental Authority (including, without limitation, ERISA and
all Environmental Laws), and (b) except as provided in Section
VII(G), obtain and maintain in effect all Governmental
Authorizations that are necessary (i) to own or lease and
operate their respective property and assets and to conduct
their respective businesses as presently conducted, except where
and to the extent that the failure to obtain or maintain in
effect any such Governmental Authorization, either individually
or in the aggregate, could not reasonably be expected to have
a Material Adverse Effect, or (ii) for the due execution,
delivery, recordation, filing or performance by any of the
Obligors of this Agreement or any of the other Note Documents to
which it is or is to be a party, or for the consummation of the
sale and purchase of the Notes or any of the other transactions
contemplated hereby and thereby, including the Acquisition,
except for such Governmental Authorizations as are described
on Schedule IV(H) attached hereto, all of which will be obtained
or made in accordance with the terms of the Note Documents and,
thereafter, will be in full force and effect.
2. Neither the Company nor any of its
Subsidiaries will generate, use, treat, store, release or
dispose of, or permit the generation, use, treatment, storage,
release or disposal of Hazardous Materials on any property now
or hereafter owned or operated by the Company or any such
Subsidiary, or transport or permit the transportation of
Hazardous Materials to or from any such property, except for
Hazardous Materials used or stored at any such property in
compliance with all applicable Environmental Laws and
Environmental Permits and reasonably required in connection with
the operation, use and maintenance of any such property in the
ordinary course of the Company's or any such Subsidiary's
business.
D. MAINTENANCE OF INSURANCE.
The Company will and will cause each of its
Subsidiaries to maintain insurance with respect to their respective
properties, assets and businesses with insurers that have, or that have
directly reinsured such insurance with insurers that have, an A.M. Best
Company claims paying ability rating of "A-" (or the then equivalent
rating) and against such casualties and contingencies, of such types, on
such terms and in such amounts (including deductibles, co-insurance and
self-insurance, if adequate reserves are maintained with respect thereto)
as is customary in the case of companies of established reputations
engaged in the same or a similar business and similarly situated, as may
otherwise be required by applicable Requirements of Law or by the
Collateral Documents or as may otherwise be reasonably required by the
Required Holders, including, without limitation, workers' compensation
insurance, liability insurance, casualty insurance and business
interruption insurance.
E. MAINTENANCE OF PROPERTIES.
The Company will and will use its best efforts to cause
each of its Subsidiaries to maintain and keep their respective properties
and assets in good repair, working order and condition (other than as a
result of ordinary wear and tear or casualty and condemnation).
F. PAYMENT OF TAXES AND CLAIMS; PERFORMANCE OF MATERIAL OBLIGATIONS.
1. The Company will and will cause each of its
Subsidiaries to pay and discharge all taxes, assessments,
levies, fees and other governmental charges imposed upon them or
any of their properties, assets, income or franchises, to the
extent such taxes, assessments, levies, fees and other
governmental charges have become due and payable and before they
have become delinquent, and all claims for which sums have
become due and payable that have resulted or could result in a
Lien upon any of the property or assets of the Company or any of
its Subsidiaries; provided, however, that neither the Company
nor any of its Subsidiaries shall be required to pay or to
discharge any such tax, assessment, levy, fee, other charge or
claim the amount, applicability or validity of which is being
contested in good faith and by appropriate proceedings
diligently conducted and with respect to which the Company or
such Subsidiary, as the case may be, has established reserves in
accordance with generally accepted accounting principles in
effect from time to time, unless and until any Lien resulting
therefrom attaches to its property and assets and becomes
enforceable by its other creditors, and only for so long as the
failure to pay or to discharge any such tax, assessment, levy,
fee, other charge or claim, either individually or in the
aggregate, could not reasonably be expected to have a Material
Adverse Effect.
2. The Company will and will cause each of its
Subsidiaries to perform all of its obligations under the terms
of each loan or purchase agreement, indenture, mortgage, deed of
trust, lease, instrument, contract and other agreement binding
on or affecting it, except where the failure to so perform,
either individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
G. PRESERVATION OF CORPORATE EXISTENCE, ETC.
1. The Company will preserve and keep in full
force and effect its corporate existence, good standing and
rights in the state of Delaware. The Company will preserve and
keep in full force and effect the corporate existence and good
standing of each of its Subsidiaries and all permits, licenses,
approvals, rights, privileges and franchises of the Company and
its Subsidiaries; provided, however, that the Company or any of
its Subsidiaries may consummate any merger, consolidation,
liquidation, dissolution or winding up otherwise permitted under
Section VIII(F); and provided further, however, that nothing in
Section VII(C) or in this sentence of Section VII(G)(1) shall
prevent the Company or any of its Subsidiaries from terminating
or failing to preserve and keep in full force and effect any
such permit, license, approval, right, privilege or franchise if
such applicable company has determined in its good faith
judgment that such termination or failure to preserve, either
individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
2. The Company will and will cause each of its
Subsidiaries to duly qualify and to remain duly qualified as a
foreign corporation or other entity, and to be and remain in
good standing, in each jurisdiction in which the ownership,
lease or operation of its property and assets or the conduct of
its businesses requires such qualification, except in any such
jurisdiction in which the failure to be so qualified or in good
standing, either individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
H. MAINTENANCE OF BOOKS AND RECORDS; INSPECTION; CONFIDENTIALITY.
1. The Company will and will cause each of its
Subsidiaries to keep proper records and books of account in
which complete, correct and reasonably detailed entries shall be
made of all financial transactions and of all of the property,
assets and businesses of the Company and each such Subsidiary
(including, without limitation, the establishment and
maintenance of adequate and appropriate reserves) in
conformity with generally accepted accounting principles in
effect from time to time and all Requirements of Law. The
Company will mark all of its books and records relating to the
Collateral (including, without limitation, its share register)
in such a manner as to properly evidence the Collateral
Documents and the Liens and security interests created
thereunder.
2. The Company shall and shall cause each of
its Subsidiaries to permit the Investors and any of the agents
or representatives thereof, upon reasonable notice, during
normal business hours and at the expense of the Company, at any
time and from time to time to visit and inspect any of the
offices or properties of, and to examine and make copies of and
abstracts from the records and books of account of, the Company
and/or any of its Subsidiaries, and to discuss the affairs,
finances and accounts of the Company and/or any such Subsidiary,
as the case may be, with, and be advised as to the same by,
their officers, directors and independent accountants (and, by
this Subsection (2), the Company authorizes each such officer,
director and independent accountant to discuss the affairs,
finances and accounts of the Company and its Subsidiaries with
such Person).
3. Except to the extent required by law, the
Investors will keep secret and confidential
all non-public information concerning the Company and its
Subsidiaries and will not, based upon such non-public
information, purchase or otherwise acquire (or enter into any
agreement or make any proposal to purchase or otherwise acquire)
any securities of the Company, any warrant or option to purchase
such securities, any security convertible into any such
securities or any other right to acquire such securities, or
sell or otherwise deal in any such securities (or facilitate or
encourage the trading of any such securities by any other
person), for so long as such purchase, sale or other dealing
would be prohibited under the applicable securities laws.
I. USE OF PROCEEDS.
The Company will use the proceeds of the sale and
purchase of the Notes solely for the purposes set forth in Section
IV(P)(1).
J. SEARCH REPORTS.
The Company will, as promptly as practicable after the
Investment Date but not later than 30 days after the Investment Date,
deliver to the Investors completed requests for information listing the
financing statements referred to in Section III(A)(3)(a) and all other
effective financing statements filed in the jurisdictions referred to in
Section III(A)(3)(a) that name the Company or any of its Subsidiaries as
debtor, together with copies of such other financing statements.
VIII. NEGATIVE COVENANTS.
From the date of this Agreement and, thereafter, so
long as any of the Notes shall be outstanding, the Company will perform
and comply, and will cause each of its Subsidiaries to perform and
comply, at all times with each of the following covenants:
A. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES.
The Company will not and will not permit any of its
Subsidiaries to directly or indirectly enter into, renew, extend or
engage in any transaction or series of related transactions (including,
without limitation, the purchase, sale, lease, transfer or exchange of
property or assets of any kind or the rendering of services of any kind)
with any of its Affiliates, except upon fair and reasonable terms no less
favorable to the Company or such Subsidiary than would be obtainable in a
comparable arm's-length transaction with a Person not an Affiliate
thereof; provided that the foregoing restrictions of this Section VIII(A)
shall not apply to:
1. any transaction or series of related
transactions solely between the Company and one or more of its
Subsidiaries or between or among Subsidiaries of the Company, to
the extent such transactions or series of related transactions
are otherwise permitted under the terms of the Note Documents;
2. transactions otherwise permitted
under Section VIII(E); and
3. the payment of reasonable and custom-
ary director fees to directors of the Company that
are not employees thereof.
B. LIMITATIONS ON LIENS.
1. The Company will not and will not permit
any of its Subsidiaries to create, incur, assume or suffer to
exist any Lien on or with respect to any of its property or
assets of any character, whether now owned or hereafter
acquired, to file or suffer to exist under the Uniform
Commercial Code or any similar law or statute of any
jurisdiction, a financing statement (or the equivalent thereof)
that names the Company or any of its Subsidiaries as debtor, to
sign or suffer to exist any security agreement authorizing any
secured party thereunder to file such financing statement (or
the equivalent thereof), to sell any of its property or assets
subject to an understanding or agreement, contingent or
otherwise, to repurchase such property or assets (including
sales of accounts receivable with recourse to the Company or any
of its Subsidiaries), or to assign any accounts or other right
to receive income; excluding, however, from the operation of the
foregoing restrictions of this Section VIII(B) the following:
a. Permitted Liens;
b. Liens in favor of Imprimis cre-
ated under the Collateral Documents;
c. Liens existing on the date of
this Agreement and described in Schedule
VIII(B) attached hereto;
d. purchase money Liens upon or in
property or assets acquired or held by the Company or
any of its Subsidiaries in the ordinary course of
business to secure the purchase price of any such
property or asset or to secure Indebtedness incurred
solely for the purpose of financing the acquisition,
construction or improvement of such property or asset
to be subject to such Liens, or Liens existing on any
such property or asset at the time of or within 90 days
after the date of its acquisition (other than any
such Liens created in contemplation of such acquisition
that do not secure the purchase price of such property
or asset); provided, however, that no such Lien shall
extend to or cover any property or assets other than
the property or asset being so acquired, constructed or
improved; and provided, however, that the aggregate
principal amount of Indebtedness secured by Liens
permitted under this clause (d) shall not exceed the
lesser of (i) the cost to the applicable Company or the
applicable Subsidiary of the property or asset to be
subject to any such Lien and (ii) the amount otherwise
permitted to be incurred therefor under the terms of
this Agreement;
e. Liens arising in connection with
Capitalized Leases otherwise permitted under Section
VIII(C)(4); provided that no such Lien shall extend to
or cover any property or assets other than the property
and assets subject to such Capitalized Leases;
f. Liens upon any property and assets
(other than any shares of capital stock of, or other
ownership or profit interests in, any Person) existing
at the time such property or asset is purchased or
otherwise acquired by the Company or any of its
Subsidiaries; provided that, in each case, any such
Lien was not created in contemplation of such purchase
or other acquisition and does not extend to or cover
any property or assets other than the property or asset
being so purchased or otherwise acquired; and provided
further that any Indebtedness or other obligations
secured by such Liens shall otherwise be permitted
under the terms of the Note Documents;
g. deposits to secure the performance
of leases of property (whether real, personal or mixed)
of the Company and its Subsidiaries (excluding
Capitalized Leases) in the ordinary course of business;
and
h. the replacement, extension or
renewal of any Lien permitted under clause (d) or (e)
of this Section VIII(B)(1) solely upon or in the same
property and assets theretofore subject thereto;
provided that any Indebtedness secured by such Liens
shall otherwise be permitted under the terms of the
Note Documents.
2. The Company will not and will not permit
any of its Subsidiaries to enter into, assume or suffer to exist
any agreement prohibiting, conditioning or otherwise
restricting the creation or assumption of any Lien upon any of
its property or assets, whether now owned or hereafter acquired,
or requiring the grant of any assignment or security for any
Obligation if an assignment or security is given for any other
Obligation, other than:
a. any such agreement with the
Investors;
b. any such agreement evidencing
or setting forth the terms of any Indebtedness
described in Schedule IV(V) attached hereto,
to the extent such agreement is in effect on the
date hereof;
c. any such agreement prohibiting
other encumbrances on specific property and assets of
the Company or of its Subsidiaries, which agreement
secures the payment of Indebtedness incurred solely to
acquire, construct or improve such property or assets
or to finance the purchase price therefor and which
Indebtedness is otherwise permitted to be incurred
under the terms of this Agreement;
d. any agreement setting forth
customary restrictions on the subletting, assignment or
transfer of any property or asset that is a lease,
license, conveyance or contract of similar property or
assets; and
e. any restriction or encumbrance
imposed pursuant to an agreement that has been entered
into by the Company or any of its Subsidiaries for any
Asset Sale so long as such Asset Sale is otherwise
permitted under the terms of the Note Documents.
C. LIMITATIONS ON INDEBTEDNESS.
The Company will not and will not permit any of its
Subsidiaries to directly or indirectly create, incur, assume, guarantee
or suffer to exist, or otherwise become or remain directly or indirectly
liable with respect to, any Indebtedness other than:
1. Indebtedness arising under the Note
Documents;
2. Indebtedness existing on the date of this
Agreement and described in Schedule IV(V) attached hereto;
3. Indebtedness secured by Liens expressly
permitted under Section VIII(B) in an aggregate principal amount
that, when aggregate with the principal amount of all
Indebtedness incurred under this clause (3) and clause (4) of
this Section VIII(C), does not exceed $25,000 at any time
outstanding;
4. Indebtedness evidence by Capitalized Lease
Obligations entered into in order to finance Capital
Expenditures made by the Company or any of its Subsidiaries in
accordance with the provisions of Section VIII(M), which
Indebtedness, when aggregated with the principal amount of all
Indebtedness incurred under this clause (4) and clause (3) of
this Section VIII(C) does not exceed $25,000 at any time
outstanding;
5. to the extent that is customary and
consistent with past practice, advances by the Company to its
Subsidiaries, or guaranties by the Company in respect of
Indebtedness of the Subsidiaries, which, in the aggregate, do
not exceed $200,000 at any time outstanding; and
6. endorsement of negotiable
instruments for deposit or collection or similar transactions
in the ordinary course of business.
D. LIMITATIONS ON SALE-LEASEBACK TRANSACTIONS.
The Company will not and will not permit any of its
Subsidiaries to directly or indirectly become or remain liable as lessee
or as a guarantor or surety with respect to any lease (including, without
limitation, any Capitalized Lease) of any property (whether real,
personal or mixed), whether now owned or hereafter acquired, that the
Company or such Subsidiary, as the case may be, (a) has sold or
transferred or is to sell or transfer in a transaction with such
assumption of liability to any other Person other than the Company or (b)
intends to use for substantially the same purpose as any other property
that has been sold or transferred or is to be sold or transferred by such
Person to any other Person in connection with such lease.
E. LIMITATIONS ON RESTRICTED PAYMENTS.
The Company will not and will not permit any of its
Subsidiaries to directly or indirectly declare, order, make or set apart
any sum for or to pay any Restricted Payment, except for:
1. Restricted Payments to the Company;
2. the payment of dividends or the
making of other distributions by any Subsidiary of
the Company to the Company; and
3. the payment of management fees or other
fees and expenses pursuant to the management, consulting and
other services agreements set forth on Schedule VIII(E).
F. LIMITATIONS ON FUNDAMENTAL CHANGES, ASSET SALES, ACQUISITIONS, ETC.
The Company will not and will not permit any of its
Subsidiaries to alter the corporate, capital or legal structure of the
Company or any such Subsidiary, to wind up, liquidate or dissolve itself
(or suffer any liquidation or dissolution), to enter into any
transaction of merger or consolidation, or to convey, sell, lease or
sublease (as lessor or sublessor), transfer or otherwise dispose of,
whether in one transaction or a series of related transactions, all or
any part of its business, property or assets, whether now owned or
hereafter acquired (or agree to do any of the foregoing at any future
time), or to purchase or otherwise acquire, whether in one transaction or
a series of related transactions, any part of the property, assets or
business of any Person (or agree to do any of the foregoing at any future
time), except that:
1. the Company may merge or consolidate
with or into any of its Subsidiaries so long as the
Company is the surviving corporation;
2. any wholly owned Subsidiary of the Company
may merge or consolidate with or into any other Subsidiary of
the Company so long as such wholly owned Subsidiary is the
surviving corporation;
3. the Company and its Subsidiaries may make
Restricted Payments otherwise permitted to be made under Section
VIII(E), may make Investments otherwise permitted to be made
under Section VIII(G), may sell shares of its capital stock
otherwise permitted to be sold under Section VIII(H) and may
make Capital Expenditures otherwise permitted to be made under
Section VIII(M);
4. the Company and its Subsidiaries may sell,
lease, sublease, transfer or otherwise dispose of any obsolete,
worn out or surplus property and assets thereof or any other
property and assets thereof that are no longer useful in the
conduct of the Company's or the applicable Subsidiary's business
so long as the aggregate book value of all of the property and
assets of the Company and its Subsidiaries that are sold,
leased, subleased, transferred or otherwise disposed of pursuant
to this subsection (4) does not exceed $50,000 at any time;
5. the Company and its Subsidiaries may sell,
lease, sublease, transfer or otherwise dispose of any of its
property and assets, to the extent not otherwise permitted under
this Section VIII(F), at the fair market value thereof (as
determined in good faith by such Company) and for cash; provided
that the gross proceeds thereof do not exceed $500,000 in the
aggregate in any Fiscal Year; and provided further that the Net
Cash Proceeds from each such sale, lease, sublease, transfer or
other disposition are applied to the redemption of the
outstanding Notes pursuant to this Agreement and in accordance
with the terms of Section VI(C);
6. the Company and its Subsidiaries may
purchase or otherwise acquire inventory, materials, equipment
and intangible assets in the ordinary course of business; and
7. the Company may acquire all (but not less
than all) of the capital stock of (or other ownership or profit
interests in) any Person and may purchase or otherwise acquire
any other property and assets from any Person so long as the
aggregate cash and noncash purchase price of all such purchases
and acquisitions (including, without limitation, all indemnities
to the sellers thereof, all write-downs of property and assets
and reserves for liabilities with respect thereto and all
assumptions of debt, liabilities and other obligations in
connection therewith), combined with Investments permitted under
Section VIII(G)(6) do not exceed $100,000 at any time; provided
that in the case of any purchase or acquisition made pursuant to
this subsection (7):
a. any Subsidiary of the Company
or any of its Subsidiaries acquired or created
as a result thereof or in connection therewith
shall be a wholly owned Subsidiary thereof;
b. any Subsidiary of the Company or
any of its Subsidiaries acquired or created as a result
thereof or in connection therewith shall not have any
material contingent liabilities other than liabilities
acceptable to the Investors in their sole discretion;
c. any business acquired or invested
in shall be substantially the same line of business as
that of the Company and its Subsidiaries conducted at
the time of such purchase or acquisition in the
ordinary course, or a line of business directly related
thereto, thereof or in connection therewith;
d. immediately before and after
giving pro forma effect to such purchase or
acquisition, no Default or Event of Default
shall have occurred and be continuing; and
e. any Indebtedness of the Company
or its Subsidiaries incurred in connection
therewith shall be permitted pursuant to Sec-
tion VIII(C)(6); and
8. the Company may consummate the Acqui-
sition.
G. LIMITATIONS ON INVESTMENTS, ETC.
The Company will not and will not permit any of its
Subsidiaries to directly or indirectly make or commit or agree to make
any advance, loan, guarantee of Obligations, other extension of credit
or capital contributions to, or hold or invest in or commit or agree to
hold or invest in, or purchase or otherwise acquire or commit or agree to
purchase or otherwise acquire any shares of capital stock (or other
ownership or profit interests), bonds, notes, debentures or other
securities of, or make or commit or agree to make any other investment
in, any other Person, or purchase or own any futures contract or
otherwise become liable for the purchase or sale of currency or other
commodities at a future date in the nature of a futures contract
(collectively, "Investments"), except that the following shall be
permitted:
1. the Company and its Subsidiaries may
acquire and hold accounts receivable owing to any
of them;
2. the Company and its Subsidiaries may
acquire and hold cash and Cash Equivalents;
3. the Company and its Subsidiaries may
maintain and continue to own the Investments thereof existing on
the date of this Agreement and described on Schedule VIII(G)
attached hereto;
4. the Company and its Subsidiaries may make
Restricted Payments otherwise permitted to be made under Section
VIII(E);
5. the Company and its Subsidiaries may
acquire all (but not less than all) of the capital stock of (or
other ownership or profit interests in) any Person and,
thereafter, may make capital contributions therein; provided
that, in each case, such acquisition or capital contribution is
otherwise permitted under the terms of the Note Documents;
6. Investments not otherwise permitted under
this Section VIII(G) in an aggregate amount, combined with
amounts paid in connection with acquisitions under Section
VIII(F)(7), not to exceed $100,000 at any time; and
7. Indebtedness of the Company or its
Subsidiaries permitted under Section VIII(C)(6).
H. LIMITATION ON ISSUANCE OF CAPITAL STOCK.
The Company will not issue or sell or enter into any
agreement or arrangement for the issuance and sale of any shares of its
capital stock (or other ownership or profit interests therein), any
securities convertible into or exchangeable for shares of its capital
stock (or other ownership or profit interests therein) or any warrants,
options or other rights for the purchase or acquisition of any shares of
its capital stock (or other ownership or profit interests therein),
except for:
1. transfers and replacements of out-
standing shares of capital stock of the Company;
2. issuances of shares of the Preferred Stock
and issuances of Common Stock pursuant to the Warrants and those
stock option and incentive plans as in effect on the Investment
Date set forth on Part II of Schedule IV(A) attached hereto; and
3. the issuance and sale of shares of capital
stock of the Company (i) so long as the Net Cash Proceeds
thereof will be applied to repay or redeem the aggregate
outstanding principal amount of the Notes, all accrued and
unpaid interest thereon, if any, and all fees, expenses and
other amounts owing under or in respect of the Note Documents at
such time pursuant to Section VI(C), (ii) or as otherwise
permitted pursuant to Section VI(C).
I. LIMITATION ON MODIFICATIONS OF INDEBTEDNESS; MODIFI-
CATIONS OF CERTIFICATE OF INCORPORATION, BYLAWS AND
CERTAIN OTHER AGREEMENTS; ETC.
The Company will not and will not permit any of its
Subsidiaries (a) without the prior written consent of the Investors, to
amend, modify or otherwise change (or permit the amendment, modification
or other change in any manner of) any of the provisions of any
Indebtedness of the Company or any of its Subsidiaries or of any instru-
ment or agreement (including, without limitation, any purchase agreement,
indenture, loan agreement or security agreement) relating to any such
Indebtedness if such amendment, modification or change would shorten the
final maturity or average life to maturity of, or require any payment to
be made earlier than the date originally scheduled on, such Indebtedness,
would increase the interest rate applicable to such Indebtedness, or
would change the subordination provision, if any, of such Indebtedness,
or would otherwise be adverse to the issuer of such Indebtedness in any
respect, (b) except for the Notes and the other Obligations of the
Company and its Subsidiaries under or in respect of the Note Documents,
to make any voluntary or optional payment, prepayment, redemption or
other acquisition for value of any Indebtedness of the Company or any of
its Subsidiaries (including, without limitation, by way of depositing
money or securities with the trustee therefor before the date required
for the purpose of paying any portion of such Indebtedness when due), or
to refund, refinance, replace or exchange any other Indebtedness for any
such Indebtedness, or to make any prepayment, redemption or repurchase of
any outstanding Indebtedness as a result of any asset sale, change of
control, issuance and sale of debt or equity securities or similar event,
or give any notice with respect to any of the foregoing, or (c) to amend,
modify or otherwise change its certificate of incorporation or bylaws (or
other similar organizational documents), including, without limitation,
by the filing or modification of any certificate of designation, or any
agreement or arrangement entered into by it, with respect to any shares
of its capital stock (or other ownership or profit interest therein)
(including any shareholders' agreement), or enter into any new agreement
with respect to any of its shares of capital stock (or other ownership or
profit interest therein).
J. LIMITATIONS ON CONDUCT OF BUSINESS.
The Company will not and will not permit any of its
Subsidiaries to engage in any business or activities other than its
current activities and businesses as described in the Company's
registration statement on form SB-2 dated February 19, 1997, as expanded
by the Acquisition.
K. LIMITATIONS ON ACCOUNTING CHANGES AND CHANGES IN
FISCAL YEAR.
The Company will not and will not permit any of its
Subsidiaries to make or permit any change in (1) its accounting policies
and reporting practices, except as required by generally accepted
accounting principles in effect from time to time, or (2) its Fiscal
Year.
L. LIMITATIONS ON SPECULATIVE TRANSACTIONS.
The Company will not and will not permit any of its
Subsidiaries to engage in any transaction involving commodity options or
futures contracts or any similar speculative transactions (including,
without limitation, take-or-pay contracts).
M. LIMITATIONS ON CAPITAL EXPENDITURES.
Except for the Acquisition, the Company will not and
will not permit any of its Subsidiaries to make any Capital Expenditures
(including, without limitation, installment purchases or Capitalized
Leases) that would cause the aggregate amount of all such Capital
Expenditures made by the Company and its Subsidiaries in any month,
commencing with January 1998, to exceed $50,000.
IX. EVENTS OF DEFAULT.
A. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the
following conditions or events shall occur and be continuing (each, an
"Event of Default"):
1. the Company defaults in the payment of any
principal of, premium, if any, on or interest on any Note when
the same becomes due and payable, whether by scheduled maturity
or at a date fixed for prepayment, redemption or repurchase or
by declaration, demand or otherwise; or
2. the Company shall fail to receive the
shareholder approvals or to provide to the Investors
satisfactory evidence thereof as contemplated by Section
VII(A)(1), in either case on or prior to January 31, 1998; or
3. the Company defaults in the performance of
or compliance with any term, covenant or agreement contained in
any of the Note Documents on its part to be performed or
complied with and, other than as provided in Sections IX(A)(1)
and IX(A)(2), such failure shall continue for ten Business Days;
provided, that, such ten Business Day period shall not apply in
the case of any failure to observe any such covenant which is
not capable of being cured at all or within such ten Business
Day period or which has been the subject of a prior failure; or
4. any representation or warranty made or
deemed made on the Investment Date by or on behalf of any
Obligor or by any officer of any Obligor under or pursuant to
the terms of this Agreement or any of the other Note Documents
or in any writing furnished to any of the Investors pursuant to
the terms of this Agreement or any of the other Note Documents
proves to have been false or incorrect in any material respect
on the date as of which it was made or deemed to have been made;
or
5. (a) the Company or any of its Subsidiaries
shall fail to pay (i) any principal of, or premium or interest
on, Indebtedness that is outstanding in a principal or notional
amount of at least $100,000 (or the equivalent thereof in one or
more other currencies), either individually or in the aggregate
(but excluding Indebtedness outstanding hereunder), of the
Company and its Subsidiaries, taken as a whole, when the same
becomes due and payable (whether by scheduled maturity,
required pre-payment, redemption or repurchase, acceleration,
demand or otherwise), and such failure shall continue after the
applicable grace period, if any, specified in any agreement or
instrument relating to such Indebtedness, or (ii) any other
amount of Indebtedness greater than $100,000 (or the equivalent
thereof in one or more other currencies), either individually or
in the aggregate (but excluding Indebtedness outstanding
hereunder), of the Company and its Subsidiaries when the same
becomes due and payable (whether by scheduled maturity, required
prepayment, redemption or repurchase, acceleration, demand or
otherwise), and such failure shall continue after the applicable
grace period, if any, specified in any agreement or instrument
relating to such Indebtedness; or (b) any other event shall
occur or condition shall exist under any agreement or instrument
evidencing, securing or otherwise relating to any Indebtedness
referred to in clause (a) of this Section IX(A)(5) and shall
continue after the applicable grace period, if any, specified in
such agreement or instrument, if the effect of such event or
condition is to accelerate, or to permit the acceleration of,
the maturity of such Indebtedness or otherwise to cause, or to
permit the holder or holders thereof (or a trustee or agent on
behalf of such holders) to cause such Indebtedness to mature; or
(c) any Indebtedness referred to in clause (a) of this Section
IX(A)(5) shall be declared to be due and payable or required to
be prepaid, redeemed or repurchased (other than by a regularly
scheduled required prepayment or redemption), purchased or
defeased, or an offer to prepay, redeem, repurchase, purchase or
defease any such Indebtedness shall be required to be made, in
each case prior to the stated maturity thereof or any date fixed
for pre-payment, redemption or repurchase thereunder; or
6. the Company or any of its Subsidiaries
shall generally not pay its debts as such debts become due, or
shall admit in writing its inability to pay its debts generally,
or shall make a general assignment for the benefit of creditors;
or any proceeding shall be instituted by or against the Company
or any of its Subsidiaries seeking to adjudicate it a bankrupt
or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or
composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors,
or seeking the entry of an order for relief or the appointment
of a receiver, trustee or other similar official for it or for
any substantial part of its property and assets and, in the case
of any such proceeding instituted against it (but not instituted
by it) that is being diligently contested by it in good faith,
either such proceeding shall remain undismissed or unstayed for
a period of 30 consecutive days or any of the actions sought
in such proceeding (including, without limitation, the entry of
an order for relief against, or the appointment of a receiver,
trustee, custodian or other similar official for, it or any
substantial part of its property and assets) shall occur; or the
Company or any of its Subsidiaries shall take any action to
authorize any of the actions set forth above in this subsection
(6); or
7. one or more judgments or orders for the
payment of money aggregating $100,000 (or the equivalent thereof
in one or more other currencies) or more are rendered against
the Company or any of its Subsidiaries and remain unsatisfied
and either (a) enforcement proceedings shall have been commenced
by any creditor upon any such judgment or order or (b) there
shall be a period of at least 10 consecutive days after entry
thereof during which a stay of enforcement of any such judgment
or order, by reason of a pending appeal or otherwise, shall not
be in effect; provided, however, that any such judgment or order
shall not give rise to an Event of Default under this subsection
(6) if and for so long as (i) the amount of such judgment or
order is covered by a valid and binding policy of insurance
between the defendant and the insurer covering full payment
thereof and (ii) such insurer has been notified, and has not
disputed the claim made for payment, of the amount of such
judgment or order; or
8. one or more writs or warrants of
attachment, garnishment, execution, distraint or similar process
with respect to Obligations of the Company or any of its
Subsidiaries aggregating $100,000 (or the equivalent thereof in
one or more other currencies) or more have been issued against
the Company or such Subsidiary or any of its property or assets
and remain unsatisfied and there shall be a period of at least
10 consecutive days after the issuance thereof during which a
stay of enforcement of any such writ or warrant, by reason of a
pending appeal or otherwise, shall not be in effect; or
9. any nonmonetary judgment or order shall be
rendered against the Company or any of its Subsidiaries that,
either individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect and there shall be
any period of 10 consecutive days after entry thereof during
which a stay of enforcement of any such judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect;
or
10. any provision of any of the Note Documents
after delivery thereof shall for any reason (other than pursuant
to the express terms thereof) cease to be valid and binding on
or enforceable against any of the Obligors intended to be a
party to it or shall cease to give the Investors any of the
rights, powers or privileges purported to be created thereunder,
or any such Obligor shall so state any of the foregoing in
writing; or
` 11. any Collateral Document after delivery thereof
shall for any reason (other than pursuant to the express terms
thereof) cease to create a valid and perfected Lien on and
security interest in the Collateral purported to be covered
thereby (with the intended priority thereof pursuant to the
terms of the Note Documents).
B. ACCELERATION.
1. If an Event of Default described in Section
IX(A)(5) shall occur with respect to the Company, all of the
Notes then outstanding shall become automatically and
immediately due and payable.
2. If any other Event of Default shall occur
and be continuing (after giving effect to any applicable grace
period), the Required Holders may at any time, at their option,
by notice or notices to the Company, declare all of the Notes
then outstanding to be immediately due and payable.
3. Upon any Note becoming due and payable
under this Section IX(B), whether automatically or by
declaration, such Note will forthwith mature and the entire
unpaid principal amount of such Note, plus all accrued and
unpaid interest thereon and all other amounts due and payable to
the holder thereof under the Note Documents, shall be
immediately due and payable, in each and every case without
presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Company.
C. OTHER REMEDIES.
If one or more Defaults or Events of Default shall
occur and be continuing (after giving effect to any applicable grace
period), and irrespective of whether any of the Notes have become or have
been declared immediately due and payable under Section IX(B), the
Required Holders may proceed to protect and enforce the rights of the
holders of the Notes by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any
agreement contained herein or in any of the other Note Documents, or for
an injunction against a violation of any of the terms hereof or there-
of, or in aid of the exercise of any power granted hereby or thereby or
by applicable law or otherwise.
D. RESCISSION.
At any time after any Notes have been declared due and
payable pursuant to Section IX(B)(1) or IX(B)(2), as the case may be, the
Required Holders, by notice to the Company, may rescind and annul any
such declaration and its consequences if (a) the Company have paid all
overdue interest on the Notes, all principal of and premium, if any, on
the Notes that are due and payable and are unpaid other than by reason of
such declaration, and all interest on such overdue principal and (to the
fullest extent permitted by applicable law) any overdue interest in
respect of the Notes, at the Default Rate, (b) all Defaults and Events of
Default, other than non-payment of amounts that have become due solely by
reason of such declaration, have been remedied or have been waived
pursuant to Section XIV and (c) no judgment or decree has been entered
for the payment of any monies due pursuant to the Notes or any of the
other Note Documents. No rescission and annulment under this Section
IX(D) will extend to or affect any subsequent Default or Event of Default
or impair any right, power or remedy consequent thereon.
E. RESTORATION OF RIGHTS AND REMEDIES.
If any holder of the Notes has instituted any
proceeding to enforce any right or remedy under this Agreement or any of
the other Note Documents and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to such
holder, then, and in each such case, the Obligors and the holders of
Notes shall, subject to any determination in such proceeding, be restored
severally to its former positions hereunder and under the other Note
Documents and, thereafter, all rights and remedies of the holders of the
Notes shall continue as though no such proceeding had been instituted.
F. NO WAIVERS OR ELECTION OF REMEDIES, ETC.
No course of dealing and no delay on the part of any
holder of the Notes in exercising any right, power or remedy shall
operate as a waiver thereof or otherwise prejudice such holder's rights,
powers or remedies. No right, power or remedy conferred by this Agreement
or any of the other Note Documents upon any holder of the Notes shall be
exclusive of any other right, power or remedy referred to herein or
therein or now or hereafter available at law, in equity, by statute or
otherwise.
X. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
A. REGISTRATION OF NOTES.
The Company shall maintain, or cause to be maintained,
a register (the "Register") on which it enters the name of each Investor
as the registered owner of each Note held by such Investor. A Registered
Note may be assigned or sold in whole or in part only by registration
of such assignment or sale on the Register (and each Registered Note
shall expressly so provide). Any assignment or sale of all or part of
such Registered Note may be effected only by registration of such
assignment or sale on the Register, together with the surrender of the
Registered Note evidencing the same duly endorsed by (or accompanied by a
written instrument of assignment or sale duly executed by) the holder of
such Registered Note, whereupon, at the request of the designated
assignee(s) or transferee(s), one or more new Registered Notes in the
same aggregate principal amount shall be issued to the designated
assignee(s) or transferee(s). Prior to the registration of assignment or
sale of any Registered Note, the Company shall treat the Person in whose
name such Registered Note is registered as the owner thereof for the
purpose of receiving all payments thereon and for all other purposes,
notwithstanding notice to the contrary. Any foreign Person who
purchases or is assigned or participates in any portion of the Notes
shall provide the Company with a completed Internal Revenue Service Form
W-8 (Certificate of Foreign Status) or a substantially similar form for
such purchaser or any other affiliate who is a holder of beneficial
interests in the Notes.
B. TRANSFER AND EXCHANGE OF NOTES.
1. Upon surrender of any Note at the principal
executive office of the Company for registration of transfer or
exchange (and, in the case of a surrender for registration of
transfer, duly endorsed or accompanied by a written instrument
of transfer duly executed by the registered holder of such Note
or its attorney duly authorized in writing and accompanied by
the address for notices of each transferee of such Note or part
thereof), the Company shall execute and deliver, at the
Company's expense (except as provided below), one or more new
Notes (as requested by the holder thereof) in exchange therefor,
in an aggregate principal amount equal to the unpaid principal
amount of the surrendered Note. Each such new Note shall be
payable to such Person as such holder may request and, subject
to subsection (1) of this Section X(B), shall be in
substantially the form of Exhibit A attached hereto. Each such
new Note shall be dated and bear interest from the date to which
interest shall have been paid on the surrendered Note or dated
the date of the surrendered Note if no interest shall have been
paid thereon. The Company may require payment of a sum
sufficient to cover any stamp tax or other governmental charge
imposed in respect of any such transfer of Notes. Notes shall
not be transferred in denominations of less than $50,000,
provided that, if necessary to enable the registration of
transfer by a holder of its entire holding of Notes, one Note
may be in a denomination of less than $50,000.
2. Any transferee, by its acceptance of a Note
registered in its name (or the name of its nominee), shall be
deemed (a) to have made the representations set forth in
Sections V(A), V(B) and V(C) and (b) to confirm to and agree
with the trans-feror and the other parties hereto as follows:
(1) other than as provided in any
written instrument of transfer executed by the
transferor and such transferee, such transferor makes
no representation or warranty and assumes no
responsibility with respect to any statements,
warranties or representations made in or in connection
with this Agreement or any of the other Note Documents,
or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of, or the perfection
or priority of any Lien or security interest created
or purported to be created under or in connection with
this Agreement or any of the other Note Documents or
any other instrument or document furnished pursuant
hereto or thereto; and
(2) such transferor makes no
representation or warranty and assumes no
responsibility with respect to the financial condition
of the Company or any other Obligor or the performance
or observance by any Obligor of any of its obligations
under this Agreement or any of the other Note Documents
or any other instrument or document furnished pursuant
thereto;
(3) such transferee confirms that it
has received a copy of this Agreement, together with
copies of the SEC Reports and financial statements
referred to in Section VII(A) and such other documents
and information as it has deemed appropriate to make
its own credit analysis and decision to purchase the
Note or Notes being purchased thereby;
(4) such transferee will,
independently and without reliance upon the transferor
or any other holder of the Notes and based on such
documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions
in taking or not taking action under this Agreement;
and
(5) such transferee agrees that it
will perform in accordance with their terms all of the
obligations which by the terms of this Agreement are
required to be performed by it as a holder of the
Notes.
C. REPLACEMENT OF NOTES.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership and the loss, theft, destruction or
mutilation of any Note, and
1. in the case of loss, theft or destruction,
of indemnity reasonably satisfactory to it; provided that, if
the holder of such Note is an original purchaser of any of the
Notes, such Person's own unsecured agreement of indemnity shall
be deemed to be satisfactory, or
2. in the case of mutilation, upon surrender
and cancellation thereof, the Company, at their own expense,
shall execute and deliver, in lieu thereof, a new Note, dated
and bearing interest from the date to which interest shall have
been paid on such lost, stolen, destroyed or mutilated Note or
dated the date of such lost, stolen, destroyed or mutilated Note
if no interest shall have been paid thereon.
XI. PAYMENTS ON NOTES.
The Company will pay all sums becoming due on each Note
for principal, premium, if any, and interest by the method and at the
address specified for such purpose below the name of each respective
Investor on Schedule IA or by such other method or at such other address
located in the United States of America as each such Investor or any
subsequent registered owner of a Note shall have from time to time
specified to the Company for such purpose, without the presentation or
surrender of such Note or the making of any notation thereon, except that
upon the request of the Company made concurrently with or reasonably
promptly after payment or prepayment in full of any Note, the holder of
such Note shall surrender such Note for cancellation, reasonably promptly
after any such request, to the Company at their principal executive
office or at the place of payment most recently designated by the
Company in writing to the holder of such Note. Prior to any permitted
sale, transfer or other disposition of any Note held by a Investor or
its nominee, such Investor will, at its election, either endorse thereon
the amount of principal paid thereon and the last date to which interest
has been paid thereon or surrender such Note to the Company in exchange
for a new Note or Notes pursuant to Section X(B).
XII. EXPENSES, INCREASED COSTS AND INDEMNIFICATION, ETC.
A. TRANSACTION EXPENSES.
Whether or not any of the transactions contemplated
hereby are consummated, the Company will pay, within 5 days of each
demand therefor (such demand to be accompanied by supporting
documentation in reasonable detail), (1) all of the reasonable costs and
expenses incurred by the Investors (including, without limitation,
reasonable attorneys' fees of a special counsel for the Investors) in
connection with the preparation, execution, delivery and administration
of this Agreement, the Notes and the other Note Documents, (2) all of the
reasonable costs and expenses incurred by the Investors (including,
without limitation, reasonable attorneys' fees of a special counsel for
the Investors) in connection with all of the amendments, waivers or
consents under or in respect of this Agreement, the Notes or any of the
other Note Documents (whether or not such amendment, waiver or consent
becomes effective), and (3) all of the reasonable costs and expenses
incurred by the Investors and each other holder of a Note (including,
without, limitation, reasonable attorneys' fees of a special counsel for
the Investors) in connection with the enforcement of this Agreement, the
Notes and the other Note Documents, and the custody and preservation of,
or the sale or collection from, or other realization upon, any of the
Collateral, including, without limitation: (1) the reasonable costs and
expenses incurred in enforcing or defending (or determining whether or
how to enforce or defend) any rights under this Agreement, the Notes or
any of the other Note Documents or in responding to any subpoena or other
legal process or informal investigative demand issued in connection with
this Agreement, the Notes or any of the other Note Documents, or by
reason of being a holder of the Notes, and (2) the reasonable costs and
expenses (including, without limitation, financial advisors' fees)
incurred in connection with the insolvency or bankruptcy of any Obligor
or any of its Subsidiaries or in connection with any work-out,
renegotiation or restructuring of any of the transactions contemplated
hereby, by the Notes or by the other Note Documents. The Company will
pay, and will hold the Investors and each holder of the Notes harmless
from, any claim, demand or liability in respect of any fees, costs or
expenses, if any, alleged to have been incurred by brokers, placement
agents and finders in connection with the transactions contemplated by
this Agreement or the Note Documents. The Company and the Investors
represent and warrant to each other that each has not retained any
broker, placement agent or finder with regard to this Agreement, the
Notes and the Note Documents other than Credit Research & Trading LLC
retained by the Company, whose fees, costs and expenses shall be paid
from the proceeds of the sale and purchase of the Notes. The amounts
payable by the Company pursuant to this Section XII(A) shall not exceed
$75,000.
B. INDEMNITY.
1. In addition to the payment of costs and
expenses pursuant to Section XII(A), whether or not the
transactions contemplated by this Agreement and the Note
Documents shall be consummated, the Company agrees to indemnify,
pay and hold each Investor, each holder of the Notes and each
other Person in whose name or for whose benefit such Person
holds or at any time held Notes, and their affiliates and its
officers, directors, employees, attorneys, agents and other
advisors (each, an "Indemnified Party"), harmless from and
against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits and claims, and all
reasonable costs, expenses and disbursements, of any kind or
nature whatsoever (including, without limitation, reasonable
fees and disbursements of counsel for such Indemnified Parties)
that may be incurred by or asserted or awarded against any
Indemnified Party, in each case arising out of or in connection
with or by reason of, or in connection with the preparation for
a defense of, any investigation, litigation or proceeding
arising out of, related to, or in connection with (i) this
Agreement, the Notes, the other Note Documents or any of the
transactions contemplated hereby or thereby and in connection
with any amendments or waivers (whether or not the same become
effective), (ii) any use or intended use of the proceeds of any
of the Notes, (iii) any sale or collection from or other
realization upon, or any other remedies expressed in re-
spect of, any or all of the Collateral, (iv) all taxes (other
than taxes determined with respect to income), including any
recording fees and filing fees and documentary stamp and similar
taxes at any time payable in respect of this Agreement, any
other Note Document or the issuance of any of the Notes, or (v)
the actual or alleged presence of Hazardous Materials on any
property of any of the Company or any of its Subsidiaries or any
Environmental Action relating in any way to any of the Company
or any of its Subsidiaries, in each case whether or not such
investigation, litigation or proceeding is brought by the
Company, any of its Subsidiaries, its directors, shareholders or
creditors or an Indemnified Party or any Indemnified Party is
otherwise a party thereto and whether or not any sale and
purchase of the Notes pursuant to this Agreement is effected
(collectively, the "Indemnified Liabilities"); provided that the
Company shall not have any obligation to any Indemnified Party
hereunder with respect to any Indemnified Liabilities arising
from the gross negligence, willful misconduct or bad faith of
such Indemnified Party as determined in a final, nonappealable
judgment by a court of competent jurisdiction.
2. The Company hereby further agrees to
indemnify, exonerate and hold each Indemnified Party free and
harmless from and against any and all actions, causes of action,
suits, losses, liabilities, damages and expenses, including,
without limitation, reasonable attorneys' fees and
disbursements, incurred in any capacity by any of the
Indemnified Parties as a result of or relating to (i) any trans-
action financed or to be financed in whole or in part directly
or indirectly with proceeds from the sale of any of the Notes,
or (ii) the execution, delivery, performance or enforcement of
this Agreement (including, without limitation, any failure by
either Company to comply with any of its covenants hereunder),
the Note Documents, or any instrument contemplated hereby or
thereby, except for any such indemnified liabilities arising
from any Indemnified Party's gross negligence, willful
misconduct or bad faith.
3. The Company will not, without the prior
written consent of the applicable Indemnified Party, settle,
compromise, consent to the entry of any judgment in or otherwise
seek to terminate any action, claim, suit or proceeding in
respect of which indemnification of such Indemnified Party may
be sought under subsections (1) or (2) of this Section XII(B)
(whether or not such Indemnified Party is a party thereto)
unless such settlement, compromise, consent or termination
includes a full and unconditional release of such Indemnified
Party from any and all claims against such Indemnified Party and
any and all liabilities thereof arising out of or relating to
such action, claim, suit or proceeding.
4. The Company also agrees not to assert any
claim against any Investor or any other holder of the Notes or
any other Person in whose name or for whose benefit such Person
holds or at any time held any Notes, or any of their Affiliates,
or any of its officers, directors, employees, attorneys, agents
and other advisors, on any theory of liability, for special,
indirect, consequential or punitive damages arising out of or
otherwise relating to (a) this Agreement, the Notes or any of
the other Note Documents, or any of the transactions
contemplated hereby or thereby, (b) any sale or collection from
or other realization upon, or any other remedies exercised in
respect of any or all of the Collateral or (c) any use or
intended use of the proceeds of any of the Notes.
5. If and to the extent that the undertaking
to indemnify, pay and hold harmless the Indemnified Parties set
forth in this Section XII(B) is judicially determined to be
unavailable to an Indemnified Party in respect of, or is
insufficient with respect to, any liabilities, obligations,
losses, damages, penalties, actions, judgments, suits or claims
referred to herein, then, in lieu of indemnifying such
Indemnified Party hereunder, the Company shall contribute to the
amount paid or payable by such Indemnified Party as a result of
such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits or claims (and reasonable costs,
expenses and disbursements relating thereto) (a) in such
proportion as is appropriate to reflect the relative benefits
to the Company and its Subsidiaries, on the one hand, and such
Indemnified Party, on the other hand, from this Agreement and
the sale and purchase of the Notes or (b) if the allocation
provided by clause (a) of this subsection (5) is not available,
in such proportion as is appropriate to reflect not only the
relative benefits referred to in such clause (a) but also the
relative fault of each of the Company and its Subsidiaries, on
the one hand, and such Indemnified Party, on the other hand, in
connection with such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits or claims, as well as any
other relevant equitable considerations.
C. SURVIVAL.
The Obligations of the Company under this Section XII
shall survive the payment or transfer of any Note, the enforcement,
amendment or waiver of any provision of this Agreement, the Notes or any
of the other Note Documents, and the termination of this Agreement and
any commitment to purchase Notes hereunder and, in respect of any Person
who was at any time a Investor or a holder of a Note or in whose name or
for whose benefit such Person held any Note, the date on which such
Person no longer holds, or no longer holds in the name of or for the
benefit of any other Person, any Note.
XIII. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
ENTIRE AGREEMENT.
All representations and warranties contained herein and
in the other Note Documents, and in any certificate or other instrument
delivered by or on behalf of any Obligor pursuant to this Agreement or
any of the other Note Documents, shall survive the execution and delivery
of this Agreement and the Notes, the purchase or transfer by each of
Imprimis of any Notes or portion thereof or interest therein and the
payment of any Notes, and may be relied upon by any subsequent holder of
the Notes as of the date made or deemed made, regardless of any
investigation made at any time by or on behalf of any Investor or any
other holder of the Notes. This Agreement, the Notes and the other Note
Documents embody the entire agreement and understanding between the
Investor and the Obligors and supersede all prior agreements and
understandings relating to the subject matter hereof.
XIV. AMENDMENT AND WAIVER.
A. REQUIREMENTS.
This Agreement and the Notes may be amended, and the
observance of any term hereof or of the Notes may be waived (either
retroactively or prospectively), with and only with the written consent
of the Company and the Required Holders, except that no such amendment or
waiver shall, without the written consent of the holder of each Note at
the time outstanding (1) change the percentage of the aggregate principal
amount of the Notes the holders of which constitute the Required Holders
or (2) amend this Section XIV.
B. SOLICITATION OF HOLDERS OF NOTES.
The Company will provide the Required Holders with
sufficient information, reasonably far in advance of the date a decision
is required, to enable such holders to make an informed and considered
decision with respect to any proposed amendment, waiver or consent in
respect of any of the provisions of this Agreement or any of the other
Note Documents. The Company will deliver executed or true and correct
copies of each amendment, waiver or consent effected pursuant to the
provisions of this Section XIV to each holder of outstanding Notes
promptly following the date on which it is executed and delivered by, or
receives the consent or approval of, the Required Holders.
C. BINDING EFFECT, ETC.
Any amendment or waiver consented to as provided in
this Section XIV applies equally to all holders of Notes and is binding
upon them, upon each future holder of any Note and upon each Obligor
without regard to whether such Note has been marked to indicate such
amendment or waiver. No such amendment or waiver will extend to or affect
any obligation, covenant, agreement, Default or Event of Default not
expressly amended or waived or impair any right, power or remedy
consequent thereon. No course of dealing nor any delay on the part of any
holder of any Note in exercising any right, power or remedy hereunder or
under any of the other Note Documents shall operate as a waiver of any
right, power or remedy of any holder of such Note; nor shall any single
or partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or
remedy. The remedies provided under this Agreement and the other Note
Documents are cumulative and not exclusive of any rights, powers or
remedies provided by applicable law.
D. NOTES HELD BY COMPANY, ETC.
Solely for the purpose of determining whether the
holders of the requisite percentage of the aggregate principal amount of
Notes then outstanding approved or consented to any amendment, waiver or
consent to be given under this Agreement or any of the other Note
Documents, or have directed the taking of any action provided for herein
or in any of the other Note Documents to be taken upon the direction of
the holders of a specified percentage of the aggregate principal amount
of Notes then outstanding, Notes directly or indirectly owned by any of
the Company or any of their Affiliates shall be deemed not to be
outstanding.
XV. NOTICES.
A. GENERAL.
All notices and other communications provided for
hereunder shall be in writing and delivered by telecopier or (if
expressly permitted under the applicable provisions hereof) by telephone,
if the sender on the same day sends a confirming copy of such notice by a
recognized overnight delivery service (charges prepaid), by registered or
certified mail with return receipt requested (postage prepaid) or by a
recognized overnight delivery service (with charges prepaid). Any such
notice must be sent:
1. if to a Investor or its nominee, to it at
the address specified for such communications in Schedule IA
attached hereto, or at such other address as it shall have
specified to the Company in writing;
2. if to any other holder of any Note, to such
holder at such address as such other holder shall have specified
to the Company in writing; or
3. if to the Company, to them at the address
set forth on the first page of this Agreement (Telecopier No.
(202) 543-5360) to the attention of C. Thomas McMillen,
President and Chief Executive Officer, with a copy to David
Fleming, Esq., Epstein Becker & Green, P.C.,250 Park Avenue, New
York, New York, New York 10177 (Telecopier No. (212) 661-0989)
or at such other address as the Company shall have specified to
the holder of each Note in writing. All notices and other
communications provided for under this Section XV will be deemed
given and effective only when actually received.
4. If any notice required under this Agreement
or any of the other Note Documents is permitted to be made, and
is made, by telephone, actions taken or omitted to be taken in
reliance thereon by a Investor or any other holder of any Note
shall be binding upon the Company notwithstanding any
inconsistency between the notice provided by telephone and any
subsequent writing in confirmation thereof provided to a
Investor or any other holder of any Note; provided that any such
action taken or omitted to be taken by a Investor or any other
holder of any Note shall have been in good faith and in
accordance with the terms of this Agreement.
XVI. REPRODUCTION OF DOCUMENTS.
This Agreement, each of the other Note Documents and
all other agreements, certificates and other documents relating thereto,
including, without limitation, (a) amendments, waivers and consents of or
to this Agreement or any other Note Document that may hereafter be
executed, (b) documents received on the Investment Date (except the Notes
themselves) and (c) financial statements, certificates and other
information previously or hereafter furnished to you, may be reproduced
by any photographic, photostatic, microfilm, microcard, miniature
photographic or other similar process. The Company agrees and stipulates
that, to the extent permitted by applicable law, any such reproduction
shall be admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence
and whether or not such reproduction was made in the regular course of
business) and any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence. This Section XVI
shall not prohibit the Company or any other holder of Notes from
contesting any such reproduction to the same extent that it could contest
the original or from introducing evidence to demonstrate the inaccuracy
of any such reproduction.
XVII. MISCELLANEOUS.
A. SUCCESSORS AND ASSIGNS.
All covenants and other agreements contained in this
Agreement or any of the other Note Documents by or on behalf of any of
the parties hereto bind and inure to the benefit of its successors and
assigns (including, without limitation, any subsequent holder of a Note),
whether or not so expressed.
B. PAYMENTS DUE ON NON-BUSINESS DAYS.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of, or premium, if any, or
interest on, any Note that is due on a date other than a Business Day
shall be made on the next succeeding Business Day without including the
additional days elapsed in the computation of the items payable on such
next succeeding Business Day.
C. SATISFACTION REQUIREMENT.
Except as otherwise provided herein or in any of the
other Note Documents, if any agreement, certificate or other writing, or
any action taken or to be taken, is by the terms of this Agreement or any
of the other Note Documents required to be satisfactory to the Required
Holders, the determination of such satisfaction shall be made by the
Required Holders, in the sole and exclusive judgment (exercised
reasonably and in good faith) of the Person or Persons making such
determination.
D. SEVERABILITY.
Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted
by applicable law) not invalidate or render unenforceable such provision
in any other jurisdiction.
E. CONSTRUCTION; ACCOUNTING TERMS, ETC.
1. Each covenant contained herein shall be
construed (absent express provision to the contrary) as being
independent of each other covenant contained herein, so that
compliance with any one covenant shall not (absent such an
express contrary provision) be deemed to excuse compliance with
any other covenant. Where any provision herein refers to action
to be taken by any Person, or which such Person is prohibited
from taking, such provision shall be applicable whether such
action is taken directly or indirectly by such Person.
2. Except as otherwise expressly provided in
this Agreement or any of the other Note Documents, all
accounting terms used herein or therein shall be interpreted,
and all financial statements and certificates and reports as to
financial matters required to be delivered hereunder shall be
prepared, in accordance with GAAP.
F. COMPUTATION OF TIME PERIODS.
In this Agreement, in the computation of periods of
time from a specific date to a later specified date, the word "from"
means "from and including", the word "through" means "through and
including", and the words "to" and "until" each mean "to but not
excluding".
G. EXECUTION IN COUNTERPARTS.
This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all
of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this Agreement
by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
H. GOVERNING LAW; SUBMISSION TO JURISDICTION, ETC.
1. This Agreement shall be governed by, and
construed in accordance with, the law of the State of Delaware.
2. The Company hereby irrevocably and
unconditionally submits, for itself and its property and assets,
to the nonexclusive jurisdiction of any New York state court or
federal court of the United States of America sitting in New
York City, New York, and any appellate court from any thereof,
in any action or proceeding arising out of or relating to this
Agreement, the Notes or the other Note Documents, or for
recognition or enforcement of any judgment in respect thereof,
and the Company hereby irrevocably and unconditionally agrees
that all claims in respect of any such action or proceeding may
be heard and determined in any such New York state court or, to
the fullest extent permitted by applicable law, in such federal
court. The Company hereby irrevocably consents to the service of
copies of any summons and complaint and any other process which
may be served in any such action or proceeding by certified
mail, return receipt requested, or by delivering a copy of such
process to the Company, at their address specified in Section
XV, or by any other method permitted by law. The Company hereby
agrees that a final judgment in any such action or proceeding
shall be conclusive and forced in other jurisdictions by suit on
the judgment or in any other manner provided by applicable law.
Nothing in this Agreement shall affect any right that any holder
of Notes may otherwise have to bring any action or proceeding
relating to this Agreement, the Notes or the other Note
Documents in the courts of any jurisdiction.
3. The Company hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and
effectively do so, any objection that it may now or hereafter
have to the laying of venue of any action or proceeding arising
out of or relating to this Agreement, the Notes or the other
Note Documents in any New York state or federal court. The
Company hereby irrevocably waives, to the fullest extent
permitted by applicable law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any
such court.
I. WAIVER OF JURY TRIAL.
THE COMPANY AND THE HOLDERS OF THE NOTES HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING
OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES OR ANY OF THE OTHER NOTE
DOCUMENTS, ANY DOCUMENT DELIVERED UNDER THE NOTE DOCUMENTS, THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, OR THE ACTIONS OF ANY HOLDER
OF THE NOTES IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR
ENFORCEMENT THEREOF.
Very truly yours,
COMPLETE WELLNESS CENTERS, INC.
By /s/ E. Eugene Sharer
Name: E. Eugene Sharer
Title: President
If you are in agreement with the foregoing, please sign
in the appropriate space provided below and return it to the Company,
whereupon the foregoing shall become a binding agreement between you and
the Company.
IMPRIMIS INVESTORS LLC
By: Wexford Management LLC
By /s/ Frank Plimpton
Name: Frank Plimpton
Title: VP
WEXFORD SPECTRUM INVESTORS LLC
By: Wexford Management LLC
By /s/ Frank Plimpton
Name: Frank Plimpton
Title: VP
SCHEDULE IA
INFORMATION RELATING TO THE INVESTORS
NAME OF INVESTOR: COMMITMENT
NAME(S) FOR REGISTRATION OF NOTES PURCHASED:
MAILING ADDRESS:
TELEPHONE NO.:
TELEPHONE NO.:
WIRE INSTRUCTIONS (INCLUDING ABA NO. AND ACCOUNT NO.)
FOR PAYMENT OF PRINCIPAL AND INTEREST:
To:
In favor of:
Account #:
UNITED STATES TAX IDENTIFICATION NO. (IF ANY):
PHYSICAL DELIVERY INSTRUCTIONS:
SCHEDULE IB
DEFINED TERMS
As used in this Agreement, the following terms shall
have the respective meanings set forth below (such meanings to be equally
applicable to both the singular and plural forms of the term defined):
"ACQUISITION" shall mean the pending acquisition by the
Company of the assets of Nutri/System, L.P.
through the Acquisition Subsidiary.
"ACQUISITION SUBSIDIARY" shall mean Complete Weight
Management, Inc., a Delaware corporation and a wholly-owned Subsidiary of
the Company.
"AFFILIATE" means, with respect to any Person, any
other Person that, directly or indirectly, controls, is controlled by or
is under common control with such Person, or is a director or officer of
such Person or, with respect to any individual, has a relationship with
such individual by blood, marriage or adoption not more remote than first
cousin. For purposes of this definition, the term "control" (including
the terms "controlling" "controlled by" and "under common control with")
of a Person means the possession, direct or indirect, of the power to
vote 5% or more of the Voting Interest of such Person or to direct or
cause the direction of the management and policies of such Person,
whether through the ownership of Voting Interest, by contract or
otherwise.
"AGREEMENT" means this Note Investment Agreement, as
such agreement may be amended, supplemented or otherwise modified from
time to time in accordance with the terms of Section XIV.
"ASSET SALE" means the conveyance, sale, lease,
sublease, transfer or other disposition (other than solely for security
purposes) by the Company or any of its Subsidiaries to any Person other
than the Company of (a) any of the shares of capital stock of the Company
or any of its Subsidiaries, (b) all or substantially all of the property
and assets of any division or line of business of the Company or any of
its Subsidiaries or (c) any other property or assets (whether tangible or
intangible) of the Company or any of its Subsidiaries.
"BUSINESS DAY" means any day other than a Saturday, a
Sunday or any other day on which commercial banks are required or
authorized by law to be closed in New York, New York.
"CAPITAL ASSETS" means, with respect to any Person, all
equipment, fixed assets and real property or improvements of such Person,
or replacements or substitutions therefor or additions thereto, that have
been or should be, in accordance with GAAP, reflected as additions to
property, plant or equipment on the balance sheet of such Person or that
have a useful life of more than one year.
"CAPITAL EXPENDITURES" means, with respect to any
Person for any period, (a) all expenditures made directly or indirectly
by such Person (whether paid in cash or other consideration or accrued as
a liability and including, without limitation, all expenditures for
maintenance and repairs which are required, in accordance with GAAP, to
be capitalized on the books of such Person) during such period for
Capital Assets and (b) solely to the extent not otherwise included in
clause (a) of this definition, the aggregate principal amount of all
Indebtedness (including, without limitation, Capitalized Lease
Obligations) assumed or incurred during such period in connection with
any such expenditures for Capital Assets (other than Indebtedness
permitted by Section VIII(B)(6) of this Agreement).
"CAPITALIZED LEASE" means any lease with respect to
which the lessee is required to recognize concurrently the acquisition of
property or an asset and the incurrence of a liability in accordance with
GAAP.
"CAPITALIZED LEASE OBLIGATIONS" means, with respect to
any Person, all lease obligations of such Person which, in accordance
with GAAP, are or will be required to be capitalized on the books of such
Person, in each case valued at the amount thereof accounted for as debt
in accordance with GAAP.
"CAPITAL STOCK" means and includes (i) any and all
shares, interests, participations or other equivalents of or interests in
(however designated) the capital of a Person, including, without
limitation, shares of preferred or preference stock, (ii) all partnership
interests (whether general or limited) in any Person which is a
partnership, (iii) all membership interests or limited liability company
interests in any limited liability company, and (iv) all equity or
ownership interests in any Person of any other type.
"CASH EQUIVALENTS" means any of the following types of
Investments, to the extent owned by the Company or any of its
Subsidiaries free and clear of all Liens (other than Liens created under
the Collateral Documents):
(a) readily marketable obligations issued or
directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof having
maturities of not more than 360 days from the date of
acquisition thereof; provided that the full faith and credit of
the United States of America is pledged in support thereof;
(b) time deposits with, or insured
certificates of deposit or bankers' acceptances of, any
commercial bank that (i) is organized under the laws of the
United States of America, any state thereof or the District of
Columbia or is the principal banking subsidiary of a bank
holding company organized under the laws of the United States
of America, any state thereof or the District of Columbia and
is a member of the Federal Reserve System, (ii) issues (or the
parent of which issues) commercial paper rated as described in
clause (c) of this definition and (iii) has combined capital and
surplus of at least $1,000,000,000, in each case with
maturities of not more than 180 days from the date of
acquisition thereof;
(c) commercial paper issued by any Person
organized under the laws of any state of the United States of
America and rated at least "Prime-1" (or the then equivalent
grade) by Moody's Investors Service, Inc. or at least "A-1" (or
the then equivalent grade) by Standard & Poor's Ratings
Services, a Division of The McGraw-Hill Company, Inc., in each
case with maturities of not more than 270 days from the date of
acquisition thereof;
(d) Investments, classified in accordance with
GAAP as current assets of the Company or any of its
Subsidiaries, in money market investment programs registered
under the Investment Company Act of 1940, as amended, which are
administered by financial institutions that have the highest
rating obtainable from either Moody's Investors Service, Inc. or
Standard & Poor's Ratings Services, a Division of The
McGraw-Hill Company, Inc., and the portfolios of which are
limited solely to Investments of the character and quality
described in clauses (a), (b) and (c) of this definition; and
(e) repurchase agreements entered into by the
Company or any such Subsidiary with a bank or trust company or
recognized securities dealer having combined capital and surplus
of at least $500,000,000 for direct obligations issued by or
fully guaranteed by the United States of America in which the
Company or such Subsidiary shall have a valid and perfected
first priority security interest (subject to no other Liens);
provided that each such repurchase agreement shall have a fair
market value of at least 100% of the amount of the repurchase
obligations thereunder on the date of purchase thereof.
"CHANGE OF CONTROL" means at any time any "person" or
"group" (within the meaning of Section 13d-3 or 14(d)(2) of the Exchange
Act) becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of more than 50% of the total
Voting Interests of the Company.
"CHANGE OF CONTROL OFFER" has the meaning specified in
Section VI(B)(1).
"CHANGE OF CONTROL PAYMENT" has the meaning specified
in Section VI(B)(1).
"CHANGE OF CONTROL REPURCHASE DATE" has the meaning
specified in Section VI(B)(2).
"COLLATERAL" means all of the "Collateral" referred to
in the Collateral Documents and all other property and assets of the
Obligors and its Subsidiaries that are or are intended under the terms of
the Collateral Documents to be subject to Liens in favor of Imprimis and
the other holders of the Notes.
"COLLATERAL DOCUMENTS" means, collectively, the
security agreements, mortgages, charges and other similar documents
entered into by any of the Company or any of its Subsidiaries pursuant to
this Agreement and all other agreements that create or purport to create
Liens in favor of Imprimis and the other holders of the Notes.
"COMMON STOCK" has the meaning specified on page 1 of
this Agreement.
"COMPANY" has the meaning specified on page 1 of this
Agreement.
"CONTINGENT OBLIGATION" means, as to any Person, any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("primary
obligations") of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, including, without limitation, (a) the
direct or indirect guaranty, endorsement (other than for collection or
deposit in the ordinary course of business), co-making, discounting with
recourse or sale with recourse by such Person of the obligation of a
primary obligor, (b) the obligation to make take-or-pay or similar
payments, if required, regardless of nonperformance by any other party or
parties to an agreement, (c) any obligation of such Person, whether or
not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to
advance or supply funds (A) for the purchase or payment of any such
primary obligation or (B) to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or solven-
cy of the primary obligor, (iii) to purchase property, assets, securities
or services primarily for the purpose of assuring the owner of any such
primary obligation of the ability of the primary obligor to make payment
of such primary obligation or (iv) otherwise to assure or hold harmless
the holder of such primary obligation against loss in respect thereof;
provided, however, that the term "Contingent Obligation" shall not
include any products warranties extended in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be
an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Contingent Obligation is made (or, if
less, the maximum amount of such primary obligation for which such Person
may be liable pursuant to the terms of the instrument evidencing such
Contingent Obligation) or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person
is required to perform thereunder), as determined by such Person in good
faith.
"CURRENT VALUE" has the meaning specified in Section 3
of ERISA.
"DEFAULT" means any Event of Default or any event or
condition that would constitute an Event of Default but for the
requirement that notice be given or time elapse or both.
"DEFAULT RATE" means 19% per annum.
"EMPLOYEE BENEFIT PLAN" means an "employee benefit
plan", within the meaning of Section 3(3) of ERISA, that is subject to
the provisions of Title I, Subtitle B, Part 4 of ERISA or to Section 4975
of the Internal Revenue Code.
"ENVIRONMENTAL ACTION" means any action, suit, demand,
demand letter, claim, notice of noncompliance or violation, notice of
liability or potential liability, investigation, proceeding, consent
order or consent agreement, abatement order or other order or directive
(conditional or otherwise) relating in any way to any Environmental Law,
any Environmental Permit or any Hazardous Materials or arising from
alleged injury or threat to health, safety, natural resources or the
environment, including, without limitation, (a) by any Governmental
Authority for enforcement, cleanup, removal, response, remedial or other
actions or damages and (b) by any Governmental Authority or other third
party for damages, contribution, indemnification, cost recovery,
compensation or injunctive relief.
"ENVIRONMENTAL LAW" means any Requirement of Law, or
any judicial or agency interpretation or other requirement of any
Governmental Authority, relating to (a) the generation, use, handling,
transportation, treatment, storage, disposal, release or discharge of
Hazardous Materials, (b) pollution or protection of the environment,
health, safety or natural resources or (c) occupational safety and
health, industrial hygiene, land use or the protection of human, plant or
animal health or welfare, including the Comprehensive Environmental
Response, Compensation, and Liability Act (42 U.S.C. Section 9601 et
seq.), the Hazardous Materials Transportation Act (49 U.S.C. Section 1801
et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section
6901 et seq.), the Federal Water Pollution Control Act (33 U. S. C.
Section 1251 et seq.) , the Clean Air Act (42 U.S.C. Section 7401 et
seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.),
the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. Section
136 et seq.), the Occupational Safety and Health Act (29 U.S.C. Section
651 et seq.), the Oil Pollution Act (33 U.S.C. Section 2701 et seq.) and
the Emergency Planning and Community Right-to-Know Act (42 U.S.C. Section
11001 et seq.), in each case as amended from time to time, and including
the regulations promulgated and the rulings issued from time to time
thereunder.
"ENVIRONMENTAL PERMIT" means any permit, approval,
license, identification number or other authorization required under any
Environmental Law.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time, and the regulations
promulgated and the rulings issued from time to time thereunder.
"ERISA PLAN" means an "employee benefit plan" (as
defined in Section 3(3) of ERISA) that is or, within the preceding five
years, has been established or maintained, or to which contributions are
or, within the preceding five years, have been made or required to be
made, by the Company or any ERISA Affiliate or with respect to which the
Company or any ERISA Affiliate may have any liability.
"EVENT OF DEFAULT" has the meaning specified in Section
IX(A).
"EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended from time to time, and the regulations promulgated and
the rulings issued from time to time thereunder.
"FISCAL YEAR" means, with respect to the Company or any
of its Subsidiaries, the period commencing on January 1 in any calendar
year and ending on the next succeeding December 31.
"GAAP" means generally accepted accounting principles
in effect in the United States of America, consistently applied.
"GOVERNMENTAL AUTHORITY" means any nation or
government, any state, province, city, municipal entity or other
political subdivision thereof, and any governmental, executive,
legislative, judicial, administrative or regulatory agency, department,
authority, instrumentality, commission, board or similar body, whether
federal, state, provincial, territorial, local or foreign.
"GOVERNMENTAL AUTHORIZATION" means any authorization,
approval, consent, franchise, license, covenant, order, ruling, permit,
certification, exemption, notice, declaration or similar right,
undertaking or other action of, to or by, or any filing, qualification or
registration with, any Governmental Authority.
"HAZARDOUS MATERIALS" means: (a) any chemical, material
or substance at any time defined as or included in the definition of
"hazardous substances", "hazardous wastes", "hazardous materials",
"extremely hazardous waste", "acutely hazardous waste", "radioactive
waste", "biohazardous waste", "pollutant", "toxic pollutant",
"contaminant", "restricted hazardous waste", "infectious waste", "toxic
substances", or any other term or expression intended to define, list or
classify substances by reason of properties harmful to health, safety or
the indoor or outdoor environment (including, without limitation, harmful
properties such as ignitability, corrosivity, reactivity,
carcinogenicity, toxicity, reproductive toxicity, "TCLP toxicity" or "EP
toxicity" or words of similar import under any applicable Environmental
Laws); (b) any oil, petroleum, petroleum fraction or petroleum derived
substance; (c) any drilling fluids, produced waters and other wastes
associated with the exploration, development or production of crude oil,
natural gas or geothermal resources; (d) any flammable substances or
explosives; (e) any radioactive materials; (f) any asbestos-containing
materials; (g) any urea formaldehyde foam insulation; (h) any electrical
equipment which contains any oil or dielectric fluid containing
polychlorinated biphenyls; (i) any pesticides; (j) any radon gas; and (k)
any other chemical, material or substance designated, classified or
regulated as hazardous or toxic or as a pollutant or contaminant under
any Environmental Law or which could pose a hazard to health, safety or
the environment.
"HOLDER" means, with respect to any Note, the Person in
whose name such Note is registered in the register maintained by the
Company pursuant to Section X(A).
"INDEBTEDNESS" means, with respect to any Person
(without duplication):
(a) all indebtedness of such Person for borrowed money;
(b) all Obligations of such Person for the deferred
purchase price of property and assets or services (other than trade
payables or other accounts payable incurred in the ordinary course of
such Person's business and not past due for more than 180 days after the
date on which each such trade payable or account payable was created);
(c) all Obligations of such Person evidenced by notes,
bonds, debentures or other similar instruments, or upon which interest
payments are customarily made;
(d) all Obligations of such Person created or arising
under any conditional sale or other title retention agreement with
respect to property or assets acquired by such Person, even though the
rights and remedies of the seller or the lender under such agreement in
the event of default are limited to repossession or sale of such property
or assets;
(e) all Capitalized Lease Obligations of such Person;
(f) all Obligations, contingent or otherwise, of such
Person under acceptance, standby letter of credit or similar facilities;
(g) all Obligations of such Person to purchase, redeem,
retire, defease or otherwise make any payment in respect of any shares of
capital stock of (or other ownership or profit interest in) such Person
or in any other Person, or any warrants, rights or options to acquire
such shares (or such other ownership or profit interests);
(h) all Obligations of such Person in respect of hedge
agreements, take-or-pay agreements or other similar arrangements;
(i) all Contingent Obligations; and
(j) all Obligations referred to in clauses (a) through
(i) of this definition of another Person secured by or for which the
holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on property or assets (including,
without limitation, accounts and contract rights) owned by such Person,
even though such Person has not assumed or become liable for the payment
of such Indebtedness. The Indebtedness of any Person shall include (i)
all Obligations of the types described in clauses (a) through (j) above
of any partnership in which such Person is a general partner and (ii) all
Obligations of the types described in clauses (a) through (j) above of
such Person to the extent such Person remains legally liable in respect
thereof notwithstanding that any such Obligation is deemed to be
extinguished under generally accepted accounting principles in effect
at any date of determination.
"INDEMNIFIED LIABILITIES" has the meaning specified in
Section XII(B)(1).
"INDEMNIFIED PARTY" has the meaning specified in
Section XII(B)(1).
"INFORMATION STATEMENT" has the meaning specified in
Section VII(A).
"INTERNAL REVENUE CODE" means the Internal Revenue Code
of 1986, as amended from time to time, and the regulations promulgated
and the rulings issued from time to time thereunder.
"INVESTMENT DATE" has the meaning specified in Section
II(B).
"INVESTORS" has the meaning specified on page 1 of this
Agreement.
"LIEN" means, with respect to any Person, any mortgage,
lien (statutory or other), pledge, hypotheca-tion, security interest,
charge or other preference or encumbrance of any kind (including, without
limitation, any agreement to give any of the foregoing), or any sale of
accounts receivable or chattel paper, or any assignment, deposit
arrangement or lease intended as, or having the effect of, security, or
any other interest or title of any vendor, lessor, lender or other
secured party to or of such Person under any conditional sale or other
title retention agreement or any Capitalized Lease or upon or with
respect to any property or asset of such Person (including, in the case
of shares of capital stock, stockholder agreements, voting trust
agreements and other similar arrangements).
"MATERIAL ADVERSE EFFECT" means a material adverse
effect on (a) the business, condition (financial or otherwise),
operations, results of operations, assets, property, liabilities or
prospects of the Company or any Subsidiary of a Company, (b) the ability
of any of the Obligors to perform its Obligations under this Agreement or
any of the other Note Documents to which it is or is to be a party or (c)
the rights and remedies afforded to or any of the other holders of the
Notes under this Agreement or any of the other Note Documents.
"MULTIEMPLOYER PLAN" means a multiemployer plan (as
defined in Section 4001(a)(3) of ERISA) to which the Company or any ERISA
Affiliate is making or accruing an obligation to make contributions, or
has within any of the preceding five plan years made or accrued an
obligation to make contributions.
"MULTIPLE EMPLOYER PLAN" means a single employer plan
(as defined in Section 4001(a)(15) of ERISA) that (a) is maintained for
employees of the Company or any ERISA Affiliate and at least one Person
other than the Company and the ERISA Affiliates or (b) was so maintained
and in respect of which the Company or any ERISA Affiliate could have
liability under Section 4064 or 4069 of ERISA in the event such plan has
been or were to be terminated.
"NET CASH PROCEEDS" means, with respect to the issuance
or incurrence of any Indebtedness by any Person, or the sale or issuance
by any Person of any shares of its capital stock (or other ownership or
profit interests therein), any securities convertible into or
exchangeable for shares of its capital stock (or other ownership or
profit interests therein) or any warrants, options or other rights for
the purchase or acquisition of any shares of its capital stock (or other
ownership or profit interests therein), or any Asset Sale, as the case
may be, the aggregate amount of cash received from time to time (whether
as initial consideration or through payment or disposition of deferred
consideration) by or on behalf of such Person for its own account in
connection with any such transaction, after deducting therefrom only:
(a) any reasonable brokerage commissions, underwriting
fees and discounts, legal fees, finder's fees and other similar fees and
commissions incurred as a result of such transaction;
(b) the amount of taxes payable in connection with or
as a result of such transaction;
(c) in the case of any Asset Sale, the outstanding
principal amount of, and the premium, if any, and any accrued and unpaid
interest on, any Indebtedness (other than the Notes) that is secured by a
Lien on the property and assets subject to such Asset Sale and is
required to be repaid under the terms thereof as a result of such Asset
Sale; and
(d) in the case of any Asset Sale, the amount required
to be reserved, in accordance with generally accepted accounting
principles in effect on the date on which the Net Cash Proceeds from such
Asset Sale are calculated, and so reserved against liabilities under
indemnification obligations, liabilities related to environmental matters
or other similar contingent liabilities associated with the property and
assets subject to such Asset Sale that are required to be so provided for
under the terms of the documentation for such Asset Sale; in each case to
the extent, but only to the extent, that the amounts so deducted are, at
the time of receipt of such cash, actually paid to a Person that is not
an Affiliate of such Person receiving such Net Cash Proceeds and are
properly attributable to such transaction or to the property or asset
that is the subject thereof.
"NOTE DOCUMENTS" means, collectively, this Agreement,
the Notes and the Collateral Documents and all other agreements and
instruments evidencing any Obligation of the Company or any of the other
Obligors secured by the Collateral Documents, in each case as such
agreement, instrument or other document may be amended, supplemented or
otherwise modified hereafter from time to time in accordance with the
terms thereof and Section XIV.
"NOTES" has the meaning specified in Section I.
"OBLIGATION" means, with respect to any Person, any
payment, performance or other obligation of such Person of any kind,
including, without limitation, any liability of such Person on any claim,
whether or not the right of any creditor to payment in respect of such
claim is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, disputed, undisputed, legal, equitable, secured or
unsecured, and whether or not such claim is discharged, stayed or
otherwise affected by any proceeding referred to in Section IX(A)(5).
Without limiting the generality of the foregoing, the Obligations of the
Obligors under the Note Documents include the obligation to pay
principal, interest, premiums, charges, expenses, fees, attorneys' fees
and disbursements, indemnities and other amounts payable by any of the
Obligors under any of the Note Documents.
"OBLIGORS" means, collectively, the Company, the
Acquisition Subsidiary and each of the Other Obligors.
"OFFICER'S CERTIFICATE" means,with respect to any
Person, a certificate executed on behalf of such Person by its chairman
of the board (if an officer), its president or one of its vice presidents
or a Senior Financial Officer thereof (or persons performing similar
functions to the foregoing); provided that each Officer's Certificate
shall include (a) a statement that the officer making or giving such
Officer's Certificate has read the provisions of this Agreement or the
other Note Document requiring the delivery thereof and any definitions or
other provisions contained in this Agreement relating thereto, (b) a
statement that, in the opinion of the signer, he has made or has caused
to be made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such term or
condition has been satisfied or complied with or the certifications
required to be made therein are complete and accurate, (c) a statement as
to whether, in the opinion of the signer, such term or condition has been
satisfied or complied with, and (d) all other statements and
determinations required by the related terms and conditions giving rise
to the delivery of such Officer's Certificate.
"OTHER OBLIGORS" shall mean the wholly owned
Subsidiaries of the Company set forth on Schedule IC hereto.
"PERMITTED LIENS" means the following types of Liens
(excluding any such Lien imposed pursuant to Section 401(a)(29) or ) of
the Internal Revenue Code or by ERISA, any such Lien relating to or
imposed in connection with any Environmental Action and any such Lien
expressly prohibited by the applicable terms of any of the Collateral
Documents), in each case as to which no enforcement, collection,
execution, levy or foreclosure proceeding shall have been commenced:
(a) Liens for taxes, assessments and governmental
charges or levies the payment of which is not, at the time, required
under Section VII(E)(1);
(b) Liens imposed by law, such as materialmen's,
mechanics', carriers', workmen's, storage and repairmen's Liens and other
similar Liens arising in the ordinary course of business and securing
obligations (other than Indebtedness for borrowed money) (i) that are not
overdue for a period of more than 30 days or (ii) the amount,
applicability or validity of which are being contested in good faith and
by appropriate proceedings diligently conducted and with respect to which
the Company or any of its Subsidiaries, as the case may be, has
established reserves in accordance with generally accepted accounting
principles in effect from time to time;
(c) pledges or deposits to secure obligations incurred
in the ordinary course of business under workers' compensation laws,
unemployment insurance laws or other similar social security legislation
(other than in respect of Employee Benefit Plans) or to secure public or
statutory obligations;
(d) Liens securing the performance of, or payment in
respect of, bids, tenders, government contracts (other than for the
repayment of borrowed money), surety and appeal bonds and other
obligations of a similar nature incurred in the ordinary course of
business;
(e) Liens arising solely from precautionary filings of
financing statements (or the equivalent thereof) under the Uniform
Commercial Code (or any similar law or statute) of the applicable
jurisdictions relating to operating leases otherwise permitted under the
terms of the Note Documents; and
(f) easements, rights of way, zoning restrictions and
other encumbrances and similar restrictions on title to, or the use of,
real property that do not, either individually or in the aggregate,
materially and adversely affect either the use of such real property for
its intended purposes or the conduct of the business of any of the
Company or its Subsidiaries in the ordinary course.
"PERSON" means an individual, partnership, corporation
(including a business trust or professional corporation), limited
liability company, joint stock company, trust, unincorporated
association, joint venture or other entity, or a government or any
political subdivision or agency thereof.
"PREFERRED STOCK" has the meaning specified on page 1
of this Agreement.
"PROPERTY" or "PROPERTIES" means, unless otherwise
expressly stated in this Agreement, real or personal property of any
kind, tangible or intangible, choate or inchoate.
"REQUIRED HOLDERS" means, at any time, the holders of
at least 75% of the aggregate principal amount of all of the Notes
outstanding at such time (excluding from any calculation thereof any
Notes then owned or held by any of the Company or its Subsidiaries or
other Affiliates).
"REQUIREMENTS OF LAW" means, with respect to any
Person, all laws, constitutions, statutes, treaties, ordinances, rules
and regulations, all orders, writs, decrees, injunctions, judgments,
determinations or awards of an arbitrator, a court or any other
Governmental Authority, and all Governmental Authorizations, binding upon
or applicable to such Person or to any of its properties, assets or
businesses.
"RESPONSIBLE OFFICER" means, with respect to the
Company or Subsidiary of it, any Senior Financial Officer of the Company
or any other officer of the Company or any of its Subsidiaries
responsible for overseeing the administration of, or reviewing compliance
with, all or any portion of this Agreement or any of the other Note
Documents.
"RESTRICTED PAYMENT" means (a) any dividend or other
distribution, direct or indirect, on account of any shares of any class
of capital stock of (or other ownership or profit interests in) the
Company or any of its Subsidiaries, now or hereafter outstanding, (b) any
repurchase, redemption, retirement, defeasance, sinking fund or similar
payment, purchase or other acquisition for value, direct or indirect, of
any shares of any class of capital stock of (or other ownership or profit
interests in) the Company or any direct or indirect parent of the
Company, now or hereafter outstanding, (c) any payment made to retire, or
to obtain the surrender of, any outstanding warrants, options or other
rights for the purchase or acquisition of shares of any class of capital
stock of (or other ownership or profit interests in) the Company or any
direct or indirect parent of the Company, now or hereafter outstanding,
(d) any return of capital to any shareholders or other equity holders of
the Company or any of its Subsidiaries, or any other distribution of
property, assets, shares of capital stock (or other ownership or profit
interests), warrants, rights, options, obligations or securities thereto
as such or (e) the payment of any management fees or any other fees or
expenses (including the reimbursement thereof by the Company or any of
its Subsidiaries) pursuant to any management, consulting or other
services agreement to any Subsidiary of the Company or any Affiliates.
"SEC" means the Securities and Exchange Commis sion.
"SEC REPORTS" has the meaning specified in section
(IV)(E).
"SECURITIES ACT" means the Securities Act of 1933, as
amended from time to time.
"SENIOR FINANCIAL OFFICER" means, with respect to any
Person, the chief financial officer, the principal accounting officer,
the treasurer or the controller of such Person.
"SEPARATE ACCOUNT" has the meaning specified in Section
3 of ERISA.
"SINGLE EMPLOYER PLAN" means a single employer plan (as
defined in Section 4001(a)(15) of ERISA) that (a) is maintained for
employees of the Company or any ERISA Affiliate and no Person other than
the Company and the ERISA Affiliates or (b) was so maintained and in
respect of which the Company or any ERISA Affiliate could have liability
under Section 4069 of ERISA in the event such plan has been or were to he
terminated.
"SOLVENT" and "SOLVENCY" mean, with respect to any
Person on any date of determination, that, on such date:
(a) the fair value of the property and assets of such
Person is greater than the total amount of liabilities (including,
without limitation, contingent liabilities) of such Person;
(b) the present fair salable value of the property and
assets of such Person is not less than the amount that will be required
to pay the probable liability of such Person on its debts as they become
absolute and matured;
(c) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's
ability to pay such debts and liabilities as they mature; and
(d) such Person is not engaged in business or in a
transaction, and is not about to engage in business or in a transaction,
for which such Person's property and assets would constitute an
unreasonably small capital. The amount of contingent liabilities at any
time shall be computed as the amount that, in the light of all of the
facts and circumstances existing at such time, represents the amount that
could reasonably be expected to become an actual or matured liability.
"SUBSIDIARY" means, with respect to any Person at any
time, any corporation, partnership, joint venture, limited liability
company, trust or estate of which (or in which) more than 50% of:
(a) the issued and outstanding shares of capital stock
having ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether at the time shares
of capital stock of any other class or classes of such corporation shall
or might have voting power upon the occurrence of any contingency);
(b) the interest in the capital or profits of such
corporation, professional corporation, partnership, joint venture or
limited liability company; or
(c) the beneficial interest in such trust or estate,
is, at such time, directly or indirectly owned or controlled by such
Person, by such Person and one or more of its other Subsidiaries or by
one or more of such Person's other Subsidiaries.
"VOTING INTERESTS" means shares of capital stock issued
by a corporation, or equivalent interests in any other Person, the
holders of which are ordinarily, in the absence of contingencies,
entitled to vote for the election of directors (or persons performing
similar functions) of such Person, even if the right so to vote has been
suspended by the happening of such a contingency.
"WARRANTS" has the meaning specified on page 1 of this
Agreement.
"WITHDRAWAL LIABILITY" has the meaning specified in
Part I of Subtitle E of Title IV of ERISA.
EXHIBIT II
PROMISSORY NOTE
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD
UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
$500,000 December 19, 1997
FOR VALUE RECEIVED, COMPLETE WELLNESS CENTERS, INC., a
Delaware corporation (the "Company"), HEREBY PROMISES TO PAY to the order
of IMPRIMIS INVESTORS LLC (the "Purchaser") or its registered assigns (i)
the principal sum of FIVE HUNDRED THOUSAND DOLLARS and (ii) interest on
any and all principal amounts remaining unpaid hereunder from time to
time outstanding from the date hereof until such principal amount become
due, pursuant to the Investment Agreement dated as of December 19, 1997
(as amended or otherwise modified from time to time, the "Investment
Agreement"; capitalized terms not otherwise defined herein have the same
meanings as specified in the Investment Agreement), among the Company,
the Purchaser and Wexford Spectrum Investors LLC.
Interest on the unpaid balance of the principal amount of
this Note shall be computed on the basis of a 360-day year of twelve
30-day months and shall accrue quarterly in arrears on the first day of
each quarter commencing on January 1, 1998, at a rate per annum equal to
thirteen percent (13%) per annum until the unpaid principal balance of
this Note shall be paid in full (whether by scheduled maturity or at a
date fixed for prepayment, redemption or repurchase or by declaration,
demand or otherwise). All such accrued interest shall be capitalized and
added to the principal amount of this Note; provided however, that any
overdue payment (including without limitation, any overdue prepayment
redemption or repurchase) of principal and, to the extent permitted by
applicable law, any overdue payment of interest and premium, if any,
shall accrue interest at a rate equal at all times to nineteen percent
(19%) per annum, payable at the option of the registered holder of this
Note, upon demand, until the unpaid principal balance of this Note shall
be paid in full.
The unpaid principal balance of this Note, together with any
accrued but unpaid interest hereunder, shall be payable in full on or
before March 31, 1998. Payments of principal of, and interest and
premium, if any, on this Note are payable in lawful money of the United
States of America at the place designated therefor as set forth in
Section XI of the Investment Agreement, or at such other place as the
Purchaser shall have designated by written notice to the Company as
provided in the Investment Agreement referred to above. Whenever any
payment under this Note shall be stated to be due on a day other than a
Business Day, such payment shall be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of payment of interest.
Nothing contained in this Promissory Note or the Investment
Agreement shall require the Company to pay interest at a rate exceeding
the maximum rate permitted by applicable law. If interest payable to the
Purchaser on any date would exceed the maximum permissible amount, it
shall be automatically reduced to such amount, and interest for any
subsequent period, to the extent less than that permitted by applicable
law, shall, to that extent, be increased by the amount of such reduction.
This Note is one of a series of Senior Secured Fixed Rate
Notes due March 31, 1998 (collectively, the "Notes") originally issued or
to be issued in an aggregate principal amount of up to $500,000 pursuant
to the Investment Agreement. The holder of this Note is entitled to the
benefits of the Investment Agreement and may enforce the agreement of the
Companies therein in accordance with the terms thereof, and may enforce
the rights and remedies provided for thereby or otherwise available in
respect thereof in accordance with the respective terms thereof. Each
holder of this Note will be deemed, by its acceptance hereof to have made
the representations set forth in Sections V(A), V(B) and V(C) of the
Investment Agreement.
This Note is a registered Note and, as provided in and
subject to the terms of the Investment Agreement, is transferable only
upon surrender of this Note for registration of transfer or exchange
(and, in the case of a surrender for registration of transfer, duly
endorsed or accompanied by a written instrument of transfer, duly
executed by the registered holder of this Note or his attorney duly
authorized in writing), at which time a new Note for a like principal
amount will be issued to, and registered in the name of, the permitted
transferee. Reference in this Note to a "holder" shall mean the person or
entity in whose name this Note is at the time registered in the register
kept by the Companies as provided in Section X of the Investment
Agreement and, prior to the due presentment for registration of transfer,
the Company may treat such person or entity as the owner of this Note for
the purpose of receiving payment and for all other purposes, and the
Companies will not be affected by any notice to the contrary.
The holder hereof, by acceptance of this Note, agrees that
this Note shall not be transferred, sold or otherwise disposed of except
to an Accredited Investor (as that term is defined in Rule 501(a) of
Regulation D promulgated under the Securities Act of 1933, as amended).
This Note may be transferred in whole or in part only by registration of
such transfer on the register maintained for such purpose by the
Companies as provided in Section X of the Investment Agreement.
The Company is required to make offers of repurchase upon the
occurrence of the events and on the terms specified in Section VI(B) of
the Investment Agreement and is required to make redemptions of principal
on the dates and in the amounts specified in Section VI(C) of the
Investment Agreement. This Note is also subject to optional prepayment,
in whole or from time to time in part, at the times and on the terms
specified in Section VI(A) of the Investment Agreement.
This Note is secured by, and is entitled to the benefits of
the Security Agreements dated as of December 18, 1997 and the UCC-I
financing statements made by each of the Persons listed on the signature
pages thereof in favor of the Purchaser and shall be further secured from
time to time by certain property and assets of the Obligors, pursuant to
the terms of the Investment Agreement and the Security Agreements.
If an Event of Default shall occur and be continuing, the
unpaid balance of principal of this Note and any accrued and unpaid
interest and other amounts payable hereon may be declared or otherwise
become due and payable in the manner, at the price and with the effect
provided in Section IX of the Investment Agreement.
This Note shall be governed by, and construed in accordance
with, the internal laws of the State of Delaware applicable to contracts
made and to be performed therein without consideration as to choice of
law.
COMPLETE WELLNESS CENTERS, INC.
By: /s/ E. Eugene Sharer
----------------------------
Name:
Title:
IMPRIMIS INVESTORS LLC
By: Wexford Management LLC
By: /s/ Frank Plimpton
----------------------------
Name: Frank Plimpton
Title: Vice President
EXHIBIT III
PLEDGE AGREEMENT
PLEDGE AGREEMENT (this "Agreement"), dated as of December
19, 1997, made by Complete Wellness Centers, Inc., a Delaware corporation
(the "Grantor"), in favor of Imprimis Investors LLC (Imprimis) and any
subsequent holders (together with Imprimis, the "Investors") of Notes (as
defined below).
W I T N E S S E T H:
WHEREAS, Grantor, Imprimis and Wexford Spectrum Investors
LLC are parties to that certain Investment Agreement, dated as of the
date hereof (such agreement, as amended, restated, supplemented or
otherwise modified from time to time, being hereafter referred to as the
"Investment Agreement");
WHEREAS, pursuant to the Investment Agreement, Imprimis
has agreed to purchase certain debt securities (the "Notes") from the
Grantor, the proceeds of which shall be used solely (i) to pay the
transaction costs and expenses incurred in connection with the sale of
the Notes, (ii) to complete its pending acquisition of the assets of
Nutri/System, L.P. (the "Acquisition") through Complete Weight
Management, Inc. (the "Subsidiary"), a Delaware corporation, which will
hold such assets, (iii) for working capital purposes of the Subsidiary
and (iv) for general and administrative purposes of the Grantor.
WHEREAS, it is a condition precedent to the effectiveness
of the Investment Agreement and Imprimis' purchasing the Notes from the
Grantor that the Grantor shall have executed and delivered to the
Investors a security agreement providing for the grant to the Investors
of a security interest in certain property of the Grantor;
NOW, THEREFORE, in consideration of the premises and the
agreements herein and in order to induce Imprimis to purchase the Notes
from the Grantor pursuant to the Investment Agreement, the Grantor hereby
agrees with Imprimis as follows:
SECTION 1. Definitions. Reference is hereby made to the
Investment Agreement for a statement of the terms thereof. All terms used
in this Agreement which are defined in the Investment Agreement or in
Article 9 of the Uniform Commercial Code (the "Code") currently in effect
in the State of New York, and which are not otherwise defined herein,
shall have the same meanings herein as set forth therein.
SECTION 2. Grant of Security Interest. As collateral
security for all of the Obligations (as defined in Section 3 hereof), the
Grantor hereby pledges and assigns to the Investors, and grants to the
Investors, a continuing security interest in the collateral set forth
below (the "Collateral"):
(a) all of the Grantor's right, title and interest
in and to all shares (the "Pledged Shares") of capital stock of
the Subsidiary, described in Schedule I hereto and the
certificates, if any, representing the Pledged Shares, and all
dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Shares;
(b) all additional shares (the "Additional Shares")
of capital stock of the Subsidiary from time to time acquired by
the Grantor in any manner (including, without limitation, any
shares of preferred stock issued by the Subsidiary) and the
certificates, if any, representing such additional shares), and
all dividends, cash instruments and other property from time to
time received, receivable or otherwise distributed in respect of
or in exchange for any or all of such shares;
(c) all other rights appurtenant to the property
described in clauses (a) and (b) above (including, without
limitation, voting rights); and
(d) all cash and noncash proceeds of any and all of
the foregoing Collateral.
Certificates representing the Pledged Shares set forth on
Schedule I hereto, accompanied by proper instruments of assignment duly
executed in blank by the Grantor, are herewith delivered to Imprimis.
Promptly upon the Grantor's acquisition of any Additional Shares, the
Grantor will (i) deliver proper instruments of assignment duly executed
in blank by the Grantor together with any certificates representing such
Additional Shares, whereupon such Additional Shares shall be Pledged
Shares, and (ii) amend Schedule I to include such Additional Shares. The
Investors shall have the right, at any time in their discretion and
without notice to the Grantor, to transfer to or register in their names
or the name of any of its nominees any or all of the Pledged Shares,
subject only to the revocable rights specified in Section 5(f). In
addition, the Investors shall have the right at any time to exchange
certificates or instruments representing or evidencing the Pledged Shares
for certificates or instruments of small or larger denominations.
SECTION 3. Security for Obligations. The security interest
created hereby in the Collateral constitutes continuing collateral
security for all of the following obligations, whether now existing or
hereafter incurred (the "Obligations"):
(a) The prompt payment by the Grantor, as and when
due and payable, of all amounts from time to time owing by the
Grantor to the Investors in respect of the Investment Agreement,
the Notes and the other Note Documents, including, without
limitation, principal of and interest on the Notes (including,
without limitation, all interest that accrues after the
commencement of any case, proceeding or other action relating to
bankruptcy, insolvency or reorganization of the Grantor whether
or not the payment of such interest is unenforceable or is not
allowable due to the existence of such case, proceeding or other
action), all fees, commissions, expense reimbursements,
indemnifications and all other amounts due or to become due under
the Investment Agreement, the Notes and any other Note Document;
and
(b) The due performance and observance by the
Grantor of all of their other obligations from time to time
existing in respect of the Investment Agreement and all other
Note Documents.
SECTION 4. Representations and Warranties. The Grantor
represents and warrants as follows:
(a) There is no pending or threatened action, suit,
proceeding or claim before any court or other Governmental
Authority or any arbitrator, or any order, judgment or award by
any court or other Governmental Authority or arbitrator, that may
adversely affect the pledge or the grants by the Grantor, or the
perfection or priority, of the security interest purported to be
created hereby in the Collateral, or the exercise by the
Investors of any of their rights or remedies hereunder.
(b) All taxes, assessments and other governmental
charges imposed upon the Grantor or any property of the Grantor
(including, without limitation, all federal income and social
security taxes on employees' wages) and which have become due and
payable on or prior to the date hereof have been paid, except to
the extent contested in good faith by proper proceedings which
stay the imposition of any penalty, fine or lien resulting from
the non-payment thereof and with respect to which adequate
reserves in accordance with GAAP, have been established for the
payment thereof.
(c) The chief place of business and chief executive
office of the Grantor and the place where the Grantor keeps its
records concerning the Collateral are located at the addresses
specified therefor in Schedule II hereto.
(d) The Grantor is and will be at all times the
sole and exclusive holder of record and beneficial owner of the
Pledged Shares free and clear of any Lien, claim, security
interest, charge or other encumbrance of any kind with full
authority to sell, transfer and grant a security interest in, the
Pledged Shares. No effective financing statement or other
instrument similar in effect covering all or any part of the
Pledged Shares is on file in any recording or filing office.
(e) The Pledged Shares have been duly authorized
and validly issued by the Subsidiary, and are fully paid and
non-assessable, and the Grantor has the right and all requisite
corporate authority to pledge, assign, grant a security interest
in, transfer and deliver the Pledged Shares to the Investors as
provided herein.
(f) Upon the delivery to the Investors of the
certificates representing the Pledged Shares, the Investors will
have a valid and perfected security interest therein subject to
no prior Lien. The authorized, issued and outstanding capital
shares of the Subsidiary is set forth on Schedule I, and there
are no existing options, warrants, calls or commitments of any
character whatsoever relating to any of the unissued capital
shares of the Subsidiary, except as set forth on Schedule I
hereto. The Pledged Shares constitute the percentage of the
issued and outstanding shares of stock of the Subsidiary
indicated on Schedule I.
(g) The exercise by the Investors of any of their
rights and remedies hereunder will not contravene law or any
contractual restriction binding on or otherwise affecting the
Grantor or any of its properties and will not result in or
require the creation of any Lien, claim, security interest,
charge or other encumbrance upon or with respect to any of its
properties.
(h) No authorization or approval or other action
by, and no notice to or filing with, any Governmental Authority
or other regulatory body, or any other Person, is required for
(i) the pledge by the Grantor of the Collateral or the perfection
or maintenance of the pledge, or the grant by the Grantor, or the
perfection, of the security interest purported to be created
hereby in the Collateral or (ii) the exercise by the Investors of
any of their voting rights or any other rights and remedies
hereunder, except as may be required in connection with the
disposition of any portion of the Collateral by laws affecting
the offer and sale of securities generally.
(i) The financing statements described in Schedule
III hereto have been or will be duly filed under the Code and are
or upon filing will be in full force and effect.
(j) There are no conditions precedent to the
effectiveness of this Agreement that have not been satisfied or
waived.
SECTION 5. Covenants as to the Collateral. So long as any
of the Obligations shall remain outstanding, unless the Investors shall
otherwise consent in writing:
(a) The Grantor will at its expense, at any time
and from time to time, promptly execute and deliver all further
instruments and documents and take all further action that may be
necessary or desirable or that the Investors may request in order
(i) to perfect and protect the pledge and security interest
purported to be created hereby; (ii) to enable the Investors to
exercise and enforce their rights and remedies hereunder in
respect of the Collateral; or (iii) otherwise to effect the
purposes of this Agreement, including, without limitation: (A)
marking conspicuously each of its records pertaining to the
Collateral with a legend, in form and substance satisfactory to
the Investors, indicating that such Collateral is subject to the
pledge and security interest created hereby and (B) executing and
filing such financing or continuation statements, or amendments
thereto, as may be necessary or desirable or that the Investors
may request in order to perfect and preserve the pledge and
security interest purported to be created hereby.
(b) Unless the Grantor shall have given the
Investors not less than 30 days' prior notice thereof, the
Grantor will not change (i) its name, identity or corporate
structure in any manner or (ii) the location of its chief
executive office.
(c) The Grantor will defend the title to the
Collateral and the Lien of the Investors thereon against the
claim of any Person claiming against or through the Grantor and
will maintain and preserve such Lien as long as this Agreement
shall remain in effect.
(d) The Grantor will not create or suffer to exist
any Lien, claim, security interest, charge or other encumbrance
upon or with respect to any Collateral except for the security
interests permitted pursuant to the terms of the Investment
Agreement.
(e) The Grantor shall permit the Investors, or any
agents or representatives of the Investors or such professionals
or other Persons as the Investors may designate (i) to examine
and inspect the books and records of the Grantor and take copies
and extracts therefrom, and (ii) to discuss the affairs, finances
and accounts of the Grantor, with, and be advised as to the same
by, their officers, directors and independent accountants (and,
by this subsection (d), the Grantor authorize each such officer,
director and independent accountant to discuss the affairs,
finances and accounts of the Grantor with such Person), provided
that, in the absence of a continuing Event of Default, all such
actions described in clauses (i) and (ii) above shall be
conducted at reasonable times and during normal business hours.
In addition, the Grantor shall forward to the Investors copies of
any notices or communications received or made by the Grantor
with respect to the Collateral, all in such manner as the
Investors may reasonably require.
(f) Provisions Relating to the Collateral. (i) So
long as no Event of Default or event which, with the giving of
notice or the lapse of time, or both, would become an Event of
Default shall have occurred and be continuing:
(A) The Grantor shall be entitled to
exercise any and all voting and other consensual rights
pertaining to the Collateral or any part thereof for any
purpose not inconsistent with the terms of this Agreement
or the Investment Agreement; provided, that the Grantor
shall not exercise or refrain from exercising such right
if, in the Investors' judgment, such action would have a
material adverse effect on the value of the Collateral or
any part thereof, and provided, further, that the Grantor
shall give the Investors at least five days' prior written
notice of the manner in which it intends to exercise, or
the reasons for refraining from exercising, any such
right. The Grantor shall not exercise or refrain from
exercising such right in a manner which would authorize or
effect (except as and to the extent expressly permitted by
the Investment Agreement) (i) the dissolution or
liquidation, in whole or in part, of the Subsidiary, (ii)
the consolidation or merger of the Subsidiary with any
corporation, (iii) the sale, disposition or encumbrance of
all or substantially all of the assets of the Subsidiary,
(iv) any change in the authorized number of shares, the
stated capital or the authorized share capital of the
Subsidiary, or the issuance of any additional capital
shares of the Subsidiary, or (v) the alteration of the
voting rights with respect to the shares of the
Subsidiary.
(B) The Grantor shall be entitled, from time
to time, to collect and receive for its own use dividends
paid, payable or otherwise distributed on the Pledged
Shares; provided, that until actually paid, all rights to
such dividends shall remain subject to the Lien of this
Agreement, provided, further, that
(i) all dividends paid or payable
other than in cash in respect of, and instruments
and other property received, receivable or
otherwise distributed in respect of, or in exchange
for, any Pledged Shares,
(ii) all dividends and other
distributions paid or payable in cash in respect of
any Pledged Shares in connection with a partial or
total liquidation or dissolution or in connection
with a reduction of capital, capital surplus or
paid-in-surplus, and
(iii) cash paid, payable or otherwise
distributed in respect of principal of, or in
redemption of, or in exchange for, any Pledged
Shares,
shall be, and shall be forthwith delivered to the
Investors to hold as, Collateral and shall, if received by
the Grantor, be received in trust for the benefit of the
Investors, be segregated from the other property or funds
of the Grantor, and be forthwith delivered to the
Investors as Collateral in the same form as so received
(with any necessary indorsement or assignment).
(ii) Upon the occurrence and during the
continuance of an Event of Default or an event which, with
the giving of notice or the lapse of time, or both, would
become an Event of Default:
(A) All rights of the Grantor (x) to
exercise or refrain from exercising the voting and other
consensual rights which it would otherwise be entitled to
exercise pursuant to Section 5(f)(i)(A) shall, upon notice
to the Grantor by the Investors, cease and (y) to receive
the dividends payments which it would otherwise be
authorized to receive and retain pursuant to Section
5(f)(i)(B) shall automatically cease, and all such rights
shall thereupon become vested in the Investors who shall
thereupon have the sole right to exercise or refrain from
exercising such voting and other consensual rights and to
receive and hold as Collateral such dividends.
(B) All dividends which are received by the
Grantor contrary to the provisions of paragraph (A) of
this Section 5(f)(ii) shall be received in trust for the
benefit of the Investors, shall be segregated from other
funds of the Grantor and shall be forthwith paid over to
the Investors as Collateral in the same form as so
received (with any necessary indorsement).
(g) The Grantor agrees that it will (i) cause the
Subsidiary not to issue any stock or other securities in addition
to or in substitution for the Pledged Shares issued by the
Subsidiary, except to the Grantor and (ii) pledge hereunder,
immediately upon its acquisition (directly or indirectly)
thereof, any and all additional shares of stock or other
securities of Subsidiary.
SECTION 6. Additional Provisions Concerning the Collateral.
(a) The Grantor hereby authorizes the Investors to
file, without the signature of the Grantor where permitted by
law, one or more financing or continuation statements, and
amendments thereto, relating to the Collateral.
(b) The Grantor hereby irrevocably appoints the
Investors or its designee on behalf of the Investors the
Grantor's attorney-in-fact and proxy, with full authority in the
place and stead of the Grantor and in the name of the Grantor or
otherwise, from time to time in the Investors's discretion, to
take any action and to execute any instrument which the Investors
may deem necessary or advisable to accomplish the purposes of
this Agreement including, without limitation, (i) upon the
occurrence of an Event of Default, to ask, demand, collect, sue
for, recover, compound, receive and give acquittance and receipts
for moneys due and to become due under or in respect of any
Collateral, and (ii) to receive, endorse, assign and collect any
drafts or other instruments, documents and chattel paper in
connection with clause (i) above, and (iii) to file any claims or
take any action or institute any proceedings which the Investors
may deem necessary or desirable for the collection of any
Collateral or otherwise to enforce the rights of the Investors
with respect to any Collateral. All acts of said attorney or
designee are hereby ratified and approved, and said attorney or
designee shall not be liable for any acts of omission or
commission (other than acts or omissions constituting gross
negligence or willful misconduct as determined by a final
judgment or a court of competent jurisdiction), nor for any error
of judgment or mistake of fact or law. This power is coupled with
an interest and is irrevocable until all of the Obligations are
paid in full and the Investment Agreement is terminated.
(c) If the Grantor fails to perform any agreement
contained herein, the Investors may itself perform, or cause
performance of, such agreement or obligation, in the name of the
Grantor or the Investors, and the expenses of the Investors
incurred in connection therewith shall be payable by the Grantor
pursuant to Section 7 and 9.
(d) The powers conferred on the Investors hereunder
are solely to protect their interest in the Collateral and shall
not impose any duty upon it to exercise any such powers. Except
for the safe custody of any Collateral in their possession and
the accounting for moneys actually received by it hereunder, the
Investors shall have no duty as to any Collateral or as to the
taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral.
SECTION 7. Remedies Upon Default. If any Event of Default
shall have occurred and be continuing:
(a) The Investors may exercise in respect of the
Collateral, or any part thereof, in addition to other rights and
remedies provided for herein, in the Investment Agreement, the
Notes or in the Note Documents or otherwise available to it, all
of the rights and remedies of a secured party in default under
the Code (whether or not the Code applies to the affected
Collateral), and are hereby authorized and empowered, at their
election, (i) to (if they have not previously done so pursuant to
Section 2) transfer and register in their or their nominee's name
the whole or any part of the Collateral, (ii) to exercise all
voting rights with respect thereto, (iii) to demand, sue for,
collect, receive and give acquittance for any and all cash
dividends or other distributions or monies due or to become due
upon or by virtue thereof, and to settle prosecute or defend any
action or proceeding with respect thereto, (iv) to otherwise to
act with respect to the Collateral or the proceeds thereof as
though the Investors were the outright owners thereof, Grantor
hereby irrevocably constituting the Investors as its proxies and
attorneys-in-fact, with full power of substitution to do so and
(v) without notice, except as specified below, sell the
Collateral or any part thereof in one or more parcels at public
or private sale, at any of the Investors's offices or elsewhere,
for cash, on credit or for future delivery, and at such price or
prices and upon such other terms as the Investors may deem
commercially reasonable. The Grantor agrees that, to the extent
notice of sale shall be required by law, at least 10 days' notice
to the Grantor of the time and place of any public sale or the
time after which any private sale is to be made shall constitute
reasonable notification. The Investors shall not be obligated to
make any sale of Collateral regardless of notice of sale having
been given. The Investors may adjourn any public or private sale
from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. The Grantor
hereby waives any claims against the Investors arising by reason
of the fact that the price at which the Collateral may have been
sold at a private sale was less than the price which might have
been obtained at a public sale or was less than the aggregate
amount of the Obligations, even if the Investors accept the first
offer received and does not offer the Collateral to more than one
offeree and waives all rights which the Grantor may have to
require that all or any part of the Collateral be marshalled upon
any sale (public or private) thereof.
(b) Any cash held by the Investors as Collateral
and all proceeds received by the Investors in respect of any sale
or collection from, or other realization upon, all or any part of
the Collateral, after payment from such proceeds of the
Investors's out-of-pocket costs and expenses in connection with
such sale, including, without limitation reasonable attorneys'
fees and expenses, may, in the discretion of the Investors, be
held by the Investors as collateral for, and/or then or at any
time thereafter applied in whole or in part by the Investors
against, all or any part of the Obligations in such manner as the
Investors may elect in their sole discretion.
(c) Other than the exercise of reasonable care in
the custody and preservation of the Collateral, the Investors
shall have no duty with respect thereto. the Investors shall be
deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that
which it accords its own property, and shall not be liable or
responsible for any loss or damage to any of the Collateral, or
for any diminution in the value thereof, by reason of the act or
omission of any agent or bailee selected by the Investors in good
faith.
(d) In the event that the proceeds of any such
sale, collection or realization are insufficient to pay all
amounts to which the Investors are legally entitled, the Grantor
shall be liable for the deficiency, together with interest
thereon at the Default Rate or such other rate as shall be fixed
by applicable law, together with the costs of collection and the
reasonable fees, costs, expenses and other client charges of any
attorneys employed by the Investors to collect such deficiency.
(e) The Investors may employ and maintain in the
premises of the Grantor one or more custodians selected by the
Investors who shall have full authority to do all acts necessary
or desirable to protect the Investors's interests hereunder. The
Grantor hereby agree to cooperate with any such custodian and to
do whatever the Investors may reasonably request to preserve the
Collateral. All costs and expenses incurred by the Investors, by
reason of the employment of the custodian, shall be payable the
Grantor pursuant to Section 9.
SECTION 8. Registration Rights. If the Investors shall
determine to exercise their right to sell all or any of the Pledged
Shares pursuant to Section 7, the Grantor agrees that, upon request of
the Investors, the Grantor will, at its own expense:
(a) Execute and deliver, and cause the Subsidiary
and the directors and officers thereof to execute and deliver,
all such instruments and documents, and do or cause to be done
all such other acts and things, as may be necessary or, in the
opinion of the Agent, advisable to register the Pledged Shares
under the provisions of the Securities Act of 1933, as from time
to time amended (the "Securities Act"), and to cause the
registration statement relating thereto to become effective and
to remain effective for such period as prospectuses are required
by law to be furnished, and to make all amendments and
supplements thereto and to the related prospectus which, in the
opinion of the Investors, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the
rules and regulations of the Securities and Exchange Commission
applicable thereto;
(b) Use its best efforts to qualify the Pledged
Shares under the state securities or "Blue Sky" laws and to
obtain all necessary governmental approvals for the sale of the
Pledged Shares, as requested by the Investors;
(c) Cause the Subsidiary to make available to its
security holders, as soon as practicable, an earning statement
which will satisfy the provisions of Section 11(a) of the
Securities Act; and
(d) Do or cause to be done all such other acts and
things as may be necessary to make such sale of the Pledged
Shares or any part thereof valid and binding and in compliance
with applicable law. The Grantor further acknowledges the
impossibility of ascertaining the amount of damages which would
be suffered by the Investors by reason of the failure by the
Grantor to perform any of the covenants contained in this Section
and, consequently, agrees that, if the Grantor shall fail to
perform any of such covenants, it shall pay, as liquidated
damages and not as a penalty, an amount equal to the value of the
Pledged Shares on the date the Investors shall demand compliance
with this Section.
SECTION 9. Indemnity and Expenses.
(a) The Grantor agrees to indemnify and hold the
Investors, its Affiliates and each officer, director and agent of
the Investors or any of its Affiliates (the "Indemnitees")
harmless from and against any and all claims, damages, losses,
liabilities, obligations, penalties, costs or expenses
(including, without limitation, reasonable legal fees, costs,
expenses and other client charges) to the extent that they arise
out of or otherwise result from this Agreement (including,
without limitation, enforcement of this Agreement), except
claims, losses or liabilities resulting solely and directly from
an Indemnitee's gross negligence or willful misconduct as
determined by a final determination of a court of competent
jurisdiction.
(b) Without limiting the generality of the
foregoing, the Grantor will upon demand pay to each Indemnitee
(i) the amount of any and all costs and expenses, including the
reasonable fees, costs, expenses and other client charges of
counsel for such Indemnitee and of any experts and agents
(including, without limitation, any Person which may act as agent
of such Indemnitee), which such Indemnitee may incur in
connection with (A) the preparation, negotiation, execution,
delivery, recordation, administration, amendment, waiver or other
modification or termination of this Agreement, or (B) the
custody, preservation, use or operation of the Collateral and
(ii) the amount of any and all costs and expenses, including the
reasonable fees, costs, expenses and other client charges of
counsel for such Indemnitee and of any experts and agents
(including, without limitation, any Person which may act as agent
of such Indemnitee), which such Indemnitee may incur in
connection with (A) the sale of, collection from, or other
realization upon, any Collateral, (B) the exercise or enforcement
of any of the rights of such Indemnitee hereunder, or (C) the
failure by the Grantor to perform or observe any of the
provisions hereof.
SECTION 10. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing and shall be
mailed, telecopied or delivered, if to the Grantor, to them at the
addresses specified in the Investment Agreement; and if to the Investors,
to it at its address specified in the Investment Agreement; or as to any
such Person at such other address as shall be designated by such Person
in a written notice to such other person complying as to delivery with
the terms of this Section 10. All such notices and other communications
shall be effective (i) if mailed, when received or three Business Days
after deposited in the mail, whichever first occurs (ii) if telecopied,
when transmitted and a confirmation is received, or (iii) if delivered,
upon delivery.
SECTION 11. Miscellaneous.
(a) No amendment of any provision of this Agreement
shall be effective unless it is in writing and signed by the
Grantor and the Investors, and no waiver of any provision of this
Agreement, and no consent to any departure by the Grantor
therefrom, shall be effective unless it is in writing and signed
by the Investors, and then such waiver or consent shall be
effective only in the specific instance and for the specific
purpose for which given.
(b) No failure on the part of the Investors to
exercise, and no delay in exercising, any right hereunder or
under any other Note Document shall operate as a waiver thereof;
nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of
any other right. The rights and remedies of the Investors
provided herein and in the other Note Documents are cumulative
and are in addition to, and not exclusive of, any rights or
remedies provided by law. The rights of the Investors under any
Note Document against any party thereto are not conditional or
contingent on any attempt by the Investors to exercise any of its
rights under any other Note Document against such party or
against any other Person.
(c) Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining portions
hereof or thereof or affecting the validity or enforceability of
such provision in any other jurisdiction.
(d) This Agreement shall create a continuing
security interest in the Collateral and shall (i) remain in full
force and effect until the payment in full or release of the
Obligations and the termination of the Investment Agreement; and
(ii) be binding on the Grantor, their successors and assigns,
except that the Grantor may not assign or transfer any of their
rights hereunder without the prior written consent of the
Investors, and shall inure, together with all rights and remedies
of the Investors hereunder, to the benefit of the Investors and
its permitted successors, transferees and assigns. Without
limiting the generality of clause (ii) of the immediately
preceding sentence, without notice to the Grantor, the Investors
may assign or otherwise transfer its rights under this Agreement
and any other Note Document, to any other Person pursuant to the
terms of the Investment Agreement and such other Person shall
thereupon become vested with all of the benefits in respect
thereof granted to the Investors herein or otherwise. Upon any
such assignment or transfer, all references in this Agreement to
the Investors shall mean the assignee of the Investors. None of
the rights or obligations of the Grantor hereunder may be
assigned or otherwise transferred without the prior written
consent of the Investors, and any such assignment or transfer
shall be null and void.
(e) Upon the satisfaction in full of the
Obligations and the termination of the Investment Agreement, (i)
this Agreement and the security interests created hereby shall
terminate and all rights to the Collateral shall revert to the
Grantor and (ii) the Investors will, upon the Grantor's request
and at the requesting Grantor's cost and expense, (A) return to
the Grantor(s) such of the Collateral as shall not have been sold
or otherwise disposed of or applied pursuant to the terms hereof
and (B) execute and deliver to the Grantor such documents as the
Grantor shall reasonably request to evidence such termination,
all without any representation, warranty or recourse whatsoever.
(f) This Agreement shall be governed by and
construed in accordance with the law of the State of New York,
except to the extent that the validity and perfection or the
perfection and the effect of perfection or non-perfection of the
security interest created hereby, or remedies hereunder, in
respect of any particular Collateral are governed by the law of a
jurisdiction other than the State of New York.
(g) This Agreement supersedes all prior
understandings and agreements, whether written or oral, among the
parties hereto relating to the transactions provided for herein.
(h) All representations and warranties of the
Grantor contained herein or made in connection herewith shall
survive the making of and shall not be waived by the execution
and delivery of this Agreement, the Investment Agreement, the
Notes or any other Note Document, any investigation by the
Investors or the purchasing of the Notes. All covenants and
agreements of the Grantor contained herein shall continue in full
force and effect from and after the date hereof until the
indefeasible payment in full of the Obligations.
(i) Section headings in this Agreement are included
herein for the convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
(j) BY ITS EXECUTION AND DELIVERY OF THIS
AGREEMENT, THE GRANTOR HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHTS EITHER OF THEM MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT
OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT, THE INVESTMENT
AGREEMENT, THE NOTES OR ANY OTHER NOTE DOCUMENT, ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF THE INVESTORS OR The GRANTOR IN CONNECTION
HEREWITH OR THEREWITH. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR THE INVESTORS TO ENTER INTO THIS AGREEMENT.
IN WITNESS WHEREOF, the Grantor has caused this Agreement
to be executed and delivered by its officer thereunto duly authorized as
of the date first above written.
COMPLETE WELLNESS CENTERS,
INC.
By: /s/ E. Eugene Sharer
Name:
Title:
Accepted and Agreed:
IMPRIMIS INVESTORS LLC
By: Wexford Management LLC
By: /s/ Frank Plimpton
Name: Frank Plimpton
Title: VP
Schedule I
PLEDGED SHARES
Schedule II
ADDRESS OF GRANTOR
Chief Place of Business, 725 Independence Avenue, S.E.
Chief Executive Office Washington, D.C. 20003
and Location of Records
Schedule III
UCC-1 FINANCING STATEMENTS
EXHIBIT IV
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of December 19, 1997, made
by Complete Wellness Medical Center of _______, Inc., Inc., a
Florida corporation (the "Grantor"), in favor of Imprimis
Investors LLC ("Imprimis") and any subsequent holders (together
with Imprimis Investors LLC, the "Investors") of Notes (as
defined below).
W I T N E S S E T H:
WHEREAS, Complete Wellness Centers, Inc., a Delaware
corporation (the "Parent"), Imprimis and Wexford Spectrum
Investors LLC are parties to that certain Investment Agreement,
dated as of the date hereof (such agreement, as amended,
restated, supplemented or otherwise modified from time to time,
being hereafter referred to as the "Investment Agreement");
WHEREAS, pursuant to the Investment Agreement, Imprimis
has agreed to purchase certain debt securities (the "Notes") from
the Parent, the proceeds of which shall be used solely (i) to pay
the transaction costs and expenses incurred in connection with
the sale of the Notes, (ii) to complete the Parent's pending
acquisition of the assets of Nutri/System, L.P. (the
"Acquisition") through Complete Weight Management, Inc. (the
"Subsidiary"), a Delaware corporation, which will hold such
assets, (iii) for working capital purposes of the Subsidiary and
(iv) for general and administrative purposes of the Parent.
WHEREAS, it is a condition precedent to the
effectiveness of the Investment Agreement and Imprimis'
purchasing the Notes from the Parent that the Grantor shall have
executed and delivered to the Investors a security agreement
providing for the grant to the Investors of a security interest
in certain property of the Grantor;
NOW, THEREFORE, in consideration of the premises and
the agreements herein and in order to induce Imprimis to purchase
the Notes from the Parent pursuant to the Investment Agreement,
the Grantor hereby agrees with Imprimis as follows:
SECTION 1. Definitions. Reference is hereby made to
the Investment Agreement for a statement of the terms thereof.
All terms used in this Agreement which are defined in the
Investment Agreement or in Article 9 of the Uniform Commercial
Code (the "Code") currently in effect in the State of New York,
and which are not otherwise defined herein, shall have the same
meanings herein as set forth therein.
SECTION 2. Grant of Security Interest. As collateral
security for all of the Obligations (as defined in Section 3
hereof), the Grantor hereby pledges and assigns to the Investors,
and grants to the Investors, a continuing security interest in
the collateral set forth below (the "Collateral"):
(a) any and all accounts, contract rights,
chattel paper, instruments, documents, deposit accounts,
general intangibles and other obligations of any kind,
whether now or hereafter existing and whether now or
hereafter acquired, arising out of or in connection with the
sale or lease of goods or the rendering of services or
otherwise, including, without limitation all rights relating
to the performance by or for the Grantors of management,
advisory, medical, consulting or other similar services, and
(ii) all rights now or hereafter existing in and to all
insurance policies, including any interest or claim in or
under any insurance policy or any issuer of the same or
claim to insurance coverage or rights to reimbursement for
advisory, medical, consulting or other similar services from
any private or governmental entity, rights to workers
compensation and personal injury or litigation settlements,
credit insurance, guaranties, letters of credit, security
agreements, leases and other contracts now or hereafter
existing and securing or otherwise relating to any such
accounts, contract rights, chattel paper, instruments,
general intangibles or obligations (including, without
limitation, the contracts described in Schedule I hereto)
(any and all such accounts, contract rights, chattel paper,
instruments, deposit accounts, general intangibles and
obligations being hereinafter referred to collectively as
the "Receivables," and any and all such insurance policies,
including any interest or claim in or under any insurance
policy or any issuer of the same or claim to insurance
coverage or rights to reimbursement for advisory, medical,
consulting or other similar services from any private or
governmental entity, rights to workers compensation and
personal injury or litigation settlements, credit insurance,
guaranties, letters of credit, security agreements, leases
and other contracts being hereinafter referred to
collectively as the "Related Contracts");
(b) all cash and noncash proceeds of any and all
of the foregoing Collateral.
SECTION 3. Security for Obligations. The security
interest created hereby in the Collateral constitutes continuing
collateral security for all of the following obligations, whether
now existing or hereafter incurred (the "Obligations"):
(a) the payment by the Parent, as and when due
and payable, of all amounts from time to time owing by the
Parent to the Investors in respect of the Investment
Agreement, the Notes and the other Note Documents,
including, without limitation, principal of and interest on
the Notes (including, without limitation, all interest that
accrues after the commencement of any case, proceeding or
other action relating to bankruptcy, insolvency or
reorganization of the Parent whether or not the payment of
such interest is unenforceable or is not allowable due to
the existence of such case, proceeding or other action), all
fees, commissions, expense reimbursements, indemnifications
and all other amounts due or to become due under the
Investment Agreement, the Notes and any other Note Document;
and
(b) the due performance and observance by the
Parent and the Grantor of all obligations from time to time
existing in respect of the Investment Agreement and all
other Note Documents.
SECTION 4. Grantor Remains Liable. Anything herein to
the contrary notwithstanding, (a) the Grantor shall remain liable
under the contracts and agreements included in the Collateral to
the extent set forth therein to perform all of its duties and
obligations thereunder to the same extent as if this Agreement
had not been executed, (b) the exercise by the Investors of any
of the rights hereunder shall not release the Grantor from any of
its duties or obligations under the contracts and agreements
included in the Collateral, and (c) the Investors shall not have
any obligation or liability under the contracts and agreements
included in the Collateral by reason of this Agreement, nor shall
the Investors be obligated to perform any of the obligations or
duties of the Grantor thereunder or to take any action to collect
or enforce any claim for payment assigned hereunder.
SECTION 5. Representations and Warranties. The Grantor
represents and warrants as follows:
(a) There is no pending or threatened action,
suit, proceeding or claim before any court or other
Governmental Authority or any arbitrator, or any order,
judgment or award by any court or other Governmental
Authority or arbitrator, that may adversely affect the
grants by the Grantor, or the perfection or priority, of the
security interest purported to be created hereby in the
Collateral, or the exercise by the Investors of any of their
rights or remedies hereunder.
(b) All taxes, assessments and other governmental
charges imposed upon the Grantor or any property of the
Grantor (including, without limitation, all federal income
and social security taxes on employees' wages) and which
have become due and payable on or prior to the date hereof
have been paid, except to the extent contested in good faith
by proper proceedings which stay the imposition of any
penalty, fine or lien resulting from the non-payment thereof
and with respect to which adequate reserves in accordance
with GAAP, have been established for the payment thereof.
(c) The chief place of business and chief
executive office of the Grantor, the place where the Grantor
keeps its records concerning Receivables, and the all
originals of all chattel paper and other documents which
constitute Receivables, are located at the addresses
specified therefor in Schedule II hereto. None of the
Receivables is evidenced by a promissory note or other
instrument.
(d) The Grantor has delivered to the Investors
complete and correct copies of each Related Contract
described in Schedule I hereto, including all schedules and
exhibits thereto. Each such Related Contract sets forth the
entire agreement and understanding of the parties thereto
relating to the subject matter thereof, and there are no
other agreements, arrangements or understandings, written or
oral, relating to the matters covered thereby or the rights
of the Grantor in respect thereof. Each Related Contract now
existing is, and each other Related Contract will be, the
legal, valid and binding obligation of the parties thereto,
enforceable against such parties in accordance with its
terms. No default thereunder by any such party has occurred,
nor does any defense, offset, deduction or counterclaim
exist thereunder in favor of any such party.
(e) The Grantor is and will be at all times the
sole and exclusive owner of the Collateral free and clear of
any Lien, claim, security interest, charge or other
encumbrance of any kind with full authority to sell,
transfer and grant a security interest in, each item of
Collateral, except for Liens permitted pursuant to the
Investment Agreement. No effective financing statement or
other instrument similar in effect covering all or any part
of the Collateral is on file in any recording or filing
office except such as may have been filed with respect to
the Liens permitted pursuant to the Investment Agreement.
(f) The exercise by the Investors of any of their
rights and remedies hereunder will not contravene law or any
contractual restriction binding on or otherwise affecting
the Grantor or any of its properties and will not result in
or require the creation of any Lien, claim, security
interest, charge or other encumbrance upon or with respect
to any of its properties.
(g) No authorization or approval or other action
by, and no notice to or filing with, any Governmental
Authority or other regulatory body, or any other Person, is
required for (i) the grant by the Grantor, or the
perfection, of the security interest purported to be created
hereby in the Collateral or (ii) the exercise by the
Investors of any of the rights and remedies hereunder,
except the filing under the Uniform Commercial Code as in
effect in the applicable jurisdiction of the financing
statements described in Schedule III hereto, all of which
financing statements have been or will be duly filed and are
or upon filing will be in full force and effect.
(h) This Agreement creates valid liens on, and
security interests in, the Collateral, in favor of the
Investors as security for the Obligations, subject only to
the Liens permitted pursuant to the Investment Agreement.
The Investors' having possession of all instruments and cash
constituting Collateral from time to time, and the filing of
the financing statements described in Schedule III hereto
result in the perfection of such pledges and security
interests. Such security interests are, or in the case of
Collateral in which the Grantor obtains rights after the
date hereof, will be, perfected, first priority security
interests, subject only to (i) the security interests and
other encumbrances permitted pursuant to the terms of the
Investment Agreement, and (ii) the recording of such
instruments of assignment. Such recordings and filings and
all other action necessary or desirable to perfect and
protect such pledge or security interest have been duly
taken, except for the Investors having possession of
instruments and cash constituting Collateral after the date
hereof and the other filings and recordations described in
Section 5(g) hereof.
(i) There are no conditions precedent to the
effectiveness of this Agreement that have not been satisfied
or waived.
SECTION 6. Covenants as to the Collateral. So long as
any of the Obligations shall remain outstanding, unless the
Investors shall otherwise consent in writing:
(a) The Grantor will at its expense, at any time
and from time to time, promptly execute and deliver all
further instruments and documents and take all further
action that may be necessary or desirable or that the
Investors may request in order (i) to perfect and protect
the security interest purported to be created hereby; (ii)
to enable the Investors to exercise and enforce their rights
and remedies hereunder in respect of the Collateral; or
(iii) otherwise to effect the purposes of this Agreement,
including, without limitation: (A) marking conspicuously
each chattel paper included in the Receivables and each
Related Contract and, at the request of the Investors, each
of its records pertaining to the Collateral with a legend,
in form and substance satisfactory to the Investors,
indicating that such chattel paper, Related Contract or
Collateral is subject to the pledge and security interest
created hereby, (B) if any Receivable shall be evidenced by
a promissory note or other instrument or chattel paper,
delivering and pledging to the Investors hereunder such
note, instrument or chattel paper duly endorsed and
accompanied by executed instruments of transfer or
assignment, all in form and substance satisfactory to the
Investors, (C) executing and filing such financing or
continuation statements, or amendments thereto, as may be
necessary or desirable or that the Investors may request in
order to perfect and preserve the security interest
purported to be created hereby, and (D) furnishing to the
Investors from time to time statements and schedules further
identifying and describing the Collateral and such other
reports in connection with the Collateral as the Investors
may reasonably request, all in reasonable detail.
(b) Unless the Grantor shall have given the
Investors not less than 30 days' prior notice thereof, the
Grantor will not change (i) its name, identity or corporate
structure in any manner or (ii) the location of its chief
executive office.
(c) Transfers and Other Liens.
(i) The Grantor will not sell, assign (by
operation of law or otherwise), lease, exchange or
otherwise transfer or dispose of any of the Collateral
except as provided in Section VIII (F) of the
Investment Agreement.
(ii) The Grantor will not create or suffer to
exist any Lien, claim, security interest, charge or
other encumbrance upon or with respect to any
Collateral except for the security interests permitted
pursuant to the terms of the Investment Agreement.
(d) The Grantor shall permit the Investors, or
any agents or representatives of the Investors or such
professionals or other Persons as the Investors may
designate (i) to examine and inspect the books and records
of the Grantor and take copies and extracts therefrom, and
(ii) to discuss the affairs, finances and accounts of the
Grantor, with, and be advised as to the same by, their
officers, directors and independent accountants (and, by
this subsection (d), the Grantor authorize each such
officer, director and independent accountant to discuss the
affairs, finances and accounts of the Grantor with such
Person), provided that, in the absence of a continuing Event
of Default, all such actions described in clauses (i) and
(ii) above shall be conducted at reasonable times and during
normal business hours. In addition, the Grantor shall
forward to the Investors copies of any notices or
communications received or made by the Grantor with respect
to the Collateral, all in such manner as the Investors may
reasonably require.
(e) The Grantor will (i) keep its chief place of
business and chief executive office and all originals of all
chattel paper which constitute its Receivables at the
location(s) specified therefor in Schedule II hereto, and
(ii) keep adequate records concerning the Receivables and
such chattel paper and permit representatives of the
Investors at reasonable times and during normal business
hours to inspect and make abstracts from such records and
chattel paper in accordance with Section VII (G) of the
Investment Agreement.
(f) The Grantor will duly perform and observe all
of its obligations under each Related Contract and, except
as otherwise provided in this subsection (f), continue to
collect, at its own expense, all amounts due or to become
due under the Receivables. In connection with such
collections, the Grantor may (and, at the Investors'
direction, will) take such action as the Grantor or the
Investors may reasonably deem necessary or advisable to
enforce collection or performance of the Receivables;
provided, however, that the Investors shall have the right
at any time, upon the occurrence and during the continuance
of an Event of Default to notify the account debtors or
obligors under any such Receivables of the assignment of
such Receivables to the Investors and to direct such account
debtors or obligors to make payment of all amounts due or to
become due to the Grantor thereunder directly to the
Investors or its designated agent and, upon such
notification and at the expense of the Grantor and to the
extent permitted by law, to enforce collection of any such
Receivables and to adjust, settle or compromise the amount
or payment thereof, in the same manner and to the same
extent as the Grantor might have done. After receipt by the
Grantor of a notice from the Investors that the Investors
have notified or intend to notify the account debtors or
obligors under any Receivables as referred to in the proviso
to the immediately preceding sentence, then (i) all amounts
and proceeds (including instruments) received by the Grantor
in respect of any Receivables shall be received in trust for
the benefit of the Investors hereunder, shall be segregated
from other funds of the Grantor and shall be forthwith paid
over to the Investors in the same form as so received (with
any necessary endorsement) to be applied to the Obligations,
and (ii) the Grantor will not adjust, settle or compromise
the amount or payment of any Receivable or release in whole
or in part any account debtor or obligor thereof or allow
any credit or discount thereon. In addition, upon the
occurrence and during the continuance of an Event of
Default, the Investors shall have the right to notify the
United States Postal Service authorities to change the
address for delivery of mail addressed to the Grantor at
such addresses as the Investors may designate and to do all
other acts and things necessary or desirable to effect the
purposes of this Agreement.
(g) Upon the occurrence and during the
continuance of any breach or default under any Related
Contract referred to in Schedule I hereto by any party
thereto other than the Grantor, the Grantor (i) will,
promptly after obtaining knowledge of such breach or
default, give the Investors written notice of the nature and
duration of such breach or default, specifying what action,
if any, it has taken and proposes to take with respect
thereto, (ii) will not, without the prior written consent of
the Investors, declare or waive any such breach or default
or affirmatively consent to the cure thereof or exercise any
of its remedies in respect thereof, and (iii) will, upon
written instructions from the Investors and at the Grantor's
expense, take such action as the Investors may deem
necessary or advisable in respect thereof.
(h) The Grantor will, at its expense, promptly
deliver to the Investors a copy of each notice or other
communication received by it by which any other party to any
Related Contract referred to in Schedule I hereto purports
to exercise any of its rights or affect any of its
obligations thereunder, together with a copy of any reply by
the Grantor thereto.
(i) The Grantor will not, without the prior
written consent of the Investors, cancel, terminate, amend
or otherwise modify in any respect, or waive any provision
of, any Related Contract referred to in Schedule I hereto.
(j) If any Receivable includes a charge for any
tax payable to any Governmental Authority, the Investors are
hereby authorized (but in no event obligated) in its
discretion to pay the amount thereof to the proper taxing
authority for the account of the Grantor and to charge the
Grantor therefor. The Grantor shall notify the Investors if
any Receivable includes any taxes due to any Governmental
Authority and, in the absence of such notice, the Investors
shall have the right to retain any proceeds of such
Receivable that the Investors receive and shall not be
liable for any taxes that may be due from the Grantor by
reason of the sale and delivery creating such Receivable.
SECTION 7. Additional Provisions Concerning the
Collateral.
(a) The Grantor hereby authorizes the Investors
to file, without the signature of the Grantor where
permitted by law, one or more financing or continuation
statements, and amendments thereto, relating to the
Collateral.
(b) The Grantor hereby irrevocably appoints the
Investors or their designee on behalf of the Investors the
Grantor's attorney-in-fact and proxy, with full authority in
the place and stead of the Grantor and in the name of the
Grantor or otherwise, from time to time in the Investors'
discretion, to take any action and to execute any instrument
which the Investors may deem necessary or advisable to
accomplish the purposes of this Agreement including, without
limitation, (i) upon the occurrence of an Event of Default,
to ask, demand, collect, sue for, recover, compound, receive
and give acquittance and receipts for moneys due and to
become due under or in respect of any Collateral, and (ii)
to receive, endorse, assign and collect any drafts or other
instruments, documents and chattel paper in connection with
clause (i) above, and (iii) to file any claims or take any
action or institute any proceedings which the Investors may
deem necessary or desirable for the collection of any
Collateral or otherwise to enforce the rights of the
Investors with respect to any Collateral. All acts of said
attorney or designee are hereby ratified and approved, and
said attorney or designee shall not be liable for any acts
of omission or commission (other than acts or omissions
constituting gross negligence or willful misconduct as
determined by a final judgment or a court of competent
jurisdiction), nor for any error of judgment or mistake of
fact or law. This power is coupled with an interest and is
irrevocable until all of the Obligations are paid in full
and the Investment Agreement is terminated.
(c) If the Grantor fails to perform any agreement
contained herein, the Investors may themselves perform, or
cause performance of, such agreement or obligation, in the
name of the Grantor or the Investors, and the expenses of
the Investors incurred in connection therewith shall be
payable by the Grantor pursuant to Sections 8 and 9.
(d) The powers conferred on the Investors
hereunder are solely to protect its interest in the
Collateral and shall not impose any duty upon it to exercise
any such powers. Except for the safe custody of any
Collateral in its possession and the accounting for moneys
actually received by it hereunder, the Investors shall have
no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or
any other rights pertaining to any Collateral.
(e) Anything herein to the contrary
notwithstanding (i) the Grantor shall remain liable under
the Related Contracts and otherwise with respect to any of
the Collateral to the extent set forth therein to perform
all of its obligations thereunder to the same extent as if
this Agreement had not been executed, (ii) the exercise by
the Investors of any of their rights hereunder shall not
release the Grantor from their obligations under the Related
Contracts or otherwise in respect of the Collateral, and
(iii) the Investors shall not have any obligation or
liability by reason of this Agreement under the Related
Contracts or with respect to any of the other Collateral,
nor shall the Investors be obligated to perform any of the
obligations or duties of the Grantor thereunder or to take
any action to collect or enforce any claim for payment
assigned hereunder.
SECTION 8. Remedies Upon Default. If any Event of
Default shall have occurred and be continuing:
(a) The Investors may exercise in respect of the
Collateral, or any part thereof, in addition to other rights
and remedies provided for herein, in the Investment
Agreement, the Notes or in the Note Documents or otherwise
available to it, all of the rights and remedies of a secured
party in default under the Code (whether or not the Code
applies to the affected Collateral), and also may (i) take
absolute control of the Collateral, including without
limitation transfer into the Investors' names or into the
names of their nominee or nominees (to the extent the
Investors have not theretofore done so) and thereafter
receive, for the benefit of the Investors, all payments made
thereon, give all consents, waivers and ratifications in
respect thereof and otherwise act with respect thereto as
though it were the outright owner thereof, (ii) require the
Grantor to, and the Grantor hereby agrees that it will at
its expense and upon request of the Investors forthwith,
assemble all or part of the Collateral as directed by the
Investors and make it available to the Investors at a place
or places to be designated by the Investors which is
reasonably convenient to all parties, and the Investors may
enter into and occupy any premises owned or leased by the
Grantor where the Collateral of any part thereof is located
or assembled for a reasonable period in order to effectuate
the Investors' rights and remedies hereunder or under law,
without obligation to the Grantor in respect of such
occupation, and (iii) without notice, except as specified
below, sell the Collateral or any part thereof in one or
more parcels at public or private sale, at any of the
Investors' offices or elsewhere, for cash, on credit or for
future delivery, and at such price or prices and upon such
other terms as the Investors may deem commercially
reasonable. The Grantor agrees that, to the extent notice of
sale shall be required by law, at least 10 days' notice to
the Grantor of the time and place of any public sale or the
time after which any private sale is to be made shall
constitute reasonable notification. The Investors shall not
be obligated to make any sale of Collateral regardless of
notice of sale having been given. The Investors may adjourn
any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to
which it was so adjourned. The Grantor hereby waives any
claims against the Investors arising by reason of the fact
that the price at which the Collateral may have been sold at
a private sale was less than the price which might have been
obtained at a public sale or was less than the aggregate
amount of the Obligations, even if the Investors accepts the
first offer received and does not offer the Collateral to
more than one offeree and waives all rights which the
Grantor may have to require that all or any part of the
Collateral be marshalled upon any sale (public or private)
thereof.
(b) Any cash held by the Investors as Collateral
and all proceeds received by the Investors in respect of any
sale or collection from, or other realization upon, all or
any part of the Collateral, after payment from such proceeds
of the Investors's out-of-pocket costs and expenses in
connection with such sale, including, without limitation
reasonable attorneys' fees and expenses, may, in the
discretion of the Investors, be held by the Investors as
collateral for, and/or then or at any time thereafter
applied in whole or in part by the Investors against, all or
any part of the Obligations in such manner as the Investors
may elect in its sole discretion.
(c) Other than the exercise of reasonable care in
the custody and preservation of the Collateral, the
Investors shall have no duty with respect thereto. the
Investors shall be deemed to have exercised reasonable care
in the custody and preservation of the Collateral in its
possession if the Collateral is accorded treatment
substantially equal to that which it accords its own
property, and shall not be liable or responsible for any
loss or damage to any of the Collateral, or for any
diminution in the value thereof, by reason of the act or
omission of any agent or bailee selected by the Investors in
good faith.
(d) In the event that the proceeds of any such
sale, collection or realization are insufficient to pay all
amounts to which the Investors is legally entitled, the
Grantor shall be liable for the deficiency, together with
interest thereon at the Default Rate or such other rate as
shall be fixed by applicable law, together with the costs of
collection and the reasonable fees, costs, expenses and
other client charges of any attorneys employed by the
Investors to collect such deficiency.
(e) The Investors may employ and maintain in the
premises of the Grantor one or more custodians selected by
the Investors who shall have full authority to do all acts
necessary or desirable to protect the Investors's interests
hereunder. The Grantor hereby agree to cooperate with any
such custodian and to do whatever the Investors may
reasonably request to preserve the Collateral. All costs and
expenses incurred by the Investors, by reason of the
employment of the custodian, shall be payable the Grantor
pursuant to Section 9.
SECTION 9. Indemnity and Expenses.
(a) The Grantor agrees to indemnify and hold the
Investors, its Affiliates and each officer, director and
agent of the Investors or any of its Affiliates (the
"Indemnitees") harmless from and against any and all claims,
damages, losses, liabilities, obligations, penalties, costs
or expenses (including, without limitation, reasonable legal
fees, costs, expenses and other client charges) to the
extent that they arise out of or otherwise result from this
Agreement (including, without limitation, enforcement of
this Agreement), except claims, losses or liabilities
resulting solely and directly from an Indemnitee's gross
negligence or willful misconduct as determined by a final
determination of a court of competent jurisdiction.
(b) Without limiting the generality of the
foregoing, the Grantor will upon demand pay to each
Indemnitee (i) the amount of any and all costs and expenses,
including the reasonable fees, costs, expenses and other
client charges of counsel for such Indemnitee and of any
experts and agents (including, without limitation, any
Person which may act as agent of such Indemnitee), which
such Indemnitee may incur in connection with (A) the
preparation, negotiation, execution, delivery, recordation,
administration, amendment, waiver or other modification or
termination of this Agreement, or (B) the custody,
preservation, use or operation of the Collateral and (ii)
the amount of any and all costs and expenses, including the
reasonable fees, costs, expenses and other client charges of
counsel for such Indemnitee and of any experts and agents
(including, without limitation, any Person which may act as
agent of such Indemnitee), which such Indemnitee may incur
in connection with (A) the sale of, collection from, or
other realization upon, any Collateral, (B) the exercise or
enforcement of any of the rights of such Indemnitee
hereunder, or (C) the failure by the Grantor to perform or
observe any of the provisions hereof.
SECTION 10. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing and
shall be mailed, telecopied or delivered, if to the Grantor, to
them at the addresses specified in the Investment Agreement; and
if to the Investors, to it at its address specified in the
Investment Agreement; or as to any such Person at such other
address as shall be designated by such Person in a written notice
to such other person complying as to delivery with the terms of
this Section 11. All such notices and other communications shall
be effective (i) if mailed, when received or three Business Days
after deposited in the mail, whichever first occurs (ii) if
telecopied, when transmitted and a confirmation is received, or
(iii) if delivered, upon delivery.
SECTION 11. Miscellaneous.
(a) No amendment of any provision of this
Agreement shall be effective unless it is in writing and
signed by the Grantor and the Investors, and no waiver of
any provision of this Agreement, and no consent to any
departure by the Grantor therefrom, shall be effective
unless it is in writing and signed by the Investors, and
then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which
given.
(b) No failure on the part of the Investors to
exercise, and no delay in exercising, any right hereunder or
under any other Note Document shall operate as a waiver
thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or
the exercise of any other right. The rights and remedies of
the Investors provided herein and in the other Note
Documents are cumulative and are in addition to, and not
exclusive of, any rights or remedies provided by law. The
rights of the Investors under any Note Document against any
party thereto are not conditional or contingent on any
attempt by the Investors to exercise any of its rights under
any other Note Document against such party or against any
other Person.
(c) Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining portions hereof or thereof or affecting the
validity or enforceability of such provision in any other
jurisdiction.
(d) This Agreement shall create a continuing
security interest in the Collateral and shall (i) remain in
full force and effect until the payment in full or release
of the Obligations and the termination of the Investment
Agreement; and (ii) be binding on the Grantor, their
successors and assigns, except that the Grantor may not
assign or transfer any of their rights hereunder without the
prior written consent of the Investors, and shall inure,
together with all rights and remedies of the Investors
hereunder, to the benefit of the Investors and its permitted
successors, transferees and assigns. Without limiting the
generality of clause (ii) of the immediately preceding
sentence, without notice to the Grantor, the Investors may
assign or otherwise transfer its rights under this Agreement
and any other Note Document, to any other Person pursuant to
the terms of the Investment Agreement and such other Person
shall thereupon become vested with all of the benefits in
respect thereof granted to the Investors herein or
otherwise. Upon any such assignment or transfer, all
references in this Agreement to the Investors shall mean the
assignee of the Investors. None of the rights or obligations
of the Grantor hereunder may be assigned or otherwise
transferred without the prior written consent of the
Investors, and any such assignment or transfer shall be null
and void.
(e) Upon the satisfaction in full of the
Obligations and the termination of the Investment Agreement,
(i) this Agreement and the security interests created hereby
shall terminate and all rights to the Collateral shall
revert to the Grantor and (ii) the Investors will, upon the
Grantor's request and at the requesting Grantor's cost and
expense, (A) return to the Grantor(s) such of the Collateral
as shall not have been sold or otherwise disposed of or
applied pursuant to the terms hereof and (B) execute and
deliver to the Grantor such documents as the Grantor shall
reasonably request to evidence such termination, all without
any representation, warranty or recourse whatsoever.
(f) This Agreement shall be governed by and
construed in accordance with the law of the State of New
York, except to the extent that the validity and perfection
or the perfection and the effect of perfection or
non-perfection of the security interest created hereby, or
remedies hereunder, in respect of any particular Collateral
are governed by the law of a jurisdiction other than the
State of New York.
(g) This Agreement supersedes all prior
understandings and agreements, whether written or oral,
among the parties hereto relating to the transactions
provided for herein.
(h) All representations and warranties of the
Grantor contained herein or made in connection herewith
shall survive the making of and shall not be waived by the
execution and delivery of this Agreement, the Investment
Agreement, the Notes or any other Note Document, any
investigation by the Investors or the purchasing of the
Notes. All covenants and agreements of the Grantor contained
herein shall continue in full force and effect from and
after the date hereof until the indefeasible payment in full
of the Obligations.
(i) Section headings in this Agreement are
included herein for the convenience of reference only and
shall not constitute a part of this Agreement for any other
purpose.
(j) BY ITS EXECUTION AND DELIVERY OF THIS
AGREEMENT, THE GRANTOR HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHTS EITHER OF THEM MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT,
THE INVESTMENT AGREEMENT, THE NOTES OR ANY OTHER NOTE
DOCUMENT, ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE
INVESTORS OR THE GRANTOR IN CONNECTION HEREWITH OR
THEREWITH. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
INVESTORS TO ENTER INTO THIS AGREEMENT.
IN WITNESS WHEREOF, the Grantor has caused this
Agreement to be executed and delivered by its officer thereunto
duly authorized as of the date first above written.
COMPLETE WELLNESS MEDICAL CENTER
OF ______________, INC.
By: --------------------------------
Name:
Title:
Accepted and Agreed:
IMPRIMIS INVESTORS LLC
By:____________________________
Name:
Title:
Schedule I
RELATED CONTRACTS
Schedule II
ADDRESS OF GRANTOR
Chief Place of Business, 725 Independence Avenue, S.E.
Chief Executive Office Washington, D.C. 20003
and Location of Records
Schedule III
UCC-1 FINANCING STATEMENTS
EXHIBIT V
SUPPLEMENT TO INVESTMENT AGREEMENT
SUPPLEMENT TO INVESTMENT AGREEMENT, dated as of January
12, 1998, by and among Complete Wellness Centers, Inc., a Delaware
corporation (the "Company"), Imprimis Investors LLC ("Imprimis") and
Wexford Spectrum Investors LLC ("Wexford" and, together with Imprimis,
the "Investors").
Reference is made to the Investment Agreement, dated as of
December 19, 1997 (the "Investment Agreement"), by and among the Company
and the Investors. Capitalized terms used in this Supplement to
Investment Agreement without definition shall have the meanings ascribed
to them in the Investment Agreement.
In order to implement the provisions of Section II.D of
the Investment Agreement, the Company and the Investors hereby agree as
follows:
1. The Preferred Stock shall be issued pursuant to a
Certificate of Designations, Preferences and Rights in the form of
Exhibit A hereto as filed with the Secretary of State of the State of
Delaware on the date hereof. Two stock certificates representing all of
the Preferred Stock initially outstanding shall be issued by the Company
at the Closing (as defined below) as follows: (a) to Imprimis, 80,000
shares; and (b) to Wexford, 20,000 shares.
2. The Warrants shall be issued in the form of Exhibit B
hereto. Two Warrants representing all of the Warrants shall be issued by
the Company at the Closing as follows: (a) to Imprimis, initially
exercisable for 2,280,000 shares of Common Stock; and (b) to Wexford,
initially exercisable for 570,000 shares of Common Stock.
3. The registration rights contemplated by Section
II(D)(5) of the Investment Agreement shall be provided for in the
Registration Rights Agreement in the form of Exhibit C hereto and dated
as of the date hereof.
4. Matters relating to the issuance and sale of the
Preferred Stock and the Warrants and the execution and delivery by the
Company of this Supplement to the Investment Agreement and the
Registration Rights Agreement shall be addressed in an opinion from
Epstein Becker & Green, P.C., special counsel to the Company, in the form
of Exhibit D hereto and dated as of the date hereof.
5. The net proceeds from the issuance and sale of the
Preferred Stock and the Warrants shall be used by the Company first to
repay in full the principal of and accrued interest on the Notes through
the date hereof, the Investors' transaction fees of $125,000 payable in
connection with the Notes, the Preferred Stock and the Warrants and any
portion of the Investors' $75,000 expense reimbursement allowance not
otherwise paid to the Investors, such payment to be made by means of a
deduction from the $4,000,000 otherwise payable on January 27, 1998
(after giving effect to such deductions, the "Deferred Payment"). The
remaining net proceeds from the issuance and sale of the Preferred Stock
and the Warrants, including the balance of the Deferred Payment, shall be
used by the Company for the general corporate purposes.
6. The closing of the issuance and sale of the Preferred
Stock and the Warrants (the "Closing") shall take place at the offices of
Skadden, Arps, Slate, Meagher & Flom LLP, as soon as practicable after
execution of this Supplement to Investment Agreement, subject to (a) the
execution and delivery by the Company to the Investors of the documents
referenced in Sections 1, 2 and 3 above, (b) the delivery to the
Investors of the opinion referenced in Section 4 above, (c) the payment
by the Investors by wire transfer to the Company of $500,000, (d) the use
by the Company of the net proceeds thereof as referenced in the first
sentence of Section 5 above and (e) confirmation by the Company, which it
hereby makes, that the Company's representations and warranties contained
in the Investment Agreement remain true and complete in all material
respects as of the date hereof and that Exhibit C to the Warrant
Agreement sets forth complete and accurate information as to all
warrants, options or other securities or other instruments exercisable
for or convertible into shares of Common Stock and the effect, if any, of
the issuance and sale of the Warrants and the underlying Common Stock on
any antidilition provisions of such securities or other instruments.
Assuming that the Closing occurs, the Investors agree to pay to the
Company by wire transfer on January 27, 1998 the Deferred Paymenmt in
payment of the balance of the purchase price for the Preferred Stock and
the Warrants.
7. From and after the Closing and for so long as any
Preferred Stock or Warrants remain outstanding, (a) the "Affirmative
Covenants" provided for in Sections VII(A) through VII(H) of the
Investment Agreement and the "Negative Covenants" provided for in
Sections VIII(A), VIII(C), VIII(E), VIII(F), VIII(H), VIII(I) and VIII(J)
shall remain in full force and effect, with all other "Affirmative
Covenants" and "Negative Covenants" contained in the Investment Agreement
to be terminated, (b) the Investors shall have the right to approve the
Company's proposed annual budget, which shall be provided to the
Investors no later than 30 days before the beginning of the fiscal year
for which the budget shall be in effect, and the Investors shall have the
right to approve any action or expenditure which, alone or in the
aggregate, would result in a deviation of more than five percent from the
annual budget previously approved by the Investors, and (c) the Company
shall have in full force and effect a "key man" insurance policy in the
face amount of not less than $5 million, naming C. Thomas McMillen as the
insured and the Company as the sole beneficiary.
8. Except as modified pursuant to this Supplement to
Investment Agreement, all terms and provision of the Investment Agreement
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first written above.
COMPLETE WELLNESS CENTERS, INC.
BY /s/ C. Thomas McMillen
Name:
Title:
IMPRIMIS INVESTORS LLC
BY /s/ Frank Plimpton
Name:
Title:
WEXFORD SPECTRUM
INVESTORS LLC
BY /s/ Frank Plimpton
Name:
Title:
EXHIBIT VI
COMPLETE WELLNESS CENTERS, INC.
Common Stock Purchase Warrant
Dated as of January 12, 1998
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT
TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT
AND SUCH LAWS.
TABLE OF CONTENTS
1. Exercise of Warrant....................................... 1
1.1. Manner of Exercise................................. 1
1.2. When Exercise Effective............................ 2
1.3. Delivery of Stock Certificates, etc................ 2
1.4. Restriction on Exercise............................ 2
2. Adjustment of Common Stock Issuable Upon
Exercise................................................ 3
2.1. General; Warrant Quantity.......................... 3
2.2. Adjustment of Warrant Quantity..................... 3
2.3. Treatment of Options and Convertible
Securities....................................... 4
2.4. Treatment of Stock Dividends, Stock Splits,
etc.............................................. 6
2.5. Computation of Consideration....................... 7
2.6. Adjustments for Combinations, etc.................. 8
2.7. Dilution in Case of Other Securities............... 8
2.8. Minimum Adjustment of Warrant Quantity............. 8
2.9. No Duplication of Adjustments...................... 9
3. Consolidation, Merger, etc................................ 9
3.1. Adjustments for Consolidation, Merger, Sale
of Assets, Reorganization, etc................... 9
3.2. Assumption of Obligations.......................... 10
4. Other Dilutive Events..................................... 10
5. No Dilution or Impairment................................. 11
6. Accountants' Report as to Adjustments..................... 11
7. Financial and Business Information........................ 12
7.1. Quarterly Information.............................. 12
7.2. Annual Information................................. 12
7.3. Filings............................................ 13
7.4. Notices of Corporate Action........................ 13
8. Registration of Common Stock.............................. 14
9. Restrictions on Transfer.................................. 14
9.1. Restrictive Legends................................ 14
9.2. Transfer to Comply With the Securities Act......... 15
9.3. Termination of Restrictions........................ 15
10. Reservation of Stock, etc................................. 15
11. Registration and Transfer of Warrants, etc. .............. 16
11.1. Warrant Register; Ownership of
Warrants......................................... 16
11.2. Transfer of Warrants............................... 16
11.3. Replacement of Warrants............................ 17
11.4. Adjustments To Warrant Quantity.................... 17
11.5. Fractional Shares.................................. 17
12. Redemption................................................ 17
12.1. Amounts Redeemable.......................... 17
12.2. Redemption Price............................ 18
12.3. Notice of Partial Redemption; Payment....... 18
13. Definitions............................................... 18
14. Remedies; Specific Performance............................ 23
15. No Rights or Liabilities as Shareholder................... 23
16. Notices................................................... 23
17. Amendments................................................ 25
18. Descriptive Headings, Etc................................. 25
19. Governing Law............................................. 25
20. Judicial Proceedings; Waiver of Jury...................... 25
21. Registration Rights Agreement............................. 26
22. Determination of Current Market Price or Market
Price............................................................ 26
COMPLETE WELLNESS CENTERS, INC.
Common Stock Purchase Warrant
Void After January 12, 2005
No. W-2 January 12, 1998
COMPLETE WELLNESS CENTERS, INC. (the "Company"), a
Delaware corporation, for value received, hereby certifies that Imprimis
Investors LLC ("Imprimis"), or its registered assigns (each, a "Holder"),
is entitled to purchase from the Company an aggregate of 2,280,000 duly
authorized, validly issued, fully paid and nonassessable shares of common
stock, par value $0.0001665 per share, of the Company (the "Common
Stock") at the purchase price per share of $1.75, at any time or from
time to time prior to 5:30 PM, New York City time, on January 12, 2005
(the "Expiration Date"), all subject to the terms, conditions and
adjustments set forth below in this Warrant.
This Warrant is one of the Common Stock Purchase Warrants
(the "Warrants," such term to include any such warrants issued in
substitution therefor) originally issued in connection with the
Investment Agreement, dated as of December 19, 1997 and as supplemented
as of January 12, 1998, by and among the Company, Wexford Spectrum
Investors LLC and Imprimis (as amended or otherwise modified from time to
time, the "Investment Agreement"). The Warrants are subject to adjustment
as provided herein. Certain capitalized terms used in this Warrant are
defined in Section 13; references to an "Exhibit" are, unless otherwise
specified, to one of the Exhibits attached to this Warrant and references
to a "Section" are, unless otherwise specified, to one of the Sections of
this Warrant.
1. Exercise of Warrant.
1.1. Manner of Exercise. Subject to the restrictions set forth in
Section 1.4, this Warrant may be exercised by the Holder, in whole or in
part, at any time or from time to time, on or after the date hereof,
during normal business hours on any Business Day, by surrender of this
Warrant to the Company at its principal office, accompanied by the Form
of Subscription in substantially the form attached as Exhibit A to this
Warrant (or a reasonable facsimile thereof) duly executed by the Holder
and accompanied by payment, in cash, by certified or official bank check
payable to the order of the Company, or in the manner provided in Section
1.5 or Section 1.6 (or by any combination of such methods), in the amount
obtained by multiplying (a) the number of shares of Common Stock
designated in such Form of Subscription (adjusted as provided in Sections
2 through 4) by (b) the Warrant Price at the time of the exercise, as
determined in accordance with Section 2.1, and the Holder shall thereupon
be entitled to receive such number of duly authorized, validly issued,
fully paid and nonassessable shares of Common Stock (or Other Securities
as provided below).
1.2. When Exercise Effective. Each exercise of this Warrant shall
be deemed to have been effected immediately prior to the close of
business on the Business Day on which this Warrant shall have been
surrendered to the Company as provided in Section 1.1. At such time the
Person or Persons in whose name or names any certificate or certificates
for shares of Common Stock (or Other Securities) shall be issuable upon
such exercise, as provided in Section 1.3, shall be deemed to have become
the Holder or holders of record thereof.
1.3. Delivery of Stock Certificates, etc. As soon as practicable
after each exercise of this Warrant, in whole or in part, and in any
event within three Business Days thereafter, the Company at its expense
(including the payment by it of any applicable transfer taxes) will cause
to be issued in the name of and delivered to the Holder hereof or,
subject to Section 11, as the Holder (upon payment by the Holder of any
applicable transfer taxes) may direct,
(a) a certificate or certificates for the number of
duly authorized, validly issued, fully paid and nonassessable
shares, including, if the Company so elects, fractional shares,
of Common Stock (or Other Securities) to which such Holder shall
be entitled upon such exercise plus, at the discretion of the
Company, in lieu of any fractional share to which such Holder
would otherwise be entitled, cash in an amount equal to the same
fraction of the Current Market Price per share on the Business
Day next preceding the date of such exercise; and
(b) in case such exercise is in part only, a new
Warrant or Warrants of like tenor, calling in the aggregate on
the face or faces thereof for the number of shares of Common
Stock equal (without giving effect to any adjustment thereof) to
the number of such shares called for on the face of this Warrant
minus the number of such shares designated by the Holder upon
such exercise as provided in Section 1.1.
1.4. Restriction on Exercise. This Warrant may not be
exercised
(a) to the extent that the shares of Common Stock
held by any holders of this and any other Warrants then
outstanding, in the aggregate after giving effect to such
exercise, would exceed 50% of the shares of Common Stock then
issued and outstanding; and
(b) to the extent that such exercise would reduce
the remaining number of shares issuable under this and any other
Warrants then outstanding below the Redemption Eligible Amount.
The "Redemption Eligible Amount" shall mean,
(i) for the period through December 31, 1998,
1,500,000;
(ii) for the period from January 1, 1999 through
March 31, 2000, 1,200,000;
(iii) for the period from April 1, 2000 through
March 31, 2001, 600,000; and
(iv) at any time after March 31, 2001, 0;
provided, however, that the Redemption Eligible Amount will be
appropriately adjusted to reflect transactions or other matters giving
rise to adjustments to the Warrant Quantity.
2. Adjustment of Common Stock Issuable Upon Exercise.
2.1. General; Warrant Quantity. This Warrant initially evidences
the right to purchase a number of shares of Common Stock set forth in the
first paragraph of this Warrant (the "Initial Number"), subject to
adjustment as provided in this Section 2, and in Sections 3 and 4. The
"Warrant Price" shall be fixed at $1.75 per share of Common Stock
received upon exercise of this Warrant, provided, however, that if the
Company, (a) within 120 days following a request by any Holder of a
Warrant other than a Withdrawn Demand Registration, fails to effect or
maintain the registration of Registrable Securities pursuant to, and for
the period contemplated by, Section 2.1 of the Registration Rights
Agreement, or (b) fails to effect or maintain the registration of
Registrable Securities pursuant to Section 2.2 of the Registration Rights
Agreement, then the Warrant Price shall be reduced by $0.25. The Warrant
Price may be so reduced only once. The Warrant Price shall be so reduced
notwithstanding that (i) the Company shall have used its best efforts to
effect and maintain the registration of Registrable Securities, or (ii)
there has been any postponement of registration pursuant to Section 2.7
of the Registration Rights Agreement.
2.2. Adjustment of Warrant Quantity.
(a) Issuance of Additional Shares of Common Stock. In case
the Company at any time or from time to time after the date hereof shall
issue or sell Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to Section 2.3 or
2.4) without consideration or for a consideration per share less than the
Current Market Price in effect immediately prior to such issue or sale,
then, and in each such case, subject to Section 2.8, the number of shares
of Common Stock provided for in the Warrant shall be increased,
concurrently with such issue or sale, to an amount determined by
multiplying such number by a fraction (a) the numerator of which shall be
the number of shares of Common Stock outstanding immediately after such
issue or sale, provided that, for the purposes of this Section 2.2(a),
(x) immediately after any Additional Shares of Common Stock are deemed to
have been issued pursuant to Section 2.3 or 2.4, such Additional Shares
shall be deemed to be outstanding, and (y) treasury shares shall not be
deemed to be outstanding, and (b) the denominator of which shall be (i)
the number of shares of Common Stock outstanding immediately prior to
such issue or sale plus (ii) the number of shares of Common Stock which
the aggregate consideration received by the Company for the total number
of such Additional Shares of Common Stock so issued or sold would
purchase at such Current Market Price.
(b) Dividends and Distributions. In case the Company at
any time or from time to time after the date hereof shall declare, order,
pay or make a dividend or other distribution (including, without
limitation, any distribution of other or additional stock or other
securities or property or Options by way of dividend or spin-off,
reclassification, recapitalization or similar corporate rearrangement) on
the Common Stock other than a dividend payable in Additional Shares of
Common Stock the Holder of this Warrant shall receive the same dividend
per share of Common Stock then issuable upon exercise of this Warrant
based upon the maximum number of shares of Common Stock at the time
issuable to such Holder as the holders of Common Stock.
2.3. Treatment of Options and Convertible Securities. In case the
Company at any time or from time to time after the date hereof shall
issue, sell, grant or assume, or shall fix a record date for the
determination of holders of any class of securities entitled to receive,
any Options or Convertible Securities, then, and in each such case, the
maximum number of Additional Shares of Common Stock (as set forth in the
instrument relating thereto, without regard to any provisions contained
therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue, sale, grant or assumption or, in
case such a record date shall have been fixed, as of the close of
business on such record date (or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading), provided that such Additional Shares of Common Stock shall not
be deemed to have been issued unless the consideration per share
(determined pursuant to Section 2.5) of such shares would be less than
the Current Market Price in effect on the date of and immediately prior
to such issue, sale, grant or assumption or immediately prior to the
close of business on such record date (or, if the Common Stock trades on
an ex-dividend basis, on the date prior to the commencement of
ex-dividend trading), as the case may be, and provided, further, that in
any such case in which Additional Shares of Common Stock are deemed to be
issued,
(a) whether or not the Additional Shares of Common
Stock underlying such Options or Convertible Securities are
deemed to be issued, no further adjustment of the Warrant
Quantity shall be made upon the subsequent issue or sale of
Convertible Securities or shares of Common Stock upon the
exercise of such Options or the conversion or exchange of such
Convertible Securities, except in the case of any such Options or
Convertible Securities which contain provisions requiring an
adjustment, subsequent to the date of the issue or sale thereof,
of the number of Additional Shares of Common Stock issuable upon
the exercise of such Options or the conversion or exchange of
such Convertible Securities by reason of (x) a change of control
of the Company, (y) the acquisition by any Person or group of
Persons of any specified number or percentage of the Voting
Securities of the Company or (z) any similar event or occurrence,
each such case to be deemed hereunder to involve a separate
issuance of Additional Shares of Common Stock, Options or
Convertible Securities, as the case may be;
(b) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the Company, or
decrease in the number of Additional Shares of Common Stock
issuable, upon the exercise, conversion or exchange thereof (by
change of rate or otherwise), the Warrant Quantity computed upon
the original issue, sale, grant or assumption thereof (or upon
the occurrence of the record date, or date prior to the
commencement of ex-dividend trading, as the case may be, with
respect thereto), and any subsequent adjustments based thereon,
shall, upon any such increase or decrease becoming effective, be
recomputed to reflect such increase insofar as it affects such
Options, or the rights of conversion or exchange under such
Convertible Securities, which are outstanding at such time;
(c) upon the expiration (or purchase by the Company
and cancellation or retirement) of any such Options which shall
not have been exercised or the expiration of any rights of
conversion or exchange under any such Convertible Securities
which (or purchase by the Company and cancellation or retirement
of any such Convertible Securities the rights of conversion or
exchange under which) shall not have been exercised, the Warrant
Quantity computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or
date prior to the commencement of ex-dividend trading, as the
case may be, with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration (or such
cancellation or retirement, as the case may be), be recomputed as
if:
(i) in the case of Options for Common Stock
or Convertible Securities, the only Additional Shares of
Common Sock issued or sold were the Additional Shares of
Common Stock, if any, actually issued or sold upon the
exercise of such Options or the conversion or exchange of
such Convertible Securities and the consideration received
therefor was the consideration actually received by the
Company for the issue, sale, grant or assumption of all
such Options, whether or not exercised, plus the
consideration actually received by the Company upon such
exercise, or for the issue or sale of all such Convertible
Securities which were actually converted or exchanged,
plus the additional consideration, if any, actually
received by the Company upon such conversion or exchange;
and
(ii) in the case of Options for Convertible
Securities, only the Convertible Securities, if any,
actually issued or sold upon the exercise of such Options
were issued at the time of the issue or sale, grant or
assumption of such Options, and the consideration received
by the Company for the Additional Shares of Common Stock
deemed to have then been issued was the consideration
actually received by the Company for the issue, sale,
grant or assumption of all such Options, whether or not
exercised, plus the consideration deemed to have been
received by the Company (pursuant to Section 2.5) upon the
issue or sale of such Convertible Securities with respect
to which such Options were actually exercised;
(d) no readjustment pursuant to subdivision (b) or
(c) above shall have the effect of decreasing the number of
shares issuable upon exercise of this Warrant by an amount in
excess of the amount of the adjustment thereof originally made in
respect of the issue, sale, grant or assumption of such Options
or Convertible Securities; and
(e) in the case of any such Options which expire by
their terms not more than 30 days after the date of issue, sale,
grant or assumption thereof, no adjustment of the number of
shares issuable upon exercise of this Warrant shall be made until
the expiration or exercise of all such Options, whereupon such
adjustment shall be made in the manner provided in subdivision
(c) above.
2.4. Treatment of Stock Dividends, Stock Splits, etc. In case the
Company at any time or from time to time after the date hereof shall
declare or pay any dividend on the Common Stock payable in Common Stock,
or shall effect a subdivision of the outstanding shares of Common Stock
into a greater number of shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in Common Stock), then, and in
each such case, Additional Shares of Common Stock shall be deemed to have
been issued (a) in the case of any such dividend, immediately after the
close of business on the record date for the determination of holders of
any class of securities entitled to receive such dividend, or (b) in the
case of any such subdivision, at the close of business on the day
immediately prior to the day upon which such corporate action becomes
effective.
2.5. Computation of Consideration. For the purposes of this
Section 2
(a) the consideration for the issue or sale of any
Additional Shares of Common Stock shall, irrespective of the
accounting treatment of such consideration,
(i) insofar as it consists of cash, be
computed at the net amount of cash received by the
Company, without deducting any expenses paid or incurred
by the Company or any commissions or compensations paid or
concessions or discounts allowed to underwriters, dealers
or others performing similar services in connection with
such issue or sale;
(ii) insofar as it consists of property
(including securities) other than cash, be computed at the
fair value thereof at the time of such issue or sale, as
determined in good faith by the Board of Directors of the
Company; and
(iii) in case Additional Shares of Common
Stock are issued or sold together with other stock or
securities or other assets of the Company for a
consideration which covers both, be the portion of such
consideration so received, computed as provided in clauses
(i) and (ii) above, allocable to such Additional Shares of
Common Stock, all as determined in good faith by the Board
of Directors of the Company;
(b) Additional Shares of Common Stock deemed to
have been issued pursuant to Section 2.3, relating to Options and
Convertible Securities, shall be deemed to have been issued for a
consideration per share determined by dividing (i) the total
amount, if any, received and receivable by the Company as
consideration for the issue, sale, grant or assumption of the
Options or Convertible Securities in question, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such
consideration to protect against dilution) payable to the Company
upon the exercise in full of such Options or the conversion or
exchange of such Convertible Securities or, in the case of
Options for Convertible Securities, the exercise of such Options
for Convertible Securities and the conversion or exchange of such
Convertible Securities, in each case computing such consideration
as provided in the foregoing subdivision (a), by (ii) the maximum
number of shares of Common Stock (as set forth in the instruments
relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number to protect
against dilution) issuable upon the exercise of such Options or
the conversion or exchange of such Convertible Securities; and
(c) Additional Shares of Common Stock deemed to
have been issued pursuant to Section 2.4, relating to stock
dividends, stock splits, etc., shall be deemed to have been
issued for no consideration.
2.6. Adjustments for Combinations, etc. In case the outstanding
shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common
Stock, the number of shares issuable upon exercise of this Warrant in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation,
be proportionately decreased.
2.7. Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold or shall become subject to issue or
sale upon the conversion or exchange of any stock (or Other Securities)
of the Company (or any issuer of Other Securities or any other Person
referred to in Section 3) or to subscription, purchase or other
acquisition pursuant to any Options issued or granted by the Company (or
any such other issuer or Person) for a consideration such as to dilute,
on a basis consistent with the standards established in the other
provisions of this Section 2, the purchase rights granted by this
Warrant, then, and in each such case, the computations, adjustments and
readjustments provided for in this Section 2 with respect to the number
of shares issuable upon exercise of the Warrant shall be made as nearly
as possible in the manner so provided and applied to determine the amount
of Other Securities from time to time receivable upon the exercise of the
Warrant, so as to protect the Holder against the effect of such dilution.
2.8. Minimum Adjustment of Warrant Quantity. If the amount of any
adjustment of the Warrant Quantity required pursuant to this Section 2
would be less than one tenth (1/10) of one percent (1%) of the number of
shares issuable upon exercise of the Warrant in effect at the time such
adjustment is otherwise so required to be made, such amount shall be
carried forward and adjustment with respect thereto made at the time of
and together with any subsequent adjustment which, together with such
amount and any other amount or amounts so carried forward, shall
aggregate at least one tenth (1/10) of one percent (1%) of such number of
shares issuable upon exercise of the Warrant. All calculations under this
Warrant shall be made to the nearest one-hundredth of a share.
2.9. No Duplication of Adjustments. There shall be no adjustment
of the number of shares of Common Stock issuable upon exercise of this
Warrant in case of the issuance of any stock of the Company in a
reorganization, acquisition or other similar transaction except as
specifically set forth in this Warrant. If any action or transaction
would require adjustment of the number of shares of Common Stock issuable
upon exercise of this Warrant pursuant to more than one Section of this
Warrant, only one adjustment shall be made and such adjustment shall be
the amount of adjustment that has the highest absolute value.
3. Consolidation, Merger, etc.
3.1. Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc. In case the Company after the date hereof (a) shall
consolidate with or merge into any other Person and shall not be the
continuing or surviving corporation of such consolidation or merger, or
(b) shall permit any other Person to consolidate with or merge into the
Company and the Company shall be the continuing or surviving Person but,
in connection with such consolidation or merger, the Common Stock or
Other Securities shall be changed into or exchanged for stock or other
securities of any other Person or cash or any other property, or (c)
shall transfer all or substantially all of its properties or assets to
any other Person, or (d) shall effect a capital reorganization or
reclassification of the Common Stock or Other Securities (other than a
capital reorganization or reclassification resulting in the issue of
Additional Shares of Common Stock for which adjustment in the number of
shares of Common Stock issuable upon the exercise of this Warrant is
provided in Section 2.2(a) or 2.2(b)), then, and in the case of each such
transaction, proper provision shall be made so that, upon the basis and
the terms and in the manner provided in this Warrant, the Holder, upon
the exercise hereof at any time after the consummation of such
transaction, shall be entitled to receive (at the aggregate Warrant Price
in effect at the time of such consummation for all Common Stock or Other
Securities issuable upon such exercise immediately prior to such
consummation), in lieu of the Common Stock or Other Securities issuable
upon such exercise prior to such consummation, the highest amount of
securities, cash or other property to which such Holder would actually
have been entitled as a shareholder upon such consummation if such Holder
had exercised the rights represented by this Warrant immediately prior
thereto, subject to adjustments (subsequent to such consummation) as
nearly equivalent as possible to the adjustments provided for in Sections
2 through 4, provided that if a purchase, tender or exchange offer shall
have been made to and accepted by the holders of more than 50% of the
outstanding shares of Common Stock, and if the Holder so designates in a
notice given to the Company on or before the date immediately preceding
the date of the consummation of such transaction, the Holder shall be
entitled to receive the highest amount of securities, cash or other
property to which such Holder would actually have been entitled as a
shareholder if the Holder had exercised this Warrant prior to the
expiration of such purchase, tender or exchange offer and accepted such
offer, subject to adjustments (from and after the consummation of such
purchase, tender or exchange offer) as nearly equivalent as possible to
the adjustments provided for in Sections 2 through 4.
3.2. Assumption of Obligations. Notwithstanding anything
contained in this Warrant to the contrary, the Company will not effect
any of the transactions described in clauses (a) through (d) of Section
3.1 unless, prior to the consummation thereof, each Person (other than
the Company) which may be required to deliver any stock, securities, cash
or property upon the exercise of this Warrant as provided herein shall
assume, by written instrument delivered to, and reasonably satisfactory
to, the Holder, (a) the obligations of the Company under this Warrant
(and if the Company shall survive the consummation of such transaction,
such assumption shall be in addition to, and shall not release the
Company from, any continuing obligations of the Company under this
Warrant), and (b) the obligation to deliver to such Holder such shares of
stock, securities, cash or property as, in accordance with the foregoing
provisions of this Section 3, such Holder may be entitled to receive, and
such Person shall have similarly delivered to such Holder an opinion of
counsel for such Person, which counsel shall be reasonably satisfactory
to such Holder, stating that this Warrant shall thereafter continue in
full force and effect and the terms hereof (including, without
limitation, all of the provisions of this Section 3) shall be applicable
to the stock, securities, cash or property which such Person may be
required to deliver upon any exercise of this Warrant or the exercise of
any rights pursuant hereto. Nothing in this Section 3 shall be deemed to
authorize the Company to enter into any transaction not otherwise
permitted by this Warrant.
4. Other Dilutive Events. In case any event shall occur as to
which the provisions of Section 2 or Section 3 are not strictly
applicable but the failure to make any adjustment would not fairly
protect the purchase rights represented by this Warrant in accordance
with the essential intent and principles of such Sections, then, in each
such case, the Company shall appoint a firm of independent certified
public accountants of recognized national standing (which may be the
regular auditors of the Company), which shall give their opinion upon the
adjustment, if any, on a basis consistent with the essential intent and
principles established in Sections 2 and 3, necessary to preserve,
without dilution, the purchase rights represented by this Warrant. Upon
receipt of such opinion, the Company will promptly mail a copy thereof to
the Holder and shall make the adjustments described therein.
5. No Dilution or Impairment. The Company will not, by amendment
of its certificate of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will
at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate
in order to protect the rights of the Holder against dilution or other
impairment. Without limiting the generality of the foregoing, the Company
(a) will take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and
nonassessable shares of stock on the exercise of the Warrants from time
to time outstanding, (b) will not take any action which results in any
adjustment of the number of shares of Common Stock issuable upon the
exercise of this Warrant if the total number of shares of Common Stock
(or Other Securities) issuable after the action upon the exercise of all
of the Warrants would exceed the total number of shares of Common Stock
(or Other Securities) then authorized by the Company's certificate of
incorporation and available for the purpose of issue upon such exercise,
and (c) except for the Preferred Stock, will not issue any capital stock
of any class which is preferred as to dividends or as to the distribution
of assets upon voluntary or involuntary dissolution, liquidation or
winding-up, unless the rights of the holders thereof shall be limited to
a fixed sum or percentage of par value or a sum determined by reference
to a formula based on a published index of interest rates, an interest
rate publicly announced by a financial institution or a similar indicator
of interest rates in respect of participation in dividends and to a fixed
sum or percentage of par value in any such distribution of assets.
6. Accountants' Report as to Adjustments. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable upon the exercise of this Warrant, the Company at
its expense will promptly compute such adjustment or readjustment in
accordance with the terms of this Warrant and cause independent certified
public accountants of recognized national standing (which may be the
regular auditors of the Company) selected by the Company to verify such
computation (other than any computation of the fair value of property as
determined in good faith by the Board of Directors of the Company) and
prepare a report setting forth such adjustment or readjustment and
showing in reasonable detail the method of calculation thereof and the
facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or to be received by the
Company for any Additional Shares of Common Stock issued or sold or
deemed to have been issued, (b) the number of shares of Common Stock
outstanding or deemed to be outstanding, and (c) the Warrant Quantity in
effect immediately prior to such issue or sale and as adjusted and
readjusted (if required by Section 2) on account thereof. The Company
will forthwith mail a copy of each such report to each Holder of a
Warrant and will, upon the written request at any time of any Holder of a
Warrant, furnish to such Holder a like report setting forth the number of
shares of Common Stock issuable upon the exercise of this Warrant at the
time in effect and showing in reasonable detail how it was calculated.
The Company will also keep copies of all such reports at its principal
office and will cause the same to be available for inspection at such
office during normal business hours by any Holder of a Warrant or any
prospective purchaser of a Warrant designated by the Holder thereof.
7. Financial and Business Information
7.1. Quarterly Information. Except during any period when the
Company either (i) is subject to and is in compliance with the reporting
requirements of Section 15(d) of the Exchange Act or (ii) has securities
registered under Section 12(b) or 12(g) of the Exchange Act and is in
compliance with the reporting requirements mandated thereby (such status
being referred to as being a "Public Company"), the Company will deliver
to the Holder, as soon as practicable after the end of each quarterly
fiscal period in each fiscal year of the Company, and in any event within
45 days thereafter, a copy of the unaudited consolidated balance sheet as
at the close of such quarter, and the related unaudited consolidated
statements of income, shareholders' equity and cash flow of the Company
and its subsidiaries for that portion of the fiscal year ending as of the
close of such quarter. Such financial statements shall be prepared by the
Company in accordance with generally accepted accounting principles,
applied on a consistent basis ("GAAP") (except for normal year end
adjustments and the inclusion of footnotes) and accompanied by the
certification of the Company's chief executive officer or chief financial
officer that, to the best of his knowledge, such financial statements are
complete and correct in all material respects and fairly present in
accordance with GAAP (except for normal year end adjustments and the
inclusions of footnotes) the consolidated financial position, the
consolidated statements of income, shareholder equity and cash flow of
the Company and its subsidiaries as at the end of such quarter and for
such year-to-date period, as the case may be.
7.2. Annual Information. Except during any period when the
Company is a Public Company, the Company will deliver to the Holder as
soon as practicable after the end of each fiscal year of the Company, and
in any event within 120 days thereafter, one copy of:
(a) an audited consolidated balance sheet of the
Company and its subsidiaries as at the end of such year, and
(b) audited consolidated statements of income,
shareholders' equity and cash flow of the Company and its
subsidiaries for such year;
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all prepared in
accordance with GAAP, and which audited financial statements shall be
accompanied by (i) a certification of the chief executive officer or
chief financial officer of the Company that, to the best of his
knowledge, all such financial statements are complete and correct in all
material respects and present fairly in accordance with GAAP the
consolidated financial position of the Company and its subsidiaries as at
the end of such fiscal year and for the period then ended, (ii) an
opinion thereon of the independent certified public accountants regularly
retained by the Company, or any other firm of independent certified
public accountants of recognized national standing selected by the
Company, and (iii) a report of such independent certified public
accountants confirming any adjustment made pursuant to Section 2 during
such year.
7.3. Filings. During any period when the Company is a Public
Company, the Company will file on or before the required date all
required regular or periodic reports (pursuant to the Exchange Act) with
the Commission and will deliver to the Holder promptly upon their
becoming available one copy of each report, notice or proxy statement
sent by the Company to its stockholders generally, and of each regular or
periodic report (pursuant to the Exchange Act) and any Registration
Statement, prospectus or written communication (other than transmittal
letters) (pursuant to the Securities Act), filed by the Company with (i)
the Commission or (ii) any securities exchange on which shares of Common
Stock are listed.
7.4. Notices of Corporate Action. In the event of
(a) any taking by the Company of a record of the
holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend
(other than a regular periodic dividend payable in cash out of
earned surplus in an amount not exceeding the amount of the
immediately preceding cash dividend for such period) 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 consolidation or merger involving the Company and
any other Person or any transfer of all or substantially all the
assets of the Company to any other Person, or
(c) any voluntary or involuntary dissolution,
liquidation or winding-up of the Company,
the Company will mail to the Holder a notice specifying (i) the date or
expected 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 or expected date
on which any such reorganization, reclassification, recapitalization,
consolidation, merger, transfer, dissolution, liquidation or winding-up
is to take place and the time, if any such time is to be fixed, as of
which the holders of record of Common Stock (or Other Securities) shall
be entitled to exchange their shares of Common Stock (or Other
Securities) for the securities or other property deliverable upon such
reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding-up, such notice to
be mailed to the Holder at least 45 days prior to the date therein
specified.
8. Registration of Common Stock. If any shares of Common Stock
required to be reserved for purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any
federal or state law (other than the Securities Act) before such shares
may be issued upon exercise, the Company will, at its reasonable expense
and as expeditiously as possible, use its best efforts to cause such
shares to be duly registered or approved, as the case may be. At any such
time as Common Stock is listed on any national securities exchange, the
Company will, at its reasonable expense, obtain promptly and maintain the
approval for listing on each such exchange, upon official notice of
issuance, the shares of Common Stock issuable upon exercise of the then
outstanding Warrants and maintain the listing of such shares after their
issuance; and the Company will also list on such national securities
exchange, will register under the Exchange Act and will maintain such
listing of, any Other Securities that at any time are issuable upon
exercise of the Warrants, if and at the time that any securities of the
same class shall be listed on such national securities exchange by the
Company.
9. Restrictions on Transfer.
9.1. Restrictive Legends. Except as otherwise permitted by this
Section 9, each Warrant (including each Warrant issued upon the transfer
of any Warrant) shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAW OF ANY STATE AND MAY NOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO
THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
Except as otherwise permitted by this Section 9, each
certificate for Common Stock (or Other Securities) issued upon the
exercise of any Warrant, and each certificate issued upon the transfer of
any such Common Stock (or Other Securities), shall be stamped or
otherwise imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
9.2. Transfer to Comply With the Securities Act. Restricted
Securities may not be sold, assigned, pledged, hypothecated, encumbered
or in any manner transferred or disposed of, in whole or in part, except
in compliance with the provisions of the Securities Act and state
securities or Blue Sky laws and the terms and conditions hereof.
9.3. Termination of Restrictions. The restrictions imposed by
this Section 9 on the transferability of Restricted Securities shall
cease and terminate as to any particular Restricted Securities (a) when a
registration statement with respect to the sale of such securities shall
have been declared effective under the Securities Act and such securities
shall have been disposed of in accordance with such registration
statement, (b) when such securities are sold pursuant to Rule 144 (or any
similar provision then in force) under the Securities Act, or (c) when,
in the opinion of both counsel for the Holder and counsel for the
Company, such restrictions are no longer required or necessary in order
to protect the Company against a violation of the Securities Act upon any
sale or other disposition of such securities without registration
thereunder. Whenever such restrictions shall cease and terminate as to
any Restricted Securities, the Holder shall be entitled to receive from
the Company, without expense, new securities of like tenor not bearing
the applicable legends required by Section 9.1.
10. Reservation of Stock, etc. The Company shall at all times
reserve and keep available, solely for issuance and delivery upon
exercise of the Warrant, the number of shares of Common Stock (or Other
Securities) from time to time issuable upon exercise of all Warrants at
the time outstanding. All shares of Common Stock (or Other Securities)
issuable upon exercise of any Warrants shall be duly authorized and, when
issued upon such exercise, shall be validly issued and, in the case of
shares, fully paid and nonassessable with no liability on the part of the
holders thereof, and, in the case of all securities, shall be free from
all taxes, liens, security interests, encumbrances, preemptive rights and
charges. The transfer agent for the Common Stock, which may be the
Company ("Transfer Agent"), and every subsequent Transfer Agent for any
shares of the Company's capital stock issuable upon the exercise of any
of the purchase rights represented by this Warrant, are hereby
irrevocably authorized and directed at all times until the Expiration
Date to reserve such number of authorized and unissued shares as shall be
requisite for such purpose. The Company shall keep copies of this Warrant
on file with the Transfer Agent for the Common Stock and with every
subsequent Transfer Agent for any shares of the Company's capital stock
issuable upon the exercise of the rights of purchase represented by this
Warrant. The Company shall supply such Transfer Agent with duly executed
stock certificates for such purpose. All Warrant certificates surrendered
upon the exercise of the rights thereby evidenced shall be canceled, and
such canceled Warrants shall constitute sufficient evidence of the number
of shares of stock which have been issued upon the exercise of such
Warrants. Subsequent to the Expiration Date, no shares of stock need be
reserved in respect of any unexercised Warrant.
11. Registration and Transfer of Warrants, etc.
11.1. Warrant Register; Ownership of Warrants. Each Warrant
issued by the Company shall be numbered and shall be registered in a
warrant register (the "Warrant Register") as it is issued and
transferred, which Warrant Register shall be maintained by the Company at
its principal office or, at the Company's election and expense, by a
Warrant Agent or the Company's Transfer Agent. The Company shall be
entitled to treat the registered Holder of any Warrant on the Warrant
Register as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such
Warrant on the part of any other Person, and shall not be affected by any
notice to the contrary, except that, if and when any Warrant is properly
assigned in blank, the Company may (but shall not be obligated to) treat
the bearer thereof as the owner of such Warrant for all purposes. Subject
to Section 9, a Warrant, if properly assigned, may be exercised by a new
holder without a new Warrant first having been issued.
11.2. Transfer of Warrants. Subject to compliance with Section 9,
if applicable, this Warrant and all rights hereunder are transferable in
whole or in part, without charge to the Holder hereof, upon surrender of
this Warrant with a properly executed Form of Assignment attached hereto
as Exhibit B at the principal office of the Company. Upon any partial
transfer, the Company shall at its expense issue and deliver to the
Holder a new Warrant of like tenor, in the name of the Holder, which
shall be exercisable for such number of shares of Common Stock with
respect to which rights under this Warrant were not so transferred.
11.3. Replacement of Warrants. On receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and, in the case of any such
loss, theft or destruction of this Warrant, on delivery of an indemnity
agreement reasonably satisfactory in form and amount to the Company or,
in the case of any such mutilation, on surrender of such Warrant to the
Company at its principal office and cancellation thereof, the Company at
its expense shall execute and deliver, in lieu thereof, a new Warrant of
like tenor.
11.4. Adjustments To Warrant Quantity. Notwithstanding any
adjustment in the Warrant Quantity or in the number or kind of shares of
Common Stock purchasable upon exercise of this Warrant, any Warrant
theretofore or thereafter issued may continue to express the same number
and kind of shares of Common Stock as are stated in this Warrant, as
initially issued.
11.5. Fractional Shares. Notwithstanding any adjustment pursuant
to Section 2 in the number of shares of Common Stock covered by this
Warrant or any other provision of this Warrant, the Company may, but
shall not be required to, issue fractions of shares upon exercise of this
Warrant or to distribute certificates which evidence fractional shares.
In lieu of fractional shares, the Company shall make payment to the
Holder, at the time of exercise of this Warrant as herein provided, in an
amount in cash equal to such fractions multiplied by the Current Market
Price of a share of Common Stock on the date of Warrant exercise.
12. Redemption.
12.1. Amounts Redeemable. At the option of the Company, this
Warrant will be partially redeemable under each of the following
circumstances, with each such partial redemption to reduce the aggregate
number of shares of Common Stock issuable hereunder and any other
Warrants then outstanding by the lesser of 300,000 and the aggregate
number of shares then issuable hereunder and thereunder and each such
partial redemption to be applied pro rata to the shares issuable
hereunder and thereunder:
(a) prior to January 1, 1999, if the all of the Preferred
Stock has been redeemed or repurchased by the Company prior to
such date;
(b) prior to March 31, 2000, if pre-tax earnings per share
of the Common Stock for the fiscal year 1999 equals or exceeds
$1.25 on a Fully Diluted Basis;
(c) prior to March 31, 2000, if pre-tax earnings per share
of Common Stock for the combined fiscal years 1998 and 1999
equals or exceeds $1.90 on a Fully Diluted Basis;
(d) prior to March 31, 2001, if pre-tax earnings per share
of Common Stock for the fiscal year 2000 equals or exceeds $2.00
on a Fully Diluted Basis; and
(e) prior to March 31, 2001, if pre-tax earnings per share
of Common Stock for the combined fiscal years 1998, 1999 and 2000
equals or exceeds $4.10 on a Fully Diluted Basis;
provided, however, that the partial redemption amount of 300,000 and the
pre-tax earnings per share amounts will be appropriately adjusted to
reflect transactions or other matters giving rise to adjustments to the
Warrant Quantity.
12.2. Redemption Price. The redemption price in respect of any
partial redemption of this Warrant will be payable in cash to the Holder
on the Redemption Date (as defined below) in an amount equal to the
aggregate reduction in the number of shares of Common Stock issuable
pursuant to this Warrant by reason of such partial redemption times $.01.
12.3. Notice of Partial Redemption; Payment; Effect of Notice.
(a) The Company may exercise its partial redemption right
by giving written notice of such exercise to the Holder not less than
five Business Days prior to the date fixed for such redemption (the
"Redemption Date"), such notice to specify the Redemption Date and the
amount of the reduction in the number of shares of Common Stock issuable
hereunder by reason of such partial redemption and to be accompanied by a
computation of the pre-tax earnings per share amount or amounts giving
rise to such partial redemption as verified by independent certified
public accountants of recognized national standing (which may be the
regular auditors of the Company) selected by the Company to verify such
computation.
(b) The Company shall make partial redemption payments by
wire transfer to the Holder to an account designated by the Holder at
least two business days prior to the Redemption Date. On any Redemption
Date, the Company shall make any necessary adjustments in the Warrant
Register to reflect the reduction in the number of shares of Common Stock
issuable hereunder.
13. Definitions. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
Additional Shares of Common Stock: All shares (including
treasury shares) of Common Stock issued or sold (or, pursuant to Section
2.3 or 2.4, deemed to be issued) by the Company after the date hereof,
whether or not subsequently reacquired or retired by the Company, other
than
(a) shares issued upon the exercise of the
Warrants,
(b) such additional number of shares as may become
issuable upon the exercise of the Warrants by reason of
adjustments required pursuant to anti-dilution provisions
applicable to the Warrants as in effect on the date hereof,
(c) shares, warrants, options and other securities
issued at any time to the Holder or any Affiliate thereof, and
(d) shares issued upon exercise of any options,
warrants, rights for, or securities convertible into, Common
Stock outstanding as of the date of this Warrant and listed on
Exhibit C hereto or granted under the agreements and plans listed
on Exhibit C hereto, in each such case only to the extent that
such options, warrants, rights, convertible securities,
agreements and plans are not amended and only to the extent that
the respective numbers of shares so issued do not exceed the
respective numbers of shares indicated on Exhibit C.
Affiliate: Any person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common
control with, the applicable person. For purposes of this definition
"control" has the meaning specified in Rule 12b-2 under the Exchange Act.
Business Day: Any day other than a Saturday or a Sunday or a day
on which commercial banking institutions in the City of New York are
authorized by law to be closed. Any reference to "days" (unless Business
Days are specified) shall mean calendar days.
Commission: The Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
Common Stock: As defined in the introduction to this Warrant,
such term to include any stock into which such Common Stock shall have
been changed or any stock resulting from any reclassification of such
Common Stock, and all other stock of any class or classes (however
designated) of the Company the holders of which have the right, without
limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference or have
the right to vote at elections of directors of the Company, the
authorization of any shares of Common Stock or mergers, consolidations or
sales of assets of the Company.
Company: As defined in the introduction to this Warrant, such
term to include any corporation which shall succeed to or assume the
obligations of the Company hereunder in compliance with Section 3.
Convertible Securities: Any evidences of indebtedness, shares of
stock (other than Common Stock) or other securities directly or
indirectly convertible into or exchangeable for Additional Shares of
Common Stock.
Current Market Price: On any date specified herein, the average
daily Market Price during the period of the most recent 20 days, ending
on such date, on which the national securities exchanges were open for
trading, except that if no Common Stock is then listed or admitted to
trading on any national securities exchange or quoted in the
over-the-counter market, the Current Market Price shall be the Market
Price on such date under clause (d) of the definition thereof.
Demand Registration Statement: As defined in the Registration
Rights Agreement.
Exchange Act: The Securities Exchange Act of 1934, or any similar
federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
Expiration Date: As defined in the introduction to this Warrant.
Fully-Diluted Basis: As of the date of any determination, the
outstanding Common Stock plus the maximum number of shares of Common
Stock that would be issued upon the exercise, conversion or exchange of
any outstanding securities, warrants or options upon the terms thereof,
whether or not then exercisable, convertible, exchangeable or subject to
any vesting period, plus the maximum number of shares of Common Stock
issuable pursuant to any agreement by which the Company is bound whether
or not such stock is then required to be issued.
Holder: As defined in the introduction to this Warrant.
Investment Agreement: As defined in the introduction to this
Warrant.
Market Price: On any date specified herein, the amount per share
of the Common Stock, equal to (a) the last reported sale price of such
Common Stock, regular way, on such date or, in case no such sale takes
place on such date, the average of the closing bid and asked prices
thereof regular way on such date, in either case as officially reported
on the principal national securities exchange on which such Common Stock
is then listed or admitted for trading, or (b) if such Common Stock is
not then listed or admitted for trading on any national securities
exchange but is designated as a national market system security by the
NASD, including the Nasdaq Small Cap market, the last reported trading
price of the Common Stock on such date, or (c) if there shall have been
no trading on such date or if the Common Stock is not so designated, the
average of the closing bid and asked prices of the Common Stock on such
date as shown by the NASD automated quotation system, or (d) if such
Common Stock is not then listed or admitted for trading on any national
exchange or quoted in the over-the-counter market, the higher of (x) the
book value thereof as determined by any firm of independent public
accountants of recognized standing selected by the Board of Directors of
the Company as of the last day of any month ending within 60 days
preceding the date as of which the determination is to be made and (y)
the fair value thereof (as of a date which is within 20 days of the date
as of which the determination is to be made) determined in good faith by
the Board of Directors of the Company, which determination may be
challenged by any Holder pursuant to Section 22 within 30 days of receipt
of notice thereof.
NASD: The National Association of Securities Dealers, Inc.
Options: Rights, options or warrants to subscribe for, purchase
or otherwise acquire either Additional Shares of Common Stock or
Convertible Securities.
Other Securities: Any stock (other than Common Stock) and other
securities of the Company or any other Person (corporate or otherwise)
which the holders of the Warrants at any time shall be entitled to
receive, or shall have received, upon the exercise of the Warrants, in
lieu of or in addition to Common Stock, or which at any time shall be
issuable or shall have been issued in exchange for or in replacement of
Common Stock or Other Securities pursuant to Section 3 or otherwise.
Person: A corporation, an association, a partnership, an
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
Preferred Stock: The Senior Redeemable Preferred Stock of the
Company issued pursuant to the Investment Agreement.
Registrable Securities: As defined in the Registration Rights
Agreement.
Registration Rights Agreement: The Registration Rights Agreement,
dated the date hereof, by and among the Company and the Initial Holders
specified on the signature page thereof.
Restricted Securities: (a) any Warrants bearing the applicable
legend set forth in Section 9.1, (b) any shares of Common Stock (or Other
Securities) issued or issuable upon the exercise of Warrants which are
evidenced by a certificate or certificates bearing the applicable legend
set forth in such Section, and (c) any shares of Common Stock (or Other
Securities) issued subsequent to the exercise of any of the Warrants as a
dividend or other distribution with respect to, or resulting from a
subdivision of the outstanding shares of Common Stock (or other
Securities) into a greater number of shares by reclassification, stock
splits or otherwise, or in exchange for or in replacement of the Common
Stock (or Other Securities) issued upon such exercise, which are
evidenced by a certificate or certificates bearing the applicable legend
set forth in such Section.
Securities Act: The Securities Act of 1933, or any similar
federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
Subsidiary: with respect to any Person at any time, any
corporation, partnership, joint venture, limited liability company, trust
or estate of which (or in which) more than 50% of:
(a) the issued and outstanding shares of capital stock having
ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether at the time shares of capital
stock of any other class or classes of such corporation shall or might
have voting power upon the occurrence of any contingency);
(b) the interest in the capital or profits of such corporation,
professional corporation, partnership, joint venture or limited liability
company; or
(c) the beneficial interest in such trust or estate, is, at such
time, directly or indirectly owned or controlled by such Person, by such
Person and one or more of its other Subsidiaries or by one or more of
such Person's other Subsidiaries.
Voting Securities: Stock of any class or classes (or equivalent
interests), if the holders of the stock of such class or classes (or
equivalent interests) are ordinarily, in the absence of contingencies,
entitled to vote for the election of the directors (or persons performing
similar functions) of such business entity, even though the right so to
vote has been suspended by the happening of such a contingency.
Warrant: As defined in the introduction to this Warrant.
Warrant Price: As defined in Section 2.1.
Warrant Quantity: At any time, the number of shares of Common
Stock into which the Warrant is exercisable.
Withdrawn Demand Registration: As defined in the Registration
Rights Agreement.
14. Remedies; Specific Performance. The Company stipulates that
there would be no adequate remedy at law to the Holder in the event of
any default or threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant and accordingly, the
Company agrees that, in addition to any other remedy to which the Holder
may be entitled at law or in equity, the Holder shall be entitled to seek
to compel specific performance of the obligations of the Company under
this Warrant, without the posting of any bond, in accordance with the
terms and conditions of this Warrant in any court of the United States or
any State thereof having jurisdiction, and if any action should be
brought in equity to enforce any of the provisions of this Warrant, the
Company shall not raise the defense that there is an adequate remedy at
law. Except as otherwise provided by law, a delay or omission by the
Holder hereto in exercising any right or remedy accruing upon any such
breach shall not impair the right or remedy or constitute a waiver of or
acquiescence in any such breach. No remedy shall be exclusive of any
other remedy. All available remedies shall be cumulative.
15. No Rights or Liabilities as Shareholder. Nothing contained in
this Warrant shall be construed as conferring upon the Holder hereof any
rights as a shareholder of the Company or as imposing any obligation on
the Holder to purchase any securities or as imposing any liabilities on
the Holder as a shareholder of the Company, whether such obligation or
liabilities are asserted by the Company or by creditors of the Company.
16. Notices.
(a) All notices and other communications (and
deliveries) provided for or permitted hereunder shall be made in
writing by hand delivery, telecopier, any courier guaranteeing
overnight delivery or first class registered or certified mail,
return receipt requested, postage prepaid, addressed (i) if to
the Company, to the attention of its President at its principal
office located at 725 Independence Avenue, S.E. Washington, D.C.
20003, Telecopy: (202) 543-5360 or such other address or telecopy
number as may hereafter be designated in writing by the Company
to the Holder in accordance with the provisions of this Section,
with a copy to Epstein Becker & Green, P.C., 250 Park Avenue, New
York, New York 10177, Attn: David E. Fleming, Esq., Telecopy:
(212) 661-0989, (ii) If to the initial Holder, to Wexford
Management LLC, 411 West Putnam Avenue, Greenwich, Connecticut
06830, Attn: Frank Plimpton, Telecopy: (203) 862-7490 or such
other address or telecopy number as may hereafter be designated
in writing by the Holder to the Company in accordance with the
provisions of this Section, with a copy to Skadden, Arps, Slate,
Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022,
Attn: Randall H. Doud, Esq., Telecopy: (212) 735-2000, or (iii)
if to any subsequent Holder, at its address as it appears in the
Warrant Register.
All such notices and communications (and
deliveries) shall be deemed to have been duly given: at the time
delivered by hand, if personally delivered; when receipt is
acknowledged, if telecopied; on the next Business Day, if timely
delivered to a courier guaranteeing overnight delivery; and five
days after being deposited in the mail, if sent first class or
certified mail, return receipt requested, postage prepaid;
provided, that the exercise of any Warrant shall be effective in
the manner provided in Section 1.
(b) If:
(i) the Company shall declare a dividend
(or any other distribution) on the Common Stock; or
(ii) the Company shall authorize the
granting to all holders of the Common Stock of rights or
warrants to subscribe for or purchase any shares of any
class or any other rights or warrants; or
(iii) there shall be any reclassification of
the Common Stock or any consolidation or merger to which
the Company is a party and for which approval of any
shareholders of the Company is required, or a statutory
share exchange, or self tender offer by the Company for
all or substantially all of its outstanding shares of
Common Stock or the sale or transfer of all or
substantially all of the assets of the Company as an
entity; or
(iv) there shall occur the involuntary or
voluntary liquidation, dissolution or winding up of the
Company,
then the Company shall cause to be mailed to the Holder, at the
address as shown on the stock records of the Company, as promptly
as possible, but at least 15 Business Days prior to the
applicable date hereinafter specified, a notice stating (A) the
date on which a record is to be taken for the purpose of such
dividend, distribution or rights or warrants, or, if a record is
not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distribution or rights
or warrants are to be determined or (B) the date on which such
reclassification, consolidation, merger, statutory share
exchange, sale, transfer, liquidation, dissolution or winding up
is expected to become effective, and the date as of which it is
expected that holders of Common Stock shall be entitled to
exchange their shares of Common Stock for securities or other
property, if any, deliverable upon such reclassification,
consolidation, merger, statutory share exchange, sale, transfer,
liquidation, dissolution or winding up.
(c) Whenever the number of shares of Common Stock
issuable upon exercise of this Warrant is adjusted as herein
provided, the Company shall prepare a notice of such adjustment
setting forth the adjusted number of shares of Common Stock
issuable upon exercise of this Warrant, the basis and the
computation thereof, and the effective date of such adjustment
and shall mail such notice to the Holder at the Holder's last
address as shown on the stock records of the Company.
17. Amendments. This Warrant and any term hereof may not be
amended, modified, supplemented or terminated, and waivers or consents to
departures from the provisions hereof may not be given, except by written
instrument duly executed by the Holders of a majority-in-interest of the
Warrants.
18. Descriptive Headings, Etc. The headings in this Warrant are
for convenience of reference only and shall not limit or otherwise affect
the meaning of terms contained herein. Unless the context of this Warrant
otherwise requires: (1) words of any gender shall be deemed to include
each other gender; (2) words using the singular or plural number shall
also include the plural or singular number, respectively; (3) the words
"hereof," "herein" and "hereunder" and words of similar import when used
in this Warrant shall refer to this Warrant as a whole and not to any
particular provision of this Warrant, and Section and paragraph
references are to the Sections and paragraphs of this Warrant unless
otherwise specified; (4) the word "including" and words of similar import
when used in this Warrant shall mean "including, without limitation,"
unless otherwise specified; (5) "or" is not exclusive; and (6) provisions
apply to successive events and transactions.
19. Governing Law. This Warrant shall be governed by, and
construed in accordance with, the laws of the State of Delaware (without
giving effect to the conflict of laws principles thereof).
20. Judicial Proceedings; Waiver of Jury. Any legal action, suit
or proceeding brought against the Company with respect to this Warrant
may be brought in any federal court of the Southern District of New York
or any state court located in New York County, State of New York, and by
execution and delivery of this Warrant, the Company hereby irrevocably
and unconditionally waives any claim (by way of motion, as a defense or
otherwise) of improper venue, that it is not subject personally to the
jurisdiction of such court, that such courts are an inconvenient forum or
that this Warrant or the subject matter may not be enforced in or by such
court. The Company hereby irrevocably and unconditionally consents to the
service of process of any of the aforementioned courts in any such
action, suit or proceeding by the mailing of copies thereof by registered
or certified mail, postage prepaid, at its address set forth or provided
for in Section 16 (with copies of such process also being sent to the
Company's counsel referred to in such section), such service to become
effective 30 days after such mailing. Nothing herein contained shall be
deemed to affect the right of any party to serve process in any manner
permitted by law or commence legal proceedings or otherwise proceed
against any other party in any other jurisdiction to enforce judgments
obtained in any action, suit or proceeding brought pursuant to this
Section. THE COMPANY HEREBY IRREVOCABLY WAIVES TRIAL BY JURY IN ANY
ACTION, SUIT OR PROCEEDING, WHETHER AT LAW OR EQUITY, BROUGHT BY IT OR
THE HOLDER IN CONNECTION WITH THIS WARRANT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
21. Registration Rights Agreement. The shares of Common Stock
(and Other Securities) issuable upon exercise of this Warrant (or upon
conversion of any shares of Common Stock issued upon such exercise) shall
constitute Registrable Securities (as such term is defined in the
Registration Rights Agreement). Each holder of this Warrant shall be
entitled to all of the benefits afforded to a holder of any such
Registrable Securities under the Registration Rights Agreement and such
holder, by its acceptance of this Warrant, agrees to be bound by and to
comply with the terms and conditions of the Registration Rights Agreement
applicable to such holder as a holder of such Registrable Securities.
22. Determination of Current Market Price or Market Price.
(a) The determination by the Board of Directors of
the Current Market Price or Market Price shall be final and
binding absent manifest error except that the determination of
Market Price under clause (d) of the definition thereof may be
challenged by the Holders of a majority-in-interest of the
Warrants within 30 days after notice of any adjustment in the
number of shares of Common Stock issuable upon the exercise of
this Warrant utilizing such definition as sent to the Holders.
(b) Such notice of objection shall specify an
investment banking firm of national reputation to determine the
market value of the Common Stock as of the date of determination
by the Company's Board of Directors. The Company may reject the
firm included in such notice solely based on such firm being an
affiliate of one or more Holders.
(c) The Company shall enter into a standard
agreement with such firm and shall provide full cooperation to
such firm with respect to its evaluation of the Market Value of
the Common Stock. The Company and the Holders shall each pay
one-half of the fees and expenses of such firm; provided,
however, that in the event that the determination by such firm is
110% or more of the original determination made by the Company's
Board of Directors, the Company shall pay all of the fees and
expenses of such firm.
(d) In determining the Market Value of the Common
Stock, such firm may not take into account that the Common Stock
at issue does not control the Company.
(e) The determination by such firm shall be final
and binding on the Company and the Holders.
COMPLETE WELLNESS
CENTERS, INC.
By:/s/ E. Eugene Sharer
Name:
Title:
Exhibit A
FORM OF SUBSCRIPTION
[To be executed only upon exercise of Warrant]
To: COMPLETE WELLNESS CENTERS, INC.
The undersigned registered holder of the within Warrant hereby
irrevocably exercises such Warrant for, and purchases thereunder, ____
shares of Common Stock of COMPLETE WELLNESS CENTERS, INC. and herewith
makes payment of $ therefor, and requests that the certificates for such
shares be issued in the name of, and delivered to whose address is
Dated:
- ---------------------------------------------------
(Signature must conform in all respects to the
name of holder as specified on the face of Warrant)
- ---------------------------------------------------
(Street Address)
- ---------------------------------------------------
(City) (State) Zip Code)
Exhibit B
FORM OF ASSIGNMENT
[To be executed only upon assignment of Warrant] For value
received, the undersigned registered holder of the within Warrant hereby
sells, assigns and transfers unto the right represented by such Warrant
to purchase shares of Common Stock of COMPLETE WELLNESS CENTERS, INC. to
which such Warrant relates, and appoints Attorney to make such transfer
on the books of COMPLETE WELLNESS CENTERS, INC., maintained for such
purpose, with full power of substitution in the premises.
Dated:
- ---------------------------------------------------
(Signature must conform in all respects to the
name of holder as specified on the face of Warrant)
- ---------------------------------------------------
(Street Address)
- ---------------------------------------------------
(City) (State) Zip Code)
Signed in the presence of:
Exhibit C
LIST OF STOCK OPTION PLANS, WARRANTS AND SIMILAR AGREEMENTS
EXHIBIT VII
COMPLETE WELLNESS CENTERS, INC.
Common Stock Purchase Warrant
Dated as of January 12, 1998
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT
TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT
AND SUCH LAWS.
TABLE OF CONTENTS
1. Exercise of Warrant............................................ 1
1.1. Manner of Exercise....................................... 1
1.2. When Exercise Effective.................................. 2
1.3. Delivery of Stock Certificates, etc...................... 2
1.4. Restriction on Exercise.................................. 2
2. Adjustment of Common Stock Issuable Upon
Exercise. ............................................. 3
2.1. General; Warrant Quantity................................ 3
2.2. Adjustment of Warrant Quantity........................... 3
2.3. Treatment of Options and Convertible
Securities............................................. 4
2.4. Treatment of Stock Dividends, Stock Splits,
etc.................................................... 6
2.5. Computation of Consideration............................. 7
2.6. Adjustments for Combinations, etc........................ 8
2.7. Dilution in Case of Other Securities..................... 8
2.8. Minimum Adjustment of Warrant Quantity................... 8
2.9. No Duplication of Adjustments............................ 9
3. Consolidation, Merger, etc..................................... 9
3.1. Adjustments for Consolidation, Merger, Sale
of Assets, Reorganization, etc......................... 9
3.2. Assumption of Obligations................................ 10
4. Other Dilutive Events.......................................... 10
5. No Dilution or Impairment...................................... 11
6. Accountants' Report as to Adjustments.......................... 11
7. Financial and Business Information............................. 12
7.1. Quarterly Information.................................... 12
7.2. Annual Information....................................... 12
7.3. Filings.................................................. 13
7.4. Notices of Corporate Action.............................. 13
8. Registration of Common Stock................................... 14
9. Restrictions on Transfer....................................... 14
9.1. Restrictive Legends...................................... 14
9.2. Transfer to Comply With the Securities Act............... 15
9.3. Termination of Restrictions.............................. 15
10. Reservation of Stock, etc...................................... 15
11. Registration and Transfer of Warrants, etc. ................... 16
11.1. Warrant Register; Ownership of Warrants.................. 16
11.2. Transfer of Warrants..................................... 16
11.3. Replacement of Warrants.................................. 17
11.4. Adjustments To Warrant Quantity.......................... 17
11.5. Fractional Shares........................................ 17
12. Redemption..................................................... 17
12.1. Amounts Redeemable....................................... 17
12.2. Redemption Price......................................... 18
12.3. Notice of Partial Redemption; Payment.................... 18
13. Definitions.................................................... 18
14. Remedies; Specific Performance................................. 23
15. No Rights or Liabilities as Shareholder........................ 23
16. Notices........................................................ 23
17. Amendments..................................................... 25
18. Descriptive Headings, Etc...................................... 25
19. Governing Law.................................................. 25
20. Judicial Proceedings; Waiver of Jury........................... 25
21. Registration Rights Agreement.................................. 26
22. Determination of Current Market Price or Market
Price....................................................... 26
COMPLETE WELLNESS CENTERS, INC.
Common Stock Purchase Warrant
Void After January 12, 2005
No. W-1 January 12, 1998
COMPLETE WELLNESS CENTERS, INC. (the "Company"), a Delaware
corporation, for value received, hereby certifies that Wexford Spectrum
Investors LLC ("Wexford"), or its registered assigns (each, a "Holder"),
is entitled to purchase from the Company an aggregate of 570,000 duly
authorized, validly issued, fully paid and nonassessable shares of common
stock, par value $0.0001665 per share, of the Company (the "Common
Stock") at the purchase price per share of $1.75, at any time or from
time to time prior to 5:30 PM, New York City time, on January 12, 2005
(the "Expiration Date"), all subject to the terms, conditions and
adjustments set forth below in this Warrant.
This Warrant is one of the Common Stock Purchase Warrants
(the "Warrants," such term to include any such warrants issued in
substitution therefor) originally issued in connection with the
Investment Agreement, dated as of December 19, 1997 and as supplemented
as of January 12, 1998, by and among the Company, Wexford and Imprimis
Investors LLC (as amended or otherwise modified from time to time, the
"Investment Agreement"). The Warrants are subject to adjustment as
provided herein. Certain capitalized terms used in this Warrant are
defined in Section 13; references to an "Exhibit" are, unless otherwise
specified, to one of the Exhibits attached to this Warrant and references
to a "Section" are, unless otherwise specified, to one of the Sections of
this Warrant.
1. Exercise of Warrant.
1.1. Manner of Exercise. Subject to the restrictions set forth in
Section 1.4, this Warrant may be exercised by the Holder, in whole or in
part, at any time or from time to time, on or after the date hereof,
during normal business hours on any Business Day, by surrender of this
Warrant to the Company at its principal office, accompanied by the Form
of Subscription in substantially the form attached as Exhibit A to this
Warrant (or a reasonable facsimile thereof) duly executed by the Holder
and accompanied by payment, in cash, by certified or official bank check
payable to the order of the Company, or in the manner provided in Section
1.5 or Section 1.6 (or by any combination of such methods), in the amount
obtained by multiplying (a) the number of shares of Common Stock
designated in such Form of Subscription (adjusted as provided in Sections
2 through 4) by (b) the Warrant Price at the time of the exercise, as
determined in accordance with Section 2.1, and the Holder shall thereupon
be entitled to receive such number of duly authorized, validly issued,
fully paid and nonassessable shares of Common Stock (or Other Securities
as provided below).
1.2. When Exercise Effective. Each exercise of this Warrant shall
be deemed to have been effected immediately prior to the close of
business on the Business Day on which this Warrant shall have been
surrendered to the Company as provided in Section 1.1. At such time the
Person or Persons in whose name or names any certificate or certificates
for shares of Common Stock (or Other Securities) shall be issuable upon
such exercise, as provided in Section 1.3, shall be deemed to have become
the Holder or holders of record thereof.
1.3. Delivery of Stock Certificates, etc. As soon as practicable
after each exercise of this Warrant, in whole or in part, and in any
event within three Business Days thereafter, the Company at its expense
(including the payment by it of any applicable transfer taxes) will cause
to be issued in the name of and delivered to the Holder hereof or,
subject to Section 11, as the Holder (upon payment by the Holder of any
applicable transfer taxes) may direct,
(a) a certificate or certificates for the number of duly
authorized, validly issued, fully paid and nonassessable shares,
including, if the Company so elects, fractional shares, of Common
Stock (or Other Securities) to which such Holder shall be entitled
upon such exercise plus, at the discretion of the Company, in lieu
of any fractional share to which such Holder would otherwise be
entitled, cash in an amount equal to the same fraction of the
Current Market Price per share on the Business Day next preceding
the date of such exercise; and
(b) in case such exercise is in part only, a new Warrant or
Warrants of like tenor, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock equal
(without giving effect to any adjustment thereof) to the number of
such shares called for on the face of this Warrant minus the number
of such shares designated by the Holder upon such exercise as
provided in Section 1.1.
1.4. Restriction on Exercise. This Warrant may not be exercised
(a) to the extent that the shares of Common Stock held by any
holders of this and any other Warrants then outstanding, in the
aggregate after giving effect to such exercise, would exceed 50% of
the shares of Common Stock then issued and outstanding; and
(b) to the extent that such exercise would reduce the
remaining number of shares issuable under this and any
other Warrants then outstanding below the Redemption Eligible
Amount. The "Redemption Eligible Amount" shall mean,
(i) for the period through December 31, 1998,
1,500,000;
(ii) for the period from January 1, 1999 through
March 31, 2000, 1,200,000;
(iii) for the period from April 1, 2000 through
March 31, 2001, 600,000; and
(iv) at any time after March 31, 2001, 0;
provided, however, that the Redemption Eligible Amount will be
appropriately adjusted to reflect transactions or other matters giving
rise to adjustments to the Warrant Quantity.
2. Adjustment of Common Stock Issuable Upon Exercise.
2.1. General; Warrant Quantity. This Warrant initially evidences
the right to purchase a number of shares of Common Stock set forth in the
first paragraph of this Warrant (the "Initial Number"), subject to
adjustment as provided in this Section 2, and in Sections 3 and 4. The
"Warrant Price" shall be fixed at $1.75 per share of Common Stock
received upon exercise of this Warrant, provided, however, that if the
Company, (a) within 120 days following a request by any Holder of a
Warrant other than a Withdrawn Demand Registration, fails to effect or
maintain the registration of Registrable Securities pursuant to, and for
the period contemplated by, Section 2.1 of the Registration Rights
Agreement, or (b) fails to effect or maintain the registration of
Registrable Securities pursuant to Section 2.2 of the Registration Rights
Agreement, then the Warrant Price shall be reduced by $0.25. The Warrant
Price may be so reduced only once. The Warrant Price shall be so reduced
notwithstanding that (i) the Company shall have used its best efforts to
effect and maintain the registration of Registrable Securities, or (ii)
there has been any postponement of registration pursuant to Section 2.7
of the Registration Rights Agreement.
2.2. Adjustment of Warrant Quantity.
(a) Issuance of Additional Shares of Common Stock. In case
the Company at any time or from time to time after the date hereof shall
issue or sell Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to Section 2.3 or
2.4) without consideration or for a consideration per share less than the
Current Market Price in effect immediately prior to such issue or sale,
then, and in each such case, subject to Section 2.8, the number of shares
of Common Stock provided for in the Warrant shall be increased,
concurrently with such issue or sale, to an amount determined by
multiplying such number by a fraction (a) the numerator of which shall be
the number of shares of Common Stock outstanding immediately after such
issue or sale, provided that, for the purposes of this Section 2.2(a),
(x) immediately after any Additional Shares of Common Stock are deemed to
have been issued pursuant to Section 2.3 or 2.4, such Additional Shares
shall be deemed to be outstanding, and (y) treasury shares shall not be
deemed to be outstanding, and (b) the denominator of which shall be (i)
the number of shares of Common Stock outstanding immediately prior to
such issue or sale plus (ii) the number of shares of Common Stock which
the aggregate consideration received by the Company for the total number
of such Additional Shares of Common Stock so issued or sold would
purchase at such Current Market Price.
(b) Dividends and Distributions. In case the Company at any
time or from time to time after the date hereof shall declare, order, pay
or make a dividend or other distribution (including, without limitation,
any distribution of other or additional stock or other securities or
property or Options by way of dividend or spin-off, reclassification,
recapitalization or similar corporate rearrangement) on the Common Stock
other than a dividend payable in Additional Shares of Common Stock the
Holder of this Warrant shall receive the same dividend per share of
Common Stock then issuable upon exercise of this Warrant based upon the
maximum number of shares of Common Stock at the time issuable to such
Holder as the holders of Common Stock.
2.3. Treatment of Options and Convertible Securities. In case the
Company at any time or from time to time after the date hereof shall
issue, sell, grant or assume, or shall fix a record date for the
determination of holders of any class of securities entitled to receive,
any Options or Convertible Securities, then, and in each such case, the
maximum number of Additional Shares of Common Stock (as set forth in the
instrument relating thereto, without regard to any provisions contained
therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue, sale, grant or assumption or, in
case such a record date shall have been fixed, as of the close of
business on such record date (or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading), provided that such Additional Shares of Common Stock shall not
be deemed to have been issued unless the consideration per share
(determined pursuant to Section 2.5) of such shares would be less than
the Current Market Price in effect on the date of and immediately prior
to such issue, sale, grant or assumption or immediately prior to the
close of business on such record date (or, if the Common Stock trades on
an ex-dividend basis, on the date prior to the commencement of
ex-dividend trading), as the case may be, and provided, further, that in
any such case in which Additional Shares of Common Stock are deemed to be
issued,
(a) whether or not the Additional Shares of Common Stock
underlying such Options or Convertible Securities are deemed to be
issued, no further adjustment of the Warrant Quantity shall be made
upon the subsequent issue or sale of Convertible Securities or
shares of Common Stock upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, except in
the case of any such Options or Convertible Securities which
contain provisions requiring an adjustment, subsequent to the date
of the issue or sale thereof, of the number of Additional Shares of
Common Stock issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities by reason of
(x) a change of control of the Company, (y) the acquisition by any
Person or group of Persons of any specified number or percentage of
the Voting Securities of the Company or (z) any similar event or
occurrence, each such case to be deemed hereunder to involve a
separate issuance of Additional Shares of Common Stock, Options or
Convertible Securities, as the case may be;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Company, or decrease in the number
of Additional Shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof (by change of rate or otherwise),
the Warrant Quantity computed upon the original issue, sale, grant
or assumption thereof (or upon the occurrence of the record date,
or date prior to the commencement of ex-dividend trading, as the
case may be, with respect thereto), and any subsequent adjustments
based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase insofar as it
affects such Options, or the rights of conversion or exchange under
such Convertible Securities, which are outstanding at such time;
(c) upon the expiration (or purchase by the Company and
cancellation or retirement) of any such Options which shall not
have been exercised or the expiration of any rights of conversion
or exchange under any such Convertible Securities which (or
purchase by the Company and cancellation or retirement of any such
Convertible Securities the rights of conversion or exchange under
which) shall not have been exercised, the Warrant Quantity computed
upon the original issue, sale, grant or assumption thereof (or upon
the occurrence of the record date, or date prior to the
commencement of ex-dividend trading, as the case may be, with
respect thereto), and any subsequent adjustments based thereon,
shall, upon such expiration (or such cancellation or retirement, as
the case may be), be recomputed as if:
(i) in the case of Options for Common Stock or
Convertible Securities, the only Additional Shares of Common
Sock issued or sold were the Additional Shares of Common
Stock, if any, actually issued or sold upon the exercise of
such Options or the conversion or exchange of such
Convertible Securities and the consideration received
therefor was the consideration actually received by the
Company for the issue, sale, grant or assumption of all such
Options, whether or not exercised, plus the consideration
actually received by the Company upon such exercise, or for
the issue or sale of all such Convertible Securities which
were actually converted or exchanged, plus the additional
consideration, if any, actually received by the Company upon
such conversion or exchange; and
(ii) in the case of Options for Convertible Securities,
only the Convertible Securities, if any, actually issued or
sold upon the exercise of such Options were issued at the
time of the issue or sale, grant or assumption of such
Options, and the consideration received by the Company for
the Additional Shares of Common Stock deemed to have then
been issued was the consideration actually received by the
Company for the issue, sale, grant or assumption of all such
Options, whether or not exercised, plus the consideration
deemed to have been received by the Company (pursuant to
Section 2.5) upon the issue or sale of such Convertible
Securities with respect to which such Options were actually
exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above
shall have the effect of decreasing the number of shares issuable
upon exercise of this Warrant by an amount in excess of the amount
of the adjustment thereof originally made in respect of the issue,
sale, grant or assumption of such Options or Convertible
Securities; and
(e) in the case of any such Options which expire by their
terms not more than 30 days after the date of issue, sale, grant or
assumption thereof, no adjustment of the number of shares issuable
upon exercise of this Warrant shall be made until the expiration or
exercise of all such Options, whereupon such adjustment shall be
made in the manner provided in subdivision (c) above.
2.4. Treatment of Stock Dividends, Stock Splits, etc. In case the
Company at any time or from time to time after the date hereof shall
declare or pay any dividend on the Common Stock payable in Common Stock,
or shall effect a subdivision of the outstanding shares of Common Stock
into a greater number of shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in Common Stock), then, and in
each such case, Additional Shares of Common Stock shall be deemed to have
been issued (a) in the case of any such dividend, immediately after the
close of business on the record date for the determination of holders of
any class of securities entitled to receive such dividend, or (b) in the
case of any such subdivision, at the close of business on the day
immediately prior to the day upon which such corporate action becomes
effective.
2.5. Computation of Consideration. For the purposes of this Section
2
(a) the consideration for the issue or sale of any Additional
Shares of Common Stock shall, irrespective of the accounting
treatment of such consideration,
(i) insofar as it consists of cash, be computed at the
net amount of cash received by the Company, without deducting
any expenses paid or incurred by the Company or any
commissions or compensations paid or concessions or discounts
allowed to underwriters, dealers or others performing similar
services in connection with such issue or sale;
(ii) insofar as it consists of property (including
securities) other than cash, be computed at the fair value
thereof at the time of such issue or sale, as determined in
good faith by the Board of Directors of the Company; and
(iii) in case Additional Shares of Common Stock are
issued or sold together with other stock or securities or
other assets of the Company for a consideration which covers
both, be the portion of such consideration so received,
computed as provided in clauses (i) and (ii) above, allocable
to such Additional Shares of Common Stock, all as determined
in good faith by the Board of Directors of the Company;
(b) Additional Shares of Common Stock deemed to have been
issued pursuant to Section 2.3, relating to Options and Convertible
Securities, shall be deemed to have been issued for a consideration
per share determined by dividing (i) the total amount, if any,
received and receivable by the Company as consideration for the
issue, sale, grant or assumption of the Options or Convertible
Securities in question, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a
subsequent adjustment of such consideration to protect against
dilution) payable to the Company upon the exercise in full of such
Options or the conversion or exchange of such Convertible
Securities or, in the case of Options for Convertible Securities,
the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, in each case
computing such consideration as provided in the foregoing
subdivision (a), by (ii) the maximum number of shares of Common
Stock (as set forth in the instruments relating thereto, without
regard to any provision contained therein for a subsequent
adjustment of such number to protect against dilution) issuable
upon the exercise of such Options or the conversion or exchange of
such Convertible Securities; and
(c) Additional Shares of Common Stock deemed to have been
issued pursuant to Section 2.4, relating to stock dividends, stock
splits, etc., shall be deemed to have been issued for no
consideration.
2.6. Adjustments for Combinations, etc. In case the outstanding
shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common
Stock, the number of shares issuable upon exercise of this Warrant in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation,
be proportionately decreased.
2.7. Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold or shall become subject to issue or
sale upon the conversion or exchange of any stock (or Other Securities)
of the Company (or any issuer of Other Securities or any other Person
referred to in Section 3) or to subscription, purchase or other
acquisition pursuant to any Options issued or granted by the Company (or
any such other issuer or Person) for a consideration such as to dilute,
on a basis consistent with the standards established in the other
provisions of this Section 2, the purchase rights granted by this
Warrant, then, and in each such case, the computations, adjustments and
readjustments provided for in this Section 2 with respect to the number
of shares issuable upon exercise of the Warrant shall be made as nearly
as possible in the manner so provided and applied to determine the amount
of Other Securities from time to time receivable upon the exercise of the
Warrant, so as to protect the Holder against the effect of such dilution.
2.8. Minimum Adjustment of Warrant Quantity. If the amount of any
adjustment of the Warrant Quantity required pursuant to this Section 2
would be less than one tenth (1/10) of one percent (1%) of the number of
shares issuable upon exercise of the Warrant in effect at the time such
adjustment is otherwise so required to be made, such amount shall be
carried forward and adjustment with respect thereto made at the time of
and together with any subsequent adjustment which, together with such
amount and any other amount or amounts so carried forward, shall
aggregate at least one tenth (1/10) of one percent (1%) of such number of
shares issuable upon exercise of the Warrant. All calculations under this
Warrant shall be made to the nearest one-hundredth of a share.
2.9. No Duplication of Adjustments. There shall be no adjustment of
the number of shares of Common Stock issuable upon exercise of this
Warrant in case of the issuance of any stock of the Company in a
reorganization, acquisition or other similar transaction except as
specifically set forth in this Warrant. If any action or transaction
would require adjustment of the number of shares of Common Stock issuable
upon exercise of this Warrant pursuant to more than one Section of this
Warrant, only one adjustment shall be made and such adjustment shall be
the amount of adjustment that has the highest absolute value.
3. Consolidation, Merger, etc.
3.1. Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc. In case the Company after the date hereof (a) shall
consolidate with or merge into any other Person and shall not be the
continuing or surviving corporation of such consolidation or merger, or
(b) shall permit any other Person to consolidate with or merge into the
Company and the Company shall be the continuing or surviving Person but,
in connection with such consolidation or merger, the Common Stock or
Other Securities shall be changed into or exchanged for stock or other
securities of any other Person or cash or any other property, or (c)
shall transfer all or substantially all of its properties or assets to
any other Person, or (d) shall effect a capital reorganization or
reclassification of the Common Stock or Other Securities (other than a
capital reorganization or reclassification resulting in the issue of
Additional Shares of Common Stock for which adjustment in the number of
shares of Common Stock issuable upon the exercise of this Warrant is
provided in Section 2.2(a) or 2.2(b)), then, and in the case of each such
transaction, proper provision shall be made so that, upon the basis and
the terms and in the manner provided in this Warrant, the Holder, upon
the exercise hereof at any time after the consummation of such
transaction, shall be entitled to receive (at the aggregate Warrant Price
in effect at the time of such consummation for all Common Stock or Other
Securities issuable upon such exercise immediately prior to such
consummation), in lieu of the Common Stock or Other Securities issuable
upon such exercise prior to such consummation, the highest amount of
securities, cash or other property to which such Holder would actually
have been entitled as a shareholder upon such consummation if such Holder
had exercised the rights represented by this Warrant immediately prior
thereto, subject to adjustments (subsequent to such consummation) as
nearly equivalent as possible to the adjustments provided for in Sections
2 through 4, provided that if a purchase, tender or exchange offer shall
have been made to and accepted by the holders of more than 50% of the
outstanding shares of Common Stock, and if the Holder so designates in a
notice given to the Company on or before the date immediately preceding
the date of the consummation of such transaction, the Holder shall be
entitled to receive the highest amount of securities, cash or other
property to which such Holder would actually have been entitled as a
shareholder if the Holder had exercised this Warrant prior to the
expiration of such purchase, tender or exchange offer and accepted such
offer, subject to adjustments (from and after the consummation of such
purchase, tender or exchange offer) as nearly equivalent as possible to
the adjustments provided for in Sections 2 through 4.
3.2. Assumption of Obligations. Notwithstanding anything contained
in this Warrant to the contrary, the Company will not effect any of the
transactions described in clauses (a) through (d) of Section 3.1 unless,
prior to the consummation thereof, each Person (other than the Company)
which may be required to deliver any stock, securities, cash or property
upon the exercise of this Warrant as provided herein shall assume, by
written instrument delivered to, and reasonably satisfactory to, the
Holder, (a) the obligations of the Company under this Warrant (and if the
Company shall survive the consummation of such transaction, such
assumption shall be in addition to, and shall not release the Company
from, any continuing obligations of the Company under this Warrant), and
(b) the obligation to deliver to such Holder such shares of stock,
securities, cash or property as, in accordance with the foregoing
provisions of this Section 3, such Holder may be entitled to receive, and
such Person shall have similarly delivered to such Holder an opinion of
counsel for such Person, which counsel shall be reasonably satisfactory
to such Holder, stating that this Warrant shall thereafter continue in
full force and effect and the terms hereof (including, without
limitation, all of the provisions of this Section 3) shall be applicable
to the stock, securities, cash or property which such Person may be
required to deliver upon any exercise of this Warrant or the exercise of
any rights pursuant hereto. Nothing in this Section 3 shall be deemed to
authorize the Company to enter into any transaction not otherwise
permitted by this Warrant.
4. Other Dilutive Events. In case any event shall occur as to which the
provisions of Section 2 or Section 3 are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase
rights represented by this Warrant in accordance with the essential
intent and principles of such Sections, then, in each such case, the
Company shall appoint a firm of independent certified public accountants
of recognized national standing (which may be the regular auditors of the
Company), which shall give their opinion upon the adjustment, if any, on
a basis consistent with the essential intent and principles established
in Sections 2 and 3, necessary to preserve, without dilution, the
purchase rights represented by this Warrant. Upon receipt of such
opinion, the Company will promptly mail a copy thereof to the Holder and
shall make the adjustments described therein.
5. No Dilution or Impairment. The Company will not, by amendment of its
certificate of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will
at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate
in order to protect the rights of the Holder against dilution or other
impairment. Without limiting the generality of the foregoing, the Company
(a) will take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and
nonassessable shares of stock on the exercise of the Warrants from time
to time outstanding, (b) will not take any action which results in any
adjustment of the number of shares of Common Stock issuable upon the
exercise of this Warrant if the total number of shares of Common Stock
(or Other Securities) issuable after the action upon the exercise of all
of the Warrants would exceed the total number of shares of Common Stock
(or Other Securities) then authorized by the Company's certificate of
incorporation and available for the purpose of issue upon such exercise,
and (c) except for the Preferred Stock, will not issue any capital stock
of any class which is preferred as to dividends or as to the distribution
of assets upon voluntary or involuntary dissolution, liquidation or
winding-up, unless the rights of the holders thereof shall be limited to
a fixed sum or percentage of par value or a sum determined by reference
to a formula based on a published index of interest rates, an interest
rate publicly announced by a financial institution or a similar indicator
of interest rates in respect of participation in dividends and to a fixed
sum or percentage of par value in any such distribution of assets.
6. Accountants' Report as to Adjustments. In each case of any adjustment
or readjustment in the shares of Common Stock (or Other Securities)
issuable upon the exercise of this Warrant, the Company at its expense
will promptly compute such adjustment or readjustment in accordance with
the terms of this Warrant and cause independent certified public
accountants of recognized national standing (which may be the regular
auditors of the Company) selected by the Company to verify such
computation (other than any computation of the fair value of property as
determined in good faith by the Board of Directors of the Company) and
prepare a report setting forth such adjustment or readjustment and
showing in reasonable detail the method of calculation thereof and the
facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or to be received by the
Company for any Additional Shares of Common Stock issued or sold or
deemed to have been issued, (b) the number of shares of Common Stock
outstanding or deemed to be outstanding, and (c) the Warrant Quantity in
effect immediately prior to such issue or sale and as adjusted and
readjusted (if required by Section 2) on account thereof. The Company
will forthwith mail a copy of each such report to each Holder of a
Warrant and will, upon the written request at any time of any Holder of a
Warrant, furnish to such
Holder a like report setting forth the number of shares of Common Stock
issuable upon the exercise of this Warrant at the time in effect and
showing in reasonable detail how it was calculated. The Company will also
keep copies of all such reports at its principal office and will cause
the same to be available for inspection at such office during normal
business hours by any Holder of a Warrant or any prospective purchaser of
a Warrant designated by the Holder thereof.
7. Financial and Business Information
7.1. Quarterly Information. Except during any period when the
Company either (i) is subject to and is in compliance with the reporting
requirements of Section 15(d) of the Exchange Act or (ii) has securities
registered under Section 12(b) or 12(g) of the Exchange Act and is in
compliance with the reporting requirements mandated thereby (such status
being referred to as being a "Public Company"), the Company will deliver
to the Holder, as soon as practicable after the end of each quarterly
fiscal period in each fiscal year of the Company, and in any event within
45 days thereafter, a copy of the unaudited consolidated balance sheet as
at the close of such quarter, and the related unaudited consolidated
statements of income, shareholders' equity and cash flow of the Company
and its subsidiaries for that portion of the fiscal year ending as of the
close of such quarter. Such financial statements shall be prepared by the
Company in accordance with generally accepted accounting principles,
applied on a consistent basis ("GAAP") (except for normal year end
adjustments and the inclusion of footnotes) and accompanied by the
certification of the Company's chief executive officer or chief financial
officer that, to the best of his knowledge, such financial statements are
complete and correct in all material respects and fairly present in
accordance with GAAP (except for normal year end adjustments and the
inclusions of footnotes) the consolidated financial position, the
consolidated statements of income, shareholder equity and cash flow of
the Company and its subsidiaries as at the end of such quarter and for
such year-to-date period, as the case may be.
7.2. Annual Information. Except during any period when the Company
is a Public Company, the Company will deliver to the Holder as soon as
practicable after the end of each fiscal year of the Company, and in any
event within 120 days thereafter, one copy of:
(a) an audited consolidated balance sheet of the Company and
its subsidiaries as at the end of such year, and
(b) audited consolidated statements of income, shareholders'
equity and cash flow of the Company and its subsidiaries for such
year;
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all prepared in
accordance with GAAP, and which audited financial statements shall be
accompanied by (i) a certification of the chief executive officer or
chief financial officer of the Company that, to the best of his
knowledge, all such financial statements are complete and correct in all
material respects and present fairly in accordance with GAAP the
consolidated financial position of the Company and its subsidiaries as at
the end of such fiscal year and for the period then ended, (ii) an
opinion thereon of the independent certified public accountants regularly
retained by the Company, or any other firm of independent certified
public accountants of recognized national standing selected by the
Company, and (iii) a report of such independent certified public
accountants confirming any adjustment made pursuant to Section 2 during
such year.
7.3. Filings. During any period when the Company is a Public
Company, the Company will file on or before the required date all
required regular or periodic reports (pursuant to the Exchange Act) with
the Commission and will deliver to the Holder promptly upon their
becoming available one copy of each report, notice or proxy statement
sent by the Company to its stockholders generally, and of each regular or
periodic report (pursuant to the Exchange Act) and any Registration
Statement, prospectus or written communication (other than transmittal
letters) (pursuant to the Securities Act), filed by the Company with (i)
the Commission or (ii) any securities exchange on which shares of Common
Stock are listed.
7.4. Notices of Corporate Action. In the event of
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a
regular periodic dividend payable in cash out of earned surplus in
an amount not exceeding the amount of the immediately preceding
cash dividend for such period) 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 consolidation or merger involving the Company and
any other Person or any transfer of all or substantially all the
assets of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to the Holder a notice specifying (i) the date or
expected 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 or expected date
on which any such reorganization, reclassification, recapitalization,
consolidation, merger, transfer, dissolution, liquidation or winding-up
is to take place and the time, if any such time is to be fixed, as of
which the holders of record of Common Stock (or Other Securities) shall
be entitled to exchange their shares of Common Stock (or Other
Securities) for the securities or other property deliverable upon such
reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding-up, such notice to
be mailed to the Holder at least 45 days prior to the date therein
specified.
8. Registration of Common Stock. If any shares of Common Stock required
to be reserved for purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any
federal or state law (other than the Securities Act) before such shares
may be issued upon exercise, the Company will, at its reasonable expense
and as expeditiously as possible, use its best efforts to cause such
shares to be duly registered or approved, as the case may be. At any such
time as Common Stock is listed on any national securities exchange, the
Company will, at its reasonable expense, obtain promptly and maintain the
approval for listing on each such exchange, upon official notice of
issuance, the shares of Common Stock issuable upon exercise of the then
outstanding Warrants and maintain the listing of such shares after their
issuance; and the Company will also list on such national securities
exchange, will register under the Exchange Act and will maintain such
listing of, any Other Securities that at any time are issuable upon
exercise of the Warrants, if and at the time that any securities of the
same class shall be listed on such national securities exchange by the
Company.
9. Restrictions on Transfer.
9.1. Restrictive Legends. Except as otherwise permitted by this
Section 9, each Warrant (including each Warrant issued upon the transfer
of any Warrant) shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
Except as otherwise permitted by this Section 9, each certificate for
Common Stock (or Other Securities) issued upon the exercise of any
Warrant, and each certificate issued upon the transfer of any such Common
Stock (or Other Securities), shall be stamped or otherwise imprinted with
a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
9.2. Transfer to Comply With the Securities Act. Restricted
Securities may not be sold, assigned, pledged, hypothecated, encumbered
or in any manner transferred or disposed of, in whole or in part, except
in compliance with the provisions of the Securities Act and state
securities or Blue Sky laws and the terms and conditions hereof.
9.3. Termination of Restrictions. The restrictions imposed by this
Section 9 on the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities (a) when a
registration statement with respect to the sale of such securities shall
have been declared effective under the Securities Act and such securities
shall have been disposed of in accordance with such registration
statement, (b) when such securities are sold pursuant to Rule 144 (or any
similar provision then in force) under the Securities Act, or (c) when,
in the opinion of both counsel for the Holder and counsel for the
Company, such restrictions are no longer required or necessary in order
to protect the Company against a violation of the Securities Act upon any
sale or other disposition of such securities without registration
thereunder. Whenever such restrictions shall cease and terminate as to
any Restricted Securities, the Holder shall be entitled to receive from
the Company, without expense, new securities of like tenor not bearing
the applicable legends required by Section 9.1.
10. Reservation of Stock, etc. The Company shall at all times reserve and
keep available, solely for issuance and delivery upon exercise of the
Warrant, the number of shares of Common Stock (or Other Securities) from
time to time issuable upon exercise of all Warrants at the time
outstanding. All shares of Common Stock (or Other Securities) issuable
upon exercise of any Warrants shall be duly authorized and, when issued
upon such exercise, shall be validly issued and, in the case of shares,
fully paid and nonassessable with no liability on the part of the holders
thereof, and, in the case of all securities, shall be free from all
taxes, liens, security interests, encumbrances, preemptive rights and
charges. The transfer agent for the Common Stock, which may be the
Company ("Transfer Agent"), and every subsequent Transfer Agent for any
shares of the Company's capital stock issuable upon the exercise of any
of the purchase rights represented by this Warrant, are hereby
irrevocably authorized and directed at all times until the Expiration
Date to reserve such number of authorized and unissued shares as shall be
requisite for such purpose. The Company shall keep copies of this Warrant
on file with the Transfer Agent for the Common Stock and with every
subsequent Transfer Agent for any shares of the Company's capital stock
issuable upon the exercise of the rights of purchase represented by this
Warrant. The Company shall supply such Transfer Agent with duly executed
stock certificates for such purpose. All Warrant certificates surrendered
upon the exercise of the rights thereby evidenced shall be canceled, and
such canceled Warrants shall constitute sufficient evidence of the number
of shares of stock which have been issued upon the exercise of such
Warrants. Subsequent to the Expiration Date, no shares of stock need be
reserved in respect of any unexercised Warrant.
11. Registration and Transfer of Warrants, etc.
11.1. Warrant Register; Ownership of Warrants. Each Warrant issued
by the Company shall be numbered and shall be registered in a warrant
register (the "Warrant Register") as it is issued and transferred, which
Warrant Register shall be maintained by the Company at its principal
office or, at the Company's election and expense, by a Warrant Agent or
the Company's Transfer Agent. The Company shall be entitled to treat the
registered Holder of any Warrant on the Warrant Register as the owner in
fact thereof for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in such Warrant on the part of
any other Person, and shall not be affected by any notice to the
contrary, except that, if and when any Warrant is properly assigned in
blank, the Company may (but shall not be obligated to) treat the bearer
thereof as the owner of such Warrant for all purposes. Subject to Section
9, a Warrant, if properly assigned, may be exercised by a new holder
without a new Warrant first having been issued.
11.2. Transfer of Warrants. Subject to compliance with Section 9,
if applicable, this Warrant and all rights hereunder are transferable in
whole or in part, without charge to the Holder hereof, upon surrender of
this Warrant with a properly executed Form of Assignment attached hereto
as Exhibit B at the principal office of the Company. Upon any partial
transfer, the Company shall at its expense issue and deliver to the
Holder a new Warrant of like tenor, in the name of the Holder, which
shall be exercisable for such number of shares of Common Stock with
respect to which rights under this Warrant were not so transferred.
11.3. Replacement of Warrants. On receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and, in the case of any such
loss, theft or destruction of this Warrant, on delivery of an indemnity
agreement reasonably satisfactory in form and amount to the Company or,
in the case of any such mutilation, on surrender of such Warrant to the
Company at its principal office and cancellation thereof, the Company at
its expense shall execute and deliver, in lieu thereof, a new Warrant of
like tenor.
11.4. Adjustments To Warrant Quantity. Notwithstanding any
adjustment in the Warrant Quantity or in the number or kind of shares of
Common Stock purchasable upon exercise of this Warrant, any Warrant
theretofore or thereafter issued may continue to express the same number
and kind of shares of Common Stock as are stated in this Warrant, as
initially issued.
11.5. Fractional Shares. Notwithstanding any adjustment pursuant to
Section 2 in the number of shares of Common Stock covered by this Warrant
or any other provision of this Warrant, the Company may, but shall not be
required to, issue fractions of shares upon exercise of this Warrant or
to distribute certificates which evidence fractional shares. In lieu of
fractional shares, the Company shall make payment to the Holder, at the
time of exercise of this Warrant as herein provided, in an amount in cash
equal to such fractions multiplied by the Current Market Price of a share
of Common Stock on the date of Warrant exercise.
12. Redemption.
12.1. Amounts Redeemable. At the option of the Company, this
Warrant will be partially redeemable under each of the following
circumstances, with each such partial redemption to reduce the aggregate
number of shares of Common Stock issuable hereunder and any other
Warrants then outstanding by the lesser of 300,000 and the aggregate
number of shares then issuable hereunder and thereunder and each such
partial redemption to be applied pro rata to the shares issuable
hereunder and thereunder:
(a) prior to January 1, 1999, if the all of the Preferred
Stock has been redeemed or repurchased by the Company prior to such
date;
(b) prior to March 31, 2000, if pre-tax earnings per share of
the Common Stock for the fiscal year 1999 equals or exceeds $1.25
on a Fully Diluted Basis;
(c) prior to March 31, 2000, if pre-tax earnings per share of
Common Stock for the combined fiscal years 1998 and 1999 equals or
exceeds $1.90 on a Fully Diluted Basis;
(d) prior to March 31, 2001, if pre-tax earnings per share of
Common Stock for the fiscal year 2000 equals or exceeds $2.00 on a
Fully Diluted Basis; and
(e) prior to March 31, 2001, if pre-tax earnings per share of
Common Stock for the combined fiscal years 1998, 1999 and 2000
equals or exceeds $4.10 on a Fully Diluted Basis;
provided, however, that the partial redemption amount of 300,000 and the
pre-tax earnings per share amounts will be appropriately adjusted to
reflect transactions or other matters giving rise to adjustments to the
Warrant Quantity.
12.2. Redemption Price. The redemption price in respect of any
partial redemption of this Warrant will be payable in cash to the Holder
on the Redemption Date (as defined below) in an amount equal to the
aggregate reduction in the number of shares of Common Stock issuable
pursuant to this Warrant by reason of such partial redemption times $.01.
12.3. Notice of Partial Redemption; Payment; Effect of Notice.
(a) The Company may exercise its partial redemption right by
giving written notice of such exercise to the Holder not less than five
Business Days prior to the date fixed for such redemption (the
"Redemption Date"), such notice to specify the Redemption Date and the
amount of the reduction in the number of shares of Common Stock issuable
hereunder by reason of such partial redemption and to be accompanied by a
computation of the pre-tax earnings per share amount or amounts giving
rise to such partial redemption as verified by independent certified
public accountants of recognized national standing (which may be the
regular auditors of the Company) selected by the Company to verify such
computation.
(b) The Company shall make partial redemption payments by
wire transfer to the Holder to an account designated by the Holder at
least two business days prior to the Redemption Date. On any Redemption
Date, the Company shall make any necessary adjustments in the Warrant
Register to reflect the reduction in the number of shares of Common Stock
issuable hereunder.
13. Definitions. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
Additional Shares of Common Stock: All shares (including treasury
shares) of Common Stock issued or sold (or, pursuant to Section 2.3 or
2.4, deemed to be issued) by the Company after the date hereof, whether
or not subsequently reacquired or retired by the Company, other than
(a) shares issued upon the exercise of the Warrants,
(b) such additional number of shares as may become issuable
upon the exercise of the Warrants by reason of adjustments required
pursuant to anti-dilution provisions applicable to the Warrants as
in effect on the date hereof,
(c) shares, warrants, options and other securities issued at
any time to the Holder or any Affiliate thereof, and
(d) shares issued upon exercise of any options, warrants,
rights for, or securities convertible into, Common Stock
outstanding as of the date of this Warrant and listed on Exhibit C
hereto or granted under the agreements and plans listed on Exhibit
C hereto, in each such case only to the extent that such options,
warrants, rights, convertible securities, agreements and plans are
not amended and only to the extent that the respective numbers of
shares so issued do not exceed the respective numbers of shares
indicated on Exhibit C.
Affiliate: Any person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common
control with, the applicable person. For purposes of this definition
"control" has the meaning specified in Rule 12b-2 under the Exchange Act.
Business Day: Any day other than a Saturday or a Sunday or a day
on which commercial banking institutions in the City of New York are
authorized by law to be closed. Any reference to "days" (unless Business
Days are specified) shall mean calendar days.
Commission: The Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
Common Stock: As defined in the introduction to this Warrant,
such term to include any stock into which such Common Stock shall have
been changed or any stock resulting from any reclassification of such
Common Stock, and all other stock of any class or classes (however
designated) of the Company the holders of which have the right, without
limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference or have
the right to vote at elections of directors of the Company, the
authorization of any shares of Common Stock or mergers, consolidations or
sales of assets of the Company.
Company: As defined in the introduction to this Warrant, such
term to include any corporation which shall succeed to or assume the
obligations of the Company hereunder in compliance with Section 3.
Convertible Securities: Any evidences of indebtedness, shares of
stock (other than Common Stock) or other securities directly or
indirectly convertible into or exchangeable for Additional Shares of
Common Stock.
Current Market Price: On any date specified herein, the average
daily Market Price during the period of the most recent 20 days, ending
on such date, on which the national securities exchanges were open for
trading, except that if no Common Stock is then listed or admitted to
trading on any national securities exchange or quoted in the
over-the-counter market, the Current Market Price shall be the Market
Price on such date under clause (d) of the definition thereof.
Demand Registration Statement: As defined in the Registration
Rights Agreement.
Exchange Act: The Securities Exchange Act of 1934, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
Expiration Date: As defined in the introduction to this Warrant.
Fully-Diluted Basis: As of the date of any determination, the
outstanding Common Stock plus the maximum number of shares of Common
Stock that would be issued upon the exercise, conversion or exchange of
any outstanding securities, warrants or options upon the terms thereof,
whether or not then exercisable, convertible, exchangeable or subject to
any vesting period, plus the maximum number of shares of Common Stock
issuable pursuant to any agreement by which the Company is bound whether
or not such stock is then required to be issued.
Holder: As defined in the introduction to this Warrant.
Investment Agreement: As defined in the introduction to this
Warrant.
Market Price: On any date specified herein, the amount per share
of the Common Stock, equal to (a) the last reported sale price of such
Common Stock, regular way, on such date or, in case no such sale takes
place on such date, the average of the closing bid and asked prices
thereof regular way on such date, in either case as officially reported
on the principal national securities exchange on which such Common Stock
is then listed or admitted for trading, or (b) if such Common Stock is
not then listed or admitted for trading on any national securities
exchange but is designated as a national market system security by the
NASD, including the Nasdaq Small Cap market, the last reported trading
price of the Common Stock on such date, or (c) if there shall have been
no trading on such date or if the Common Stock is not so designated, the
average of the closing bid and asked prices of the Common Stock on such
date as shown by the NASD automated quotation system, or (d) if such
Common Stock is not then listed or admitted for trading on any national
exchange or quoted in the over-the-counter market, the higher of (x) the
book value thereof as determined by any firm of independent public
accountants of recognized standing selected by the Board of Directors of
the Company as of the last day of any month ending within 60 days
preceding the date as of which the determination is to be made and (y)
the fair value thereof (as of a date which is within 20 days of the date
as of which the determination is to be made) determined in good faith by
the Board of Directors of the Company, which determination may be
challenged by any Holder pursuant to Section 22 within 30 days of receipt
of notice thereof.
NASD: The National Association of Securities Dealers, Inc.
Options: Rights, options or warrants to subscribe for, purchase
or otherwise acquire either Additional Shares of Common Stock or
Convertible Securities.
Other Securities: Any stock (other than Common Stock) and other
securities of the Company or any other Person (corporate or otherwise)
which the holders of the Warrants at any time shall be entitled to
receive, or shall have received, upon the exercise of the Warrants, in
lieu of or in addition to Common Stock, or which at any time shall be
issuable or shall have been issued in exchange for or in replacement of
Common Stock or Other Securities pursuant to Section 3 or otherwise.
Person: A corporation, an association, a partnership, an
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
Preferred Stock: The Senior Redeemable Preferred Stock of the
Company issued pursuant to the Investment Agreement.
Registrable Securities: As defined in the Registration Rights
Agreement.
Registration Rights Agreement: The Registration Rights
Agreement, dated the date hereof, by and among the Company and the
Initial Holders specified on the signature page thereof.
Restricted Securities: (a) any Warrants bearing the applicable
legend set forth in Section 9.1, (b) any shares of Common Stock (or Other
Securities) issued or issuable upon the exercise of Warrants which are
evidenced by a certificate or certificates bearing the applicable legend
set forth in such Section, and (c) any shares of Common Stock (or Other
Securities) issued subsequent to the exercise of any of the Warrants as a
dividend or other distribution with respect to, or resulting from a
subdivision of the outstanding shares of Common Stock (or other
Securities) into a greater number of shares by reclassification, stock
splits or otherwise, or in exchange for or in replacement of the Common
Stock (or Other Securities) issued upon such exercise, which are
evidenced by a certificate or certificates bearing the applicable legend
set forth in such Section.
Securities Act: The Securities Act of 1933, or any similar
federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
Subsidiary: with respect to any Person at any time, any
corporation, partnership, joint venture, limited liability company, trust
or estate of which (or in which) more than 50% of:
(a) the issued and outstanding shares of capital stock having
ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether at the time shares of capital
stock of any other class or classes of such corporation shall or might
have voting power upon the occurrence of any contingency);
(b) the interest in the capital or profits of such
corporation, professional corporation, partnership, joint venture or
limited liability company; or
(c) the beneficial interest in such trust or estate, is, at
such time, directly or indirectly owned or controlled by such Person, by
such Person and one or more of its other Subsidiaries or by one or more
of such Person's other Subsidiaries.
Voting Securities: Stock of any class or classes (or equivalent
interests), if the holders of the stock of such class or classes (or
equivalent interests) are ordinarily, in the absence of contingencies,
entitled to vote for the election of the directors (or persons performing
similar functions) of such business entity, even though the right so to
vote has been suspended by the happening of such a contingency.
Warrant: As defined in the introduction to this Warrant.
Warrant Price: As defined in Section 2.1.
Warrant Quantity: At any time, the number of shares of Common
Stock into which the Warrant is exercisable.
Withdrawn Demand Registration: As defined in the Registration
Rights Agreement.
14. Remedies; Specific Performance. The Company stipulates that there
would be no adequate remedy at law to the Holder in the event of any
default or threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant and accordingly, the
Company agrees that, in addition to any other remedy to which the Holder
may be entitled at law or in equity, the Holder shall be entitled to seek
to compel specific performance of the obligations of the Company under
this Warrant, without the posting of any bond, in accordance with the
terms and conditions of this Warrant in any court of the United States or
any State thereof having jurisdiction, and if any action should be
brought in equity to enforce any of the provisions of this Warrant, the
Company shall not raise the defense that there is an adequate remedy at
law. Except as otherwise provided by law, a delay or omission by the
Holder hereto in exercising any right or remedy accruing upon any such
breach shall not impair the right or remedy or constitute a waiver of or
acquiescence in any such breach. No remedy shall be exclusive of any
other remedy. All available remedies shall be cumulative.
15. No Rights or Liabilities as Shareholder. Nothing contained in this
Warrant shall be construed as conferring upon the Holder hereof any
rights as a shareholder of the Company or as imposing any obligation on
the Holder to purchase any securities or as imposing any liabilities on
the Holder as a shareholder of the Company, whether such obligation or
liabilities are asserted by the Company or by creditors of the Company.
16. Notices.
(a) All notices and other communications (and deliveries)
provided for or permitted hereunder shall be made in writing by
hand delivery, telecopier, any courier guaranteeing overnight
delivery or first class registered or certified mail, return
receipt requested, postage prepaid, addressed (i) if to the
Company, to the attention of its President at its principal office
located at 725 Independence Avenue, S.E. Washington, D.C. 20003,
Telecopy: (202) 543-5360 or such other address or telecopy number
as may hereafter be designated in writing by the Company to the
Holder in accordance with the provisions of this Section, with a
copy to Epstein Becker & Green, P.C., 250 Park Avenue, New York,
New York 10177, Attn: David E. Fleming, Esq., Telecopy:
(212) 661-0989, (ii) If to the initial Holder, to Wexford Management
LLC, 411 West Putnam Avenue, Greenwich, Connecticut 06830, Attn:
Frank Plimpton, Telecopy: (203) 862-7490 or such other address or
telecopy number as may hereafter be designated in writing by the
Holder to the Company in accordance with the provisions of this
Section, with a copy to Skadden, Arps, Slate, Meagher & Flom LLP,
919 Third Avenue, New York, New York 10022, Attn: Randall H. Doud,
Esq., Telecopy: (212) 735-2000, or (iii) if to any subsequent
Holder, at its address as it appears in the Warrant Register.
All such notices and communications (and deliveries) shall be
deemed to have been duly given: at the time delivered by hand, if
personally delivered; when receipt is acknowledged, if telecopied;
on the next Business Day, if timely delivered to a courier
guaranteeing overnight delivery; and five days after being
deposited in the mail, if sent first class or certified mail,
return receipt requested, postage prepaid; provided, that the
exercise of any Warrant shall be effective in the manner provided
in Section 1.
(b) If:
(i) the Company shall declare a dividend (or any other
distribution) on the Common Stock; or
(ii) the Company shall authorize the granting to all
holders of the Common Stock of rights or warrants to
subscribe for or purchase any shares of any class or any
other rights or warrants; or
(iii) there shall be any reclassification of the Common
Stock or any consolidation or merger to which the Company is
a party and for which approval of any shareholders of the
Company is required, or a statutory share exchange, or self
tender offer by the Company for all or substantially all of
its outstanding shares of Common Stock or the sale or
transfer of all or substantially all of the assets of the
Company as an entity; or
(iv) there shall occur the involuntary or voluntary
liquidation, dissolution or winding up of the Company,
then the Company shall cause to be mailed to the Holder, at the
address as shown on the stock records of the Company, as promptly
as possible, but at least 15 Business Days prior to the applicable
date hereinafter specified, a notice stating (A) the date on which
a record is to be taken for the purpose of such dividend,
distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record
to be entitled to such dividend, distribution or rights or warrants
are to be determined or (B) the date on which such
reclassification, consolidation, merger, statutory share exchange,
sale, transfer, liquidation, dissolution or winding up is expected
to become effective, and the date as of which it is expected that
holders of Common Stock shall be entitled to exchange their shares
of Common Stock for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger,
statutory share exchange, sale, transfer, liquidation, dissolution
or winding up.
(c) Whenever the number of shares of Common Stock issuable
upon exercise of this Warrant is adjusted as herein provided, the
Company shall prepare a notice of such adjustment setting forth the
adjusted number of shares of Common Stock issuable upon exercise of
this Warrant, the basis and the computation thereof, and the
effective date of such adjustment and shall mail such notice to the
Holder at the Holder's last address as shown on the stock records
of the Company.
17. Amendments. This Warrant and any term hereof may not be amended,
modified, supplemented or terminated, and waivers or consents to
departures from the provisions hereof may not be given, except by written
instrument duly executed by the Holders of a majority-in-interest of the
Warrants.
18. Descriptive Headings, Etc. The headings in this Warrant are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Warrant
otherwise requires: (1) words of any gender shall be deemed to include
each other gender; (2) words using the singular or plural number shall
also include the plural or singular number, respectively; (3) the words
"hereof," "herein" and "hereunder" and words of similar import when used
in this Warrant shall refer to this Warrant as a whole and not to any
particular provision of this Warrant, and Section and paragraph
references are to the Sections and paragraphs of this Warrant unless
otherwise specified; (4) the word "including" and words of similar import
when used in this Warrant shall mean "including, without limitation,"
unless otherwise specified; (5) "or" is not exclusive; and (6) provisions
apply to successive events and transactions.
19. Governing Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Delaware (without giving effect
to the conflict of laws principles thereof).
20. Judicial Proceedings; Waiver of Jury. Any legal action, suit or
proceeding brought against the Company with respect to this Warrant may
be brought in any federal court of the Southern District of New York or
any state court located in New York County, State of New York, and by
execution and delivery of this Warrant, the Company hereby irrevocably
and unconditionally waives any claim (by way of motion, as a defense or
otherwise) of improper venue, that it is not subject personally to the
jurisdiction of such court, that such courts are an inconvenient forum or
that this Warrant or the subject matter may not be enforced in or by such
court. The Company hereby irrevocably and unconditionally consents to the
service of process of any of the aforementioned courts in any such
action, suit or proceeding by the mailing of copies thereof by registered
or certified mail, postage prepaid, at its address set forth or provided
for in Section 16 (with copies of such process also being sent to the
Company's counsel referred to in such section), such service to become
effective 30 days after such mailing. Nothing herein contained shall be
deemed to affect the right of any party to serve process in any manner
permitted by law or commence legal proceedings or otherwise proceed
against any other party in any other jurisdiction to enforce judgments
obtained in any action, suit or proceeding brought pursuant to this
Section. THE COMPANY HEREBY IRREVOCABLY WAIVES TRIAL BY JURY IN ANY
ACTION, SUIT OR PROCEEDING, WHETHER AT LAW OR EQUITY, BROUGHT BY IT OR
THE HOLDER IN CONNECTION WITH THIS WARRANT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
21. Registration Rights Agreement. The shares of Common Stock (and Other
Securities) issuable upon exercise of this Warrant (or upon conversion of
any shares of Common Stock issued upon such exercise) shall constitute
Registrable Securities (as such term is defined in the Registration
Rights Agreement). Each holder of this Warrant shall be entitled to all
of the benefits afforded to a holder of any such Registrable Securities
under the Registration Rights Agreement and such holder, by its
acceptance of this Warrant, agrees to be bound by and to comply with the
terms and conditions of the Registration Rights Agreement applicable to
such holder as a holder of such Registrable Securities.
22. Determination of Current Market Price or Market Price.
(a) The determination by the Board of Directors of the
Current Market Price or Market Price shall be final and binding
absent manifest error except that the determination of Market Price
under clause (d) of the definition thereof may be challenged by the
Holders of a majority-in-interest of the Warrants within 30 days
after notice of any adjustment in the number of shares of Common
Stock issuable upon the exercise of this Warrant utilizing such
definition as sent to the Holders.
(b) Such notice of objection shall specify an investment
banking firm of national reputation to determine the market value
of the Common Stock as of the date of determination by the
Company's Board of Directors. The Company may reject the firm
included in such notice solely based on such firm being an
affiliate of one or more Holders.
(c) The Company shall enter into a standard agreement with
such firm and shall provide full cooperation to such firm with
respect to its evaluation of the Market Value of the Common Stock.
The Company and the Holders shall each pay one-half of the fees and
expenses of such firm; provided, however, that in the event that
the determination by such firm is 110% or more of the original
determination made by the Company's Board of Directors, the Company
shall pay all of the fees and expenses of such firm.
(d) In determining the Market Value of the Common Stock, such
firm may not take into account that the Common Stock at issue does
not control the Company.
(e) The determination by such firm shall be final and binding
on the Company and the Holders.
COMPLETE WELLNESS
CENTERS, INC.
By: /s/ E. Eugene Sharer
----------------------
Name:
Title:
Exhibit A
FORM OF SUBSCRIPTION
[To be executed only upon exercise of Warrant]
To: COMPLETE WELLNESS CENTERS, INC.
The undersigned registered holder of the within Warrant hereby
irrevocably exercises such Warrant for, and purchases thereunder, ____
shares of Common Stock of COMPLETE WELLNESS CENTERS, INC. and herewith
makes payment of $ therefor, and requests that the certificates for such
shares be issued in the name of, and delivered to whose address is
Dated:
- ---------------------------------------------------
(Signature must conform in all respects to the
name of holder as specified on the face of Warrant)
- ---------------------------------------------------
(Street Address)
- ---------------------------------------------------
(City) (State) Zip Code)
Exhibit B
FORM OF ASSIGNMENT
[To be executed only upon assignment of Warrant] For value
received, the undersigned registered holder of the within Warrant hereby
sells, assigns and transfers unto the right represented by such Warrant
to purchase shares of Common Stock of COMPLETE WELLNESS CENTERS, INC. to
which such Warrant relates, and appoints Attorney to make such transfer
on the books of COMPLETE WELLNESS CENTERS, INC., maintained for such
purpose, with full power of substitution in the premises.
Dated:
- ---------------------------------------------------
(Signature must conform in all respects to the
name of holder as specified on the face of Warrant)
- ---------------------------------------------------
(Street Address)
- ---------------------------------------------------
(City) (State) Zip Code)
Signed in the presence of:
Exhibit C
LIST OF STOCK OPTION PLANS, WARRANTS AND SIMILAR AGREEMENTS
REGISTRATION RIGHTS AGREEMENT
by and among
COMPLETE WELLNESS CENTERS, INC.
and
THE INITIAL HOLDERS SPECIFIED ON
THE SIGNATURE PAGE HEREOF
Dated as of January 12, 1998
TABLE OF CONTENTS
Page
1. DEFINITIONS................................................... 1
2. REGISTRATION UNDER THE SECURITIES ACT......................... 6
2.1. Demand Registration.................................. 6
2.2. Incidental Registration.............................. 10
2.3. Shelf Registration................................... 12
2.4. Expenses............................................. 13
2.5. Underwritten Offerings............................... 13
2.6. Conversions; Exercises............................... 14
2.7. Postponements........................................ 14
3. HOLDBACK ARRANGEMENTS......................................... 15
3.1. Restrictions on Sale by Holders of Registrable
Securities........................................... 15
3.2. Restrictions on Sale by the Company and Others....... 16
4. REGISTRATION PROCEDURES....................................... 16
4.1. Obligations of the Company........................... 16
4.2. Seller Information................................... 22
4.3. Notice to Discontinue................................ 23
5. INDEMNIFICATION; CONTRIBUTION................................. 23
5.1. Indemnification by the Company....................... 23
5.2. Indemnification by Holders........................... 24
5.3. Conduct of Indemnification Proceedings............... 25
5.4. Contribution......................................... 26
5.5. Other Indemnification................................ 27
5.6. Indemnification Payments............................. 27
6. GENERAL....................................................... 27
6.1. Adjustments Affecting Registrable Securities......... 27
6.2. Registration Rights to Others........................ 27
6.3. Availability of Information; Rule 144; Rule
144A; Other Exemptions............................... 27
6.4. Amendments and Waivers............................... 28
6.5. Notices.............................................. 29
6.6. Successors and Assigns............................... 30
6.7. Counterparts......................................... 30
6.8. Descriptive Headings, Etc............................ 30
6.9. Severability......................................... 31
6.10. Governing Law........................................ 31
6.11. Remedies; Specific Performance....................... 31
6.12. Entire Agreement..................................... 31
6.13. Nominees for Beneficial Owners....................... 32
6.14. Consent to Jurisdiction; Waiver of Jury.............. 32
6.15. Further Assurances................................... 32
6.16. No Inconsistent Agreements........................... 33
6.17. Construction......................................... 33
REGISTRATION RIGHTS AGREEMENT (this or the "Agreement")
dated as of January 12, 1998, by and among Complete Wellness Centers,
Inc., a Delaware corporation (the "Company"), and the Initial Holders
specified on the signature pages to this Agreement.
W I T N E S S E T H:
WHEREAS, simultaneously herewith and pursuant to an
Investment Agreement, dated as of December 19, 1997 and as supplemented
as of January 12, 1998 (the "Investment Agreement"), among the Company
and the Initial Holders, the Company is issuing to the Initial Holders
Common Stock Purchase Warrants (together with any additional warrants
issued in accordance with the terms thereof, the "Warrants") to purchase
common stock, par value $.0001665, of the Company (the "Common Stock"),
and shares of Senior Redeemable Preferred Stock of the Company (the
"Preferred Stock"); and
WHEREAS, in order to induce the Initial Holders to enter
into the Investment Agreement and to subscribe for and purchase the
Warrants and the Preferred Stock, the Company has agreed to provide
certain registration rights on the terms and subject to the conditions
set forth herein;
NOW, THEREFORE, in consideration of the premises and of
the mutual agreements contained herein, and for other good and valuable
consideration the receipt and sufficiency of which is hereby
acknowledged, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. DEFINITIONS. As used in this Agreement, the following
terms shall have the following meanings:
"Affiliate" shall mean (i) with respect to any Person, any
other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such Person, and (ii) with respect
to any individual, shall also mean the spouse, sibling, child,
step-child, grandchild, niece, nephew or parent of such Person, or the
spouse thereof.
"Blackout Period" shall have the meaning set forth in
Section 2.7.
"Common Shares" shall mean shares of Common Stock.
"Common Stock" shall have the meaning set forth in the
preamble.
"Company" shall have the meaning set forth in the
preamble.
"Demand Registration" shall mean a registration required
to be effected by the Company pursuant to Section 2.1.
"Demand Registration Statement" shall mean a registration
statement of the Company which covers the Registrable Securities
requested to be included therein pursuant to the provisions of Section
2.1 and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference (or deemed to be incorporated by reference)
therein.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time, and the rules and regulations
thereunder, or any similar or successor statute.
"Holders" shall mean the Initial Holders for so long as
they own any Registrable Securities and such of its respective heirs,
successors and permitted assigns (including any permitted transferees of
Registrable Securities) who acquire or are otherwise the transferee of
Registrable Securities, directly or indirectly, from such Initial Holders
(or any subsequent Holder), for so long as such heirs, successors and
permitted assigns own any Registrable Securities. For purposes of this
Agreement, a Person will be deemed to be a Holder whenever such Person
holds an option to purchase, or a security convertible into or
exercisable or exchangeable for, Registrable Securities, whether or not
such purchase, conversion, exercise or exchange has actually been
effected and disregarding any legal restrictions upon the exercise of
such rights. Registrable Securities issuable upon exercise of an option
or upon conversion, exchange or exercise of another security shall be
deemed outstanding for the purposes of this Agreement.
"Holders' Counsel" shall mean one firm of counsel (per
registration) to the Holders of Registrable Securities participating in
such registration, which counsel shall be selected (i) in the case of a
Demand Registration, by the Initiating Holders holding a majority of the
Registrable Securities for which registration was requested in the
Request, and (ii) in all other cases, by the Majority Holders
participating in the Registration.
"Incidental Registration" shall mean a registration
required to be effected by the Company pursuant to Section 2.2.
"Incidental Registration Statement" shall mean a
registration statement of the Company which covers the Registrable
Securities requested to be included therein pursuant to the provisions of
Section 2.2 and all amendments and supplements to such registration
statement, including post-effective amendments, in each case including
the Prospectus contained therein, all exhibits thereto and all material
incorporated by reference (or deemed to be incorporated by reference)
therein.
"Initial Holders" shall mean the Persons specified as such
on the signature pages to this Agreement on the date hereof.
"Initiating Holders" shall mean, with respect to a
particular registration, the Holders who initiated the Request for such
registration.
"Inspectors" shall have the meaning set forth in Section
4.1(g).
"Investment Agreement" shall have the meaning set forth in
the preamble.
"Majority Holders" shall mean one or more Holders of
Registrable Securities who at such time hold a majority of the
Registrable Securities then outstanding.
"Majority Holders of the Registration" shall mean, with
respect to a particular registration, one or more Holders of Registrable
Securities who would hold a majority of the Registrable Securities to be
included in such registration.
"NASD" shall mean the National Association of Securities
Dealers, Inc.
"Person" shall mean any individual, firm, partnership,
corporation, trust, joint venture, association, joint stock company,
limited liability company, unincorporated organization or any other
entity or organization, including a government or agency or political
subdivision thereof, and shall include any successor (by merger or
otherwise) of such entity.
"Preferred Stock" shall have the meaning set forth in the
preamble.
"Prospectus" shall mean the prospectus included in a
Registration Statement (including, without limitation, any preliminary
prospectus and any prospectus that includes any information previously
omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities
Act), and any such Prospectus as amended or supplemented by any
prospectus supplement, and all other amendments and supplements to such
Prospectus, including post-effective amendments, and in each case
including all material incorporated by reference (or deemed to be
incorporated by reference) therein.
"Registrable Securities" shall mean (i) any Warrant Shares
issued or issuable upon exercise of the Warrants, (ii) securities of the
Company acquired by the Initial Holders or their assignees in any
transaction contemplated by the Warrants, and (iii) any other securities
of the Company (or any successor or assign of the Company, whether by
merger, consolidation, sale of assets or otherwise) which may be issued
or issuable with respect to, in exchange for, or in substitution of,
Registrable Securities referenced in clauses (i) or (ii) above by reason
of any dividend or stock split, combination of shares, merger,
consolidation, recapitalization, reclassification, reorganization, sale
of assets or similar transaction. As to any particular Registrable
Securities, such securities shall cease to be Registrable Securities when
(A) a registration statement with respect to the sale of such securities
shall have been declared effective under the Securities Act and such
securities shall have been disposed of in accordance with such
registration statement, (B) such securities are sold pursuant to Rule 144
(or any similar provisions then in force) under the Securities Act, (C)
such securities have been otherwise transferred, a new certificate or
other evidence of ownership for them not bearing the legend restricting
further transfer shall have been delivered by the Company and subsequent
public distribution of them shall not require registration under the
Securities Act, or (D) such securities shall have ceased to be
outstanding; provided, however, that clauses (A) and (C) shall not apply
if the Holder may be deemed to be an affiliate of the Company.
"Registration Expenses" shall mean any and all expenses
incident to performance of or compliance with this Agreement by the
Company and its subsidiaries, including, without limitation (i) all SEC,
stock exchange, NASD and other registration, listing and filing fees,
(ii) all fees and expenses incurred in connection with compliance with
state securities or blue sky laws and compliance with the rules of any
stock exchange (including fees and disbursements of counsel in connection
with such compliance and the preparation of a blue sky memorandum and
legal investment survey), (iii) all expenses of any Persons in preparing
or assisting in preparing, word processing, printing, distributing,
mailing and delivering any Registration Statement, any Prospectus, any
underwriting agreements, transmittal letters, securities sales
agreements, securities certificates and other documents relating to the
performance of or compliance with this Agreement, (iv) the fees and
disbursements of counsel for the Company, (v) the fees and disbursements
of Holders' Counsel, (vi) the fees and disbursements of all independent
public accountants (including the expenses of any audit and/or "cold
comfort" letters) and the fees and expenses of other Persons, including
experts, retained by the Company, (vii) the expenses incurred in
connection with making road show presentations and holding meetings with
potential investors to facilitate the distribution and sale of
Registrable Securities which are customarily borne by the issuer, (viii)
any fees and disbursements of underwriters customarily paid by issuers or
sellers of securities, and (ix) premiums and other costs of policies of
insurance against liabilities arising out of the public offering of the
Registrable Securities being registered; provided, however, Registration
Expenses shall not include discounts and commissions payable to
underwriters, selling brokers, dealer managers or other similar Persons
engaged in the distribution of any of the Registrable Securities; and
provided further, that in any case where Registration Expenses are not to
be borne by the Company, such expenses shall not include salaries of
Company personnel or general overhead expenses of the Company, auditing
fees, premiums or other expenses relating to liability insurance required
by underwriters of the Company or other expenses for the preparation of
financial statements or other data normally prepared by the Company in
the ordinary course of its business or which the Company would have
incurred in any event; and provided, further, that in the event the
Company shall, in accordance with Section 2.2 or Section 2.6 hereof, not
register any securities with respect to which it had given written notice
of its intention to register to Holders, notwithstanding anything to the
contrary in the foregoing, all of the costs incurred by the Holders in
connection with such registration shall be deemed to be Registration
Expenses.
"Registration Statement" shall mean any registration
statement of the Company which covers any Registrable Securities and all
amendments and supplements to any such Registration Statement, including
post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference (or deemed to be incorporated by reference) therein.
"Request" shall have the meaning set forth in Section
2.1(a).
"SEC" shall mean the Securities and Exchange Commission,
or any successor agency having jurisdiction to enforce the Securities
Act.
"Securities Act" shall mean the Securities Act of 1933, as
amended from time to time, and the rules and regulations thereunder, or
any similar or successor statute.
"Shelf Registration" shall have the meaning set forth in
Section 2.1(a).
"Underwriters" shall mean the underwriters, if any, of the
offering being registered under the Securities Act.
"Underwritten Offering" shall mean a sale of securities of
the Company to an Underwriter or Underwriters for reoffering to the
public.
"Warrants" shall have the meaning set forth in the
preamble.
"Warrant Shares" shall mean the Common Shares or other
equity securities issued or issuable upon the exercise of the Warrants.
"Withdrawn Demand Registration" shall have the meaning set
forth in Section 2.1(a).
"Withdrawn Request" shall have the meaning set forth in
Section 2.1(a).
2. REGISTRATION UNDER THE SECURITIES ACT.
2.1. Demand Registration.
(a) Right to Demand Registration. Subject to
Section 2.1(c), at any time or from time to time the Majority
Holders shall have the right to request in writing that the
Company register all or part of such Holders' Registrable
Securities (a "Request") (which Request shall specify the
amount of Registrable Securities intended to be disposed of by
such Holders and the intended method of disposition thereof)
by filing with the SEC a Demand Registration Statement. As
promptly as practicable, but no later than 10 days after
receipt of a Request, the Company shall give written notice of
such requested registration to all Holders of Registrable
Securities. Subject to Section 2.1(b), the Company shall
include in a Demand Registration (i) the Registrable
Securities intended to be disposed of by the Initiating
Holders and (ii) the Registrable Securities intended to be
disposed of by any other Holder which shall have made a
written request (which request shall specify the amount of
Registrable Securities to be registered and the intended
method of disposition thereof) to the Company for inclusion
thereof in such registration within 20 days after the receipt
of such written notice from the Company. The Company shall, as
expeditiously as possible following a Request, use its best
efforts to cause to be filed with the SEC a Demand
Registration Statement providing for the registration under
the Securities Act of the Registrable Securities which the
Company has been so requested to register by all such Holders,
to the extent necessary to permit the disposition of such
Registrable Securities so to be registered in accordance with
the intended methods of disposition thereof specified in such
Request or further requests (including, without limitation, by
means of a shelf registration pursuant to Rule 415 under the
Securities Act (a "Shelf Registration") if so requested and if
the Company is then eligible to use such a registration). The
Company shall use its best efforts to have such Demand
Registration Statement declared effective by the SEC as soon
as practicable thereafter and to keep such Demand Registration
Statement continuously effective for the period specified in
Section 4.1(b).
A Request may be withdrawn prior to the filing of
the Demand Registration Statement by the Majority Holders of
the Registration (a "Withdrawn Request") and a Demand
Registration Statement may be withdrawn prior to the
effectiveness thereof by the Majority Holders of the
Registration (a "Withdrawn Demand Registration"), and such
withdrawals shall be treated as a Demand Registration which
shall have been effected pursuant to this Section 2.1, unless
the Holders of Registrable Securities to be included in such
Registration Statement reimburse the Company for its
reasonable out-of-pocket Registration Expenses relating to the
preparation and filing of such Demand Registration Statement
(to the extent actually incurred); provided; however, that if
a Withdrawn Request or Withdrawn Registration Statement is
made (A) because of a material adverse change in the business,
financial condition or prospects of the Company, or (B)
because the sole or lead managing Underwriter advises that the
amount of Registrable Securities to be sold in such offering
be reduced pursuant to Section 2.1(b) by more than 10% of the
Registrable Securities to be included in such Registration
Statement, or (C) because of a postponement of such
registration pursuant to Section 2.7, then such withdrawal
shall not be treated as a Demand Registration effected
pursuant to this Section 2.1 (and shall not be counted toward
the number of Demand Registrations), and the Company shall pay
all Registration Expenses in connection therewith. Any Holder
requesting inclusion in a Demand Registration may, at any time
prior to the effective date of the Demand Registration
Statement (and for any reason) revoke such request by
delivering written notice to the Company revoking such
requested inclusion.
The registration rights granted pursuant to the
provisions of this Section 2.1 shall be in addition to the
registration rights granted pursuant to the other provisions
of Section 2 hereof.
(b) Priority in Demand Registrations. If a Demand
Registration involves an Underwritten Offering, and the sole
or lead managing Underwriter, as the case may be, of such
Underwritten Offering shall advise the Company in writing
(with a copy to each Holder requesting registration) on or
before the date five days prior to the date then scheduled for
such offering that, in its opinion, the amount of Registrable
Securities requested to be included in such Demand
Registration exceeds the number which can be sold in such
offering within a price range acceptable to the Majority
Holders of the Registration (such writing to state the basis
of such opinion and the approximate number of Registrable
Securities which may be included in such offering), the
Company shall include in such Demand Registration, to the
extent of the number which the Company is so advised may be
included in such offering, the Registrable Securities
requested to be included in the Demand Registration by the
Holders allocated pro rata in proportion to the number of
Registrable Securities requested to be included in such Demand
Registration by each of them. In the event the Company shall
not, by virtue of this Section 2.1(b), include in any Demand
Registration all of the Registrable Securities of any Holder
requesting to be included in such Demand Registration, such
Holder may, upon written notice to the Company given within
five days of the time such Holder first is notified of such
matter, reduce the amount of Registrable Securities it desires
to have included in such Demand Registration, whereupon only
the Registrable Securities, if any, it desires to have
included will be so included and the Holders not so reducing
shall be entitled to a corresponding increase in the amount of
Registrable Securities to be included in such Demand
Registration.
(c) Limitations on Registrations. The rights of
Holders of Registrable Securities to request Demand
Registrations pursuant to Section 2.1(a) are subject to the
following limitations: (i) in no event shall the Company be
required to effect a Demand Registration before May 31, 1998,
and (ii) in no event shall the Company be required to pay
Registration Expenses of more than two Demand Registrations;
provided, however, that such number shall be increased to the
extent the Company does not include in what would otherwise be
the final registration for which the Company is required to
pay Registration Expenses the number of Registrable Securities
requested to be registered by the Holders by reason of Section
2.1(b); and provided, further, that the Registration Expenses
in connection with each other Demand Registration shall be
allocated pro rata among all Persons on whose behalf
securities of the Company are included in such registration,
on the basis of the respective amounts of the securities then
being registered on their behalf. The Holders may request one
Demand Registration in addition to those provided for above,
but the Holders must pay the Registration Expenses for such
additional Demand Registration.
(d) Underwriting; Selection of Underwriters.
Notwithstanding anything to the contrary contained in Section
2.1(a), if the Initiating Holders holding a majority of the
Registrable Securities for which registration was requested in
the Request so elect, the Company shall use its best efforts
to ensure that the offering of such Registrable Securities
pursuant to such Demand Registration shall be in the form of a
firm commitment Underwritten Offering; and such Initiating
Holders may require that all Persons (including other Holders)
participating in such registration sell their Registrable
Securities to the Underwriters at the same price and on the
same terms of underwriting applicable to the Initiating
Holders. If any Demand Registration involves an Underwritten
Offering, the sole or managing Underwriters and any additional
investment bankers and managers to be used in connection with
such registration shall be selected by the Initiating Holders
holding a majority of the Registrable Securities for which
registration was requested in the Request, subject to the
approval of the Company (such approval not to be unreasonably
withheld).
(e) Registration of Other Securities. Whenever the
Company shall effect a Demand Registration, no securities
other than the Registrable Securities shall be covered by such
registration unless the Majority Holders of the Registration
shall have consented in writing to the inclusion of such other
securities, such consent not to be unreasonably withheld.
(f) Effective Registration Statement; Suspension. A
Demand Registration Statement shall not be deemed to have
become effective (and the related registration will not be
deemed to have been effected)(i) unless it has been declared
effective by the SEC and remains effective in compliance with
the provisions of the Securities Act with respect to the
disposition of all Registrable Securities covered by such
Demand Registration Statement for the time period specified in
Section 4.1(b), (ii) if the offering of any Registrable
Securities pursuant to such Demand Registration Statement is
interfered with by any stop order, injunction or other order
or requirement of the SEC or any other governmental agency or
court, or (iii) if, in the case of an Underwritten Offering,
the conditions to closing specified in an underwriting
agreement to which the Company is a party are not satisfied
other than by the sole reason of any breach or failure by the
Holders of Registrable Securities or are not otherwise waived.
(g) Other Registrations. During the period (i)
beginning on the date of a Request and (ii) ending on the date
that is 60 days after the date that a Demand Registration
Statement filed pursuant to such Request has been declared
effective by the SEC or, if the Holders shall withdraw such
Request or such Demand Registration Statement, on the date of
such Withdrawn Request or such Withdrawn Registration
Statement, the Company shall not, without the consent of the
Majority Holders of the Registration, file a registration
statement pertaining to any other securities of the Company.
(h) Registration Statement Form. Registrations
under this Section 2.1 shall be on such appropriate
registration form of the SEC (i) as shall be selected by the
Initiating Holders holding a majority of the Registrable
Securities for which registration was requested in the
Request, and (ii) which shall be available for the sale of
Registrable Securities in accordance with the intended method
or methods of disposition specified in the requests for
registration; provided, however, that the Company shall not be
required to use a long-form registration statement if the
Company is legally permitted to use a short-form registration
statement for the requested purpose. The Company agrees to
include in any such Registration Statement all information
which any selling Holder, upon advice of counsel, shall
reasonably request.
2.2. Incidental Registration.
(a) Right to Include Registrable Securities. If the
Company at any time or from time to time proposes to register
any of its securities under the Securities Act (other than in
a registration on Form S-4 or S-8 or any successor form to
such forms and other than pursuant to Section 2.1 or 2.3)
whether or not pursuant to registration rights granted to
other holders of its securities and whether or not for sale
for its own account, the Company shall deliver prompt written
notice (which notice shall be given at least 30 days prior to
such proposed registration) to all Holders of Registrable
Securities of its intention to undertake such registration,
describing in reasonable detail the proposed registration and
distribution (including the anticipated range of the proposed
offering price, the class and number of securities proposed to
be registered and the distribution arrangements) and of such
Holders' right to participate in such registration under this
Section 2.2 as hereinafter provided. Subject to the other
provisions of this paragraph (a) and Section 2.2(b), upon the
written request of any Holder made within 20 days after the
receipt of such written notice (which request shall specify
the amount of Registrable Securities to be registered and the
intended method of disposition thereof), the Company shall
effect the registration under the Securities Act of all
Registrable Securities requested by Holders to be so
registered (an "Incidental Registration"), to the extent
requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable
Securities so to be registered, by inclusion of such
Registrable Securities in the Registration Statement which
covers the securities which the Company proposes to register
and shall cause such Registration Statement to become and
remain effective with respect to such Registrable Securities
in accordance with the registration procedures set forth in
Section 4. If an Incidental Registration involves an
Underwritten Offering, immediately upon notification to the
Company from the Underwriter of the price at which such
securities are to be sold, the Company shall so advise each
participating Holder. The Holders requesting inclusion in an
Incidental Registration may, at any time prior to the
effective date of the Incidental Registration Statement (and
for any reason), revoke such request by delivering written
notice to the Company revoking such requested inclusion.
If at any time after giving written notice of its
intention to register any securities and prior to the
effective date of the Incidental Registration Statement filed
in connection with such registration, the Company shall
determine for any reason not to register or to delay
registration of such securities, the Company may, at its
election, give written notice of such determination to each
Holder of Registrable Securities and, thereupon, (A) in the
case of a determination not to register, the Company shall be
relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from
its obligation to pay the Registration Expenses incurred in
connection therewith), without prejudice, however, to the
rights of Holders to cause such registration to be effected as
a registration under Section 2.1, and (B) in the case of a
determination to delay such registration, the Company shall be
permitted to delay the registration of such Registrable
Securities for the same period as the delay in registering
such other securities; provided, however, that if such delay
shall extend beyond 120 days from the date the Company
received a request to include Registrable Securities in such
Incidental Registration, then the Company shall again give all
Holders the opportunity to participate therein and shall
follow the notification procedures set forth in the preceding
paragraph. There is no limitation on the number of such
Incidental Registrations pursuant to this Section 2.2 which
the Company is obligated to effect.
The registration rights granted pursuant to the
provisions of this Section 2.2 shall be in addition to the
registration rights granted pursuant to the other provisions
of Section 2 hereof.
(b) Priority in Incidental Registration. If an
Incidental Registration involves an Underwritten Offering (on
a firm commitment basis), and the sole or the lead managing
Underwriter, as the case may be, of such Underwritten Offering
shall advise the Company in writing (with a copy to each
Holder requesting registration) on or before the date five
days prior to the date then scheduled for such offering that,
in its opinion, the amount of securities (including
Registrable Securities) requested to be included in such
registration exceeds the amount which can be sold in such
offering without materially interfering with the successful
marketing of the securities being offered (such writing to
state the basis of such opinion and the approximate number of
such securities which may be included in such offering without
such effect), the Company shall include in such registration,
to the extent of the number which the Company is so advised
may be included in such offering without such effect, (i) in
the case of a registration initiated by the Company, (A)
first, the securities that the Company proposes to register
for its own account, (B) second, the Registrable Securities
requested to be included in such registration by the Holders
and the securities requested to be included in such
registration pursuant to an agreement set forth on Schedule
6.2 hereto, allocated pro rata in proportion to the number of
securities requested to be included in such registration by
each of them, and (C) third, other securities of the Company
to be registered on behalf of any other Person, and (ii) in
the case of a registration initiated by a Person other than
the Company, (A) first, securities of the Company requested to
be included by such Persons initiating such registration, (B)
second, the Registrable Securities requested to be included in
such registration by the Holders and any securities requested
to be included in such registration pursuant to an agreement
set forth on Schedule 6.2 hereto, allocated pro rata in
proportion to the number of securities requested to be
included in such registration by each of them, (C) third, the
securities that the Company proposes to register for its own
account, and (D) fourth, other securities of the Company to be
registered on behalf of any other Person; provided, however,
that in the event the Company will not, by virtue of this
Section 2.2(b), include in any such registration all of the
Registrable Securities of any Holder requested to be included
in such registration, such Holder may, upon written notice to
the Company given within three days of the time such Holder
first is notified of such matter, reduce the amount of
Registrable Securities it desires to have included in such
registration, whereupon only the Registrable Securities, if
any, it desires to have included will be so included and the
Holders not so reducing shall be entitled to a corresponding
increase in the amount of Registrable Securities to be
included in such registration.
2.3. Shelf Registration. If a request made pursuant to
Section 2.1 is for a Shelf Registration, the Company shall use its best
efforts to keep the Shelf Registration continuously effective through the
date on which all of the Registrable Securities covered by such Shelf
Registration may be sold pursuant to Rule 144(k) under the Securities Act
(or any successor provision having similar effect); provided, however,
that prior to the termination of such Shelf Registration, the Company
shall first furnish to each Holder of Registrable Securities
participating in such Shelf Registration (i) an opinion, in form and
substance reasonably satisfactory to the Majority Holders of the
Registration, of counsel for the Company reasonably satisfactory to the
Majority Holders of the Registration stating that such Registrable
Securities are freely saleable pursuant to Rule 144(k) under the
Securities Act (or any successor provision having similar effect) or (ii)
a "No-Action Letter" from the staff of the SEC stating that the SEC would
not recommend enforcement action if the Registrable Securities included
in such Shelf Registration were sold in a public sale other than pursuant
to an effective registration statement.
2.4. Expenses. The Company shall pay all Registration
Expenses in connection with any Demand Registration, Incidental
Registration or Shelf Registration, whether or not such registration
shall become effective and whether or not all Registrable Securities
originally requested to be included in such registration are withdrawn or
otherwise ultimately not included in such registration, except as
otherwise provided with respect to a Withdrawn Request and a Withdrawn
Demand Registration in Section 2.1(a). Each Holder shall pay all
discounts, commissions and expense allowances payable to underwriters,
selling brokers, managers or other similar Persons engaged in the
distribution of such Holder's Registrable Securities pursuant to any
registration pursuant to this Section 2.
2.5. Underwritten Offerings.
(a) Demand Underwritten Offerings. If requested by
the sole or lead managing Underwriter for any Underwritten
Offering effected pursuant to a Demand Registration, the
Company shall enter into a customary underwriting agreement
with the Underwriters for such offering, such agreement to be
reasonably satisfactory in substance and form to each Holder
of Registrable Securities participating in such offering and
to contain such representations and warranties by the Company
and such other terms as are generally prevailing in agreements
of that type, including, without limitation, indemnification
and contribution to the effect and to the extent provided in
Section 5.
(b) Holders of Registrable Securities to be Parties
to Underwriting Agreement. The Holders of Registrable
Securities to be distributed by Underwriters in an
Underwritten Offering contemplated by Section 2 shall be
parties to the underwriting agreement between the Company and
such Underwriters and may, at such Holders' option, require
that any or all of the representations and warranties by, and
the other agreements on the part of, the Company to and for
the benefit of such Underwriters shall also be made to and for
the benefit of such Holders of Registrable Securities and that
any or all of the conditions precedent to the obligations of
such Underwriters under such underwriting agreement be
conditions precedent to the obligations of such Holders of
Registrable Securities; provided, however, that the Company
shall not be required to make any representations or
warranties with respect to written information specifically
provided by a selling Holder for inclusion in the Registration
Statement. No Holder shall be required to make any
representations or warranties to, or agreements with, the
Company or the Underwriters other than representations,
warranties or agreements regarding such Holder, such Holder's
Registrable Securities and such Holder's intended method of
disposition.
(c) Participation in Underwritten Registration.
Notwithstanding anything herein to the contrary, no Person may
participate in any underwritten registration hereunder unless
such Person (i) agrees to sell its securities on the same
terms and conditions provided in any underwritten arrangements
approved by the Persons entitled hereunder to approve such
arrangement and (ii) accurately completes and executes in a
timely manner all questionnaires, powers of attorney,
indemnities, custody agreements, underwriting agreements and
other documents reasonably required under the terms of such
underwriting arrangements.
2.6. Conversions; Exercises. Notwithstanding anything to the
contrary herein, in order for any Registrable Securities that are
issuable upon the exercise of conversion rights, options or warrants to
be included in any registration pursuant to Section 2 hereof, the
exercise of such conversion rights, options or warrants must be effected
no later than immediately prior to the closing of any sales under the
Registration Statement pursuant to which such Registrable Securities are
to be sold.
2.7. Postponements. The Company shall be entitled to postpone
a Demand Registration and to require the Holders of Registrable
Securities to discontinue the disposition of their securities covered by
a Shelf Registration during any Blackout Period (as defined below) (i) if
the Board of Directors of the Company determines in good faith that
effecting such a registration or continuing such disposition at such time
would have a material adverse effect upon a proposed sale of all (or
substantially all) of the assets of the Company or a merger,
reorganization, recapitalization or similar current transaction
materially affecting the capital structure or equity ownership of the
Company, or (ii) if the Company has delivered a notice pursuant to
Section 2.2 that it is undertaking an underwritten offering in which the
Holders will be entitled to exercise their incidental registration
rights; provided, however, that the Company may only delay a Demand
Registration pursuant to this Section 2.7 by delivery of a Blackout
Notice (as defined below) within 30 days of delivery of the request for
such Registration under Section 2.1, as applicable, and may delay a
Demand Registration and require the Holders of Registrable Securities to
discontinue the disposition of their securities covered by a Shelf
Registration only for a reasonable period of time not to exceed 60 days
(or such earlier time as such transaction is consummated or no longer
proposed or the material information has been made public) (the "Blackout
Period"). There shall not be more than one Blackout Period in any 12
month period. The Company shall promptly notify the Holders in writing (a
"Blackout Notice") of any decision to postpone a Demand Registration or
to discontinue sales of Registrable Securities covered by a Shelf
Registration pursuant to this Section 2.7 and shall include a general
statement of the reason for such postponement, an approximation of the
anticipated delay and an undertaking by the Company promptly to notify
the Holders as soon as a Demand Registration may be effected or sales of
Registrable Securities covered by a Shelf Registration may resume. In
making any such determination to initiate or terminate a Blackout Period,
the Company shall not be required to consult with or obtain the consent
of any Holder, and any such determination shall be the Company's sole
responsibility. Each Holder shall treat all notices received from the
Company pursuant to this Section 2.7 in the strictest confidence and
shall not disseminate such information. If the Company shall postpone the
filing of a Demand Registration Statement, the Majority Holders of
Registrable Securities who were to participate therein shall have the
right to withdraw the request for registration. Any such withdrawal shall
be made by giving written notice to the Company within 30 days after
receipt of the Blackout Notice. Such withdrawn registration request shall
not be treated as a Demand Registration effected pursuant to Section 2.1
(and shall not be counted towards the number of Demand Registrations
effected), and the Company shall pay all Registration Expenses in
connection therewith.
3. HOLDBACK ARRANGEMENTS.
3.1. Restrictions on Sale by Holders of Registrable
Securities. Each Holder of Registrable Securities agrees, by acquisition
of such Registrable Securities, if timely requested in writing by the
sole or lead managing Underwriter in an Underwritten Offering of any
Registrable Securities, not to make any short sale of, loan, grant any
option for the purchase of or effect any public sale or distribution,
including a sale pursuant to Rule 144 (or any successor provision having
similar effect) under the Securities Act of any Registrable Securities or
any other security of the Company (or any security convertible into or
exchangeable or exercisable for any security of the Company) (except as
part of such underwritten registration), during the nine business days
(as such term is used in Rule 10b-6 under the Exchange Act) prior to, and
during the time period reasonably requested by the sole or lead managing
Underwriter not to exceed 90 days, beginning on the effective date of the
applicable Registration Statement.
3.2. Restrictions on Sale by the Company and Others. The
Company agrees that (i) if timely requested in writing by the sole or
lead managing Underwriter in an Underwritten Offering of any Registrable
Securities, not to make any short sale of, loan, grant any option for the
purchase of or effect any public sale or distribution of any of the
Company's securities (or any security convertible into or exchangeable or
exercisable for any of the Company's securities) during the nine business
days (as such term is used in Rule 10b-6 under the Exchange Act) prior
to, and during the time period reasonably requested by the sole or lead
managing Underwriter not to exceed 90 days (or such longer period to the
extent such sole or lead managing Underwriter shall so reasonably
request), beginning on the effective date of the applicable Registration
Statement (except as part of such underwritten registration or pursuant
to registrations on Forms S-4 or S-8 or any successor form to such
forms), and (ii) it will cause each holder of securities (or any security
convertible into or exchangeable or exercisable for any of its
securities) of the Company purchased from the Company at any time after
the date of this Agreement (other than in a registered public offering)
to so agree.
4. REGISTRATION PROCEDURES.
4.1. Obligations of the Company. Whenever the Company is
required to effect the registration of Registrable Securities under the
Securities Act pursuant to Section 2 of this Agreement, the Company
shall, as expeditiously as possible:
(a) prepare and file with the SEC (promptly, and in
any event within 45 days after receipt of a request to
register Registrable Securities) the requisite Registration
Statement to effect such registration, which Registration
Statement shall comply as to form in all material respects
with the requirements of the applicable form and include all
financial statements required by the SEC to be filed
therewith, and the Company shall use its best efforts to cause
such Registration Statement to become effective (provided,
that the Company may discontinue any registration of its
securities that are not Registrable Securities, and, under the
circumstances specified in Section 2.2, its securities that
are Registrable Securities); provided, however, that before
filing a Registration Statement or Prospectus or any
amendments or supplements thereto, or comparable statements
under securities or blue sky laws of any jurisdiction, the
Company shall (i) provide Holders' Counsel and any other
Inspector with an adequate and appropriate opportunity to
participate in the preparation of such Registration Statement
and each Prospectus included therein (and each amendment or
supplement thereto or comparable statement) to be filed with
the SEC, which documents shall be subject to the review and
comment of Holders' Counsel, and (ii) not file any such
Registration Statement or Prospectus (or amendment or
supplement thereto or comparable statement) with the SEC to
which Holder's Counsel, any selling Holder or any other
Inspector shall have reasonably objected on the grounds that
such filing does not comply in all material respects with the
requirements of the Securities Act or of the rules or
regulations thereunder;
(b) prepare and file with the SEC such amendments
and supplements to such Registration Statement and the
Prospectus used in connection therewith as may be necessary
(i) to keep such Registration Statement effective, and (ii) to
comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities covered by
such Registration Statement, in each case until such time as
all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the
seller(s) thereof set forth in such Registration Statement;
provided, that except with respect to any Shelf Registration,
such period need not extend beyond nine months after the
effective date of the Registration Statement; and provided
further, that with respect to any Shelf Registration, such
period need not extend beyond the time period provided in
Section 2.3, and which periods, in any event, shall terminate
when all Registrable Securities covered by such Registration
Statement have been sold (but not before the expiration of the
90 day period referred to in Section 4(3) of the Securities
Act and Rule 174 thereunder, if applicable);
(c) furnish, without charge, to each selling Holder
of such Registrable Securities and each Underwriter, if any,
of the securities covered by such Registration Statement, such
number of copies of such Registration Statement, each
amendment and supplement thereto (in each case including all
exhibits), and the Prospectus included in such Registration
Statement (including each preliminary Prospectus) in
conformity with the requirements of the Securities Act, and
other documents, as such selling Holder and Underwriter may
reasonably request in order to facilitate the public sale or
other disposition of the Registrable Securities owned by such
selling Holder (the Company hereby consenting to the use in
accordance with applicable law of each such Registration
Statement (or amendment or post-effective amendment thereto)
and each such Prospectus (or preliminary prospectus or
supplement thereto) by each such selling Holder of Registrable
Securities and the Underwriters, if any, in connection with
the offering and sale of the Registrable Securities covered by
such Registration Statement or Prospectus);
(d) prior to any public offering of Registrable
Securities, use its best efforts to register or qualify all
Registrable Securities and other securities covered by such
Registration Statement under such other securities or blue sky
laws of such jurisdictions as any selling Holder of
Registrable Securities covered by such Registration Statement
or the sole or lead managing Underwriter, if any, may
reasonably request to enable such selling Holder to consummate
the disposition in such jurisdictions of the Registrable
Securities owned by such selling Holder and to continue such
registration or qualification in effect in each such
jurisdiction for as long as such Registration Statement
remains in effect (including through new filings or amendments
or renewals), and do any and all other acts and things which
may be necessary or advisable to enable any such selling
Holder to consummate the disposition in such jurisdictions of
the Registrable Securities owned by such selling Holder;
provided, however, that the Company shall not be required to
(i) qualify generally to do business in any jurisdiction where
it would not otherwise be required to qualify but for this
Section 4.1(d), (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to general service of process
in any such jurisdiction;
(e) use its best efforts to obtain all other
approvals, consents, exemptions or authorizations from such
governmental agencies or authorities as may be necessary to
enable the selling Holders of such Registrable Securities to
consummate the disposition of such Registrable Securities;
(f) promptly notify Holders' Counsel, each Holder
of Registrable Securities covered by such Registration
Statement and the sole or lead managing Underwriter, if any:
(i) when the Registration Statement, any pre-effective
amendment, the Prospectus or any prospectus supplement related
thereto or post-effective amendment to the Registration
Statement has been filed and, with respect to the Registration
Statement or any post-effective amendment, when the same has
become effective, (ii) of any request by the SEC or any state
securities or blue sky authority for amendments or supplements
to the Registration Statement or the Prospectus related
thereto or for additional information, (iii) of the issuance
by the SEC of any stop order suspending the effectiveness of
the Registration Statement or the initiation or threat of any
proceedings for that purpose, (iv) of the receipt by the
Company of any notification with respect to the suspension of
the qualification of any Registrable Securities for sale under
the securities or blue sky laws of any jurisdiction or the
initiation of any proceeding for such purpose, (v) of the
existence of any fact of which the Company becomes aware or
the happening of any event which results in (A) the
Registration Statement containing an untrue statement of a
material fact or omitting to state a material fact required to
be stated therein or necessary to make any statements therein
not misleading, or (B) the Prospectus included in such
Registration Statement containing an untrue statement of a
material fact or omitting to state a material fact required to
be stated therein or necessary to make any statements therein,
in the light of the circumstances under which they were made,
not misleading, (vi) if at any time the representations and
warranties contemplated by Section 2.5(b) cease to be true and
correct in all material respects, and (vii) of the Company's
reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate or that there
exists circumstances not yet disclosed to the public which
make further sales under such Registration Statement
inadvisable pending such disclosure and post-effective
amendment; and, if the notification relates to an event
described in any of the clauses (ii) through (vii) of this
Section 4.1(f), the Company shall promptly prepare a
supplement or post-effective amendment to such Registration
Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so
that (1) such Registration Statement shall not contain any
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading, and (2) as
thereafter delivered to the purchasers of the Registrable
Securities being sold thereunder, such Prospectus shall not
include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein in the light of the
circumstances under which they were made not misleading (and
shall furnish to each such Holder and each Underwriter, if
any, a reasonable number of copies of such Prospectus so
supplemented or amended); and if the notification relates to
an event described in clause (iii) of this Section 4.1(f), the
Company shall take all reasonable action required to prevent
the entry of such stop order or to remove it if entered;
(g) make available for inspection by any selling
Holder of Registrable Securities, any sole or lead managing
Underwriter participating in any disposition pursuant to such
Registration Statement, Holders' Counsel and any attorney,
accountant or other agent retained by any such seller or any
Underwriter (each, an "Inspector" and, collectively, the
"Inspectors"), all financial and other records, pertinent
corporate documents and properties of the Company and any
subsidiaries thereof as may be in existence at such time
(collectively, the "Records") as shall be necessary, in the
opinion of such Holders' and such Underwriters' respective
counsel, to enable them to exercise their due diligence
responsibility and to conduct a reasonable investigation
within the meaning of the Securities Act, and cause the
Company's and any subsidiaries' officers, directors and
employees, and the independent public accountants of the
Company, to supply all information reasonably requested by any
such Inspectors in connection with such Registration
Statement;
(h) obtain an opinion from the Company's counsel
and a "cold comfort" letter from the Company's independent
public accountants who have certified the Company's financial
statements included or incorporated by reference in such
Registration Statement, in each case dated the effective date
of such Registration Statement (and if such registration
involves an Underwritten Offering, dated the date of the
closing under the underwriting agreement), in customary form
and covering such matters as are customarily covered by such
opinions and "cold comfort" letters delivered to underwriters
in underwritten public offerings, which opinion and letter
shall be reasonably satisfactory to the sole or lead managing
Underwriter, if any, and to the Majority Holders of the
Registration, and furnish to each Holder participating in the
offering and to each Underwriter, if any, a copy of such
opinion and letter addressed to such Holder (in the case of
the opinion) and Underwriter (in the case of the opinion and
the "cold comfort" letter);
(i) provide a CUSIP number for all Registrable
Securities and provide and cause to be maintained a transfer
agent and registrar for all such Registrable Securities
covered by such Registration Statement not later than the
effectiveness of such Registration Statement;
(j) otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC and any other
governmental agency or authority having jurisdiction over the
offering, and make available to its security holders, as soon
as reasonably practicable but no later than 90 days after the
end of any 12-month period, an earnings statement (i)
commencing at the end of any month in which Registrable
Securities are sold to Underwriters in an Underwritten
Offering and (ii) commencing with the first day of the
Company's calendar month next succeeding each sale of
Registrable Securities after the effective date of a
Registration Statement, which statement shall cover such
12-month periods, in a manner which satisfies the provisions
of Section 11(a) of the Securities Act and Rule 158
thereunder;
(k) if so requested by the Majority Holders of the
Registration, use its best efforts to cause all such
Registrable Securities to be listed (i) on each national
securities exchange on which the Company's securities are then
listed or (ii) if securities of the Company are not at the
time listed on any national securities exchange (or if the
listing of Registrable Securities is not permitted under the
rules of each national securities exchange on which the
Company's securities are then listed), on a national
securities exchange designated by the Majority Holders of the
Registration;
(l) keep each selling Holder of Registrable
Securities advised in writing as to the initiation and
progress of any registration under Section 2 hereunder;
(m) enter into and perform customary agreements
(including, if applicable, an underwriting agreement in
customary form) and provide officers' certificates and other
customary closing documents;
(n) cooperate with each selling Holder of
Registrable Securities and each Underwriter participating in
the disposition of such Registrable Securities and their
respective counsel in connection with any filings required to
be made with the NASD and make reasonably available its
employees and personnel and otherwise provide reasonable
assistance to the Underwriters (taking into account the needs
of the Company's businesses and the requirements of the
marketing process) in the marketing of Registrable Securities
in any Underwritten Offering;
(o) furnish to each Holder participating in the
offering and the sole or lead managing Underwriter, if any,
without charge, at least one manually-signed copy of the
Registration Statement and any post-effective amendments
thereto, including financial statements and schedules, all
documents incorporated therein by reference and all exhibits
(including those deemed to be incorporated by reference);
(p) cooperate with the selling Holders of
Registrable Securities and the sole or lead managing
Underwriter, if any, to facilitate the timely preparation and
delivery of certificates not bearing any restrictive legends
representing the Registrable Securities to be sold, and cause
such Registrable Securities to be issued in such denominations
and registered in such names in accordance with the
underwriting agreement prior to any sale of Registrable
Securities to the Underwriters or, if not an Underwritten
Offering, in accordance with the instructions of the selling
Holders of Registrable Securities at least three business days
prior to any sale of Registrable Securities;
(q) if requested by the sole or lead managing
Underwriter or any selling Holder of Registrable Securities,
immediately incorporate in a prospectus supplement or
post-effective amendment such information concerning such
Holder of Registrable Securities, the Underwriters or the
intended method of distribution as the sole or lead managing
Underwriter or the selling Holder of Registrable Securities
reasonably requests to be included therein and as is
appropriate in the reasonable judgment of the Company,
including, without limitation, information with respect to the
number of shares of the Registrable Securities being sold to
the Underwriters, the purchase price being paid therefor by
such Underwriters and with respect to any other terms of the
Underwritten Offering of the Registrable Securities to be sold
in such offering; make all required filings of such Prospectus
supplement or post-effective amendment as soon as notified of
the matters to be incorporated in such Prospectus supplement
or post-effective amendment; and supplement or make amendments
to any Registration Statement if requested by the sole or lead
managing Underwriter of such Registrable Securities; and
(r) use its best efforts to take all other steps
necessary to expedite or facilitate the registration and
disposition of the Registrable Securities contemplated hereby.
4.2. Seller Information. The Company may require each selling
Holder of Registrable Securities as to which any registration is being
effected to furnish to the Company such information regarding such
Holder, such Holder's Registrable Securities and such Holder's intended
method of disposition as the Company may from time to time reasonably
request in writing; provided that such information shall be used only in
connection with such registration.
If any Registration Statement or comparable statement under
"blue sky" laws refers to any Holder by name or otherwise as the Holder
of any securities of the Company, then such Holder shall have the right
to require (i) the insertion therein of language, in form and substance
satisfactory to such Holder and the Company, to the effect that the
holding by such Holder of such securities is not to be construed as a
recommendation by such Holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such
Holder will assist in meeting any future financial requirements of the
Company, and (ii) in the event that such reference to such Holder by name
or otherwise is not in the judgment of the Company, as advised by
counsel, required by the Securities Act or any similar federal statute or
any state "blue sky" or securities law then in force, the deletion of the
reference to such Holder.
4.3. Notice to Discontinue. Each Holder of Registrable
Securities agrees by acquisition of such Registrable Securities that,
upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 4.1(f)(ii) through (vii), such Holder
shall forthwith discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable
Securities until such Holder's receipt of the copies of the supplemented
or amended prospectus contemplated by Section 4.1(f) and, if so directed
by the Company, such Holder shall deliver to the Company (at the
Company's expense) all copies, other than permanent file copies, then in
such Holder's possession of the Prospectus covering such Registrable
Securities which is current at the time of receipt of such notice. If the
Company shall give any such notice, the Company shall extend the period
during which such Registration Statement shall be maintained effective
pursuant to this Agreement (including, without limitation, the period
referred to in Section 4.1(b)) by the number of days during the period
from and including the date of the giving of such notice pursuant to
Section 4.1(f) to and including the date when the Holder shall have
received the copies of the supplemented or amended prospectus
contemplated by and meeting the requirements of Section 4.1(f).
5. INDEMNIFICATION; CONTRIBUTION.
5.1. Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the fullest extent permitted by law, each
Holder of Registrable Securities, its officers, directors, partners,
members, shareholders, employees, Affiliates and agents (collectively,
"Agents") and each Person who controls such Holder (within the meaning of
the Securities Act) and its Agents with respect to each registration
which has been effected pursuant to this Agreement, against any and all
losses, claims, damages or liabilities, joint or several, actions or
proceedings (whether commenced or threatened) in respect thereof, and
expenses (as incurred or suffered and including, but not limited to, any
and all expenses incurred in investigating, preparing or defending any
litigation or proceeding, whether commenced or threatened, and the
reasonable fees, disbursements and other charges of legal counsel) in
respect thereof (collectively, "Claims"), insofar as such Claims arise
out of or are based upon any untrue or alleged untrue statement of a
material fact contained in any Registration Statement or Prospectus
(including any preliminary, final or summary prospectus and any amendment
or supplement thereto) related to any such registration or any omission
or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
any violation by the Company of the Securities Act or any rule or
regulation thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such
registration, or any qualification or compliance incident thereto;
provided, however, that the Company will not be liable in any such case
to the extent that any such Claims arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact or
omission or alleged omission of a material fact so made in reliance upon
and in conformity with written information furnished to the Company
specifically for use therein. The Company shall also indemnify any
Underwriters of the Registrable Securities, their Agents and each Person
who controls any such Underwriter (within the meaning of the Securities
Act) to the same extent as provided above with respect to the
indemnification of the Holders of Registrable Securities. Such indemnity
shall remain in full force and effect regardless of any investigation
made by or on behalf of any Person who may be entitled to indemnification
pursuant to this Section 5 and shall survive the transfer of securities
by such Holder or Underwriter.
5.2. Indemnification by Holders. Each Holder, if Registrable
Securities held by it are included in the securities as to which a
registration is being effected, agrees to, severally and not jointly,
indemnify and hold harmless, to the fullest extent permitted by law, the
Company, its directors and officers, each other Person who participates
as an Underwriter in the offering or sale of such securities and its
Agents and each Person who controls the Company or any such Underwriter
(within the meaning of the Securities Act) and its Agents against any and
all Claims, insofar as such Claims arise out of or are based upon any
untrue or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus (including any preliminary, final or
summary prospectus and any amendment or supplement thereto) related to
such registration, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company specifically for use therein;
provided, however, that the aggregate amount which any such Holder shall
be required to pay pursuant to this Section 5.2 shall in no event be
greater than the amount of the net proceeds received by such Holder upon
the sale of the Registrable Securities pursuant to the Registration
Statement giving rise to such Claims less all amounts previously paid by
such Holder with respect to any such Claims. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on
behalf of such indemnified party and shall survive the transfer of such
securities by such Holder or Underwriter.
5.3. Conduct of Indemnification Proceedings. Promptly after
receipt by an indemnified party of notice of any Claim or the
commencement of any action or proceeding involving a Claim under this
Section 5, such indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party pursuant to Section 5, (i)
notify the indemnifying party in writing of the Claim or the commencement
of such action or proceeding; provided, that the failure of any
indemnified party to provide such notice shall not relieve the
indemnifying party of its obligations under this Section 5, except to the
extent the indemnifying party is materially and actually prejudiced
thereby and shall not relieve the indemnifying party from any liability
which it may have to any indemnified party otherwise than under this
Section 5, and (ii) permit such indemnifying party to assume the defense
of such claim with counsel reasonably satisfactory to the indemnified
party; provided, however, that any indemnified party shall have the right
to employ separate counsel and to participate in the defense of such
claim, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (A) the indemnifying party has agreed in
writing to pay such fees and expenses, (B) the indemnifying party shall
have failed to assume the defense of such claim and employ counsel
reasonably satisfactory to such indemnified party within 10 days after
receiving notice from such indemnified party that the indemnified party
believes it has failed to do so, (C) in the reasonable judgment of any
such indemnified party, based upon advice of counsel, a conflict of
interest may exist between such indemnified party and the indemnifying
party with respect to such claims (in which case, if the indemnified
party notifies the indemnifying party in writing that it elects to employ
separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such
claim on behalf of such indemnified party) or (D) such indemnified party
is a defendant in an action or proceeding which is also brought against
the indemnifying party and reasonably shall have concluded that there may
be one or more legal defenses available to such indemnified party which
are not available to the indemnifying party. No indemnifying party shall
be liable for any settlement of any such claim or action effected without
its written consent, which consent shall not be unreasonably withheld. In
addition, without the consent of the indemnified party (which consent
shall not be unreasonably withheld), no indemnifying party shall be
permitted to consent to entry of any judgment with respect to, or to
effect the settlement or compromise of any pending or threatened action
or claim in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim), unless such settlement,
compromise or judgment (1) includes an unconditional release of the
indemnified party from all liability arising out of such action or claim,
(2) 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, and (3) does not provide for any action on the part of any party
other than the payment of money damages which is to be paid in full by
the indemnifying party.
5.4. Contribution. If the indemnification provided for in
Section 5.1 or 5.2 from the indemnifying party for any reason is
unavailable to (other than by reason of exceptions provided therein), or
is insufficient to hold harmless, an indemnified party hereunder in
respect of any Claim, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such Claim in such
proportion as is appropriate to reflect the relative fault of the
indemnifying party, on the one hand, and the indemnified party, on the
other hand, in connection with the actions which resulted in such Claim,
as well as any other relevant equitable considerations. The relative
fault of such indemnifying party and indemnified party shall be
determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact, has been
made by, or relates to information supplied by, such indemnifying party
or indemnified party, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such action. If,
however, the foregoing allocation is not permitted by applicable law,
then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative faults but also the relative benefits of
the indemnifying party and the indemnified party as well as any other
relevant equitable considerations.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5.4 were determined by
pro rata allocation or by any other method of allocation which does not
take into account the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by a party as
a result of any Claim referred to in the immediately preceding paragraph
shall be deemed to include, subject to the limitations set forth in
Section 5.3, any legal or other fees, costs or expenses reasonably
incurred by such party in connection with any investigation or
proceeding. Notwithstanding anything in this Section 5.4 to the contrary,
no indemnifying party (other than the Company) shall be required pursuant
to this Section 5.4 to contribute any amount in excess of the net
proceeds received by such indemnifying party from the sale of the
Registrable Securities pursuant to the Registration Statement giving rise
to such Claims, less all amounts previously paid by such indemnifying
party with respect to such Claims. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation.
5.5. Other Indemnification. Indemnification similar to that
specified in the preceding Sections 5.1 and 5.2 (with appropriate
modifications) shall be given by the Company and each selling Holder of
Registrable Securities with respect to any required registration or other
qualification of securities under any Federal or state law or regulation
of any governmental authority, other than the Securities Act. The
indemnity agreements contained herein shall be in addition to any other
rights to indemnification or contribution which any indemnified party may
have pursuant to law or contract.
5.6. Indemnification Payments. The indemnification and
contribution required by this Section 5 shall be made by periodic
payments of the amount thereof during the course of any investigation or
defense, as and when bills are received or any expense, loss, damage or
liability is incurred.
6. GENERAL.
6.1. Adjustments Affecting Registrable Securities. The Company
agrees that it shall not effect or permit to occur any combination or
subdivision of shares which would adversely affect the ability of the
Holder of any Registrable Securities to include such Registrable
Securities in any registration contemplated by this Agreement or the
marketability of such Registrable Securities in any such registration.
6.2. Registration Rights to Others. Other than pursuant to the
Subscription Agreements listed on Schedule 6.2 hereto, the Company has
not previously entered into an agreement with respect to its securities
granting any registration rights to any Person. If the Company shall at
any time hereafter provide to any holder of any securities of the Company
rights with respect to the registration of such securities under the
Securities Act, (i) such rights shall not be in conflict with or
adversely affect any of the rights provided in this Agreement to the
Holders and (ii) if such rights are provided on terms or conditions more
favorable to such holder than the terms and conditions provided in this
Agreement, the Company shall provide (by way of amendment to this
Agreement or otherwise) such more favorable terms or conditions to the
Holders.
6.3. Availability of Information; Rule 144; Rule 144A; Other
Exemptions. Quarterly Information. Except during any period when the
Company either (i) is subject to and is in compliance with the reporting
requirements of Section 15(d) of the Exchange Act or (ii) has securities
registered under Section 12(b) or 12(g) of the Exchange Act and is in
compliance with the reporting requirements mandated thereby (such status
being referred to as being a "Public Company"), the Company covenants
that it shall timely file any reports required to be filed by it under
the Securities Act or the Exchange Act (including, but not limited to,
the reports under Sections 13 and 15(d) of the Exchange Act referred to
in subparagraph (c) of Rule 144 under the Securities Act), and that it
shall take such further action as any Holder of Registrable Securities
may reasonably request, all to the extent required from time to time to
enable such Holder to sell Registrable Securities without registration
under the Securities Act within the limitation of the exemptions provided
by (i) Rule 144 and Rule 144A under the Securities Act, as such rules may
be amended from time to time, or (ii) any other rule or regulation now
existing or hereafter adopted by the SEC. Upon the request of any Holder
of Registrable Securities, the Company shall deliver to such Holder a
written statement as to whether it has complied with such requirements.
If the Company is no longer a Public Company, the Company shall, at any
time and from time to time, upon the request of any Holder of Registrable
Securities and upon the request of any Person designated by such Holder
as a prospective purchaser of any Registrable Securities, furnish in
writing to such Holder or such prospective purchaser, as the case may be,
a statement as of a date not earlier than 12 months prior to the date of
such request of the nature of the business of the Company and the
products and services it offers and copies of the Company's most recent
balance sheet and profit and loss and retained earnings statements,
together with similar financial statements for such part of the two
preceding fiscal years as the Company shall have been in operation, all
such financial statements to be audited to the extent audited statements
are reasonable available, provided that, in any event the most recent
financial statements so furnished shall include a balance sheet as of a
date less than 16 months prior to the date of such request, statements of
profit and loss and retained earnings for the 12 months preceding the
date of such balance sheet, and, if such balance sheet is not as of a
date less than 6 months prior to the date of such request, additional
statements of profit and loss and retained earnings for the period from
the date of such balance sheet to a date less than 6 months prior to the
date of such request.
6.4. Amendments and Waivers. The provisions of this Agreement
may not be amended, modified, supplemented or terminated, and waivers or
consents to departures from the provisions hereof may not be given,
without the written consent of the Company and the Holders of not less
than 50% of the Registrable Securities then outstanding; provided,
however, that no such amendment, modification, supplement, waiver or
consent to departure shall reduce the aforesaid percentage of Registrable
Securities without the written consent of all of the Holders of
Registrable Securities; and provided further, that nothing herein shall
prohibit any amendment, modification, supplement, termination, waiver or
consent to departure the effect of which is limited only to those Holders
who have agreed to such amendment, modification, supplement, termination,
waiver or consent to departure.
6.5. Notices. All notices and other communications provided
for or permitted hereunder shall be made in writing by hand delivery,
telecopier, any courier guaranteeing overnight delivery or first class
registered or certified mail, return receipt requested, postage prepaid,
addressed to the applicable party at the address set forth below or such
other address as may hereafter be designated in writing by such party to
the other parties in accordance with the provisions of this Section:
(i) If to the Company, to:
Complete Wellness Centers, Inc.
725 Independence Avenue, S.E.
Washington, D.C. 20003
Attn: President
Telecopy: (202) 543-5360
Telephone: (202) 543-6800
With a copy to:
Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York 10177
Attn: David E. Fleming, Esq.
Telecopy: (212) 661-0989
Telephone: (212) 351-4500
(ii) If to the Initial Holders, to:
Wexford Management LLC
411 West Putnam Avenue
Greenwich, Connecticut 06830
Attn: Frank Plimpton
Telecopy: (203) 862-7490
Telephone: (203) 862-7400
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attn: Randall H. Doud, Esq.
Telecopy: (212) 735-2000
Telephone: (212) 735-3000
(iii) If to any subsequent Holder, to the address of
such Person set forth in the records of the Company.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; when
receipt is acknowledged, if telecopied; on the next business day, if
timely delivered to a courier guaranteeing overnight delivery; and five
days after being deposited in the mail, if sent first class or certified
mail, return receipt requested, postage prepaid.
6.6. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
heirs, successors and permitted assigns (including any permitted
transferee of Registrable Securities). Any Holder may assign to any
permitted (as determined under the Warrants) transferee of its
Registrable Securities (other than a transferee that acquires such
Registrable Securities in a registered public offering or pursuant to a
sale under Rule 144 of the Securities Act (or any successor rule)), its
rights and obligations under this Agreement; provided, however, if any
permitted transferee shall take and hold Registrable Securities, such
transferee shall promptly notify the Company and by taking and holding
such Registrable Securities such permitted transferee shall automatically
be entitled to receive the benefits of and be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of
this Agreement as if it were a party hereto (and shall, for all purposes,
be deemed a Holder under this Agreement). If the Company shall so
request, any heir, successor or permitted assign (including any permitted
transferee) shall agree in writing to acquire and hold the Registrable
Securities subject to all of the terms hereof. For purposes of this
Agreement, "successor" for any entity other than a natural person shall
mean a successor to such entity as a result of such entity's merger,
consolidation, liquidation, dissolution, sale of substantially all of its
assets, or similar transaction. Except as provided above or otherwise
permitted by this Agreement, neither this Agreement nor any right,
remedy, obligation or liability arising hereunder or by reason hereof
shall be assignable by any Holder or by the Company without the consent
of the other parties hereto.
6.7. Counterparts. This Agreement may be executed in two or
more counterparts, each of which, when so executed and delivered, shall
be deemed to be an original, but all of which counterparts, taken
together, shall constitute one and the same instrument.
6.8. Descriptive Headings, Etc. The headings in this Agreement
are for convenience of reference only and shall not limit or otherwise
affect the meaning of terms contained herein. Unless the context of this
Agreement otherwise requires: (1) words of any gender shall be deemed to
include each other gender; (2) words using the singular or plural number
shall also include the plural or singular number, respectively; (3) the
words "hereof", "herein" and "hereunder" and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not
to any particular provision of this Agreement, and Section and paragraph
references are to the Sections and paragraphs of this Agreement unless
otherwise specified; (4) the word "including" and words of similar import
when used in this Agreement shall mean "including, without limitation,"
unless otherwise specified; (5) "or" is not exclusive; and (6) provisions
apply to successive events and transactions.
6.9. Severability. In the event that any one or more of the
provisions, paragraphs, words, clauses, phrases or sentences contained
herein, or the application thereof in any circumstances, is held invalid,
illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision, paragraph, word,
clause, phrase or sentence in every other respect and of the other
remaining provisions, paragraphs, words, clauses, phrases or sentences
hereof shall not be in any way impaired, it being intended that all
rights, powers and privileges of the parties hereto shall be enforceable
to the fullest extent permitted by law.
6.10. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware (without
giving effect to the conflict of laws principles thereof).
6.11. Remedies; Specific Performance. The parties hereto
acknowledge that money damages would not be an adequate remedy at law if
any party fails to perform in any material respect any of its obligations
hereunder, and accordingly agree that each party, in addition to any
other remedy to which it may be entitled at law or in equity, shall be
entitled to seek to compel specific performance of the obligations of any
other party under this Agreement, without the posting of any bond, in
accordance with the terms and conditions of this Agreement in any court
of the United States or any State thereof having jurisdiction, and if any
action should be brought in equity to enforce any of the provisions of
this Agreement, none of the parties hereto shall raise the defense that
there is an adequate remedy at law. Except as otherwise provided by law,
a delay or omission by a party hereto in exercising any right or remedy
accruing upon any such breach shall not impair the right or remedy or
constitute a waiver of or acquiescence in any such breach. No remedy
shall be exclusive of any other remedy, including those provided for in
the Warrants. All available remedies shall be cumulative.
6.12. Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of
the parties hereto in respect of the subject matter contained herein.
There are no restrictions, promises or undertakings, other than those set
forth or referred to herein. This Agreement supersedes all prior
agreements and understandings between the Company and the other parties
to this Agreement with respect to such subject matter.
6.13. Nominees for Beneficial Owners. In the event that any
Registrable Securities are held by a nominee for the beneficial owner
thereof, the beneficial owner thereof may, at its election in writing
delivered to the Company, be treated as the holder of such Registrable
Securities for purposes of any request or other action by any holder or
holders of Registrable Securities pursuant to this Agreement or any
determination of any number or percentage of shares of Registrable
Securities held by any holder or holders of Registrable Securities
contemplated by this Agreement. If the beneficial owner of any
Registrable Securities so elects, the Company may require assurances
reasonably satisfactory to it of such owner's beneficial ownership of
such Registrable Securities.
6.14. Consent to Jurisdiction; Waiver of Jury. Each party to
this Agreement hereby irrevocably and unconditionally agrees that any
legal action, suit or proceeding arising out of or relating to this
Agreement or any agreements or transactions contemplated hereby may be
brought in any federal court of the Southern District of New York or any
state court located in New York County, State of New York, and hereby
irrevocably and unconditionally expressly submits to the personal
jurisdiction and venue of such courts for the purposes thereof and hereby
irrevocably and unconditionally waives any claim (by way of motion, as a
defense or otherwise) of improper venue, that it is not subject
personally to the jurisdiction of such court, that such courts are an
inconvenient forum or that this Agreement or the subject matter may not
be enforced in or by such court. Each party hereby irrevocably and
unconditionally consents to the service of process of any of the
aforementioned courts in any such action, suit or proceeding by the
mailing of copies thereof by registered or certified mail, postage
prepaid, to the address set forth or provided for in Section 6.5 of this
Agreement, such service to become effective 10 days after such mailing.
Nothing herein contained shall be deemed to affect the right of any party
to serve process in any manner permitted by law or commence legal
proceedings or otherwise proceed against any other party in any other
jurisdiction to enforce judgments obtained in any action, suit or
proceeding brought pursuant to this Section. EACH OF THE PARTIES HEREBY
IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING,
WHETHER AT LAW OR EQUITY, BROUGHT BY ANY OF THEM IN CONNECTION WITH THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
6.15. Further Assurances. Each party hereto shall do and
perform or cause to be done and performed all such further acts and
things and shall execute and deliver all such other agreements,
certificates, instruments and documents as any other party hereto
reasonably may request in order to carry out the intent and accomplish
the purposes of this Agreement and the consummation of the transactions
contemplated hereby.
6.16. No Inconsistent Agreements. The Company will not
hereafter enter into any agreement which is inconsistent with the rights
granted to the Holders in this Agreement.
6.17. Construction. The Company and the Initial Holders
acknowledge that each of them has had the benefit of legal counsel of its
own choice and has been afforded an opportunity to review this Agreement
with its legal counsel and that this Agreement shall be construed as if
jointly drafted by the Company and the Holders.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first written above.
COMPLETE WELLNESS CENTERS, INC.
BY /s/ E. Eugene Sharer
Name:
Title:
INITIAL HOLDERS:
IMPRIMIS INVESTORS LLC
BY /s/ Frank Plimpton
Name:
Title:
WEXFORD SPECTRUM INVESTORS LLC
BY /s/ Frank Plimpton
Name:
Title:
EXHIBIT IX
FORM OF CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS
OF THE
SENIOR REDEEMABLE 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 January 9, 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 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 Redeemable Preferred
Stock (the "Senior Preferred Stock"). The total number of shares of the
Senior Preferred Stock shall be 134,500.
(ii) Holders of shares of Senior 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 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
Preferred Stock outstanding, from January 12, 1998, and with respect to
80,000 of Senior 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 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 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 paragraph (iii) below with the relevant dividend payment date being
deemed to be the date of final distribution.
(iii) The shares of Senior 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 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 Preferred Stock) plus an amount equal to all dividends (whether or
not earned or declared) accumulated and unpaid on the shares of Senior
Preferred Stock to the date of final distribution, such determination to
be made, in the even 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 Preferred Stock). After payment of the full amount of the
Liquidation Preference, the holders of shares of Senior 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 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
liquidation, dissolution or winding up of the Corporation.
(iv) The shares of Senior Preferred Stock will be
mandatorily redeemable by the Corporation as provided in this paragraph
(iv):
(A) All shares of Senior Preferred Stock shall be
mandatorily redeemable on the earlier of (1) December 31, 2000
and (2) the date of completion of any financing by the
Corporation or any of its subsidiaries after the initial date of
issuance of the Senior Preferred Stock, the gross proceeds of
which taken together with the gross proceeds of any and all other
financings by the Corporation or any of its subsidiaries
aggregates in excess of $5,000,000, provided, however, that the
Corporation may exclude from such aggregate gross proceeds up to
$3,500,000 of gross proceeds that the Corporation receives upon
the exercise of the Corporation's Redeemable Common Stock
Purchase Warrants issued pursuant to the Warrant Agreement, dated
as of February 24, 1997, between the Corporation and American
Stock Transfer and Trust Company, provided that all such
exercises are in accordance with the terms thereof as in effect
as of the date of issuance of the Senior Preferred Stock.
(B) In the event of any breach of the agreements in
paragraph (v) below, or any breach by the Corporation of the
Supplement to the Investment Agreement, dated as of January 12,
1998, among Imprimis Investors LLC, Wexford Spectrum Investors
LLC and the Corporation, the Corporation shall redeem such number
of shares of Senior Preferred Stock as shall be requested by the
holders thereof upon at least five days' notice to the
Corporation.
(C) The redemption price for shares of Senior 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.
(v) (A) For so long as any shares of Senior 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 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 Preferred Stock or of the holders
thereof.
(B) As soon as practicable after the filing of this
Certificate of Designation, Preferences and Rights, the Board of
Directors of the Corporation shall take any action necessary, including
calling a special meeting, to elect a designee of the holders of Senior
Preferred Stock to the Board of Directors. Thereafter, for so long as
any shares of Senior 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 Preferred Stock shall be duly elected
to serve as a director 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 12th day of January, 1998.
COMPLETE WELLNESS CENTERS, INC.
Attest: /s/ E. Eugene Sharer By: /s/ C. Thomas McMillen
--------------------------- ----------------------------
E. Eugene Sharer, President C. Thomas McMillen
& Assistant Secretary Chairman & CEO
