<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
DECEMBER 22, 1999
REGISTRATION NO. 333- ______
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------------
COMPLETE WELLNESS CENTERS, INC.
(Name of small business issuer in its charter)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 8099 52-1910135
(STATE OR JURISDICTION OF (PRIMARY STANDARD (I.R.S. EMPLOYER
INCORPORATION OR INDUSTRIAL IDENTIFICATION NUMBER)
ORGANIZATION) CLASSIFICATION CODE
NUMBER)
</TABLE>
-----------------------------
JOSEPH J. RAYMOND, JR.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
COMPLETE WELLNESS CENTERS, INC.
1964 HOWELL BRANCH ROAD, SUITE 202, WINTER PARK, FL 32792
(407) 673-3073
(Address and telephone number of principal place of
business and name, address and telephone number of
agent for service)
---------------------------
COPIES TO:
<TABLE>
<S> <C>
THOMAS A. SIMSER, JR., ESQ. LAWRENCE B. FISHER, ESQ.
WINDERWEEDLE, HAINES, WARD & WOODMAN, P.A. ORRICK, HERRINGTON & SUTCLIFFE LLP
NATIONSBANK CENTER 666 FIFTH AVENUE
390 NORTH ORANGE AVE., SUITE 1500 NEW YORK, NEW YORK 10103-0001
ORLANDO, FL, 32801 212-506-5000
407-246-8660
</TABLE>
----------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-------------------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===============================================================================================================
<S> <C> <C> <C> <C>
Title of each class Amount to be Proposed maximum Proposed maximum
of securities to be registered offering price per aggregate offering
registered share(1) price(1) Fee
10% Series C 3,795,000(2) $4.55 $17,267,250 $4,559(4)
Cumulative
Convertible
Preferred Stock,
$0.01 par value
Common stock,
$0.0001665 10,626,000(3) -- -- --
par value
Total -- -- -- $4,559(4)
===============================================================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a).
(2) Includes 495,000 shares which the underwriter has the option to purchase
to cover over-allotments, if any.
(3) Assumes a conversion price of $1.625 per share of common stock, which
represents 130% of the closing bid price of the common stock on the Nasdaq
SmallCap Market on December 20, 1999. Pursuant to Rule 416, additional
shares of common stock that may become issuable due to changes in the
conversion price of the preferred stock are also being registered.
(4) Pursuant to Rule 457 (i), no additional fee is required to register the
shares of common stock underlying the convertible securities.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Prospectus
SUBJECT TO COMPLETION, DATED DECEMBER 22, 1999
COMPLETE WELLNESS CENTERS, INC.
3,300,000 SHARES OF 10% SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK
This is a public offering of 3,300,000 shares of 10% Series C
Cumulative Convertible Preferred Stock of Complete Wellness Centers, Inc. Prior
to this offering, there has been no public market for the preferred stock. The
preferred stock has been approved for quotation on the Nasdaq SmallCap Market
upon notice of issuance under the symbol "CMWLP". The common stock of Complete
Wellness Centers is quoted on the Nasdaq SmallCap Market under the symbol
"CMWL". On December 20, 1999, the last reported sales price of the common stock
was $1.25 per share. The redeemable common stock purchase warrants of Complete
Wellness Centers are quoted on the Nasdaq SmallCap Market under the symbol
"CMWLW". On December 14, 1999, the last reported sales price of the redeemable
common stock purchase warrants was $1.00 per warrant.
Please see the risk factors beginning on page 6 to read about certain
factors you should consider before buying shares of our preferred stock.
NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY
STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Per Share Total
--------- -------------
<S> <C> <C>
- Price to public ................................................... $4.55 $15,015,000
- Underwriting discounts/commissions ................................ $0.46 $ 1,501,000
- Proceeds, before expenses, to Complete Wellness Centers............ $4.09 $13,514,000
</TABLE>
To the extent that the underwriter sells more than 3,300,000 shares of
preferred stock, they have the option to purchase up to 495,000 additional
shares of preferred stock from Complete Wellness Centers at the public offering
price less the underwriting discount.
The underwriter expects to deliver the shares of preferred stock
against payment in New York, New York on ___________, 2000.
SECURITY CAPITAL TRADING, INC.
Prospectus dated [________]
<PAGE> 3
[THIS PAGE INTENTIONALLY LEFT BLANK]
[MAP]
2
<PAGE> 4
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information, our financial statements and the notes to those financial
statements appearing elsewhere in this prospectus.
OUR BUSINESS
We develop, manage and own multidisciplinary medical centers,
providing high quality, cost effective, integrative wellness medicine to our
patients. These integrated medical centers combine, at one location,
traditional healthcare providers, such as physicians and physical therapists,
and complementary and alternative healthcare professionals, such as
chiropractors, acupuncturists and massage therapists. Generally, we contract
with a medical practitioner who has proven ability to build a practice. We then
form a new medical entity, the new medical entity hires other healthcare
professionals to work with the practitioner and we provide the tools, training,
administrative systems and certain legal services for the new medical entity.
As of September 30, 1999 we were managing 56 integrated multidisciplinary
medical centers in 12 states.
OUR STRATEGY
Our goal is to be the leading developer, manager and owner of
multidisciplinary medical centers. In order to achieve this goal, we intend to
implement the following strategies:
- Contract with practitioners who possess the management skills
necessary to run and grow multidisciplinary practices and
teach them how to integrate other medical disciplines into
their practices;
- Acquire multidisciplinary practices that we have consulting
agreements with and which practices have proven to have grown
profitably;
- Acquire multidisciplinary practices in either a single
location or in a geographic cluster with proven track records
of strong internal growth, strong management and a culture
that mirrors our own;
- Expand in regional geographic clusters to gain economies of
scale in management, training, practice development and
marketing costs;
- Create a website to distribute our products, services and
educational information to our patient base;
- Open four hyperbaric oxygen treatment (pressurized oxygen
chambers) centers in year 2000 and six more in 2001; and
- Educate insurance companies and regulatory agencies on the
benefits that multidisciplinary medicine brings to the
insurance industry, so as to persuade such entities to expand
their coverage of our wellness services to ultimately reduce
health insurance claims.
OUR INDUSTRY
We believe the integration of traditional and
complementary/alternative medicine is becoming more popular in the United
States. In 1992, Congress required the National Institutes of Health to
establish The Office of Alternative Medicine, the purpose of which was and
remains to facilitate the evaluation of complementary medicine treatments to
determine their effectiveness and help integrate them into traditional
medicine. The Trends Research Institute of Rhinebeck, New York has identified
the integration of traditional and complementary medicine as one of the top ten
trends of the coming decade.
CORPORATE BACKGROUND
We were incorporated in the State of Delaware in November 1994. Our
principal executive offices are located at 1964 Howell Branch Road, Suite 202,
Winter Park, Florida 32792 and our telephone number is (407) 673-3073. Our web
site, which is currently under construction, is located at
www.completewellness.com. The information on our website, when construction is
finished, is not intended to be a part of this prospectus.
3
<PAGE> 5
THE OFFERING
<TABLE>
<S> <C>
10% Series C Cumulative Convertible Preferred Stock
offered by us ...................................... 3,300,000 shares
Common stock outstanding ........................... 4,864,744 shares
Use of proceeds .................................... - Redemption of $1,000,000 or 20,000 shares of
the 8% Series B Senior Secured Cumulative
Convertible Preferred Stock
- Acquisition and development of integrated
medical centers
- Repayment of certain other debt, accrued
expenses and payroll
- Development of information technology
- Development of hyperbaric oxygen services
- Working capital and general corporate purposes
Nasdaq SmallCap Market Symbols:
Common Stock .................................... CMWL
Common Stock Warrants ........................... CMWLW
Proposed Nasdaq SmallCap Symbol:
10% Series C Cumulative Convertible
Preferred Stock ............................... CMWLP
</TABLE>
Unless stated otherwise, all information in this prospectus assumes: an
- initial offering price of $4.55 per share of preferred stock;
- the underwriter's over allotment option is not exercised; and
- the underwriter's warrants are not exercised; and
excludes:
- 9,240,000 shares of common stock issuable upon conversion of
the 3,300,000 shares of 10% Series C Cumulative Convertible
Preferred Stock offered in this prospectus, assuming a
conversion price of $1.625 per share of preferred stock (130%
of the closing bid price of our common stock on December 20,
1999);
- 629,583 shares of common stock issuable upon exercise of
outstanding options under our stock option plans of which
503,087 are exercisable as of the date hereof;
- 447,121 shares of common stock issuable upon exercise of
options available for future grant under our stock option
plans; and
- 6,515,893 shares of common stock issuable upon conversion
of 120,153 shares of 8% Series B Senior Secured Cumulative
Convertible Preferred Stock and 2,020 shares of 8% Series D
Junior Secured Cumulative Convertible Preferred Stock at
$0.9375 per share conversion rate.
4
<PAGE> 6
SUMMARY FINANCIAL DATA
You should read the following summary financial data together with the
section of this prospectus entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and our consolidated financial
statements and related notes thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1998 1999
----------- ----------- ----------- ------------
(Amounts shown are in thousands, except per share data)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenue:
Patient revenue $ 8,847 $17,132 $14,360 $ 11,751
Management services income 163 7,030 6,487 0
----------- ----------- ----------- ------------
Total revenue 9,010 24,162 20,847 11,751
=========== =========== =========== ============
Operating expenses:
Salary and consulting costs 2,886 7,066 4,548 2,236
Management fees 3,850 8,641 6,870 6,304
Other clinic expenses 529 9,257 4,894 134
Bad debt expense 3,232 2,657 3,009 1,192
General and administration 2,701 6,066 4,737 1,504
Depreciation and amortization 87 210 148 94
----------- ----------- ----------- ------------
Total operating expenses 13,285 33,897 24,206 11,464
=========== =========== =========== ============
Operating income (loss) (4,275) (9,735) (3,359) 287
Net interest income (expense) 56 59 26 (47)
Minority interest 42 7 0 0
----------- ----------- ----------- ------------
Net income (loss) $ (4,176) $ (9,668) $ (3,333) $ 240
----------- ----------- ----------- ------------
Pro forma net income (loss) per
fully diluted common share $ (1.98) $ (4.41) $ (1.31) $ 0.03
Pro forma weighted average number of common
and common equivalent shares outstanding 2,113 2,301 2,537 7,037
</TABLE>
The following table provides a summary of our balance sheet as of September 30,
1999:
- on an actual basis; and
- on an as adjusted basis giving effect to the sale of the 10%
Series C Cumulative Convertible Preferred Stock and the
receipt of the estimated net proceeds.
<TABLE>
<CAPTION>
(Amounts shown are in thousands)
------------------------------------
SEPTEMBER 30, 1999
------------------------------------
ACTUAL AS ADJUSTED
----------------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Total working capital....................................... $ 2,751 $14,251
Total assets................................................ $ 8,686 $17,936
Total liabilities........................................... $ 6,290 $ 4,040
Total stockholders' equity ................................. $ 2,396 $14,377
</TABLE>
5
<PAGE> 7
RISK FACTORS
An investment in the shares of preferred stock offered hereby involves
a high degree of risk. In addition to the other information in this prospectus,
you should carefully consider the following risk factors before investing in
our securities.
WE CURRENTLY DO NOT HAVE ADEQUATE CASH RESERVES TO MEET OUR OPERATING
NEEDS.
We are currently dependent on advances from investors to meet our day
to day cash needs. Our major investors, Wexford Spectrum Investors LLC and
Imprimis Investors LLC, have told us that it is their intention not to loan us
any additional cash. As a result, we must identify other sources of cash
immediately in order to remain in business. Failure to immediately identify
other sources of cash could result in our insolvency. We recently completed a
private placement of $481,000 but the need for financing remains a critical
factor.
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS.
Based on our current operating plan, we anticipate that the net
proceeds from this offering and cash provided from operations will allow us to
meet our cash requirements for at least 12 months following the date of this
prospectus. We may require additional funding sooner than anticipated. In
addition, unplanned acquisition and development opportunities and other
contingencies may arise which could cause us to raise additional capital. We
cannot be certain that additional financing will be available on commercially
reasonable terms, if at all. If we raise additional capital through the sale of
equity, including preferred stock or convertible debt securities, the
percentage ownership of our then existing stockholders will be diluted.
NO ASSURANCE OF CONTINUED PROFITABILITY AND LIMITED OPERATING HISTORY.
The three months ended March 31, 1999 was our first profitable
quarter. Our second and third quarters of fiscal 1999 have been only marginally
profitable. There can be no assurance that we will be able to maintain our
profitability. We commenced operations in January 1995 and began managing our
first integrated medical center in September 1995. We have only a three year
operating history upon which you can judge our performance and we have
experienced net losses, negative cash flow, a deficit in working capital and an
accumulated deficit each month until very recently.
THERE ARE RISKS RELATED TO OUR EXPANSION STRATEGY.
We expanded from managing one integrated medical center at December
31, 1995 to 84 integrated medical centers at December 31, 1998. As of September
30, 1999, we managed 56 integrated medical centers, having ceased operations in
28 of our centers in the past nine months for various reasons, including clinic
non-performance or non-compliance issues. Delays in the opening of new
integrated medical centers could adversely affect our future financial
condition and operating results.
THE POSSIBILITY OF A REGULATORY CHALLENGE EXISTS REGARDING OUR
RELATIONSHIP WITH OUR AFFILIATED PRACTITIONERS.
We believe that our relationships with our affiliated practitioners do
not violate applicable federal or state health care regulatory requirements.
There can be no assurance, however, that health care law enforcement officials
will not take a contrary view and bring a claim against us under federal law.
Prosecutions by federal enforcement officials could have a material adverse
effect on us, even if our relationships with our affiliated practitioners were
subsequently determined lawful.
WE RELY ON THE AFFILIATED PRACTITIONERS TO GENERATE REVENUE.
Our revenue and cash flow are dependent on the generation and
collection of revenue by the integrated medical centers and the efficient
management by the affiliated practitioners. In the past, we have seen a
negative result from poor management of certain practitioners, which
consequently decreased the expected revenues and profits from those specific
integrated medical centers. If a significant number of affiliated practitioners
fail in their management duties, our financial condition and operating results
would be materially adversely affected.
WE ARE DEPENDENT ON THIRD PARTY REIMBURSEMENT.
Third party reimbursement is the paying of medical or chiropractic
services by anyone other than the patient, such as by an insurance company.
Substantial amounts of revenue of the integrated medical centers are derived
from commercial health insurance, state workers' compensation programs and
other third party payors. Some insurance companies are not yet
6
<PAGE> 8
totally familiar with reimbursing for traditional and alternative health care
services, such as chiropractic, performed within a medical practice, which
results in slow payment of claims, and resubmission of claims to add
documentation. We recently conducted a survey of our clinics which indicated
that 46% of our clinic revenue is currently derived from private insurance, so
major delays of this nature could have an adverse effect on revenue and cash
flow.
Our ability to collect our fees in a timely manner and in full is
affected by whether the integrated medical center is reimbursed for its medical
services in a timely manner and in full. Our own cash flow could be adversely
affected by the integrated medical centers' long collection cycle from various
third party payors. Further, third party payors may reject the integrated
medical centers' medical claims if, in their judgment, the procedures performed
were not medically necessary or if the charges exceeded such payors' allowable
fee standards. Although we expect that the integrated medical centers will take
all legally available steps, including legally prescribed arbitration, to
collect their receivables, there is a significant risk that some integrated
medical centers' receivables may not be collected.
Third party payors may disagree with the descriptions or coding of a
bill for medical services, or may contest a code or description under a lower
fee schedule. Persistent disagreements or alleged "upcoding" could result in
allegations of fraud or false billing, both of which constitute felonies. Such
an allegation, if proven, could result in forfeitures of payment, civil money
penalties, civil fines, suspensions, or disbarment from participating in
federal or state funded healthcare programs, and have a material adverse effect
on us even if such allegations were disproven.
The healthcare industry has undergone significant change as third
party payors increase efforts to control cost, use and delivery of healthcare
services. Several states have taken measures to reduce the reimbursement rates
paid to healthcare providers in their states. We believe that additional
reductions will be implemented from time to time. In addition, reductions in
Medicare rates often lead to reductions in the reimbursement rates of other
third party payors as well and we believe that such further reductions are
probable. Changes in Medicare reimbursement rates or other changes in
reimbursements by third party payors to our integrated medical centers could
have a material adverse effect on us.
MANAGED CARE CONTRACTS AFFECT REIMBURSEMENT.
We believe that our success, in part, will depend on our ability to
negotiate, on behalf of the integrated medical centers, favorable managed care
contracts with health maintenance organizations and other private third party
payor programs. Such contracts often shift much of the financial risk of
providing care from the payor to the provider by requiring the provider to
furnish all or a portion of its services in exchange for a fixed fee per member
patient, per month, regardless of the level of use by the patient. Failure to
negotiate favorable contracts for our integrated medical centers will adversely
effect the profitability of our integrated medical centers and our
profitability.
WE ARE DEPENDENT ON OUR KEY MANAGEMENT PERSONNEL.
We are dependent upon the active participation of our executive
officers, particularly our Chairman and Chief Executive Officer, Joseph J.
Raymond, Jr. , and our President, Sergio R. Vallejo. The loss of the services
of Mr. Raymond and/or Mr. Vallejo could have a material adverse effect on us.
We have two year employment agreements with each of Mr. Raymond and Mr. Vallejo
and have applied for "key-man" life insurance policies on the lives of Mr.
Raymond and Mr. Vallejo in the amount of $1 million each, payable to us in the
event of death.
THE POTENTIAL FOR MEDICAL MALPRACTICE CLAIMS.
Although we do not provide medical services or control the provision
of health care services by the integrated medical centers' practitioners, we
could nevertheless also be accused of medical negligence. We have obtained an
insurance policy that provides medical malpractice insurance and managed care
errors and omissions insurance retroactive to the integration dates of the
integrated medical centers for both our integrated medical centers and Complete
Wellness Centers. The policy provides coverage for $1,000,000 per claim per
integrated medical center, subject to an aggregate limit of $3,000,000 per
integrated medical center per year. A successful claim against us in excess of
our insurance coverage could have a material adverse effect upon our business.
FRAUD AND HEALTHCARE ABUSE.
Federal and state laws extensively regulate the relationships among
providers of health care services. These laws include federal fraud and abuse
provisions which if violated by any of our health care providers could put us
at risk of severe
7
<PAGE> 9
criminal and monetary penalties. Federal fraud and abuse laws also impose
restrictions on physicians' referrals for designated health services covered
under Medicare or Medicaid to entities with which they have financial
relationships. There can be no assurance that the federal and state governments
will not consider additional prohibitions on physician ownership, directly or
indirectly, of facilities to which they refer patients, which could adversely
affect us.
WE ARE THE SUBJECT OF A PENDING FEDERAL INVESTIGATION.
In November 1997, three of our facilities were searched by federal
authorities pursuant to search warrants, and the federal authorities removed
computer records and written documents in connection with an investigation of
alleged health care fraud. In June 1998, Complete Wellness Centers and several
of its employees, including its former Chief Executive Officer, were served
with subpoenas requesting records and documents related to billing and claims
coding, clinical relationships and corporate records. We believe that we could
be a target in this investigation. One employee received a letter dated January
13, 1998 from the United States Attorney General's Office stating that the
employee was a subject of the investigation. The investigation appears to be
focused on two clinics in Virginia. No charges have been filed against us or
any of our employees to date. However, any such charges could have a material
adverse effect on our future financial position and results of operations.
FEDERAL LAW AND THE LAWS OF MANY STATES REGULATE THE SALE OF
FRANCHISES.
Franchise laws require, among other things, that a disclosure document
be prepared and given to prospective franchisees. We believe that integrated
medical centers formed as business corporations wholly owned by us are not
subject to such laws. Integrated medical centers formed as physician-owned
professional corporations could be subject to them. If these laws are deemed to
apply, we would be required to prepare and deliver a disclosure document to the
physician that owns the professional corporation, and who might be our
employee. We believe that our relationship with integrated medical centers is
not the focus of these laws. A review of our business by regulatory authorities
could result in a determination that could adversely affect our operations or
require structural and organizational modifications with the integrated medical
centers.
MANY STATES HAVE LAWS THAT PROHIBIT THE CORPORATE PRACTICE OF
MEDICINE.
In states where general business corporations are permitted to own
medical practices, the integrated medical centers are formed as general
business corporations and are wholly-owned by us. In most states, the
integrated medical centers are formed as professional corporations owned by one
or more medical doctors licensed to practice medicine under applicable state
law. Although we believe our operations as currently conducted are in material
compliance with existing applicable laws, our structure could be challenged as
constituting the unlicensed practice of medicine and the enforceability of the
legal agreements underlying our structure could be limited. The inability to
successfully restructure our contractual arrangements could have a material
adverse effect on us.
WE HAVE AUTHORIZED THE ISSUANCE OF PREFERRED STOCK.
Our board of directors has the authority to issue up to 10,000,000
shares of preferred stock in one or more series and to determine the number of
shares in each series, as well as the designations, preferences, rights and
qualifications or restrictions of those shares without any further vote or
action by the common stockholders. The rights of the holders of common stock
and the preferred stock offered in this offering will be subject to, and may be
adversely affected by, the rights of the holders of any preferred stock that is
currently issued or which may be issued in the future.
WE HAVE NO ASSURANCE OF CONTINUED NASDAQ SMALLCAP MARKET LISTING.
On November 20, 1998, we received notice from Nasdaq that we did not
meet the net asset requirement of Nasdaq SmallCap Market listing. We responded
to Nasdaq with our plan for continued listing specifying the planned conversion
of debt to equity, private placement of up to $750,000, and reversal of
liabilities in a Chapter 7 filing for a subsidiary. We received another notice
on September 13, 1999 requesting certain data be submitted by September 30,
1999 showing evidence that certain management actions had taken place in order
to be considered for continued listing. We were also required to show and did
show a minimum of $2 million in net tangible asset value as of September 30,
1999 in our third quarter filing as filed on November 15, 1999. If our
securities were to be excluded from trading on the Nasdaq SmallCap Market, our
common stock and the preferred stock offered in this offering could become
subject to the penny stock rules, which would adversely affect the prices of
such securities and the ability of shareholders to sell them, if at all.
8
<PAGE> 10
YOU CANNOT SELL THE SHARES OF COMMON STOCK UNDERLYING THE PREFERRED
STOCK IF WE DO NOT HAVE AN EFFECTIVE REGISTRATION STATEMENT.
The common stock underlying the preferred stock offered by this
prospectus is not tradable unless, at the time of proposed sale, we have a
current prospectus covering the shares of common stock and the shares have been
registered, qualified or deemed to be exempt from registration under the
securities laws of the state of residence of the seller. Our failure to keep a
registration statement effective for the common stock underlying the preferred
stock may depress the value of such preferred stock and such common stock.
FAILURE OF COMPUTER SYSTEMS AND SOFTWARE PRODUCTS TO BE YEAR 2000
COMPLIANT COULD NEGATIVELY IMPACT OUR BUSINESS.
Many current installed computer systems and software products only
accept two digits to identify the year in any date. Thus, the year 2000 will
appear as "00", which the system might consider to be the year 1900 rather than
the year 2000. This could result in system failures, delays or miscalculations
causing disruptions to our operations. The failure of systems maintained by
third parties to be year 2000 compliant could cause us to incur significant
expense to remedy any problems, reduce our revenues from such third parties or
otherwise seriously damage our business. Our failure to correct a material year
2000 problem could result in, or a failure of, some of our normal business
activities or operations.
Some patients at the integrated medical centers pay a portion of their
charges with Medicare or third party payor reimbursements. Some private
insurance companies also provide partial or full coverage for elective
procedures. In the event Medicare or private insurance companies have
difficulty processing and paying claims because of year 2000 issues, this could
have an adverse effect on our business, financial condition and results of
operations.
9
<PAGE> 11
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These
forward-looking statements are not historical facts, but rather are based on
our current expectations, estimates and projections about our industry, our
beliefs and assumptions. Words including "may, could, would, will, anticipates,
expects, intends, plans, projects, believes, seeks, estimates," and similar
expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and other factors, some of which are beyond our control,
are difficult to predict and could cause actual results to differ materially
from those expressed or forecasted in the forward-looking statements. These
risks and uncertainties are described in "Risk Factors" and elsewhere in this
prospectus. We caution you not to place undue reliance on these forward-looking
statements, which reflect our management's view only as of the date of this
prospectus. We are not obligated to update these statements or publicly release
the result of any revisions to them to reflect events or circumstances after
the date of this prospectus or to reflect the occurrence of unanticipated
events.
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately
$12,500,000 from our sale of the 3,300,000 shares of preferred stock offered
hereby, assuming an initial public offering price of $4.55 per share. If the
underwriter exercises its over-allotment option in full, we will receive net
proceeds of approximately $14,375,000.
<TABLE>
<CAPTION>
APPROXIMATE
DOLLAR APPROXIMATE
AMOUNT PERCENTAGE
----------------- -----------------
<S> <C> <C>
Redemption of 8% Series B Senior Secured Cumulative Convertible
Preferred Stock ................................................. $ 1,000,000 8%
Acquisition and development of integrated medical centers ...... $ 2,000,000 16%
Repayment of certain other debt, accrued expenses and accrued
payroll ......................................................... $ 2,250,000 18%
Development of information technology ........................... $ 500,000 4%
Development of hyperbaric oxygen services ....................... $ 500,000 4%
Working capital and general corporate purposes .................. $ 6, 250,000 50%
------------ -------
Total....................................................... $12,500,000 100%
</TABLE>
We intend to redeem an aggregate principal amount of $1,000,000 or
20,000 shares of a total aggregate principal amount outstanding of $6,008,000
of 8% Series B Senior Secured Cumulative Convertible Preferred Stock held by
Wexford Spectrum Investors LLC, Imprimis Investors LLC and RVR Consulting, Inc.
issued in January 1998. At this time, we are attempting to negotiate other
related changes to our capital structure; however, the exact terms have not
been finalized. Such changes could include potential conversions of outstanding
shares of preferred stock (Series B & Series D), in part or in whole, to shares
of common stock.
We intend to acquire 10 integrated medical centers within 12 months of
the date of this prospectus. The related costs consists of the purchase of the
clinics, computer software, legal fees, professional credentialing, training,
an administrative starter kit and travel. We also intend to execute an average
of four consulting agreements per month with practitioners to develop
additional integrated medical centers.
We intend to repay an aggregate of $748,000 notes payable and related
accrued interest and repay $1,502,000 in accrued expenses, accrued payroll and
certain other indebtedness. We intend to create and market an interactive
website for communication with affiliated clinics, education of their patients
and sales of wellness-oriented products and services. We intend to establish
four centers for hyperbaric oxygen therapy during year 2000 and an additional
six centers in 2001.
The remaining portion of the net proceeds will be used as working
capital to fund operations as required including amounts required to improve
our sales and marketing, to pay salaries, professional fees, office-related
expenses, technology investments associated with upgrading and modernizing our
management information system, and other corporate expenses. Any additional net
proceeds received from the exercise of the underwriter's over-allotment option
will be used for working capital and general corporate purposes.
10
<PAGE> 12
The proposed allocation of net proceeds represents our current
estimate of the allocation of the net proceeds of this offering, based on the
current state of our operations, our current plans and current economic
conditions. We may reallocate the net proceeds among the categories listed
above. Consequently, we will have broad discretion in determining the manner in
which the net proceeds of the offering are applied. Net proceeds not
immediately required for the purposes described above will be invested in
short-term, investment grade, interest-bearing government obligations.
11
<PAGE> 13
CAPITALIZATION
The following table provides, as of December 20, 1999, our capitalization:
- On an actual basis; and
- On an as adjusted basis to reflect receipt of the net proceeds
from our sale of preferred stock in this offering and the
initial application of the proceeds.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and the notes thereto which are included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
------ -----------
(unaudited)
<S> <C> <C>
Short-term debt:
Total short-term debt ...................................... $ 55,350 $ 0
Long-term debt:
Notes payable ....................................................... 663,650 0
Total long-term debt ....................................... 663,650 0
Stockholders' equity:
Preferred stock, $.01 par value per share; 10,000,000 shares
authorized; 8% Series B, Senior Secured Cumulative Convertible;
120,153 shares issued and outstanding actual; 100,153 shares as
adjusted ........................................................ 1,202 1,002
10% Series C, Cumulative Convertible; none issued and
outstanding actual; 3,300,000 shares issued and outstanding as
adjusted ........................................................ 0 33,000
8% Series D, Junior Secured Cumulative Convertible; 2,020 shares
issued and outstanding actual and as adjusted ................... 20 20
Common stock, $.0001665 par value; 50,000,000 shares authorized;
4,846,744 shares issued and outstanding actual and as adjusted.... 806 806
Additional paid in capital .......................................... 18,575,099 30,043,110
Accumulated deficit ................................................. (15,700,947) (15,700,947)
------------ -----------
Total stockholders' equity ............................................ $ 2,876,991 $14,376,991
------------ -----------
Total capitalization .................................................. $ 3,595,991 $14,376,991
============ ===========
</TABLE>
The preceding table excludes:
- 9,240,000 shares of common stock issuable upon conversion of
the 3,300,000 shares of 10% Series C Cumulative Convertible
Preferred Stock offered in this prospectus assuming a
conversion price of $1.625 per share of preferred stock (130%
of the closing bid price of our common stock on December 20,
1999);
- 629,583 shares of common stock issuable upon exercise of
outstanding options under our stock option plans of which
approximately 503,087 are exercisable as of the date hereof;
- 447,121 shares of common stock issuable upon exercise of
options available for future grant under our stock option
plans; and
- 6,515,893 shares of common stock issuable upon conversion of
120,153 shares of 8% Series B Senior Secured Cumulative
Convertible Preferred Stock and 2,020 shares of 8% Series D
Junior Secured Cumulative Convertible Preferred Stock at
$0.9375 per share conversion rate.
DIVIDEND POLICY
We have never declared or paid dividends, and do not intend to pay any
dividends in the foreseeable future on shares of common stock. Our earnings, if
any, are expected to be retained for use in expanding the business. The payment
of dividends is within the discretion of our board of directors and will depend
upon our earnings, if any, capital requirements, financial condition and such
other factors as are considered to be relevant by our board of directors from
time to time.
12
<PAGE> 14
DILUTION
At September 30, 1999, our net tangible book value was approximately
$2,396,000 or $0.22 per share of common stock. Net tangible book value per share
represents the amount of our total tangible assets less total liabilities
divided by the number of shares of common stock issued and outstanding including
those shares to be issued if all shares of convertible preferred stock were
converted.
After giving effect to (i) the sale of the shares of preferred stock
offered hereby after deducting estimated underwriting discounts and other
offering expenses, and (ii) the conversion of the shares of preferred stock
offered hereby into shares of common stock, our pro forma net tangible book
value at September 30, 1999 would have been approximately $14,896,000 or $0.74
per share of common stock. This represents an immediate approximate increase in
net tangible book value of $0.52 per share of common stock, or 236%, to existing
stockholders and an immediate dilution in net tangible book value of $0.89 per
share of common stock, or 55%, to new investors. The following table illustrates
this per share dilution:
<TABLE>
<S> <C>
Assumed initial public offering price per share of preferred
stock................................................................. $ 4.55
Net tangible book value per share of common stock prior to this
offering.............................................................. $ 0.22
Increase per share of common stock attributable to new investors and the
conversion of preferred stock ........................................ $ 0.52
Pro forma net tangible book value per share of common stock
after this offering................................................... $ 0.74
Dilution per share to new investors ..................................... $ 0.89
</TABLE>
If the over-allotment option is exercised in full, the pro forma net
tangible book value as of September 30, 1999 would have been approximately
$16,771,000, or $0.83 per share of common stock, which would result in
immediate dilution in net tangible book value to new investors of approximately
$0.80 per share. This represents an immediate approximate increase in net
tangible book value of $0.61 per share of common stock, or 280%, to existing
stockholders.
The following table summarizes on a pro forma basis, as of September
30, 1999, the number of shares of preferred stock purchased from us, the total
consideration paid, and the average price per share paid by existing
stockholders and by investors in this offering, assuming the sale of the
3,300,000 shares of preferred stock offered by this prospectus at an initial
public offering price of $4.55 per share and after giving effect to the
conversion into common stock of all of the outstanding preferred stock of all
series. The calculations are based upon total consideration given by new
investors and existing stockholders before any deduction of underwriting
discounts and offering expenses payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION PAID AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders ..... 10,881,637 54.1% $18,096,938 54.7% $1.66
New Investors ............. 9,240,000 45.9% $15,015,000 45.3% $1.63
------------- ---------- -------------- ---------- -------------
Total ..................... 20,121,637 100.0% $33,111,938 100.0% $1.65
</TABLE>
13
<PAGE> 15
SELECTED FINANCIAL DATA
The following table sets forth our selected financial data for each of
the periods indicated. The selected financial data for the period ending
December 31, 1997 are derived from our consolidated financial statements which
have been audited by Ernst & Young LLP, independent auditors. The selected
financial data for the period ending December 31, 1998 are derived from the
consolidated financial statements which have been audited by Amper, Politziner
& Mattia P.A., independent auditors. The selected financial data for the
nine-month periods ended September 30, 1998 and 1999 and as of September 30,
1999 were derived from our unaudited consolidated financial statements. The
unaudited financial statements include all adjustments, consisting of normal
recurring accruals, which we consider necessary for a fair presentation of the
financial position and the results of operations for these periods. You should
read all of the information set forth below in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and related notes appearing elsewhere in
this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998 1998 1999
---------------- ---------------- ------------- ---------------
(Amounts shown in thousands except per share data)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenue:
Patient revenue $ 8,847 $17,132 $14,360 $11,751
Management services income 163 7,030 6,487 0
---------------- ---------------- ------------- ---------------
Total revenue 9,010 24,162 20,847 11,751
---------------- ---------------- ------------- ---------------
Operating expenses:
Salary and consulting costs 2,886 7,066 4,548 2,236
Management fees 3,850 8,641 6,870 6,304
Other clinic costs 529 9,257 4,894 134
Bad debt expense 3,232 2,657 3,009 1,192
General and administration 2,701 6,066 4,737 1,504
Depreciation and amortization 87 210 148 94
---------------- ---------------- ------------- ---------------
Total operating expenses 13,285 33,897 24,206 11,464
---------------- ---------------- ------------- ---------------
Operating income (loss) (4,275) (9,735) (3,359) 287
Net interest income (expense) 56 59 26 (47)
Minority interest 42 7 0 0
---------------- ---------------- ------------- ---------------
Net income (loss) $(4,176) $(9,668) $(3,333) $ 240
================ ================ ============= ===============
Pro forma net income (loss) per
fully diluted common share (1) $ (1.98) $ (4.41) $ (1.31) $ 0.03
================ ================ ============= ===============
Pro forma weighted average number of common
and common equivalent shares outstanding (1) 2,113 2,301 2,537 7,037
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------
BALANCE SHEET DATA:
<S> <C>
Working capital....................... $2,751
Total assets.......................... $8,686
Total liabilities..................... $6,290
Total stockholders'equity............. $2,396
</TABLE>
(1) See Note 12 to the Consolidated Financial Statements.
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
financial statements and notes thereto and other financial information included
elsewhere in this prospectus.
OVERVIEW
We develop, manage and own multi-disciplinary medical centers and
furnish certain support services to those centers. Our revenues are derived
primarily from patient payments and management services income. Patient and
management service revenue accounted for 100% of total revenue for the years
ended December 31, 1998 and 1997, respectively, and 100% of total revenues for
the nine months ended September 30, 1999 and 1998, respectively.
We charge the integrated medical centers management fees for the goods
and services we provide the integrated medical centers. These fees are based on
a periodic determination of the fair market value of the goods and services. We
also sublease the office space and equipment to the integrated medical center
for the estimated fair market value. For patients covered by government health
care programs, our management fees are pre-set for one year for flat dollar
amounts that represent the fair market value of the goods and services we
furnish the integrated medical center and of the services we indirectly furnish
the integrated medical center through our arrangement with our affiliated
practitioners' management companies.
The management companies charge us a monthly fee equal to the sum of
the management fees and lease and rental fees for office space and equipment
that we charge the integrated medical center, less a specified fixed amount. In
general, we charge the management companies monthly integration fees that are a
percentage of the management fees and lease and rental fees for office space
and equipment that we charge the integrated medical centers, and the integrated
medical centers' permissible expenses.
The closings, divestitures and spin-offs of non-profitable or
unrelated business units such as Complete Wellness Weight Management Inc.,
Complete Wellness Smoking Cessation Inc., Optimum Health Services, Inc. and
Complete Billing, Inc. are expected to allow management to focus on our core
business which is integrating traditional and alternative/complementary medical
centers, and significantly improving our operating results in prior periods.
On July 7, 1998, we committed to a formal plan to exit the operations
of Complete Billing, Inc., a medical billing and collections company. We ceased
their operations on August 15, 1998 and converted all billing performed by them
back to the respective clients. We ceased their collection operations on
February 26, 1999 and converted their collection activities back to the
respective clients. We do not expect to incur any further expenses as a result
of this business closure.
On November 3, 1998, our Board of Directors adopted a formal plan to
divest its interest in Optimum Health Services, Inc., a subsidiary developing
managed care programs. Under the plan, we converted our investment,
approximately $1,000,000, into 266,736 ten-year warrants for their stock at an
exercise price of $0.01 per share. However, the warrants can not be exercised
prior to one year or in an amount at any time such that our ownership of their
common stock would represent greater than 49% of their total outstanding common
stock. Currently, we carry this investment at a zero value.
On November 13, 1998, our Board of Directors voted to sell and/or
otherwise divest of the operations of Complete Wellness Weight Management, Inc.
They closed all of their weight loss centers at December 31, 1998 and
transitioned their patients to a direct sales program or to an integrated
medical center. As a result of its significant indebtedness, on April 21, 1999,
our board of directors decided to enter and approved a formal plan of filing
for bankruptcy. On July 6, 1999, a Chapter 7 bankruptcy filing for the Complete
Wellness Weight Management, Inc. took place in Trenton, NJ. We do not expect to
incur any material expenses as a result of this filing.
On April 1, 1999, as a result of the failure to pay an annual royalty
of approximately $26,000, our subsidiary, Complete Wellness Smoking Cessation,
Inc., breached its licensing agreement with the original founders of
Smokenders. Under the agreement, we forfeited the use of the licensing rights,
and on June 8, 1999, our Board of Directors voted to return all rights,
contracts, inventory, records and materials to the original founders of
Smokenders. We do not expect to incur any material expenses as a result of
exiting this business.
15
<PAGE> 17
During 1996, the losses incurred by the consolidated Complete Wellness
Centers, LLC allocable to the minority interest owners of the Complete Wellness
Centers, LLC, eliminated all net equity of the minority interest owners.
Accordingly, we have reflected 100% of the operations of the Complete Wellness
Centers, LLC in our results of operations in 1997 and 1998, without allocation
to the minority interest owners. In addition, our investments in Complete
Wellness Smoking Cessation, Inc. represent 100% of the equity funding of that
entity. We have reflected 100% of the operations, assets, and liabilities of
the Complete Wellness Smoking Cessation, Inc. subsidiary due to the lack of
minority interest investment into our statements. Our investment in Optimum
Health Services, Inc. was made in conjunction with an investment by the
minority interest owners of $50,000. We have included the effects of an
allocation of approximately $42,000 of the net losses incurred by Optimum
Health Services, Inc. for the year ended December 31, 1997 based on the
minority interest owners investment in and percentage ownership of Optimum
Health Services, Inc. During 1998, we allocated approximately $8,000 of the net
losses incurred by Optimum Health Services, Inc. to the minority interest
owners investment in and percentage ownership of Optimum Health Services, Inc.
Accordingly, we have reflected the balance of the results operations of Optimum
Health Services, Inc. in our results of operations in 1998, without further
allocation to the minority interest owners.
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999 TO THE NINE MONTH
PERIOD ENDED SEPTEMBER 30, 1998:
Revenue. During the nine months ended September 30, 1999 we had
revenues of $11,751,000 as compared to $20,847,000 for the nine months ended
September 30, 1998, a decrease of $9,096,000 or 44%, due primarily to the
closing of Complete Wellness Weight Management, Inc. in December 1998. Complete
Wellness Weight Management, Inc. revenues for the nine months ended September
30, 1998 were $6,487,000. Integrated medical center revenues for the nine
months ended September 30, 1999 were $11,751,000 as compared to $14,360,000 for
the nine months ended September 30, 1998, a decrease of $2,609,000 deemed
attributable to the lack of growth of the number of integrated medical centers
and a reduction from 89 integrated medical centers as of September 30, 1998 to
56 integrated medical centers as of September 30, 1999. We and certain
integrated medical centers have mutually agreed to discontinue contractual
obligations related to certain operations.
Salary and Consulting Costs. During the nine months ended September
30, 1999, we incurred salary and consulting costs of $2,236,000 as compared to
$4,548,000 for the nine months ended September 30, 1998, a decrease of
$2,312,000 or 51%, primarily due to the closing of Complete Wellness Weight
Management, Inc. in December 1998 and the reduction of personnel at the
corporate headquarters.
Management Fees. These are fees that are paid to the affiliated
practitioners' management corporations for managing the day to day operations
of the integrated medical centers. During the nine months ended September 30,
1999 we incurred management fees of $6,304,000 as compared to $6,870,000 for
the nine months ended September 30, 1998, a decrease of $566,000 or 8%, due
primarily to reduced revenues in the inactive integrated medical centers,
contractual restructuring of some of the relationships with integrated medical
centers and the reduction of operational centers described above.
Cost of Revenue. All cost of revenue amounts relates to the activities
of Smokenders. During the nine months ended September 30, 1998 our former
subsidiary had costs of revenue of $1,524,000. As a result of the cessation of
operations of this subsidiary in 1998, we have not incurred any such related
costs in 1999.
Rent. Rent consists of amounts incurred for administrative, medical
office space and certain equipment leased by us at our corporate headquarters
and the integrated medical centers. During the nine months ended September 30,
1999 we incurred rent expenses of $111,000 as compared to $1,934,000, for the
nine months ended September 30, 1998, a decrease of $1,823,000 or 94%, due
primarily to the closing of Complete Wellness Weight Management, Inc. in
December 1998.
Advertising and Marketing. During the nine months ended September 30,
1999, we incurred advertising and marketing expenses of $15,000 as compared to
$829,000 for the nine months ended September 30, 1998, a decrease of $814,000
or 98%, attributable to the closing of Complete Wellness Weight Management,
Inc. in December 1998.
Bad Debt Expense. During the nine months ended September 30,1999, we
had bad debt expense of $1,192,000 as compared to $3,009,000 for the nine
months ended September 30, 1998, a decrease of $1,817,000 or 60%, primarily due
to the decrease in revenue of the integrated medical centers for these periods
and a reduction in the percentage used to calculate the bad debt reserve based
on additional historical experience.
16
<PAGE> 18
Network Development Costs. All network development costs relate to the
activities of Optimum Health Services. During the nine months ended September
30, 1998 our former subsidiary experienced network development costs of
$606,000. As a result of the spin-off of this subsidiary in November 1998 we
have not incurred any such related costs in 1999.
General and Administrative. During the nine months ended September 30,
1999, we incurred general and administrative expenses of $1,504,000 as compared
to $4,738,000 for the nine months ended September 30, 1998, a decrease of
$3,234,000 or 68%, due primarily to the closure of Complete Wellness Weight
Management, Inc. in December 1998 and the reduction of corporate overhead in
such categories as insurance costs, legal and accounting costs, travel and
entertainment costs and various other corporate costs such as automobile,
telephone, postage and printing and reproduction, equipment rental, supplies,
professional development, recruiting and repairs.
Depreciation and Amortization. During the nine months ended September
30, 1999, we incurred depreciation and amortization expense of $94,000 as
compared to $148,000 for the nine months ended September 30, 1998, a decrease
of $54,000 or 36% attributable to the accelerated write down of idle assets in
our former Fredericksburg, Virginia integrated medical center in 1998.
Operating Income (Loss). Our operating income was $287,000 for the
nine months ended September 30, 1999 as compared to an operating loss of
$3,359,000 for the nine months ended September 30, 1998. The increases resulted
from improved operations at our integrated medical centers and the
discontinuance of the operations of Complete Wellness Weight Management, Inc ,
Complete Wellness Smoking Cessation, Inc. (Smokenders), Optimum Health
Services, Inc. and Complete billing, Inc.. Additionally, we have significantly
reduced corporate overhead and have adjusted the calculations for certain
reserves based on additional historical experience.
Interest Expense. During the nine months ended September 30, 1999 we
had interest expense $51,000 as compared to negligible amounts for the nine
months ended September 30, 1998. We increased our interest-bearing borrowings
during 1999 to $719,000 at September 30, 1999 from $392,000 at December 31,
1998.
Interest Income. During the nine months ended September 30, 1999, we
had interest income of $4,000 as compared to $28,000 for the nine months ended
September 30, 1998, a decrease of $24,000 or 86%, resulting from a lower amount
of invested funds in 1999 as compared to the same periods in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Until 1999, we experienced net losses, negative cash flow from
operations and an accumulated deficit since our inception. For the nine months
ended September 30, 1999, we had net income of $240,000 as compared to net
losses of $3,333,000 for the nine months ended September 30, 1998. At September
30, 1999, we had working capital of $2,751,000, compared to a working capital
deficit of $4,389,000 at December 31, 1998. We have an accumulated deficit of
$15,701,000 at September 30, 1999.
Net cash used in operations for the nine months ended September 30,
1999 was $1,476,000, as compared to $3,958,000 for the nine months ended
September 30, 1998. Negative cash flows are attributable primarily to net
losses and increases in accounts receivable in 1998. Negative cash flows for
the nine months ended September 30, 1999 are attributable primarily to
increases in accounts receivable and decreases in accounts payable and other
current liabilities. For the nine months ended September 30, 1999 we used
$3,000 for the purchase of equipment, as compared to $78,000 for the nine
months ended September 30, 1998. We purchased a one-year $111,002 certificate
of deposit that is pledged toward an irrevocable letter of credit of $222,005
required by an appeal bond secured against a legal judgment pending against us.
We completed several significant non-cash transactions during the nine
months ended September 30, 1999, including the reduction of liabilities related
to the cessation of operations in December 1998 of Complete Wellness Weight
Management, Inc and the bankruptcy filing of Complete Wellness Weight
Management, Inc., the reduction of liabilities due to conversions to equity of
$950,000, the exercise of stock options as compensatory payments for $89,587,
and the payment of preferred stock dividends with shares of preferred stock
valued at $424,000. The bankruptcy filing was in July 1999 with a hearing of
the creditors in November 1999. One creditor appeared at the hearing.
On April 21, 1999 our board of directors approved a plan to raise up
to $1,000,000 through a private placement of our common stock. The plan
consisted of the issuance of up to 1,000,000 shares of our common stock priced
at $1.00 per share. Through June 30, 1999 we received $587,000 through the
private placement of which $152,000 was used to cover costs
17
<PAGE> 19
of the offering which was terminated on July 15, 1999. We subsequently
registered the 587,000 shares of our common stock issued in that private
placement offering.
In May 1999 we executed a one year consulting agreement with Kats
Management, LLC whereby Kats has agreed to provide day to day integrated
medical center operation services, provide training services to the integrated
medical centers, integrate new integrated medical centers and assist in the
development of products and new health related services. In consideration for
such services, we have agreed, in part, to pay Kats (i) 19,000 per month, (ii)
$300 per month for each new integrated medical center established by Kats,
(iii) commissions averaging 5% of revenues generated by 16 existing integrated
medical centers and (iv) an annual travel allowance of up to $5,000.
On December 19, 1997, we entered into an Investment Agreement with
Wexford Spectrum Investors LLC and Imprimis Investors LLC pursuant to which, as
supplemented by a First Supplement dated January 12, 1998, a Second Supplement
dated July 2, 1998 and a Third Supplement dated October 19, 1998, we issued
$475,000 in aggregate principal amount of Senior Secured Floating Rate Bridge
Notes due February 1, 1999, secured by various assets of Complete Wellness
Centers, $375,000 of which evidenced term loans and $125,000 of which evidenced
revolving loans made by Wexford and Imprimis to us. On August 31, 1999, we
executed a Fourth Supplement to the Investment Agreement with Wexford and
Imprimis, whereby we (i) converted $100,000 of the outstanding principal of the
bridge notes to 2,000 newly issued shares of 8% Series B Senior Secured
Cumulative Convertible Preferred Stock, and (ii) agreed to repay the remaining
principal and accrued and unpaid interest by equal quarterly payments to
Wexford and Imprimis during the period from January 1, 2000 to December 31,
2001 based on a four year amortization schedule.
On November 30, 1999, we entered into a termination of employment
agreement with Michael T. Brigante, our former Sr. Vice President and Chief
Financial Officer, to pay $73,704 for monies owed for back wages, vacation,
allowances and severance compensation pursuant to the provisions in Mr.
Brigante's employment agreement. The monies are to be paid over a twelve month
period ending December 2000.
On August 18, 1999, we entered into a consulting agreement with E.
Eugene Sharer, one of our directors, to assist in the development and filing of
the registration statement for this offering. We agreed to pay Mr. Sharer
$1,000 per day for his services.
On July 1, 1999, we entered into a one year consulting agreement with
The WorkSource, Inc., to provide daily accounting, consulting and
administrative services to us, in consideration for which we agreed to pay The
WorkSource $7,500 bi-weekly. On November 30, 1999, we and The WorkSource
amended the consulting agreement whereby we agreed to pay The WorkSource an
additional $50,000 from the proceeds of this offering in consideration for
additional services provided by The WorkSource in connection with this
offering.
At this time, we are attempting to negotiate other related changes to
our capital structure; however, the exact terms have not been finalized. Such
changes could include potential conversions of outstanding shares of all
outstanding preferred stock (Series B & Series D), in part or in whole, to
shares of common stock.
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997:
Revenue. During the years ended December 31, 1998 and December 31,
1997, revenues increased 168% from $9,010,414 to $24,161,819, respectively. The
increase of $15,151,405 was due primarily to our increased emphasis on clinic
collections resulting in improved revenues from our integrated medical centers
in the amount of $8,285,616 and the addition of our Complete Wellness Weight
Management subsidiary in 1998, which contributed $6,573,931 to the increase.
The remaining increase of $291,858 was attributable to the addition of our
other smaller Complete Billing and Complete Wellness Smoking Cessation
subsidiaries.
Salary and Consulting Costs. During the years ended December 31, 1998
and December 31, 1997, we incurred salary and consulting costs of $7,066,208
and $2,886,184, respectively. The 144% increase of $4,180,024 was due to an
increase of $174,335 in costs resulting from the hiring of additional employees
at the corporate headquarters, an increase of $950,028 resulting from the
hiring of new employees at the integrated medical centers, an increase of
$2,358,159 resulting from the addition of our Complete Wellness Weight
Management subsidiary in 1998, an increase of $645,652 in compensation expense
resulting from the grant of stock options and warrants to purchase common
stock, the fair market value of which exceeded their exercise price, and an
increase of $51,850 resulting from consulting fees in connection with the
development of corporate infrastructure and the operation of integrated medical
centers.
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Management Fees. Our management fees are generally a percentage of the
collected revenues of the integrated medical centers. During the years ended
December 31, 1998 and December 31, 1997, we incurred management fees of
$8,641,067 and $3,850,112, respectively. These are fees that are paid to our
practitioners' management companies for managing the day-to-day operations of
the integrated medical centers. The fees are paid when the accounts receivables
of the integrated medical centers are collected by the integrated medical
centers. The increase of $4,790,955 was due primarily to the increased revenues
from our integrated medical centers in 1998.
Rent. During the years ended December 31, 1998 and December 31, 1997,
we incurred rent expense of $5,140,929 and $131,292, respectively. Rent
consists of amounts paid to our practitioners' management companies for the
integrated medical center space, weight loss clinic space, administrative
office space and certain equipment by us and our subsidiaries. Rent for space
and equipment for the integrated medical centers is paid when the accounts
receivable of the integrated medical centers are collected by the integrated
medical centers. The increase of $5,009,637 was due primarily to the addition
of our Complete Wellness Weight Management subsidiary in 1998 for the clinic
space leases of 56 weight loss centers.
Advertising and Marketing. During the years ended December 31, 1998
and December 31, 1997, we incurred advertising and marketing expenses of
$963,918 and $76,774, respectively. The increase of 114% or $887,144 was
attributable primarily to the addition of our Complete Wellness Weight
Management subsidiary in 1998 and additional advertising for marketing and
recruitment purposes over the amounts expended in 1997.
Bad Debt Expense. During the years ended December 31, 1998 and
December 31, 1997, we incurred bad debt expense of $2,656,597 and $3,232,111,
respectively. This represents an 18% decrease or $575,514 and was due primarily
to improved collections at the integrated medical centers.
Network Development Costs. All network development costs relate to the
activities of Optimum Health Services, Inc. OHS was developing a network of
health care providers with the intention of entering into contracts with
managed care entities for the provision of medical services. During the years
ended December 31, 1998 and December 31, 1997 we incurred a 121% network
development cost increase from $317,682 to $701,443 due to costs required to
expand the OHS provider network.
General and Administrative. During the years ended December 31, 1998
and December 31, 1997, we incurred general and administrative expenses of
$6,066,240 and $2,700,987, respectively. The 125% increase of $3,365,253 was
attributable to the addition of our Complete Wellness Weight Management
subsidiary in 1998 and consists of an increase of (i) $1,065,439 in accounting
and legal costs, and (ii) $2,299,814 in various overhead costs, which include
insurance, travel, telephone, bank services and commissions.
Depreciation and Amortization. During the years ended December 31,
1998 and December 31, 1997, we incurred depreciation and amortization expense
of $209,882 and $86,969, respectively. The increase of 141% or $122,913
resulted from the addition of fixed assets, primarily computer software and
equipment, which tend to have depreciable lives of five years or less and the
acceleration of depreciation for assets no longer in use.
Interest Income. During the years ended December 31, 1998 and December
31, 1997, we had interest income of $62,616 and $87,498, respectively. The 28%
decrease of $24,882 resulted from the reduction of funds available for
investment.
Interest Expense. During the years ended December 31, 1998, and
December 31, 1997, we had interest expense of $2,771 and $31,041, respectively.
The 91% decrease of $28,270 resulted from the retirement of the 1996 bridge
financing loan repaid in February 1997, which accounted for approximately all
the 1997 interest expense.
Net Loss. The net loss for the year ended December 31, 1998 was
$9,668,018 compared to $4,176,433 for the year ended December 31, 1997.
Income Taxes. We evaluated our tax position as of December 31, 1998
and the expected tax position for the next three to five years and determined
that, based on assumptions and estimates utilized in its evaluation, it is more
likely than not that we will not be able to realize the economic benefits of
net operating losses incurred and certain other deferred items. Accordingly, we
have recorded a valuation allowance representing 100% of the net deferred tax
assets and have recognized a net tax provision of zero.
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LIQUIDITY AND CAPITAL RESOURCES FOR FISCAL YEAR ENDED DECEMBER 31, 1998
Since our inception, we have financed our operations through revenues
and capital raised through private placements of notes, common and preferred
stock and through our initial public offering of common stock and common stock
purchase warrants in February 1997. As of September 30, 1999, we had
approximately $590,692 in cash and cash equivalents. We have experienced net
losses, negative cash flow, a deficit in working capital, and an accumulated
deficit each month since our inception. For the years ended December 31, 1998
and December 31, 1997 we incurred net losses of $9,668,018 and $4,176,433,
respectively. At December 31, 1998, we had a working capital deficit of
$4,389,437, and an accumulated deficit of $15,516,733. Net cash used in
operations for the years ended December 31, 1998 and December 31, 1997 was
$4,616,757 and $3,270,204, respectively. Negative cash flow for each period was
attributable primarily to net losses in each of the periods and increases in
accounts receivable net of accounts payable and other current liabilities. For
the years ended December 31, 1998 and December 31, 1997, we used $99,631 and
$370,680, respectively, for purchases of equipment.
The average cost to develop an integrated medical center is
approximately $15,000. We intend to develop 10 integrated medical centers
within 12 months of the date of this prospectus.
We committed to fund future working capital requirements of Complete
Wellness Smoking Cessation, Inc. (Smokenders) totaling approximately $98,000,
of which all amounts were funded through December 31, 1998. In addition,
Complete Wellness Smoking Cessation, Inc. is obligated to pay a royalty fee of
5% of total revenues to Oxford Health Plan and $26,000 per annum to the
founders of Smokenders as a result of its acquisition of Smokenders. This
obligation was not paid and Smokenders reverted back to its founders in 1999.
We had entered into employment agreements with certain key employees
which, generally, provide for continued employment through various dates in
2000 at an aggregate annual compensation level of approximately $550,000. In
the event the employees subject to such agreements were terminated by us for
reasons other than "with cause", the employees would receive 6 to 12 months
compensation and benefits upon separation.
In addition, we have entered into various consulting agreements which
generally provide for payment of "finders fees" of $1,500 to $4,000 for each
prospective integrated medical center identified by the consultant and
integrated by us, subject to certain maximum amounts per consultant. Certain
consulting agreements also provide for us to pay royalties ranging from 1% to
10% of gross collections at integrated medical centers identified by the
consultant for periods ranging from 5 to 25 years after integration.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". Statement No. 133 establishes accounting
and reporting standards for derivative instruments and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities and measures them at fair value. Under certain circumstances, the
gains or losses from derivatives may be offset against those from the items the
derivatives hedge against. We have no such instruments or activities and have
adopted SFAS No. 133 for the year ending December 31, 1999.
SEASONALITY
We believe that the patient volumes at our integrated medical centers
are not significantly affected by seasonality.
YEAR 2000 ISSUE
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. These systems
and products will need to accept four digit entries to distinguish 21st century
dates from 20th century dates. As a result, computer systems and software used
by many companies and government agencies may need to be updated to comply with
the year 2000 requirements or risk system failure or miscalculations causing
disruptions to business activities.
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State of Readiness
We have made an assessment of our year 2000 readiness of our operating,
financial and administrative systems, including the hardware and software that
support our systems. Our assessment consisted of:
- quality assurance review of our operational and financial
systems;
- contact with third party vendors and licensors of material
hardware, software and services that are directly and
indirectly related to the delivery of our products and
services;
- assessing repair and replacement requirements; and
- instructing our integrated medical centers to upgrade
computer systems.
Costs
We have not incurred significant costs to date complying with year
2000 requirements and we do not believe that we will incur significant costs
for these purposes in the near future. However, should products or systems
maintained by third parties or our products or systems fail to be year 2000
compliant, despite the representations to the contrary, we could incur
significant expense to remedy any problems. Those expenses could have a
material adverse effect on our business, results of operations and financial
condition.
Risks
Our failure to identify and correct a year 2000 problem could result
in an interruption of normal business activities and operations. Although there
is an inherent uncertainty in the year 2000 issue, we believe the impact on our
business will not be material. We believe that our greatest risk to be
suppliers and utilities whose year 2000 programs are outside of our control. A
disruption caused by a utility or supplier whose systems are not compliant may
have a direct and negative effect on our business.
Contingency Plan
There are alternate sources of critical supplies as well as alternate
sources of medical management software which are judged to be the most critical
pieces from our year 2000 analysis. We do not expect to be forced to use these
alternate sources but in the unlikely event such sources are needed, the
financial and operational disruption could be significant.
NET OPERATING LOSSES
At December 31, 1998, we and our wholly owned subsidiaries had
combined net operating loss carryforwards for income tax purposes of
approximately $6,820,000, which expire between 2010 and 2011. We file a
consolidated federal tax return with our wholly owned subsidiaries. Complete
Wellness Centers, LLC ("CWC, LLC"), a limited partnership of which we serve as
the general partner and hold a 1% interest thereof, is not included in this tax
return. CWC, LLC is treated as a partnership for tax purposes and its gains and
losses are reflected at each member's level. Further, CWC, LLC does not file a
consolidated tax return with its subsidiaries. Accordingly, the use of
substantially all of the combined net operating loss carryforwards will be
limited to use to offset future taxable income of each separate subsidiary in
proportion to its share of the tax losses generated to date. In addition, these
carryforwards may be significantly limited under the Internal Revenue Code of
1986, as amended, as a result of ownership changes resulting from this offering
and other equity offerings. A valuation allowance of approximately $4,546,000
has been established at December 31, 1998 and maintained at September 31, 1999
to offset any benefit from the net operating loss carryforwards, as it cannot
be determined when or if we will be able to utilize the net operating losses.
Utilization of the net operating loss carryforwards may be significantly
limited, based on changes in our ownership.
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BUSINESS
We develop, manage and own multi-disciplinary medical centers,
providing high quality, cost effective, ethical, integrated wellness medicine.
These integrated medical centers combine, at one location, traditional
healthcare providers, such as physicians and physical therapists, and
complementary and alternative healthcare professionals, such as chiropractors,
acupuncturists and massage therapists. Generally, we contract with a
practitioner who has proven the ability to build a practice and then we form a
new medical entity, hire on behalf of the new entity a medical doctor and other
healthcare professionals to work with the practitioner and provide the tools,
training, administrative systems and certain legal services for the new medical
entity. As of September 30, 1999, we were managing 56 integrated medical
centers in 12 states.
OUR INDUSTRY
We believe the integration of traditional and
complementary/alternative medicine is becoming more popular in the United
States with more and more media focus on the subject. In 1992, Congress
required the National Institutes of Health to establish The Office of
Alternative Medicine, the purpose of which was and remains to facilitate the
evaluation of complementary medicine treatments to determine their
effectiveness and help integrate them into traditional medicine. The Trends
Research Institute of Rhinebeck, New York has identified the integration of
traditional and complementary medicine as one of the top ten trends of the
coming decade.
OUR INTEGRATED MEDICAL CENTERS
Since we commenced operations in January 1995, we have developed our
current business primarily by developing, managing and owning integrated
medical centers. We believe that today's patients benefit from and desire
treatments from a variety of medical and healthcare disciplines. We endeavor to
provide these services at one convenient location, with all services provided
under the supervision of a medical doctor in order to assure patients of the
medical soundness of the services they receive and to increase our likelihood
of obtaining payment from third party payors such as insurance companies and
HMOs.
We are not authorized or qualified to engage in any activity which may
be construed or be deemed to constitute the practice of medicine but are an
independent supplier of non-medical services only. The ractitioners are
responsible for all aspects of the practice of medicine and chiropractic care
and the delivery of medical and chiropractic services (subject to certain
business guidelines determined in conjunction with us).
Developing integrated medical centers generally involves affiliating
ourselves with a practitioner who has an existing practice, incorporating a new
entity to serve as the integrated medical center, providing management and
administrative services to the integrated medical center, and assisting the
integrated medical center to employ, credential and train the practitioners,
medical doctor and other healthcare professionals.
Affiliating with practitioners
We endeavor to enter into agreements with practitioners who have
existing, thriving practices in locations convenient to large patient bases,
and who have demonstrated the entrepreneurial skills to build a practice. We
believe that these practitioners consider affiliation with us to be attractive
because they may have greater access to managed care contracts in the future
through us, will be relieved of certain managerial and administrative burdens,
and may have the opportunity to increase their practice income through the
expanded services that the integrated medical centers provide. We attempt to
affiliate with practitioners located in regional clusters to maximize
operational efficiency. For example, some of our medical doctors and other
healthcare professionals are able to work part-time for each of several
integrated medical centers due to their close proximity to each other.
We affiliate with practitioners by entering into a contract with the
practitioner in his individual capacity and with his existing practice (if a
separate legal entity). The contract obligates him to work for the integrated
medical center, once established, lease his office space and equipment to us
for future sublease to the integrated medical center, incorporate a
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management company for his practice and cause that management company to enter
into a management agreement with us regarding day-to-day administrative
services of the integrated medical center. These contracts provide our
integrated medical centers with immediate, established patient bases.
Incorporating integrated medical centers
We form the integrated medical centers as general business
corporations wholly-owned by us in states in which general business
corporations are permitted to own medical practices. In other states, we form
the integrated medical centers as professional corporations owned by a medical
doctor licensed under applicable state law as our nominee owner. In some cases,
one of our medical corporate entities encompasses two or more integrated
medical center practices. Incorporating our integrated medical center practices
allows us to comply with varying state and local laws regarding the practice of
medicine, while maintaining a degree of non-contractual control as beneficial
shareholders.
Providing management and administrative services
We enter into contracts with the integrated medical centers, under
which we provide the following services to the integrated medical center:
- consultation and seminars related to the management of the
integrated medical center;
- advice on capital, facilities and equipment;
- computer software and training;
- advertising and marketing programs;
- certain legal and accounting services; and
- assistance with the identification, recruiting and
credentialing of medical doctors, chiropractors and other
professional employees.
We enter into separate management agreements with the practitioner's
management company, under which it provides day-to-day administration of the
integrated medical center, such as record keeping, billing and collection,
supervision of personnel, facilities management, purchasing, and scheduling,
and we sublease the practitioner's office space and equipment to the integrated
medical center.
We also provide a billing and medical information system software
system to the integrated medical centers through an Intranet superimposed on
the Internet. The software system has the capability to electronically create
and review:
- billing invoices for patient visits;
- patient records,
- monitor outcomes of patient care,
- permit effective utilization management of healthcare
services, and
- analyze the performance of each integrated medical center.
We believe that this software system allows us to achieve operational
efficiencies and economies of scale in providing our management and
administrative services to the integrated medical centers, while controlling
expenses and costs of those integrated medical centers. Through the software
system, we are able to standardize protocols, administrative systems and
procedures amongst integrated medical centers, thus reducing management
overhead costs and allowing a meaningful basis of comparison to assess the
performance of individual integrated medical centers.
We receive management fees from the integrated medical centers, a
significant portion of which we pass on to the practitioners' management
companies. We also receive rent from the integrated medical centers for their
office space and equipment under our subleases with them, and we pay rent to
the practitioners for such office space and equipment under our leases with
them.
Employing, training and credentialing chiropractors, medical doctors and
other healthcare professionals
We assist the integrated medical centers with the recruiting and
hiring of the chiropractors, medical doctors and other healthcare
professionals, and credential them to verify such things as their education and
professional licenses. We require each practitioner and certain other employees
to attend two-day intensive integration seminars, at which they are taught the
basic principles behind managing a multi-disciplinary medical clinic. We
provide follow-up remote and, if necessary, on site
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training, together with telephone support thereafter. We routinely schedule and
offer special topic seminars to the integrated medical centers' chiropractors,
doctors, and administrative staff.
These training and credentialing standards and protocols allow us to
ensure high quality patient care through all of our integrated medical centers,
which we expect will increase our patient base as our reputation grows. Our
training routines also allow us to educate practitioners throughout our network
of integrated medical centers on new medical and healthcare developments and
provide a means to infuse new technology into the integrated medical centers.
Adding medical doctors and other healthcare professionals to an
existing chiropractic practice usually involves only minor equipment and supply
adjustments and additions. Integrated medical centers that provide general
medical practitioner services acquire certain medical equipment such as
electrocardiogram machines, blood drawing equipment, and other specialized
supplies. Integrated medical centers that employ the services of physical
therapists sometimes acquire additional equipment such as free weights,
hydrocolators (machines to heat hot packs), and other items.
Although our chiropractors, medical doctors and other healthcare
professionals are hired directly by the integrated medical centers and
management companies, we have adopted our 1996 Stock Option Plan for Healthcare
Professionals to provide incentive compensation to such healthcare
professionals.
OUR EXPANSION STRATEGY
Our goal is to become the leading developer, manager and owner of
multidisciplinary medical centers. We plan to acquire 10 integrated medical
centers within 12 months and to develop an average of 4 consulting
relationships per month with practitioners to develop additional integrated
medical centers. Key elements of our expansion strategy include the following.
Affiliate with new practitioners
We plan to use our existing network of chiropractors, medical doctors
and other healthcare professionals to sell the integrated concept to the more
than 50,000 chiropractors in the country not currently offering fully
integrated medical platforms. We believe that these healthcare professionals,
through school affiliations, professional associations and informal
relationships with their colleagues, will be able to assist us in identifying
and targeting chiropractic practices for integration.
We are augmenting the expansion efforts of our existing healthcare
professionals and management staff with consulting arrangements with entities
whose clients include numerous chiropractors and other healthcare
professionals. The consultants' clients form the core of the candidate
affiliations for the foreseeable future. In May 1999, we executed a one-year
consulting agreement with Kats Management, LLC, a company that provides
management and consulting services to over 1,000 chiropractic clinics. This
agreement provides for Kats to be responsible for day to day integrated medical
centers operations, answering questions and including consultations on a
regular scheduled basis. This agreement augments our billing support staff, all
of whom report to the chief operating officer. The agreement also provides for
Kats to provide training services to our professional and administrative
integrated medical centers' staff as well as interface with our sales division
to integrate new integrated medical centers, and assist in the development of
products and new health related services. An example of one such service is our
recently implemented hyperbaric oxygen treatment which places the patient in a
pressure chamber and administers pure oxygen in the treatment of anemia,
ischemia, cerebral palsy, stroke and some poisonings. In consideration for such
services and past services, Complete Wellness Centers has agreed to pay Kats
(i) 20,000 options exercisable into common stock at $0.01 per share, (ii)
$19,000 per month, (iii) common stock equal to $37,500 per fiscal quarter,
based on the market price of our common stock on the date of payment, (iv) $300
per month for each new integrated medical center established by Kats, (v)
commissions for revenues generated by certain existing integrated medical
centers and (vi) an annual travel allowance of up to $5,000.
We also seek to enter into practice development agreements with
practitioners who do not yet meet our requirements for integration regarding
practice size and experience. Once we help them achieve our required standards,
we proceed to integrate their practices under our standard contractual
arrangements.
Create a website to provide information about our services and
products
We are in the process of creating a website to provide information to
prospective and current patients about our integrated medical centers and
wellness services. We also plan to offer wellness-oriented products, services
and health
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information to patients and others through our website. We expect that such
products will include vitamins, herbs and educational information relative to
certain illnesses and diseases. We also plan to use the website to facilitate
communication with our integrated medical centers.
Expand patient base by increasing insurance companies' coverage of our
services and the addition of managed care contracts
We plan to educate insurance companies on the benefits our
multidisciplinary medical services bring to them by optimizing their clients'
wellness and persuade such insurance companies to expand their coverage of our
services, thereby increasing our patient base and rate of patient visits by
making our services more affordable for such patients. We believe that, as a
reputable, national provider of these services, we will have the credibility
and leverage to persuade insurance companies and HMOs to increase their
coverage of our services. We expect that such increased coverage will make
regular visits more affordable for patients, and thus aid us in our efforts to
expand our patient base. The term "CAM" for Complementary and Alternative
Medicine has recently been coined and used by some of the insurers and
professionals within the industry.
We plan to negotiate managed care contracts with insurance companies,
HMOs and other third party payors on behalf of the integrated medical centers.
As a reputable, national provider of these services, we believe we have the
credibility and leverage to negotiate such contracts on behalf of our
integrated medical centers. We also believe that, as a single entity, we will
enable managed care payors to more efficiently contract for the provision of
healthcare services than would be the case if such payors had to contract on a
case-by-case basis with each individual healthcare practitioner.
ADVERTISING AND MARKETING
In seeking to attract new patients to the integrated medical centers,
we advertise and market our services utilizing broadcast media and print
advertising, as well as internal marketing promotions such as patient
appreciation days. The management companies also advertise, with our
assistance, the services of the integrated medical centers locally at their
expense. Although we tailor our marketing efforts to the demands of a
particular market, in appropriate circumstances, we focus our advertising and
marketing efforts at the national and regional (county, metropolitan area or
state) levels.
Also, each of our integrated medical centers operates under a name
that includes the words "Complete Wellness Medical Center" or "Complete
Wellness Centers" and has signs bearing these words. We believe that this
creation of a nationwide "chain" of multidisciplinary healthcare services,
combined with our standardized credential, training and management standards
for healthcare practitioners, will aid us in creating a reputation for high
quality, uniform, dependable medical care among patients throughout the
country.
GOVERNMENT REGULATION
Various federal, state and local laws regulate the relationship
between providers of healthcare services and physicians, and, as a business in
the healthcare industry, we are subject to these laws and regulations. We are
also subject to laws and regulations relating to business corporations in
general. Although many aspects of our business operations have not been the
subject of state or federal regulatory interpretation, we believe our
operations are in material compliance with applicable laws. There can be no
assurance, however, that a review of our business practices or our integrated
medical centers by courts or regulatory authorities would not result in a
determination that could adversely affect our operations or the integrated
medical centers, or that the healthcare regulatory environment will not change
so as to restrict our operation or our ability to expand.
The following is a summary of some of the healthcare regulatory issues
affecting us and our integrated medical centers.
Federal law
Anti-kickback statute. The U.S. Federal anti-kickback statute
prohibits the knowing and willful solicitation, receipt, offer or payment of
any direct or indirect remuneration in return for the referral of patients or
the ordering or purchasing of items or services payable under Medicare,
Medicaid or other federal health care programs. Violations of this statute may
result in criminal penalties, such as imprisonment or criminal fines of up to
$25,000 per violation, civil penalties of up to $50,000 per violation, and
exclusion from federal programs including Medicare or Medicaid.
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Self-referral law. Subject to certain limited exceptions, the Federal
self-referral law, known as the "Stark Law," or "Stark II Law", prohibits
physicians from referring their Medicare or Medicaid patients for the provision
of "designated health services" to any entity with which they or their
immediate family members have a financial relationship. "Financial
relationships" include both compensation and ownership relationships.
"Designated health services" include clinical laboratory services, radiology
and ultrasound services, durable medical equipment and supplies, and
prosthetics, orthotics and prosthetic devices, as well as seven other
categories of services. Certain integrated medical centers, including those
that furnish services to federal and/or state funded healthcare programs,
provide or appear to provide some such services, and other integrated medical
centers may do so in the future. A physician's ownership of publicly traded
securities of a corporation with equity exceeding $75 million as of the end of
its most recent fiscal year is not deemed to constitute an ownership or
investment interest in that corporation under Stark II. We will not issue
options under our 1996 Restricted Stock Option Plan for Healthcare
Professionals until such time that we meet the $75 million requirement.
Violating the Stark Law may result in denial of payment for the
designated health services performed. This may also result in civil fines of up
to $15,000 for each service provided pursuant to a prohibited referral, a fine
of up to $100,000 for participation in a circumvention scheme, and exclusion
from the Medicare, Medicaid and other Federal health care programs. The Stark
Law is a strict liability statute. Any referral made where a financial
relationship exists that fails to meet an exception constitutes a violation of
the law. To the extent that our integrated medical centers provide designated
health services to Medicare and Medicaid beneficiaries, or make or receive
Medicare or Medicaid referrals for such services, the Stark Law could be
implicated. While we believe we are in compliance with the Stark Law, future
regulations could require us to modify the form of our relationships with the
integrated medical centers, at least those that provide designated health
services. Moreover, the violation of the Stark Law by any of the integrated
medical centers could result in significant fines and loss of reimbursement,
which would adversely affect us.
Franchise and Business Opportunity Laws. Federal law and the laws of
many states regulate the sale of franchises. Franchise laws require, among
other things, that a disclosure document be prepared and given to prospective
franchisees. We believe that integrated medical centers formed as business
corporations wholly owned by us are not subject to such laws. Integrated
medical centers formed as physician-owned professional corporations may be
subject to them. If such laws are deemed to apply, we would be required to
prepare and deliver a disclosure document to the physician that owns the
professional corporation, who typically will be an employee of ours. Federal
law and the laws of certain states also regulate the sale of so-called business
opportunities. Franchise laws and business opportunity laws and their
interpretation vary from state to state and are enforced by the courts and
regulatory authorities with broad discretion. Failure to comply with these laws
could give rise to a private right of action for damages or rescission, civil
fines and penalties, and, in some cases, criminal sanctions.
State law
Anti-kickback laws. In addition to the Federal anti-kickback law, a
number of states have enacted laws which prohibit the payment for referrals and
other types of anti-kickback arrangements. Such state laws typically apply to
all patients regardless of their source of payment.
Self-referral laws. In addition to the Federal Stark Law, a number of
states have enacted laws that require disclosure of or prohibit referrals by
health care providers to entities in which the providers have an investment
interest or compensation relationship. In some states, those restrictions apply
regardless of the patient's source of payment. Some states' self-referral laws
may prohibit the integrated medical centers' healthcare practitioners from
owning stock in us. In addition, expansion of our operations to certain
jurisdictions may require us to comply with such jurisdictions' regulations,
which could lead to structural and organizational modifications of our form of
relationships with managed practices.
Corporate practice of medicine laws. The laws of many states prohibit
business corporations from engaging in the practice of medicine, such as
through employment arrangements with physicians. These laws vary from state to
state and are enforced by the state courts and regulatory authorities with
broad discretion. Because the laws governing the corporate practice of medicine
vary from state to state, any expansion of our operations to a state with
strict corporate practice of medicine laws may require us to modify our
operations with respect to one or more of such practices, which may result in
increased financial risk to us.
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Fee-splitting laws. The laws of some states prohibit providers from
dividing with anyone, other than providers who are part of the same group
practice, any fee, commission, rebate or other form of compensation for any
services not actually and personally rendered. Penalties for violating these
fee-splitting statutes or regulations may include revocation, suspension or
probation of a provider's license, or other disciplinary action. If we expand
into a state with different or more restrictive laws, we may need to amend or
restrict certain operations in order to ensure compliance with applicable state
laws, rules and regulations.
Licensing laws. Every state imposes licensing requirements on
individual physicians and on certain other types of healthcare providers and
facilities. Many states require regulatory approval, including licenses to
render care or certificates of need, before establishing certain types of heath
care facilities or offering services which entail the acquisition of expensive
medical equipment. While the performance of management services on behalf of a
medical practice does not currently require any regulatory approval, there can
be no assurance that such activities will not be subject to licensure in the
future.
Regulation of Insurance Business and HMOs. Laws in all states regulate
the business of insurance and the operation of health maintenance
organizations, or HMOs. Many states also regulate the establishment and
operation of networks of healthcare providers. Many state insurance
commissioners have interpreted their states' insurance statutes to prohibit
entities from entering into risk-based managed care contracts unless there is
an entity licensed to engage in the business of insurance, such as an HMO, in
the chain of contracts. An entity not licensed to engage in the business of
insurance that contracts directly with a self-insured employer in such a state
may be deemed to be engaged in the unlicensed business of insurance. While
these laws do not generally apply to the hiring and contracting of physicians
by other healthcare providers, there can be no assurance that regulatory
authorities of the states in which we operate would not apply these laws to
require licensure of our operations as an insurer, as an HMO, or as a provider
network.
COMPETITION
The managed healthcare industry, including the provider practice
management industry, is highly competitive. We compete with other companies for
physicians and other practitioners of healthcare services as well as for
patients. We compete not only with national and regional provider practice
management companies, but also with local providers, many of which are trying
to combine their own services with those of other providers into integrated
delivery networks. Certain of the companies are significantly larger, provide a
wider variety of services, have greater financial and other resources, have
greater experience furnishing provider practice management services, and have
longer established relationships with buyers of these services, than us, and
provide at least some of the services provided by us. In addition, companies
with greater resources than ours that are not presently engaged in the
provision of integrated provider practice management services could decide to
enter the business and engage in activities similar to those in which we
engage.
EMPLOYEES
As of September 30, 1999, we had 11 employees and our 56 operating
integrated medical centers had a total of approximately 125 employees. Our 11
employees consisted of 5 in finance and administration and 6 in operations.
Neither our employees nor those of the integrated medical centers are
represented by any labor union. We believe that relations with our employees
are satisfactory.
FACILITIES
We have relocated our principal executive offices to Winter Park,
Florida, where we lease an aggregate of approximately 1,760 square feet of
office space pursuant to two leases at an aggregate current monthly rent of
$2,281. The leases expire in May 2000 for 795 square feet and September 2001
for 965 square feet.
INSURANCE
We believe that our insurance coverage is generally in accordance with
industry standards and is adequate in light of our business and the risks to
which we are now subject. We have applied for "key-man" life insurance policies
on Mr. Raymond and Mr. Vallejo in the amounts of $1,000,000 each. We have
obtained directors and officers liability insurance.
LEGAL PROCEEDINGS
27
<PAGE> 29
As of the date of this offering, we or our affiliates currently have
seven legal proceedings in various stages of litigation. Five of these actions
involve suits brought by former employees or vendors of various integrated
medical centers or chiropractors' management companies, seeking recovery of
monies allegedly owed for goods or services rendered to the integrated medical
center or management company. We believe that four of these disputes with
former employees, vendors and integrated medical center doctors are not
material. We are defending all such actions and believe none is meritorious, as
most such actions are based upon employment or vendor relationships with the
integrated medical center or chiropractor's management company, and not
directly with us. The case under appeal is with us, the plaintiff having
successfully penetrated the corporate boundary between the integrated medical
center and ourselves. A fifth is material in that a $147,292 judgment and a
subsequent judgment for related legal fees of $37,712 were rendered against us.
We have appealed the decisions and have obtained a bond in the amount of
$222,005 for satisfaction of the judgments, which is backed by an irrevocable
letter of credit for 111,002, against which we have pledged a certificate of
deposit of $111,002. The full amount of the judgment has been accrued as of
September 30, 1999.
On November 12, 1999, C. Thomas McMillen, our former Chairman and
Chief Executive Officer filed suit in Superior Court for the District of
Columbia seeking damages resulting from the termination of his employment
agreement with us. Mr. McMillen alleges that we breached our employment
contract with him and that we breached a covenant of good faith and fair
dealing, which the suit alleges was implied in the agreement. He seeks salary,
vacation, bonus pool, stock options, office space, secretarial support,
cellular phone and benefits including health insurance from the date of
termination, February 18, 1999, through August 31, 2000. He seeks judgment in
the amount of $500,000 plus pre-judgment interest, the costs of his suit,
attorney's fees and any further relief that the court deems just and proper. We
have attempted to arrive at a settlement agreement with Mr. McMillen without
success. We are defending this action and believe that it has no merit. The
initial hearing is scheduled for February 11, 2000.
In July 1999, Complete Wellness Weight Management, our wholly owned
subsidiary, filed for bankruptcy protection under Chapter 7 of the bankruptcy
laws. An initial hearing of the creditors was held in November 1999 and one
creditor appeared to be heard.
In November 1997, three of our facilities were searched by federal
authorities pursuant to search warrants, and the federal authorities removed
computer records and written documents in connection with an investigation of
alleged health care fraud. In June 1998, Complete Wellness Centers and several
of its employees, including its former Chief Executive Officer, were served
with subpoenas requesting records and documents related to billing and claims
coding, clinical relationships and corporate records. We believe that we could
be a target in this investigation. One employee has received a letter dated
January 13, 1998 from the United States Attorney General's Office stating that
the employee was a subject of the investigation. The investigation appears to
be focused on two clinics in Virginia. No charges have been filed against us or
any of our employees to date. However, any such charges could have a material
adverse effect on our future financial position and results of operations.
From time to time in the course of Complete Wellness Centers carrying
out its business, we encounter threatened litigation, none of which is presently
considered to be material.
28
<PAGE> 30
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The names and ages of the directors, executive officers and key
employees of the Company, and their positions with the Company, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- ----------- ------------------------------------------------------
<S> <C> <C>
Joseph J. Raymond Jr. 38 Chairman of the Board, Chief Executive Officer and
Director
Sergio R. Vallejo D.M.D. 36 President, Chief Operating Officer, Secretary and
Director
Rebecca R. Irish 37 Vice President, Finance, Chief Financial Officer,
Treasurer and Assistant Secretary
E. Eugene Sharer 66 Director
Donald S. Radcliffe (1) 54 Director
John K. Pawlowski (1) 62 Director
</TABLE>
(1) Member of Audit Committee.
Joseph J. Raymond, Jr. has been chairman of our board of directors and
chief executive officer of the Company since February 1999 and a director since
September 1998. From 1997 to current, he has been the President of RVR
Consulting Group, Inc., a financial consultant company. From 1988 to 1997, he
served as chairman of the board of directors and chief executive officer of
Transworld Services Group, an employee staffing company. In 1997, Transworld
merged with Corestaff Services, a staffing company, where Mr. Raymond served as
the Vice President of Operations through December 1997.
Sergio R. Vallejo. has been a director of the Company since May 1998,
the Chief Operating Officer since February 1999 and President of the Company
since July 1999. From 1997 to current, he has been the Vice President of RVR
Consulting Group, Inc. Mr. Vallejo is also a Doctor of Dental Medicine. Mr.
Vallejo has been a director of pharmacy operations in Florida for Subscript
Pharmacy Corporation, an international company, since 1996. In 1989 Mr. Vallejo
formed Jones Wilson Vallejo Associates, P.A., a dental management company. In
1985 Mr. Vallejo founded PVM Prescription Center, an institutional pharmacy
that provided medications and supplies to the residents of long-term care
facilities throughout central Florida.
Rebecca R. Irish became Vice President of Finance, Chief Financial
Officer, Treasurer and Assistant Secretary of the Company on December 1, 1999.
Ms. Irish is also the president of The WorkSource, Inc., a financial consulting
and services firm. From 1991 through 1997, Ms. Irish served as chief financial
officer of RoTech Medical Corporation, a publicly-traded home healthcare
company, until it merged with Integrated Health Services, Inc. in 1997. Ms.
Irish is a certified public accountant and was a senior manager with Ernst &
Young prior to joining RoTech Medical Corporation.
E. Eugene Sharer has been a director of the Company since April 1996.
He was the Treasurer of the Company from February 1997 until March 1999 and was
the President of the Company from April 1996 until July 1998, the Chief
Operating Officer from April 1996 until November 1997, and Chief Financial
Officer from February 1997 until February 1998. In February 1999, Mr. Sharer
formed Sharer Associates, a management consulting company. From 1991 to 1995 he
was President and Chief Operating Officer of R.O.W. Sciences, Inc., a health
research company. From 1989 to 1990 he was Executive Vice President, Chief
Operating Officer and Director of Iverson Technology Corporation and from 1985
through 1988, he was President and Director of Calculon Corporation and a Vice
President of Atlantic Research Corporation, the parent company of Calculon.
Between 1980 and 1985, Mr. Sharer was Vice President of the Systems Division
and
29
<PAGE> 31
subsequently the Systems Group at Computer Sciences Corporation. Prior to
that, he held several managerial positions with IBM.
Donald S. Radcliffe has been a director since September 1999. Since
1990, Mr. Radcliffe has been the principle of Radcliffe and Associates, a
financial consulting company. From 1984 to current, Mr. Radcliffe has been the
Executive Vice President, Chief Operating Officer and Financial Officer of
World-Wide Business Centres, Inc. with responsibilities for planning, financial
management, computer systems, personnel and office space. From 1971 to 1984,
Mr. Radcliffe worked for Main Hurdman as a partner in the Management Advisory
Service area as Director of Computer Audit Services. From 1967 to 1970 , Mr.
Radcliffe was a Systems Analyst at IBM. He holds an MBA degree from Dartmouth,
is licensed as a CPA in New York State and is on the board of two public
companies, SVI Systems, Inc. and Pallet Management Systems, Inc., and one
private company, U.S. Agents Holding Corp.
John K. Pawlowski has been a director of the Company since March 1999.
Mr. Pawlowski has served over thirty-five years in the healthcare industry. He
is currently the Chief Executive Officer and a partner in Contract Marketing
Co., a healthcare-consulting corporation which currently provides engineering
management services and commodities to hospitals. From 1971 to 1993, Mr.
Pawlowski was President and Chief Operating Officer of Riverview Medical
Center.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Audit Committee has the responsibility for
reviewing and supervising the financial controls of the Company. The Audit
Committee makes recommendations to the Board of Directors of the Company with
respect to the Company's financial statements and the appointment of
independent auditors, reviews significant audit and accounting policies and
practices, meets with the Company's independent public accountants concerning,
among other things, the scope of audits and reports, and reviews the
performance of overall accounting and financial controls of the Company. The
Audit Committee consists of Mr. Pawlowski and Mr. Radcliffe.
30
<PAGE> 32
EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- AWARDS
------
NAME YEAR SALARY ($) BONUS ($) OPTIONS(#) ALL OTHER
AND PRINCIPAL POSITION ---- ---------- --------- ---------- COMPENSATION
- ---------------------- ------------
<S> <C> <C> <C> <C> <C>
C. Thomas McMillen 1998 155,719 0 35,000(1) 2,008(1*)
Chairman and Chief
Executive Officer
E. Eugene Sharer 1998 141,781 0 10,000(2) 17,250(3)
Vice Chairman
Eric S. Kaplan, D.C. 1998 76,517 0 135,000(4) 71,901(5)
President/Chief Operating
Officer
Michael T. Brigante, 1998 102,931 0 9,000(6) 21,194(7)
Vice President Finance/
Chief Financial Officer (8)
</TABLE>
(1) Exercisable cumulatively at the rate of approximately 33% of the underlying
shares per year, commencing April 1998.
(1*) Company paid portion of health insurance premiums.
(2) Exercisable cumulatively at the rate of approximately 33% of the underlying
shares per year, commencing April 1996.
(3) Represents the amount attributable to the lease of an automobile for
corporate use and portion of health insurance premiums.
(4) Exercisable cumulatively at the rate of 33% of the underlying shares per
year, commencing August 1996.
(5) Represents amounts attributable to the lease of an automobile for corporate
use ($2,000 in 1996 and $6,000 in 1997), compensation for consulting services
rendered to the Company ($24,000 in 1996 and $60,000 in 1997) and housing in
connection with services rendered to the Company ($9,000 in 1997) and company
paid portion of health insurance premiums.
(6) Exercisable cumulatively at the rate of approximately 25% of the underlying
shares per year, commencing March 1996.
(7) Represents amounts attributable to the lease of an automobile for corporate
use ($5,000 in 1997), compensation for consulting services rendered to the
Company ($10,500) in 1996) and housing in connection with services rendered to
the Company ($5,250 in 1996 and $9,000 in 1997) and company paid portion of
health insurance premiums.
(8) Mr. Brigante resigned on November 30, 1999.
31
<PAGE> 33
THE FOLLOWING TABLE SETS FORTH CERTAIN INFORMATION CONCERNING OPTIONS
GRANTED DURING 1998 TO THE INDIVIDUALS NAMED IN THE SUMMARY COMPENSATION TABLE:
OPTION GRANTS IN 1998
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SECURITIEs % OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO ALL EXERCISE PRICE
NAME GRANTED (#) EMPLOYEES ($/SHARE) EXPIRATION DATE
---- ----------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
C. Thomas McMillen 35,000 19.88% 3.33 7/02/2003
E. Eugene Sharer 10,000 5.68% 3.03 7/06/2003
Eric Kaplan, D.C. 50,000 28.41% 4.38 7/25/2002
25,000 14.20% 3.03 7/02/2003
35,000 19.88% 3.03 7/02/2003
Michael T. Brigante 10,000 5.68% 3.03 7/02/2003
9,000 5.11% 2.88 9/02/2003
</TABLE>
The following table presents the value of unexercised options held at
December 31, 1998 by the individuals named in the Summary Compensation Table:
OPTIONS VALUE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR-END (#) AT YEAR-END ($)*
EXERCISABLE (E)/ EXERCISABLE (E)/
NAME UNEXERCISABLE (U) UNEXERCISABLE (U)
--- ----------------- -----------------
<S> <C> <C>
Thomas McMillen 50,000 (E) $ 0 (E)
85,000 (U) 0 (U)
E. Eugene Sharer 10,000 (E) 1,250 (E)
15,000 (U) 625 (U)
Eric Kaplan, D.C. 66,660 (E) 44,149 (E)
110,000 (U) 1,833 (U)
Michael T. Brigante 22,333 (E) 44,937 (E)
16,000 (U) 4,450 (U)
</TABLE>
* Values are calculated by subtracting the exercise price from the fair
market value of the Common Stock at year-end
33
<PAGE> 34
DIRECTOR COMPENSATION
We do not currently compensate, and do not anticipate compensating,
our directors for their services as directors, except that each of our
non-employee directors receives a director's fee of $500 per meeting for
attendance at board of directors or committee meetings. In addition, each of
our directors receives reimbursement of all ordinary and necessary expenses
incurred in attending any meeting or any committee meeting of our board of
directors. Non-employee directors receive an annual stock option of 7,500
shares which vest equally in two successive years beginning on the date of
their election. Currently, all directors hold office until the next annual
meeting of stockholders and until their successors have been duly elected and
qualified. Our executive officers are appointed annually and serve at the
direction of our board of directors, subject to the terms of existing
employment agreements.
EMPLOYMENT AGREEMENTS
We have employment agreements with Mr. Raymond, Mr. Vallejo and Ms.
Irish. Each of the employment agreements requires the full-time services of the
employees, are for specified periods of time and specify the compensation and
termination terms. The agreements also contain covenants restricting the
employees from engaging in any activities competitive with our business during
the term of the agreement and for a period of one year thereafter, and
prohibiting the employee from disclosing confidential information regarding our
business.
- In February 1999, Joseph J. Raymond, Jr. was appointed our
Chairman of the Board of Directors and Chief Executive Officer.
On December 1, 1999, we entered into an employment agreement with
Mr. Raymond providing for his employment as Chief Executive
Officer for a two year term. The agreement provides for an annual
base salary of $150,000, 100,000 options under our stock option
plans, all of which vested immediately and are exercisable at
$1.50 per share and participation in all executive or employee
profit sharing bonus or stock option plans established by us. In
addition, Mr. Raymond is to be paid a performance bonus of 3% of
the pretax profit earned in each fiscal year not to exceed 50% of
the base salary and paid within 90 days of the end of each
respective business year (2000 and 2001).
- In February 1999, Sergio R. Vallejo was appointed our Chief
Operating Officer. In July of 1999, he was appointed our
President and Chief Operating Officer. On December 1, 1999, we
entered into an employment agreement with Mr. Vallejo providing
for his employment as President and Chief Operating Officer for a
two year term. The agreement provides for an annual base salary
of $150,000, 100,000 options under our stock option plans all of
which vested immediately and are exercisable at $1.50 per share
and participation in all executive or employee profit sharing
bonus or stock option plans established by us. In addition, Mr.
Vallejo is to be paid a performance bonus of 3% of the pretax
profit earned in the fiscal year, not to exceed 50% of the base
salary and paid within 90 days of the end of each respective
business year (2000 and 2001).
- On December 1, 1999, Rebecca R. Irish was appointed Vice
President of Finance, Chief Financial Officer, Treasurer and
Assistant Secretary. At that time, we entered into an employment
agreement with Ms. Irish providing for her employment as
described for a two year term. The agreement provides for an
annual base salary of $125,000, 75,000 options under our stock
option plans exercisable at $1.50 per share, of which 25,000
vested immediately, 25,000 of which vest on November 30, 2000 and
25,000 of which vest on November 30, 2001, and participation in
all executive or employee profit sharing plans established by us.
In addition, Ms. Irish is to be paid a performance bonus of 3% of
the pretax profit earned in each fiscal year, not to exceed 50%
of the base salary and paid within 90 days of the end of each
respective business year (2000 and 2001).
STOCK OPTION PLANS
1994 STOCK OPTION PLAN. Our 1994 Stock Option Plan was adopted by our
board of directors and approved by our shareholders in December 1994. The 1994
plan was amended by the board of directors, with shareholder approval, in 1995,
so as to increase the number of shares available under the 1994 plan to 400,000
from 60,000. The purpose of the 1994 plan is to attract and retain qualified
personnel, to provide additional incentives to employees, officers, directors,
consultants and advisors of the company, and to promote our business. As of the
date of this prospectus, options to purchase 78,667 shares of common stock at a
weighted average per share exercise price of $2.05 were outstanding. A total of
85,479 shares of common stock are available for grant under the 1994 plan, of
which we have agreed to grant, subject to a vesting schedule, non-qualified
options to purchase 11,000 shares to Kats Management at an exercise price per
share equal to 75% of the initial public offering price per share. The 1994
plan will terminate in April 2004, unless sooner terminated by the board of
directors.
33
<PAGE> 35
The 1994 plan provides for the grant of both incentive stock options,
intended to qualify as such under Section 422 of the Internal Revenue Code of
1986, as amended, and nonqualified stock options. Our board of directors may
delegate administration of the 1994 Plan to the compensation committee. Subject
to the limitations set forth in the 1994 plan, the board of directors (or the
compensation committee) has the authority to select the persons to whom grants
are to be made, to designate the number of shares to be covered by each option,
to determine whether an option is to be an incentive stock option or a
nonqualified stock option, to establish vesting schedules, and, subject to
certain restrictions, to specify the type of consideration to be paid to the
company upon exercise and to specify other terms of the options. The maximum
term of options granted under the 1994 plan is ten years. Options granted under
the 1994 plan are non-transferable incentive stock options and generally expire
90 days after the termination of an optionee's employment with us.
Although no specific vesting schedule is required under the 1994 plan,
options previously granted under the 1994 plan have generally provided for
vesting in three equal annual installments. The exercise price of incentive
stock options must equal at least the fair market value of the common stock on
the date of grant, except that the exercise price of incentive stock options
granted to any person who at the time of grant owns stock possessing more than
10% of the total combined voting power of all classes of stock must be at least
110% of the fair market value of such stock on the date of grant.
1996 STOCK OPTION PLAN. In October 1996, our board of directors, with
shareholder approval, adopted our 1996 stock option plan covering up to 200,000
shares of the common stock, pursuant to which officers, directors, employees,
advisors and consultants are eligible to receive incentive and/or nonqualified
stock options. The 1996 plan was amended on May 4, 1997 by our board of
directors with shareholder approval to add 200,000 shares and was further
amended in November 1999 by our board of directors and on November 29, 1999,
the shareholders approved the addition of 200,000 shares to the 1996 option
plan for a total of options authorized for 600,000 shares of common stock
available for grant. The 1996 plan, which expires in September 2006, is
administered by the board of directors. The selection of participants,
allotment of shares, determination of price, and other conditions relating to
the grant of options is determined by our board in its sole discretion.
Incentive stock options granted under the 1996 plan are exercisable for a
period of up to 10 years from the date of grant at an exercise price which is
not less than the fair market value of the common stock on the date of the
grant, except that the term of an incentive stock option granted under the 1996
plan to a shareholder owning more than 10% of the outstanding common stock may
not exceed five years and its exercise price may not be less than 110% of the
fair market value of the common stock on the date of the grant. As of the date
of this prospectus, options to purchase 480,166 shares of common stock at a
weighted average per share exercise price of $3.57 were outstanding. A total of
47,334 shares of common stock are available for grant under the 1996 plan.
1996 RESTRICTED STOCK OPTION PLAN FOR HEALTH CARE PROFESSIONALS. In
October 1996, our board of directors adopted, and our stockholders approved,
the 1996 Restricted Stock Option Plan for Health Care Professionals which
expires in October 2006. The 1996 professionals plan permits us to grant
nonqualified stock options to licensed health care professionals affiliated
with us and in most cases employed by an integrated medical center. The
aggregate amount of common stock with respect to which options may be granted
may not exceed 100,000 shares. Our board of directors has the authority to
grant options under this plan, to construct and interpret this plan, and to
make all other determinations and take all actions necessary or advisable for
the administration of this plan. The exercise price for options granted under
the 1996 professionals plan may be no less than 85% of the fair market value of
the common stock on the date of grant. Options granted under the 1996
professionals plan will expire no later than the tenth anniversary of the date
of grant. As of the date of this prospectus, options to purchase 29,500 shares
of common stock at a weighted average per share exercise price of $2.70 were
outstanding. A total of 60,558 shares of common stock are available for grant
under the 1996 professionals plan.
OUTSIDE DIRECTORS STOCK OPTION PLAN. On March 30, 1998, our board of
directors approved and in November 1999 our shareholders subsequently approved
the establishment of a stock option plan for non-employee outside directors on
our board of directors or on the boards of directors of any of our
subsidiaries. The Outside Directors Stock Option Plan provides for the grant of
stock options, provided that the maximum number of shares of common stock of
the company that may be issued upon the exercise of options granted pursuant to
the Outside Directors Stock Option Plan is 50,000. Under the Outside Directors
Stock Option Plan, each outside director may receive options for shares of
common stock for each year of service on the company's board of directors, as
granted by a committee of the board of directors. Subsequently, on September
29, 1999 our board adopted a resolution to increase the number of shares
authorized in the Outside Directors Stock Option Plan by 50,000 shares bringing
the total authorized under the outside directors option plan to 100,000 shares.
Our shareholders approved the addition of the 50,000 shares on November 29,
1999. We currently have three outside directors eligible to participate in the
Outside Directors Stock Option Plan. The Outside Directors Stock Option Plan is
administered by our board of directors or a duly appointed committee of our
board of directors; the exercise price of options granted pursuant to the
Outside Directors Stock Option Plan is determined by the plan administrators of
our board of directors. As of the date of this
34
<PAGE> 36
prospectus, options to purchase 41,250 shares of common stock at a weighted
average per share exercise price of $2.92 were outstanding. A total of 58,750
shares of common stock are available for grant under the Outside Directors
Stock Option Plan.
CONSULTANT'S STOCK OPTION PLAN. On March 8, 1999, our board of
directors approved the establishment of the 1999 Consultant's Stock Option
Plan. The consultant's option plan as approved by the board provides for the
grant of stock options, provided that the maximum number of shares of common
stock of the company that may be issued upon the exercise of options granted
pursuant to the consultant's option plan is 475,000. Under the consultant's
option plan, companies providing services to us and individuals similarly
employed may be granted options to purchase common stock at an exercise price
established by our board of directors and which vests at a time and interval
established by our board of directors. Subsequently, on September 29, 1999 our
board adopted a resolution to increase the number of shares authorized in the
consultant's option plan by 200,000 shares bringing the total authorized under
the consultant's option plan to 675,000 shares. As of the date of this
prospectus, options to purchase 480,000 shares of common stock at a weighted
average per share exercise price of $1.25 were granted and exercised. A total
of 195,000 shares of common stock are available for grant under the
consultant's option plan. On November 29, 1999, our shareholders approved the
establishment of a stock option plan for consultants to the company and
approved the increase in the number of shares in the consultant's option plan.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
We have included in our Certificate of Incorporation and By-laws
provisions to (i) eliminate the personal liability of our directors and
officers for monetary damages resulting from breaches of their fiduciary duty
(provided, however, that such provisions do not eliminate liability for
breaches of the duty of loyalty, acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, violations under
Section 174 of the Delaware General Corporation Law, or for any transaction
from which the director and/or officer derived an improper personal benefit),
and (ii) indemnify our directors and officers to the fullest extent permitted
by the Delaware General Corporation Law, including circumstances in which
indemnification is otherwise discretionary. We believe that these provisions
are necessary to attract and retain qualified persons as directors and
officers.
We have entered into indemnification agreements with all of our
directors and officers. These separate indemnification agreements with our
directors and officers contain provisions which may be broader than the
specific indemnification provisions contained in our Certificate of
Incorporation and By-laws.
35
<PAGE> 37
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our voting securities as of September 30, 1999 prior to this
offering by:
- each shareholder known by us to be the beneficial owner of more than
5% of any class of our voting securities,
- each of our directors,
- each of our executive officers, and
- all executive officers and directors as a group.
Except as otherwise indicated, we believe that the beneficial owners of the
common stock listed below have sole investment and voting power with respect to
these securities, subject to community property laws where applicable.
Beneficial ownership has been determined in accordance with the rules and
regulations of the Securities and Exchange Commission and includes voting and
investment power with respect to the shares. Unless otherwise indicated, the
persons named in the table have sole voting and investment power with respect
to the number of shares indicated as beneficially owned by them. The number of
shares of common stock outstanding used in calculating the percentage ownership
for each person listed below includes common stock underlying options held by
the person that are exercisable within 60 days of the date of this prospectus,
but excludes shares of common stock underlying options held by any other
person. Common stock beneficially owned and percentage ownership are based on
4,365,744 shares outstanding as of September 30, 1999.
<TABLE>
<CAPTION>
PERCENT OF
COMMON STOCK
NUMBER OF SHARES BENEFICIALLY
NAME AND ADDRESS BENEFICIALLY OWNED OWNED
- -------------------------------------- ------------------------ ------------------------------
<S> <C> <C>
Michael T. Brigante 34,854 (1) *
17 Daniel Drive
Belle Mead, NJ 08502
C. Thomas McMillen 219,500 5.1%
1103 South Carolina Ave S.E.
Washington, D.C. 20003
John K. Pawlowski 3,750 (2) *
2 Daniel Drive
Ocean, NJ 07712
Donald Radcliffe 23,768 (3) *
575 Madison Avenue, Suite 1006
New York, NY 10022
Joseph J. Raymond, Jr. 127,420 (4) 2.9%
4074 Scarlet Iris Place
Winter Park, FL 32792
E. Eugene Sharer 155,417 (5) 3.6%
12404 Beall Spring Road
Potomac, MD 20854
Sergio R. Vallejo 30,700 (6) *
875 Hanover Way
Lakeland, FL 33813
Wexford Spectrum Investors LLC 618,274 (7) 12.5%
411 West Putnam Avenue
Greenwich, CT 06830
</TABLE>
36
<PAGE> 38
<TABLE>
<S> <C> <C>
Imprimis Investors LLC 2,473,097 (7) 36.3%
411 West Putnam Avenue
Greenwich, CT 06830
Stratus Service Group, Inc. 500,000 11.5%
500 Craig Road, Suite 201
Manalapan, NJ 07726
RVR Consulting Group, Inc. 400,629 (7) 8.4%
P.O. Box 2148
Goldenrod, FL 32733
Structure Management, Inc. 227,000 5.2%
500 Craig Road, Suite 201
Manalapan, NJ 07726
All directors and 776,538 13.2%
executive officers as a group
(6 persons)
</TABLE>
* Less than 1%.
(1) Includes 20,334 shares of common stock issuable upon exercise of stock
options.
(2) Includes 3,750 shares of common stock issuable upon exercise of stock
options.
(3) Includes 3,750 shares of common stock issuable upon exercise of stock
options.
(4) Includes 3,750 shares of common stock issuable upon exercise of stock
options. Mr. Joseph J. Raymond, Jr. disclaims any beneficial ownership
or interest in any other shares of common stock except that of RVR
Consulting Group, Inc. of which he is the President.
(5) Includes 28,750 shares of common stock issuable upon exercise of stock
options. Does not include 8,193 shares held in trust by Wilma I.
Sharer, the wife of Mr. Sharer, of which he disavows any beneficial
ownership.
(6) Includes 7,500 shares of common stock issuable upon exercise of stock
options. Mr. Vallejo claims beneficial ownership of the shares of
common stock held by the RVR Consulting Group, Inc. of which he is the
Vice President.
(7) Includes shares of common stock issuable upon conversion of 8% Series
B Senior Secured Cumulative Convertible Preferred Stock and 8% Series
D Junior Secured Cumulative Convertible Preferred Stock.
37
<PAGE> 39
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 19, 1998, we entered into a consulting agreement with RVR
Consulting Group, Inc. for a term of August 1, 1998 through July 31, 1998. We
agreed to pay RVR $7,000 per month plus expenses to help us identify problem
areas in our operations and provide subsequent solutions. Joseph J. Raymond
Jr., our chairman of our board of directors and chief executive officer, is the
president of RVR, and Sergio R. Vallejo, our president and chief operating
officer, is the vice president of RVR. We subsequently amended the consulting
agreement to agree to issue RVR warrants to purchase 150,000 shares of our
common stock. On March 4, 1999, we terminated the consulting agreement and
converted the warrants granted to RVR to options granted under our 1999
Consultants Stock Option Plan to purchase 150,000 shares of our common stock at
an exercise price of $1.25 per share, 75,000 to Joseph J. Raymond, Jr. and
Sergio R. Vallejo individually. On December 1, 1999, the Board of Directors
agreed to convert each of their 75,000 options to 16,666 shares of common stock
at the closing price on December 1, 1999.
On February 19, 1999 we signed a loan agreement with RVR Consulting
Group, Inc. for $100,000 and on August 31, 1999 we signed a First Supplement to
the Loan Agreement with RVR, pursuant to which we and RVR agreed to convert the
$100,000 loan in full into 2,020 shares of 8% Series D Junior Secured
Cumulative Convertible Preferred Stock.
On February 26, 1999, Imprimis Investors LLC, Wexford Spectrum
Investors LLC and RVR entered into a Stock Purchase Agreement whereby Imprimis
and Wexford agreed to sell RVR an aggregate of 10,969 shares of our 8% Series B
Senior Secured Cumulative Convertible Preferred Stock for $500,000. Joseph J.
Raymond, Jr., Sergio Vallego and Joseph Raymond, Sr., father of Joseph J.
Raymond, Jr., guaranteed RVR's payment of the purchase price to Imprimis and
Wexford. Imprimis and Wexford each beneficially own greater than 5% of our
outstanding common stock, and Frederick Simon, a Senior Vice President of
Wexford, is a former director of ours who resigned from our board of directors
on July 27, 1999.
On December 19, 1997, we entered into an Investment Agreement with
Wexford and Imprimis pursuant to which, as supplemented by a First Supplement
dated January 12, 1998, a Second Supplement dated July 2, 1998 and a Third
Supplement dated October 19, 1998, we issued $475,000 in aggregate principal
amount of Senior Secured Floating Rate Bridge Notes due February 1, 1999,
secured by various assets of Complete Wellness Centers, $375,000 of which
evidenced term loans and $125,000 of which evidenced revolving loans made by
Wexford and Imprimis to us. On August 31, 1999, we executed a Fourth Supplement
to the Investment Agreement with Wexford and Imprimis, whereby we (i) converted
$100,000 of the outstanding principal of the bridge notes to 2,000 newly issued
shares of 8% Series B Senior Secured Cumulative Convertible Preferred Stock,
and (ii) agreed to repay the remaining principal and accrued and unpaid
interest by equal quarterly payments to Wexford and Imprimis during the period
from January 1, 2000 to December 31, 2001 based on a four year amortization
schedule.
On September 17, 1998, we entered into a consulting agreement with
Structure Management, Inc., pursuant to which Structure Management agreed to
provide consulting services related to our operations and financing, and
pursuant to which we agreed to issue warrants to purchase 120,000 shares of our
common stock at $2.00 per share to Structure Management. On March 4, 1999, we
converted the warrants to options, granted under our 1999 Consultant's Stock
Option Plan, to purchase 120,000 shares of our common stock at $2.00 per share.
Structure Management subsequently exercised the options. Structure Management
is controlled by Jeffrey J. Raymond, the brother of Joseph J. Raymond, Jr.
On March 8, 1999, we entered into another consulting agreement with
Structure Management, Inc. for the period ending on March 4, 2000. The
agreement calls for Structure Management to support our corporate planning
process by: (i) identifying and bringing to us opportunities which help meet
our corporate objectives and our business plans; (ii) assessing our competitive
position, whether financial, technology or operational; (iii) identifying
suitable merger or acquisition candidates, perform appropriate due diligence
and assist us in negotiations with those identified candidates; (iv) supporting
our financial public relations efforts by reviewing and commenting on our
financial reports and plans and identifying examples of outstanding financial
reporting presentation in other industries; and (v) supporting our shareholder
relations activity by reviewing and responding to shareholder communications
and advise us as to selection of public relations counsel. As compensation, we
have issued Jeffrey J. Raymond, as the controlling principal of Structure
Management, options under our 1999 Consultants Stock Option Plan to purchase
117,500 shares of common stock at $1.25 per share. Mr. Jeffrey Raymond
subsequently exercised the options.
On August 24, 1999, as consideration for services provided by
Structure Management in connection with a private placement of our common
stock, we issued Structure Management options under our 1999 Consultants Stock
Option Plan for
38
<PAGE> 40
an additional 125,000 shares of our common stock at $1.50 per share and paid
Structure Management $50,000. Structure Management subsequently exercised the
125,000 options.
On April 1, 1999 we entered into a settlement agreement with Haim
Zitman, the former chief executive officer of Complete Wellness Weight
Management, Inc., a subsidiary company which is now in Chapter 7 liquidation
proceedings. We executed a Stipulation and Order Dismissing Action with Mr.
Zitman with the execution of the settlement agreement. We issued options to Mr.
Zitman to purchase an aggregate of 40,000 shares of our common stock at $0.01
per share, valued at $80,000 in compensation expense, vested upon issuance, in
satisfaction of the settlement agreement terms. Mr. Zitman subsequently
exercised the options.
On July 1, 1999, we entered into a one year consulting agreement with
The WorkSource, Inc., to provide daily accounting, consulting and
administrative services to us, in consideration for which we agreed to pay The
WorkSource $7,500 bi-weekly. On November 30, 1999, we and The WorkSource
amended the consulting agreement whereby we agreed to pay The WorkSource an
additional $50,000 from the proceeds of this offering in consideration for
additional services provided by The WorkSource in connection with this
offering. Rebecca R. Irish, our Vice President of Finance and Chief Financial
Officer, is the President of The WorkSource.
On July 14, 1999 we entered into a Separation and Release Agreement
with Eric S. Kaplan, our former president and director, made effective as of
July 21, 1999. In return and as consideration of Mr. Kaplan's resignation and
release of Complete Wellness Centers from all employment claims or actions, we
agreed to: (i) indemnify him for actions taken by Complete Wellness Centers or
by him as an officer or director of Complete Wellness Centers; (ii) continue
liability coverage for as long as the applicable statute of limitations of
claims shall run; (iii) transfer $200,000 in market value of our common stock
at a 5,000 shares per month rate to him through stock issuances or stock option
grants; (iv) pay him attorney fees in the amount of $6,000; and (v) pay him the
sum of $10,000 in cash. We accelerated the vesting of 10,000 options in
September 1999. Subsequently, Dr. Kaplan exercised an aggregate of 30,000 these
options, the value of which was recorded as compensation expense.
On September 23, 1999 we entered into an agreement with Stratus
Services Group, Inc. to convert $750,000 in loans into 500,000 shares of our
common stock. Stratus is controlled by Joseph Raymond, Sr.
On November 30, 1999, we entered into a termination of employment
agreement with Michael T. Brigante, our former Sr. Vice President and Chief
Financial Officer, to pay $73,704 for monies owed for back wages, vacation,
allowances and severance compensation pursuant to the provisions in Mr.
Brigante's employment agreement. The monies are to be paid over a twelve month
period ending December 2000.
On August 18, 1999, we entered into a consulting agreement with E.
Eugene Sharer, one of our directors, to assist in the development and filing of
the registration statement for this offering. We agreed to pay Mr. Sharer
$1,000 per day for his services.
We have established a policy that any future transactions with
officers, directors, 5% stockholders or affiliates must be on terms no less
favorable to the company than could be obtained from unaffiliated third
parties, and be approved by a majority of the independent outside members of
our board of directors who do not have an interest in the transaction. All such
previous transactions have been approved by the unanimous consent of our board
of directors.
39
<PAGE> 41
DESCRIPTION OF SECURITIES
GENERAL
We are authorized by our Certificate of Incorporation to issue an
aggregate of 50,000,000 shares of common stock, par value $.0001665 per share,
and 10,000,000 shares of preferred stock, par value $.01 per share. As of
December 20, 1999, there were 4,846,744 shares of common stock issued and
outstanding. As of December 20, 1999, there were 120,153 shares of 8% Series B
Senior Secured Cumulative Convertible Preferred Stock issued and outstanding,
approximately 20,000 shares of which will be redeemed with a portion of the
proceeds from this offering. Also, there are 2,020 shares of 8% Series D Junior
Secured Cumulative Convertible Preferred Stock issued and outstanding, none of
which will be redeemed with proceeds from this offering.
COMMON STOCK
Holders of the common stock are entitled to one vote per share and,
subject to the rights of the holders of the preferred stock, to receive
dividends when, as and if declared by the board of directors, and to share
ratably in the assets of the company legally available for distribution in the
event of the liquidation, dissolution or winding up of the company. Holders of
the common stock do not have subscription, redemption or conversion rights, nor
do they have any preemptive rights. In the event we were to elect to sell
additional shares of our common stock following this offering, investors in
this offering would have no prior right to purchase any of the additional
shares. As a result, their percentage equity interest in the company would be
diluted. The shares of preferred stock offered hereby will be, when issued and
paid for, and when converted to common will be fully paid. Holders of the
common stock do not have cumulative voting rights, which means that the holders
of more than half of the outstanding shares of common stock (subject to the
rights of the holders of the preferred stock) can elect all of the company's
directors, if they choose to do so. In such an event, the holders of the
remaining shares of common stock would not be able to elect any directors. The
board is empowered to fill any vacancies on the board. Except as otherwise
required by Delaware law, and subject to the rights of the holders of preferred
stock, all stockholder action is taken by vote of a majority of the outstanding
shares of common stock voting as a single class present at a meeting of
stockholders at which a quorum (consisting of a majority of the outstanding
shares of the common stock) is present in person or by proxy.
PREFERRED STOCK
Preferred stock may be issued in one or more series and having such
rights, privileges and limitations, including voting rights, conversion
privileges and/or redemption rights, as may, from time to time, be determined
by our board of directors. Preferred stock may be further issued in the future
in connection with acquisitions, financings or such other matters as the board
of directors deems appropriate. In the event that any additional shares of
preferred stock are to be issued, a certificate of designation, setting forth
the series of the additional preferred stock and the relative rights,
privileges and limitations with respect thereto, shall be filed with the
Secretary of State of the State of Delaware. The effect of the issuance of
additional preferred stock is that the company's board of directors alone,
within the bounds and subject to the federal securities laws and Delaware law,
may be able to authorize the issuance of preferred stock which could have the
effect of delaying, deferring or preventing a change in control of the company
without further action by the stockholders and may adversely affect the voting
and other rights of holders of common stock. The issuance of preferred stock
with voting and conversion rights may also adversely affect the voting power of
the holders of common stock, including the loss of voting control to others.
We have issued 120,153 shares of 8% Series B Senior Secured Cumulative
Convertible Preferred Stock to three holders and 2,020 shares of 8% Series D
Junior Secured Cumulative Convertible Preferred Stock to one holder. Shares of
the 8% Series B Senior Secured Cumulative Convertible Preferred Stock
representing $1,000,000 or 20,000 shares will be redeemed with proceeds from
this offering and the balance will remain outstanding. All of these outstanding
shares of preferred stock have piggyback registration rights upon conversion to
common stock. Accordingly, if we propose to register any of our securities,
either for our own account or for the account of other stockholders, we are
required to notify these holders and to include in such registration all of the
shares of common stock requested to be included by them, subject to the
discretion of the managing underwriter. At this time, we are attempting to
negotiate other related changes to our capital structure; however, the exact
terms must be finalized. Such changes could include potential conversions of
outstanding shares of preferred stock, in part or in whole, to shares of common
stock. No assurances can be given that such negotiations will be successful.
40
<PAGE> 42
We are issuing in connection with this offering 3,300,000 shares of
10% Series C Cumulative Convertible Preferred Stock par value $.01 per share.
Each share of preferred stock shall be convertible into shares of common stock
at a per share price, based on market conditions, equivalent to approximately
130% of the closing bid price of a share of common stock on the effective date
of this registration statement. The preferred shares shall receive cumulative
dividends at a rate of 10% per annum, payable semi-annually in arrears on June
30th and December 31st. The preferred stock shall not be subject to call for
redemption or three years from the effective date. Thereafter, we may call the
preferred stock for redemption in their entirety at the liquidation value
thereof (plus accrued and/or unpaid dividends) on thirty days written notice if
the closing bid price of the common stock for twenty consecutive trading days
ending not more than ten days prior to when notice of the call for redemption
is given equals or exceeds 130% of the closing bid price of the common stock on
the effective date. We are also registering the shares of Common Stock issuable
upon conversion of the 10% Series C Cumulative Convertible Preferred Stock
under the registration statement on Form SB-2 of which this prospectus forms a
part.
WARRANTS
The following is a summary of certain provisions of the outstanding
publicly held warrants which were sold as part of the initial public offering
of our common stock in February 1997. The summary does not purport to be
complete and is qualified in all respects by reference to the actual text of
the Warrant Agreement between the Company and American Stock Transfer & Trust
Company, our warrant agent. A copy of the Warrant Agreement has been filed as
an exhibit to the registration statement filed in February 1997.
Exercise Price and Terms. Each warrant entitles the registered holder
thereof to purchase, at any time, one share of common stock at a price of $7.20
per share, subject to adjustment in accordance with the anti-dilution and other
provisions referred to below, at any time commencing August 19, 1997 until
February 18, 2002. The holder of any warrant may exercise the warrant by
surrendering the certificate representing the warrant to the warrant agent,
with the subscription form thereon properly completed and executed, together
with payment of the exercise price. No fractional shares will be issued upon
the exercise of the warrants.
Adjustments. The exercise price and the number of shares of common
stock purchasable upon the exercise of the warrants are subject to adjustment
upon the occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications of the common stock, or sale by the company
of shares of its common stock or other securities convertible into common stock
(exclusive of options and shares under the 1994 plan, 1996 plan, 1996
professionals plan, 1998 Outside Directors Stock Option Plan and 1999
consultants option plan, and other limited exceptions) at a price below the
then applicable exercise price of the warrants. Additionally, an adjustment
would be made in the case of a reclassification or exchange of common stock,
consolidation or merger of the company with or into another corporation (other
than a consolidation or merger in which the company is the surviving
corporation) or sale of all or substantially all of the assets of the company,
in order to enable warrant holders to acquire the kind and number of shares of
stock or other securities or property receivable in such event by a holder of
the number of shares of common stock that have been purchased upon the exercise
of the warrant.
Redemption Provisions. Commencing August 19, 1998, the warrants are
subject to redemption, in whole but not in part, at $.10 per warrant on 30
days' prior written notice, provided that the average closing bid price of the
common stock as reported on Nasdaq SCM equals or exceeds $9.60 per share
(subject to adjustment for stock dividends, stock splits, combinations or
reclassifications of the common stock), for any 20 trading days within a period
of 30 consecutive trading days ending on the fifth trading day prior to the
date of the notice of redemption. In the event we exercise the right to redeem
the warrants, the warrants will be exercisable until the close of business on
the business day immediately preceding the date for redemption fixed in such
notice. If any warrant called for redemption is not exercised by that time, it
will cease to be exercisable and the holder will be entitled only to the
redemption price.
Transfer, Exchange and Exercise. The warrants are in registered form
and may be presented to the warrant agent for transfer, exchange or exercise at
any time on or prior to their expiration date February 18, 2002, at which time
the warrants become wholly void and of no value. If a market for the warrants
develops, the holder may sell the warrants instead of exercising them.
Modification of Warrants. Both the warrant agent and we may make
modifications to the warrants as we deem necessary and desirable that does not
adversely affect the interests of the warrant holders. We may, in our sole
discretion, lower the exercise price of the warrants for a period of not less
than 30 days on not less than 30 days' prior written notice to the warrant
holders and National Securities, Inc., the underwriter of the warrants.
Modification of the number of securities
41
<PAGE> 43
purchasable upon the exercise of any warrant, the exercise price and the
expiration date with respect to any warrant requires the consent of two-thirds
of the warrant holders. No other modifications may be made to the warrants
without the consent of two-thirds of the warrant holders. The warrants are not
exercisable unless, at the time of the exercise, we have a current prospectus
covering the shares of common stock issuable upon exercise of the warrants, and
those shares have been registered, qualified or deemed to be exempt under the
securities laws of the state of residence of the exercising holder of the
warrants. The warrants were separately transferable immediately upon issuance.
ANTI-TAKEOVER PROVISIONS
We are subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or an affiliate, or associate of such
person, who is an "interested stockholder" for a period of three years from the
date that such person became an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the board of directors of the corporation
before the person becomes an interested stockholder; (ii) the interested
stockholder acquired 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes such person an interested
stockholder (excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans); or (iii) on or after the date the person becomes an
interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined as any person who is: (i) the owner of 15%
or more of the outstanding voting stock of the corporation; or (ii) an
affiliate or associate of the corporation and who was the owner of 15% or more
of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether that person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws, by action
of its stockholders, to exempt itself from coverage, provided that such a bylaw
or certificate of incorporation amendment shall not become effective until 12
months after the date it is adopted. We have not adopted such an amendment to
our Certificate of Incorporation or Bylaws.
TRANSFER AGENT AND REGISTRAR AND WARRANT AGENT
Our Transfer Agent and Registrar for the 10% Series C Cumulative
Convertible Preferred Stock, the Common Stock and the Warrant Agent for the
Warrants is American Stock Transfer & Trust Company, 40 Wall Street, New York,
New York 10005.
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<PAGE> 44
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, 3,300,000 shares of 10% Series C
Cumulative Convertible Preferred Stock will be outstanding. The 3,300,000
shares of 10% Series C Cumulative Convertible Preferred Stock sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act unless acquired by an "affiliate" of ours (as that
term is defined in the Securities Act) which securities will be subject to the
resale limitations of Rule 144 under the Securities Act. A total of 9,240,000
shares of common stock will be issuable upon conversion of the 10% Series C
Cumulative Convertible Preferred Stock, and are being registered under the
Securities Act under the registration statement on Form SB-2 of which this
prospectus forms a part. Such shares of common stock will upon issuance,
assuming that at the time of issuance we have a current prospectus covering
such shares of common stock, and that such shares of common stock have been
registered, qualified or deemed to be exempt under the securities laws of the
state of residence of the exercising preferred stock holder, be freely
tradeable without restriction or further registration under the Securities Act
unless required by an affiliate of ours, in which case, such securities will be
subject to the resale limitations of Rule 144. Upon completion of this
offering, we will have outstanding an aggregate of 4,864,744 shares of our
common stock, assuming no exercise of existing options or conversions of
convertible preferred stock. 1,797,866 of these shares of common stock are
"restricted securities" as that term is defined in Rule 144, and will be
subject to the resale limitations of Rule 144.
In our initial public offering in February 1997, we issued
approximately 1,037,000 redeemable common stock purchase warrants. Each warrant
entitles the registered holder thereof to purchase one share of common stock at
an initial exercise price of $7.20 per share, subject to adjustment, at anytime
commencing August 19, 1997 until February 18, 2002. If the holders exercise
their warrants and the underlying stock, the stock so issued would be
immediately tradable on the public market, if at the time of exercise we have a
current prospectus covering the shares of common stock issuable upon exercise
of the warrants, and such shares of common stock have been registered,
qualified or deemed to be exempt under the securities laws of the state of
residence of the exercising holder of the warrants.
In general, Rule 144 allows a person who has beneficially owned
securities with resale limitations for at least one year, including persons who
may be deemed our affiliates, to sell, within any three-month period, up to the
number of restricted securities that does not exceed the greater of (i) one
percent of the common stock or other units of the class outstanding, and (ii)
the average weekly trading volume in such securities during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission. A person who is not deemed to have been our
affiliate at any time during the 90 days preceding a sale and who has
beneficially owned his restricted securities for at least three years would be
entitled to sell such restricted securities without regard to the volume
limitations described above and the other conditions of Rule 144.
Notwithstanding the foregoing, substantially all of our officers and
directors, have agreed not to, directly or indirectly, offer, sell, transfer,
pledge, assign, hypothecate or otherwise encumber or dispose of any of our
securities, whether presently owned, for a period of 9 months after the date of
this prospectus without the prior written consent Security Capital Trading,
Inc., the underwriter in this offering. Market sales of a substantial number of
shares of common stock, or the availability of such shares for sale in the
public market, could adversely affect prevailing market prices of the 10%
Series C Cumulative Convertible Preferred Stock and/or the common stock. Upon
the termination of the lock-up period, approximately 370,909 shares of common
stock will be immediately eligible for sale in the public market in reliance on
Rule 144 if the then vested options are exercised. All other previously issued
and unregistered stock has met the resale restrictions of Rule 144 or has
subsequently been registered except those underlying warrants and shares issued
in the December 1999 private placement which amount is approximately 769,000
shares.
As of December 20, 1999, a total of 2,325,000 shares of common stock
are reserved for issuance under our five stock option plans. At the conclusion
of the annual meeting held on November 29, 1999, our shareholders voted to add
50,000 shares to the Outside Directors Stock Option Plan, 200,000 shares to the
1996 option plan, and 200,000 shares to the consultant's option plan for a
total of 2,325,000 common stock shares reserved for issuance under the
company's five stock option plans. As of December 20, 1999, options to purchase
an aggregate of 629,583 shares of common stock will be outstanding. Each holder
of options or stock held as a result of exercise of their options has agreed
not to sell the shares issuable upon exercise of such options until the
expiration of the lock-up period. Upon expiration of the lock-up period,
options to purchase 503,087 shares will be exercisable. We filed a registration
statement on Form S-8 registering shares issuable upon exercise of options
granted under the plans, as and to the extent permitted by the eligibility
requirements of Form S-8. As a result of the S-8 registration filed and made
effective by the Securities and Exchange Commission, the shares underlying our
vested options will be eligible for resale in the public market upon expiration
of the lock-up period.
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<PAGE> 45
UNDERWRITING
The Underwriter named below have agreed, subject to the terms and
conditions of their Underwriting Agreement with us, to purchase from us, and we
have agreed to sell to the underwriter on a firm commitment basis, the
respective number of shares of 10% Series C Cumulative Convertible Preferred
Stock set forth below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF PREFERRED STOCK
----------- ------------------
<S> <C>
Security Capital Trading, Inc. ...... 3,300,000
Total ..................... 3,300,000
</TABLE>
As permitted by Rule 103 under the Exchange Act, certain underwriter
(and selling group members, if any) that are market makers (passive market
makers) in the common stock may make bids for or purchased of common stock in
the Nasdaq National Market until a stabilizing bid has been made. Rule 103
generally provides:
--a passive market maker's net daily purchases of the common stock may
not exceed 30% of its average daily trading volume in such securities
for the two full consecutive calendar months, or any 60 consecutive
days ending within the 10 days, immediately preceding the filing date
of the registration statement of which this prospectus forms a part,
--a passive market maker may not effect transactions or display bids
for the common stock at a price that exceeds the highest independent
bid for the common stock by persons who are not passive market makers,
and
--bids made by passive market makers must be identified as such.
The underwriter is committed to purchase all the shares of 10% Series
C Cumulative Convertible Preferred Stock offered hereby, if any of these
securities are purchased. The Underwriting Agreement provides that the
obligations of the underwriter is subject to conditions precedent specified
therein.
We have been advised that the underwriter proposes initially to offer
the preferred stock to the public at the initial public offering prices set
forth on the cover page of this prospectus and to certain dealers at such
prices less concessions not in excess of $ 0.27 per share of preferred stock.
These dealers may re-allow a concession not in excess of $0.12 per share of
preferred stock to certain other dealers. After the commencement of the
offering, the public offering price, concession and re-allowance may be changed
by the underwriter.
We have agreed to indemnify the underwriter against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the underwriter may be required to make. We have also agreed
to pay to the underwriter a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds derived from the sale of the preferred stock
underwritten, of which $50,000 has been paid to date.
We have granted to the underwriter an over-allotment option,
exercisable during the 45-day period from the date of this prospectus, to
purchase up to an additional 495,000 shares of 10% Series C Cumulative
Convertible Preferred Stock at the initial public offering price per share
offered hereby, less underwriting discounts and the non-accountable expense
allowance. This option may be exercised only for the purpose of covering
over-allotments, if any, incurred in the sale of the preferred stock offered
hereby. To the extent this option is exercised in whole or in part, the
underwriter will have a firm commitment, subject to certain conditions, to
purchase the number of the additional preferred stock proportionate to its
initial commitment.
In connection with this offering, we have agreed to sell to the
underwriter and/or its designee(s), for nominal consideration, warrants to
purchase from us up to 330,000 shares of 10% Series C Cumulative Convertible
Preferred Stock. The warrants shall be exercisable at any time during a period
of four (4) years commencing at the beginning of the second year after their
issuance at $ 6.83 per share. The underwriter's warrants grant to the holders
certain demand and piggyback registration for the securities issuable upon
exercise of the warrant.
We have agreed to grant the underwriter a right of first refusal for a
period of three years after the effective date of this registration statement
for any sale of securities to be made by us or any of our present or future
affiliates or subsidiaries.
Prior to this offering, there has been no public market for the 10%
Series C Cumulative Convertible Preferred Stock. Consequently, the initial
public offering prices of the preferred stock have been determined by
negotiation between ourselves
44
<PAGE> 46
and the underwriter and do not necessarily bear any relationship to our asset
value, net worth, or other established criteria of value. The factors
considered in these negotiations, in addition to prevailing market conditions,
included the history of and prospects for the industry in which we compete, an
assessment of our management, our future prospects, our capital structure, the
market for initial public offerings and certain other factors as were deemed
relevant.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a
copy of each such agreement which are filed as exhibits to the registration
statement of which this prospectus is a part.
LEGAL MATTERS
The validity of the preferred stock offered hereby will be passed upon
for us by Winderweedle, Haines, Ward and Woodman, P.A., 390 North Orange
Avenue, Suite 1500, Orlando, Florida 32801 and Epstein Becker & Green, 250 Park
Avenue, New York, New York has acted as health care counsel to the Company in
connection with certain matters. Orrick, Herrington & Sutcliffe LLP, New York,
New York, has acted as counsel to the underwriter in connection with this
offering
EXPERTS
Our consolidated financial statements at December 31, 1997, and for
the year then ended, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, and at December
31, 1998, and for the year then ended, by Amper, Politziner & Mattia P. A.,
independent auditors, as set forth in their respective reports thereon
appearing elsewhere herein, and are included in reliance upon such reports
given on the authority of such firms as experts in accounting and auditing.
ADDITIONAL INFORMATION
We are subject to the informational requirements of the Exchange Act
of 1934, as amended, and file reports, proxy and information statements and
other information with the Commission. You may read and copy all or any portion
of the reports, proxy and information statements or other information we file
at the Commission's public reference room at Room 1024, Judiciary Plaza, 450
Fifth Street, N.C., Washington, D.C. 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can
request copies of these documents upon payment of a duplicating fee, by writing
to the Commission. Please call the Commission at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Our Commission
filings are also available to you on the Commission's Internet site
(http:\\www.sec.gov). We have filed a registration statement under the
Securities Act with respect to the preferred stock offered by this prospectus
and the shares of common stock issuable upon conversion of such preferred stock
with the Securities and Exchange Commission in Washington, D.C. This
prospectus, filed as a part of the registration statement, does not contain
certain information set forth in or annexed as exhibits to the registration
statement. For further information regarding the company and the preferred
stock offered by this prospectus, reference is made to the registration
statement and to the exhibits filed as a part of it, which may be inspected at
the office of the Securities and Exchange Commission without charge or copies
of which may be obtained upon request to the Commission and payment of the
prescribed fee. Statements contained in this prospectus and the contents of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of the contract or other document filed as an
exhibit to the registration statement, each such statement being qualified in
all respects by the reference. The registration statement and the exhibits and
schedules may be inspected without charge at the public reference facilities
maintained by the Commission referred to above. Copies of this material may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, NW, Washington, D.C. 20549, at prescribed rates.
45
<PAGE> 47
COMPLETE WELLNESS CENTERS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998 (AUDITED)
WITH REPORTS OF INDEPENDENT AUDITORS,
AND FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1999 (UNAUDITED)
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND
1999 (UNAUDITED)
PAGE
Consolidated Financial Statements
Condensed Consolidated Balance Sheets .......................F-2
Condensed Consolidated Statements of Operations .............F-3
Condensed Consolidated Statements of Cash Flows .............F-4
Notes to Condensed Consolidated Financial Statements ........F-5
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
PAGE
Reports of Independent Auditors .............................F-9
Consolidated Financial Statements
Consolidated Balance Sheets .................................F-11
Consolidated Statements of Operations .......................F-12
Consolidated Statements of Stockholders' Deficit ............F-13
Consolidated Statements of Cash Flows .......................F-14
Notes to Consolidated Financial Statements ..................F-15
</TABLE>
F-1
<PAGE> 48
COMPLETE WELLNESS CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------------- ---------------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $590,692 $444,963
Certificate of Deposit 111,002 0
Patient receivables, net of allowance for doubtful
accounts of $7,544,631 and $6,255,238 at September
30, 1999 and December 31, 1998, respectively 7,579,717 5,766,369
Inventory 46,228 53,405
Prepaid expenses 9,373 9,661
Other assets 40,364 49,774
----------------- ---------------
Total current assets 8,377,376 6,324,172
Furniture and equipment, net of accumulated depreciation 278,779 369,583
Deposits 29,683 31,983
----------------- ---------------
Total Assets $8,685,838 $6,725,738
================= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $1,897,899 $6,693,321
Accrued management fees 3,672,948 4,020,288
Current portion of notes payable 55,350 0
----------------- ---------------
Total current liabilities 5,626,197 10,713,609
Notes payable 663,650 392,000
Stockholders' equity (deficit):
Common Stock,$.0001665 par value per share, 50,000,000 shares authorized,
4,365,744 shares and 2,457,968 shares issued and outstanding at September
30, 1999 and December 31, 1998, respectively 726 409
Senior Convertible Preferred Stock, $.01 par value per
share, 2,000,000 shares authorized, 8% cumulative, 120,153 shares and
115,239 shares issued and outstanding at September 30, 1999 and December
31, 1998, respectively 1,202 1,152
Junior Convertible Preferred Stock, $.01 par value per
share, 8% cumulative, 2,020 shares authorized,
issued and outstanding at September 30, 1999 20 0
Additional paid in capital 18,094,990 11,135,301
Accumulated deficit (15,700,947) (15,516,733)
----------------- ---------------
Total Stockholders' Equity (Deficit) 2,395,991 (4,379,871)
----------------- ---------------
Total Liabilities and Stockholders' Equity (Deficit) $8,685,838 $6,725,738
================= ===============
</TABLE>
Note: The Balance Sheet at December 31, 1998 has been extracted from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
F-2
<PAGE> 49
COMPLETE WELLNESS CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
------------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenue:
Integrated medical clinics $11,751,082 $14,359,799
Weight management centers 0 6,487,210
------------------- ----------------
Total operating revenue 11,751,082 20,847,009
Direct expenses:
Salary and consulting costs 2,235,875 4,548,467
Management fees 6,304,490 6,869,608
Cost of revenues 7,178 1,524,223
Rent 111,151 1,933,592
Advertising and marketing 14,534 829,104
Bad debt expense 1,192,337 3,008,863
------------------- ----------------
Total direct expenses 9,865,565 18,713,857
Network development cost 0 606,084
General and administrative 1,504,164 4,737,720
Depreciation and amortization 93,920 148,338
------------------- ----------------
Operating income (loss) 287,433 (3,358,993)
Interest expense (51,008) (1,487)
Interest income 3,643 27,597
------------------- ----------------
Net income(loss) before income taxes 240,068 (3,332,880)
Income taxes 0 0
------------------- ----------------
Net income(loss) after income taxes $240,068 ($3,332,880)
=================== ================
Income(loss) per share - basic $0.06 ($1.31)
=================== ================
- diluted $0.03 ($1.31)
=================== ================
Weighted avg. common shares - basic 3,709,791 2,536,725
=================== ================
- diluted 7,037,140 2,536,725
=================== ================
</TABLE>
See notes to condensed consolidated financial statements.
F-3
<PAGE> 50
COMPLETE WELLNESS CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
----------------- ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Operating activities
Net income (loss) $240,068 ($3,332,880)
Adjustments to reconcile net income (loss) to
Net cash used in operating activities:
Minority interest 0 0
Depreciation and amortization 93,920 148,338
Provision for bad debt 1,192,337 2,704,835
Recognition of compensatory granting of
Non-qualified stock options for common stock 109,209 70,488
Recognition of the granting of common stock
Warrants 0 38,059
Changes in operating assets and liabilities:
Accounts receivables (3,005,685) (5,273,504)
Other current assets 29,171 (350,017)
Accounts payable and other current
Liabilities (134,923) 2,036,386
----------------- -----------------
Net cash used in operating activities (1,475,903) (3,958,295)
Investing activities
Purchase of equipment (3,116) (78,297)
Acquisition costs 0 0
Purchase of Certificate of Deposit (111,002) 0
Investment in subsidiaries 0 (199,536)
----------------- -----------------
Net cash used in investing activities (114,118) (277,833)
Financing activities
Payment of notes (23,000) (525,000)
Proceeds from sale of common stock 1,558,750 2,920
Proceeds from sale of preferred stock 0 4,813,614
Proceeds from notes payable 200,000 0
----------------- -----------------
Net cash provided by financing activities 1,735,750 4,291,534
----------------- -----------------
Net increase (decrease) in cash and cash
equivalents 145,729 55,406
Cash and cash equivalents at beginning of period 444,963 804,924
----------------- -----------------
Cash and cash equivalents at end of period $590,692 $860,330
================= =================
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CASH FLOWS DISCLOSURE
<S> <C>
Significant non-cash transactions completed by the company during
the nine months ended September 30, 1999 include the following:
Reduction of liabilities related to bankruptcy filing $3,852,478
Reduction of liabilities due to conversions to equity 950,000
Payment of preferred stock dividends with shares of preferred stock 424,282
</TABLE>
F-4
<PAGE> 51
COMPLETE WELLNESS CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. The financial statement information was derived
from unaudited financial statements unless indicated otherwise. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included in the accompanying condensed consolidated financial statements.
Operating results for the nine month period ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the Company's audited financial statements
included in the Company's Form 10-KSB dated March 31, 1999, for the period ended
December 31, 1998. Certain prior period amounts have been reclassified to
conform with the current period presentation.
NOTE B - NET INCOME (LOSS) PER SHARE
The Company's net income (loss) per share calculations are based upon the
weighted average number of shares of Common Stock outstanding. Pursuant to the
requirements of the Securities and Exchange Commission (SEC) staff accounting
bulletin No. 98, the Company considers all potentially dilutive securities
issued for nominal consideration prior to the Company's initial public offering
as outstanding for all periods presented. Other shares issuable upon the
exercise of stock options or conversion of the shares of Convertible Preferred
Stock have been included in the computations for the period ended September 30,
1999 but excluded from the computation for the period ended September 30, 1998
as they would have an anti-dilutive effect.
In accordance with SFAS No. 128, the table below presents both basic and
dilutive net income (loss) per share:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
September 30, 1999 September 30, 1998
------------------------------------------------
<S> <C> <C>
Net Income (Loss) $240,068 ($3,332,880)
Weighted avg. shares outstanding - Basic 3,709,791 2,536,725
Incremental shares under stock option plans 102,708
Conversion of 8% Senior
Convertible Preferred Stock 3,314,587
Conversion of 8% Junior 12,762
Convertible Preferred Stock
Weighted avg. shares outstanding- Diluted 7,037,140 2,536,725
Basic net income (loss) per share $0.06 ($1.31)
Diluted net income (loss) per share $0.03 ($1.31)
</TABLE>
F-5
<PAGE> 52
NOTE C - FINANCING AND STOCKHOLDERS' EQUITY
On August 19, 1998, we entered into a consulting agreement with RVR
Consulting Group, Inc. for a term of August 1, 1998 through July 31, 1998. We
agreed to pay RVR $7,000 per month plus expenses to help us identify problem
areas in our operations and provide subsequent solutions. Joseph J. Raymond
Jr., our chairman of our board of directors and chief executive officer, is the
president of RVR, and Sergio R. Vallejo, our president and chief operating
officer, is the vice president of RVR. We subsequently amended the consulting
agreement to agree to issue RVR warrants to purchase 150,000 shares of our
common stock. On March 4, 1999, we terminated the consulting agreement and
converted the warrants granted to RVR to options granted under our 1999
Consultants Stock Option Plan to purchase 150,000 shares of our common stock at
an exercise price of $1.25 per share, 75,000 to Joseph J. Raymond, Jr. and
Sergio R. Vallejo individually. On December 1, 1999, the Board of Directors
agreed to convert each of their 75,000 options to 16,666 shares of common stock
at the closing price on December 1, 1999.
On February 19, 1999 we signed a loan agreement with RVR Consulting
Group, Inc. for $100,000 and on August 31, 1999 we signed a First Supplement to
the Loan Agreement with RVR, pursuant to which we and RVR agreed to convert the
$100,000 loan in full into 2,020 shares of 8% Series D Junior Secured
Cumulative Convertible Preferred Stock.
On February 26, 1999, Imprimis Investors LLC, Wexford Spectrum
Investors LLC and RVR entered into a Stock Purchase Agreement whereby Imprimis
and Wexford agreed to sell RVR an aggregate of 10,969 shares of our 8% Series B
Senior Secured Cumulative Convertible Preferred Stock for $500,000. Joseph J.
Raymond, Jr., Sergio Vallego and Joseph Raymond, Sr., father of Joseph J.
Raymond, Jr., guaranteed RVR's payment of the purchase price to Imprimis and
Wexford. Imprimis and Wexford each beneficially own greater than 5% of our
outstanding common stock, and Frederick Simon, a Senior Vice President of
Wexford, is a former director of ours who resigned from our board of directors
on July 27, 1999.
On December 19, 1997, we entered into an Investment Agreement with
Wexford and Imprimis pursuant to which, as supplemented by a First Supplement
dated January 12, 1998, a Second Supplement dated July 2, 1998 and a Third
Supplement dated October 19, 1998, we issued $475,000 in aggregate principal
amount of Senior Secured Floating Rate Bridge Notes due February 1, 1999,
secured by various assets of Complete Wellness Centers, $375,000 of which
evidenced term loans and $125,000 of which evidenced revolving loans made by
Wexford and Imprimis to us. On August 31, 1999, we executed a Fourth Supplement
to the Investment Agreement with Wexford and Imprimis, whereby we (i) converted
$100,000 of the outstanding principal of the bridge notes to 2,000 newly issued
shares of 8% Series B Senior Secured Cumulative Convertible Preferred Stock,
and (ii) agreed to repay the remaining principal and accrued and unpaid
interest by equal quarterly payments to Wexford and Imprimis during the period
from January 1, 2000 to December 31, 2001 based on a four year amortization
schedule.
Additionally, the Board of Directors approved the establishment of a
consultants stock option plan (the "1999 Consultants Stock Option Plan"). The
Board made a grant of 237,500 options, from the 1999 Consultants Stock Option
Plan, to purchase Common Stock in the Company at the intraday low trading price
on March 9, 1999 or $1.25 to John Trevisan, a principal owner of Texas
International Investment, Inc. Following the grant of such options, Mr. Trevisan
exercised his options and shares were issued. The Company received $296,875 for
the exercise of these options.
On September 17, 1998, we entered into a consulting agreement with
Structure Management, Inc., pursuant to which Structure Management agreed to
provide consulting services related to our operations and financing, and
pursuant to which we agreed to issue warrants to purchase 120,000 shares of our
common stock at $2.00 per share to Structure Management. On March 4, 1999, we
converted the warrants to options, granted under our 1999 Consultant's Stock
Option Plan, to purchase 120,000 shares of our common stock at $2.00 per share.
Structure Management subsequently exercised the options. Structure Management
is controlled by Jeffrey J. Raymond, the brother of Joseph J. Raymond, Jr.
On March 8, 1999, we entered into another consulting agreement with
Structure Management, Inc. for the period ending on March 4, 2000. The
agreement calls for Structure Management to support our corporate planning
process by: (i) identifying and bringing to us opportunities which help meet
our corporate objectives and our business plans; (ii) assessing our competitive
position, whether financial, technology or operational; (iii) identifying
suitable merger or acquisition candidates, perform appropriate due diligence
and assist us in negotiations with those identified candidates; (iv) supporting
our financial public relations efforts by reviewing and commenting on our
financial reports and plans and identifying examples of outstanding financial
reporting presentation in other industries; and (v) supporting our shareholder
relations activity by reviewing and responding to shareholder communications
and advise us as to selection of public relations counsel. As compensation, we
have issued Jeffrey J. Raymond, as the controlling principal of Structure
Management, options under our 1999 Consultants Stock Option Plan to purchase
117,500 shares of common stock at $1.25 per share. Mr. Jeffrey Raymond
subsequently exercised the options.
On August 24, 1999, as consideration for services provided by
Structure Management in connection with a private placement of our common
stock, we issued Structure Management options under our 1999 Consultants Stock
Option Plan for an additional 125,000 shares of our common stock at $1.50 per
share and paid Structure Management $50,000. Structure Management subsequently
exercised the 125,000 options.
On April 21, 1999 the Company's Board of Directors approved a plan to raise
up to $1,000,000 through a private placement of the Company's Common Stock. The
plan consisted of the issuance of up to 1,000,000 shares of the Company's Common
Stock priced at $1.00 per share. Through June 30, 1999 the Company received
$587,000 through the private placement of which $152,000 was used to cover costs
of the offering. The offering was terminated on July 15, 1999.
On June 30, 1999, the Company filed a registration statement on Form S-3
with the SEC to register 587,000 shares of its Common Stock issued in the
private placement offering discussed above. On July 14, 1999, the SEC contacted
the Company by letter and informed the Company that it did not intend to review
the filing and invited the Company to request acceleration of the effectiveness
of the filing. The Company amended the registration statement and filed the
final amendment on August 4, 1999. On August 4, 1999, the Company made a formal
request to the SEC for an acceleration of the effective date for the filing and
such request was granted.
F-6
<PAGE> 53
NOTE C - FINANCING AND STOCKHOLDERS' EQUITY (CONTINUED)
On August 16, 1999, the Company filed a Form S-8 with the SEC to register
the following numbers of shares under its respective stock option plans:
<TABLE>
<S> <C>
1994 Stock Option Plan 400,000 shares
1996 Stock Option Plan 400,000 shares
1996 Restricted Stock Option Plan for
Health Care Professionals 100,000 shares
1998 Outside Directors Stock Option Plan 50,000 shares
</TABLE>
As of September 30, 1999, total options granted for shares to be issued under
all plans were 396,624 of which 286,795 were exercisable.
On August 24, 1999 the Company's Board of Directors approved a plan to
raise up to $750,000 through a private placement of the Company's Common Stock.
The plan consisted of the issuance of up to 750,000 shares of the Company's
Common Stock priced at $1.00 per share. Through November 15, 1999 the Company
received $481,000 through the private placement of which $50,000 was used to
cover costs of the offering. Unless otherwise extended by the Company's Board,
the private placement is scheduled to close December 15, 1999.
On August 24, 1999 the Company's Board of Directors approved the conversion
of $950,000 of debt into the Company's securities. Stratus Services Group
converted their entire debt to the Company, which consisted of $750,000, into
500,000 shares of the Company's Common Stock. Joseph J. Raymond, Sr., a
principal of Stratus Services Group, is the father of Mr. Joseph J. Raymond, Jr.
, the Chairman and Chief Executive Officer of the Company. Imprimis Investors,
LLC and Wexford Spectrum Investors, LLC converted $80,000 and $20,000
respectively, of their Senior Secured Debt into 1,600 and 400 shares
respectively, of Senior Convertible Preferred Stock. RVR converted $100,000 of
unsecured term notes into 2,000 shares of the Company's Junior Convertible
Preferred Stock. Mr. Joseph J. Raymond, Jr. , the Chairman and Chief Executive
Officer of the Company and Mr. Sergio R. Vallejo, the President and Chief
Operating Officer of the Company are both principles of RVR Consulting Group.
All the aforementioned conversions were completed by August 31, 1999. The shares
of Junior Convertible Preferred Stock have the same rights as shares of Senior
Convertible Preferred Stock, except that they are junior, or subordinate, to the
Senior Convertible Preferred Stock.
The Company changed its presentation of convertible preferred stock to
reflect par value. Prior year amounts have been reclassified to reflect the
above.
NOTE D - DISCONTINUANCE OF CERTAIN LINES OF BUSINESS
On November 13, 1998, the Company's Board of Directors voted to sell, close
and/or otherwise divest the operations of Complete Wellness Weight Management,
Inc. ("CWWM"), one of its wholly owned subsidiaries. On April 21, 1999 the
Company's Board of Directors approved a formal plan for CWWM to file for Chapter
7 bankruptcy proceedings. The Company filed the formal Chapter 7 documents on
July 6, 1999 in Trenton, New Jersey. As of July 6, 1999, this subsidiary is no
longer included in the Company's consolidated financial results. The Company's
investment in this subsidiary was adjusted to reflect those liabilities that are
guaranteed by the Company. The remaining liabilities of the subsidiary,
approximately $3,852,000, were adjusted through changes to additional paid in
capital of the Company in July 1999.
On May 1, 1999, as a result of the failure to pay the minimum royalty fee
of approximately $26,000 to the founding shareholders of Smokenders, the Company
reached an agreement with those shareholders to transfer all licenses, patients,
copyrights, trademarks, inventory and other assets back to them as of July 1,
1999 for no further consideration and a release of debt on the royalty fee due
as well as the assumption of certain liabilities. The Company has included the
results of operations of Smokenders through June 30, 1999 in its consolidated
results from operations.
NOTE E - OTHER TRANSACTIONS
On April 1, 1999, the Company reached a settlement with Haim Zitman. Mr.
Zitman had sued the Company for breach of his employment agreement with CWWM, a
subsidiary of the Company. Mr. Zitman was granted options to purchase 40,000
shares of the Company's Common Stock for $0.01 per share, valued at $80,000 in
compensation expense, vested upon issuance, in full satisfaction of his claim.
Mr. Zitman exercised options to purchase 27,625 shares and 12,375 shares in
September 1999 and October 1999, respectively.
On July 25, 1999, the Company's Board of Directors appointed Mr. Sergio R.
Vallejo as President of the Company as a result of the resignation of Dr. Eric
Kaplan from that position. Mr. Vallejo also serves as Chief Operating Officer
and is a Board member. Dr. Kaplan remained a Board member until November 9,
1999, when the Board of Directors accepted his resignation.
F-7
<PAGE> 54
NOTE E - OTHER TRANSACTIONS (CONTINUED)
On July 14, 1999 we entered into a Separation and Release Agreement
with Eric S. Kaplan, our former president and director, made effective as of
July 21, 1999. In return and as consideration of Mr. Kaplan's resignation and
release of Complete Wellness Centers from all employment claims or actions, we
agreed to: (i) indemnify him for actions taken by Complete Wellness Centers or
by him as an officer or director of Complete Wellness Centers; (ii) continue
liability coverage for as long as the applicable statute of limitations of
claims shall run; (iii) transfer $200,000 in market value of our common stock at
a 5,000 shares per month rate to him through stock issuances or stock option
grants; (iv) pay him attorney fees in the amount of $6,000; and (v) pay him the
sum of $10,000 in cash. We accelerated the vesting of 10,000 options in
September 1999. Subsequently, Dr. Kaplan exercised an aggregate of 30,000 these
options, the value of which was recorded as compensation expense. Dr. Kaplan
also exercised other unrelated previously vested options to purchase 16,660
shares at $0.60 per share of the Company's Common Stock in September 1999.
On July 27, 1999 Mr. Frederick Simon resigned from the Company's Board of
Directors. Mr. Simon is a Senior Vice President of Wexford Spectrum Investors,
LLC, an owner of 108,483 shares of the Company's Senior Convertible Preferred
Stock and through which the Company has a senior secured loan in the amount of
$369,000 as of September 30, 1999.
On August 31, 1999, the Company officially closed its Washington, D.C.
office and moved its corporate headquarters to Winter Park, Florida. The
Washington, D.C. office lease continues through March 2004, however, the Company
has had several potential sub-tenants interested in the space. No further
accrual has been established for costs associated with the closure of the office
as the marketability and prospects for a sufficient and timely sub-tenant are
present.
The Company was named in a lawsuit filed in Sarasota, Florida in July 1997
by Jeffrey Friedlander, a medical doctor, for alleged back wages owed him by the
Company for work he performed at an Integrated Medical Center in Florida. The
case was tried by a jury in March 1999, and two judgments were entered against
the Company for $147,292 in March, which includes $100,000 in punitive damages,
followed by a subsequent judgment for related legal fees of $37,712. The
Company has a bond for $222,005 in place for the satisfaction of the judgments,
which is backed by an irrevocable letter of credit for $111,002, against which
the Company has pledged a certificate of deposit of $111,002. Even though the
Company contests the jury finding and is in the process of appealing the
decision, the full amount of the judgments has been accrued at September 30,
1999.
On September 16, 1999, Mr. Donald Radcliffe was appointed to the Board of
Directors.
The Company has been formally contacted several times, most recently in
August 1999, by the NASDAQ SmallCap Listing Qualifications Division for the
purpose of deficiencies in the minimum listing requirements of the NASDAQ
SmallCap Market. The Company formally responded to each inquiry and developed a
formal plan and timeline through which such minimum requirement would be met. As
of November 15, 1999, the Company had complied with the minimum listing
requirements of The NASDAQ SmallCap Market to the best of its knowledge.
F-8
<PAGE> 55
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Complete Wellness Centers, Inc.
We have audited the accompanying consolidated balance sheet of Complete
Wellness Centers, Inc. (the "Company"), as of December 31, 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Complete Wellness Centers, Inc. at December 31, 1998 and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ Amper, Politziner & Mattia P.A.
Edison, NJ
March 31, 1999
F-9
<PAGE> 56
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Complete Wellness Centers, Inc.
We have audited the accompanying consolidated balance sheets of Complete
Wellness Centers, Inc. (the "Company"), as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Complete Wellness Centers, Inc. at December 31, 1997 and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ Ernst and Young, LLP
Washington, DC
March 31, 1998
F-10
<PAGE> 57
COMPLETE WELLNESS CENTERS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
----------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $804,924 $444,963
Patient receivables, net of allowance for doubtful accounts
of $3,825,708 and $6,255,238 2,758,841 5,766,369
Inventory 39,483 53,405
Prepaid expenses 42,882 9,661
Other assets 394,854 49,774
----------------- ----------------
Total current assets 4,040,984 6,324,172
Furniture and equipment, net 504,215 369,583
Deposits 150,000 31,983
----------------- ----------------
Total assets $4,695,199 $6,725,738
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $1,156,865 $6,693,321
Accrued management fees 3,117,135 4,020,288
Accrued interest 8,298 0
Advances from affiliates 154,976 0
Notes payable - current 45,433 0
----------------- ----------------
Total current liabilities 4,482,707 10,713,609
Convertible note payable 25,000 0
Notes payable 500,000 392,000
Minority interest 7,179 0
Stockholders' equity/(deficit):
Common Stock, $.0001665 par value per share, 10,000,000 shares
authorized, 2,183,598 shares and 2,457,968 shares issued and
outstanding at December 31, 1997 and 1998, respectively 363 409
Senior Convertible Preferred Stock, $.01 par value per share,
8% cumulative, 109,686 shares currently issued and outstanding 0 5,016,620
Additional capital 5,044,365 6,119,833
Accumulated deficit (5,364,415) (15,516,733)
----------------- ----------------
Total stockholders' equity/(deficit) (319,687) (4,379,871)
----------------- ----------------
Total liabilities and stockholders' deficit $4,695,199 $6,725,738
================= ================
</TABLE>
See accompanying notes.
F-11
<PAGE> 58
COMPLETE WELLNESS CENTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- -------------------
<S> <C> <C>
Operating revenue:
Patient revenue $8,846,772 $17,132,388
Weight management centers 0 6,573,931
Other income 163,642 455,500
----------------- -------------------
Total operating revenue 9,010,414 24,161,819
Direct expenses:
Salary and consulting costs 2,886,184 7,066,208
Management fees 3,850,112 8,641,067
Cost of revenues 3,540 2,450,577
Rent 131,292 5,140,929
Advertising and marketing 76,774 963,918
Bad debt expense 3,232,111 2,656,597
----------------- -------------------
Total direct expenses 10,180,013 26,919,296
Network development cost 317,682 701,443
General and administrative 2,700,987 6,066,240
Depreciation and amortization 86,969 209,882
----------------- -------------------
Operating loss (4,275,237) (9,735,042)
Interest expense (31,041) (2,771)
Interest income 87,498 62,616
Minority interest 42,347 7,179
----------------- -------------------
Net loss before income taxes (4,176,433) (9,668,018)
Income taxes 0 0
----------------- -------------------
Net loss after income taxes ($4,176,433) ($9,668,018)
================= ===================
Loss per share - basic ($1.98) ($4.41)
Weighted average common shares - basic 2,113,096 2,301,332
</TABLE>
See accompanying notes.
F-12
<PAGE> 59
COMPLETE WELNESS CENTERS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY/(DEFICIT)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------- ------------------- ADDITIONAL ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 1,350 $14 714,967 $119 $156,027 ($1,187,982) ($1,031,822)
Issuance of common stock 0 0 1,000,000 167 4,687,205 0 4,687,372
Conversion of preferred stock (1,350)
To common (14) 145,800 24 (10) 0 0
Exercise of stock options for shares of
Complete Wellness Centers, Inc.
Common stock 0 0 146,498 24 4,371 0 4,395
Exercise of common stock warrants of
Complete Wellness Centers, Inc.
Common stock 0 0 176,333 29 5,261 0 5,290
Recognition of the granting of below
Market common stock 0 0 0 0 4,511 0 4,511
Recognition of the granting of below
Market common stock warrants 0 0 0 0 187,000 0 187,000
Net loss 0 0 0 0 0 (4,176,433) (4,176,433)
----------------------------------------------------------------------------------------
Balance at December 31, 1997 0 $0 2,183,598 $363 $5,044,365 ($5,364,415) ($319,687)
Issuance of common stock 0 0 70,912 13 199,987 0 200,000
Issuance of redeemable preferred stock 100,000 4,532,320 0 0 0 0 4,532,320
Exercise of stock options for shares of
Complete Wellness Centers, Inc.
Common stock 0 0 68,792 11 2,379 0 2,390
Exercise of common stock warrants of
Complete Wellness Centers, Inc.
Common stock 0 0 16,666 2 48 0 50
Exercise of representative warrants to
Purchase Complete Wellness Centers,
Inc. warrants 0 0 0 0 1,563 0 1,563
Granted 100,000 shares of common
Stock, grant price $3.75 0 0 100,000 17 374,983 0 375,000
Granted 8,000 shares of common stock,
Grant price $2.50 0 0 8,000 1 19,999 0 20,000
Granted 10,000 shares of common stock,
Grant price $3.875 0 0 10,000 2 38,748 0 38,750
Recognition of the granting of below
Market common stock options 0 0 0 0 80,633 0 80,633
Recognition of the granting of below
Market common stock warrants 0 0 0 0 357,128 0 357,128
Dividends recorded on redeemable
Preferred stock 9,686 484,300 0 0 0 (484,300) 0
Net loss 0 0 0 0 0 (9,668,018) (9,668,018)
----------------------------------------------------------------------------------------
Balance at December 31, 1998 109,686 $5,016,620 2,457,968 $409 $6,119,833 ($15,516,733) ($4,379,871)
========================================================================================
</TABLE>
See accompanying notes.
F-13
<PAGE> 60
COMPLETE WELLNESS CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
--------------------- ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ($4,176,433) ($9,668,018)
Adjustments to reconcile net loss to net cash
used in operating activities:
Minority interest (42,347) (7,179)
Depreciation and amortization 89,245 216,197
Provision for bad debt 3,232,111 2,656,597
Provision for loss on long lived assets 0 18,066
Amortization of debt discount 2,000 0
Recognition of compensatory granting non-qualified stock options 4,511 0
Recognition of the granting of common stock warrants and options 187,000 873,074
Issuance of stock for LLC units 0 200,000
Changes in operating assets and liabilities:
Accounts receivable (5,450,508) (5,664,125)
Advances to officers and other
current assets (399,964) 327,420
Deferred taxes (8,241) 0
Accounts payable and other current liabilities 3,292,422 6,431,211
--------------------- ------------------
Net cash used in operating activities (3,270,204) (4,616,757)
INVESTING ACTIVITIES
Investment in Complete Wellness Weight Management (150,000) 0
Purchase of equipment (370,680) (99,631)
Investment in Smokenders (50,000) 0
--------------------- ------------------
Net cash used in investing activities (570,680) (99,631)
FINANCING ACTIVITIES
Proceeds from bridge notes and warrants 500,000 0
Repayment of notes 0 (178,333)
Payment of bridge loan (1,100,000) 0
Stock issuance costs incurred 0 (467,680)
Proceeds from sale of preferred stock 0 5,000,000
Proceeds from sale of common stock 4,687,205 0
Proceeds from notes payable 200,409 0
Investment of minority stockholders in CWIPA 50,000 0
Exercise of warrants 5,290 50
Exercise of stock options 4,395 2,390
--------------------- ------------------
Net cash provided by financing activities 4,347,299 4,356,427
--------------------- ------------------
Net increase in cash and cash equivalents 506,415 (359,961)
Cash and cash equivalents at beginning
of year 298,509 804,924
--------------------- ------------------
Cash and cash equivalents at end of year $804,924 $444,963
===================== ==================
</TABLE>
See accompanying notes.
F-14
<PAGE> 61
COMPLETE WELLNESS CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1998
1. LIQUIDITY
The consolidated financial statements of Complete Wellness Centers, Inc.,
(the "Company") have been presented on the basis that the Company is a going
concern, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. For the year ended December 31,
1998, the Company had recurring loss from operations of $9,668,018, negative
working capital of $4,389,437 and a net capital deficiency of $4,379,871.
It is the Company's intention to seek additional equity funding through a
best efforts private placement, which is currently underway, and to seek a firm
underwriting commitment for a secondary offering in the second half of 1999. The
Company believes that through continued cost cutting efforts currently underway
and its fund raising efforts as described above that sufficient working capital
will be available for the operations of the Company for the next twelve months.
2. ORGANIZATION AND PRESENTATION
The Company was incorporated in Delaware in November 1994. The Company
develops and operates integrated medical delivery systems with a goal of
providing consumers with a comprehensive integrated wellness model of care. The
current primary operations are integrated medical centers. The Company also
operates a smoking cessation program and previously operated a medical billing
company and a weight loss program, and is developing an integrated delivery
network through out the United States.
Integrated Medical Center Model
The Company's integrated medical centers are generally developed and
operate under agreements whereby the Company will open new Integrated Medical
Centers in the same location as chiropractors' existing chiropractic practices
(the "Affiliated Practices"). The Integrated Medical Centers will employ a
physician (the "MD") on a salaried basis to supervise the provision of health
care services. Where permitted by state law, the Integrated Medical Centers will
be wholly owned by the Company. In other jurisdictions, the Integrated Medical
Centers will be wholly owned by a nominee MD and managed by the Company. The
chiropractor will continue to operate his or her existing Affiliated Practice
separately from the Integrated Medical Center. The Company will not acquire the
Affiliated Practice, its patient base, or its tangible assets. In addition, no
consideration will be paid to the chiropractor at inception of the arrangements.
As of December 31, 1998 the Company had integrated 84 centers.
3. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements reflect the accounts of Complete
Wellness Centers, Inc., which includes 28 wholly owned subsidiaries, and 56
managed Integrated Medical Centers, CWC, LLC, Complete Wellness Weight
Management ("CWWM"), Complete Wellness Research Institute, Complete Wellness
Education, Inc., Complete Billing Inc., and its majority owned subsidiaries,
Complete Wellness Smoking Cessation, Inc. (88.23%), and Optimum Health Services
(86.67%). Complete Wellness Weight Management ceased operations in December
1998, Optimum Health Services ("OHS") was sold to the management of OHS in
November 1998 and Complete Billing ceased operations in August 1998. Operational
activities through these dates are consolidated in the Company's applicable
financial statements. Significant inter-company transactions have been
eliminated. The financial statements of the integrated medical centers that are
controlled but not directly owned by the Company are consolidated in the
Company's financial statements in accordance with the FASB's Emerging Issues
Task Force consensus 97-2 "Application of APB Opinion No, 16 and FASB Statement
No. 94 to Medical Entities." The Company has recorded the net equity of any
individuals holding a minority percentage as minority interest, if their
original investments (basis) has not been previously eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. The more significant areas, requiring the use of management
estimates, relate to allowance for uncollectible patient accounts receivable and
accrued lease obligations. Actual results could differ from those estimates.
Cash and Equivalents
The Company considers cash and cash equivalents to include currency on
hand, demand deposits, and all highly liquid investments with a maturity of
three months or less at the date of purchase.
F-15
<PAGE> 62
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventory
Inventory is recorded at the lower of cost, using the average cost method
or net realized value.
Furniture and Equipment
Furniture and equipment are recorded at cost. Maintenance and repairs are
charged to expense as incurred. Depreciation is computed using the straight-line
method at rates intended to amortize the cost of the related assets over their
estimated useful lives.
Furniture and equipment of the Company are reviewed for impairment
whenever events or circumstances indicate that the asset's undiscounted expected
cash flows are not sufficient to recover its carrying amount. The Company
measures an impairment loss by comparing the fair value of the asset to its
carrying amount. Fair value of an asset is calculated as the present value of
expected future cash flows.
Revenue
Patient revenue from services is reported at the estimated realizable
amounts from patients and third party payors for services rendered.
Substantially all of the patient service revenue of the Integrated Medical
Centers is paid by the patients and traditional commercial insurers. The
Integrated Medical Centers do not currently have any HMO contracts.
The Company's Integrated Medical Centers provide certain patient services
at discounted rates based on the patients' demonstration of financial hardship
and need for the services rendered. The amount of discount is based on the level
of demonstrable hardship on a case by case basis. The Company and its Integrated
Medical Centers are under no obligation to provide such services but do so as a
community service. Patient revenues related to such services are recognized net
of discounts allowed in the accompanying financial statements. The Company does
not measure the level of such services provided.
Income Taxes
Income taxes are provided using the liability method. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statements carrying amounts of existing assets
and liabilities and their respective tax bases (i.e., temporary differences).
Stock-Based Compensation
The Company grants stock options for a fixed number of shares to employees
and certain consultants. The Company has elected to continue to account for
stock-based compensation arrangements under APB Opinion No. 25 "Accounting for
Stock Issued to Employees," and accordingly recognizes compensation expense for
the stock option grants as the difference between the fair value and the
exercise price at the grant date. The pro forma information required by FASB
Statement No. 123, "Accounting for Stock-Based Compensation," which provides a
fair-value-based method of accounting alternative to account for stock-based
compensation issued to employees and consultants has been disclosed in Note 9.
In addition, the SEC staff issued Staff Accounting Bulletin No. 98 ("SAB
98"), issued by the SEC staff in February 1998. SAB 98 requires that registrants
in initial public offerings consider all potentially dilutive securities issued
for nominal consideration outstanding for all periods. Under the previous SEC
regulations in SAB 83, the Company considered all potentially dilutive
securities issued within a twelve month period prior to the initial public
offering date at a price below the initial public offering price as outstanding
for all periods.
Fair Value of Financial Instruments
Management has determined the estimated fair value of financial
instruments using available market information and valuation methodologies. Cash
equivalents, accounts receivable, accounts payable, notes payable and accrued
liabilities and other current assets and liabilities are carried at amounts
which reasonably approximate their fair values. Considerable judgment is
necessary to interpret market data and develop estimated fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the Company could realize on disposition of the financial
instruments. The use of different market assumptions or estimation methodologies
may have an effect on the estimated fair value amounts.
Concentration of Cash Balances
Periodically, the Company maintains cash balances in excess of the
$100,000 insured by the Federal Deposit Insurance Corporation (FDIC).
F-16
<PAGE> 63
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net Income Per Share
Financial Accounting Standards Board Statement No. 128, Earnings Per
Share, replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share exclude the dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. In addition, the SEC staff
issued Staff Accounting Bulletin No. 98 ("SAB 98"), in February 1998. SAB 98
requires that registrants consider all potentially dilutive securities issued
for nominal consideration outstanding for all periods. Under the previous SEC
regulations in SAB 83, the Company considered all potentially dilutive
securities issued within a twelve month period prior to the initial public
offering date at a price below the initial public offering price as outstanding
for all periods. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement 128 and
SAB 98 requirements. The effect on weighted average shares outstanding of
securities that could potentially dilute basic earnings per share in the future
were not included in the computation of diluted earnings per share because to do
so would have been antidilutive for the periods presented.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". Statement No. 133 establishes accounting
and reporting standards for derivative instruments and for hedging activities.
It requires that an entity recognize all derivative as either assets or
liabilities and measure them at fair value. Under certain circumstances, the
gains or losses from derivatives may be offset against those from the items the
derivatives hedge against. The Company will adopt SFAS No. 133 in the year
ending December 31, 1999.
Reclassifications
Certain reclassifications have been made to conform prior year amounts to
the current year presentation.
4. ACQUISITIONS/DISPOSALS
Acquired Medical Centers
In June 1997, CWC, LLC acquired the assets of Complete Wellness Medical
Center of Paula Drive, Inc., one of its affiliated Integrated Medical Centers,
in exchange for forgiveness of $35,000 of debt and all the assets of the clinic
Complete Wellness Medical Center of Dunedin.
Smokenders
On July 31, 1997, a subsidiary of the Company acquired substantially all
of the assets of a smoking cessation program owned by the Oxford Health Plan
(Smokenders) for $50,000. The operating results of Smokenders have been
reflected in the accompanying financial statements since acquisition. The
acquisition is subject to two royalty arrangements, a 5% royalty on gross
revenues for a 10 year period to Oxford Health Plan and 12.4% of revenues with a
minimum of $26,000 to the founders of Smokenders. At the same time, the CEO of
Smokenders, who is also a Director of the Company, acquired an 11.77% minority
interest in Smokenders from the Company in return for a $22,000 promissory note
bearing interest at 8%, due September 30, 2000. The transaction was accounted
for as a purchase. The net purchase price has been allocated for accounting
purposes to the assets acquired, primarily the inventory of printed materials.
On June 1, 1998, the Company amended certain agreements with its Complete
Wellness Smoking Cessation, Inc. ("Smokenders") subsidiary. During September
1998, the Company contributed to Smokenders $23,000 as additional capital and
$75,000 in return for a secured note bearing interest at 12%, payable on or
before September 30, 1999. Additionally, the Company eliminated $22,000 of
promissory notes due from the CEO of Smokenders, as part of the original
shareholder agreement. On September 15, 1998, the CEO resigned his position
however, he remains a Board Member of the Company. The Company also agreed to
grant the managers of Smokenders up to an additional 3,000 options to purchase
Smokenders stock, 1,500 of which vested at the grant date and 1,500 of which are
subject to time vesting schedules through August 1, 1999. All options are
exercisable for 5 year periods, contain anti-dilution provisions, and are not
exercisable until January 1, 2000, except under certain circumstances. The
exercise of these options will result in the managers having 35% of the
outstanding shares of Common Stock and the Company having 65% of the outstanding
shares of Common Stock of Smokenders. All shares are non-public restricted
securities exempt from regulation requirements of the Securities Act of 1933 as
amended. The shareholders of Smokenders have certain put and call options as
well as non-mandatory repurchase options and liquidation requirements in the
event selling shareholders are not able to obtain buyers for their stock.
F-17
<PAGE> 64
4. ACQUISITIONS/DISPOSALS (CONTINUED)
Nutri/Systems
On January 31, 1998, CWWM completed the acquisition of 56 weight loss
treatment centers from Nutri/System, L.P. The centers marketed, in a retail
setting, food, medically supervised weight loss programs and nutritional
supplements. The purchase price of the centers included $150,000 in cash and the
assumption of certain lease liabilities and other acquisition costs of
approximately $700,000. The transaction was accounted for as a purchase. The
purchase price, including acquisition costs has been allocated for accounting
purposes to the assets acquired, primarily food inventory.
On November 13, 1998, the Company's Board of Directors voted to exit the
operations of CWWM. The Company does anticipate continuing to offer the
Nutri/System weight loss program through its Integrated Medical Centers and
Internet web site. CWWM commenced operations on February 1, 1998 and realized
losses from operations of approximately $5,974,000 on revenues of approximately
$6,573,000 for the period ended December 31, 1998. The costs to exit this
activity are estimated to be approximately $3,355,000.
Complete Wellness Centers, LLC
On May 29, 1998 the Company, by unanimous consent of the Board of
Directors, agreed to purchase all of the outstanding units of Complete Wellness
Centers, LLC ("CWC,LLC"), a Delaware limited liability company, of which the
Company has a 1% equity interest and irrevocable proxies from a majority of
interest holders in the LLC. The acquisition was accomplished by the issuance of
77,821 shares of Common Stock (of which 70,912 were issued in 1998) valued at
$200,000, based upon the average closing bid price of the Company's Common Stock
for the thirty (30) trading days prior to June 1, 1998. Such shares are subject
to SEC Rule 144, but shall have piggyback registration rights. Former and
current employees, directors, and immediate relatives of management, owning
37.6% of the LLC's equity received a discount to 26.32% of the $200,000
valuation of the LLC; the remaining investors received the balance of the
valuation on a pro rata basis in accordance with their respective investments.
The amount was expensed during 1998.
Accident and Industrial Injury Associates (See Note 15 - Subsequent Events,
Regarding the Board's Decision to Rescind this Transaction)
In July 1998, the Company purchased Accident and Industrial Injury
Associates ("AIIA"), a chiropractic preferred provider network of approximately
2,700 providers located throughout the United States in exchange for warrants to
purchase 20,000 shares of its common stock for $3.31 per share which expire in 5
years and contain certain piggyback registration rights. The Company accounted
for this transaction under the purchase method. The primary assets acquired were
members of the network and databases related to the operations thereof. The
Company contemporaneously sold 30% of its interest in AIIA to its 86.67% owned
subsidiary, Optimum Health Services, Inc. ("OHS") in exchange for a $12,000 note
bearing interest at 6.1% per annum, due January 31, 2000. OHS will manage the
network on behalf of the Company and receive an additional 20% interest in AIIA
over three years as compensation for such services. The Company has committed to
fund the initial working capital requirements of AIIA, up to approximately
$10,000, after which, the Company and OHS will fund all future working capital
requirements equally.
As a result of a revised spin off plan with OHS, as amended on November
3,1998, the Company agreed to sell OHS an additional 25% of AIIA for an
additional $6,000 note bearing interest at 6.1% pre annum. The amended agreement
established the new company, Optimum Preferred Provider Organization ("OPPO"),
with is owned initially as to 55% OHS and 45% to the Company. OHS was to manage
the network and will receive an additional 20% interest in OPPO over three years
as compensation for such services at which time OHS will own 75% of OPPO.
Complete Billing, Inc.
On July 7, 1998, the Company committed to a formal plan to exit the
operations of Complete Billing, Inc. ("CBI") one of its wholly owned
subsidiaries. The Company ceased CBI's operations on August 15, 1998 and
converted all billing performed by CBI back to the respective medical clinics
that were CBI's clients. The Company does not expect to incur any further
expenses as a result of closing CBI.
CBI initiated operations in May 1997. During the year ended December 31,
1997, CBI had losses from operations of approximately $9,600 on revenues of
approximately $84,000. For the period ended December 31, 1998, CBI had losses
from operations of approximately $75,000 on revenues of approximately $91,000.
Optimum Health Services, Inc.
The Company's formal plan to divest its 86.67% interest in OHS, as amended
on November 3, 1998 was to spin-off the Company's interest in OHS to the
management of OHS. Under the plan, the Company converted its investment in OHS
into 266,736 OHS ten-year warrants at an exercise price of $0.01 per share. The
warrants can not be exercised prior to one year and not in an amount at any time
such that the Company's ownership of OHS's common stock would be greater than
49% of the total OHS common stock outstanding. The current value recorded by the
Company in relation to the 266,736 OHS warrants is zero.
F-18
<PAGE> 65
4. ACQUISITIONS/DISPOSALS (CONTINUED)
OHS initiated operations in May 1997. During the year ended December 31,
1997, OHS had losses from operations of approximately $318,000 with no revenues.
For the eleven months ended November 30, 1998, OHS had losses from operations of
approximately $701,000 with approximately $19,000 in revenues.
5. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Details of the allowance for doubtful accounts receivable are as follows:
<TABLE>
<CAPTION>
December 31,
1997 1998
---- ----
<S> <C> <C>
Beginning Balance $143,422 $3,825,708
Bad debt expense 3,232,111 2,656,597
Provision for third party allowances and adjustments 450,175 --
Recoveries -- (227,067)
-----------------------------------------
Ending Balance $3,825,708 $6,255,238
=========================================
</TABLE>
6. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
1997 1998
---- ----
<S> <C> <C>
Furniture and Equipment (5 year life) $638,084 $706,208
Less Accumulated Depreciation and Amortization (133,869) (336,625)
---------------------------------------
$504,215 $369,583
=======================================
</TABLE>
7. DEBT
Note Payable
The Company, entered into a financing agreement, with Wexford
Spectrum Investors, LLC and Imprimis Investors, LLC. The agreement provides a
$350,000 revolving line of credit and an acquisition financing of $125,000. At
December 31, 1998 the Company had used the entire line of credit $350,000 and
$42,000 of the clinic acquisition financing commitment. The note accrues
interest at 12% per annum and is payable in full on March 31, 2000.
1997 Bridge Note
The Company, as part of new financing (See Note 9 - Stockholders Equity),
received $500,000 as a Bridge Loan on December 19, 1997. This note bears
interest at 12% and was converted into Preferred Stock on January 23, 1998. The
note, along with an additional investment of $4,500,000 was converted into
100,000 shares of 12% convertible Preferred Stock.
F-19
<PAGE> 66
8. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. The tax effects of
temporary differences that give rise to significant portions of the deferred tax
assets and deferred tax liabilities recognized as of December 31, 1997 and 1998
are presented below:
<TABLE>
<CAPTION>
December 31,
1997 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Start-up costs $10,138 $21,000
Nonqualified stock options 11,448 314,000
Bad debt expense 388,168 2,252,000
Operating loss carryforward 1,174,844 1,090,000
Accrued exit of activity costs - 880,000
--------------------------------------------------
Total deferred tax assets 1,584,598 4,557,000
Less valuation allowance (1,579,770) (4,546,000)
--------------------------------------------------
Net Deferred tax assets 4,828 11,000
--------------------------------------------------
Deferred tax liabilities:
Depreciation (4,828) (11,000)
--------------------------------------------------
Total deferred tax liabilities (4,828) (11,000)
--------------------------------------------------
Net deferred tax amount $0 $0
==================================================
</TABLE>
The Company files a consolidated federal tax return with its wholly owned
subsidiaries. At December 31, 1998, the Company had net operating loss
carryforwards for income tax purposes of approximately $6,820,000 which expire
between 2010 and 2011. Utilization of net operating loss carryforwards may be
significantly limited, based on changes in the Company's ownership. The use of
substantially all of the combined net operating loss carryforwards of CWC, LLC
will be limited to offset future taxable income of each separate subsidiary in
proportion to their share of the tax losses generated to date. In addition,
these carryforwards may be significantly limited under the Internal Revenue Code
as a result of ownership changes resulting from the Company's redeemable
convertible Preferred Stock financing and other equity offerings.
The Company has a cumulative pretax loss for financial reporting purposes.
Recognition of deferred tax assets will require generation of future taxable
income. There can be no assurance that the Company will generate earnings in
future years. Therefore, the Company established a valuation allowance on
deferred tax assets of approximately $1,580,000 and $4,546,000 as of December
31, 1997 and 1998, respectively.
Significant components of the provision for income taxes are as follows
for the years ended:
<TABLE>
<CAPTION>
December 31,
1997 1998
---- ----
<S> <C> <C>
Current:
Federal $0 $0
State 0 0
--------------------------------------------
Total Current 0 0
Deferred:
Federal (928,516) (2,453,000)
State (193,662) (513,000)
Increase in valuation allowance 1,122,178 2,966,000
--------------------------------------------
Total deferred 0 0
--------------------------------------------
Total provision for income taxes $0 $0
============================================
</TABLE>
F-20
<PAGE> 67
8. INCOME TAXES (CONTINUED)
The effective tax rate on income before income taxes varies from the
statutory federal income tax rate for the years ended December 31, 1998 and 1997
as follows:
<TABLE>
<CAPTION>
December 31,
1997 1998
---- ----
<S> <C> <C>
Statutory rate (34%) (34%)
State taxes, net (3%) (3%)
Other differences, net 1% 1%
Valuation allowance 36% 36%
-----------------------------------------
0% 0%
=========================================
</TABLE>
9. STOCKHOLDERS' EQUITY
Initial Public Offering
On February 24, 1997, the Company closed on its Initial Public Offering.
At this time, 1 million shares of Common Stock, par value $0.0001665, and 1
million redeemable common stock purchase warrants were sold on a public market
for $6.00 per share and $0.10 per warrant, respectively. Net proceeds to the
Company after expenses of the Offering were $4,965,000. In conjunction with the
offering, all of the Series A (at that time) Preferred Stock then outstanding
was converted into 145,800 shares of Common Stock and the Company repaid the
principal plus accrued interest relating to the 1996 Bridge Financing Notes.
Warrants
The Company issued one warrant for each common share sold in connection
with its initial public offering. The warrants are exercisable at any time
commencing August 19, 1997 until February 18, 2002 at $7.20 per share. The
warrants are subject to adjustment in accordance with the certain anti-dilution
commitments and other provisions. Sale of Senior Convertible Preferred Stock
The Senior Redeemable Preferred Stock was issued to two investment groups
(the "investors") pursuant to the terms of the investment agreement dated
January 23, 1998 and amended July 2, 1998. The offering consisted of a $500,000
13% Bridge Loan (the "Bridge Loan") received by the Company on December 16,
1997, a $1,000,000 Senior Redeemable Preferred Stock purchase by the Investors
on January 17, 1998, of which $500,000 was used to retire the Bridge Loan and a
$4,000,000 Senior Redeemable Preferred Stock purchase by the Investors on
January 23, 1998. On July 2, 1998, the Senior Redeemable Preferred Stock was
exchanged for Senior Convertible Preferred Stock.
The cost of the offering to the Company, approximately $468,000, was paid
out of the proceeds of the Senior Redeemable Preferred Stock offering.
The significant provisions of the for Senior Convertible Preferred Stock are as
follows:
(I) The Senior Convertible Preferred Stock accrues dividends at 8% per annum
if paid in cash and 10% per annum if paid in the form of additional
Senior Convertible Preferred Stock. Dividends are payable quarterly.
Dividends in the form of additional Senior Convertible Preferred
Stock were paid March 31, 1998, June 30, 1998, September 30, 1998
and December 31, 1998.
(II) The Senior Convertible Preferred Stock's liquidation preference is
calculated as $50 per share plus an amount equal to all dividends
(whether or not earned or declared) accumulated and unpaid to the
date of final distribution.
(III) Conversion of the Senior Convertible Preferred Stock is based on the
liquidation preference divided by the lower of $1.75 or 75% of the
current market price per share of the Company's Common Stock on the
trading day immediately prior to the conversion date, subject to
certain anti-dilution provisions. Conversion of the Senior
Convertible Preferred Stock, at the option of the Investors, can
occur at any time on or after January 3, 1999 or, if the Company is
unable to obtain a shareholder approval to increase its authorized
shares of Common Stock to 50,000,000 from 10,000,000 shares, at any
time after August 31, 1998 (shareholder approval was obtained on
August 11, 1998).
(IV) The Senior Convertible Preferred Stock is redeemable, at the Company's
option, in whole but not in part, from July 2, 1998 through January
3, 1999 at the liquidation preference, except that the dividend rate
shall be 12% per annum.
(V) Warrants issued to the Investors in connection with the Senior Redeemable
Preferred Stock were returned to the Company and canceled.
(VI) The Company issued 100,000 fully paid for and non-assessable shares of
the Company's Common Stock to the Investors. All common stock issued
or issuable to the Investors upon conversion of the Senior
Convertible Preferred Stock contain certain demand registration
rights, the Company will bear the costs associated with the
registrations if any.
F-21
<PAGE> 68
10. STOCK OPTION PLAN
The Company has stock option plans providing for the grant of incentive
and non-qualified stock options to employees, directors, consultants and
advisors. Pursuant to the Plans, 950,000 shares of Common Stock have been
reserved for issuance. At December 31, 1998 the following options have been
granted:
<TABLE>
<CAPTION>
Number of Options/ Exercisable at
Date of Grant Warrants Granted 12/31/98 Exercise Price Fair Value
- ------------- ---------------- -------- -------------- ----------
<S> <C> <C> <C> <C>
Employee Options:
- ----------------
December 1, 1995 36,667 0 $0.0300 $0.0100
January 1, 1996 56,667 0 $0.0300 $0.0300
March 1, 1996 40,000 13,333 $0.0300 $0.0400
March 18, 1996 1,500 0 $0.0300 $0.0400
April 1, 1996 116,667 0 $0.0300 $0.0400
May 30, 1996 1,000 0 $0.0300 $0.0500
June 14, 1996 1,000 0 $0.0300 $0.0600
June 15, 1996 1,000 0 $0.0300 $0.0600
August 26, 1996 46,667 16,660 $0.0600 $0.0600
September 23, 1996 5,000 3,333 $4.5000 $0.0600
April 6, 1997 157,000 142,198 $3.3750 $0.8433
July 25, 1997 89,733 30,284 $4.3750 $1.0932
July 28, 1997 32,510 7,922 $4.8125 $1.2025
August 6, 1997 7,500 3,750 $3.7500 $0.9370
January 6, 1998 9,500 4,750 $2.2500 $1.2111
February 17, 1998 7,000 2,335 $2.5625 $1.3793
March 30, 1998 5,000 5,000 $2.5000 $1.3457
April 13, 1998 15,000 0 $2.2500 $1.2111
May 26, 1998 22,500 11,250 $2.8125 $1.5139
June 16, 1998 10,000 0 $3.3750 $1.8166
July 2, 1998 79,237 0 $3.0300 $1.6309
July 6, 1998 10,000 0 $3.0300 $1.6309
August 24, 1998 3,000 0 $3.0000 $1.6148
September 2, 1998 16,500 6,750 $2.8750 $1.5475
November 3, 1998 10,500 0 $4.2500 $2.2876
November 13, 1998 4,000 0 $4.3130 $2.3215
Non-Employee Options:
- ---------------------
December 1, 1995 4,333 0 $0.0300 $0.0040
January 19, 1996 23,333 0 $0.0300 $0.0100
January 31, 1996 50,000 35,000 $0.0300 $0.0100
May 1, 1996 13,332 10,666 $0.0300 $0.0300
July 1, 1996 5,000 5,000 $0.6000 $0.0200
September 12, 1996 16,667 11,111 $4.5000 $0.4800
September 26, 1996 6,667 6,667 $4.5000 $0.4800
November 1, 1996 11,000 3,667 $4.5000 $0.4800
February 24, 1997 8,000 5,333 $6.0000 $1.4992
March 28, 1997 10,000 10,000 $3.7500 $0.9370
April 29, 1997 15,000 4,000 $3.3800 $0.8445
May 15, 1997 2,000 0 $3.3750 $0.8433
May 16, 1997 15,000 0 $3.3750 $0.8433
July 25, 1997 18,600 8,799 $4.3750 $1.0932
July 28, 1997 17,490 8,744 $4.8125 $1.2025
July 2, 1998 12,753 0 $3.0300 $1.6309
August 1, 1998 7,500 3,750 $3.0625 $1.6484
</TABLE>
F-22
<PAGE> 69
10. STOCK OPTION PLAN (CONTINUED)
Options generally vest 33 1/3% each year beginning on the anniversary of
the grant date. During 1997, 3,333 of the 1996 incentive options were forfeited
and 20,000 of the non-qualified options were forfeited. During 1998, 74,980 of
the 1996, 20,000 of the 1997 and 25,000 of the 1998 granted incentive options
were forfeited and 0 of the 1996, 17000 of the 1997 and 0 of the 1998
non-qualified options were forfeited. The weighted average remaining contractual
life of the options outstanding at December 31, 1998 is 3.63 years. The weighted
average price of exercisable options at December 31, 1998 was $2.94.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25), and related
Interpretations in accounting for its employee stock option because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25's intrinsic value method, compensation expense is
determined on the measurement date, that is the first date on which both the
number of shares the employee is entitled to receive and the exercise price, if
any, are known. Compensation expense is measured based on the award's intrinsic
value of the excess of the market price of the stock over the exercise price on
the measurement date. The Company has recorded $462 and $80,633 of compensation
expense and $4,049 and $0 of consulting expense related to stock options granted
below market value as of December 31, 1997 and 1998, respectively. Additionally,
the Company has recorded consulting expense of $187,000 and $357,128 as of
December 31, 1997 and 1998, respectively as a result of the granting of Common
Stock warrants during the years then ended.
Had compensation costs for the Company's stock option plan been determined
based on the fair value at the date of grant for the awards in 1998 consistent
with the provisions of SFAS 123, the Company's net loss and loss per
share-diluted would have been as indicated below:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Net loss - as reported ($4,176,433) ($9,668,018)
Net loss - pro forma ($4,314,674) ($9,698,389)
Loss per share - as reported ($1.98) ($4.41)
Loss per share - pro forma ($2.04) ($4.43)
</TABLE>
For the purposes of the pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options' vesting period.
The fair value of each option grant is estimated on the date of grant
using the "Black Scholes" option-pricing model with the following
weighted-average assumptions for 1998 and 1997: risk free interest of 5.75%;
expected life of the option of 5 years; and a zero dividend yield; volatility
.55. The weighted average fair value of options granted during 1998 and 1997
was $1.60 and $0.96, respectively.
Option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
11. LEASE ARRANGEMENTS
The Company leases its corporate office space in Washington DC for use as
its corporate offices. The space consists of approximately 9000 square feet at a
cost of $10,000 per month. It is the Company's intention to use approximately
3000 square feet of the space and sublet the remainder. In January 1999, the
Company sublet approximately 2,500 square feet for $2,750 per month. The
Company's agreement is for seven years and any sublet of the Company's space
will be for seven years.
The Company leases approximately 2,000 square feet of office space in West
Palm Beach, FL for Complete Wellness Medical Centers, Inc. The lease is on a
month to month basis and costs approximately $2,100 per month. The Company's
weight loss subsidiary surrendered a lease on its administrative office space in
Trevose, PA in December 1998.
The Company leases substantially all its equipment including furniture,
fixtures and computers under various operating leases at a cost of approximately
$8,000 per month. The following table sets forth the Company's lease obligations
for each of the next five years and a lump sum balance for the remainder of all
the leases as of December 31, 1998:
<TABLE>
<S> <C>
1999 $241,000
2000 220,000
2001 250,000
2002 261,000
2003 261,000
Thereafter 165,000
-----------------------
Total Minimum Obligations $1,398,000
</TABLE>
F-23
<PAGE> 70
11. LEASE ARRANGEMENTS (CONTINUED)
The Company's weight loss subsidiary has lease arrangements with landlords
at each of its clinic locations. At December 31, 1998 the majority of the leases
were either in default or the subsidiary had judgments rendered against it for
delinquent lease payments. All weight loss center leases have been surrendered
to the respective landlords. The Company is endeavoring to settle all
outstanding amounts on a case by case basis. At December 31, 1998 the Company
had a provision for these lease obligations of approximately $2,400,000.
12. NET LOSS PER COMMON SHARE
The following table sets forth the computation of basic loss per share:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Weighted average common shares Outstanding 1,703,808 1,892,045
Shares issued for nominal consideration
Prior to the Initial Public Offering 409,287 409,287
-------------------------- --------------------------
2,113,095 2,301,332
Loss allocable to common shareholders ($4,176,433) ($9,668,018)
Basic loss per share ($1.98) ($4.41)
</TABLE>
During 1997 and 1998 options and warrants to purchase 306,107 and 249,558
of the Company's common stock, whose exercise price exceeded that of the average
market price during the year were excluded from the above calculation because of
the anti-dilutive effect their inclusion would have on loss per share.
13. RELATED PARTY
In August 1996, the Company entered into a consulting agreement with
J.E.M, Inc. (JEM), the sole stockholders of which are Dr. Kaplan, the Company's
President and Chief Operating Officer, and his wife. Under the terms of the
consulting agreement, JEM agreed to provide advice and assistance to the Company
in connection with identifying and affiliating with chiropractors and their
existing chiropractic practices and identifying, acquiring, and/or managing
businesses engaged in providing services ancillary to those provided by
Integrated Medical Centers. The Company agreed to pay JEM $6,000 per month for
its services. The consulting agreement expires in August 1999 and may be
terminated sooner by mutual agreement of the parties, by the Company for
"cause," defined as a violation by JEM of any material provision of the
consulting agreement not remedied within 30 days after notification or JEM's
conviction of a felony, upon termination of the employment agreement between Dr.
Kaplan and the Company, or by JEM's failure to meet certain performance goals.
(See Note 15 - Subsequent Events)
In January 1998, the Company entered in an agreement with Stratus
Services, Inc ("Stratus"), an employee leasing and payroll company for the term
of one year, which is annually renewable. Under the terms of the agreement,
Stratus will provide the Company with leased employees and payroll services at
all the Company's locations, both at the parent and subsidiary levels. Two of
the principles of Stratus are Joe Raymond, Sr. and Jeff Raymond, who are the
father and brother respectively of Joseph J. Raymond, Jr. The Company believes
that the services provided by Stratus are at least as favorably priced as any
other company providing such services which the Company may contract with. (See
Note 15 - Subsequent Events)
In August 1998 the Company entered into a consulting agreement with RVR
Consulting, Inc. ("RVR") for the term of August 1, 1998 through July 31, 1999.
The Company agreed to pay RVR $7,000 per month plus expenses to help the
Company identify problem areas in its operations and provide subsequent
solutions. Two of the principles of RVR are Joseph J. Raymond, Jr. and Sergio
R. Vallejo, who are also members of the Company's Board of Directors. (See Note
15 - Subsequent Events)
14. CONTINGENCIES
Federal Investigation
Revenues from all Federal programs accounted for approximately 3% and 5%,
respectively, of the Company's net patient service revenues for the year ended
December 31, 1997 and 1998. Laws and regulations governing the Medicare and
Medicaid programs are complex and subject to interpretation. In November 1997
federal agents served search warrants and subpoenas on the Company and four of
its subsidiaries and affiliates. Company records and files were seized. If the
government review finds wrongdoing, the Company would be subject to significant
regulatory action including fines, penalties, and possible exclusion from the
Medicare and Medicaid programs. Any such action would be material to the
financial position of the Company and could have a materially adverse effect on
the results of operations and cash flows of the Company. The Company is not
currently aware of any pending or threatened allegations of potential wrongdoing
as a result of the investigation. Further, the Company believes that it is
substantially in compliance with all applicable laws and regulations.
F-24
<PAGE> 71
14. CONTINGENCIES (CONTINUED)
Professional Liability
The Company has obtained an insurance policy that, subject to certain
conditions, provides both it and its subsidiaries medical malpractice insurance
and managed care errors and omissions insurance retroactive to the Integration
Dates of the Company's current Integrated Medical Centers and, one former
Integrated Medical Center. The policy provides coverage for $1,000,000 per claim
per Integrated Medical Center, subject to an aggregated limit of $3,000,000 per
Integrated Medical and Weight Loss Centers per year. The policy will also cover
the Company with respect to Integrated Medical Centers as they are opened. There
is no deductible under the policy.
The foregoing policy is a "claims made" policy. Thus, it provides coverage
for covered claims made during the policy's term but not for losses occurring
during the policy's term for which a claim is made subsequent to the expiration
of the term. Based on experience to date of the medical professionals employed,
it is believed that potential losses on any claims incurred but not reported
would not be material to the Company's financial position.
Consulting Agreements
The Company has a consulting agreement (the Kats Agreement) with Kats
Management, LLC (Kats Management), a company that has represented to the Company
that it provides management and consulting services to over 600 chiropractic
clinics. Under the Kats Agreement, Kats Management agreed to advise and assist
the Company in (i) identifying and negotiating with chiropractors and their
existing chiropractic practices with which the Company might affiliate for the
purpose of developing additional Integrated Medical Centers and (ii) developing
Integrated Medical Centers. The Company agreed to pay Kats Management for each
agreement entered into by the Company with a chiropractor identified by Kats
Management (i) a commission equal to 5% of the Company's integration fee under
such agreement during the initial term of the agreement and (ii) a fixed fee not
to exceed $350. In addition, the Company granted Kats Management, subject to a
vesting schedule, non-qualified options to purchase 11,000 shares of Common
Stock under the Company's 1994 Stock Option Plan and paid Kats Management a
$100,000 bonus in 1997.
In August 1998 the Company entered into a consulting agreement with RVR
Consulting, Inc. ("RVR") for a term of August 1, 1998 through July 31, 1999.
The Company agreed to pay RVR $7,000 per month plus expenses to help the
Company identify problem areas in its operations and provide subsequent
solutions. Two of the principles of RVR are Joseph J. Raymond, Jr. and Sergio
R. Vallejo, who are also members of the Company's Board of Directors. (See Note
15 - Subsequent Events)
Integrated Medical Centers
During the first quarter of 1999, the Company was managing an additional 7
Integrated Medical Centers and had signed contracts with Affiliated
Chiropractors to develop 16 additional Integrated Medical Centers. The Company
estimates the cost of fully integrating these new clinics to be approximately
$15,000 per clinic.
Continued Listing on the Nasdaq SmallCap Market
The Company's Shares and Warrants are listed on the Nasdaq SmallCap Market
and the Company must meet certain requirements in order to maintain this
listing. The requirements for continued listing include satisfying one of the
following conditions: (a) net tangible assets of at least $2,000,000 (b) market
capitalization of at least $35,000,000 or (c) net income of at least $500,000 in
the most recent fiscal year or in two of the last three fiscal years. The
Company has provided Nasdaq with details of its plan to increase its net
tangible assets to the threshold level and is in the process of executing that
plan. Implementation of the plan, however, has not been accomplished within the
timeframe originally envisioned. The Company has asked Nasdaq for an extension.
There can be no assurance that Nasdaq will grant the Company's request for an
extension and allow the Company's shares to remain listed while it works to
achieve compliance. Consequently, the Company's shares could be delisted from
the Nasdaq SmallCap Market at any time. In the event that the Company's shares
are delisted from the Nasdaq SmallCap Market, they could continue to trade on
the Nasdaq "Bulletin Board".
Year 2000 Issue
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
operational equipment or internal computer software that have time-sensitive
programs may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruption of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities. Similar failures in the Company's medical clinics could result in an
impairment of revenue recognition due to significant future obligations,
impairment of future services provided by the Company's subsidiaries, or
potential other liability.
The Company has been and is continuing to assess the implications on its
operations of the Year 2000 issue. At December 31, 1998, the process of
evaluation the Company's services, products and internal systems was underway
and is expected to be completed by June 30, 1999. At this time, the Company is
satisfied that all of its major vendors have or are in the process of verifying
to the Company their Year 2000 compliance. The Company's internal systems have
been updated, where appropriate to accommodate Year 2000 compliance. Any actual
impact of Year 2000 compliance on the Company's future results of operations,
capital spending, and business operations is not is not expected to be material.
F-25
<PAGE> 72
15. SUBSEQUENT EVENTS
Imprimis Investors, LLC and Wexford Spectrum Investors, LLC (collectively
"Wexford"), as the holders of all of the Senior Convertible Preferred Stock in
the Company, had the right, pursuant to the Certificate of Designation,
Preferences and Rights for the Preferred Stock (the "Certificate"), to hold
majority representation on the Company's Board of Directors in the event that
the Company failed to redeem all of the Preferred Stock on or prior to January
3, 1999. In anticipation that the Company would not redeem the Preferred Stock,
Wexford requested that the Company hold a special meeting of its Board of
Directors (the "Special Meeting") to elect that number of nominees of Wexford
that would constitute a majority of the Company's Board. On January 4, 1999, the
Company held the Special Meeting, at which the Board of Directors voted to
increase the number of directors on the Board to 15 and elected eight nominees
of Wexford as directors.
At a meeting of the Board of Directors of the Company on January 3, 1999,
the Board passed a resolution to nullify the Company's acquisition of AIIA
Managed Care, Inc.(AIIA) on the basis of misrepresentation in the asset purchase
agreement with the Company by the sellers of AIIA.
At the Board meeting of March 4, 1999, the Company's Board terminated the
consulting contract of RVR Consulting Group, Inc. (RVR) with the Company. The
150,000 warrants due to RVR under the terms of the consulting contract with the
Company were converted to 150,000 options to purchase common stock in the
Company. The stock options were to be priced at the intraday trading low of the
Company's common stock on Tuesday March 9, 1999.
Also at the March 4, 1999 Board meeting, the consulting agreement between
the Company and Structure Management, Inc. (Structure) was modified. Structure
has a consulting agreement with the Company to provide consulting services
related to operation and financing of the Company. Under the existing consulting
agreement, Structure was granted 118,000 common stock warrants at a price of
$2.00 each. The Board approved the conversion of those common stock warrants to
options for the purchase of common stock in the Company priced at $2.00 per
share. Following the conversion, the options were exercised and the shares have
been issued. The Company received $240,000 for the exercise of these options.
Also at the March 4, 1999 Board meeting, the Board approved the
establishment of a consultants stock option plan (the 1999 Consultants Stock
Option Plan). From such a plan outside consultants could be compensated with
options to purchase common stock in the Company.
A motion was made to grant conditionally to Jeffrey Raymond 117,500
options to purchase common stock in the Company, pursuant to the 1999
Consultants Stock Option Plan, at the intraday trading low of the Company's
common stock on March 9, 1999. Following the grant of such options, Mr. Jeff
Raymond exercised those options and shares were issued. The Company received
$146,875 for the exercise of these options. Mr. Jeff Raymond is the brother of
Mr. Joseph J. Raymond, Jr. , Chairman and CEO of the Company.
The Board made a conditionally grant of 237,500 options, from the 1999
Consultants Stock Option Plan to purchase common stock in the Company at the
intraday low trading price on March 9, 1999 to John Trevisan, a principal owner
of Texas International Investment, Inc. Following the grant of such options, Mr.
Trevisan exercised those options and shares were issued. The Company received
$296,875 for the exercise of these option.
F-26
<PAGE> 73
================================================================================
We have not authorized any dealer, salesperson or other person to
give any information or represent anything not contained in this prospectus. You
must not rely on any unaurthorized information. This prospectus does not offer
to sell or buy any shares in any jurisdiction where it is unlawful. The
information in this prospectus is current only as of the date of this
prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................................................... 3
Risk Factors......................................................... 6
Use of Proceeds...................................................... 10
Capitalization....................................................... 12
Dividend Policy...................................................... 12
Dilution............................................................. 13
Selected Financial Data.............................................. 14
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 15
Business............................................................. 22
Management........................................................... 29
Principal Stockholders............................................... 36
Certain Relationships and Related Transactions....................... 38
Description of Securities............................................ 40
Shares Eligible for Future Sale...................................... 43
Underwriting......................................................... 44
Legal Matters........................................................ 45
Experts.............................................................. 45
Additional Information............................................... 45
Index to Financial Statements........................................ F-1
</TABLE>
COMPLETE WELLNESS CENTERS, INC.
3,300,000 Shares of 10% Series C Cumulative
Convertible Preferred Stock
---------------
PROSPECTUS
---------------
SECURITY CAPITAL TRADING, INC.
_____________, 1999
Until _____, 2000 (25 days after the date of this prospectus), all
dealers that buy, sell or trade these securities, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition
to the dealers' obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
===============================================================================
<PAGE> 74
PART II
INFORMATION NOT
REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to Section 102 of the Delaware General Corporation Law (the
"DGCL"), the Registrant's Certificate of Incorporation contains the following
provision regarding limitation of liability of directors and officers:
"A director of this corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for the breach of any
fiduciary duty as a director, except in the case of (a) any breach of the
director's duty of loyalty to the corporation or its stockholders, (b) acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (c) under section 174 of the General Corporation Law of the
State of Delaware or (d) for any transaction from which the director derives an
improper personal benefit. Any repeal or modification of this Article by the
stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification with respect to acts or omissions occurring prior to such repeal
or modification."
The Registrant is empowered by Section 145 of the DGCL, subject to the
procedures and limitation stated therein, to indemnify any person against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with any
threatened, pending or completed action, suit or proceeding in which such person
is made a party by reason of his being or having been a director, officer,
employer or agent of the Registrant. The statute provides that indemnification
pursuant to its provisions is not exclusive of other rights of indemnification
to which a person may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors, or otherwise. The Registrant's
Certificate of Incorporation and the Registrant's By-laws both provide for
indemnification of its officers and directors to the full extent permitted by
the DGCL. Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the act and is, therefore, unenforceable.
The Registrant has directors' and officers' liability insurance. The
insurance insures against any liability asserted against any present or past
director or officer incurred in the capacity of director or officer arising out
of their status, whether or not the Registrant would have the power to indemnify
that person.
Reference is made to Section 7 of the Underwriting Agreement filed as
Exhibit 1.1 to this Registration Statement with respect to certain
indemnification provisions for the benefit of the Registrant and its directors,
officers and controlling persons.
<PAGE> 75
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth various expenses, other than the
underwriters' fees, discounts and commissions, which are anticipated to be
incurred in connection with the offering. All amounts except the SEC
registration fee, the Nasdaq SmallCap Market listing application fee, and the
NASD filing fee are estimates.
SEC registration fee .......................... $ 4,559
Nasdaq Small Cap Market listing application fee 1,000
NASD filing fee ............................... 2,227
Blue Sky fees and expenses .................... 20,000
Transfer Agent's fees and expenses ............ 5,000
Underwriter's expenses ........................ 1 ,951,950
Printing and engraving expenses ............... 80,000
Accounting fees and expenses .................. 10,000
Legal fees and expenses ....................... 50,000
Marketing and preparation expenses ............ 375,375
Miscellaneous.................................. 14,889
----------
Total .................................... $2,515,000
==========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is certain information concerning sales by the Company of
unregistered securities within the past three years. Such information with
respect to the Company's Common Stock has been adjusted for:
- - a 180-for-1 forward split of the Common Stock in November 1995, and
- - a 1-for-3 reverse split of the Common Stock in November 1996.
Exemptions from registration for other transactions are noted below. The
consideration paid to the Company in respect of each issuance of securities was
cash, unless otherwise indicated.
COMMON STOCK
Stock Underlying Purchase Warrants - Exemption from registration under the
Securities Act of 1933 as amended is claimed pursuant to Section 4 (2) thereof.
Name and Address of
Stockholders Number of shares
- - Credit Research & Trading LLC (5) 90,000
One Fawcett Place
Greenwich, CT 06830
- - Credit Research & Trading LLC (5) 10,000
One Fawcett Place
Greenwich, CT 06830
- - Republic National Bank as (5) 8,000
Custodian for SEP FBO of
Hugh Deane
452 Fifth Avenue
New York, NY 10018
- - The Equity Group (5) 10,000
800 Third Avenue, 36th Floor
New York, NY 10022
- - The Equity Group (5) 10,000
800 Third Avenue, 36th Floor
New York, NY 10022
- - C. John Peterson (5) 10,000
984 N. 1800 Road
Lawrence, KS 66049
- - Peter Spielberger (5)(6) 25,000
10 Greenfield Road
New City, NY 10956
- - Michael M. LeConey (5)(6) 25,000
C/O Ray Dirks Research
520 Madison Ave., 10th Floor
New York, NY 10022
- - Raymond L. Dirks (5)(6) 15,000
C/O Ray Dirks Research
520 Madison Ave., 10th Floor
New York, NY 10022
<PAGE> 76
- - Jessy W. Dirks (5)(6) 15,000
C/O Ray Dirks Research
520 Madison Ave., 10th Floor
New York, NY 10022
- - Steven A. Rothstein (5)(6) 2,000
C/O National Securities Corporation
1001 Fourth Avenue, Suite 2200
Seattle, Washington 98154
TOTAL 220,000
Issued and Outstanding Stock to Complete Wellness Centers, LLC Investors and
Board Members - Exemption from registration under the Securities Act of 1933 as
amended is claimed pursuant to Regulation D and subsequently Section 4 (2)
thereof.
- - Michael D. Barnes (3) 691
555 13th Street, NW
Washington, D.C. 20004-1109
- - Binstock Rubin Investments (3) 1,727
One Datran Center
9100 S. Dadeland Boulevard., Suite 901
Miami, FL 33156-7815
- - Jill Brigante, Custodian for (3) 901
Jacqueline P. Brigante, NJUGMA
17 Daniel Drive
Belle Mead, NJ 08502
- - Jill Brigante, Custodian for (3) 819
Virginia A. Brigante, NJUGMA
17 Daniel Drive
Belle Mead, NJ 08502
- - Peter A. Carfagna (3) 691
2742 West Park Boulevard
Shaker Heights, OH 44120
- - Jeffrey A. Clark/Josephine H. Ricks (3) 691
1324 Corcoran Street, NW
Washington, D.C. 20009-4311
- - Dr. Paul Curcio/Dr. Tammy Cashion (3) 3,454
14215 E. Centreville Square
Centreville, VA 22020
- - JMDMJD LTD. (3)
John A. Ellerton/Marie Ellerton 6,908
1700 Silver Oak
Las Vegas, NV 89117
- - Robert J. Goode (3) 2,072
12090 Longlake Drive
Owings Mills, MD 21117
- - Tom Goodwin (3) 691
1150 Connecticut Ave., Suite 200
Washington, D.C. 20036
- - David Greenberg (3) 1,727
8111 SW 183rd Street
Miami, FL 33157
<PAGE> 77
- - Kevin Grevey (3) 2,763
528 River Bend Road
Great Falls, VA 22066
- - Zev E. Kaplan (3) 1,382
3012 W. Charleston Blvd., Suite 140
Las Vegas, NV 89102
- - Peter S. Knight (3) 6,908
1615 L Street, NW, Suite 650
Washington D.C. 20036
- - Robert S. Libauer (3) 9,749
3704 North Charles Street, #1004
Baltimore, MD 21218
- - McAdory Lipscomb, Jr. (3) 2,072
58 Glen Hill Road
Wilton, CT 06897
- - Danielle F. Milano (3) 819
155 East 29th Street, Apt. 5C
New York, NY 10016
- - Martin B. Mintz (3) 1,382
8107 Anita Road
Baltimore, MD 21208
- - Profit Sharing Plan (3) 553
David H. Shulman
660 Kenilworth Road, Suite 102
Towson, MD 21204
- - Revocable Trust FBO Wilma I. Sharer (3) 8,193
12404 Beall Spring Road
Potomac, MD 20854
- - Leonard Pondfield (3) 691
7913 Stevenson Road
Baltimore, MD 21208
- - Rita Sapperstein (3) 1,520
6711 Park Heights Avenue #L-5
Baltimore, MD 21215
- - Silver & Silver PA (3) 1,382
Profit Sharing Plan
11403 Cronhill Drive #E
Owings Mills, MD 21117
- - Sun Furniture, Inc. (3) 1,382
Profit Sharing Plan and Trust
Seymour Weisberg, Trustee
FBO Barbara E. Weisberg
3031 Fallstaff Road #604
Baltimore, MD 21209
- - Larry D. Vignali/Jacqueline R. Vignali (3) 6,908
6906 Atlantic Avenue
Virginia Beach, VA 23451
- - Arthur D. Webster (3) 6,908
300 W. Main Street
Salisbury, MD 21801
<PAGE> 78
- - Seymour Weisberg (3) 1,382
3031 Fallstaff Road #604
Baltimore, MD 21209
- - E. Eugene Sharer (4) 10,000
12404 Beall Spring Road
Potomac, MD 20854
- - Robert J. Mrazek (4) 8,000
301 Constitution Avenue, NE -----
Washington, D.C. 20002
TOTAL 92,366
Stock Underlying Redeemable Warrants - Exemption from registration under the
Securities Act of 1933 as amended is claimed pursuant to Section 4 (2) thereof.
- - Steven A. Rothstein (6) 2,000
C/O National Securities Corporation
1001 Fourth Avenue, Suite 2200
Seattle, Washington 98154
- - National Securities Corporation (6)
1001 Fourth Avenue, Suite 2200 18,000
Seattle, Washington 98154
- - Peter Spielberger (6) 25,000
10 Greenfield Road
New City, NY 10956
- - Michael M. LeConey (6) 25,000
C/O Ray Dirks Research
520 Madison Ave., 10th Floor
New York, NY 10022
- - Raymond L. Dirks (6) 15,000
C/O Ray Dirks Research
520 Madison Ave., 10th Floor
New York, NY 10022
- - Jessy W. Dirks (6) 15,000
C/O Ray Dirks Research ------
520 Madison Ave., 10th Floor
New York, NY 10022
TOTAL 100,000
Stock issued in Wexford & Imprimis private sale - Exemption from registration
under the Securities Act of 1933 as amended is claimed pursuant to Section 4
(2) thereof.
- - S. R. Vallejo FBO (7) 1,500
Anthony C. Vallejo
875 Hanover Way
Lakeland, FL 33813
- - S. R. Vallejo FBO (7) 1,500
Christina A. Vallejo
875 Hanover Way
Lakeland, FL 33813
<PAGE> 79
- - Stephen H. Hamic (7) 4,000
1740 Comanche Trail
Lakeland, FL 33803
- - Steven T. Moore (7)
Universal Building Specialties, Inc. 5,000
P. O. Box 1722
Lakeland, FL 33802-1722
- - Jason Elkin (7)
5784 Lake Forest Drive 41,000
Suite 290
Atlanta, GA 30328
- - Joseph Raymond (7)
500 Craig Road 28,000
2nd Floor
Manalapan, NJ 07726
- - Jill Brigante, Custodian for (7)
Jacqueline P. Brigante, NJUGMA 2,000
17 Daniel Drive
Belle Mead, NJ 08502
- - Jill Brigante, Custodian for (7)
Virginia A. Brigante, NJUGMA 2,000
17 Daniel Drive
Belle Mead, NJ 08502
- - Theresa & Karl Szabo (7)
699 Long Lake Drive 2,000
Oviedo, FL 32765
- - Audrey Dickinson (7)
1680 Oakhurst Avenue 3,000
Winter Park, FL 32789
- - Peter DiPasqua, Jr. (7)
2138 Lake Drive 5,000
Winter Park, FL 32789
- - Robert C. and Chantel M. Natale (7)
800 Westwind Court 5,000
Maitland, FL
<PAGE> 80
TOTAL 100,000
Stock issued per July private placement sale - Exemption from registration
under the Securities Act of 1933 as amended is claimed pursuant to Regulation D
thereof.
- - Paul Welch (1)
51 Oxford Road 50,000
Tony Meadow, Mass 01106
- - William J Koopman (1)
327 McHone Road 25,000
Spruce Pine, NC 28777
- - Timothy Miller (1)
10191 Ashbrooke Ct 15,000
Suite D
Oakton, VA 22124
- - Jan O. Miller (1)
0525 Providence Way 10,000
Fairfax, VA 22030
- - Maria L. Tafaro (1)
201 East 21st Street 10,000
Apt. 8J
New York, NY 10010
- - Fredrick Johnson (1)
RT. 3 Box 158 E 25,000
Marshfield, MO 65706-9435
- - Gary Anderson (1)
PO Box 7880 50,000
San Francisco, CA 94120
- - Structure Management, Inc. (1)
500 Craig Road, Suite 201 277,000
Manalapan, NJ 07726
- - Transworld Management (1) 125,000
Services, Inc.
500 Craig Road, Suite 201
Manalapan, NJ 07726
TOTAL 587,000
Stock Underlying Purchase Warrants issued per July private placement sale -
Exemption from registration under the Securities Act of 1933 as amended is
claimed pursuant to Regulation D thereof.
- - Paul Welch (2)
51 Oxford Road 25,000
Tony Meadow, Mass 01106
- - William J Koopman (2)
327 McHone Road 12,500
Spruce Pine, NC 28777
- - Timothy Miller (2)
10191 Ashbrooke Ct 7,500
Suite D
Oakton, VA 22124
- - Jan O. Miller (2)
0525 Providence Way 5,000
Fairfax, VA 22030
- - Maria L. Tafaro (2)
201 East 21st Street 5,000
<PAGE> 81
Apt. 8J
New York, NY 10010
- - Fredrick Johnson (2) 12,500
Route 3 Box 158 E
Marshfield, MO 65706-9435
- - Gary Anderson (2)
PO Box 7880 25,000
San Francisco, CA 94120
- - Structure Management, Inc. (2)
500 Craig Road, Suite 201 62,500
Manalapan, NJ 07726
- - Transworld Management (2) 62,500
Services, Inc.
500 Craig Road, Suite 201
Manalapan, NJ 07726
TOTAL 217,500
Stock issued per December private placement sale - Exemption from registration
under the Securities Act of 1933 as amended is claimed pursuant to Regulation
D thereof.
- - Transworld Management (8) 100,000
Services, Inc.
500 Craig Road, Suite 201
Manalapan, NJ 07726
- - Structure Management, Inc. (8) 100,000
500 Craig Road, Suite 201
Manalapan, NJ 07726
- - Gary Anderson (8) 25,000
975 Leneve Place
El Cerrito, CA 94530
- - Radcliffe Associates (8) 80,000
239 Long Hill Road
Little Falls, NJ 07424
- - David Gordon (8) 20,000
14225 Nell Drive
Orlando, FL 32822
- - Jane Lanahan (8) 20,000
53 Briarwood Road
Florham Park, NJ 07932
- - Steven Moore (8) 10,000
1010 S. Broadway Avenue
Bartow, FL 33830
- - Steven Hamic (8) 10,000
1704 Comanche Trail
Lakeland, FL 33803
- - Paul Welch (8) 25,000
75 Van Deene Avenue
West Springfield, //ma 01089
- - W.J. Koopman (8) 25,000
327 McHone Road
Spruce Pine, NC 28777
- - Timothy Miller (8) 7,500
10191 Ashbrooke Court, Suite D
Oakton, VA 22124
- - Adam Miller (8) 10,000
10525 Providence Way
Fairfax, VA 22030
<PAGE> 82
- - Frederick Johnson (8) 25,000
46 Ridgewood Drive
Marshfield, MO 65706
- - Jan Miller (8) 7,500
10525 Providence Way
Fairfax, VA 22030
- - Norman Goldstein (8) 16,000
21 Nelson Avenue
Hicksville, NY 11801
TOTAL 481,000
GRAND TOTAL 1,797,866
(1) On July 15, 1999, the Registrant completed a private placement of $587,000
by selling 587,000 shares of the Registrant's common stock at $1.00 per share.
On August 4, 1999 the shares were registered on a Form S-3 and made effective
that date. Exemption from registration under the Securities Act of 1933 as
amended is claimed pursuant to Regulation D thereof.
(2) The investors in the July 15, 1999 private placement were also granted
purchase warrants, one warrant for two shares of stock purchased. Exemption from
registration under the Securities Act of 1933 as amended is claimed pursuant to
Regulation D thereof.
(3) On July 22, 1998, the Registrant acquired 95.6% of the members' interests in
Complete Wellness Centers, LLC as approved by the Registrant's Board of
Directors by issuing 74,366 of 77,821 shares authorized of the Registrant's
common stock. Exemption from registration under the Securities Act of 1933 as
amended is claimed pursuant to Regulation D and subsequently Section 4 (2)
thereof.
(4) On July 6, 1998 Mr. Sharer was granted 10,000 shares of the Registrant's
common stock in relation to his election to the position of Vice Chairman of the
Registrant. On September 15, 1998 Mr. Mrazek was granted 8,000 shares of the
Registrant's common stock as consideration for his resignation as CEO of the
Registrant's smoking cessation subsidiary. Exemption from registration under the
Securities Act of 1933 as amended is claimed pursuant to Section 4 (2) thereof.
(5) The Registrant has, at various times and in varying quantities and prices
has issued common stock purchase warrants to its consultants and advisors for
services rendered to the Registrant totaling 188,000 shares as described in the
warrant agreements. Exemption from registration under the Securities Act of 1933
as amended is claimed pursuant to Section 4 (2) thereof.
(6) The Registrant issued warrants to purchase 100,000 shares of common stock
and 100,000 redeemable warrants in connection with our initial public offering
on February 19, 1997 to the Registrant's underwriter and the underwriter's
representatives. Exemption from registration under the Securities Act of 1933 as
amended is claimed pursuant to Section 4 (2) thereof.
(7) In October, 1998 Wexford Spectrum Investors LLC and Imprimis Investors LLC
sold 100,000 shares of the Registrant's common stock in a private sale. These
shares were subsequently registered on a form S-8 on March 9, 1999. Exemption
from registration under the Securities Act of 1933 as amended is claimed
pursuant to Section 4 (2) thereof.
(8) On December, 15, 1999, the Registrant completed a private placement of
$481,000 by selling 431,000 shares of the Registrant's common stock at $1.00 per
share and issued 50,000 shares for placement fee of the private placement. The
total shares issued for the private placement by the Registrant is 481,000
shares. Exemption from registration under the Securities Act of 1933 as amended
is claimed pursuant to Regulation D thereof.
COMMON STOCK SUMMARY:
Stock underlying purchase warrants 220,000
Issued and outstanding stock held by the LLC investors and
board members 92,366
<PAGE> 83
Stock underlying redeemable warrants 100,000
Stock issued in Wexford and Imprimis private sale 100,000
Stock issued in July private placement 587,000
Stock underlying purchase warrants per private placement 217,500
Stock issued in December private placement 481,000
-------
TOTAL 1,797,866
PREFERRED STOCK - Exemption from registration under the Securities Act of 1933
as amended is claimed pursuant to Section 4 (2) thereof.
<TABLE>
<CAPTION>
Name and address of stockholders Stock Issue Number of Shares
- ------------------------------------ ----------------------------------------- ------------------
<S> <C> <C>
- - Wexford Spectrum Investors, LLC 8% Senior Secured Cumulative Convertible 21,697
411 West Putnam Avenue
Greenwich, CT 06830
- - Imprimis Investors, LLC 8% Senior Secured Cumulative Convertible 86,786
411 West Putnam Avenue
Greenwich, CT 06830
- - RVR Consulting Group, Inc. 8% Senior Secured Cumulative Convertible 11,670
P.O. Box 2148
Goldenrod, FL 32733
- - RVR Consulting Group, Inc. 8% Series D Junior Cumulative Convertible 2,020
P.O. Box 2148
Goldenrod, FL 32733
TOTAL 122,173
</TABLE>
<PAGE> 84
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
1.1 Underwriter's Agreement ***
1.2 Representatives Warrant Agreement***
3.1 Articles of Incorporation*
3.2 By-Laws*
4.1 Form of 10% Series C Cumulative Convertible Preferred Stock Certificate
4.2 Initial public offering warrant documents*
4.3 1994 Stock Option Plan****
4.4 1996 Stock Option Plan****
4.5 1996 Restricted Stock Option Plan for Health Care Professionals****
4.6 Outside Directors Stock Option Plan****
4.7 Consultant's Stock Option Plan
5.1 Opinion of Winderweedle, Haines, Ward & Woodman, P.A.***
5.2 Opinion of Epstein Becker & Green, P.A.***
10.1 Settlement Agreement with Haim Zitman dated April 1, 1999
10.2 Separation and Release Agreement with Eric S. Kaplan dated July 14, 1999
10.3 First Supplement to Loan Agreement between Complete Wellness Centers, Inc.
and RVR Consulting Group, Inc. dated August 31, 1999
10.4 Consulting Agreement with Structure Management, Inc. dated March 8, 1999
10.5 Fourth Supplement to Investment Agreement with Wexford Spectrum Investors
LLC and Imprimis Investors LLC dated August 31, 1999
10.6 Stock Purchase Agreement between Wexford Spectrum Investors LLC, Imprimis
Investors LLC and RVR Consulting Group, Inc. dated February 26, 1999
10.7 First Amendment to the Stock Purchase Agreement between Wexford Spectrum
Investors LLC, Imprimis Investors LLC and RVR Consulting Group, Inc. dated
August 31, 1999
10.8 Loan Conversion Agreement dated August 31, 1999 with Stratus Services
Group, Inc.
10.9 Consulting Agreement with Sharer Associates, Inc. dated August 18, 1999.
10.10 Consulting Agreement with The WorkSource, Inc., f/k/a Mecca Capital
Ventures, Inc. dated July 1, 1999 as amended November 30, 1999
10.11 Employment Agreement of Joseph J. Raymond, Jr.
10.12 Employment Agreement of Sergio R. Vallejo
10.13 Employment Agreement of Rebecca R. Irish
10.14 Kats Management Agreement***
10.15 Leases***
10.16 Termination Agreement with Michael T. Brigante***
10.17 Consulting Agreement with Structure Management, Inc.***
23.1 Consent of Ernst & Young LLP
23.2 Consent of Amper, Politziner & Mattia P.A.
23.3 Consent of Winderweedle, Haines, Ward & Woodman, P.A. (included in 5.1
above)***
23.4 Consent of Epstein Becker & Green, P.A.***
24 Power of Attorney (see signature page)
27 Financial Data Schedule**
99.1 Court Judgement -- Friedlander Case
99.2 Legal Suit brought by C. Thomas McMillen dated November 12, 1999
99.3 Nasdaq Letter dated September 13, 1999
</TABLE>
* Incorporated by reference in Form SB-2A dated February 13, 1997
** Incorporated by reference on Form 10-KSB for year ending December 31, 1998
filed on March 31, 1999 and on Form 10-QSB for 3 month and 9 month period
ending September 30, 1999 filed on November 15, 1999.
*** Item will be filed by subsequent amendment.
**** Incorporated by reference on Form S-8 dated August 16, 1999
13
<PAGE> 85
ITEM 28. UNDERTAKINGS
(a) The Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
- Include any prospectus required by section 10(a)(3) of the
Securities Act;
- Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
and
- Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of securities at that time to be the initial bona fide
offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(b) The Registrant hereby undertakes to provide to the Representative, at
the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Representative to
permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(d) The Registrant hereby undertakes that it will:
(1) For determining any liability under the Act, treat the information
omitted from the form of prospectus filed as part of the Registration Statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant under Rule 424(b)(1) or (4) or 497(h) under the Act
as part of this Registration Statement as of the time the Commission
declared it effective.
<PAGE> 86
(2) For determining any liability under the Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
(e) The Registrant hereby undertakes that if the underwriter(s) in the
offering covered by this Registration Statement enter into transactions with any
of the selling securityholders named herein, or waive lock-ups applicable to
such selling securities holders, then:
(1) if such transaction or waiver of lock-up relates to not less than
five percent nor more than ten percent of the registered selling security
holders securities, the Registrant will file a "sticker" supplement pursuant to
Rule 424(c) under the Act relating thereto; and
(2) if such transaction or waiver of lock-up relates to more than ten
percent of the registered selling security holders securities, the Registrant
will file a post-effective amendment to the registration statement relating
thereto.
<PAGE> 87
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2, and has authorized this
Registration Statement to be signed on its behalf by the undersigned in
Winter Park, FL, on December 22, 1999.
COMPLETE WELLNESS CENTERS, INC.
By: /s/ JOSEPH J. RAYMOND, JR.
---------------------------
Joseph J. Raymond, Jr.,
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph J. Raymond ,Jr. and Sergio R.Vallejo, and
each of them singly, as true and lawful attorneys-in-fact and agents with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities to sign the registration statement filed
herewith and any or all amendments to said registration statement, including
post-effective amendments and registration statements filed pursuant to Rule 462
and otherwise, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission
granting unto said attorneys-in-fact and agents the full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the foregoing, as full to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his substitute, may lawfully do
or cause to be done by virtue hereof.
Witness our hands on the date set forth below. In accordance with the
requirements of the Securities Act of 1933, this Registration Statement was
signed by the following persons in the capacities and on the dates stated.
<TABLE>
<S> <C> <C>
/s/ JOSEPH J. RAYMOND, JR.. Chairman of the Board, Chief December 22, 1999
- - --------------------------------- Executive
Joseph J. Raymond, Jr. Officer, and Director
(Principal Executive Officer)
/s/ SERGIO R. VALLEJO President, Chief Operating Officer, December 22, 1999
- ------------------------------ and Director
Sergio Vallejo
/s/ REBECCA R. IRISH Vice President, Chief December 22, 1999
- -------------------------------- Financial Officer and Assistant Secretary
Rebecca R. Irish (Principal Financial and Accounting
Officer)
/s/ EUGENE SHARER Director December 22, 1999
- - -------------------------------------
Eugene Sharer
/s/ JACK PAWLOWSKI Director December 22, 1999
- - -------------------------------------
Jack Pawlowski
/s/ DONALD S. RADCLIFFE Director December 22, 1999
- - -------------------------------------
Donald S. Radcliffe
</TABLE>
<PAGE> 88
EXHIBIT INDEX
SEQUENTIALLY
NUMBERED
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ --------------------------------------------------------------------------- ----
<S> <C> <C>
1.1 Underwriter's Agreement ***
1.2 Representatives Warrant Agreement***
3.1 Articles of Incorporation*
3.2 By-Laws*
4.1 Form of 10% Series C Cumulative Convertible Preferred Stock Certificate
4.2 Initial public offering warrant document*
4.3 1994 Stock Option Plan****
4.4 1996 Stock Option Plan****
4.5 1996 Restricted Stock Option Plan for Health Care Professionals****
4.6 Outside Directors Stock Option Plan****
4.7 Consultant's Stock Option Plan
5.1 Opinion of Winderweedle, Haines, Ward & Woodman, P.A.***
5.2 Opinion of Epstein Becker & Green, P.A.***
10.1 Settlement Agreement with Haim Zitman dated April 1, 1999
10.2 Separation and Release Agreement with Eric S. Kaplan dated July 14, 1999
10.3 First Supplement to Loan Agreement between Complete Wellness Centers, Inc.
and RVR Consulting Group, Inc. dated August 31, 1999
10.4 Consulting Agreement with Structure Management, Inc. dated March 8, 1999
10.5 Fourth Supplement to Investment Agreement with Wexford Spectrum Investors
LLC and Imprimis Investors LLC dated August 31, 1999
10.6 Stock Purchase Agreement between Wexford Spectrum Investors LLC, Imprimis
Investors LLC and RVR Consulting Group, Inc. dated February 26, 1999
10.7 First Amendment to the Stock Purchase Agreement between Wexford Spectrum
Investors LLC, Imprimis Investors LLC and RVR Consulting Group, Inc. dated
August 31, 1999
10.8 Loan Conversion Agreement dated August 31, 1999 with Stratus Services
Group, Inc.
10.9 Consulting Agreement with Sharer Associates, Inc. dated August 18, 1999.
10.10 Consulting Agreement with The WorkSource, Inc., f/k/a Mecca Capital
Ventures, Inc. dated July 1, 1999 as amended November 30, 1999
10.11 Employment Agreement of Joseph J. Raymond, Jr.
10.12 Employment Agreement of Sergio R. Vallejo
10.13 Employment Agreement of Rebecca R. Irish
10.14 Kats Management Agreement***
10.15 Leases***
10.16 Termination Agreement with Michael T. Brigante***
10.17 Consulting Agreement with Structure Management, Inc.***
23.1 Consent of Ernst & Young LLP
23.2 Consent of Amper, Politziner & Mattia P.A.
23.3 Consent of Winderweedle, Haines, Ward & Woodman, P.A. (included in 5.1
above)***
23.4 Consent of Epstein Becker & Green, P.A.***
24 Power of Attorney (see signature page)
27 Financial Data Schedu1e**
99.1 Court Judgement -- Friedlander Case
99.2 Legal Suit brought by C. Thomas McMillen dated November 12, 1999
99.3 Nasdaq Letter dated September 13, 1999
</TABLE>
* Incorporated by reference in Form SB-2A dated February 13, 1997
** Incorporated by reference on Form 10-KSB for year ending December 31, 1998
filed on March 31, 1999 and on Form 10-QSB for 3 month and 9 month period
ending September 30, 1999 filed on November 15, 1999.
*** Item will be filed by subsequent amendment.
**** Incorporated by reference on Form S-8 dated August 16, 1999
18
<PAGE> 1
EXHIBIT 99.4
FORM OF 10% SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK
CERTIFICATE
Ex
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS
OF THE
10% SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK
($.01 Par Value)
OF
COMPLETE WELLNESS CENTERS, INC.
- --------------------------------------------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
- --------------------------------------------------------------------------------
The undersigned DOES HEREBY CERTIFY that the following resolution was
duly adopted on December ______, 1999 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 4,000,000 of the 10,000,000 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:
<PAGE> 2
(i) The designation of such series of the Preferred Stock
authorized by this resolution shall be the 10% Series C Cumulative Convertible
Preferred Stock (the "Series C"). The total number of shares of the Series C
shall be 4,000,000.
(ii) Holders of shares of Series C will be entitled to
receive, when and as declared by the Board out of assets of the Corporation
legally available for payment, an semi-annual cash dividend per share equal to
(A) 10% of the Liquidation Preference (as defined below) thereof on the
semi-annual dividend payment date, payable in cash on June 30 and December 31
(each a "dividend payment date"). Unless full dividends on the Series C have
been paid, no dividends 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 Series C 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 Series C shall rank prior to the shares
of Common Stock and third behind the two other outstanding series (Series B and
Series D) of Preferred Stock of the Corporation, except that in the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of the Series C 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, an amount equal to the stated amount thereof
of the purchase price of $______ per share (or proportionate amount thereof in
the case of any fractional shares of Series C) plus an amount equal to all
dividends {whether or not earned or declared) accumulated and unpaid on the
shares of Series C to the date of final distribution, such determination to be
made, in the event that dividends remain unpaid as to one or more dividend
payment dates, by deeming the amount of any dividend not paid on the relevant
dividend payment date as having been added to the stated amount of the
underlying share as of such dividend payment date (the amount as so
<PAGE> 3
determined, the "Liquidation Preference" of a share of Series C). After payment
of the full amount of the Liquidation Preference, the holders of shares of
Series C 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 Series C 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) After three years from the Effective Date, the shares
of Series C will be optionally redeemable by the Corporation in their entirety
at the liquidation value thereof (plus accrued and/or unpaid dividends) on
thirty (30) days' written notice if the closing bid price of the Common Stock
for twenty (20) consecutive trading days ending not more than ten (10) days
prior to when notice of the call for redemption is given equals or exceeds 130%
of the closing bid price of the Common Stock on the Effective Date.
(A) At the option of the holder thereof and upon
surrender of for conversion to the Corporation at its corporate
headquarters at any time on or after _________________ each share
of Series C will be convertible into such number of fully paid
and nonassessable shares of Common Stock as is determined by
dividing the (x) the Liquidation Preference of such share
determined as of the date of conversion by 130% of the closing
bid price of a share of Common Stock on the Effective Date.
(B) No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon the
conversion of any share of Series C. If the conversion thereof
results in a fraction, an amount equal to such fraction
multiplied by the Current Market Price Per Share of Common Stock
as of the conversion date shall he paid to such holder in cash by
the Corporation.
(iv) To convert any Series C into Common Stock, the holder
shall give written notice to the Company (which notice may be given by
facsimile transmission} that the
<PAGE> 4
holder elects to convert the same. Promptly thereafter such holder
shall surrender the Series C at the office of the Company or of any
transfer agent for such stock. The Company shall, as soon as
practicable after receipt of such notice, issue and deliver to or upon
the order of such holder a certificate or certificates for the number
of shares of Common Stock to which the holder shall be entitled, and a
new stock certificate representing the remaining shares of Series C
(if any) not converted. The Company shall use its reasonable best
efforts to effectuate any such issuance within 72 hours and to
transmit the shares of Common Stock by messenger or overnight delivery
service to the address designated by such holder. Such conversion
shall be deemed to have been made immediately prior to the close of
business on the date such notice of conversion is received by the
Company. The person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares at the close
of business on such date.
IN WITNESS WHEREOF, Complete Wellness Centers, Inc. has caused
this Certificate to be made under the seal of the Corporation and
signed by Joseph J. Raymond, Jr., Chairman, and attested by Sergio R.
Vallejo, President, this ______ day of December, 1999.
COMPLETE WELLNESS CENTERS, INC.
Attest: By: /s/ Joseph J. Raymond,Jr
----------------------------
/s/ Sergio R. Vallejo
- ---------------------
<PAGE> 1
EXHIBIT 99.10
CONSULTANT STOCK PLAN
I. Purpose of the Plan.
The purpose of this Plan is to further the growth of Complete Wellness
Centers, Inc. and its subsidiaries (together being the "Company") by
allowing the Company to compensate consultants and certain other persons
providing bona fide services to the Company, through the award of
Complete Wellness Centers, Inc. common stock, and/or options to purchase
same.
II. Definitions.
Whenever used in this Plan, the following terms shall have the
meanings set forth in this Section:
1. "Award" means any grant of Common Stock, or options to purchase
Common Stock made under this Plan.
2. "Board of Directors" means the Board of Directors of Complete
Wellness Centers, Inc.
3. "Code" means the Internal Revenue Code of 1986, as amended.
4. "Common Stock" means the common stock, $.0001665 par value per
share, of Complete Wellness Centers, Inc.
5. "Date of Grant" means the day the Board of Directors authorizes
the grant of an Award or such later date as may be specified by
the Board of Directors as the date a particular Award will become
effective.
6. "Participant" means any person or entity that renders bona fide
services to the Company (including, without limitation, the
following: a person employed by the Company in a key capacity
(other than an officer or director of the Company); a person or
company engaged by the Company as a consultant; or a lawyer, law
firm, accountant or accounting firm; provided, however, that such
services must not be in connection with the offer or sale of
securities in a capital-raising transaction ).
7. "Subsidiary" means any corporation that is a subsidiary with
regard to as that term is defined in Section 424(f) of the Code.
III. Effective Date of the Plan.
The effective date of this Plan is March 8, 1999.
-1-
<PAGE> 2
IV. Administration of the Plan.
The Board of Directors will be responsible for the administration of
this Plan, and will grant Awards under this Plan. Subject to the express
provisions of this Plan, the Board of Directors shall have full
authority and sole and absolute discretion to interpret this Plan, to
prescribe, amend and rescind rules and regulations relating to it, and
to make all other determinations which it believes to be necessary or
advisable in administering this Plan. The determinations of the Board of
Directors on the matters referred to in this Section shall be
conclusive. The Board of Directors shall have sole and absolute
discretion to amend this Plan. No member of the Board of Directors shall
be liable for any act or omission in connection with the administration
of this Plan unless it resulted from the member's willful misconduct.
V. Stock Subject to the Plan.
The maximum number of shares of Common Stock as to which Awards may be
granted under this Plan is 475,000 shares. The Board of Directors may
increase the maximum number of shares of Common Stock as to which Awards
may be granted at such time as it deems advisable.
VI. Persons Eligible to Receive Awards.
Awards may be granted only to Participants.
VII. Grants of Awards.
Except as otherwise provided herein, the Board of Directors shall have
complete discretion to determine when and to which Participant Awards
are to be granted, and the number of shares of Common Stock as to which
Awards granted to each Participant will relate. No grant will be made
if, in the judgment of the Board of Directors, such a grant would
constitute a public distribution within the meaning of the Securities
Act of 1933, as amended (the "Act"), or the rules and regulations
promulgated thereunder.
VIII. Delivery of Stock Certificates.
As promptly as practicable after authorizing the grant of an Award,
Complete Wellness Centers, Inc. shall deliver to the person who is the
recipient of the Award, a certificate or certificates registered in that
person's name, representing the number of shares of Common Stock that
were granted. If applicable, each certificate shall bear a legend to
indicate that the Common Stock represented by the certificate was issued
in a transaction which was not registered under the Act, and may only be
sold or transferred in a transaction that is registered under the Act or
is exempt from the registration requirements of the Act.
-2-
<PAGE> 3
IX. Employment.
Nothing in this Plan or in the grant of an Award shall confer upon any
Participant the right to continue in the employ of the Company nor shall
it interfere with or restrict in any way the rights of the Company to
discharge any Participant at any time for any reason whatsoever, with or
without cause.
X. Laws and Regulations.
The obligation of Complete Wellness Centers, Inc. to sell and deliver
shares of Common Stock on the grant of an Award under this Plan shall be
subject to the condition that counsel for Complete Wellness Centers,
Inc. be satisfied that the sale and delivery thereof will not violate
the Act or any other applicable laws, rules or regulations.
XI. Withholding of Taxes.
If subject to withholding tax, the Company shall be authorized to
withhold from an Participant's salary or other cash compensation such
sums of money as are necessary to pay the Participant's withholding tax.
The Company may elect to withhold from the shares to be issued hereunder
a sufficient number of shares to satisfy the Company's withholding
obligations. If the Company becomes required to pay withholding taxes to
any federal, state or other taxing authority as a result of the granting
of an Award and the Participant fails to provide the Company with the
funds with which to pay that withholding tax, the Company may withhold
up to 50% of each payment of salary or bonus to the Participant (which
will be in addition to any other required or permitted withholding),
until the Company has been reimbursed for the entire withholding tax it
was required to pay.
XII. Termination of the Plan.
The Board of Directors may suspend or terminate this Plan at any time or
from time to time, but no such action shall adversely affect the rights
of a person granted an Award under this Plan prior to that date.
XIII. Delivery of Plan.
A copy of this Plan shall be delivered to all participants, together
with a copy of the resolution or resolutions of the Board of Directors
authorizing the granting of the Award and establishing the terms, if
any, of participation.
-3-
<PAGE> 1
EXHIBIT 10.1
SETTLEMENT AGREEMENT WITH HAIM ZITMAN DATED APRIL 1, 1999
SETTLEMENT AGREEMENT
Agreement made as of the lst day of April, 1999, by and between on
the one hand Haim Zitman, residing at 320 East 52nd Street, Apt. 14A, New York,
New York 10022 ("Plaintiff"), and on the other hand (i) Complete Wellness
Centers, Inc. ("CWC"), a corporation organized under the laws of the State of
Delaware, whose principal place of business is 666 Eleventh Street, N.W., Suite
200, Washington, D.C. 20001, and (ii) Complete Wellness Weight Management, Inc.,
a corporation organized under the laws of the State of Delaware (collectively
"Defendants"). Plaintiff and Defendants agree as follows:
1. Simultaneously with the execution of this Settlement
Agreement, counsel for Plaintiff and Defendants shall execute the Stipulation
and Order Dismissing Action With Prejudice (in the form attached hereto), which
will be presented within three business days thereafter to the Court (Judge
William H. Pauley) to be "So Ordered."
2. By not later than one hundred eighty (180) days after the date
of this Settlement Agreement, CWC shall cause to be registered non-restricted,
freely tradeable shares of CWC common stock whose aggregate offering price on
the day the secondary goes to market will equal $80,000. Such shares shall be
issued and registered as follows: "Haim Zitman."
3. If, within CWC's sole discretion or otherwise, it registers no
non-restricted, freely tradeable share of CWC common stock within one hundred
eighty days after the date of this Settlement Agreement, CWC may, prior to the
expiration of the foregoing one hundred eighty day period, issue a certified or
bank check in the amount of $80,000, payable to
<PAGE> 2
"Haim Zitman" and "Sheldon Eisenberger, As Attorney For Haim Zitman," and
deliver same to Sheldon Eisenberger.
4. If CWC either registers and delivers the stock as provided in
paragraph two above, or pays the $80,000 as provided in paragraph three above,
then Defendants shall have no further obligations to Plaintiff.
5. Contemporaneously with the execution of this Settlement
Agreement, CWC shall sign and deliver (i) the original of the Affidavit of
Confession of Judgment (in the form attached hereto), and (ii) the original of
the Promissory Note (in the form attached hereto) upon which the Affidavit of
Confession of Judgment is based, to Sheldon Eisenberger, who shall hold both
documents in escrow. If the one hundred eighty day period referred to in
paragraphs two and three above expires and CWC has failed to register and
deliver the $80,000 worth of non- restricted, freely tradeable shares of CWC
common stock, or, alternatively, has failed to deliver the certified or bank
check in the amount of $80,000, Plaintiff shall have the right to enter and
enforce immediately the original of the Affidavit of Confession of Judgment,
based upon the original of the Promissory Note. With respect to the Promissory
Note, Defendants agree to waive the notice requirement of presentment and
demand. If CWC registers and delivers the stock or pays the $80,000 pursuant to
paragraphs two and three above, respectively, then Sheldon Eisenberger shall
return the original Affidavit of Confession of Judgment and the original
Promissory Note to Flemming, Zulack & Williamson, LLP within three business days
thereafter.
6. In consideration of the terms of this Settlement Agreement,
Plaintiff and Defendants agree to execute and exchange general releases in the
forms attached hereto. The attorneys for each party shall hold the general
releases in escrow. If CWC registers and delivers the stock or pays the $80,000
pursuant to paragraphs two and three above, respectively, then
<PAGE> 3
Plaintiff's and Defendants' attorneys shall exchange the general releases they
are holding in escrow within three business days thereafter (or, in the case of
$80,000 payment, after the check is negotiated and clears).
7. This Agreement shall be construed and enforced under the laws
of the State of New York. The Court shall retain jurisdiction with respect to
the enforcement of this Settlement Agreement or any dispute arising therefrom.
Plaintiff and Defendants consent to jurisdiction in the Southern District of New
York, and, in the event that the Southern District of New York refuses to
exercise jurisdiction, in any state court of New York State.
8. Plaintiff and Defendants are entering into this Agreement to
settle the action pending in the United States District Court for the Southern
District of New York captioned "Haim Zitman v. Complete Wellness Centers, Inc.
and Complete Wellness Weight Management, Inc.", Index No.98 Civ. 8409. This
Agreement does not constitute and shall not be construed to constitute an
admission of any liability by Defendants in connection with this action. This
Agreement is being entered into by Defendants solely as a compromise of disputed
claims.
9. CWC represents that at the present time it has no intention of
submitting a bankruptcy petition.
10. The terms of this Settlement Agreement, including the amount of
any consideration paid, shall be kept confidential and shall not be directly or
indirectly disclosed by Plaintiff or Defendants or any of their employees,
agents, or attorneys, except by written agreement signed by Plaintiff and
Defendants, Court Order, or as required by law, nor shall any settlement
agreement or release be filed in any court or introduced in evidence in any
action for any purpose whatsoever by anyone, other than in an action between
Plaintiff and Defendants
<PAGE> 4
hereto to enforce or interpret its terms or to seek modification of this
paragraph, except as otherwise ordered by a court of competent jurisdiction.
IN WITNESS WHEREOF, Plaintiff and Defendants have executed this
Settlement Agreement this 1st day of April 1999.
COMPLETE WELLNESS CENTERS, INC.
BY: /s/ Joseph J. Raymond Jr.
---------------------------
An Authorized Officer JOSEPH J. RAYMOND JR.
COMPLETE WELLNESS WEIGHT
MANAGEMENT, INC.
BY: /s/ Joseph J. Raymond Jr.
---------------------------
An Authorized Officer JOSEPH J. RAYMOND JR.
/s/ Haim Zitman
- ---------------
HAIM ZITMAN
<PAGE> 1
EXHIBIT 10.2
SEPARATION AND RELEASE AGREEMENT WITH ERIC S. KAPLAN DATED JULY 14, 1999
SEPARATION AGREEMENT AND RELEASE
This Separation Agreement and Release ("Separation Agreement") entered into
this 14th of July, 1999, by and between Complete Wellness Centers, Inc.
("Company") and Eric Kaplan and J.E.M., Inc. ("collectively referred to as
Employee"), contains the terms and conditions by which Employee's employment and
consulting relationship with Company will expire as of June 30, 1999 (the
"Termination date").
1. Consideration - In exchange for Employee's execution of this
Agreement, and in full and complete settlement of all employment claims or
disputes, known or unknown, asserted or unasserted and compliance with the
conditions and obligations contained herein, Company agrees to pay, grant or
provide Employee with the consideration listed on the schedule attached hereto
as Exhibit "A." If Employee refuses to sign this Agreement, he will receive only
his wages through June 18, 1999 and will be entitled to exercise his vested
stock options according to the terms of Company's stock option plans. In either
case, Employee may be eligible for COBRA coverage or should seek other health
insurance coverage.
2. Effective Date and Notice of Rights - Pursuant to the Older Workers
Benefits Protection Act, Employee has a twenty-one (21) day period from July 14,
1999 (date of receipt) to consider and accept this Agreement. The "Effective
Date" of the Agreement shall be the date eight (8) days after the date on which
Employee executes this Agreement, unless Employee revokes this Agreement,
pursuant to the provisions of this paragraph. Employee acknowledges that he is
entitled to and has received at least twenty-one (21) days from the date of
receipt of this Agreement to review and consider its terms. Employee is advised
to seek legal counsel to ask any questions regarding the terms of this
Agreement, including, but not limited to, the definitions of words and the
meanings of phrases, sentences or paragraphs which Employee does not understand.
Employee further understands that he will have an additional seven (7) days
after execution of this Agreement in which to revoke his execution and
acceptance. This Agreement will not be effective or enforceable, nor will any of
the additional consideration described in paragraph one be paid, until after the
seven (7) day revocation period has expired. Again, Employee is encouraged to
discuss the contents and advisability of signing this Agreement with an attorney
of his choosing.
<PAGE> 2
Employee understands that upon the Effective Date this Agreement becomes
final and binding. Employee further acknowledges that this Agreement shall in no
way be construed as an admission by Company or any agent, affiliate, director,
officer or employee that it or they have acted wrongfully with respect to
Employee or any other person, or that Employee has any rights against Company or
any of its agents, affiliates, directors, officers or employees.
3. Complete Release - Employee hereby irrevocably and unconditionally
releases, acquits, and forever discharges Company, its agents, employees,
officers, directors, governing board, attorneys and any other persons acting on
its behalf, of and from any and all claims, defenses, actions, suits or demands,
known or unknown, in law or in equity, of any kind whatsoever, including, but
not limited
to, all matters relating to or arising out of Employee's employment with
Company. This release covers, without limitation, any claims under Title VII of
the Civil Rights Act of 1964, as amended; the Florida Civil Rights Act of 1977,
as amended (Chapter 760, Florida Statutes); Chapter 151B, Mass. Ann. Laws; the
Federal Age Discrimination in Employment Act, as amended; the Occupational
Health and Safety Act; Executive Orders 11246 and 11478; the National Labor
Relations Act, as amended; the Fair Labor Standards Act of 1938, as amended; the
Family Medical Leave Act; any whistleblowers act; and any other federal or state
law, administrative rule or municipal ordinance, and includes any claims founded
in tort, contract or any other common law or equitable basis of action, from the
beginning of time up to and including the date of execution by Employee of this
Release. The provisions of this paragraph regarding release shall be mutual and
reciprocal with Company agreeing to release its claims against Employee.
4. Board of Directors - Employee agrees that this Agreement shall serve
as notice of his resignation as President of Company as of the Effective Date
and acknowledges that he will not seek or accept renomination or reappointment
of his position on Company's Board of Directors after his current term expires
in July 1999. Furthermore, Employee will not attend any further meetings of the
Board of Directors.
5. Stock and Stock Options - With the exception of 16,600 vested options
initially granted to Employee on or about 8/26/96, Employee agrees that during
the twelve (12) month period following the Effective Date, he will not sell or
cause to be sold more than five thousand (5,000) shares of Company stock during
any calendar month unless, in the sole discretion of Hornblower & Weeks
additional shares may be sold by Employee without affecting the market price of
Company's stock. In addition, Employee will not sell any shares acquired via the
aforementioned 16,600 options if, in the opinion of Hornblower & Weeks, sale of
those options will have a substantial negative affect on the market price of
Company's stock. Employee agrees that all shares of Company stock sold by him
will be sold utilizing the firm of Hornblower & Weeks as broker and agent.
6. Public Announcement - Company and Employee agree to work in good faith
to write a mutually agreeable announcement to be published regarding Employee's
separation from the Company.
7. Representations - Employee represents and acknowledges that in
executing this Agreement he has not relied and does not rely upon any
representation or statement not set forth herein made by Company or any of its
agents, representatives or attorneys with regard to the subject matter, basis or
effect of this Agreement or otherwise. Company represents that this Agreement
has been duly authorized and executed and delivered by Company and constitutes
the legal, valid and binding obligation of Company, enforceable in accordance
with its terms.
8. Confidentiality and Non-Solicitation. As a result of employment with
Company, Employee had access to confidential material and information belonging
to the Company including, without limitation, client lists, procedure manuals,
employee records, client records, sales and marketing techniques, computer
programs, the identity of specialized consultants and contractors, and
management strategies. This confidential information was acquired or developed
by the Company at considerable expense. It is therefore, a unique and valuable
asset of the Company and its remaining confidential is of extreme importance to
Company. Employee acknowledges the
<PAGE> 3
importance of keeping all information confidential and will not disclose any
confidential information made available to or acquired by Employee in the course
of employment to any person, firm, corporation, association or other entity for
any reason or purpose. Nothing in this Agreement, however, shall prohibit
Employee from utilizing those skills, abilities, knowledge, material and
information that he possessed prior to employment by Company. Furthermore,
Employee agrees that he will not, for a period of one year after the effective
date, directly or indirectly, for himself or on behalf of any other person or
entity, solicit, interfere with or endeavor to entice away from the Company any
Client or employee of the Company. For purposes of this Agreement, the term
"Client" shall mean any person or entity that received service of any type from
Company during the one year period immediately preceding the last day of
Employee's employment with Company. By executing this Agreement, Employee
acknowledges that a breach of this paragraph will give rise to irreparable and
continuing injury to the Company, and further agrees that the Company or its
successors and assigns may obtain injunctive relief against the breach or
threatened breach of the provisions of this paragraph, in addition to any other
legal remedies which may be available to it. If any court refuses to enforce
this paragraph, because it is more extensive (as to time, geographic area, scope
of business or otherwise) than is necessary to protect the business and goodwill
of the Company, it is agreed between Employee and Company that this paragraph
shall be modified to the extent necessary to permit the terms hereof to be
enforced in any such legal proceeding. Furthermore, this Agreement, its
existence, its terms, and the existence and content of all discussions regarding
the settlement of claims between the Parties (including, without limitation, the
amount of consideration, offers, counteroffers, and other terms or conditions
discussed or agreed upon), are confidential and may be disclosed only to the
Parties' attorneys or tax advisors or to taxing authorities. This Paragraph of
the Agreement addressing non-solicitation shall survive the expiration of the
Agreement. This Paragraph of the Agreement shall supplant and replace any and
all agreements previously made between the parties purporting to be or contain
confidentiality, non-solicitation, or non-competition restrictions on Employee.
9. Non-Disparagement - It is understood that Employee may not always
agree with the policies, procedures and practices of Company. Employee agrees,
however, that it is Employee's duty to support the Company and its actions and,
therefore, agrees that Employee will not criticize or make any disparaging
remarks about Company or its officers, managers, attorneys, or other employees.
Company agrees that the terms of this Paragraph are mutual and it will not
criticize or make disparaging remarks about Employee. This Paragraph shall
survive expiration of this Agreement.
10. Violations of Paragraphs 8 or 9 - Should Employee violate the
provisions of Paragraphs 8 or 9 above, Company's obligation to pay any further
consideration or transfer stock due under this Agreement shall cease. Company
shall not, however, cease payment of consideration or transfer of stock without
first obtaining a sworn statement from an individual or entity solicited by
Employee or an individual having first hand knowledge of Employee's breach of
confidentiality or disparagement of Company. This Paragraph in no way limits or
precludes Company's rights to pursue any and all available legal remedies for a
violation of Paragraphs 8 or 9. Employee acknowledges that a breach of this
agreement will give rise to irreparable and continuing injury to the Company,
and further agrees that the Company or its successors and assigns may obtain
injunctive relief against the breach or threatened breach of Paragraphs 8 or 9,
in addition to any other legal remedies which may be available to it.
11. Severability - Whenever a conflict arises between the provisions of
this Agreement and any statute, prevailing law, judicial decision, ordinance or
regulation, the latter shall prevail, but in such event the provisions of this
Agreement effected shall be construed and limited only to the extent necessary
to bring them within the requirements of such law or decision and in no event
shall any illegality or unenforceability offset the remaining provisions or
remaining portions of this Agreement.
12. Assignment - The rights and obligations of Company under this
Agreement shall inure to the benefit and shall be binding upon its successors
and assigns. Employee shall not be entitled to assign or delegate any of his
duties or benefits under this Agreement.
13. Entire Agreement - This Agreement contains the entire Agreement and
supersedes all prior or contemporaneous agreements or representations, written
or oral, except as expressly referenced or incorporated herein. This Agreement
may not be amended orally, but may only be amended by a written agreement signed
by both Company and Employee.
14. Applicable Law - This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida without regard to its conflicts
of law doctrine, and Company and Employees expressly submit themselves to the
exclusive jurisdictions of the state and federal courts of Florida for the
resolution of any disputes which arise under this Agreement. Venue for any
action or proceeding arising out of this Agreement shall lie in Palm Beach
County.
<PAGE> 4
Dated: July 14, 1999
COMPLETE WELLNESS CENTERS, INC.
By: /s/ JOSEPH J. RAYMOND JR. /s/ ERIC KAPLAN
----------------------------------- -----------------------------
Joseph J. Raymond Jr. ERIC KAPLAN
As its: Chief Executive Officer
SCHEDULE A
1. Company shall continue indemnification of Employee, whether or
not he is employed by the Company, pursuant to the terms and
conditions of the previously executed Indemnification Agreement.
The parties agree that a copy of Company's indemnification
agreement with Employee is unavailable but that the terms and
conditions of the attached Indemnification Agreement with
Indemnitee's name deleted are the same as those included in the
Indemnification Agreement attached hereto as Exhibit "A" and
shall be binding upon the parties.
2. Employee is currently and shall remain covered by Company's
General Partner and Management Liability Policy for so long as
the applicable statute of limitations of claims against Employee
shall run.
3. Beginning eight days after execution of this Agreement and
continuing on the first day of each month thereafter through and
including June 1, 2000 or until Company has transferred stock
with a value totalling two hundred thousand and no/100 dollars
($200,000), whichever comes first, Company shall transfer a
minimum of 5,000 registered shares of Company stock to Employee.
The total value of stock transferred at the
<PAGE> 5
end of each month shall be calculated by multiplying the number
of shares transferred by the stock price listed in the Wall
Street Journal on the date each transfer was made. For example,
if Company transfers 5,000 shares on July 1, 1999 and the listed
stock price on that day is $2.00 per share and 5,000 shares on
August 1, 1999 and the listed stock price on that day is $3.00
per share, then the total value of stock transferred as of August
1, 1999 shall be $25,000 (the value of each share transferred is
determined as of the date of the transfer and does not change if
the market price subsequently changes). Company shall transfer
stock with a total value of $200,000 on or by July 1, 2000.
Therefore, for example, if the total value of stock transferred
to Employee through and including June 1, 2000 equals $180,000
and the listed stock price on July 1, 2000 is $2.00 per share,
then Company shall transfer 10,000 shares of registered stock to
Employee on July 1, 2000. If the first day of any month falls on
a holiday or weekend or for any other reason the stock price is
not listed in the Wall Street Journal then value calculations and
transfers shall be made on the next business day on which the
stock price is published.
4. Company shall pay attorney Gary Gerson the total sum of six
thousand and no/100 for attorney's fees for services to Employee.
This sum shall be paid in six equal monthly installments of one
thousand dollars ($1,000) beginning eight days after execution of
this Agreement and continuing the first of each month thereafter
until the sum of $6,000 has been paid.
5. The exercise period of each option shall be extended to a date
ending five years after the date each option was issued. A
schedule of Employee's options is attached hereto as Exhibit "B."
<PAGE> 6
6. Company shall pay Employee the sum of ten thousand and no/100
dollars ($10,000) within eight (8) days of his execution of the
Agreement. Company will not withhold any taxes or other deduction
from this sum and Employee agrees that he shall be responsible
for payment of any withholdings, taxes, penalties, interest or
assessments found to be due as a result of this payment and shall
indemnify Company for said amounts. At the request of Employee,
said payment shall be made to J.E.M., Inc.
7. All payments made or other consideration given under this
Agreement, except as provided in Paragraph 6 above, shall be made
or given to Eric Kaplan, individually (with the exception of
payments made to G. Gerson). Eric Kaplan and J.E.M., Inc may then
distribute payments made or consideration given between them in
any manner mutually agreed upon by them.
Dated: July 14, 1999
COMPLETE WELLNESS CENTERS, INC.
By: /s/ Joseph J. Raymond Jr. /s/ Eric Kaplan
----------------------------------- -----------------------------
As its: Chief Executive Officer ERIC KAPLAN, INDIVIDUALLY AND AS
------------------------------- PRESIDENT, J.E.M., INC.
<PAGE> 1
EXHIBIT 10.3
FIRST SUPPLEMENT TO LOAN AGREEMENT BETWEEN COMPLETE WELLNESS CENTERS, INC. AND
RVR CONSULTING GROUP, INC. DATED AUGUST 31, 1999
FIRST SUPPLEMENT TO LOAN AGREEMENT
FIRST SUPPLEMENT TO LOAN AGREEMENT, dated as of August 31, 1999 (this
"First Supplement"), by and among Complete Wellness Centers, Inc., a Delaware
corporation (the "Company"), and RVR Consulting Group, Inc. ("RVR").
WHEREAS, the Company and RVR are parties to the Loan Agreement,
dated as of February 19, 1999;
WHEREAS, pursuant to the Loan Agreement dated as of February 19,
1999 by and among the Company and RVR provided to the Company a
$100,000 term loan, of which the full $100,000 principal amount is
presently outstanding and due and payable by the Company to RVR;
WHEREAS, in order to permit the Company to meet certain
requirements for the continued listing of its Common Stock on the
NASDAQ SmallCap market, the Company and RVR desire to restructure the
Loan in the Company in the manner provided in this First Supplement;
WHEREAS, RVR desire to exchange the Loan held by them for shares
of a new series of Junior Convertible Preferred Stock, $0.01 par value
per share, of the Company (the Series D Junior Preferred Stock), which
Preferred Stock shall have the rights as described in the Certificate
of Designation (the Certificate) attached hereto as Exhibit A; and
WHEREAS, capitalized terms used in this First Supplement without
definition shall have the respective meanings ascribed to them in the
Loan Agreement.
It is therefore agreed as follows:
8. Exchange of Loan for Shares. RVR hereby agrees to exchange $100,000
principal amount of the Loan for newly issued shares of Series D
Junior Convertible Preferred Stock
<PAGE> 2
(collectively, the Shares). The Certificate in the form of Exhibit A
attached hereto shall be filed with the Secretary of State of the
State of Delaware on the date hereof, the Certificate having been
approved by the Board of Directors of the Company and by RVR. New
certificates representing validly issued, fully paid and nonassessable
shares of the Preferred Stock as provided in the Certificate are being
issued to RVR. The Loan is hereby deemed paid in full and the
promissory note evidencing the Loan (the Note) shall be marked
canceled and returned to the Company.
9. Issuable Common Stock. The Common Stock issuable upon conversion of
the Preferred Stock shall constitute Registrable Securities for
purposes of the Registration Rights Agreement.
10. Representations and Warranties of RVR. RVR represents and warrants to
the Company as follows:
RVR is acquiring the Shares for its own account and not on
behalf of any other person, and not with a view to sale or distribution in whole
or in part in a manner that would violate the Securities Act of 1933, as amended
(the Act).
RVR understands that the Shares have not been registered
under the Act and will be restricted securities within the meaning of the
regulations under the Act, and by reason of the foregoing the Shares may not be
resold in the absence of an effective registration statement under, or an
applicable exemption from, the Act.
RVR has full right, power and authority to execute and
deliver this Agreement and perform its obligations hereunder. This Agreement
constitutes the legal, valid and binding obligation of RVR, enforceable against
such Exchangee in accordance with its terms.
<PAGE> 3
11. Representations and Warranties of the Company.
The Company represents and warrants to RVR that the Shares
to be issued hereunder will, when issued and delivered to RVR, be duly
authorized, validly issued, fully paid and nonassessable.
The Company has full right, power and authority to execute
and deliver this Agreement and perform its obligations hereunder. This Agreement
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms.
12. Choice of Brokerage Firm. The parties hereto acknowledge and agree
that the Company shall have the right to specify the brokerage firm
that shall execute the sales of the common stock of the Company which
is acquired by RVR upon conversion of the Preferred Stock. Such
brokerage firm shall be obligated in each case to obtain the best
execution with respect to any such sales of common stock.
13. Choice of Law. This Agreement shall be governed by the laws of
Delaware without regard to the conflict of law provisions thereof.
14. Miscellaneous. This Agreement is a complete statement of the agreement
between the parties with respect to the matters provided for and there
are no agreements, promises, warranties, covenants or undertakings
other than as expressly set forth in this Agreement. This Agreement
supersedes any previous agreements and understandings between the
parties with respect to the matters provided for herein and cannot be
changed or terminated except in writing signed by each of the parties.
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this First Supplement as of
the date first above written.
COMPLETE WELLNESS CENTERS, INC.
By: /s/ Michael T. Brigante
Name: Michael T. Brigante
Title: Chief Financial Officer
RVR CONSULTING GROUP, INC.
By: /s/ Sergio Vallejo
--------------------------------
Name: SERGIO VALLEJO
--------------------------------
Title: Vice President
--------------------------------
<PAGE> 1
EXHIBIT 10.4
CONSULTING AGREEMENT WITH STRUCTURE MANAGEMENT, INC. DATED MARCH 8, 1999
CONSULTANT AGREEMENT
CONSULTANT AGREEMENT, made as of March 8, 1999 between Structure Management,
Inc. (the "Consultant"), and Complete Wellness Centers, Inc. (the
"Corporation").
WHEREAS, the Consultant is willing to provide its services to the Corporation
for the period under the terms and conditions hereinafter provided and the
Corporation wishes to assure itself of the services of the Consultant for the
period provided in this Agreement.
NOW, THEREFORE, WITNESSETH, that for and in consideration of the premises and of
the mutual promises and covenants herein contained, the parties hereto agree as
follows:
1. Engagement
The Corporation agrees to and does hereby engage the Consultant, and the
Consultant agrees to and does hereby accept engagement by the Corporation
in connection with the operation of the business and affairs of the
Corporation, for the period commencing on the date hereof and ending on
March 4, 2000. The period during which Consultant shall serve in such
capacity shall be deemed the "Engagement Period" and shall hereinafter be
referred to as such.
2. Services
2.1 The Consultant shall render to the Corporation the services described
below, with respect to which the Consultant shall apply his best
efforts and devote such time as shall be reasonably necessary to
perform his duties hereunder and advance the interests of the
Corporation. The Consultant shall report to the chief executive
officer of the Corporation and to such persons, as the chief executive
officer shall direct.
2.2 The services to be rendered by the Consultant to the Corporation shall
under no circumstances include the following:
a. Any activities which could be deemed by the Securities and
Exchange Commission to constitute investment banking or any other
activities requiring the Consultant to register as a
broker-dealer under the Securities Exchange Act of 1934.
b. Any activities which could be deemed to be in connection with the
offer or sale of securities in a capital-raising transaction.
<PAGE> 2
2.3 The services to be rendered by the Consultant to the Corporation
shall consist of the following:
2.3.1 Corporate Planning
a. Develop an in-depth familiarization with the Corporation's
business objectives and bring to its attention potential or
actual opportunities which meet those objectives or logical
extensions thereof.
b. Alert the Corporation to new or emerging high potential forms of
production and distribution which could either be acquired or
developed internally.
c. Comment on the Corporation's corporate development including
such factors as position in competitive environment,
financial performances vs. competition, strategies,
operational viability, etc.
d. Identify prospective, suitable merger or acquisition partners
for the Corporation, perform appropriate due diligence
investigations with respect thereto, advise the Corporation with
respect to the desirability of pursuing such prospects, and
assist the Corporation in any negotiations which may ensue
therefrom.
2.3.2 Financial Public Relations
a. Review and comment upon the Corporation's annual and quarterly
reports and other financial publications.
b. Bring to the Corporation's attention outstanding examples of
financial presentation in other industries, including both
overall reporting and portions of reports.
c. Review and comment upon the Corporation's financial public
relations plan.
d. Keep the Corporation informed on any externally originated
information disseminated about it.
2.3.3 Shareholder Relations
a. Review, comment on and advise the Corporation as to
responses to communications from shareholders.
b. Assist the Corporation in improving its shareholder
relations by developing long range programs for
shareholder communication.
c. Advise the Corporation as to selection of suitable public
relations counsel.
3. Compensation
3.1 For the services and duties to be rendered and performed by the
Consultant during the Engagement Period and in consideration of
<PAGE> 3
the Consultant's having entered into this agreement, the Corporation
agrees to issue to Consultant options to purchase 117,500 shares of
common stock of the Corporation (the "Consulting Stock") forthwith.
3.2 The issuance of the Shares by the Company upon the exercise of the
above options by the Consultant shall be registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to
a registration statement on Form S-8 (the "S-8") in accordance with
the General Instructions to Form S-8 and Rule 405 of Regulation C of
the Securities Act. The Corporation covenants and agrees forthwith to
arrange for the preparation and filing of an S-8 and the preparation
of a Plan Prospectus therefor. The Corporation shall maintain the S-8
in effect so long as any of the Consulting Stock shall remain unsold
or untransferred by the Consultant.
4. Secrets
Consultant agrees that any trade secrets or any other like information of
value relating to the business of the Corporation or any of its affiliates,
or of any corporation or other legal entity in which the Corporation or any
of its affiliates has an ownership interest of more than twenty-five
percent (25%), including but not limited to, information relating to
inventions, disclosures, processes, systems, methods, formulae, patents,
patent applications, machinery, materials, research activities and plans,
costs of production, contract forms, prices, volume of sales, promotional
methods, list of names or classes of customers, which he has heretofore
acquired during his engagement by the Corporation or any of its affiliates
or which he may hereafter acquire during the Engagement Period as the
result of any disclosures to him, or in any other way, shall be regarded as
held by the Consultant in a fiduciary capacity solely for the benefit of
the Corporation, its successors or assigns, and shall not at any time,
either during the term of the Agreement or thereafter, be disclosed,
divulged, furnished, or made accessible by the Consultant to anyone, or be
otherwise used by him except in the regular course of business of the
Corporation or its affiliates.
5. Assignment
This Agreement may be assigned by the Corporation as part of the sale of
substantially all of its business, provided, however, that the purchaser
shall expressly assume all obligations of the Corporation under this
Agreement. Further, this Agreement may be assigned by the Corporation to an
affiliate, provided that any such affiliate shall expressly assume all
obligations of the Corporation under this Agreement, and provided further
that the Corporation shall then fully guarantee the performance of the
Agreement by such affiliate. Consultant agrees that if this Agreement is so
assigned, all the terms and conditions of this Agreement shall be between
assignee and himself with the same force and effect as if said Agreement
had been made with such assignee in the first instance. This Agreement
shall not be assigned by the Consultant without the express written consent
of the Corporation.
6. Survival of Certain Agreements
<PAGE> 4
The covenants and agreements set forth in Article 4 and Article 5
shall survive the expiration of the Engagement Period and shall all
survive termination of this Agreement and remain in full force and
effect regardless of the cause of such termination.
7. Notices
7.1 All notices or permission to be given hereunder shall be delivered by
hand, telecopier, or recognized courier service to the party to whom
such notice is required or permitted to be given hereunder. Any
delivered to the address designated for such delivery by such party,
notwithstanding the refusal of such party or other person to accept
such delivery.
7.2 Any notice to the Corporation or to any assignee of the Corporation
shall be addressed as follows:
Complete Wellness Centers, Inc.
666 11th Street, N.W.
Suite 200
Washington, D.C. 20001
7.3 Any notice to Consultant shall be addressed as follows:
Mr. Jeffrey J. Raymond
Structure Management, Inc.
500 Craig Road, Suite 201
Manalapan, NJ 07726
7.4 Either party may change the address to which notice is to be
addressed, by notice, as provided herein.
8. Applicable Law
This Agreement shall be interpreted and enforced in accordance with the
laws of New Jersey.
9. Interpretation
Whenever possible, each Article of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
Article is unenforceable or invalid under such law, such Article shall be
ineffective only to the extent of such unenforceability or invalidity and
the remainder of such Article and the balance of this Agreement shall in
such event continue to be binding and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed the above Agreement as of
the day and year first written above.
COMPLETE WELLNESS CENTERS, INC.
By: /s/ Sergio Vallejo
----------------------------
President
- -------------------------------
STRUCTURE MANAGEMENT, INC.
By: /s/ Jeffrey J. Raymond
----------------------------
PRESIDENT
- -------------------------------
<PAGE> 1
EXHIBIT 10.5
FOURTH SUPPLEMENT TO INVESTMENT AGREEMENT WITH WEXFORD SPECTRUM INVESTORS
LLC AND IMPRIMIS INVESTORS LLC DATED AUGUST 31, 1999
FOURTH SUPPLEMENT TO INVESTMENT AGREEMENT
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
FOURTH SUPPLEMENT TO INVESTMENT AGREEMENT, dated as of August 31, 1999
(this "Fourth Supplement"), 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,
"Investors") and First Amendment ("First Amendment") to the Stock Purchase
Agreement ("Stock Purchase Agreement") dated as of February 26, 1999 by and
among the Investors and RVR Consulting Group, Inc., a Florida corporation
("RVR").
WHEREAS, the Company and the Investors are parties to the
Investment Agreement dated as of December 19, 1997, as previously
supplemented by the Supplements to the Investment Agreement dated as
of January 12, 1998 and July 2, 1998, respectively (such Supplements,
the "First Supplement" and the "Second Supplement" respectively);
WHEREAS, pursuant to the Third Supplement to the Investment
Agreement dated as of October 19, 1998, by and among the Company and
the Investors (the "Third Supplement" and such Investment Agreement,
as supplemented by the First Supplement, the Second Supplement and the
Third Supplement, the "Investment Agreement"), the Investors provided
to the Company a $350,000 revolving line of credit and a $125,000
acquisition financing commitment, of which the full $475,000 principal
amount is presently outstanding and due and payable by the Company to
the Investors (collectively, the "Loan");
WHEREAS, the Investors and RVR are parties to the Stock Purchase
Agreement dated as of February 26, 1999;
WHEREAS, in order to permit the Company to meet certain
requirements for the continued listing of the Company's common stock
on the NASDAQ SmallCap market, the Company, the Investors, and RVR
desire to restructure the Investors' investment in the Company in the
manner provided in this Fourth Supplement and the Investors and
<PAGE> 2
RVR desire to amend the Stock Purchase Agreement in the manner
provided in this First Amendment;
WHEREAS, the Investors desire to exchange a portion of the Loan
held by them for shares of the Company's Senior Convertible Preferred
Stock, $50 par value per share, (the "Preferred Stock"), which
Preferred Stock shall have the rights as described in the Company's
existing Certificate of Designation; and
WHEREAS, capitalized terms used herein without definition shall
have the respective meanings ascribed to them in the Investment
Agreement.
It is therefore agreed as follows:
15. Exchange of Loan for Shares. The Investors hereby agree to exchange
$100,000 principal amount of the Loan (the "Exchanged Portion") for
2,000 newly issued shares of Preferred Stock (collectively, the
"Shares"). The Company represents that the issuance of the shares has
been approved by the Board of Directors of the Company. New
certificates representing validly issued, fully paid and nonassessable
shares of the Preferred Stock as provided in the Certificate are being
issued to the Investors, with a certificate representing 1600 shares
of the Preferred Stock being issued to Imprimis and a certificate
representing 400 shares of the Preferred Stock being issued to
Wexford. The Exchanged Portion of the Loan is hereby deemed paid in
full.
16. Issuable Common Stock. The shares of common stock issuable upon
conversion of the Preferred Stock (collectively, the "Issuable Common
Stock"), together with any securities that may be issued in respect
thereof, shall constitute
<PAGE> 3
"Registrable Securities" for purposes of the Registration Rights
Agreement dated as of January 12, 1998 between the Investors and the
Company.
17. Amendments to Stock Purchase Agreement.
(a) The second sentence of Section 5(h) of the Stock
Purchase Agreement is hereby amended and restated by replacing it with the
following: "During the period January 1, 2000 to December 31, 2001 the Company
will make equal quarterly payments to Seller with respect to the Loan (the
principal amount of which shall be deemed to be reduced by $100,000 as of August
31, 1999) to repay the unpaid principal and arranged interest balance based on a
four year amortization schedule."
(b) Sec. 5 (e) of the Stock Purchase Agreement is hereby
amended and restated to include the following additional sentence:
"Notwithstanding the Restrictions of Transfer, and in addition to any rights it
may have with respect to the sale, retirement, hypothecation or other transfer
of the Preferred Stock under Section 5(b) hereof, and the prior sentence,
Purchaser hereby agrees to allow the Investors to convert, sell, retire,
hypotherate or transfer an additional 2,000 shares of Preferred Stock on or
after the date of this First Amendment."
18. Representations and Warranties of the Investors. Each Exchangee
represents and warrants to the Company as follows:
(a) Such Exchangee is acquiring the Shares for its own
account and not on behalf of any other person, and not with a view to sale or
distribution in whole or in part in a manner that would violate the Securities
Act of 1933, as amended (the "Act").
<PAGE> 4
(b) Such Exchangee understands that the Shares have not been
registered under the Act and will be "restricted securities" within the meaning
of the regulations under the Act, and by reason of the foregoing the Shares may
not be resold in the absence of an effective registration statement under, or an
applicable exemption from, the Act.
(c) Such Exchangee has full right, power and authority to
execute and deliver this Agreement and perform its obligations hereunder. This
Agreement constitutes the legal, valid and binding obligation of each Exchangee,
enforceable against such Exchangee in accordance with its terms.
19. Representations and Warranties of the Company
(a) The Company represents and warrants to each Exchangee
that the Shares to be issued hereunder will, when issued and delivered to the
Exchangee, be duly authorized, validly issued, fully paid and nonassessable.
(b) The Company has full right, power and authority to
execute and deliver this Agreement and perform its obligations hereunder. This
Agreement constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
20. Representations and Warranties of RVR
(a) RVR has full right, power and authority to execute and
deliver this agreement and perform its obligations hereunder.
(b) This Agreement constitutes the legal, valid and binding
obligation of RVR, enforceable against RVR in accordance with its terms.
21. Choice of Law. This Agreement shall be governed by the laws of
Delaware without regard to the conflict of law provisions thereof.
22. Miscellaneous. This Agreement is a complete statement of the agreement
between the parties with respect to the
<PAGE> 5
matters provided for and there are no agreements, promises,
warranties, covenants or undertakings other than as expressly set
forth in this Agreement. This Agreement supersedes any previous
agreements and understandings between the parties with respect to the
matters provided for herein and cannot be changed or terminated except
in writing signed by each of the parties.
IN WITNESS WHEREOF, the parties have executed this Fourth Supplement and
First Amendment as of the date first above written.
COMPLETE WELLNESS CENTERS, INC.
By: /s/ Joseph J. Raymond Jr.
---------------------------
Name: Joseph J. Raymond Jr.
Title: Chief Executive Officer
IMPRIMIS INVESTORS LLC
By: /s/ Frederick Simon
---------------------------
Name: Frederick Simon
Title: Sr. Vice President
WEXFORD SPECTRUM INVESTORS LLC
By: /s/ Frederick Simon
---------------------------
Name: Frederick Simon
Title: Sr. Vice President
RVR CONSULTING GROUP, INC.
By: /s/ Sergio Vallejo
---------------------------
Name: Sergio Vallejo
Title: Vice President
<PAGE> 1
EXHIBIT 10.6
STOCK PURCHASE AGREEMENT BETWEEN WEXFORD SPECTRUM INVESTORS LLC, IMPRIMIS
INVESTORS LLC AND RVR CONSULTING GROUP, INC. DATED FEBRUARY 26, 1999
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made and entered into as of
this 26th day of February, 1999, by and among IMPRIMIS INVESTORS LLC, a Delaware
limited liability company, having its principal place of business at c/o Wexford
Management LLC, 411 West Putnam Avenue, Greenwich, Connecticut 06830
("Imprimis"); WEXFORD SPECTRUM INVESTORS LLC, a Delaware limited liability
company, having its principal place of business at c/o Wexford Management LLC,
411 West Putnam Avenue, Greenwich, Connecticut 06830 (collectively, with
Imprimis, the "Seller"); and RVR CONSULTING GROUP, INC., a Florida corporation
having an address at c/o P.O. Box 2148, Goldenrod, Florida 32733 (the
"Purchaser").
WITNESSETH:
WHEREAS, the Seller owns 109,687 shares of the Senior Convertible
Preferred Stock of Complete Wellness Centers, Inc., a Delaware corporation (the
"Company"), par value $.01 per share (the "Preferred Stock");
WHEREAS, the Seller desires to sell, assign and convey to the
Purchaser 10,969 shares of the Preferred Stock (the "Shares"), and the Purchaser
desires to purchase and acquire such Shares from the Seller on and subject to
the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the respective representations and
warranties hereinafter set forth and of the mutual covenants and agreements
contained herein and other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound,
the parties hereto agree as follows:
1. Sale and Purchase. Subject to the terms and conditions contained
herein, the Seller hereby sells, transfers, assigns, conveys and delivers to the
Purchaser, and the Purchaser hereby purchases and accepts from the Seller, all
of the Seller's right, title and interest in and to the Shares, free and clear
of any liens, pledges, security interests, claims or encumbrances of any kind.
2. Purchase Price; Guarantee of Payment
(1) The purchase price for the Shares (the "Purchase Price") shall be
Five Hundred Thousand ($500,000) Dollars. On the date hereof (the "Closing
Date"), the Purchaser shall deliver to Seller via wire transfer of immediately
available funds the amount of Two Hundred Fifty Thousand ($250,000) Dollars as
partial payment of the Purchase Price (the "Initial Payment. The balance of the
Purchase Price shall be payable by the Purchaser to Seller in six (6)
<PAGE> 2
equal monthly installments of Forty-One Thousand Six Hundred Sixty-Six and
67/100 ($41,666.67) Dollars each, commencing on May 1, 1999 with the final
monthly installment due and payable on October 1, 1999 (the "Installment
Payments"). The Installment Payments shall be paid by wire transfer of
immediately available funds to an account (or accounts) designated by Seller.
(2) The full and timely payment of the Installment Payments is hereby
jointly and severally guaranteed by Messrs. Joseph Raymond, Jr., Sergio Vallejo
and Joseph Raymond, Sr. (the "Guarantors"). The Guarantors are the shareholders
of Purchaser. The foregoing guarantee shall be deemed to be absolute and
unconditional, and shall continue until all of the guaranteed obligations have
been paid in full. Notwithstanding the foregoing, the Seller may not proceed to
enforce the guarantee unless and until, following a default in payment of an
Installment Payment by Purchaser, the Purchaser has failed to cure such default
within five (5) days following its receipt of written notice of default from
Seller.
3. Representations and Warranties of Seller. Seller hereby represents and
warrants to, and agrees with, the Purchaser as follows:
3 .1. Organization and Good Standing. Each entity constituting the
Seller is a limited liability company duly organized, validly existing and in
good standing under the laws of the State of Delaware.
3.2. No Conflict.
(1) To the best of its actual knowledge, it being understood that
Seller has not engaged in any investigation of any kind, the execution and
delivery of this Agreement, and the consummation of the transactions
contemplated hereby, will not result in a breach, violation or default or give
rise to an event which with the giving of notice or after the passage of time,
or both, would result in a breach, violation or default of any of the terms or
provisions of the Company's Certificate of Incorporation, By-Laws or of any
statute, indenture, mortgage, deed of trust, loan agreement or other agreement,
instrument or restriction to which the Company is a party or by which the
Company or any of its assets may be bound or affected, or any order, rule
<PAGE> 3
or regulation of any court or governmental agency or body having jurisdiction
over the Company.
(2) The execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby, will not result in a
breach, violation or default or give rise to an event which with the giving of
notice or after the passage of time, or both, would result in a breach,
violation or default of any of the terms or provisions of the Seller's
respective Certificates of Formation, Operating Agreements or of any statute,
indenture, mortgage, deed of trust, loan agreement or other agreement,
instrument or restriction to which the Seller is a party or by which the Seller
or any of its assets may be bound or affected, or any order, rule or regulation
of any court or governmental agency or body having jurisdiction over the Seller.
3.3. Ownership of Preferred Stock. The 109,687 shares of Preferred
Stock owned by Seller are owned free and clear of all liens, pledges, security
interests, claims or encumbrances of any kind. The 109,687 shares of Preferred
Stock owned by the Seller have been duly authorized and validly issued and are
fully paid and non-assessable. There are no outstanding preemptive, conversion
or other rights, options, warrants or agreements granted or issued by or binding
upon the Seller for the purchase or acquisition of any shares of the Preferred
Stock.
4. Representations and Warranties of Purchaser. Purchaser hereby represents
and warrants to, and agrees with, the Seller as follows:
4.1. Organization and Good Standing. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Florida.
4.2. No Conflict. The execution and delivery of this Agreement, and
the consummation of the transactions contemplated hereby, will not result in a
breach, violation or default or give rise to an event which with the giving of
notice or after the passage of time, or both, would result in a breach,
violation or default of any of the terms or provisions of the Purchaser's
Certificate of Incorporation, By-Laws or of any statute, indenture, mortgage,
deed of trust, loan agreement or other agreement, instrument or restriction to
which the Purchaser is a party or by which the Purchaser or any of its assets
may be bound or affected, or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Purchaser.
4.3. Investigation by Purchaser. Purchaser is a sophisticated investor
and has conducted its own independent review and analysis of the business,
operations, assets, liabilities, results
<PAGE> 4
of operations, financial condition and prospects of the Company and acknowledges
that Seller has provided Purchaser with access to the records of the Company for
this purpose. Purchaser has acquired sufficient knowledge about the Company to
make an informed decision to enter into this Agreement, and in making such
decision is relying solely on its due diligence and the representations and
warranties contained herein.
5. Acknowledgments and Agreements of the Parties.
(1) To the maximum extent permissible under applicable law, Seller
hereby assigns to Purchaser all of its non-economic rights associated with its
ownership of the Preferred Stock, including but not limited to the power to
designate a majority of the Board of Directors of the Company (collectively, the
"Rights"). To effect the election of the Purchaser's designees to the Board of
Directors of the Company, the Seller agrees that on the date hereof it shall
appoint each of Purchaser's designees to the Board of Directors of the Company,
and shall cause each of Seller's designees to the Board of Directors of the
Company to resign. Purchaser agrees to the maximum extent permissible under
applicable law to designate one individual specified by Seller as a member of
the Board of Directors. Except as specifically provided below, Seller agrees
that it will not convert, retire, sell, hypothecate or otherwise transfer any of
the Preferred Stock, other than the Shares ( collectively, the "Restrictions on
Transfer") without the prior written consent of the Purchaser. In addition, on
the date hereof Seller agrees to execute an irrevocable proxy in favor of
Purchaser substantially in the form of Exhibit A attached hereto with respect to
the shares of the Company's common stock issuable upon the conversion of the
Preferred Stock owned by Seller converted with the consent of Purchaser pursuant
to the preceding sentence.
(2) In the event Purchaser elects to convert, sell, retire,
hypothecate or transfer, or otherwise engage in any transaction with respect to,
all or any portion of the Shares, then, (i) it shall provide Seller with ten
(10) days prior written notice of such election and of Seller's right to
participate therein, and (ii) notwithstanding the Restrictions on Transfer,
Seller shall have the right to take the same action as the Purchaser, or engage
in the same transaction as the Purchaser, as the case may be, with respect to
the same pro rata portion of the 98,718 shares of Preferred Stock retained by
Seller.
(3) In the event the Company is delisted from NASDAQ on or prior to
June 30, 1999 because of its failure to satisfy the minimum tangible net worth
test (whether or not additional tests are met), then Purchaser may elect, within
ten business days of its receipt of notification of delisting, to demand a
refund of all prior Installment Payments paid to Seller. Upon its receipt of
notice of such election delivered by Purchaser, Seller shall promptly refund to
Purchaser any and all Installment Payments previously received by Seller, and
the obligation of
<PAGE> 5
Purchaser to make future Installment Payments shall immediately terminate. The
Seller shall not be obligated under such circumstances to refund any portion of
the Initial Payment. Upon Purchaser's receipt of such refunded Installment
Payments ( or upon delivery of Purchaser's notice of election if no Installment
Payments were paid to Seller), Purchaser shall simultaneously re-convey to
Seller fifty (50%) percent of the Shares (a "Reconveyance").
(4) Seller hereby agrees not to pursue, except in concert with
Purchaser, any suit, action or claim against the Company, or against any board
member, employee, consultant or entity associated or affiliated with the Company
other than claims for contribution or indemnity. At the request of Purchaser and
in exchange for reciprocal releases, Seller shall release the Company and any
affiliates of the Company from any claims based on disputes arising prior to the
Closing Date, other than claims for contribution or indemnity.
5) Notwithstanding the Restrictions of Transfer, and in addition to
any rights it may have with respect to the sale, retirement, hypothecation or
other transfer of the Preferred Stock under Section 5(b) hereof, Purchaser
hereby agrees that Seller may convert, sell, retire, hypothecate or transfer (i)
10,969 shares of Preferred Stock on and after the date which is twenty-four (24)
months after the Closing Date, (ii) an additional 10,969 shares of Preferred
Stock (13,711 shares in the event of a Reconveyance) on and after the date which
is thirty-six (36) months after the Closing Date, and (iii) an additional 10,969
shares of Preferred Stock (13,711 in the event of Reconveyance) on and after the
date which is forty-eight (48) months after the Closing Date.
(6) Upon the earlier to occur of either (i) the date which is five (5)
years from the Closing Date or (ii) the date upon which the closing price for
the Company's common stock has equaled or exceeded Ten ($10) Dollars for twenty
(20) consecutive trading days, the Purchaser shall promptly reassign to Seller
the Rights, and the Restrictions on Transfer shall lapse and the Preferred Stock
shall cease to be subject to the Restrictions on Transfer.
(7) Purchaser represents that on or after February 12, 1999, the
Purchaser or its designee provided not less than $250,000 in working capital to
the Company. In addition, the Purchaser agrees that it or its designee shall
provide to the Company up to an additional $500,000 over the next twelve (12)
months to the extent necessary to meet the working capital requirements of the
Company.
(8) The Seller hereby agrees to restructure and extend the payment
terms of its $475,000 principal amount senior secured loan to the Company as
follows: during the period from the Closing Date to December 31, 1999 interest
only will be payable by the Company to Seller with respect to such loan. During
the period January 1,2000 to December 31,2001 the Company will make equal
quarterly payments to Seller with respect to such loan to repay the unpaid
principal and accrued interest based on a five year amortization schedule. The
Company will make a balloon payment to Seller equal to the full unpaid principal
balance and all accrued interest on January 31, 2002.
36
<PAGE> 6
(9) In the event Purchaser defaults in the performance of any of its
material obligations set forth in this Agreement, Purchaser shall promptly
reassign to Seller the Rights, and the Restrictions on Transfer shall lapse and
the Preferred Stock shall cease to be subject to the Restrictions on Transfer.
6. Survival; Indemnification.
6.1. Survival; Remedy for Breach. The covenants, agreements,
representations, warranties and indemnities of the parties hereto contained
herein or in any certificate, schedule or other writing attached hereto, or
required by the terms hereof to be delivered by Purchaser or Seller or their
respective affiliates, shall survive the Closing for a period from the Closing
Date until the expiration of the applicable statutory period of limitations
(giving effect to any waiver or extension thereof). Notwithstanding the
preceding sentence, any representation, warranty, covenant or agreement in
respect of which indemnity may be sought under Section 6 hereof shall survive
the time at which it would otherwise terminate if notice of the inaccuracy or
breach thereof, which shall include with reasonable specificity the elements of
such claim, shall have been given to the party against whom such indemnity may
be sought prior to such time.
6.2. Indemnification by Seller.
(1) Each of the entities comprising the Seller hereby jointly and
severally indemnify the Purchaser, its shareholders, officers, directors and
affiliates (collectively, the "Indemnitees") against and agree to hold each of
them ham1less from any and all damage, loss, liability, expense (including,
without limitation, reasonable out-of-pocket expense of investigation and
attorneys' fees and expenses in connection with any action, suit or proceeding
brought against or involving any Indemnitee) and cost (collectively,
"Indemnified Amounts") incurred or suffered by any Indemnitee arising out of any
misrepresentation or breach of warranty, covenant or agreement made or to be
performed by Seller pursuant to this Agreement.
(2) The agreements and indemnities of the Seller contained herein
shall be cumulative, except that an Indemnitee shall not recover more than once
for the same Indemnified Amount.
(3) The Indemnitees agree to give notice to the Seller promptly
after learning of the assertion of any claim, or the commencement of any suit,
action or proceeding, in respect of which indemnity may be sought hereunder;
provided, however, that the failure of an Indemnitee to give such notice shall
not constitute a waiver of its rights hereunder in respect of the claim, suit,
action or proceeding with respect to which such notice was required to have been
given hereunder.
(4) The Seller shall not be liable under this Section 6.2 for any
settlement effected without its consent of any claim, litigation or proceeding
in respect of which indemnity may be sought hereunder. No investigation by
Purchaser at or prior to the Closing shall relieve Seller of any liability
hereunder.
(5) The amount required to be paid to an Indemnitee by the Seller
for any Indemnified Amounts shall be paid not later than thirty (30) days after
receipt by the Seller of written notice from an Indemnitee stating that such
Indemnified Amounts have been incurred and the amount thereof and of the related
indemnity payment.
<PAGE> 7
6.3. Indemnification by the Purchaser.
(1) The Purchaser hereby indemnifies the Seller against and
agrees to hold it harmless from any and all damage, loss, liability, expense
(including, without limitation, reasonable out-of-pocket expenses of
investigation and reasonable attorneys fees and expenses in connection with any
action, suit or proceeding brought against or involving the Seller) and cost
incurred or suffered by the Seller (collectively, "Indemnified Amounts") arising
out of (i) any misrepresentation or breach of warranty, covenant or agreement
made or to be performed by the Purchaser pursuant to this Agreement or (ii) any
and all exercise of the Rights by Purchaser. The agreements and indemnities of
the Purchaser contained herein shall be cumulative, except that the Seller shall
not recover more than once for the same Indemnified Amount.
(2) The Seller agrees to give notice to the Purchaser promptly
after learning of the assertion of any claim, or the commencement of any suit,
action or proceeding, in respect of which indemnity may be sought hereunder;
provided, however, that the failure of the Seller to give such notice shall not
constitute a waiver of its rights hereunder in respect of the claim, suit,
action or proceeding with respect to which such notice was required to have been
given hereunder.
(3) The Purchaser shall not be liable under this Section 6.3 for
any settlement effected without its consent of any claim, litigation or
proceeding in respect of which indemnity may be sought.
(4) The amount required to be paid to the Seller by the Purchaser
for any Indemnified Amounts hereunder shall be paid not later than thirty (30)
days after receipt by the Purchaser of written notice from the Seller, stating
that such Indemnified Amounts have been incurred and the amount thereof and of
the related indemnity payment.
7. Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if sent by facsimile transmission and
confirmed by registered or certified mail, postage prepaid, addressed as
follows:
To Purchaser:
RVR Consulting Group, Inc.
P.O. Box 2148
Goldenrod, FL 32733
Attention: Joseph Raymond, Jr.
Facsimile No.: (407) 657-1132
To Seller:
Imprimis Investors LLC
Wexford Spectrum Investors LLC
c/o Wexford Management LLC
411 West Putnam A venue
Greenwich, Connecticut 06830
Attention: Kenneth Rubin
Facsimile No.: (203) 862- 7471
With a Copy To:
<PAGE> 8
Arthur Amron, Esq.
Facsimile: (203) 862- 7312
To the Guarantors:
Mr. Joseph Raymond, Jr.
c/o RVR Consulting Group, Inc.
P.O. Box 2148
Goldenrod, FL 32733
Facsimile No.: (407) 657-1132
Sergio Vallejo
c/o RVR Consulting Group, Inc.
P.O. Box 2148
Goldenrod, FL 32733
Facsimile No.: (407) 657-1132
Joseph Raymond, Sr.
c/o RVR Consulting Group, Inc.
P.O. Box 2148
Goldenrod, FL 32733
Facsimile No.: (407) 657-1132
or to such other addresses as shall be furnished by like notice by such party.
Any such notice or communication given by mail shall be effective upon receipt
thereof.
8. Arbitration. Any dispute arising out of or relating to this Agreement,
which cannot be settlement amicably without undue delay by the parties hereto,
shall be resolved by binding arbitration of one arbitrator selected by the
parties hereto under the rules of arbitration of the American Arbitration
Association. The award rendered by the arbitrator shall be final and binding,
upon both parties. Such arbitration shall be conducted in New York City, or such
other location as the parties may agree. The costs of such arbitration shall be
borne equally by the parties unless the arbitrator otherwise determines. All
parties hereby submit to the jurisdiction of the State of New York in connection
with the foregoing.
9. Further Assurances. Seller agrees that, at any time after the date
here, upon request of the Purchaser, it will do, execute, acknowledge and
deliver, or will cause t one, executed, acknowledged and delivered, all such
further acknowledgments, deeds, assignments, bills of sale, transfers,
conveyances, instruments, consents and assurances as may reasonably be required
for the better assuring and confirming to the Purchaser, its successors and
assigns, absolute ownership to the Shares to be sold to the Purchaser hereunder.
10. Modification. This Agreement and the Schedules annexed hereto contain
the entire agreement between the parties hereto and there are no agreements,
warranties or representations which are, not set forth herein. All prior
negotiations, representations, warranties, agreements and understandings are
superseded hereby. This Agreement may not be modified or amended except by an
instrument in writing duly signed by or on behalf of the parties hereto and
dated on or subsequent to the date hereof
11. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within the State.
<PAGE> 9
12. Binding Effect: Assignment. This Agreement shall be binding upon the
parties and inure to the benefit of the successors and assigns of the respective
parties hereto.
13. Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
14. Paragraph Headings. The paragraph headings in this Agreement are for
convenience of reference only and shall not be deemed to alter or affect any
provision hereof
15. Transaction Expenses. Notwithstanding anything else in this Agreement
to the contrary, the parties hereto shall each be responsible for the payment
of(and shall indemnify and hold the other parties hereto harmless against) any
and all of its or his own expenses, including, without limitation, the fees and
expenses of counsel, accountants and other advisers, arising out of or relating
directly or indirectly to the transactions contemplated by this Agreement,
whether or not such transactions are consummated in whole or in part.
16. Separability. If any provision of this Agreement is invalid, illegal,
or unenforceable, the balance of this Agreement shall remain in effect, and if
any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
17. Waiver. The waiver of one breach or default hereunder shall not
constitute the waiver of any other or subsequent breach or default.
18. No Agency. This Agreement shall not constitute any party the legal
representative or agent of the other, nor shall any party have the right or
authority to assume, create, or incur any liability or any obligation of any
kind, express or implied, against or in the name of or on behalf of the other
party.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
the day and date first above written.
IMPRIMIS INVESTORS LLC
By: /s/ Frederick Simon
---------------------------------
Title: Sr. Vice President
WEXFORD SPECTRUM INVESTORS LLC
By: /s/ Frederick Simon
---------------------------------
Title: Sr. Vice President
RVR CONSULTING GROUP, INC.
By: /s/ Joseph S. Raymond Jr.
/s/ Sergio Vallejo
---------------------------------
As to Section 2(b) and Sections 7 through 18 inclusive, only:
/s/ Joseph S. Raymond Jr.
- ------------------------------
Joseph Raymond, Jr.
/s/ Sergio Vallejo
- ------------------------------
Sergio Vallejo
/s/ Joseph S. Raymond Sr.
- -------------------------------
Joseph Raymond, Sr.
<PAGE> 10
IRREVOCABLE PROXY
The undersigned, Imprimis Investors LLC, hereby irrevocably appoints
RVR Consulting Group, Inc., or its nominee ("RVR"), with full power of
substitution as proxy for the undersigned, and hereby authorizes RVR to vote all
shares of Common Stock of COMPLETE WELLNESS CENTERS, INC. (the "Company")
acquired by Seller upon conversion of the Preferred Stock and registered in the
name of the undersigned, at any meeting of the stockholders of the Company, and
to execute a consent to be given by the stockholders of the Company, in such
manner as RVR may from time to time determine. This Irrevocable Proxy shall be
deemed to be coupled with an interest in favor of RVR and as such, shall be
irrevocable and shall survive the death, bankruptcy or incompetency of the
undersigned.
This irrevocable proxy is executed by the undersigned pursuant to the
terms of that certain Stock Purchase Agreement dated as of February 26, 1999 by
and among the undersigned, RVR and Wexford Spectrum Investors LLC (the
"Agreement"). Capitalized terms utilized herein and not defined herein shall
have the respective meanings accorded to them in the Agreement.
Notwithstanding anything to the contrary contained herein, this proxy
shall terminate on the earlier to occur of: (i) the transfer by this
undersigned, in accordance with the terms of the Agreement, of any shares of
Common Stock of the Company acquired by the Seller upon conversion of the
Preferred Stock (but only with respect to such transferred shares of Common
Stock); (ii) the fifth anniversary of the date hereof; or (iii) the date upon
which the closing price for the Company's common stock has equaled or exceeded
Ten ($10.00) Dollars for twenty (20) consecutive trading days.
The validity of this proxy and the rights, obligations and relations
of the parties hereunder shall be construed and determined under and in
accordance with the laws of the State of New York without giving effect to the
conflict of laws rules of such State. ANY CLAIM OR CONTROVERSY PERTAINING TO OR
ARISING UNDER THIS PROXY OR THE RELATIONSHIP BETWEEN THE PARTIES SHALL BE
SETTLED BY A SINGLE ARBITRATOR BEFORE THE AMERICAN ARBITRATION ASSOCIATION IN
NEW YORK, NEW YORK. THE COSTS OF WHICH SHALL BE BORNE EQUALLY BY THE PARTIES
UNLESS THE ARBITRATOR OTHERWISE DETERMINES. ALL PARTIES HEREBY SUBMIT TO THE
JURISDICTION OF THE STATE OF NEW YORK IN CONNECTION WITH THE FOREGOING.
Date: February 26, 1999
IMPRIMIS INVESTORS LLC
By: /s/ Arthur Amron
--------------------------
Title: Vice President
<PAGE> 11
IRREVOCABLE PROXY
The undersigned, Wexford Spectrum Investors LLC, hereby irrevocably
appoints RVR Consulting Group, Inc., or its nominee ("RVR"), with full power of
substitution as proxy for the undersigned, and hereby authorizes RVR to vote all
shares of Common Stock of COMPLETE WELLNESS CENTERS, INC. (the "Company")
acquired by Seller upon conversion of the Preferred Stock and registered in the
name of the undersigned, at any meeting of the stockholders of the Company, and
to execute a consent to be given by the stockholders of the Company, in such
manner as RVR may from time to time determine. This Irrevocable Proxy shall be
deemed to be coupled with an interest in favor of RVR and as such, shall be
irrevocable and shall survive the death, bankruptcy or incompetency of the
undersigned.
This irrevocable proxy is executed by the undersigned pursuant to the
terms of that certain Stock Purchase Agreement dated as of February 26, 1999 by
and among the undersigned, RVR and Imprimis Investors LLC (the "Agreement").
Capitalized terms utilized herein and not defined herein shall have the
respective meanings accorded to them in the Agreement.
Notwithstanding anything to the contrary contained herein, this proxy
shall terminate on the earlier to occur of: (i) the transfer by this
undersigned, in accordance with the terms of the Agreement, of any shares of
Common Stock of the Company acquired by the Seller upon conversion of the
Preferred Stock (but only with respect to such transferred shares of Common
Stock); (ii) the fifth anniversary of the date hereof; or (iii) the date upon
which the closing price for the Company's common stock has equaled or exceeded
Ten ($10.00) Dollars for twenty (20) consecutive trading days.
The validity of this proxy and the rights, obligations and relations
of the parties hereunder shall be construed and determined under and in
accordance with the laws of the State of New York without giving effect to the
conflict of laws rules of such State. ANY CLAIM OR CONTROVERSY PERTAINING TO OR
ARISING UNDER THIS PROXY OR THE RELATIONSHIP BETWEEN THE PARTIES SHALL BE
SETTLED BY A SINGLE ARBITRATOR BEFORE THE AMERICAN ARBITRATION ASSOCIATION IN
NEW YORK, NEW YORK. THE COSTS OF WHICH SHALL BE BORNE EQUALLY BY THE PARTIES
UNLESS THE ARBITRATOR OTHERWISE DETERMINES. ALL PARTIES HEREBY SUBMIT TO THE
JURISDICTION OF THE STATE OF NEW YORK IN CONNECTION WITH THE FOREGOING.
Date: February 26, 1999
WEXFORD SPECTRUM INVESTORS LLC
By: /s/ Arthur Amron
--------------------------
Title: Vice President
<PAGE> 1
EXHIBIT 10.7
FIRST AMENDMENT TO THE STOCK PURCHASE AGREEMENT BETWEEN WEXFORD SPECTRUM
INVESTORS LLC, IMPRIMIS INVESTORS LLC AND RVE CONSULTING GROUP, INC.
DATED AUGUST 31, 1999
See Exhibit 10.5
<PAGE> 1
EXHIBIT 10.8
LOAN CONVERSION AGREEMENT DATED AUGUST 31, 1999 WITH STRATUS SERVICES
GROUP, INC.
DEBT-EQUITY CONVERSION AGREEMENT
THIS AGREEMENT is made and entered into this 31st day of August, 1999, by
and between STRATUS SERVICES GROUP, INC., a Delaware corporation, whose address
is 500 Craig Road, Suite 201, Manalapan, New Jersey 07726 ("Creditor") and
COMPLETE WELLNESS CENTERS, INC., a Delaware corporation, whose address is 1964
Howell Branch Road, Suite 202 Winter Park, Florida 32792 ("Debtor").
WHEREAS, Creditor is the holder of a certain Promissory Note in the amount
of $1,017,000, dated August 31, 1999, in conjunction with the indebtedness of
Debtor to Creditor; and
WHEREAS, it is the desire of the parties to satisfy the remaining balance
of the Promissory Note; and
WHEREAS, Debtor desires to convert said Promissory Notes from debt to
equity.
NOW, THEREFORE, intending to be legally bound, and in consideration of the
mutual promises, covenants, and agreements hereinafter set forth, Debtor and
Creditor hereby agree as follows:
Creditor will accept 500,000 shares of Debtor's unregistered and restricted
Common Stock in exchange for the Promissory Note.
Debtor agrees that the above stock, issued pursuant to this Agreement, will
be registered with the Securities and Exchange Commission in its next
registration of Common Stock.
All agreements currently in effect between the parties shall remain in full
force and effect until such time as the above conversion occurs.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of the date set forth above.
CREDITOR DEBTOR
STRATUS SERVICES GROUP, INC. COMPLETE WELLNESS CENTERS, INC.
By: /s/ Mike Moltzman By: /s/ Sergio Vallejo
--------------------------- -----------------------
Name: Mike Moltzman Name: Sergio Vallejo
------------------------- ---------------------
Title: Chief Financial Officer Title: President
------------------------ --------------------
<PAGE> 1
EXHIBIT 10.9
CONSULTING AGREEMENT WITH SHARER ASSOCIATES, INC. DATED AUGUST 18, 1999
August 18, 1999
Sharer Associates
ATTN: Mr. Eugene Sharer
12404 Beall Spring Road
Potomac, MD 20854
Dear Gene,
This letter will outline the terms and conditions of the proposed consulting
agreement ("Consulting Agreement") between Sharer Associates ("SA") and Complete
Wellness Centers, Inc. ("CWC"). The terms of our agreement are as follows:
1) Term: August 18, 1999 through the successful filing and effective date
granted by the SEC of an SB-2.
2) Responsibilities: SA shall generate the draft SB-2 for CWC review. SA shall
incorporate CWC comments as necessary to gain CWC approval. SA will
coordinate with the appropriate company designees to research and review
such details necessary to develop the subject SB-2. SA shall prepare input
and submit in either electronic or written format. SA shall follow the
process through filing with the SEC and support any response necessary as a
result of SEC comments. SA shall be treated as an independent contractor.
3) Compensation:
a) Salary -
$1,000 per day [circled] JR
-Or-
$120 per hour
payable within 10 days of invoice submission. (Circle the
selected choice and initial)
Invoices shall be prepared and submitted monthly. In any
event, the total due shall be payable at the end of the term
of this agreement.
b) Expenses - CWC shall reimburse you for mutually agreed upon
expenses, i.e. travel and accommodation (approved in
writing) and out-of-pocket home office costs, i.e.
telephone, fax and consumables.
If you are in agreement with the above terms, please sign two copies of this
letter and return one executed copy to the above address.
***********************
Accepted and Agreed to on
August 18, 1999
/s/ Eugene Sharer /s/ Joseph Raymond
- ------------------------------- ------------------------------------
By: Eugene Sharer, President, By: Joseph Raymond
Sharer Associates, Consultant Chairman and CEO
Complete Wellness Centers, Inc
<PAGE> 1
EXHIBIT 10.10
CONSULTING AGREEMENT WITH THE WORKSOURCE, INC. F/K/A MECCA CAPITAL
VENTURES, INC. DATED JULY 1, 1999 AS AMENDED NOVEMBER 30, 1999
Consultant Agreement
Consultant Agreement, made as of July 1, 1999 between Mecca Capital Ventures,
Inc. (the "Consultant"), and Complete Wellness Centers, Inc. (the
"Corporation").
Whereas, the Consultant is willing to provide its services to the Corporation
for the period under the terms and conditions hereinafter provided and the
Corporation wishes to assure itself of the services of the Consultant for the
period provided in this Agreement.
Now, Therefore, Witnesseth, that for and in consideration of the premises and of
the mutual promises and covenants herein contained, the parties hereto agree as
follows:
1. Engagement
The Corporation agrees to and does hereby engage the Consultant, and the
Consultant agrees to and does hereby accept engagement by the Corporation
in connection with the operation of the business and affairs of the
Corporation, for the period commencing on the date hereof and ending on
June 30, 2000. The period during which Consultant shall serve in such
capacity shall be deemed the "Engagement Period" and shall hereinafter be
referred to as such. Either party shall be able to terminate engagement
with 30 days written notice.
2. Services
2.1 The Consultant shall render to the Corporation the services described
below, with respect to which the Consultant shall apply its best
efforts and devote such time of its employees as shall be reasonably
necessary to perform the duties hereunder and advance the interests of
the Corporation. The Consultant shall report to the chief executive
officer of the Corporation and to such persons, as the chief executive
officer shall direct.
2.2 The services to be rendered by the Consultant to the Corporation shall
under no circumstances include the following:
a. Any activities which could be deemed by the Securities and
Exchange Commission to constitute investment banking or any other
activities requiring the Consultant to register as a
broker-dealer under the Securities Exchange Act of 1934.
<PAGE> 2
b. Any activities which could be deemed to be in connection with
the offer or sale of securities in a capital-raising
transaction.
2.3 The services to be rendered by the Consultant to the Corporation
shall consist of the following:
2.3.1 Financial Planning, Mergers and Acquisitions
a. Develop an in-depth familiarization with the Corporation's
financial issues and objectives and advise the Corporation
on the options available for achieving its goals.
b. Evaluate prospective, suitable merger or acquisition
partners for the Corporation, perform appropriate due
diligence investigations with respect thereto, advise the
Corporation with respect to the desirability of pursuing
such prospects, and assist the Corporation in any
negotiations which may ensue therefrom.
c. Advise the Corporation on its computerized accounting systems
needs and implement changes as approved by Corporation.
2.3.2 Financial Accounting and Reporting
a. Review and comment upon the Corporation's annual and quarterly
reports and other financial publications.
b. Assist with investor relations as needed.
c. Assist with the annual shareholder's meeting and related
dissemination of information through the proxy process.
d. Assist with internal and external financial reporting needs.
2.3.3 Legal Administration
a. Review, comment on and advise the Corporation as to responses to
communications from shareholders and clients/affiliates.
b. Assist the Corporation in improving its legal structure by
monitoring compliance with contractual obligations and legal
requirements.
3. Compensation
For the services and duties to be rendered and performed by the Consultant
during the Engagement Period and in consideration of the Consultant's
having entered into this agreement, the Corporation agrees to pay to
Consultant cash of $7,500 on a bi-weekly basis, throughout the term of this
agreement.
4. Secrets
Consultant agrees that any trade secrets or any other like information of
value relating to the business of the Corporation or any of its affiliates,
or of any corporation or other legal entity in which the Corporation or any
of its affiliates has an ownership interest of more than twenty-five
percent (25%), including but not limited to, information relating to
inventions, disclosures, processes, systems, methods, formulae, patents,
patent applications, machinery, materials, research activities and plans,
costs of production, contract forms, prices, volume of sales, promotional
methods, list of names or classes of
<PAGE> 3
customers, which he has heretofore acquired during his engagement by the
Corporation or any of its affiliates or which he may hereafter acquire
during the Engagement Period as the result of any disclosures to him, or in
any other way, shall be regarded as held by the Consultant in a fiduciary
capacity solely for the benefit of the Corporation, its successors or
assigns, and shall not at any time, either during the term of the Agreement
or thereafter, be disclosed, divulged, furnished, or made accessible by the
Consultant to anyone, or be otherwise used by him except in the regular
course of business of the Corporation or its affiliates.
5. Assignment
This Agreement may be assigned by the Corporation as part of the sale of
substantially all of its business, provided, however, that the purchaser
shall expressly assume all obligations of the Corporation under this
Agreement. Further, this Agreement may be assigned by the Corporation to an
affiliate, provided that any such affiliate shall expressly assume all
obligations of the Corporation under this Agreement, and provided further
that the Corporation shall then fully guarantee the performance of the
Agreement by such affiliate. Consultant agrees that if this Agreement is so
assigned, all the terms and conditions of this Agreement shall be between
assignee and himself with the same force and effect as if said Agreement
had been made with such assignee in the first instance. This Agreement
shall not be assigned by the Consultant without the express written consent
of the Corporation.
6. Indemnification by Corporation. Each of the entities comprising the
Corporation hereby jointly and severally indemnify the Consultant, its
shareholders, officers, directors and employees (collectively, the
"Indemnitees") against and agree to hold each of them ham1less from any and
all damage, loss, liability, expense (including, without limitation,
reasonable out-of-pocket expense of investigation and attorneys' fees and
expenses in connection with any action, suit or proceeding brought against
or involving any Indemnitee) and cost incurred or suffered by any
Indemnitee arising out of any misrepresentation or breach of warranty,
covenant or agreement made or to be performed by Corporation pursuant to
this Agreement.
7. Survival of Certain Agreements
The covenants and agreements set forth in Articles 4, 5 and 6 shall survive
the expiration of the Engagement Period and shall all survive termination
of this Agreement and remain in full force and effect regardless of the
cause of such termination.
8. Notices
8.1 All notices or permission to be given hereunder shall be delivered by
hand, telecopier, or recognized courier service to the party to whom
such notice is required or permitted to be given hereunder. Any
delivered to the address designated for such delivery by such party,
notwithstanding the refusal of such party or other person to accept
such delivery.
8.2 Any notice to the Corporation or to any assignee of the Corporation
shall be addressed as follows:
<PAGE> 4
Complete Wellness Centers, Inc.
1964 Howell Branch Road, Suite 202
Winter Park, Florida32792
8.3 Any notice to Consultant shall be addressed as follows:
Ms. Rebecca R. Irish
Mecca Capital Ventures, Inc.
711 W. Harvard St.
Orlando, Florida 32804
8.4 Either party may change the address to which notice is to be
addressed, by notice, as provided herein.
9. Applicable Law
This Agreement shall be interpreted and enforced in accordance with the
laws of Orange County, Florida.
10. Interpretation
Whenever possible, each Article of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
Article is unenforceable or invalid under such law, such Article shall be
ineffective only to the extent of such unenforceability or invalidity and
the remainder of such Article and the balance of this Agreement shall in
such event continue to be binding and in full force and effect.
In Witness Whereof, the parties hereto have executed the above Agreement as of
the day and year first written above.
COMPLETE WELLNESS CENTERS, INC.
By: /s/ Joseph J. Raymond, Jr.
- -----------------------------------------------------------
Joseph J. Raymond, Jr., Chairman and Chief Executive Officer
MECCA CAPITAL VENTURES, INC.
By: /s/ Rebecca R. Irish
- -----------------------------------------------------------
Rebecca R. Irish, President
<PAGE> 5
AMENDMENT DATED NOVEMBER 30, 1999 BY ADDENDUM TO CONSULTANT
AGREEMENT DATED JULY 1, 1999
BY AND BETWEEN COMPLETE WELLNESS CENTERS, INC. (THE "CORPORATION")
AND THE WORKSOURCE, INC. , F/K/A MECCA CAPITAL VENTURES, INC.
(THE "CONSULTANT")
In consideration of the additional workload encountered to fulfill it
obligations under the Consultant Agreement dated July 1, 1999 and in
consideration of the additional efforts required to raise capital and/or debt
funding for the Corporation, the Corporation agrees to pay $50,000 from the
proceeds of any singular capital or debt funding that exceeds $750,000, not to
exceed $50,000 during the engagement term of the Agreement.
The Corporation also acknowledges the change of corporate name from Mecca
Capital Ventures, Inc. to The WorkSource, Inc. as of the undersigned date.
The Corporation also acknowledges the change of address for notice to the
following:
Ms. Rebecca R. Irish
The WorkSource, Inc.
1835 Edgewater Drive
Orlando, Florida 32804
(407) 999-0007
COMPLETE WELLNESS CENTERS, INC.
By: /s/ Joseph J. Raymond, Jr.
--------------------------------------------------------
Joseph J. Raymond, Jr., Chairman and Chief Executive Officer
Date: July 1, 1999
------------------------------------------------------
THE WORKSOURCE, INC.
By: /s/ Rebecca R. Irish
--------------------------------------------------------
Rebecca R. Irish, President
Date: July 1, 1999
------------------------------------------------------
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 1st day of December, 1999, by and
between COMPLETE WELLNESS CENTERS, INC., a Delaware corporation, having its
principal office at 1964 Howell Branch Road, Suite 202, Winter Park, Florida
32792 (the "Company"), and JOSEPH J. RAYMOND, JR., whose address is 4074 Scarlet
Iris Place, Winter Park, Florida 32792 ("Employee"). In consideration of the
mutual covenants and promises contained herein, the parties agree as follows:
1. EMPLOYMENT. The Company hereby employs, directly or through an
affiliated entity or third party employment services provider, Employee as its
Chief Executive Officer and Employee hereby accepts such employment and agrees
to perform such duties as are customarily performed by one holding such position
in other, same or similar businesses as that engaged in by the Company and to
render any such other appropriate services and duties as may be assigned from
time to time by the Company.
2. PERFORMANCE OF EMPLOYEE'S DUTIES. The Employee agrees to devote
forty (40) hours per week to perform his duties for the Company, and to render
service to the Company to the best of his ability, experience and talent. Such
duties shall be rendered at such place or places as the Company shall require in
accordance with the best interests, needs, business and opportunities of the
Company.
3. TERM OF AGREEMENT. The effective date ("Effective Date") of this
Agreement shall be the last date of execution by either Employee or Company, and
this Agreement shall continue for a period of two (2) years from the Effective
Date unless terminated earlier as provided by Paragraph 7 herein.
4. COMPENSATION.
A. BASE SALARY. The Company agrees to pay Employee and Employee
agrees to accept from the Company, in payment for Employee's services
hereunder, salary at the rate of One Hundred Fifty Thousand and no/100
Dollars ($150,000.00) per year ("Base Salary"). The Company also
agrees to pay Employee and Employee agrees to accept from the Company
up to Fifty Thousand and no/100 Dollars ($50,000) of the Base Salary
through deferred payments that shall be issued at the Company's
discretion.
B. STOCK OPTIONS. Employee shall be granted One Hundred Thousand
(100,000) options for Company Common Stock to be vested on the Effective
Date. The options will be issued from Plans currently registered with
the Securities and Exchange Commission at the closing price on the
Effective Date. In the event this agreement is terminated before the
expiration date, Employee shall be entitled to exercise options vested
at the time of termination.
C. PERFORMANCE BONUS. In any business year in which Company earns
a pretax profit, Employee shall be paid an additional bonus of Three
Percent (3%) of the pretax profit earned by Company, not to exceed Fifty
Percent (50%) of the Employee's Base Salary. Said bonus shall be paid
within ninety (90) days of the last day of each respective business year
(2000 and 2001).
D. BONUS POOL. Employee shall be entitled to participate in any
executive or employee profit sharing bonus or stock option pool or plan
established by Company.
-1-
<PAGE> 2
5. BENEFITS.
A. EXPENSE ACCOUNT. Company shall reimburse Employee such
authorized business expenses incurred by Employee as are reasonably
connected to the performance of his duties upon presentation of receipts
or other appropriate documentation. Reimbursement shall be in accordance
with Company's normal policies regarding reimbursement, which Company
may alter or modify from time to time in its sole discretion.
B. OTHER BENEFITS. Employee shall also be entitled to such
additional benefits, if any, as are available to full-time Company
employees having similar duties and responsibilities with Company. The
Company may at its discretion from time to time reduce, modify or
eliminate benefits provided to its employees as allowed by law.
6. RIGHT TO INDEMNIFICATION. As stated in the Company's By-laws, "Each
person who was or is a party or is threatened to be made a party to or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding"), by reason of the fact that he,
or a person of whom he is the legal representative, is or was a director or
officer of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action or inaction in an official capacity or in any other capacity
while serving as director, officer, employee or agent, shall be indemnified and
held harmless by the corporation to the fullest extent permitted by the General
Corporation Law of Delaware, as amended from time to time, against all costs,
charges, expenses, liabilities and losses (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith, and that indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his heirs, executors and administrators; provided, however, that, except as
provided in section 6.2, the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
that person, only if that proceeding (or part thereof) was authorized by the
Board. The right to indemnification conferred in these by-laws shall be a
contract right and shall include the right to be paid by the corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the General Corporation Law of
Delaware, as amended from time to time, requires, the payment of such expenses
incurred by a director or officer in his capacity as a director or officer (and
not in any other capacity in which service was or is rendered by that person
while a director or officer, including, without limitation, service to an
employee benefit plan) in advance of the final disposition of a proceeding shall
be made only upon delivery to the corporation of an undertaking, by or on behalf
of such director or officer, to repay all amounts so advanced, if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under these by-laws or otherwise. The corporation may, by action of
its Board, provide indemnification to employees and agents of the corporation
with the same scope and effect as the foregoing indemnification of directors and
officers."
7. DEATH OR DISABILITY OF EMPLOYEE. The death or disability of Employee
shall terminate this Agreement and except as otherwise provided herein or by
law, discharge the Company from any further liability for the compensation and
benefits provided herein. Disability shall mean such mental or physical
impairment as shall prevent Employee from completing the essential functions of
his position, with or without reasonable accommodation.. In the event of the
Employee's death, any amounts owed to Employee at the time of death will inure
to the estate of the Employee.
-2-
<PAGE> 3
8. TERMINATION.
A. TERMINATION WITH CAUSE. Company may terminate this Agreement
immediately without notice to Employee and without further obligation
for compensation, commissions or benefits remaining due hereunder,
except as provided by law, if the Employee commits any one or more of
the following acts:
(1) Commission of a felony;
(2) Theft, dishonesty, fraud or embezzlement;
(3) Accepting or receiving any illegal or improper benefit
from any person or entity in connection with the services
provided hereunder;
(4) Willfully damaging the Company's property, business,
reputation or goodwill; or
(5) Employee's material breach of any covenant of this
Agreement.
B. TERMINATION WITHOUT CAUSE. Company may terminate this
Agreement at any time without cause or reason, and without further
obligation for any compensation or benefits remaining due hereunder by
providing Employee with ninety (90) calendar days advance written notice
of termination hand-delivered or mailed by the Company to Employee's
address as found in Company's then current payroll records. Should the
Company desire that Employee leave the Company before the expiration of
the ninety (90) day notice period, it shall pay Employee as if he worked
until the expiration of the notice period, in addition to any other
severance or benefits due to Employee upon termination.
C. TERMINATION BY EMPLOYEE. Employee may terminate this Agreement
for any reason by providing the Company with ninety (90) calendar days
advance written notice of termination. At the end of this time, Company
shall have no further obligation for any compensation, commissions or
benefits remaining due hereunder. Should the Company desire that
Employee leave the Company before the expiration of the ninety (90) day
notice period, it shall pay Employee as if he worked until the
expiration of the notice period. If Employee fails to provide the
requested notice, he shall forfeit all rights to any other severance and
benefits due to Employee upon termination other than any benefits
Employee is entitled to pursuant to applicable law.
9. NON-SOLICITATION, CONFIDENTIALITY AGREEMENT AND NON-DISPARAGEMENT.
A. CONFIDENTIALITY. As a result of employment with Company,
Employee has access to confidential material and information belonging
to the Company including, without limitation, client lists, pricing
information, procedure manuals, employee records, client records, sales
and marketing techniques, computer programs, the identity of specialized
consultants and contractors, and management strategies. This
confidential information was acquired or developed by the Company at
considerable expense. It is therefore, a unique and valuable asset of
the Company and its remaining confidential is of extreme importance to
Company. Employee acknowledges the importance of keeping all information
confidential and will not during or after the term of this Agreement,
disclose any confidential information made available to or acquired by
Employee in the course of employment hereunder to any person, firm,
corporation, association or other entity for any
-3-
<PAGE> 4
reason or purpose. This Paragraph shall survive expiration of this
Agreement and remain enforceable after termination of employment for
any reason.
B. NON-SOLICITATION. If Employee's employment is terminated by
Employee or by Company with cause, Employee agrees that he will not, for
a period of one year after termination of employment, directly or
indirectly, for himself or on behalf of any other person or entity,
solicit, interfere with, endeavor to entice away from the Company or
accept business from any Client of the Company. Employee also agrees
that he will not, for the same one (1) year period, directly or
indirectly, for himself or on behalf of any other person or entity,
solicit, interfere with or endeavor to entice away from the Company any
other employee of the Company. For purposes of this agreement, the term
"Client" shall mean any person or entity that received service of any
type from Company during the one year period immediately preceding the
last day of Employee's employment with Company. By executing this
Agreement, Employee acknowledges that a breach of this paragraph will
give rise to irreparable and continuing injury to the Company, and
further agrees that the Company or its successors and assigns may obtain
injunctive relief against the breach or threatened breach of the
provisions of this paragraph, in addition to any other legal remedies
which may be available to it. If any court refuses to enforce this
paragraph, because it is more extensive (as to time, geographic area,
scope of business or otherwise) than is necessary to protect the
business and goodwill of the Company, it is agreed between Employee and
Company that this paragraph shall be modified to the extent necessary to
permit the terms hereof to be enforced in any legal proceeding. This
Paragraph shall survive expiration of this Agreement and remain
enforceable after termination of employment for any reason.
C. NON-DISPARAGEMENT. It is understood that Employee may not
always agree with the policies, procedures and practices of Company.
Employee agrees, however, that it is Employee's duty to support the
Company and its actions and, therefore, agrees that during or after the
term of this Agreement, Employee will not criticize or make any
disparaging remarks about Company or its officers, managers, attorneys
or other employees. This Paragraph shall survive expiration of this
Agreement and remain enforceable after termination of employment for any
reason.
10. COVENANT NOT TO COMPETE.
A. During the Employment Term and for one (1) year thereafter,
Employee will not without the prior written permission of the Company in
each instance directly or indirectly carry on or participate in a
business the same as or similar to or in competition with that conducted
or engaged in by the Company or any of its subsidiaries or affiliates.
B. The term "carry on or participate in a business the same as or
similar to that conducted or engaged in by the Company or any of its
subsidiaries or affiliates" shall include the Employee, directly or
indirectly, doing any of the following listed acts, other then
carrying on or engaging in activities expressly permitted under this
Agreement:
(1) carrying on or engaging in any such business as a principal, or
solely or jointly with others as a director, officer, agent,
employee, consultant or partner, or stockholder or limited
partner owning more than five percent (5%) of the stock or
equity interests in or securities convertible into more than
five percent (5%) of the stock or equity interests in any
corporation, association or limited partnership; or
-4-
<PAGE> 5
(2) as agent or principal carrying on or engaging in any activities
or negotiations with respect to the acquisition or disposition
of such business; or
(3) lending credit or money for the purpose of establishing or
operating any such business; or
(4) giving advice to any other person, firm, association,
corporation or other entity engaging in such business; or
(5) lending or allowing his name or reputation to be used in any
such business; or
C. In the event of a breach or threatened breach by the Employee
of the provisions of this Section 9, the Company shall be entitled to
injunctive relief against the Employee. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies
available to the Employer for such breach or threatened breach,
including without limitation the recovery of damages from the Employee.
11. RETURN OF COMPANY PROPERTY. On termination of employment, Employee
shall deliver all records, customer lists, notes, data, memoranda, and equipment
of any nature that are in Employee's possession or under his control and that
are the property of the Company or relate to the employment or to the business
of the Company.
12. COMPLETE AGREEMENT. Except as expressly identified herein, this
Agreement contains the sole agreement between the parties regarding the
employment relationship and supersedes any and all other employment agreements.
The parties acknowledge and agree that neither of them has made any
representation with respect to such matters of this Agreement or any
representations except as are specifically set forth herein, and each party
acknowledges that he or it has relied on his or its own judgment in entering
into this Agreement. Employee acknowledges that Company has written workplace
policies, procedures and guidelines which are not contracts of employment.
13. CHOICE OF LAW. This Agreement and the duties and obligations
hereunder shall be governed by and construed in accordance with the laws of the
State of Florida. The parties agree that venue for all legal actions instituted
to enforce any rights or obligations contained herein shall be in the county
containing that Company office where Employee was located or last reported.
14. BINDING EFFECT OF AGREEMENT. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
successors, assigns and legal representatives.
15. INVALID PROVISION. To the extent local, state or federal law or
regulation renders any provision of this Agreement unenforceable or invalid,
that portion of the Agreement shall be stricken. The invalidity or
unenforceability of a particular provision of this Agreement, except Paragraphs
1, 2, 3, 4 and 5, shall not affect the other provisions hereto, and this
Agreement shall be construed in all respects as if such invalid or unenforceable
provisions were omitted. Should Paragraphs 1, 2, 3, 4, or 5 be found invalid or
unenforceable, the entire agreement shall be invalid and unenforceable.
16. NOTICES. All communications provided for hereunder shall be in
writing and shall be deemed to have been given when delivered in person or three
(3) days after deposit in the United States Mail, First class, certified mail,
return receipt requested, with proper postage prepaid, at the address set forth
hereinabove or at such place as may from time to time be designated in writing
by the parties.
-5-
<PAGE> 6
17. EXHAUSTION OF REMEDIES. Before taking any legal action against
Company, or filing any charge or complaint with any governmental or
administrative agency, Employee agrees to exhaust all Company dispute resolution
procedures as exist from time to time.
18. ASSIGNMENT. This Agreement shall be construed as a contract for
personal services by Employee to the Company and shall not be assignable by
Employee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
COMPLETE WELLNESS CENTERS, INC.,
A DELAWARE CORPORATION
BY:
/s/ JOHN K. PAWLOWSKI
- ------------------------------------
JOHN K. PAWLOWSKI
/s/ DONALD S. RADCLIFFE
- ------------------------------------
DONALD S. RADCLIFFE
/s/ E. EUGENE SHARER
- ------------------------------------
E. EUGENE SHARER
/s/ SERGIO R. VALLEJO
- ------------------------------------
SERGIO R. VALLEJO
AS ITS: BOARD OF DIRECTORS
"COMPANY"
/s/ JOSEPH J. RAYMOND, JR.
- ----------------------------------------
JOSEPH J. RAYMOND, JR.
"EMPLOYEE"
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<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 1st day of December, 1999, by and
between COMPLETE WELLNESS CENTERS, INC., a Delaware corporation, having its
principal office at 1964 Howell Branch Road, Suite 202, Winter Park, Florida
32792 (the "Company"), and SERGIO R. VALLEJO, whose address is 875 Hanover Way,
Lakeland, Florida 33813 ("Employee"). In consideration of the mutual covenants
and promises contained herein, the parties agree as follows:
1. EMPLOYMENT. The Company hereby employs, directly or through an
affiliated entity or third party employment services provider, Employee as its
President and Chief Operating Officer and Employee hereby accepts such
employment and agrees to perform such duties as are customarily performed by one
holding such position in other, same or similar businesses as that engaged in by
the Company and to render any such other appropriate services and duties as may
be assigned from time to time by the Company.
2. PERFORMANCE OF EMPLOYEE'S DUTIES. The Employee agrees to devote
forty (40) hours per week to perform his duties for the Company, and to render
service to the Company to the best of his ability, experience and talent. Such
duties shall be rendered at such place or places as the Company shall require in
accordance with the best interests, needs, business and opportunities of the
Company.
3. TERM OF AGREEMENT. The effective date ("Effective Date") of this
Agreement shall be the last date of execution by either Employee or Company, and
this Agreement shall continue for a period of two (2) years from the Effective
Date unless terminated earlier as provided by Paragraph 7 herein.
4. COMPENSATION.
A. BASE SALARY. The Company agrees to pay Employee and Employee
agrees to accept from the Company, in payment for Employee's services
hereunder, salary at the rate of One Hundred Fifty Thousand and no/100
Dollars ($150,000.00) per year ("Base Salary"). The Company also
agrees to pay Employee and Employee agrees to accept from the Company
up to Fifty Thousand and no/100 Dollars ($50,000) of the Base Salary
through deferred payments that shall be issued at the Company's
discretion.
B. STOCK OPTIONS. Employee shall be granted One Hundred Thousand
(100,000) options for Company Common Stock to be vested on the Effective
Date. The options will be issued from Plans currently registered with
the Securities and Exchange Commission at the closing price on the
Effective Date. In the event this agreement is terminated before the
expiration date, Employee shall be entitled to exercise options vested
at the time of termination.
C. PERFORMANCE BONUS. In any business year in which Company earns
a pretax profit, Employee shall be paid an additional bonus of Three
Percent (3%) of the pretax profit earned by Company, not to exceed Fifty
Percent (50%) of the Employee's Base Salary. Said bonus shall be paid
within ninety (90) days of the last day of each respective business year
(2000 and 2001).
D. BONUS POOL. Employee shall be entitled to participate in any
executive or employee profit sharing bonus or stock option pool or plan
established by Company.
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<PAGE> 2
5. BENEFITS.
A. EXPENSE ACCOUNT. Company shall reimburse Employee such
authorized business expenses incurred by Employee as are reasonably
connected to the performance of his duties upon presentation of receipts
or other appropriate documentation. Reimbursement shall be in accordance
with Company's normal policies regarding reimbursement, which Company
may alter or modify from time to time in its sole discretion.
B. OTHER BENEFITS. Employee shall also be entitled to such
additional benefits, if any, as are available to full-time Company
employees having similar duties and responsibilities with Company. The
Company may at its discretion from time to time reduce, modify or
eliminate benefits provided to its employees as allowed by law.
6. RIGHT TO INDEMNIFICATION. As stated in the Company's By-laws, "Each
person who was or is a party or is threatened to be made a party to or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding"), by reason of the fact that he,
or a person of whom he is the legal representative, is or was a director or
officer of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action or inaction in an official capacity or in any other capacity
while serving as director, officer, employee or agent, shall be indemnified and
held harmless by the corporation to the fullest extent permitted by the General
Corporation Law of Delaware, as amended from time to time, against all costs,
charges, expenses, liabilities and losses (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith, and that indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his heirs, executors and administrators; provided, however, that, except as
provided in section 6.2, the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
that person, only if that proceeding (or part thereof) was authorized by the
Board. The right to indemnification conferred in these by-laws shall be a
contract right and shall include the right to be paid by the corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the General Corporation Law of
Delaware, as amended from time to time, requires, the payment of such expenses
incurred by a director or officer in his capacity as a director or officer (and
not in any other capacity in which service was or is rendered by that person
while a director or officer, including, without limitation, service to an
employee benefit plan) in advance of the final disposition of a proceeding shall
be made only upon delivery to the corporation of an undertaking, by or on behalf
of such director or officer, to repay all amounts so advanced, if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under these by-laws or otherwise. The corporation may, by action of
its Board, provide indemnification to employees and agents of the corporation
with the same scope and effect as the foregoing indemnification of directors and
officers."
7. DEATH OR DISABILITY OF EMPLOYEE. The death or disability of Employee
shall terminate this Agreement and except as otherwise provided herein or by
law, discharge the Company from any further liability for the compensation and
benefits provided herein. Disability shall mean such mental or physical
impairment as shall prevent Employee from completing the essential functions of
his position, with or without reasonable accommodation. . In the event of the
Employee's death, any amounts owed to Employee at the time of death will inure
to the estate of the Employee.
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<PAGE> 3
8. TERMINATION.
A. TERMINATION WITH CAUSE. Company may terminate this Agreement
immediately without notice to Employee and without further obligation
for compensation, commissions or benefits remaining due hereunder,
except as provided by law, if the Employee commits any one or more of
the following acts:
(1) Commission of a felony;
(2) Theft, dishonesty, fraud or embezzlement;
(3) Accepting or receiving any illegal or improper benefit from any
person or entity in connection with the services provided
hereunder;
(4) Willfully damaging the Company's property, business, reputation
or goodwill; or
(5) Employee's material breach of any covenant of this Agreement.
B. TERMINATION WITHOUT CAUSE. Company may terminate this
Agreement at any time without cause or reason, and without further
obligation for any compensation or benefits remaining due hereunder by
providing Employee with ninety (90) calendar days advance written notice
of termination hand-delivered or mailed by the Company to Employee's
address as found in Company's then current payroll records. Should the
Company desire that Employee leave the Company before the expiration of
the ninety (90) day notice period, it shall pay Employee as if he worked
until the expiration of the notice period, in addition to any other
severance or benefits due to Employee upon termination.
C. TERMINATION BY EMPLOYEE. Employee may terminate this Agreement
for any reason by providing the Company with ninety (90) calendar days
advance written notice of termination. At the end of this time, Company
shall have no further obligation for any compensation, commissions or
benefits remaining due hereunder. Should the Company desire that
Employee leave the Company before the expiration of the ninety (90) day
notice period, it shall pay Employee as if he worked until the
expiration of the notice period. If Employee fails to provide the
requested notice, he shall forfeit all rights to any other severance and
benefits due to Employee upon termination other than any benefits
Employee is entitled to pursuant to applicable law.
9. NON-SOLICITATION, CONFIDENTIALITY AGREEMENT AND NON-DISPARAGEMENT.
A. CONFIDENTIALITY. As a result of employment with Company,
Employee has access to confidential material and information belonging
to the Company including, without limitation, client lists, pricing
information, procedure manuals, employee records, client records, sales
and marketing techniques, computer programs, the identity of specialized
consultants and contractors, and management strategies. This
confidential information was acquired or developed by the Company at
considerable expense. It is therefore, a unique and valuable asset of
the Company and its remaining confidential is of extreme importance to
Company. Employee acknowledges the importance of keeping all information
confidential and will not during or after the term of this Agreement,
disclose any confidential information made available to or acquired by
Employee in the course of employment hereunder to any person, firm,
corporation, association or other entity for any
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<PAGE> 4
reason or purpose. This Paragraph shall survive expiration of this
Agreement and remain enforceable after termination of employment for
any reason.
B. NON-SOLICITATION. If Employee's employment is terminated by
Employee or by Company with cause, Employee agrees that he will not, for
a period of one year after termination of employment, directly or
indirectly, for himself or on behalf of any other person or entity,
solicit, interfere with, endeavor to entice away from the Company or
accept business from any Client of the Company. Employee also agrees
that he will not, for the same one (1) year period, directly or
indirectly, for himself or on behalf of any other person or entity,
solicit, interfere with or endeavor to entice away from the Company any
other employee of the Company. For purposes of this agreement, the term
"Client" shall mean any person or entity that received service of any
type from Company during the one year period immediately preceding the
last day of Employee's employment with Company. By executing this
Agreement, Employee acknowledges that a breach of this paragraph will
give rise to irreparable and continuing injury to the Company, and
further agrees that the Company or its successors and assigns may obtain
injunctive relief against the breach or threatened breach of the
provisions of this paragraph, in addition to any other legal remedies
which may be available to it. If any court refuses to enforce this
paragraph, because it is more extensive (as to time, geographic area,
scope of business or otherwise) than is necessary to protect the
business and goodwill of the Company, it is agreed between Employee and
Company that this paragraph shall be modified to the extent necessary to
permit the terms hereof to be enforced in any legal proceeding. This
Paragraph shall survive expiration of this Agreement and remain
enforceable after termination of employment for any reason.
C. NON-DISPARAGEMENT. It is understood that Employee may not
always agree with the policies, procedures and practices of Company.
Employee agrees, however, that it is Employee's duty to support the
Company and its actions and, therefore, agrees that during or after the
term of this Agreement, Employee will not criticize or make any
disparaging remarks about Company or its officers, managers, attorneys
or other employees. This Paragraph shall survive expiration of this
Agreement and remain enforceable after termination of employment for any
reason.
10. COVENANT NOT TO COMPETE.
A. During the Employment Term and for one (1) year thereafter,
Employee will not without the prior written permission of the Company in
each instance directly or indirectly carry on or participate in a
business the same as or similar to or in competition with that conducted
or engaged in by the Company or any of its subsidiaries or affiliates.
B. The term "carry on or participate in a business the same as or
similar to that conducted or engaged in by the Company or any of its
subsidiaries or affiliates" shall include the Employee, directly or
indirectly, doing any of the following listed acts, other then
carrying on or engaging in activities expressly permitted under this
Agreement:
(1) carrying on or engaging in any such business as a principal, or
solely or jointly with others as a director, officer, agent,
employee, consultant or partner, or stockholder or limited
partner owning more than five percent (5%) of the stock or
equity interests in or securities convertible into more than
five percent (5%) of the stock or equity interests in any
corporation, association or limited partnership; or
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<PAGE> 5
(2) as agent or principal carrying on or engaging in any activities
or negotiations with respect to the acquisition or disposition
of such business; or
(3) lending credit or money for the purpose of establishing or
operating any such business; or
(4) giving advice to any other person, firm, association,
corporation or other entity engaging in such business; or
(5) lending or allowing his name or reputation to be used in any
such business; or
C. In the event of a breach or threatened breach by the Employee
of the provisions of this Section 9, the Company shall be entitled to
injunctive relief against the Employee. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies
available to the Employer for such breach or threatened breach,
including without limitation the recovery of damages from the Employee.
11. RETURN OF COMPANY PROPERTY. On termination of employment, Employee
shall deliver all records, customer lists, notes, data, memoranda, and equipment
of any nature that are in Employee's possession or under his control and that
are the property of the Company or relate to the employment or to the business
of the Company.
12. COMPLETE AGREEMENT. Except as expressly identified herein, this
Agreement contains the sole agreement between the parties regarding the
employment relationship and supersedes any and all other employment agreements.
The parties acknowledge and agree that neither of them has made any
representation with respect to such matters of this Agreement or any
representations except as are specifically set forth herein, and each party
acknowledges that he or it has relied on his or its own judgment in entering
into this Agreement. Employee acknowledges that Company has written workplace
policies, procedures and guidelines which are not contracts of employment.
13. CHOICE OF LAW. This Agreement and the duties and obligations
hereunder shall be governed by and construed in accordance with the laws of the
State of Florida. The parties agree that venue for all legal actions instituted
to enforce any rights or obligations contained herein shall be in the county
containing that Company office where Employee was located or last reported.
14. BINDING EFFECT OF AGREEMENT. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
successors, assigns and legal representatives.
15. INVALID PROVISION. To the extent local, state or federal law or
regulation renders any provision of this Agreement unenforceable or invalid,
that portion of the Agreement shall be stricken. The invalidity or
unenforceability of a particular provision of this Agreement, except Paragraphs
1, 2, 3, 4 and 5, shall not affect the other provisions hereto, and this
Agreement shall be construed in all respects as if such invalid or unenforceable
provisions were omitted. Should Paragraphs 1, 2, 3, 4, or 5 be found invalid or
unenforceable, the entire agreement shall be invalid and unenforceable.
16. NOTICES. All communications provided for hereunder shall be in
writing and shall be deemed to have been given when delivered in person or three
(3) days after deposit in the United States Mail, First class, certified mail,
return receipt requested, with proper postage prepaid, at the address set forth
hereinabove or at such place as may from time to time be designated in writing
by the parties.
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<PAGE> 6
17. EXHAUSTION OF REMEDIES. Before taking any legal action against
Company, or filing any charge or complaint with any governmental or
administrative agency, Employee agrees to exhaust all Company dispute resolution
procedures as exist from time to time.
18. ASSIGNMENT. This Agreement shall be construed as a contract for
personal services by Employee to the Company and shall not be assignable by
Employee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
COMPLETE WELLNESS CENTERS, INC.,
A DELAWARE CORPORATION
BY:
/s/ JOHN K. PAWLOWSKI
- ------------------------------------
JOHN K. PAWLOWSKI
/s/ DONALD S. RADCLIFFE
- ------------------------------------
DONALD S. RADCLIFFE
/s/ JOSEPH J. RAYMOND, JR.
- ------------------------------------
JOSEPH J. RAYMOND, JR.
/s/ E. EUGENE SHARER
- ------------------------------------
E. EUGENE SHARER
AS ITS: BOARD OF DIRECTORS
"COMPANY"
/s/ SERGIO R. VALLEJO
- ----------------------------------------
SERGIO R. VALLEJO
"EMPLOYEE"
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<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 1st day of December, 1999, by and
between COMPLETE WELLNESS CENTERS, INC., a Delaware corporation, having its
principal office at 1964 Howell Branch Road, Suite 202, Winter Park, Florida
32792 (the "Company"), and REBECCA R. IRISH, whose address is 1614 Lakeside
Drive, Orlando, Florida 32803 ("Employee"). In consideration of the mutual
covenants and promises contained herein, the parties agree as follows:
1. EMPLOYMENT. The Company hereby employs, directly or through an
affiliated entity or third party employment services provider, Employee as its
Vice President of Finance and Chief Financial Officer and Employee hereby
accepts such employment and agrees to perform such duties as are customarily
performed by one holding such position in other, same or similar businesses as
that engaged in by the Company and to render any such other appropriate services
and duties as may be assigned from time to time by the Company.
2. PERFORMANCE OF EMPLOYEE'S DUTIES. The Employee agrees to devote the
time necessary to perform her duties for the Company, and to render service to
the Company to the best of her ability, experience and talent. Such duties shall
be rendered at such place or places as the Company shall require in accordance
with the best interests, needs, business and opportunities of the Company.
3. TERM OF AGREEMENT. The effective date ("Effective Date") of this
Agreement shall be the last date of execution by either Employee or Company, and
this Agreement shall continue for a period of two (2) years from the Effective
Date unless terminated earlier as provided by Paragraph 7 herein.
4. COMPENSATION.
A. BASE SALARY. The Company agrees to pay Employee and Employee
agrees to accept from the Company, in payment for Employee's services
hereunder, salary at the rate of One Hundred Twenty-five Thousand and
no/100 Dollars ($125,000.00) per year ("Base Salary"). The Company
also agrees to pay Employee and Employee agrees to accept from the
Company up to Twenty-five Thousand and no/100 Dollars ($25,000) of the
Base Salary through deferred payments that shall be issued at the
Company's discretion.
B. STOCK OPTIONS. Employee shall be granted Seventy-five Thousand
(75,000) options for Company Common Stock to be vested in three equal
installments, with Twenty-five Thousand (25,000) vesting on the
Effective Date, Twenty-five Thousand (25,000) vesting on November 30,
2000 and Twenty-five Thousand (25,000) vesting on November 30, 2001. The
options will be issued from Plans currently registered with the
Securities and Exchange Commission at the closing price on the Effective
Date. In the event this agreement is terminated before the expiration
date, Employee shall be entitled to exercise options up to and including
the next options to be vested at the time of termination.
C. PERFORMANCE BONUS. In any business year in which Company earns
a pretax profit, Employee shall be paid an additional bonus of Three
Percent (3%) of the pretax profit earned by Company, not to exceed Fifty
Percent (50%) of the Employee's Base Salary. Said bonus shall be paid
within ninety (90) days of the last day of each respective business year
(2000 and 2001).
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<PAGE> 2
D. BONUS POOL. Employee shall be entitled to participate in any
executive or employee profit sharing bonus or stock option pool or plan
established by Company.
5. BENEFITS.
A. EXPENSE ACCOUNT. Company shall reimburse Employee such
authorized business expenses incurred by Employee as are reasonably
connected to the performance of his duties upon presentation of receipts
or other appropriate documentation. Reimbursement shall be in accordance
with Company's normal policies regarding reimbursement, which Company
may alter or modify from time to time in its sole discretion.
B. OTHER BENEFITS. Employee shall also be entitled to such
additional benefits, if any, as are available to full-time Company
employees having similar duties and responsibilities with Company. The
Company may at its discretion from time to time reduce, modify or
eliminate benefits provided to its employees as allowed by law.
6. RIGHT TO INDEMNIFICATION. As stated in the Company's By-laws, "Each
person who was or is a party or is threatened to be made a party to or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding"), by reason of the fact that he,
or a person of whom he is the legal representative, is or was a director or
officer of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action or inaction in an official capacity or in any other capacity
while serving as director, officer, employee or agent, shall be indemnified and
held harmless by the corporation to the fullest extent permitted by the General
Corporation Law of Delaware, as amended from time to time, against all costs,
charges, expenses, liabilities and losses (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith, and that indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his heirs, executors and administrators; provided, however, that, except as
provided in section 6.2, the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
that person, only if that proceeding (or part thereof) was authorized by the
Board. The right to indemnification conferred in these by-laws shall be a
contract right and shall include the right to be paid by the corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the General Corporation Law of
Delaware, as amended from time to time, requires, the payment of such expenses
incurred by a director or officer in his capacity as a director or officer (and
not in any other capacity in which service was or is rendered by that person
while a director or officer, including, without limitation, service to an
employee benefit plan) in advance of the final disposition of a proceeding shall
be made only upon delivery to the corporation of an undertaking, by or on behalf
of such director or officer, to repay all amounts so advanced, if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under these by-laws or otherwise. The corporation may, by action of
its Board, provide indemnification to employees and agents of the corporation
with the same scope and effect as the foregoing indemnification of directors and
officers."
7. DEATH OR DISABILITY OF EMPLOYEE. The death or disability of Employee
shall terminate this Agreement and except as otherwise provided herein or by
law, discharge the Company from any further liability for the compensation and
benefits provided herein. Disability shall mean such mental or physical
impairment as shall prevent Employee from completing the essential functions of
his position, with or
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<PAGE> 3
without reasonable accommodation. In the event of the Employee's death, any
amounts owed to Employee at the time of death will inure to the estate of the
Employee.
8. TERMINATION.
A. TERMINATION WITH CAUSE. Company may terminate this Agreement
immediately without notice to Employee and without further obligation
for compensation, commissions or benefits remaining due hereunder,
except as provided by law, if the Employee commits any one or more of
the following acts:
(1) Commission of a felony;
(2) Theft, dishonesty, fraud or embezzlement;
(3) Accepting or receiving any illegal or improper benefit from any
person or entity in connection with the services provided
hereunder;
(4) Willfully damaging the Company's property, business, reputation
or goodwill; or
(5) Employee's material breach of any covenant of this Agreement.
B. TERMINATION WITHOUT CAUSE. Company may terminate this
Agreement at any time without cause or reason, and without further
obligation for any compensation or benefits remaining due hereunder by
providing Employee with ninety (90) calendar days advance written notice
of termination hand-delivered or mailed by the Company to Employee's
address as found in Company's then current payroll records. Should the
Company desire that Employee leave the Company before the expiration of
the ninety (90) day notice period, it shall pay Employee as if he worked
until the expiration of the notice period, in addition to any other
severance or benefits due to Employee upon termination.
C. TERMINATION BY EMPLOYEE. Employee may terminate this Agreement
for any reason by providing the Company with ninety (90) calendar days
advance written notice of termination. At the end of this time, Company
shall have no further obligation for any compensation, commissions or
benefits remaining due hereunder.. Should the Company desire that
Employee leave the Company before the expiration of the ninety (90) day
notice period, it shall pay Employee as if he worked until the
expiration of the notice period. If Employee fails to provide the
requested notice, he shall forfeit all rights to any other severance and
benefits due to Employee upon termination other than any benefits
Employee is entitled to pursuant to applicable law.
9. NON-SOLICITATION, CONFIDENTIALITY AGREEMENT AND NON-DISPARAGEMENT.
A. CONFIDENTIALITY. As a result of employment with Company,
Employee has access to confidential material and information belonging
to the Company including, without limitation, client lists, pricing
information, procedure manuals, employee records, client records, sales
and marketing techniques, computer programs, the identity of specialized
consultants and contractors, and management strategies. This
confidential information was acquired or developed by the Company at
considerable expense. It is therefore, a unique and valuable asset of
the Company and its remaining confidential is of extreme importance to
Company. Employee acknowledges the
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<PAGE> 4
importance of keeping all information confidential and will not during
or after the term of this Agreement, disclose any confidential
information made available to or acquired by Employee in the course of
employment hereunder to any person, firm, corporation, association or
other entity for any reason or purpose. This Paragraph shall survive
expiration of this Agreement and remain enforceable after termination
of employment for any reason.
B. NON-SOLICITATION. If Employee's employment is terminated by
Employee or by Company with cause, Employee agrees that he will not, for
a period of one year after termination of employment, directly or
indirectly, for himself or on behalf of any other person or entity,
solicit, interfere with, endeavor to entice away from the Company or
accept business from any Client of the Company. Employee also agrees
that he will not, for the same one (1) year period, directly or
indirectly, for himself or on behalf of any other person or entity,
solicit, interfere with or endeavor to entice away from the Company any
other employee of the Company. For purposes of this agreement, the term
"Client" shall mean any person or entity that received service of any
type from Company during the one year period immediately preceding the
last day of Employee's employment with Company. By executing this
Agreement, Employee acknowledges that a breach of this paragraph will
give rise to irreparable and continuing injury to the Company, and
further agrees that the Company or its successors and assigns may obtain
injunctive relief against the breach or threatened breach of the
provisions of this paragraph, in addition to any other legal remedies
which may be available to it. If any court refuses to enforce this
paragraph, because it is more extensive (as to time, geographic area,
scope of business or otherwise) than is necessary to protect the
business and goodwill of the Company, it is agreed between Employee and
Company that this paragraph shall be modified to the extent necessary to
permit the terms hereof to be enforced in any legal proceeding. This
Paragraph shall survive expiration of this Agreement and remain
enforceable after termination of employment for any reason.
C. NON-DISPARAGEMENT. It is understood that Employee may not
always agree with the policies, procedures and practices of Company.
Employee agrees, however, that it is Employee's duty to support the
Company and its actions and, therefore, agrees that during or after the
term of this Agreement, Employee will not criticize or make any
disparaging remarks about Company or its officers, managers, attorneys
or other employees. This Paragraph shall survive expiration of this
Agreement and remain enforceable after termination of employment for any
reason.
10. COVENANT NOT TO COMPETE.
A. During the Employment Term and for one (1) year thereafter,
Employee will not without the prior written permission of the Company in
each instance directly or indirectly carry on or participate in a
business the same as or similar to or in competition with that conducted
or engaged in by the Company or any of its subsidiaries or affiliates.
B. The term "carry on or participate in a business the same as or
similar to that conducted or engaged in by the Company or any of its
subsidiaries or affiliates" shall include the Employee, directly or
indirectly, doing any of the following listed acts, other then
carrying on or engaging in activities expressly permitted under this
Agreement:
(1) carrying on or engaging in any such business as a principal, or
solely or jointly with others as a director, officer, agent,
employee, consultant or partner, or stockholder or limited
partner owning more than five percent (5%) of the stock or
equity
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<PAGE> 5
interests in or securities convertible into more than five
percent (5%) of the stock or equity interests in any
corporation, association or limited partnership; or
(2) as agent or principal carrying on or engaging in any activities
or negotiations with respect to the acquisition or disposition
of such business; or
(3) lending credit or money for the purpose of establishing or
operating any such business; or
(4) giving advice to any other person, firm, association,
corporation or other entity engaging in such business; or
(5) lending or allowing his name or reputation to be used in any
such business; or
C. In the event of a breach or threatened breach by the Employee
of the provisions of this Section 9, the Company shall be entitled to
injunctive relief against the Employee. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies
available to the Employer for such breach or threatened breach,
including without limitation the recovery of damages from the Employee.
11. RETURN OF COMPANY PROPERTY. On termination of employment, Employee
shall deliver all records, customer lists, notes, data, memoranda, and equipment
of any nature that are in Employee's possession or under his control and that
are the property of the Company or relate to the employment or to the business
of the Company.
12. COMPLETE AGREEMENT. Except as expressly identified herein, this
Agreement contains the sole agreement between the parties regarding the
employment relationship and supersedes any and all other employment agreements.
The parties acknowledge and agree that neither of them has made any
representation with respect to such matters of this Agreement or any
representations except as are specifically set forth herein, and each party
acknowledges that he or it has relied on his or its own judgment in entering
into this Agreement. Employee acknowledges that Company has written workplace
policies, procedures and guidelines which are not contracts of employment.
13. CHOICE OF LAW. This Agreement and the duties and obligations
hereunder shall be governed by and construed in accordance with the laws of the
State of Florida. The parties agree that venue for all legal actions instituted
to enforce any rights or obligations contained herein shall be in the county
containing that Company office where Employee was located or last reported.
14. BINDING EFFECT OF AGREEMENT. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
successors, assigns and legal representatives.
15. INVALID PROVISION. To the extent local, state or federal law or
regulation renders any provision of this Agreement unenforceable or invalid,
that portion of the Agreement shall be stricken. The invalidity or
unenforceability of a particular provision of this Agreement, except Paragraphs
1, 2, 3, 4 and 5, shall not affect the other provisions hereto, and this
Agreement shall be construed in all respects as if such invalid or unenforceable
provisions were omitted. Should Paragraphs 1, 2, 3, 4, or 5 be found invalid or
unenforceable, the entire agreement shall be invalid and unenforceable.
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<PAGE> 6
16. NOTICES. All communications provided for hereunder shall be in
writing and shall be deemed to have been given when delivered in person or three
(3) days after deposit in the United States Mail, First class, certified mail,
return receipt requested, with proper postage prepaid, at the address set forth
hereinabove or at such place as may from time to time be designated in writing
by the parties.
17. EXHAUSTION OF REMEDIES. Before taking any legal action against
Company, or filing any charge or complaint with any governmental or
administrative agency, Employee agrees to exhaust all Company dispute resolution
procedures as exist from time to time.
18. ASSIGNMENT. This Agreement shall be construed as a contract for
personal services by Employee to the Company and shall not be assignable by
Employee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
COMPLETE WELLNESS CENTERS, INC.,
A DELAWARE CORPORATION
BY:
/s/ JOHN K. PAWLOWSKI
- ------------------------------------
JOHN K. PAWLOWSKI
/s/ DONALD S. RADCLIFFE
- ------------------------------------
DONALD S. RADCLIFFE
/s/ JOSEPH J. RAYMOND, JR.
- ------------------------------------
JOSEPH J. RAYMOND, JR.
/s/ E. EUGENE SHARER
- ------------------------------------
E. EUGENE SHARER
/s/ SERGIO R. VALLEJO
- ------------------------------------
SERGIO R. VALLEJO
AS ITS: BOARD OF DIRECTORS
"COMPANY"
/s/ REBECCA R. IRISH
- ----------------------------------------
REBECCA R. IRISH
"EMPLOYEE"
-6-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 31, 1998, with respect to the consolidated
financial statements of Complete Wellness Centers, Inc. included in the
Registration Statement (Form SB-2 No. 333-_______) and related Prospectus of
Complete Wellness Centers, Inc. for the registration of 3,300,000 shares of its
10% Series C Cumulative Convertible Preferred Stock.
/s/ ERNST & YOUNG LLP
Vienna, Virginia
December 17, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" in the
registration statement (Form SB-2 No. 333-_________) and related prospectus of
Complete Wellness Centers, Inc. for the registration of 3,300,000 shares of its
10% Series C Cumulative Convertible Preferred Stock and to the incorporation by
reference therein of our report dated March 31, 1999, with respect to the
consolidated financial statements of Complete Wellness Centers, Inc. included in
its Annual Report (Form 10KSB) for the year ended December 31, 1998, filed with
the Securities and Exchange Commission.
/s/ AMPER, POLITZINER & MATTIA P.A.
Edison, NJ
December 20, 1999
<PAGE> 1
EXHIBIT 99.1
COURT JUDGMENT - FRIEDLANDER CASE
IN THE CIRCUIT COURT OF THE SIXTH JUDICI.AL CIRCUIT
IN AND FOR PINELLAS COUNTY, FLORIDA
JEFFREY FRIEDLANDER, M.D.
PLAINTIFF,
V. CASE NO. 97~648-CI-O8
COMPLETE WELLNESL CENTEN, INC.; DIVISION:
DEFENDANT.
- ------------------------------------/
FINAL JUDGMENT
Pursuant to the verdict rendered in this action
IT IS ADJUDGED that Plaintiff Jeffrey Friedlander, M.D., recover from
Defendant Complete Wellness Centers, Inc.. the sum of $141.687.50, which
includes $100,000.00 for punitive damages. plus interest to date of $5,605.37,
making a total of $147,291.87, that shall bear interest at the rate of ten
percent (10%) per year, for which let execution issue forthwith. The Court has
retained jurisdiction to determine the amount of attomeys'. fees and taxable
costs Plaintiff is entitled to recover from Defendant.
DONE AND ORDERED in Chambers, at St. Petersburg, Pinellas County,
Florida, this 25th day of, March, 1999.
TRUE COPY
--------------------------- ORIGINAL SIGNED
Thomas E. Penick MAR 25 1999
Circuit Judge
THOMAS E. PENICK JR.
Copies furnished to: CIRCUIT JUDGE
Jordan Wa1lach, Esquire
Ryan Christopher Rodems, Esquire
MAR 25 1999
<PAGE> 1
EXHIBIT 99.2
LEGAL SUIT BROUGHT BY C. THOMAS McMILLEN DATED NOVEMBER 12, 1999
IN THE SUPERIOR COURT FOR THE. DISTRICT OF COLUMBIA
CIVIL DIVISION
C. THOMAS McMILLEN
666 11th Street, NW
Washington, DC 20001
Plaintiff,
v.
Case No. 99-0008055
COMPLETE WELLNESS CENTERS, INC.
666 11th Street, NW
Suite 200
Washington, DC 20001
A Delaware Corporation
Defendant.
SERVE:
Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, DE 19801
COMPLAINT
Plaintiff C. Thomas McMillen ("McMil1en") sue the Defendant Complete
Wellness centers, Inc. ("CWC"), a Delaware corporation, for the reasons stated
as follows:
JURISDICTION
1. This Court has jurisdiction over this action pursuant to D.C. Code
Title 11-921 and Title 13-422 & 13-423 (1989).
PARTIES
2. Plaintiff McMillen is a natural person, who is domiciled in the
District of Columbia.
3. Defendant CWC is a corporation organized under the laws of the State
of Delaware, with its principal place of business located at 666 11th Street,
NW, Suite 200, Washington, DC 20001. At all relevant times hereto, CWC has
transacted business in the District of Columbia.
FACTUAL BACKGROUND
<PAGE> 2
4. Plaintiff hereby incorporates by reference paragraphs 1 through 3 as
if fully set forth herein.
5. McMillen and CWC on September 1, 1998, entered into a written
employment agreement (the "Agreement") whereby CWC would employ McMillen for a
term of two years. A copy of the Agreement is attached hereto as Exhibit A and
incorporated herein by this reference. The Agreement was duly authorized and
executed by the board of directors of CWC and McMillen
6. Section 3 of the Agreement provides that CWC shall pay McMillen
compensation which includes: (a) $150,000 per annum base salary, (b) a bonus
equal to 40% of CWC's bonus fund, (c) company car and related expenses, (d) four
weeks paid vacation, (e} health insurance, (f) severance pay totaling one year's
salary, (g) office and secretarial support, and (h) salary review and
adjustment.
7. Section 4 of the. Agreement provides that McMillen will not compete
with CWC or solicit clients from CWC for a one year period after the termination
of his employment with CWC.
8. The Agreement provides, in Section 5, that the Agreement may only be
terminated (i) by mutual written agreement; (ii) by death of McMillen or his
disability for a continuous period of six months or if he were adjudicated as
being mentally incompetent; or (iii) if McMillen were convicted of a felony.
9. The Agreement provides in Section 9 that it shall be governed by and
construed in accordance with the laws of the State of Maryland.
COUNT I
(BREACH OF WRITTEN CONTRACT)
10. Plaintiff hereby incorporates by reference paragraphs 1 through.9 as
if fully set forth herein.
11. McMillen and CWC on September 1, 1998, entered into a written
employment agreement (the " Agreement") whereby CWC would employ McMillen for a
term of two years and McMillen's employment could only be terminated within that
two year period in specified circumstances, i.e., (i) by mutual written
agreement: (ii) by death of McMillen or his disability for a continuous period
of six months or if he were adjudicated as being mentally incompetent; or (iii}
if McMil1en were convicted of a felony.
12. None of the circumstances specified in Section 5 of the Agreement have
been met.
13. Despite the fact that none of these conditions for termination of the
Agreement existed, CWC on February l8, 1999, terminated McMillen's employment.
This termination constituted a material breach of the Agreement and entitles
McMillen to the reasonably foreseeable, direct damages resulting to him from
CWC's breach.
14. McMillen's damages from CWC's breach are based upon the remainin9 time
period of the Agreement, from the date of termination, February 18, 1999,
through the end of the Agreement, August 31, 2000, and would include, but not be
limited to the compensation pro1/ided in the Agreement, salary, vacation, bonus
pool, stock options, office, secretarial support, cellular phone, and benefits
including health insurance.
<PAGE> 3
WHEREFORE, Plaintiff C. Thomas McMillen prays that judgment be entered in
his favor and against Defendant Complete Wellness Centers, Inc. in the amount of
Five Hundred Thousand Dollars ($5001000.00), plus pre-judgment interest, the
costs of this action, attorneys fees and such further relief as this Court may
deem just and proper.
COUNT II
(BREACH OF COVENANT OF GOOD FAITH AND FAIR DEALING)
15. Plaintiff hereby incorporates by reference paragraphs 1 through 14 as
if fully set forth herein.
16. The Agreement between McMillen and CWC contains an implied covenant
that the parties will extend reasonable cooperation in clearing the way for
performance of the contract.
17. The Agreement between McMillen and CWC contains an implied covenant of
good faith and fair dealing which prevents a party from evading the spirit of
the contract, willfully rendering imperfect performance, or interfering with the
other party's performance.
18. CWC breached the covenant of good faith and fair dealing and the
covenant of reasonable cooperation when it terminated McMillen's employment
without cause and in contradiction to the terms of the Agreement.
19. As a direct and foreseeable consequence of CWC's breach of the
covenants of good faith and fair dealing and reasonable cooperation, McMillen's
damages include, but are not limited to, the compensation provided in the
Agreement, salary, vacation; bonus pool, stock options, office, secretarial
support, cellular phone, and benefits .including health insurance from the date
of termination, February 18, 1999, through the end of the Agreement, August 31,
2000.
20. CWC has refused, and continues to refuse, to pay these sums to
McMillen.
WHEREFORE, Plaintiff C. Thomas McMillen prays that judgment be entered in
his favor and against Defendant Complete Wellness Centers, Inc. in the amount of
Five Hundred Thousand Dollars ($500,000.00), plus pre-judgment interest, the
costs of this action, attorneys fees and such further relief as this Court may
deem just and proper.
Dated: November 1, 1999 COOTER, MANGOLD, TOMPERT,
& WAYSON, P.L.L.C.
/s/ ELIZABETH MCFARLAND
-------------------------------
Dale A. Cooter, #277454
Elizabeth A. McFarland, #441301
5301 Wisconsin Ave.,N.W.
Suite 500
Washington, D.C. 20015
COUNSEL FOR PLAINTIF POUND STERLING
<PAGE> 4
EXHIBIT A
[Complete Wellness Centers letterhead]
September 1, 1998
Mr. C. Thomas McMillen
1103 South Carolina A venue, S.E.
Washington, D.C. 20003
Dear Mr. McMillen,
This letter, when accepted by you in a manner hereinafter provided, will
evidence the agreement among Complete Wellness Centers, Inc., a Delaware
Corporation (the "Company") and Mr. C. Thomas McMillen (the "Employee") for the
provision of certain services to be rendered by Employee to the Company (the "
Agreement"), all under the following terms and conditions to wit:
1. EMPLOYMENT DUTIES
The Company shall employ Employee as Chairman and Chief Executive Officer.
Employee shall report to the Board of Directors.
Employee shall devote his time and best efforts on a substantially full time
basis to the business and affairs of the Company. Employee shall devote at least
forty (40) hours per week to the business and affairs of the Company. (Nothing
in this Agreement shall prohibit Employee from time to time engaging in other
business arrangements and/or possessing an interest in other business ventures
of any and every type and description subject to the provisions of Section 4.)
2. EMPLOYMENT TERM
This Agreement shall commence on September 1,1998 (the "Commencement Date"), and
shall end two years from such date or three years in the event the Company
completes a financing in excess of $10 million on or before December 31, 1998
(the "Employment Term") unless extended by the Company and Employee in writing
or unless sooner terminated in accordance with the provisions of this Agreement.
3. COMPENSATION, EXPENSES, ETC.
In consideration of performance of the services and activities hereby, the
Company shall pay Employee compensation as follows:
A. A base salary of one hundred and fifty thousand dollars
($150,000) per annum, payable semi-monthly in arrears.
B. Employee shall receive an additional performance bonus (the
"Bonus") equal to forty percent (40%) of the Company's Bonus
Fund, in accordance with the Company's 1995 Bonus Plan for Key
Executives. For the purpose of this Section 3, the "Bonus Fund"
shall
<PAGE> 5
be equal to at least ten percent (10%) of the Company's pre-tax
income. The maximum bonus fund is $5 million.
C. The use of a Company car and payment of related expenses
including gas, insurance, maintenance, etc. not to exceed a cost
to the Company of one-thousand dollars ($1,000) per month.
D. Four (4) weeks of compensated vacation which shall vest ratably
throughout the year.
E. The Company shall make available such health benefits and any
other benefits as it makes available to its executive employees.
F. Upon termination of this Agreement pursuant to Section 5(i) and
5(ii), Employee shall receive a severance payment equal to twelve
(12) times the Employee's monthly compensation pursuant to
Section 3(A) for the month prior to termination. Such severance
shall be payable in twelve (12) monthly insta1lrnents, beginning
in the second calendar month following the month in which
termination occurs.
G. The Company shall provide Employee with an office and secretarial
services comparable to those of its other executive employees.
The Company shall deduct the usual withholding taxes from
Employee's compensation consistent with standard practices and
applicable federal and state laws.
The Company shall reimburse Employee for any documented out of
pocket expenses incurred in connection with the duties and
responsibilities described herein, subject to the Company's
policies.
H. An independent compensation expert retained by the Company's
Board of Directors shall report to the Board of Directors on the
average Chairman and Chief Executive Officer cash compensation
for companies in the physician practice management industry with
similar revenues, profitability, growth rates, and stage of
development as the Company's. Upon completion by the Company of a
financing in excess of $10 million or upon annual review, the
Board of Directors of the Company shall adjust Mr. McMillen's
base salary accordingly. Such adjusted base salary shall be
payable beginning in the second calendar month following the
month in which the financing closes or the annual review
completed.
4. COVENANT NOT TO COMPETE; NOT TO SOLICIT
A. During the Employment Term and for one (1) year thereafter, the
Employee will not without the prior written permission of the
Company in each instance directly or indirectly carry on or
participate in a business the same as or similar to or in
competition with that conducted or engaged in by the Company or
any of its subsidiaries or affiliates.
B. The term "carry on or participate in a business the same as or
similar to that conducted or engaged in by the Company or any of
its subsidiaries or affiliates" shall
<PAGE> 6
include the Employee, directly or indirectly, doing any of the
following listed acts, other than carrying on or engaging in
activities expressly permitted under this Agreement:
(i) carrying on or engaging in any such business as a
principal, or solely or jointly with others as a director,
officer, agent, employee, consultant or partner, or
stockholder or limited partner owning more than five percent
(5%) of the stock or equity interests in or securities
convertible into more than five percent (5%) of the stock of
or equity interests in any corporation, association or
limited partnership; or
(ii) as agent or principal carrying on or engaging in
any activities or negotiations with respect to the
acquisition or disposition of any such business; or
(iii) lending credit or money for the purpose of
establishing or operating any such business; or
(iv) giving advice to any other person, firm,
association, corporation or other entity engaging in any
such business; or
(v) lending or allowing his name or reputation to be
used in any such business; or
C. In the event of a breach or threatened breach by the Employee of
the provisions of this Section 4, the Company shall be entitled
to injunctive relief against the Employee. Nothing herein shall
be construed as prohibiting the Company from pursuing any other
remedies available to the Employer for such breach or threatened
breach, including without limitation the recovery of damages from
the Employee.
D. During the Employment Term and for one (1) year thereafter, the
Employee will not without the prior written permission of the
Company in each instance will not solicit, or attempt to solicit
and employ any employee of the Company or any of its subsidiaries
or affiliates, or commit an act the primary purpose of which is
to induce employee of the Company or any of its subsidiaries or
affiliates to leave such employment or significantly interfere
with, disrupt or attempt to disrupt any past, present or
prospective relationship, contractual or otherwise, relating to
the business activities between the Company or any of its
subsidiaries or affiliates and their respective prospects.
E. The parties hereto consider the restrictions contained in this
Section 4 to be reasonable. If, however, such restrictions are
found by any court having jurisdiction to be unreasonable because
they are (or any of them is) too broad, then such restrictions
shall nevertheless remain effective, but shall be considered
amended as to
<PAGE> 7
protection of business, time or geographic area in whatever
manner is considered reasonable by that court and, as so amended,
shall be enforced.
F. The provisions of this Section 4 shall survive the expiration or
termination, for any reason, or this Agreement and shall be
separately enforceable.
G. The provisions of this Section 4 shall be enforceable only in the
event Employee receives the Severance.
5. TERMINATION
This Agreement may be terminated prior to the end of the Employment Term,
(i) by the written mutual agreement between Company and Employee;
(ii) by the death of Employee or his disability for a period of one
hundred and twenty (120) consecutive days or the adjudicated mental
incompetency of Employee; or
(iii) by the Company for cause, where "cause" shall mean for
purpose of this Agreement - Employee's conviction of a felony
(excluding the present federal investigation).
6. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
A. The Employee agrees that he will not, during the Employment Term or
thereafter, make use of, divulge or otherwise disclose, directly or
indirectly, any trade or business secret (including, without
limitation, any customer list, data, records or financial information
constituting a trade or business secret) concerning the business or
policies of the Company or any of its subsidiaries or affiliates which
he may have learned as a result of his employment during the
Employment Term or prior thereto as shareholder, employee, officer
and/or director or the Company except to the extent such use or
disclosure is necessary to the performance of this Agreement and in
furtherance of the Company's best interest. The provisions of this
Section 6 shall survive the expiration or termination, for any reason,
of this Agreement.
<PAGE> 8
B. The Employee shall not during the Employment Term or for one (1) year
thereafter make use of, divulge or otherwise disclose, directly or
indirectly, any confidential information concerning the business or
policies of the Company or any of its subsidiaries or affiliates which
he may have learned while a shareholder, employee, officer and/or
director of the Company.
C. In the event of a breach or threatened breach by the Employee of the
provisions of this Section 6, the Company shall be entitled to an
injunction restraining the Employee from disclosing, in whole or in
part, any such trade or business secret and/or any such confidential
information, or from rendering any services to a person, firm,
corporation, association, or other entity to whom any such trade or
business secret and/or any such confidential information, in whole or
in part, has been disclosed or is threatened to be disclosed. Nothing
herein shall be construed as prohibiting the Company from pursuing any
other remedies available to the Company for such breach or threatened
breach, including without limitation the recovery of damages from the
Employee.
D. The provisions of this Section 6 shall survive the expiration or
termination, for any reason, of this Agreement and shall be separately
enforceable.
7. AMENDMENT
This Agreement may be amended only by the written agreement of the Company and
Employee.
8. SUCCESSORS AND ASSIGNS
The Company's rights and obligations under this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the Company; and
the Company may delegate all or any part of its rights and obligations hereunder
to any affiliate or subsidiary of the Company.
The Employee acknowledges and agrees that this Agreement is personal to him and
his rights and interests hereunder may not be assigned, nor may his obligations
and duties hereunder be delegated with exception of the voting rights assigned
to Employee's spouse by Employee.
9. GOVERNINGLAW
This Agreement shall be governed by and construed in accordance with the laws of
the State of Maryland.
10. ENTIREAGREEMENT
<PAGE> 9
This Agreement supersedes any and all other agreements, either oral or written
heretofore made with respect to the subject matter hereof.
11. SEVERABILITY
Any provision of this Agreement which is found to be unenforceable in any
jurisdiction, shall, as to such jurisdiction only, be ineffective to the extent
of such unenforceability, without invalidating or otherwise affecting the
remaining provisions hereof. If any of the covenants against competition
contained in Section 4 are found by a court having jurisdiction to be
unreasonable in duration, geographical scope, or character of restriction, the
covenant shall not be rendered unenforceable thereby, but rather the duration,
geographical scope, or character of restriction of said covenant shall
respectively be reduced or modified to render the covenant reasonable and the
covenant shall be enforced as modified.
12. COUNTERPARTS
This Agreement may be executed simultaneously in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. This Agreement shall be binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of the parties reflected hereon as signatories.
13. NOTICES
All notices required or permitted under this Agreement shall be in writing and
shall be deemed effective upon personal delivery or upon deposit in the United
States Post Office, by registered or certified mail, postage prepaid, addressed
to:
(i) Employee at the address shown above, or at such other address or
addresses as Employee shall designate to the Company in
accordance with this Section, or
(ii) Company at the address set forth on the above letterhead, or at
such other address as the Company shall designate to Employee in
accordance with this section.
14. PRONOUNS
Whenever the context may require, any pronouns used in this Agreement shall
include the corresponding masculine, feminine or neuter forms and the singular
form of nouns and pronouns shall include the plural and vice versa.
15. MISCELLANEOUS
A. No delay or omission by the Company or Employee in exercising any
right under this Agreement shall operate as a waiver of that or any
other right. A waiver or consent given by the Company or Employee on
anyone occasion shall be effective only in that instance and shall not
be construed as a bar or waiver of any right on any other occasion.
B. The captions of the sections of this Agreement are for convenience
of reference only and in no way define, limit or affect the scope or
substance of any of this Agreement.
<PAGE> 10
* * *
If the foregoing accurately sets out our agreement with regard to the above,
please indicate your acceptance by executing and returning two copies of this
letter to the undersigned.
Very truly yours,
COMPLETE WELLNESS CENTERS, INC.
BOARD OF DIRECTORS
/s/ Eric S. Kaplan, D.C.
- ------------------------------
Eric S. Kaplan, D.C.
/s/ E. Eugene Sharer
- ------------------------------
E. Eugene Sharer
/s/ Robert Mrazek
- ------------------------------
Robert Mrazek
/s/ James McMillen, M.D.
- ------------------------------
James McMillen, M.D.
/s/ Joseph Raymond, Jr.
- ------------------------------
Joseph Raymond, Jr.
/s/ Sergio Vallejo, D.M.D
- ------------------------------
Sergio Vallejo, D.M.D
Accepted and agreed to this 23rd day of November, 1998
/s/ C. Thomas McMillen
- ---------------------------------
C. Thomas McMillen
"Employee"
<PAGE> 1
EXHIBIT 99.3
NASDAQ LETTER DATED SEPTEMBER 13, 1999
[NASDAQ AMEX LOGO]
BY FAX AND AIRBORNE EXPRESS
September 13, 1999
Mr. Michael T. Brigante
Chief Financial Officer
Complete Wellness Centers, Inc.
1964 Howell Branch Road
Suite 202
Winter Park, FL 32792
Dear Mr. Brigante:
The Staff is in receipt of Complete Wellness Centers, Inc.'s (the "Company" or
"Complete Wellness") submissions regarding its noncompliance with the net
tangible assets/market capitalization/net income requirement for continued
listing on The Nasdaq SmallCap Market, as set forth under Marketplace Rule
4310(c)(2)(B).(1) According to the Form 10-K for the fiscal year ended December
31,1999, the Company reported net tangible assets of $(636,749). The Company's
market capitalization at March 31,1999 was $7,374,388.(2) Complete Wellness
reported net losses of $(990,693, $(4,176,433) and $(9,688,018) for the fiscal
years ended December 31, 1996, 1997, and 1998, respectively.
In its correspondence of May 11, June 14, and July 19, 1999, the Company
submitted its plan of compliance. Since February 1999, Complete Wellness has
replaced most of the Company's senior management. The Company reorganized its
wholly-owned subsidiary, Complete Wellness Weight Management, Inc., under
Chapter 7 bankruptcy. As of July 6, 1999, the date of the bankruptcy filing, the
financial statements of this subsidiary will no longer be included in the
Company's consolidated financial results. Complete Wellness represents that its
investment in the subsidiary will be adjusted to reflect only those liabilities
that are guaranteed by the Company. The remaining liabilities of the subsidiary,
estimated at approximately $3,759,467 , will be adjusted through changes to the
additional paid in capital of the Company. Complete Wellness plans to sell,
divest or close unproductive ancillary businesses or subsidiaries in order to
concentrate on its core business of managing medical clinics. During the period
of March - July 1999, the Company also raised approximately $797,000 in a
private placement. On June 30, 1999, Complete Wellness filed a Registration
Statement with the Securities & Exchange Commission to register 1,185,366 common
stock shares to be issued in this private placement.(3) During the month of July
1999, the Company also negotiated the conversion of approximately
- ------------------------
<PAGE> 2
(1) Marketplace Rule 4310(c)(2)(B) requires that an issuer have net tangible
assets of at least $2,000,000 or a market capitalization of $35,000,000 or net
income of $500,000.
(2) Market capitalization was detennined by the total shares outstanding of
2,949,755 at March 31, 1999 multiplied by the closing bid price of $2.50 on
March 31, 1999.
(3) This Registration Statement was declared effective on August 4, 1999.
$1,250,000 in debt into permanent equity. Complete Wellness believed that it
would be able to complete all of these transactions by August 15, 1999, in order
to timely file its Form 10-Q for the quarter ended June 30, 1999, demonstrating
compliance with the $2 million net tangible assets requirement. The Company also
indicated that it had returned to profitability and believed that it would
evidence a positive net income for six months ended June 30, 1999. In its July
19, 1999 correspondence, the Company submitted a draft pro forma balance sheet
evidencing net tangible assets through May 31,1999 of $2,253,907.(4) On July
20,1999, in a telephone conversation with Mr. Sergio Vallejo, COO and President,
the Staff advised the Company that it would accept the Company's plan of
compliance. Complete Wellness was requested to submit additional documentation
for the recent corporate actions by August 15, 1999. The Company's Form 10-Q for
the quarter ended June 30, 1999 was also required to be filed with the
Securities & Exchange Commission and Nasdaq by August 15,1999.
On August 13,1999, the Company contacted Staff and stated that Complete Wellness
had made a decision to relocate its corporate headquarters from Washington, D.C.
to Winter Park, Florida. The Company indicated that the move was being done to
reduce costs and expenses. Complete Wellness indicated that due to the
relocation, the Company would not be able to complete closure of the debt
restructuring and the private placement by the August 15, 1999 deadline. As
such, Complete Wellness indicated that the Form 10-Q for the quarter ended June
30, 1999 would not evidence compliance with the $2 million net tangible assets.
The Company requested an additional month to submit the requested documentation.
In the August 13, 1999 telephone conversation, the Company also indicated that
one of its independent directors had resigned on July 27, 1999. Thus, Complete
Wellness was no longer in compliance with Marketplace Rule 4310(c)(25)(B) and
4310(c)(25)(C).(5) The Company requested an additional thirty days to remedy
these deficiencies.
After careful consideration, the Staff determined to grant additional time to
the Company to submit the required documentation, evidencing compliance with the
$2 million net tangible assets and corporate governance requirements. On August
15, 1999, Complete Wellness filed its Form 10-Q for the quarter ended June 30,
1999. While the Company reported net tangible assets of $(3,084,181), Complete
Wellness also reported a net income of $169,729 for the six months ended June
30, 1999. The Company was requested to provide documentation from its auditors
regarding the restatement of the financial statements to reflect the reversal of
the Chapter 7 subsidiary liabilities. The Staff also required the Company to
file a Form 8-K with the Securities & Exchange Commission and Nasdaq, which
disclosed the restatement of the financial statements and provided a proforma
balance sheet, as of July 31, 1999, which reflected the reversal of the
subsidiary's liabilities. Upon completion of the bankruptcy adjustments, the
<PAGE> 3
- ------------------------------------
(4) This amount reflects net tangible assets of $(3,552,560) and the reversal of
$3,759,467 in reserves for the Chapter 7 filing of Complete Wellness Weight
Management, Inc., the receipt of expected private placement proceeds of
$797,000, and the conversion of debt to equity by Wexford Partners, LLC, RVR
Consulting, Stratus Services, Raintree Systems and Sun Financial.
(5) Marketplace Rule 4310(c)(25)(B) requires that the Issuer have at least two
independent directors. Marketplace Rule 4310(c)(25)(C) requires the Issuer have
an audit committee, a majority of which must be independent directors.
Company will report proforma net tangible assets of $796,319, as of July 31,
1999. (6) The Company was also requested to issue a press release regarding the
relocation of the corporate headquarters from Washington D.C. to Florida.
ON SEPTEMBER 13, 1999, THE STAFF SPOKE WITH MR. JOSEPH RAYMOND, JR., CHAIRMAN
AND CHIEF Executive Officer. To complete the terms of the extension, the Staff
will require all of the following documentation to be submitted by no later than
September 30, 1999.
1) The Company is to file a Form 8-K with the Securities & Exchange
Commission and Nasdaq, which discloses the completion of the recent private
placement and debt conversations. The specific monetary amounts raised in
the transactions, the names of the investors, and the number of common
shares to be issued shall be disclosed. The Form 8-K is to contain a
proforma balance sheet and statement of operations, as of August 31, 1999.
The balance sheet should use June 30, 1999 historical numbers as a base and
then separately reflect all adjustments for the restatements due to the
reversal of the liabilities from the subsidiary's bankruptcy, and the
completion of the private placement and the debt conversion. The Company
must demonstrate compliance with the $2 million net tangible assets
requirement, as set forth in Marketplace Rule 4310(c)(2)(B).
2) Complete Wellness is to provide the Staff with the names, birthdates,
social security numbers, and biographies for all officers and the Board of
Directors. The Company must demonstrate compliance with the two independent
directors and independent audit committee requirements, as set forth in
Marketplace Rules 4310(c)(25)(B) and 4310(c)(25)(C). A copy of the Board of
Directors' resolution, naming the new independent audit committee, must be
provided.
3) The Company is to file all required Notifications, supporting documents,
and applicable fees for the Listing of Additional Shares. A copy of the
Complete Wellness' Transaction Summary Report, which outlines the filings
made to date, is attached.
4) The Staff also requests that the Company provide financial projections
for the remainder of 1999.
5) The Company is to provide a narrative as to the current status of the
bankruptcy proceedings for the subsidiary and a timetable for completion
and discharge. Copies of the initial bankruptcy filing and the final
discharge papers are to be provided to the Staff.
Finally, the Company must also file its Form 10-Q for the quarter ended
September 30, 1999 with the Securities & Exchange Commission and Nasdaq by no
later than November 15, 1999.
<PAGE> 4
This document must also evidence compliance with the minimum $2 million net
tangible assets requirement.
(6) The Company filed a Form 8-K on September 13, 1999, which contained the
proforma balance sheet, as of July 31, 1999, and announced the address of the
new corporate location.
THE TERMS AND DEADLINE OF THIS EXTENSION ARE FINAL. SHOULD THE COMPANY FAIL TO
COMPLY WITH ANY of the terms of this extension, the Staff will issue a formal
delisting letter.
If you have any questions regarding the compliance issues discussed in this
letter, please contact Ms. Marilyn Bacot, Listing Analyst, at (202) 496-2504 or
myself at (202) 496-2569.
Sincerely,
/s/ KIT MILHOLLAND
Kit Milholland
Associate Director
Nasdaq Listing Qualifications
