-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QOfyoukIFwnwB0XVvXs5XvBAFhB6XMinlLLgoQujGVMD/iQnxh54Q0L1Z3TR1XRq PLeMhG6qomxRm3nO/8/2HQ== 0000950133-96-002881.txt : 19961220 0000950133-96-002881.hdr.sgml : 19961220 ACCESSION NUMBER: 0000950133-96-002881 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 36 FILED AS OF DATE: 19961219 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPLETE WELLNESS CENTERS INC CENTRAL INDEX KEY: 0001022828 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 521910135 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-18291 FILM NUMBER: 96683489 BUSINESS ADDRESS: STREET 1: 725 INDEPENDENCE AVE SE CITY: WASHINGTON STATE: DC ZIP: 20003 BUSINESS PHONE: 2025436800 MAIL ADDRESS: STREET 1: 725 INDEPENDENCE AVE SE CITY: WA STATE: DC ZIP: 20003 SB-2 1 REGISTRATION STATEMENT 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 19, 1996 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------ Form SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------------ COMPLETE WELLNESS CENTERS, INC. (Name of small business issuer in its charter) DELAWARE 8099 52-1910135 (State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
------------------------------------ 725 INDEPENDENCE AVE., S.E., WASHINGTON, D.C. 20003 (202) 543-6800 (Address and telephone number of principal executive offices) ------------------------------------ E. EUGENE SHARER, PRESIDENT AND CHIEF OPERATING OFFICER 725 INDEPENDENCE AVE., S.E., WASHINGTON, D.C. 20003 (202) 543-6800 (Name, address and telephone number of agent for service) ------------------------------------ Copies to: Anthony Cipiti, Jr., Esq. Storch & Brenner 1001 Connecticut Ave., N.W. Washington, D.C. 20036-5504 202-452-0900 Lawrence B. Fisher, Esq. Orrick, Herrington & Sutcliffe LLP 666 Fifth Avenue New York, New York 10103-0001 212-506-5000 ------------------------------------ Approximate date of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis, pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------------------ CALCULATION OF REGISTRATION FEE - ----------------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS AMOUNT TO BE OFFERING AGGREGATE REGISTRATION OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1) FEE - ----------------------------------------------------------------------------------------------------------------------- Common Stock, par value $.0001665 per share................................... 1,150,000(2) $8.00 $ 9,200,000 $2,787.88 Redeemable Common Stock Purchase Warrants, each exercisable for one share of Common Stock........................... 1,150,000(3) $ .10 $ 115,000 $ 34.85 Common Stock issuable upon exercise of Redeemable Warrants.................... 1,150,000(4) $9.60 $11,040,000 $3,345.45 Common Stock Purchase Warrants, each exercisable for one share of Common Stock.................................. 183,333(5) $.003 $ 550 $ .17 Common Stock issuable upon exercise of Common Stock Purchase Warrants......... 183,333(6) $6.00 $ 1,100,000 $ 333.33 Total..................................... $6,501.68 - -----------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933. (2) Includes 150,000 shares which the Underwriters have the option to purchase to cover over-allotments, if any. (3) Includes 150,000 Redeemable Warrants which the Underwriters have the option to purchase to cover over-allotments, if any. (4) Pursuant to Rule 416 under the Securities Act of 1933, there are also being registered such additional securities as may become issuable pursuant to the antidilution provisions of the Redeemable Warrants. (5) Consists of Common Stock Purchase Warrants being registered on behalf of certain security holders of the Registrant. (6) Consists of Common Stock issuable upon exercise of Common Stock Purchase Warrants being registered on behalf of certain security holders of the Registrant. ------------------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED DECEMBER 19, 1996 Prospectus COMPLETE WELLNESS CENTERS, INC. 1,000,000 SHARES OF COMMON STOCK AND 1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS ------------------------------------ Complete Wellness Centers, Inc., a Delaware corporation (the "Company"), hereby offers (the "Offering") 1,000,000 shares (the "Shares") of common stock, par value $.0001665 per share (the "Common Stock"), and 1,000,000 Redeemable Common Stock Purchase Warrants (the "Warrants"). The Shares and the Warrants are sometimes hereinafter together referred to as the "Securities." Until the completion of this Offering, the Shares and the Warrants offered hereby may only be purchased together on the basis of one Share and one Warrant, but will trade separately immediately after the Offering. It is currently anticipated that the initial public offering prices of the Shares and the Warrants will be between $6.00 and $8.00 per Share and $.10 per Warrant, respectively. Each Warrant entitles the registered holder thereof to purchase one share of Common Stock at an initial exercise price of $ per share [120% of the initial public offering price per share of Common Stock], subject to adjustment, at any time commencing , 1997 [six months after the date of this Prospectus] until , 2002 [five years after the date of this Prospectus]. Commencing , 1998 [18 months after the date of this Prospectus], the Warrants are subject to redemption by the Company, in whole but not in part, at $.10 per Warrant on 30 days' prior written notice provided that the average closing bid price of the Common Stock as reported on the Nasdaq SmallCap Market ("Nasdaq") equals or exceeds $ per share [160% of the initial public offering price per share of Common Stock] (subject to adjustment under certain circumstances) for any 20 trading days within a period of 30 consecutive trading days ending on the fifth trading day prior to the date of the notice of redemption. See "Description of Securities -- Warrants." (cover continued on next page) THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 9 AND "DILUTION." ------------------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - --------------------------------------------------------------------------------------------------------------- PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT(1) COMPANY(2) - --------------------------------------------------------------------------------------------------------------- Per Share........................................ $ $ $ - --------------------------------------------------------------------------------------------------------------- Per Warrant...................................... $ $ $ - --------------------------------------------------------------------------------------------------------------- Total(3)......................................... $ $ $ - ---------------------------------------------------------------------------------------------------------------
(1) Does not include additional compensation payable to National Securities Corporation, the representative (the "Representative") of the several Underwriters, in the form of a non-accountable expense allowance. In addition, see "Underwriting" for information concerning indemnification and contribution arrangements with the Underwriters and other compensation payable to the Representative. (2) Before deducting estimated expenses of $425,000 payable by the Company, excluding the non-accountable expense allowance payable to the Representative. (3) The Company has granted to the Representative an option, exercisable within 45 days after the date of this Prospectus, to purchase up to an aggregate of 150,000 additional shares of Common Stock and/or up to 150,000 additional Warrants upon the same terms and conditions as set forth above, solely to cover over-allotments, if any (the "Over-allotment Option"). If such Overallotment Option is exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ------------------------------------ The Securities are being offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters and subject to approval of certain legal matters by their counsel and subject to certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify this Offering and to reject any order in whole or in part. It is expected that delivery of the Securities will be made against payment at the offices of National Securities Corporation, Seattle, Washington, on or about , 1997. NATIONAL SECURITIES CORPORATION The date of this Prospectus is , 1997 3 COMPLETE WELLNESS CENTERS, INC. [MAP REPRESENTING EXISTING AND SCHEDULED COMPLETE WELLNESS CENTERS] ------------------------------------ The Company intends to furnish its stockholders with annual reports containing financial statements audited and reported upon by its independent certified public accountants after the end of each fiscal year, and make available such other periodic reports as the Company may deem to be appropriate or as may be required by law. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AND/OR THE WARRANTS OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE BOSTON STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 4 (cover continued from front cover page) Prior to this Offering, there has been no public market for the Securities and there can be no assurance that such a market will develop after the completion of this Offering or, if developed, that it will be sustained. For information regarding the factors considered in determining the initial public offering prices of the Shares and Warrants and the terms of the Warrants, see "Risk Factors" and "Underwriting." Application has been made to include the Shares and the Warrants for quotation on Nasdaq and listing on the Boston Stock Exchange ("BSE") under the symbols "CMWL" and "CMWLW," respectively, on Nasdaq, and "CMW" and "CMWW," respectively, on the BSE. This Prospectus also relates to the registration by the Company, at its expense, for the account of various security holders who provided bridge financing (the "Bridge Financing") to the Company (collectively, the "Selling Security Holders") of an aggregate of 157,142 warrants to purchase shares of Common Stock at an exercise price of $.003 per share (the "Bridge Warrants") and 157,142 shares of Common Stock underlying the Bridge Warrants (assuming an initial public offering price of $7.00 per share). The Selling Security Holders have agreed with the Company not to effect any sales of the Common Stock issuable upon exercise of the Bridge Warrants until 90 days after the date of this Prospectus without the consent of the Representative. The Company will not receive any proceeds from any of the securities offered for sale by the Selling Security Holders although it will receive proceeds from the exercise of the Bridge Warrants. All of the securities offered for sale by the Selling Security Holders are hereinafter referred to as the "Selling Security Holders' Securities." See "Selling Security Holders." The sale of the Selling Security Holders' Securities may be effected from time to time in transactions (which may include block transactions by or for the account of the Selling Security Holders) in the over-the-counter market or in negotiated transactions, through the writing of options on the Selling Security Holders' Securities, through a combination of such methods of sale, or otherwise. Sales may be made at fixed prices which may be changed, at market prices prevailing at the time of sale, or at negotiated prices. If any Selling Security Holder sells his, her or its Securities, or options thereon, pursuant to this Prospectus at a fixed price or at a negotiated price which is, in either case, other than the prevailing market price or in a block transaction to a purchaser who resells, or if any Selling Security Holder pays compensation to a broker-dealer that is other than the usual and customary discounts, concessions or commissions, or if there are any arrangements either individually or in the aggregate that would constitute a distribution of the Selling Security Holders' Securities, a post-effective amendment to the Registration Statement of which this Prospectus is a part, would need to be filed and declared effective by the Securities and Exchange Commission (the "Commission") before such Selling Security Holders could make such sale, pay such compensation, or make such a distribution. The Company is under no obligation to file a post-effective amendment to the Registration Statement of which this Prospectus is a part under such circumstances. 3 5 [THIS PAGE INTENTIONALLY LEFT BLANK] 4 6 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and consolidated financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated herein all share and per share information in this Prospectus does not give effect to (i) the issuance of 1,000,000 shares of Common Stock issuable upon exercise of the Warrants, (ii) the exercise by the Representative of the Over-allotment Option, (iii) the issuance upon exercise of warrants granted to the Representative (the "Representative's Warrants") of up to 100,000 shares of Common Stock and 100,000 Warrants and the underlying 100,000 shares of Common Stock issuable upon exercise of the Warrants contained in the Representative's Warrants, or (iv) the conversion of 1,350 shares of Series A, 12% Cumulative Convertible Preferred Stock of the Company into 145,800 shares of Common Stock upon consummation of this Offering. See "Underwriting" and "Description of Securities -- Preferred Stock." Unless otherwise indicated herein all share and per share information in this Prospectus gives effect to (i) a 180-for-1 split of the Common Stock effected in November 1995 and (ii) a 1-for-3 reverse split of the Common Stock effected in November 1996. Unless the context otherwise requires, the "Company" refers to Complete Wellness Centers, Inc. and its subsidiaries. This Prospectus contains forward-looking statements which involve certain risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors" and elsewhere in this Prospectus. THE COMPANY The Company develops multi-disciplinary medical centers ("Integrated Medical Centers") and furnishes certain support services to such facilities. The Integrated Medical Centers combine, in one practice, at the same location, traditional health care providers, such as physicians and physical therapists, and alternative health care providers, such as chiropractors, acupuncturists and massage therapists. The Company's objective is to become a nationally recognized developer and manager of Integrated Medical Centers. At December 16, 1996, the Company had developed and was managing 8 Integrated Medical Centers in the states of Florida, Virginia and Illinois and had 36 binding agreements to develop and manage Integrated Medical Centers in 9 states. The Company develops Integrated Medical Centers generally through affiliations with chiropractors and their existing chiropractic practices (the "Affiliated Chiropractors"). Management endeavors to enter into an agreement with a chiropractor who has an established chiropractic practice in a convenient location and who is an individual who has demonstrated the entrepreneurial skills to build a practice. Management believes that the growing popularity and acceptance of alternative medicine, also referred to as complementary medicine, has contributed to the Company's growth. In 1993, the New England Journal of Medicine reported that the use of alternative medicine in 1990 amounted to approximately $13.7 billion. In October 1996, The Wall Street Journal reported that the alternative medical therapy market is approximately $50 billion. By integrating alternative medicine with traditional medicine, the Company is providing a choice for the consumer in one location as well as the opportunity to choose complementary treatments overseen by a medical doctor, which the Company believes alleviates some of the concerns of patients and third party payors. The Company's operating strategy is to (i) provide consumers the opportunity to obtain, and the convenience of obtaining, under the supervision of a medical doctor, complementary traditional and alternative medical treatments in one location, (ii) furnish high quality patient care efficiently through the use of credentialing standards and standardized protocols, (iii) establish Integrated Medical Centers in local and regional clusters for purposes of obtaining managed care contracts, (iv) assist in marketing the Integrated Medical Centers on a coordinated basis and furnish them management, marketing, financing and other advice and support, and (v) achieve operating efficiencies and economies of scale through the implementation of management information systems, the rotation of health care practitioners among Integrated Medical Centers, 5 7 increased purchasing power with suppliers, and standardized protocols, administrative systems, and procedures. The Company's expansion strategy is to continue to develop additional Integrated Medical Centers in regional groups or clusters in order to facilitate the development of integrated networks of affiliated physicians, chiropractors and other health care providers (both traditional and alternative). The Company plans to continue to develop additional Integrated Medical Centers through affiliations with chiropractors and their existing chiropractic practices and intends to begin development of Integrated Medical Centers in connection with strategic alliances with health clubs, corporations, government offices or other organizations, in which cases the Integrated Medical Centers would be developed in locations such as a health club or office building. The Company regularly explores new opportunities related to integrated medical services and may in the future negotiate arrangements with or acquire businesses ancillary to the provision of integrated medical services such as services relating to medical diagnostics or billing systems. As of the date of this Prospectus, the Company has no understandings, commitments or agreements with respect to any acquisitions. THE OFFERING Securities Offered......... 1,000,000 shares of Common Stock and 1,000,000 Warrants. See "Description of Securities." Securities Registered for the Selling Security Holders.................. An aggregate of 157,142 Bridge Warrants and 157,142 shares of Common Stock issuable upon exercise of the Bridge Warrants (assuming an initial public offering price of $7.00 per share) are being registered hereby and may be sold by the Selling Security Holders, although the Selling Security Holders have agreed with the Company not to effect any sales of the Common Stock issuable upon exercise of the Bridge Warrants until 90 days from the date of this Prospectus without the consent of the Representative. None of the Selling Security Holders' Securities are being underwritten in this Offering and the Company will not receive any proceeds from their sale although it will receive the exercise price of $.003 per share in the event that any Bridge Warrants are exercised. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Selling Security Holders." Terms of Warrants.......... Each Warrant entitles the holder thereof to purchase, at any time commencing , 1997 [six months after the date of this Prospectus], one share of Common Stock at a price of $ per share [120% of the initial public offering price per share of Common Stock], subject to adjustment. Commencing , 1998 [18 months after the date of this Prospectus], the Warrants are subject to redemption by the Company, in whole but not in part, at $.10 per Warrant on 30 days' prior written notice provided that the average closing bid price of the Common Stock as reported on Nasdaq equals or exceeds $ per share [160% of the initial public offering price per share of Common Stock], subject to adjustment, for any 20 trading days within a period of 30 consecutive trading days ending on the fifth trading day prior to the date of the notice of redemption. See "Description of Securities." 6 8 Common Stock Outstanding: Prior to the Offering(1)................ 714,967 shares After the Offering(1)(2)............. 1,860,767 shares Use of Proceeds............ Repayment of indebtedness incurred in connection with the Bridge Financing; fund development of additional Integrated Medical Centers; repayment of certain other debt, accrued expenses and accrued payroll; and working capital and general corporate purposes. See "Use of Proceeds." Risk Factors and Dilution................... An investment in the Securities offered hereby involves a high degree of risk and immediate and substantial dilution to the purchasers in this Offering. See "Risk Factors" and "Dilution." Proposed Nasdaq Symbols:(3) Common Stock............. CMWL Warrants................. CMWLW Proposed BSE Symbols:(3) Common Stock............. CMW Warrants................. CMWW - --------------- (1) Does not include (i) 351,166 shares issuable upon exercise of outstanding options under the Company's 1994 Stock Option Plan (at a weighted average exercise price of $.60 per share) and 11,167 shares reserved for issuance upon exercise of options available for grant under such plan, of which options for 11,000 shares will be granted to a consultant to the Company upon consummation of the Offering at an exercise price equal to 75% of the initial public offering per share in the Offering; (ii) 200,000 shares reserved for issuance upon the exercise of options that may be granted under the Company's 1996 Stock Option Plan, of which 24,000 will be granted after completion of the Offering at an exercise price per share equal to the initial public offering price per share of Common Stock; (iii) 100,000 shares reserved for issuance upon exercise of options that may be granted under the Company's 1996 Restricted Stock Option Plan for Health Care Professionals; (iv) 13,243 shares issuable upon exercise of certain outstanding warrants that the Company issued in connection with a financing in November 1995 at an exercise price of $.003 per share; (v) up to 157,142 shares (assuming an initial public offering price of $7.00 per share) issuable upon exercise of the Bridge Warrants; and (vi) up to 2,857 shares (assuming an initial public offering price of $7.00 per share) issuable upon exercise of outstanding warrants (the "Broker-Dealer Bridge Warrants") issued to a broker-dealer who acted as a placement agent for a portion of the Bridge Financing. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Management -- Stock Option Plans." (2) Gives effect to the conversion of 1,350 shares of Series A, 12% Cumulative Convertible Preferred Stock of the Company (the "Series A Preferred Stock") into 145,800 shares of Common Stock upon consummation of the Offering. See "Description of Securities -- Preferred Stock." (3) Application has been made for listing of the Common Stock and the Warrants on Nasdaq and the BSE. See "Risk Factors -- No Assurance of Nasdaq Listing; Risk of Low-Priced Securities." 7 9 SUMMARY FINANCIAL DATA The following summary financial data should be read in conjunction with the consolidated financial statements of the Company and related notes thereto appearing elsewhere in this Prospectus.
NOVEMBER 17, 1994 NINE MONTHS ENDED (INCEPTION) YEAR ENDED SEPTEMBER 30, TO DECEMBER 31, DECEMBER 31, ---------------------- 1994 1995 1995 1996 --------------- ------------ -------- --------- STATEMENT OF OPERATIONS DATA: Operating revenue: Patient revenue........................ $ -- $ 22,114 $ 8,618 $ 869,122 Management services income............. -- -- -- 4,160 ------- ---------- -------- --------- Total revenue............................ -- 22,114 8,618 873,282 ======= ========== ======== ========= Operating expenses: Salary and consulting costs............ 1,400 93,131 59,283 249,293 Management fees........................ 29,669 4,146 438,948 Rent................................... 4,501 400 160,988 Advertising and marketing.............. 25,821 11,909 36,828 General and administration............. 253,024 28,818 607,770 Depreciation and amortization.......... 6,490 1,623 24,598 ---------- -------- --------- Total operating expenses................. 1,400 412,636 106,179 1,518,425 ------- ---------- -------- --------- Operating deficit........................ (1,400) (390,522) (97,561) (645,143) Net interest income (expense)............ 176 483 (19,566) Minority interest........................ 194,457 2,927 143,759 ------- ---------- -------- --------- Net loss................................. $(1,400) $ (195,889) $(94,151) $(520,950) ======= ========== ======== ========= Pro forma net loss per share(1).......... $ (0.26) $ (0.43) ========== ========= Pro forma weighted average number of common and common equivalent shares outstanding(1)......................... 753,924 1,225,633
SEPTEMBER 30, 1996 ---------------------------- ACTUAL AS ADJUSTED(2) --------- -------------- BALANCE SHEET DATA: Working capital (deficit)......................................... $ (437,991) $5,267,009 Total assets...................................................... 1,549,912 5,914,912 Total liabilities................................................. 1,795,815 430,815 Minority interest................................................. 326,793 326,793 Stockholders' equity (deficit).................................... (572,696) 5,179,304
- --------------- (1) See Note 10 to the Consolidated Financial Statements. (2) Adjusted to give effect to the sale of the Securities offered hereby (at an assumed initial public offering price of $7.00 per Share and $.10 per Warrant) and the initial application of the net proceeds therefrom. See "Use of Proceeds." 8 10 RISK FACTORS An investment in the Securities offered hereby involves a high degree of risk and should be made only by investors who can afford the loss of their entire investment. Prospective investors should carefully review and consider the following risks as well as the other information set forth in this Prospectus. Limited Operating History; History of Losses; No Assurance of Profitability. The Company commenced operations in January 1995 and began managing its first Integrated Medical Center in September 1995. The Company has a limited operating history upon which prospective investors can judge the Company's performance. At September 30, 1996, the Company had an accumulated deficit of $718,239 and a working capital deficit of $437,991. There can be no assurance that the Company will ever be profitable. See "Management's Discussion and Analysis of Financial Condition and Results of Operation." Risks Related to Expansion Strategy. The Company has expanded from managing one Integrated Medical Center at December 31, 1995 to 8 Integrated Medical Centers at December 16, 1996, with 36 others scheduled for development. The Company's growth will depend upon a number of factors, including: (i) the Company's ability to identify and affiliate with suitable chiropractors and their existing chiropractic practices, the availability of suitable markets, and the Company's ability to obtain good locations within those markets; (ii) whether new Integrated Medical Centers will be opened in accordance with the Company's plans; (iii) regulatory constraints; (iv) the ability of the Company to manage Integrated Medical Centers effectively; (v) whether anticipated performance levels at new Integrated Medical Centers will be achieved. There can be no assurance that the Company's expansion strategy will be successful or that modifications to the Company's expansion strategy will not be required. Any significant delay in the opening of new Integrated Medical Centers or the failure of new Integrated Medical Centers to achieve anticipated performance levels could adversely affect the Company. In pursuing its expansion strategy, the Company intends to expand its presence into new geographic markets. In entering a new geographic market, the Company will be required to comply with laws and regulations of jurisdictions that differ from those applicable to the Company's current operations, deal with different payors as well as face competitors with greater knowledge of such markets than the Company. There can be no assurance that the Company will be able to effectively establish a presence in any new market. The Company's strategy also involves growth through acquisitions of complementary businesses in order to enhance the services offered by its Integrated Medical Centers. The Company will be subject to various risks associated with an acquisition growth strategy, including the risk that the Company will be unable to identify and recruit suitable acquisition candidates in the future or to absorb and manage the acquisitions. See "Business -- Expansion Strategy" and "Business -- Government Regulation." Possible Need for Additional Financing. The Company is dependent upon the net proceeds of this Offering for the continued implementation of its expansion strategy. Although the Company believes that the net proceeds of this Offering together with cash from operations will be sufficient to satisfy its cash requirements for at least 12 months following the date of this Prospectus (exclusive of applying any such funds to the acquisition of other businesses) there is no assurance that additional funds will not be needed. Factors that may require the Company to seek additional financing include the development of a larger number of Integrated Medical Centers than now anticipated, a higher average cost to develop additional Integrated Medical Centers than that which has been the case to date, and the acquisition of other businesses all or part of the payment for which is in cash. Substantially all of the Company's assets are secured as collateral for notes issued in connection with the Bridge Financing. The Company has received a low interest rate loan commitment in the amount of $45,000 to be used to defray its relocation costs resulting from the leasing of executive offices in Montgomery County, Maryland. Such loan is to be secured by the Company's capital assets. The loan commitment expires on January 31, 1997, however, the Company intends to seek an extension of this expiration date. See "Business -- Properties." If the Company requires additional financing, it may raise capital through the issuance of equity securities and/or the incurrence of debt. If additional capital is raised through the issuance of equity securities, dilution to the Company's stockholders may result, and if additional capital is raised through the incurrence of debt, the Company likely would become subject to restrictions on its operations and finances. There can be no assurance that the Company will be able to raise additional capital when needed on satisfactory terms or at all. If the Company is unable to secure additional sources of financing on terms and conditions acceptable to the Company or at all, the Company's expansion 9 11 strategy could be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and Note 1 to the Consolidated Financial Statements. Possibility of Regulatory Challenge to the Affiliation Relationships. All of the physician practice management companies ("PPMs") of which the Company is aware involve a professional manager billing, collecting, disbursing funds to, paying expenses (including its own fee) or otherwise managing traditional physician or dental practices. The Company likewise undertakes to perform these services but, unlike the PPMs, subcontracts day-to-day management functions to a management company controlled by the Affiliated Chiropractor. Pursuant to such subcontract, the Affiliated Chiropractor's management company provides certain management services on behalf of the Company to the Integrated Medical Centers, of which the Affiliated Chiropractor is an employee. To date, the Company is unaware of any scrutiny by state or federal health care enforcement officials of the structure of such relationships. Although the Company believes its Affiliated Chiropractor relationships do not violate applicable federal or state health care regulatory requirements, there can be no assurance that health care enforcement officials will not take a contrary view. Investigations or prosecutions by such enforcement officials could have a material adverse effect on the Company, even if the Company's Affiliated Chiropractor relationships were subsequently determined lawful. Reliance on Chiropractors. The Company's revenue is dependent on revenue generated by the Integrated Medical Centers, which are developed primarily through affiliations with Affiliated Chiropractors pursuant to management agreements. There can be no assurance that any such affiliation will result in a successful multi-disciplinary medical practice. The initial terms of such management agreements is five years and they may be renewed in five year increments up to four times. The Affiliated Chiropractor may terminate a management agreement if the Company materially breaches it and fails to cure the breach within ten days after notification. The loss of a substantial number of management agreements would have a material adverse effect on the Company. See "Business-Agreements With Affiliated Chiropractors and Other Licensed Practitioners." Dependence On Third Party Reimbursement. Substantially all revenue of the Integrated Medical Centers, on which the Company's revenue is dependent, comes from commercial health insurance, state workers' compensation programs, and preferred provider plans. Following the Company's specific approval, the Integrated Medical Centers may also treat patients covered under federal and state funded health care programs. All of these providers and programs are regulated at the state or federal level. There are increasing and significant public and private sector pressures to contain health care cost and to restrict reimbursement rates for medical services. For example, it has been widely reported that the Medicare program is expected to run short of funds early in the next century. Accordingly, Congress, in its fiscal year 1996 budget legislation, called for and considered severe reductions in both the Medicare and Medicaid programs. Although a budget accord was not reached in the last session, Congress is expected to again consider legislation in its 1997 and 1998 sessions that would propose significant reductions to the Medicare and Medicaid programs. Changes in the level of support by federal and state governments of health care services, the methods by which such services may be delivered, and the prices of such services may all have a material impact on revenue of the Integrated Medical Centers, which in turn could have a material adverse effect on the Company. Third party payors are not generally familiar with reimbursing for traditional and alternative health care services such as chiropractic in the same medical practice. The third party payors may disagree with the descriptions or coding of a bill for medical services, or may contest a code or description under a lesser (e.g. chiropractic) fee schedule. Such disagreements on billing code or description of professional services, particularly where the third party payor is a federal or state funded health care program, can result in lesser reimbursement, which can have a material adverse effect on the Integrated Medical Center and ultimately on the Company. Persistent disagreements or alleged "upcoding" can result in allegations of fraud or false billing, both of which constitute felonies. Such an allegation, if proven, can result in forfeitures of payment, civil money penalties, civil fines, suspensions, or disbarment from participating in federal or state funded health care programs, and have a material adverse effect on the Company. Investigation and prosecutions for fraudulent or false billing can have a material adverse effect on the Company, even where such allegations are disproven. See 10 12 "-- Government Regulation," "Business -- Government Regulation" and "Business -- Third Party Reimbursement." Inability to Collect or Delay in Collecting Management Fees. Collection by the Company of its management fees may be adversely affected by the uncollectibility of the Integrated Medical Centers' medical fees from third party payors (including workers' compensation insurers, no-fault insurance carriers, no-fault payment pool, Medicare and commercial insurers) or by the long collection cycles for those receivables. Many third party payors, particularly insurance carriers covering automobile no-fault and workers' compensation claims refuse, as a matter of business practice, to pay claims unless submitted to arbitration. Further, third-party payors may reject medical claims if, in their judgment, the procedures performed were not medically necessary or if the charges exceed such payor's allowable fee standards. In addition, some receivables may not be collected because of omissions or errors in timely completion of the required claim forms. The inability of the Integrated Medical Centers to collect their receivables could materially adversely affect the Company. See "Business -- Third Party Reimbursement." Risks Associated with Managed Care Contracts. An increasing percentage of patients are coming under the control of managed care entities. The Company believes that its success will, in part, depend upon the Company's ability to negotiate, on behalf of the Integrated Medical Centers, favorable managed care contracts with health maintenance organizations ("HMOs") and other private third party payors. Such contracts often shift much of the financial risk of providing care from the payor to the provider by requiring the provider to furnish all or a portion of its services in exchange for a fixed, or "capitated," fee per member patient, per month, regardless of the level of such patients' utilization rates and, sometimes in the case of primary care physicians, to accept financial risk for health care services not normally furnished by such physicians (e.g., specialty physician or hospital services). The Company intends to negotiate capitated agreements with managed care organizations. Some managed care agreements also offer "shared risk" provisions under which providers and provider practice management concerns can earn additional compensation based on the utilization of services by members, but may be required to bear a portion of any loss in connection with such "shared-risk" provisions. Any such losses could have a material adverse effect on the Company. Accordingly, in order for such "shared-risk" contracts to be profitable for the Company, the Company must effectively monitor the utilization of its services delivered to members of the managed care organization who are patients of the Integrated Medical Centers and, to the extent the Integrated Medical Centers are responsible for overall patient care, monitor the utilization of specialist physicians or hospitals, negotiate favorable rates with such other providers, and obtain, on favorable terms, stoploss protection limiting its per enrollee exposure above specified thresholds. Certain of the Company's operating strategies (e.g., having all treatments supervised by a physician) are intended to attract managed care contracts for the Integrated Medical Centers. Third party payors are not, however, generally familiar with traditional and alternative health services being provided within the same medical practice and may have concerns about contracting with such practices. For this and other reasons, there can be no assurance that the Company will be able to negotiate satisfactory managed care contracts for the Integrated Medical Centers at satisfactory rates. Nor can there be any assurance that any managed care contracts it enters into on behalf of the Integrated Medical Centers will not adversely affect the Integrated Medical Centers or the Company. Health Care Reform. Although Congress failed to pass comprehensive health care reform legislation in 1996, the Company anticipates that Congress and state legislatures will continue to review and assess alternative health care delivery and payment systems and may in the future propose and adopt legislation effecting fundamental changes in the health care delivery system. Also, Congress is expected to consider major reductions in the rate of increase of Medicare and Medicaid spending as part of efforts to balance the budget of the United States. The Company cannot predict the ultimate timing, scope or effect of any legislation concerning health care reform, including legislation affecting the Medicare and Medicaid programs. Any proposed federal legislation, if adopted, could result in significant changes in the availability, delivery, pricing and payment for health care services and products. Various state agencies also have undertaken or are considering significant health care reform initiatives. Although it is not possible to predict whether any health care reform legislation will be adopted or, if adopted, the exact manner and the extent to which the Company will be affected, it is likely that the Company will be affected in some fashion, and there can be no assurance 11 13 that any health care reform legislation, if and when adopted, will not have a material adverse effect on the Company. Dependence Upon Key Personnel. The Company is dependent upon the active participation of its executive officers, particularly the Company's founder, Chairman and Chief Executive Officer, C. Thomas McMillen, and E. Eugene Sharer, its President and Chief Operating Officer. The loss to the Company of the services of Mr. McMillen or Mr. Sharer could have a material adverse effect upon the Company. The Company has an employment contract with each of these executive officers extending through March 31, 1999. See "Management -- Employment Agreements." Prior to the consummation of the Offering, the Company plans to apply for "key-man" life insurance policies on the lives of Messrs. McMillen and Sharer providing benefits to the Company of $1 million upon the death of each of Mr. McMillen or Mr. Sharer. Nevertheless, the loss of, or the inability to attract other qualified employees could have a material adverse effect on the Company. Professional Liability. The Integrated Medical Centers employ health care practitioners for the delivery of health care services to the public. They are thus exposed to the risk of professional liability claims. The Company does not itself provide such services or control the provision of health care services by the Integrated Medical Centers' practitioners or their compliance with regulatory and other requirements in that regard. The Company might nevertheless be held liable for medical negligence on their part. The Company's management service agreements with the Integrated Medical Centers require the Integrated Medical Centers to maintain, at their expense, professional liability insurance for themselves and the licensed health care practitioners employed by or otherwise associated with them in the minimum amount of $1,000,000 for each occurrence and $3,000,000 in the aggregate, or such greater amounts as may be required by applicable state law. If an Integrated Medical Center or a licensed health care practitioner employed by or associated with it cannot obtain insurance of the type and in the amounts required by the Company, the Company will arrange for coverage through a policy maintained by the Company. In addition, the Company maintains general liability, workers' compensation and professional liability insurance. The Company's professional liability insurance is limited to $1,000,000 per occurrence and $3,000,000 in the aggregate per practitioner per policy period. The professional liability insurance is provided under a "claims-made" policy. The policy provides coverage for covered claims made during the policy's term and does not provide coverage for losses occurring during the policy's term for which a claim is made subsequent to the policy's termination. Finally, the licensed health care practitioners are required to indemnify the Integrated Medical Centers which, in turn, are required to indemnify the Company against liability and expenses for or related to professional liability claims arising out of the medical negligence of the health care practitioner. There can be no assurance, however, that the Company, its employees, or the licensed health care practitioners employed by or associated with the Integrated Medical Centers will not be subject to claims in amounts that exceed the coverage limits or that such coverage will be available when needed. Further, there can be no assurance that professional liability insurance will continue to be available to the Company in the future at adequate levels or at an acceptable cost to the Company. A successful claim against the Company in excess of the Company's insurance coverage could have a material adverse effect upon the Company's business. Claims against the Company, regardless of their merits or eventual outcome, also may have an adverse effect upon the Company. See "Business -- Professional Liability." Government Regulation. Federal and state laws extensively regulate the relationships among providers of health care services, physicians and other clinicians. These laws include federal fraud and abuse provisions that prohibit the solicitation, receipt, payment, or offering of any direct or indirect remuneration for the referral of patients for which reimbursement is made under any federal or state funded health care program or for the recommending, leasing, arranging, ordering or providing of services covered by such programs. States have similar laws that apply to patients covered by private and government programs. Federal fraud and abuse laws also impose restrictions on physicians' referrals for designated health services covered under a federal or state funded health care program to entities with which they have financial relationships. Various states, such as Illinois, Maryland and Florida, among others, have adopted similar laws that cover patients in private programs as well as government programs. There can be no assurance that the federal and state governments 12 14 will not consider additional prohibitions on physician ownership, directly or indirectly, of facilities to which they refer patients, which could adversely affect the Company. Violations of these laws may result in substantial civil or criminal penalties for individuals or entities, including large civil money penalties and exclusion from participation in the Medicare and Medicaid programs. Such exclusion, if applied to the Company's Integrated Medical Centers, could result in significant loss of reimbursement and could have a material adverse effect on the Company. See "Business -- Government Regulation." In addition, federal law also prohibits conduct that may result in price-fixing or other anticompetitive conduct. Moreover, the Company may in the future contract with licensed insurance companies and/or HMO's. Certain of such contracts may require the Integrated Medical Centers on behalf of which the Company contracts to assume risk in connection with providing health care services under capitation arrangements. To the extent that the Company or the Integrated Medical Centers may be in the business of insurance as a result of entering into such arrangements, they may be subject to a variety of regulatory and licensing requirements applicable to insurance companies or HMOs. There can be no assurance that the Company or the Integrated Medical Centers will not be adversely affected by such regulations. Moreover, the laws of many states prohibit physicians from sharing professional fees, or "splitting fees," with anyone other than a member of the same profession. These laws and their interpretations vary from state to state and are enforced by the courts and by regulatory authorities with broad discretion. Expansion of the operations of the Company to certain jurisdictions may require structural and organizational modifications of the Company's form of relationship with Integrated Medical Centers, which could have an adverse effect on the Company. Although the Company believes its operations as currently conducted are in material compliance with existing applicable laws, there can be no assurance that review of the Company's business by courts or regulatory authorities will not result in a determination that could adversely affect the operations of the Company or that the health care regulatory environment will not change so as to restrict the Company's existing operations or its expansion. State Laws Regarding Prohibition of Corporate Practice of Medicine. The Company's Integrated Medical Centers are formed as general business corporations wholly-owned by the Company in states (such as Florida and Virginia) in which general business corporations are permitted to own medical practices. The Integrated Medical Centers are formed as professional corporations owned by one or more medical doctors licensed to practice medicine under applicable state law, in states (such as Illinois) that prohibit the corporate practice of medicine. Corporations such as the Company are not permitted under certain state laws to practice medicine or exercise control over the medical judgments or decisions of practitioners. Corporate practice of medicine laws and their interpretations vary from state to state and are enforced by the courts and by regulatory authorities with broad discretion. The Company believes that it performs only non-medical administrative services, does not represent to the public or its clients that it offers medical services and does not exercise influence or control over the practice of medicine by the practitioners with whom it contracts. Expansion of the operations of the Company to certain jurisdictions may require structural and organizational modifications of the Company's form of relationship with practitioners in order to comply with corporate practice of medicine laws, which could have an adverse effect on the Company. Although the Company believes its operations as currently conducted are in material compliance with existing applicable laws, there can be no assurance that the Company's structure will not be challenged as constituting the unlicensed practice of medicine or that the enforceability of the agreements underlying this structure will not be limited. If such a challenge were made successfully in any state, the Company could be subject to civil and criminal penalties under such state's law and could be required to restructure its contractual arrangements in that state. Such results or the inability to successfully restructure its contractual arrangements could have a material adverse effect upon the Company. Discretion in Use of Proceeds. Approximately 25.5% of the estimated net proceeds of the Offering have been allocated to working capital and general corporate purposes. Accordingly, management will have broad discretion as to the application of such net proceeds. See "Use of Proceeds." Competition. The managed health care industry, including the provider practice management industry, is highly competitive. The Company competes with other companies for physicians and other practitioners of 13 15 health care services as well as for patients. The Company competes not only with national and regional physician practice management companies, but also with local providers, many of which are trying to combine their own services with those of other providers into delivery networks. Certain of the companies are significantly larger, provide a wider variety of services, have greater financial and other resources, have greater experience furnishing provider practice management services, and have longer established relationships with buyers of these services, than the Company, and provide at least some of the services provided by the Company. In addition, companies with greater resources than the Company that are not presently engaged in the provision of integrated provider practice management services could decide to enter the business and engage in activities similar to those in which the Company engages. There can be no assurance that the Company will be able to compete effectively. See "Business -- Competition." Loans to Integrated Medical Centers. The Company is required under the terms of its management agreements to make loans to certain of its Integrated Medical Centers in amounts up to $40,000. The failure of a substantial number of the Integrated Medical Centers to repay such loans could have a material adverse effect on the Company's financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Control by Existing Stockholders. Following the closing of the Offering, the Company's executive officers and directors will control or own approximately 27.6% (25.6% if the Over-allotment Option is fully exercised) of the outstanding shares of Common Stock. As a result, such persons may be able to determine the election of all of the Company's directors and the outcome of all issues submitted to the Company's stockholders. Furthermore, such concentration of ownership could limit the price that certain investors might be willing to pay in the future for shares of Common Stock, and could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company. See "Principal Stockholders." Shares Eligible For Future Sale. Of the 1,860,767 shares of Common Stock and 1,000,000 Warrants to be outstanding upon completion of this Offering after giving effect to the conversion of the 1,350 shares of Series A Preferred Stock into 145,800 shares of Common Stock upon consummation of this Offering, the 1,000,000 shares of Common Stock and the 1,000,000 Warrants (1,150,000 shares of Common Stock and 1,150,000 Warrants if the Over-allotment Option is exercised in full) will be immediately freely tradeable without restriction under the Securities Act of 1933, as amended (the "Securities Act") except for any securities purchased by an "affiliate" of the Company (as that term is defined in the Securities Act), which securities will be subject to the resale limitations of Rule 144 under the Securities Act. All of the remaining 860,767 shares of Common Stock outstanding are "restricted securities," as that term is defined in Rule 144 under the Securities Act and may, under certain circumstances, be sold without registration under the Securities Act. The sale, or availability for sale, of substantial amounts of Common Stock in the public market subsequent to this Offering pursuant to Rule 144 or otherwise could materially adversely affect the market price of the Common Stock and could impair the Company's ability to raise additional capital through the sale of its equity securities or debt financing. Notwithstanding the foregoing, each officer and director of the Company, substantially all holders of the shares of Common Stock and all holders of any options, warrants or other securities convertible, exercisable or exchangeable for shares of Common Stock have agreed not to, directly or indirectly, offer, sell, transfer, pledge, assign, hypothecate or otherwise encumber or dispose of any of the Company's securities, whether or not presently owned, for a period of 13 months after the date of this Prospectus without the prior written consent of the Representative. After such 13-month period, 713,100 of such shares of Common Stock may be sold in accordance with Rule 144. The foregoing restriction does not apply to the Bridge Warrants and the shares of Common Stock underlying such Bridge Warrants registered pursuant hereto for the account of the Selling Security Holders. The Selling Security Holders have agreed with the Company not to effect any sales of the Common Stock issuable upon exercise of the Bridge Warrants until 90 days after the date of this Prospectus without the consent of the Representative. See "Shares Eligible for Future Sale." Absence of Dividends. The Company has paid no cash dividends on its Common Stock since its inception and does not plan to pay cash dividends on the Common Stock in the foreseeable future. The 14 16 Company anticipates that future earnings will be retained to finance future operations and expansion. See "Dividend Policy." No Prior Public Market; Arbitrary Determination of Public Offering Prices; Possible Volatility of Common Stock and Warrant Market Prices. Prior to this Offering, there has been no public market for the Common Stock or Warrants and there can be no assurance that an active public market for the Common Stock or the Warrants will develop or, if developed, be sustained after this Offering. The initial public offering prices of the Securities and the terms of the Warrants were arbitrarily determined by negotiations between the Company and the Representative, and do not necessarily bear any relationship to the Company's assets, book value, results of operations, or any other generally accepted criteria of value. From time to time after this Offering, there may be significant volatility in the market price of the Common Stock and the Warrants. Quarterly operating results of the Company, changes in general conditions in the economy or the health care industry, or other developments affecting the Company, could cause the market price of the Common Stock and the Warrants to fluctuate substantially. The equity markets have, on occasion, experienced significant price and volume fluctuations that have affected the market prices for many companies' securities and have often been unrelated to the operating performance of these companies. Concern about the potential effects of health care reform measures has contributed to the volatility of stock prices of companies in health care and related industries and may similarly affect the price of the Common Stock and the Warrants following this Offering. See "Underwriting." Immediate and Substantial Dilution. The purchasers of the shares of Common Stock offered by the Company hereby will experience immediate and substantial dilution in the net tangible book value of the shares of Common Stock from the initial public offering price in the amount of $4.22 per share, or approximately 60% per share. See "Dilution." Portions of Offering Proceeds Benefiting Management. Net proceeds to the Company from the sale of the Securities offered hereby will be used to pay accrued salaries of certain officers in an aggregate amount of $131,500, and accrued equipment lease payments to McMillen and Company, Inc., a corporation controlled by C. Thomas McMillen, the Company's Chairman and Chief Executive Officer, in the amount of $6,000. See "Use of Proceeds" and "Management -- Employment Agreements." Speculative Nature of the Warrants; Possible Redemption of Warrants. The Warrants do not confer any rights of Common Stock ownership on their holders, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire shares of Common Stock at a fixed price for a limited period of time. Specifically, commencing , 1997 [six months after the date of this Prospectus], holders of the Warrants may exercise their right to acquire Common Stock and pay an exercise price of $ per share [120% of the initial offering price per share of Common Stock], subject to adjustment upon the occurrence of certain dilutive events, until , 2002 [five years after the date of this Prospectus], after which date any unexercised warrants will expire and have no further value. Moreover, following the completion of this Offering, the market value of the Warrants will be uncertain and there can be no assurance that the market value of the Warrants will equal or exceed their initial public offering price. There can be no assurance that the market price of the Common Stock will ever equal or exceed the exercise price of the Warrants and, consequently, whether it will ever be profitable for holders of the Warrants to exercise the Warrants. Commencing , 1998 [18 months after the date of this Prospectus], the Warrants will be subject to redemption at $.10 per Warrant on 30 days' prior written notice provided that the average closing bid price of the Common Stock as reported on Nasdaq equals or exceeds $ per share [160% of the initial public offering price per share] for any 20 trading days within a period of 30 consecutive trading days ending on the fifth trading day prior to the date of the notice of redemption. If the Warrants are redeemed, holders of the Warrants will lose their rights to exercise the Warrants after the expiration of the 30-day notice period. Upon receipt of a notice of redemption, holders would be required to: (i) exercise the Warrants and pay the exercise price at a time when it may be disadvantageous for them to do so, (ii) sell the Warrants at the then-prevailing market price, if any, when they might otherwise wish to hold the Warrants, or (iii) accept the redemption price, which is likely to be substantially less than the market value of the Warrants at the time of redemption. In the event that holders of the Warrants elect not to exercise their Warrants upon notice of 15 17 redemption, the unexercised Warrants will be redeemed prior to exercise, and the holders thereof will lose the benefit of the appreciated market price of the Warrants, if any, and/or the difference between the market price of the underlying Common Stock as of such date and the exercise price of such Warrants, as well as any possible future price appreciation in the Common Stock. See "Description of Securities -- Warrants." Current Prospectus and State Blue Sky Registration Required to Exercise Warrants. The Warrants are not exercisable unless, at the time of exercise, the Company has a current prospectus covering the shares of Common Stock issuable upon exercise of the Warrants and such shares have been registered, qualified or deemed to be exempt under the securities or "blue sky" laws of the state of residence of the exercising holder of the Warrants. Although the Company has undertaken to use its best efforts to have all of the shares of Common Stock issuable upon exercise of the Warrants registered or qualified on or before the exercise date and to maintain a current prospectus relating thereto until the expiration of the Warrants, there is no assurance that it will be able to do so. The value of the Warrants may be greatly reduced if a current prospectus covering the Common Stock issuable upon the exercise of the Warrants is not kept effective or if such Common Stock is not qualified or exempt from qualification in the states in which the holders of the Warrants reside. Until completion of this Offering, the Common Stock and the Warrants may only be purchased together on the basis of one share of Common Stock and one Warrant, but the Warrants will be separately tradeable immediately after this Offering. Although the Securities will not knowingly be sold to purchasers in jurisdictions in which the Securities are not registered or otherwise qualified for sale, investors may purchase the Warrants in the secondary market or may move to a jurisdiction in which the shares underlying the Warrants are not registered or qualified during the period that the Warrants are exercisable. In such event, the Company will be unable to issue shares to those persons desiring to exercise their Warrants unless and until the shares are qualified for sale in jurisdictions in which such purchasers reside, or an exemption from such qualification exists in such jurisdictions, and holders of the Warrants would have no choice but to attempt to sell the Warrants in a jurisdiction where such sale is permissible or allow them to expire unexercised. See "Description of Securities -- Warrants." Representative's Potential Influence on the Market. A significant amount of the Securities offered hereby may be sold to customers of the Representative. Such customers subsequently may engage in transactions for the sale or purchase of such Securities through or with the Representative. If it participates in the market, as a market maker or otherwise, the Representative may exert a dominating influence on the market, if one develops, for the Securities described in this Prospectus. Such market making activity may be discontinued at any time. The price and liquidity of the Common Stock and the Warrants may be significantly affected by the degree, if any, of the Representative's participation in such market. See "Underwriting." Anti-Takeover Provisions; Preferred Stock. The Company's Board of Directors has the authority to issue up to 2,000,000 shares of preferred stock in one or more series and to determine the number of shares in each series, as well as the designations, preferences, rights and qualifications or restrictions of those shares without any further vote or action by the stockholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company. The Company has issued 1,350 shares of Series A Preferred Stock, which will convert automatically into 145,800 shares of Common Stock upon consummation of this Offering. The Company has no present plans to issue additional shares of preferred stock. In addition, the Company is subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. In general, this statute prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became interested stockholder, unless the business combination is approved in a prescribed manner. See "Description of Securities." No Assurance of Nasdaq Listing; Risk of Low-Priced Securities. The Board of Governors of the National Association of Securities Dealers, Inc. has established certain standards for the initial listing and continued listing of a security on Nasdaq. The standards for initial listing require, among other things, that an issuer have total assets of $4,000,000 and capital and surplus of at least $2,000,000; that the minimum bid price for the listed securities be $3.00 per share; that the minimum market value of the public float (the shares 16 18 held by non-insiders) be at least $2,000,000, and that there be at least two market makers for the issuer's securities. The maintenance standards require, among other things, that an issuer have total assets of at least $2,000,000 and capital and surplus of at least $1,000,000; that the minimum bid price for the listed securities be $1.00 per share; that the minimum market value of the "public float" be at least $1,000,000 and that there be at least two market makers for the issuer's securities. A deficiency in either the market value of the public float or the bid price maintenance standard will be deemed to exist if the issuer fails the individual stated requirement for ten consecutive trading days. If an issuer falls below the bid price maintenance standard, it may remain on Nasdaq if the market value of the public float is at least $1,000,000 and the issuer has $2,000,000 in equity. Nasdaq has recently proposed new maintenance criteria which, if implemented, would eliminate the exception to the $1.00 per share minimum bid price and require, among other things, $2,000,000 in net tangible assets, $1,000,000 market value of the public float and adherence to certain corporate governance provisions. There can be no assurance that the Company will continue to satisfy the requirements for maintaining a Nasdaq listing. If the Company's securities were to be excluded from Nasdaq, it would adversely affect the prices of such securities and the ability of holders to sell them, and the Company would be required to comply with the initial listing requirements to be relisted on Nasdaq. If the Company is unable to satisfy Nasdaq's maintenance requirements and the price per share were to drop below $5.00, then unless the Company satisfied certain net asset tests, the Company's securities would become subject to certain penny stock rules promulgated by the Commission. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the Commission that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from such rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. If the Common Stock becomes subject to the penny stock rules, investors in the Offering may find it more difficult to sell their shares. Risks Associated with Forward-Looking Statements Included in this Prospectus. This Prospectus contains certain forward-looking statements regarding the plans and objectives of management for future operations, including plans and objectives relating to the development of Integrated Medical Centers. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company's plans and objectives are based on a successful execution of the Company's expansion strategy and assumptions that the Integrated Medical Centers will be profitable, that the health care industry will not change materially or adversely, and that there will be no unanticipated material adverse change in the Company's operations or business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Prospectus will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, particularly in view of the Company's early stage operations, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. 17 19 THE COMPANY The Company develops multi-disciplinary medical centers ("Integrated Medical Centers") and furnishes certain support services to such facilities. The Integrated Medical Centers combine, in one practice at the same location, traditional health care providers, such as physicians and physical therapists, and alternative health care providers, such as chiropractors, acupuncturists and massage therapists. The Company's objective is to become a nationally recognized developer and manager of Integrated Medical Centers. At December 16, 1996, the Company had developed and was managing 8 Integrated Medical Centers in the states of Florida, Virginia and Illinois and had 36 binding agreements to develop and manage Integrated Medical Centers in 9 states. The Company was incorporated in the State of Delaware in November 1994. The Company's principal executive offices are located at 725 Independence Ave., S.E., Washington, DC 20003 and its telephone number is (202) 543-6800. The Company's web site is: http://www.completewellness.com. 18 20 USE OF PROCEEDS The net proceeds to the Company from the sale of the Securities offered hereby (assuming an initial public offering price of $7.00 per Share and $.10 per Warrant), after deduction of underwriting discounts and other estimated offering expenses, are estimated to be approximately $5,752,000 (approximately $6,678,550 if the Over-allotment Option is exercised in full). The Company intends to utilize such net proceeds as follows:
APPROXIMATE DOLLAR APPROXIMATE AMOUNT(1) PERCENTAGE ----------- ----------- Repayment of the Bridge Financing notes(2)............................ $1,171,000 20.4% Development of additional Integrated Medical Centers(3)............... $2,850,000 49.5% Repayment of certain other debt(4).................................... $ 265,000 4.6% Working capital and general corporate purposes(5)..................... $1,466,000 25.5% --------- --------- Total............................................................ $5,752,000 100.0% ========= =========
- --------------- (1) The amount set forth with respect to each purpose represents the Company's current estimate of the approximate amount of the net proceeds that will be used for such purpose. However, the Company reserves the right to change the amount of such net proceeds that will be used for any purpose to the extent that management determines that such change is advisable. Consequently, management of the Company will have broad discretion in determining the manner in which the net proceeds of the Offering are applied. (2) The notes issued in connection with the Bridge Financing (the "Bridge Notes") are in the aggregate principal amount of $1.1 million, bear interest at the rate of 12% per annum, and are payable upon the earlier of the closing of the Offering or June 30, 1997. The net proceeds from the sale of the Bridge Notes were used for the development of additional Integrated Medical Centers, for the expenses of this Offering, and for working capital and general corporate purposes. Through February 14, 1997, the amount of accrued interest to be repaid is approximately $71,000. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." (3) The Company intends to develop approximately 75 additional Integrated Medical Centers within the 12 months after the date of this Prospectus, of which five are expected to be developed in connection with a strategic alliance. The average cost to the Company to develop an Integrated Medical Center not connected with a strategic alliance is approximately $30,000, which consists of approximately $10,000 in cash and approximately $20,000 in the form of a loan. The Integrated Medical Center may borrow up to $40,000 from the Company; however, to date the amount of funds borrowed have averaged approximately $20,000 for each Integrated Medical Center. Cash provided by the Company to the Integrated Medical Center may be used for computer software, legal fees, professional credentialing, training, an administrative starter kit, and travel. The loan may be used for items such as professional salaries, computer hardware, signage, and insurance. The Company believes that the average cost to the Company to develop an Integrated Medical Center in connection with a strategic alliance will be approximately $150,000 in cash. These funds are expected to be used for leasehold improvements, equipment, professional salaries, information systems, and working capital. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- General." (4) Consists of accrued payroll, accrued expenses, convertible note payable in the principal amount of $25,000 (plus accrued interest), and certain other indebtedness of the Company. (5) The remaining portion of the net proceeds allocated to working capital will be used by the Company to fund operations as required including amounts required to pay officers' salaries, professional fees, office-related expenses, management information system enhancements, and other corporate expenses. The additional net proceeds received from the exercise of the Overallotment Option, if any, will be used for working capital and general corporate purposes. The Company anticipates, based on current plans and assumptions relating to its operations, that the net proceeds of the Offering, together with net cash from operations, should be sufficient to satisfy the Company's cash requirements for at least the 12 months after the date of this Prospectus. Proceeds not immediately required for the purposes described above will be invested in short-term, investment grade, interest-bearing government obligations. 19 21 CAPITALIZATION The following table sets forth as of September 30, 1996 the capitalization of the Company (i) on an actual basis and (ii) as adjusted to give effect to (a) the sale by the Company of the Securities offered hereby (at an assumed initial public offering price of $7.00 per Share and $.10 per Warrant) and the initial application of the estimated net proceeds therefrom, and (b) the conversion of 1,350 shares of Series A Preferred Stock into 145,800 shares of Common Stock. See "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Description of Securities." This table should be read in conjunction with the Consolidated Financial Statements and the notes thereto which are included elsewhere in this Prospectus.
SEPTEMBER 30, 1996 ----------------------------- ACTUAL AS ADJUSTED(1) --------- --------------- Short-term debt: Note payable................................................... $ 730 $ 730 Bridge Notes................................................... 1,100,000 0 --------- --------- Total short-term debt.................................. $1,100,730 $ 730 ========= ========= Long-term debt: Notes payable.................................................. $ 25,000 $ 0 --------- --------- Stockholders' equity: Preferred stock, $.01 par value per share; 2,000,000 shares authorized of which 1,500 are designated Series A, 12% Cumulative Convertible Preferred Stock; 1,350 shares issued and outstanding, actual; 0 shares issued and outstanding, as adjusted....................................................... $ 14 $ 0 Common stock, $.0001665 par value; 10,000,000 shares authorized; 714,967 shares issued and outstanding, actual; 1,860,767 shares issued and outstanding, as adjusted........... 119 310 Additional capital............................................. 145,410 5,897,233 Accumulated deficit............................................ (718,239) (718,239) --------- --------- Total stockholders' equity (deficit)............................. $(572,696) $5,179,304 --------- --------- Total capitalization............................................. $(547,696) $5,179,304 ========= =========
- --------------- (1) Does not include (i) 351,166 shares issuable upon exercise of outstanding options under the Company's 1994 Stock Option Plan and 11,167 shares reserved for issuance upon exercise of options available for grant under such plan, of which options for 11,000 shares will be granted to a consultant to the Company upon consummation of the Offering; (ii) 200,000 shares reserved for issuance upon the exercise of options that may be granted under the Company's 1996 Stock Option Plan, of which 24,000 will be granted after completion of the Offering; (iii) 100,000 shares reserved for issuance upon exercise of options that may be granted under the Company's 1996 Restricted Stock Option Plan for Health Care Professionals; (iv) 13,243 shares issuable upon exercise of certain outstanding warrants that the Company issued in connection with a financing in November 1995; (v) up to 157,142 shares (assuming an initial public offering price of $7.00 per share) issuable upon exercise of the Bridge Warrants; and (vi) up to 2,857 shares (assuming an initial public offering price of $7.00 per share) issuable upon exercise of the Broker-Dealer Bridge Warrants. See "Management -- Stock Option Plans" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 20 22 DIVIDEND POLICY The Company has never declared or paid dividends, and does not intend to pay any dividends in the foreseeable future on shares of Common Stock. Earnings of the Company, if any, are expected to be retained for use in expanding the Company's business. The payment of dividends is within the discretion of the Board of Directors of the Company and will depend upon the Company's earnings, if any, capital requirements, financial condition and such other factors as are considered to be relevant by the Board of Directors from time to time. DILUTION At September 30, 1996, the Company had a negative net tangible book value of approximately $572,696 or $0.80 per share of Common Stock. Negative net tangible book value per share is equal to the Company's total tangible assets less its total liabilities and minority interest, divided by the total number of shares of its Common Stock outstanding. After giving effect to (i) the conversion of the 1,350 shares of Series A Preferred Stock into 145,800 shares of Common Stock and (ii) the sale of the shares of Common Stock and Warrants offered hereby at an assumed initial public offering price of $7.00 per share and $.10 per Warrant and the initial application of the net proceeds therefrom (after deducting estimated underwriting discounts and other expenses of the Offering), the pro forma net tangible book value of the Company at September 30, 1996 would have been $5,179,304 or $2.78 per share of Common Stock, representing an immediate dilution of $4.22 per share (or approximately 60%) to the new investors, as illustrated by the following table: Assumed initial public offering price per share............................... $7.00 Negative net tangible book value per share prior to this Offering............. $(0.80) Increase per share attributable to new investors and the conversion of the Series A Preferred Stock.................................................... 3.58 ----- Pro forma net tangible book value per share after this Offering............... 2.78 ----- Dilution per share to new investors........................................... $4.22 =====
In the event the Over-allotment Option is exercised in full, the pro forma net tangible book value as of September 30, 1996 would be $6,105,854, or $3.04 per share of Common Stock, which would result in immediate dilution in net tangible book value to new investors of approximately $3.96 per share. 21 23 The following table sets forth, as of the date of this Prospectus, the number of shares of Common Stock purchased from the Company, the total consideration paid, and the average price per share paid by existing stockholders and by new investors purchasing shares sold by the Company in the Offering.
AVERAGE SHARES PURCHASED TOTAL CONSIDERATION PRICE -------------------- --------------------- --------- NUMBER PERCENT AMOUNT PERCENT PER SHARE -------- ------- --------- ------- --------- Existing Stockholders(1)............ 860,767 46.3% $ 138,461 1.9% $0.16 New Investors....................... 1,000,000 53.7% $7,000,000(2) 98.1% $7.00(2) -------- ----- -------- ----- Total............................... 1,860,767 100.0% $7,138,461 100.0% ======== ===== ======== =====
- --------------- (1) Gives pro forma effect to the conversion of 1,350 shares of Series A Preferred Stock into 145,800 shares of Common Stock upon consummation of the Offering; and does not include (i) 351,166 shares issuable upon exercise of outstanding options under the Company's 1994 Stock Option Plan and 11,167 shares reserved for issuance upon exercise of options available for grant under such plan, of which options for 11,000 shares will be granted to a consultant to the Company upon consummation of the Offering; (ii) 200,000 shares reserved for issuance upon the exercise of options that may be granted under the Company's 1996 Stock Option Plan, of which 24,000 will be granted after completion of the Offering; (iii) 100,000 shares reserved for issuance upon exercise of options that may be granted under the Company's 1996 Restricted Stock Option Plan for Health Care Professionals; (iv) 13,243 shares issuable upon exercise of certain outstanding warrants that the Company issued in connection with a financing in November 1995; (v) up to 157,142 shares (assuming an initial public offering price of $7.00 per share) issuable upon exercise of the Bridge Warrants; and (vi) up to 2,857 shares (assuming an initial public offering price of $7.00 per share) issuable upon exercise of the Broker-Dealer Bridge Warrants. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources," "Management -- Stock Option Plans" and "Description of Securities." (2) Attributes no value to the Warrants. 22 24 SELECTED FINANCIAL DATA The following table sets forth selected financial data of the Company for each of the periods indicated. The selected financial data of the Company for the period November 17, 1994 (inception) to December 31, 1994 and the year ended December 31, 1995 are derived from the Consolidated Financial Statements of the Company which have been audited by Ernst & Young LLP, independent auditors. The selected financial data for the nine-month periods ended September 30, 1995 and 1996 and as of September 30, 1996 were derived from the unaudited consolidated financial statements of the Company. The unaudited financial statements include all adjustments, consisting of normal recurring accruals, which the Company considers necessary for a fair presentation of the financial position and the results of operations for these periods. All of the information set forth below should be read in conjunction with the Consolidated Financial Statements of the Company and related notes thereto appearing elsewhere in this Prospectus.
NOVEMBER 17, 1994 NINE MONTHS ENDED (INCEPTION) TO YEAR ENDED SEPTEMBER 30, DECEMBER 31, DECEMBER 31, ---------------------- 1994 1995 1995 1996 ------------- ------------ -------- --------- STATEMENT OF OPERATIONS DATA: Operating revenue: Patient revenue.......................... $ -- $ 22,114 $ 8,618 $ 869,122 Management services income............... -- -- -- 4,160 ------- --------- -------- --------- Total revenue.............................. -- 22,114 8,618 873,282 ======= ========= ======== ========= Operating expenses: Salary and consulting costs.............. 1,400 93,131 59,283 249,293 Management fees.......................... -- 29,669 4,146 438,948 Rent..................................... -- 4,501 400 160,988 Advertising and marketing................ -- 25,821 11,909 36,828 General and administrative............... -- 253,024 28,818 607,770 Depreciation and amortization............ -- 6,490 1,623 24,598 ------- --------- -------- --------- Total operating expenses................... 1,400 412,636 106,179 1,518,425 ------- --------- -------- --------- Operating deficit.......................... (1,400) (390,522) (97,561) (645,143) Net interest income (expense).............. -- 176 483 (19,566) Minority interest.......................... -- 194,457 2,927 143,759 ------- --------- -------- --------- Net loss................................... $(1,400) $ (195,889) $(94,151) $(520,950) ======= ========= ======== ========= Pro forma net loss per share(1)............ $ (0.26) $ (0.43) ========= ========= Pro forma weighted average number of common and common equivalent shares outstanding(1)........................... 753,924 1,225,633
SEPTEMBER 30, 1996 ----------------------------- ACTUAL AS ADJUSTED(2) --------- --------------- BALANCE SHEET DATA: Working capital (deficit)........................................ $(437,991) $5,267,009 Total assets..................................................... 1,549,912 5,914,912 Total liabilities................................................ 1,795,815 430,815 Minority interest................................................ 326,793 326,793 Stockholders' equity (deficit)................................... (572,696) 5,179,304
- --------------- (1) See Note 10 to the Consolidated Financial Statements. (2) Adjusted to give effect to the sale of the Securities offered hereby (at an assumed initial public offering price of $7.00 per Share and $.10 per Warrant) and the initial application of the net proceeds therefrom. See "Use of Proceeds." 23 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company was established in November 1994. From its inception until March 1995 the Company raised funds privately and developed the corporate infrastructure, protocols, policies, and procedures required to commence its plan to develop multi-disciplinary medical clinics. In March 1995, the Company began implementing the initial stages of its business plan. The Company formed Complete Wellness Centers, L.L.C. ("CWC LLC"), a Delaware limited liability company, as a vehicle for raising capital needed to open Integrated Medical Centers. The Company is the managing member of CWC LLC and has a 1% equity interest. See "Certain Transactions." The Company has obtained irrevocable and permanent voting proxies from the holders of a majority of ownership interests in CWC LLC. The Company consolidates the financial statements of CWC LLC in its financial statements. Pursuant to an agreement entered into in July 1995, CWC LLC purchased selected assets of a chiropractic practice for the purpose of establishing the Company's first Integrated Medical Center in conjunction with a newly formed, wholly-owned subsidiary of CWC LLC, Complete Wellness Center of Fredericksburg, Inc. ("CWC Fredricksburg"). Operations began at CWC Fredricksburg on September 1, 1995. Revenue earned at CWC Fredericksburg through December 31, 1995 was $22,114 and expenses for that period amounted to $44,232, net of interest income of $86, resulting in a loss from operations of $22,118. The Company began pursuing its primary development strategy in early 1996. This strategy involves affiliating with chiropractors and their existing chiropractic practices. The existing practice is used as a base for the development of an Integrated Medical Center. The Company establishes a new Integrated Medical Center by forming a medical corporation, which can be a general business corporation wholly-owned by the Company or a professional corporation that is physician-owned, depending upon applicable state law. The Integrated Medical Center employs a physician, the Affiliated Chiropractor, and, depending on the needs of the patient base, other health care practitioners to provide traditional and alternative medical services. The Integrated Medical Center enters into a long-term management agreement with the Company to provide certain administrative and management services, including providing ongoing legal support to assist in compliance with applicable legal requirements, negotiating managed care contracts, assisting in the recruitment, non-medical training of and negotiation with health care practitioners, providing consultation on administrative matters such as billing, collections and non-medical training of practitioners, and providing advertising and practice development support. The Company charges the Integrated Medical Center fees for these services, generally based on a periodic determination of the fair market value of the services rendered in the relevant locality. The fees are pre-set for one year in the case of Integrated Medical Centers that serve patients covered by Medicare, Medicaid or other state or federal funded health care reimbursement programs. The Company generally leases office space and equipment required to operate the Integrated Medical Center for fair market, proportionate use-based, value from the Affiliated Chiropractor or the Affiliated Chiropractor's management company, depending upon which of them leases or owns the office space and equipment. The Company then subleases the office space and equipment for fair market, proportionate use-based, value to the Integrated Medical Center. In addition, the Company enters into a submanagement agreement with a management company owned by the Affiliated Chiropractor under which the Affiliated Chiropractor's management company assumes responsibility for the daily management functions of the Integrated Medical Center. The Company agrees to pay the Affiliated Chiropractor's management company a monthly fee equal to the sum of the management fee and lease income actually paid to the Company by the Integrated Medical Center. In general, the Affiliated Chiropractor's management company agrees to pay the Company a one time enrollment fee of $500 to defray the cost of credentialing and verification, an operations fee of $250 per month, a marketing and practice development fee of $200 per month, and a monthly integration fee equal to 20% (if the initial term of the submanagement agreement is five years) or 15% (if the initial term is ten years) of the sum of (i) the management fee and lease income actually paid to the Company by the Integrated Medical Center and (ii) the Integrated Medical Center's expenses, until the sum reaches $500,000 in any one year, and 10% of the sum for the remainder of that year. The integration fees are capped, however, in the case of 24 26 Integrated Medical Centers that serve patients covered by federal or state funded health care programs. Operations fees cover goods and services provided by the Company. Integration fees cover general consultations, negotiation of managed care contracts, hiring professional and non-professional employees, legal consultation and non-medical training. The terms of the Company's management agreements with the Integrated Medical Centers are generally 35 years. The terms of the management agreements with the Affiliated Chiropractors and their management companies range from 5 to 10 years, with the potential for one or more (up to four) renewal terms. The Company currently plans to use this model for the Integrated Medical Centers developed pursuant to its expansion strategy, including those in connection with strategic alliances with health clubs, corporations, government offices, or other organizations. In the case of a strategic alliance, office space for the Integrated Medical Center would be leased or licensed from the other party to the strategic alliance rather than from the Affiliated Chiropractor or the Affiliated Chiropractor's management company. In this regard, the Company entered into a master license agreement with Bally Total Fitness Corporation in September 1996 to develop Integrated Medical Centers within selected Bally Total Fitness Corporation health clubs throughout the United States. The Company initially plans to develop an Integrated Medical Center at a Bally Total Fitness Corporation health club in the Washington, D.C. metropolitan area and is in the process of selecting a location. See "Business -- Expansion Strategy." To date, the Company has developed 8 Integrated Medical Centers. Of these, seven were developed through CWC LLC prior to July 1996. In the future, the Company does not plan to open any additional Integrated Medical Centers owned directly or indirectly by CWC LLC, nor does it plan for CWC LLC to raise any additional capital. See "Certain Transactions." The Company recognizes all revenue and expenses of the Integrated Medical Centers formed as a wholly-owned subsidiary of the Company or CWC LLC. The financial results of Integrated Medical Centers organized as physician-owned professional corporations are not consolidated in the Company's financial statements. In such cases, the Company recognizes only the fees derived by the Company through its management agreements. As of the date of this Prospectus, seven Integrated Medical Centers are wholly-owned subsidiaries of CWC LLC (two of which are operated by the same medical corporation) and one is a physician-owned professional corporation. Typically, within 30 days after the execution of the management agreement among the Company, the Affiliated Chiropractor, and the Affiliated Chiropractor's management company, the existing chiropractic practice is analyzed, the professional credentials and background of the Affiliated Chiropractor are verified, and landlord approval of the Integrated Medical Center's occupancy of the proposed office space is obtained. In general, within 120 days after the execution of such management agreement, the Company provides the services and other items necessary to medically integrate the existing chiropractic practice. The date of integration is the date on which the services of a medical doctor are first rendered. The cost to the Company to develop an Integrated Medical Center not connected with a strategic alliance has averaged $30,000, which consists of approximately $10,000 in cash and approximately $20,000 (out of a possible $40,000) in the form of a loan. Cash is provided by the Company after the execution of a binding management agreement with the Affiliated Chiropractor and his or her management company and before the integration date and may be used for computer software, legal fees, professional credentialing, training, an administrative starter kit, and travel. The loan may be used for items such as professional salaries, computer hardware, signage, and insurance. The loan bears interest at the rate of 10% per annum, is secured by the assets of the Integrated Medical Center, is guaranteed by the Affiliated Chiropractor, and is payable within five years. The Company believes that the average cost to the Company to develop an Integrated Medical Center in connection with a strategic alliance will be approximately $150,000 in cash. These funds are expected to be used for leasehold improvements, equipment, professional salaries, information systems, and working capital. The Company may from time to time advance additional funds to Integrated Medical Centers to fund working capital requirements, although it has not done so to date. If the Company does make such an advance, it will bear interest at the rate of 10% per annum, will be secured by such collateral as the Company deems 25 27 appropriate, and will be repayable before the expiration of the initial term of the management agreement with the Affiliated Chiropractor and his or her management company. The Company intends to develop approximately 75 additional Integrated Medical Centers within 12 months after the date of this Prospectus, of which five are expected to be developed in connection with a strategic alliance. However, there can be no assurance that the Company will be able to identify and recruit a sufficient number of chiropractors and their existing chiropractic practices, that it will have access to a sufficient number of locations in connection with a strategic alliance, or that the average costs to the Company to develop Integrated Medical Centers will not be greater than those discussed above. The Integrated Medical Centers developed prior to the date of this Prospectus were financed by the issuance of the Company's notes, shares of Common Stock, and shares of preferred stock, and by the sale of membership interests in CWC LLC. The Integrated Medical Centers intended to be developed within 12 months after the date of this Prospectus are expected to be financed by a portion of the net proceeds of the Offering. See "Use of Proceeds." RESULTS OF OPERATIONS Nine months ended September 30, 1996 compared to nine months ended September 30, 1995 Revenue. During the nine months ended September 30, 1996 and September 30, 1995, the Company had total revenue of $873,282 and $8,618, respectively. At September 30, 1995, the Company managed only one Integrated Medical Center, which began operations in September 1995. The increase of $864,664 was due primarily to the addition of seven Integrated Medical Centers after September 1995. Two Integrated Medical Centers accounted for $655,228 of the $873,282 of total revenue at September 30, 1996. Salary and Consulting Costs. During the nine months ended September 30, 1996 and September 30, 1995, the Company incurred salary and consulting costs of $249,293 and $59,283, respectively. The increase of $190,010 was due to an increase of $171,787 in costs resulting from the hiring of additional employees, an increase of $4,987 in compensation expense resulting from the grant of stock options the fair market value of which exceeded their exercise price, and an increase of $13,236 resulting from consulting fees in connection with the development of corporate infrastructure and the operation of Integrated Medical Centers. Management Fees. During the nine months ended September 30, 1996 and September 30, 1995, the Company incurred management fees of $438,948 and $4,146, respectively. These are fees that are paid to the Affiliated Chiropractors' management companies for managing the day-to-day operations of the Integrated Medical Centers. The fees are paid when the accounts receivable of the Integrated Medical Centers are collected by the Integrated Medical Center. The increase of $434,802 was due primarily to the addition of seven Integrated Medical Centers after September 1995. Rent. During the nine months ended September 30, 1996 and September 30, 1995, the Company incurred rent expenses of $160,988 and $400, respectively. Rent consists of amounts paid for office space and certain equipment by the Company and the Integrated Medical Centers. The increase of $160,588 was due primarily to the addition of seven Integrated Medical Centers after September 1995. Advertising and Marketing. During the nine months ended September 30, 1996 and September 30, 1995, the Company incurred advertising and marketing expenses of $36,828 and $11,909, respectively. The increase of $24,919 was attributable primarily to additional national advertising for marketing and recruitment purposes. General and Administrative. During the nine months ended September 30, 1996 and September 30, 1995, the Company incurred general and administrative expenses of $607,770 and $28,818, respectively. The increase of $578,952 was due primarily to the addition of seven Integrated Medical Centers after September 1995 and consists of an increase of (i) $95,320 in accounting costs, (ii) $73,963 in legal costs, (iii) $12,790 in employment agency fees, (iv) $311,879 in various costs, such as bad debt reserves, travel and entertainment, telephone, and insurance, and (v) $85,000 in costs attributable to the Bridge Financing and the Offering. 26 28 Depreciation and Amortization. During the nine months ended September 30, 1996 and September 30, 1995, the Company incurred depreciation and amortization expense of $24,598 and $1,623, respectively. The increase of $22,975 resulted from the addition of fixed assets, primarily computer equipment, which tend to have depreciable lives of five years or less. Net Interest Income (Expense). During the nine months ended September 30, 1996 and September 30, 1995, the Company had net interest expense of $19,566 and net interest income of $483, respectively. The $20,049 increase in net interest expense was attributable primarily to an increase of $21,700 in interest payable on notes issued in connection with the Bridge Financing, an increase of $2,516 in interest payable on a note issued in connection with the acquisition of assets for use at the first Integrated Medical Center developed by the Company, and offset by an increase of $4,167 in interest income. Year ended December 31, 1995 compared to year ended December 31, 1994 During the year ended December 31, 1994 the Company incurred a net loss of $1,400. No revenues were generated during 1994. The Company was not formed until November 1994, so a comparison with the year ended December 31, 1995 is not meaningful. The Company began operations in January 1995 and opened its first Integrated Medical Center in September 1995. During the year ended December 31, 1995 the Company had total revenue of $22,114. This revenue consisted of patient revenue from one Integrated Medical Center, which began operations in September 1995. During the year ended December 31, 1995 the Company incurred salary and consulting expenses of $93,131, management fees of $29,669, rent expense of $4,501, advertising and marketing expenses of $25,821, general and administrative expenses of $253,024, and depreciation and amortization expense of $6,490. This resulted in a net loss of $195,889 after taking $194,457 of minority interest into consideration. SEASONALITY The Company believes that the patient volumes at its Integrated Medical Centers are not significantly affected by seasonality. LIQUIDITY AND CAPITAL RESOURCES The Company has experienced net losses, negative cash flow, a deficit in working capital, and an accumulated deficit each month since its inception. For the year ended December 31, 1995 and for the nine months ended September 30, 1996 the Company had incurred a net loss of $195,889 and of $520,950, respectively. At September 30, 1996, the Company had a deficit in working capital of $437,991, and an accumulated deficit of $718,239. Net cash used in operations for the year ended December 31, 1995 and for the nine months ended September 30, 1996 was $252,114 and $704,652, respectively. Negative cash flow for each period was attributable primarily to net losses in each of the periods and increases in accounts receivable net of accounts payable and other current liabilities. For the year ended December 31, 1995 and for the nine months ended September 30, 1996, the Company used $38,814 and $184,362, respectively, for purchases of equipment. From November 1994 to September 1996 development costs, capital expenditures and working capital needs of the Company have been financed through the issuance of notes, shares of Common Stock, and shares of preferred stock of the Company, and the sale of membership interests in CWC LLC. During 1995 the Company issued 1,350 shares of Series A Preferred Stock for $100 per share. Each share of Series A Preferred Stock is convertible into 108 shares (an aggregate of 145,800 shares) of Common Stock upon the closing of a public offering. The Company raised $135,000 as a result of this issuance. The proceeds were used for working capital and general corporate purposes. In November 1995, the Company issued $39,730 in aggregate principal amount of promissory notes and warrants to purchase an aggregate of 13,243 shares of Common Stock at an exercise price of $.003 per share. The warrants are exercisable for a period of five years commencing November 1996. The notes have been repaid or converted into membership interests in CWC LLC. 27 29 During 1995 and 1996, CWC LLC sold an aggregate of $665,000 of Class A Units. The Company acquired 1% of the membership interests of CWC LLC. The net equity of the other investors accounts for the minority interest shown in the Company's consolidated financial statements. See "Certain Transactions." In connection with the sale of the Class A Units, certain state notification of sale requirements were not complied with on a timely basis. CWC LLC offered to rescind the sale of membership interests to affected investors, and all such investors rejected the offer. In connection with the acquisition of assets used to establish CWC Fredericksburg, CWC LLC issued a note in the principal amount of $25,000 that bears interest at the rate of 8% per annum, is payable on July 17, 2000, is secured by the assets of CWC Fredericksburg, and, at the option of the holder, is convertible into membership interests of CWC LLC in certain circumstances. The Company intends to use a portion of the net proceeds of the Offering to repay the note plus accrued interest. See "Use of Proceeds." In August 1996, the Company completed the Bridge Financing pursuant to which it issued (i) an aggregate of $1.1 million principal amount of secured promissory notes (the "Bridge Notes") that bear interest at the rate of 12% per annum, are payable upon the earlier of the closing of the Offering or June 30, 1997, and are secured by substantially all of the Company's assets and (ii) warrants entitling the holders to purchase that number of shares of Common Stock determined by dividing the principal amount of the Bridge Notes by the price per share of Common Stock offered hereby (the "Bridge Warrants"). The Company has agreed that the Bridge Warrants and the shares of Common Stock issuable upon exercise of the Bridge Warrants would be included in the registration statement of which this Prospectus forms a part. Assuming a price per Share of $7.00 in this Offering, a total of 157,142 shares of Common Stock will be issuable upon exercise of the Bridge Warrants at an exercise price of $.003 per share. The Company intends to use a portion of the proceeds of this Offering to repay the entire principal amount of and accrued interest on the Bridge Notes. See "Use of Proceeds." Proceeds of the Bridge Financing were used for the development of additional Integrated Medical Centers, working capital, and general corporate purposes, and certain costs attributable to the Offering. The Company also issued a warrant to purchase up to 2,857 shares of Common Stock (assuming an initial public offering price of $7.00 per share) to a broker-dealer who acted as a placement agent for a portion of the Bridge Financing. The Company intends to develop approximately 75 additional Integrated Medical Centers within 12 months after the date of this Prospectus, including five in connection with strategic alliances. The average cost to the Company to develop an Integrated Medical Center not connected with a strategic alliance is approximately $30,000. The Company believes the average cost to the Company to develop an Integrated Medical Center in connection with a strategic alliance will be approximately $150,000. There can be no assurance, however, that the Company will be able to identify and recruit a sufficient number of chiropractors and their existing chiropractic practices, that it will have access to a sufficient number of locations in connection with a strategic alliance, or that the average costs to the Company to develop Integrated Medical Centers will not be greater than those mentioned above. The Company intends to finance its expansion strategy with a portion of the net proceeds of this Offering. In addition, with a portion of the net proceeds of this Offering, the Company intends to continue development of its management information system. Management believes that the net proceeds of this Offering together with net cash from operations will be sufficient to finance the Company's activities for at least 12 months following the date of this Prospectus; however, there can be no assurance that such net proceeds and cash from operations will be sufficient to finance the Company's activities for such period. See "Risk Factors -- Possible Need for Additional Financing," "Use of Proceeds," and "-- General." After the completion of this Offering, the Company intends to lease approximately 3,000 to 5,000 square feet of space for its executive offices in Montgomery County, Maryland. The Company has received a low interest rate loan commitment in the amount of $45,000 from the Montgomery County Economic Development Fund in order to defray its relocation costs. The loan is to bear interest at the rate of 7% per annum with a ten year amortization, with payment deferred until December 31, 1997. The loan is to be secured by the Company's capital assets. The loan will be converted to a grant if the Company generates more than 50 jobs and establishes a new Integrated Medical Center in Montgomery County by the end of 1997. The loan 28 30 commitment expires on January 31, 1997, however, the Company intends to seek an extension of this expiration date. See "Business -- Property." NET OPERATING LOSSES The Company has net operating loss carryforwards for federal income tax purposes of approximately $643,000 which expire in 2010. A valuation allowance of approximately $288,000 has been established to offset any benefit from the net operating loss carryforward, as it cannot be determined when or if the Company will be able to utilize the net operating losses. These carryforwards may be significantly limited under the Internal Revenue Code of 1986, as amended, as a result of ownership changes resulting from this Offering and other equity offerings of the Company. NEW ACCOUNTING PRONOUNCEMENT In October 1995, the Financial Accounting Standards Board issued Statement No. 123, Accounting for Stock-Based Compensation, which provides an alternative to APB Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for stock-based compensation issued to employees. The statement allows for a fair value based method of accounting for employee stock options and similar equity instruments. However, for companies that continue to account for stock-based compensation arrangements under APB Opinion No. 25, Statement No. 123 requires disclosure of the pro forma effect on net income and earnings per share of its fair value based accounting for those arrangements. These disclosure requirements are effective for fiscal years beginning after December 15, 1995, or upon initial adoption of the statement, if earlier. The Company has elected to continue to account for stock-based compensation arrangements under APB Opinion No. 25, and accordingly recognizes compensation expense for the stock option grants as the difference between the fair value and the exercise price at the grant date but will provide the required pro forma disclosures in the December 31, 1996 consolidated financial statements. 29 31 BUSINESS GENERAL The Company develops multi-disciplinary medical centers ("Integrated Medical Centers") and furnishes certain support services to such facilities. The Integrated Medical Centers combine, in one practice, at the same location, traditional health care providers, such as physicians and physical therapists, and alternative health care providers, such as chiropractors, acupuncturists and massage therapists. The Company's objective is to become a nationally recognized developer and manager of Integrated Medical Centers. At December 16, 1996, the Company had developed and was managing 8 Integrated Medical Centers in the states of Florida, Virginia and Illinois and had 36 binding agreements to develop and manage Integrated Medical Centers in 9 states. The Company develops Integrated Medical Centers generally through affiliations with chiropractors and their existing chiropractic practices (the "Affiliated Chiropractors"). Management endeavors to enter into an agreement with a chiropractor who has an established chiropractic practice in a convenient location and who is an individual who has demonstrated the entrepreneurial skills to build a practice. The total expenditures associated with the use of alternative medicine in 1990 amounted to approximately $13.7 billion, according to a report published by the New England Journal of Medicine in 1993. In October 1996, The Wall Street Journal reported that the alternative medical services market has grown to approximately $50 billion. Management believes that the growing popularity and acceptance of alternative medicine has contributed to the Company's growth. By integrating alternative medicine with traditional medicine, the Company is providing a choice for the consumer in one location as well as the opportunity to choose complementary treatments overseen by a medical doctor, which the Company believes alleviates some of the concerns of patients and third party payors. The Company's operating strategy is to (i) provide consumers the opportunity to obtain, and the convenience of obtaining, under the supervision of a medical doctor, complementary traditional and alternative medical treatments in one location, (ii) furnish high quality patient care efficiently through the use of credentialing standards and standardized protocols, (iii) establish Integrated Medical Centers in local and regional clusters for purposes of obtaining managed care contracts, (iv) assist in marketing the Integrated Medical Centers on a coordinated basis and furnish them management, marketing, financing and other advice and support, and (v) achieve operating efficiencies and economies of scale through the implementation of management information systems, the rotation of health care providers among Integrated Medical Centers, increased purchasing power with suppliers, and standardized protocols, administrative systems, and procedures. The Company's expansion strategy is to continue to develop additional Integrated Medical Centers in regional groups or clusters in order to facilitate the development of integrated networks of affiliated physicians, chiropractors and other health care providers (both traditional and alternative). The Company plans to continue to develop additional Integrated Medical Centers through affiliations with chiropractors and their existing chiropractic practices and intends to begin development of Integrated Medical Centers in connection with strategic alliances with health clubs, corporations, government offices, or other organizations, in which cases the Integrated Medical Centers would be developed in locations such as a health club or office building. The Company regularly explores new opportunities related to integrated medical services and intends to negotiate arrangements with or acquire businesses that provide services ancillary to the provision of integrated medical services, such as services relating to medical diagnostics or billing systems. As of the date of this Prospectus, the Company has no understandings, commitments, or agreements with respect to any acquisitions. The Company itself is not authorized or qualified to engage in any activity which may be construed or be deemed to constitute the practice of medicine but is an independent supplier of non-medical services only. The physicians and chiropractors are responsible for all aspects of the practice of medicine and chiropractic and the delivery of medical and chiropractic services (subject to certain business guidelines determined in conjunction with the Company), including but not limited to diagnosis, treatment, referrals, quality assurance, utilization 30 32 management, and therapy. In connection with any managed care contracts it may arrange on behalf of the Integrated Medical Centers, the Company will need to manage the Integrated Medical Centers' utilization of medical services to patients. If under such contracts, the Integrated Medical Centers accept responsibility for the treatment of their patients by specialists or at hospitals, the Company will also manage the practitioners' referral patterns with respect to specialty physician and hospital services. The Company will only do so, however, for payment purposes and will not, through such process, interfere with the professional judgment of a medical practitioner or prohibit a practitioner from providing any medical services. INDUSTRY BACKGROUND The integration of traditional and alternative medicine is becoming more popular in the United States. In 1992, Congress required the National Institutes of Health to establish The Office of Alternative Medicine, the purpose of which was and remains to facilitate the evaluation of alternative medicine treatments to determine their effectiveness and help integrate them into traditional medicine. More recently, the Trends Research Institute of Rhinebeck, New York has identified the integration of traditional and alternative medicine as one of the top ten trends of the coming decade. This trend is being reflected by health care insurers and legislative initiatives. A U.S. health insurance company offered coverage for alternative medical treatment for the first time in 1992, and the Company believes that presently at least 15 insurers cover various aspects of alternative medicine. On January 1, 1996, Washington became the first state to require health insurers to pay for alternative ways of treating illnesses. In addition, seven states have passed medical access laws that prevent state medical boards from disciplining a doctor solely because a treatment is considered unacceptable by the mainstream medical community and, earlier this year, Congress held hearings on a bill that would allow a licensed health care practitioner to provide any method of treatment requested by a patient, whether or not the treatment had been approved by the U.S. Food and Drug Administration. The Company believes that integrated medicine draws upon the strengths of each discipline. For example, some of the strengths of traditional medicine are its sophisticated ability to diagnose disease and its array of powerful drugs and surgical procedures to treat emergency conditions and advanced stages of illness. Alternative medicine emphasizes wellness and prevention and addresses illness by identifying and trying to remove the causes, often found in the patient's lifestyle habits. In addition, the Company believes that alternative medicine is becoming more widely accepted by the medical community and the insurance industry as a complement to traditional medicine because of the growing realization of the quality of care given and its cost-effectiveness. The Company has chosen chiropractic as the alternative medicine discipline that serves as the base from which Integrated Medical Centers are developed. The Company believes that chiropractic care is the largest component of alternative medicine expenditures in the United States. The Company has selected health clubs as the initial type of organization with which to develop Integrated Medical Centers in connection with strategic alliances. The Company believes that members of health clubs tend to be interested in fitness and wellness, both of which are central themes of alternative medicine. According to the International Health, Racquet and Sports Club Association, there were approximately 13,300 health club facilities in the United States in 1996. OPERATING STRATEGY The objective of the Company's operating strategy is to provide a high level of traditional and alternative medical care to patients in a cost-effective manner. Key elements of the Company's operating strategy are: One Location. The Company seeks to provide consumers the opportunity to obtain, and the convenience of obtaining, under the supervision of a medical doctor, complementary traditional and alternative medical treatments in one location. The Company believes that alternative medicine is growing in popularity, and that supervision of treatment by a medical doctor may alleviate some patient concerns. Furnish High Quality Care Efficiently. All health care services at an Integrated Medical Center are provided by health care practitioners under the supervision of a licensed medical doctor. The Company seeks 31 33 qualified and reputable medical doctors. The Company further seeks to ensure the efficient provision of high quality care through the use of credentialing standards and standardized protocols. Additionally, in many states, only medical doctors are permitted to order certain laboratory and radiological tests. The Company believes that supervision by a medical doctor and a medical doctor's access to more sophisticated diagnostic testing services will enhance the quality of patient care. Establish Networks of Integrated Medical Centers to Obtain Managed Care Contracts. A key component of the Company's operating strategy is to attract both health care practitioners and managed care payors. The Company seeks to attract health care practitioners by, among other things, providing them greater access to managed care contracts than they could attain independently and relieving them of significant administrative responsibilities. The Company intends for its local and regional clusters of Integrated Medical Centers to attract managed care contractors by providing single, integrated points of market entry, thereby enabling managed care payors to more efficiently contract for the provision of health care services for patient populations. The Company believes its credentialing standards, standardized protocols and implementation of a meaningful utilization management program will also likely be important in attracting managed care contracts. Provide Advice and Assistance. The Company intends to develop and implement advertising and marketing programs for the Integrated Medical Centers primarily at the regional and national levels, utilizing television, radio, and print advertising as well as internal marketing promotions. The name of each Integrated Medical Center includes the words "Complete Wellness Medical Center(SM)" and each Integrated Medical Center displays signage bearing its name. The Company's goal is to achieve "brand name" awareness of the Integrated Medical Centers, although there is no assurance that the Company will be able to realize this goal. Each Integrated Medical Center is required to pay a flat monthly fee to finance the Company's advertising and marketing programs. An individual Integrated Medical Center may also advertise its services locally, and the Company provides advice in that regard upon request. The Company also agrees to furnish the Integrated Medical Centers management services, financing and other advice and support. By doing so, the Company seeks to relieve providers, to a limited extent, from certain burdens of administering and managing a medical practice. Achieve Operating Efficiencies and Economies of Scale. The Company organizes its Integrated Medical Centers into regional groups or clusters to serve employees and patients more effectively, to leverage management and other resources, to increase purchasing power with suppliers, and to facilitate the development of networks of affiliated physicians, chiropractors, and other health care practitioners. The Company intends to rotate physicians and other health care practitioners among Integrated Medical Centers within a particular cluster. The Company believes that this will reduce the number of practitioners that would otherwise be needed, and thereby contain salary costs. In addition, the Company has implemented a variety of operating procedures and systems to improve the productivity and profitability of Integrated Medical Centers. These include standardized protocols, administrative systems, and procedures, and the installation of a management information system. The Company believes that a sophisticated management information system is critical to its success. Using commercially available software components, the Company has developed a management information system tailored to its needs and designed to handle billing and collection, appointment scheduling, and patient records for all of the Integrated Medical Centers. In addition to providing the capability for electronic creation and review of patient records, the Company believes this system will provide the Company with the ability to monitor outcomes of patient care, engage in effective utilization management of health care services, and analyze the performance of each Integrated Medical Center. EXPANSION STRATEGY The Company plans to develop additional Integrated Medical Centers primarily by affiliating with chiropractors and their existing chiropractic practices. Management endeavors to enter into agreements with chiropractors who are located in convenient locations, and who have demonstrated the entrepreneurial skills to build a practice. The Company believes that such chiropractors will consider affiliation with Integrated 32 34 Medical Centers to be attractive because they may have greater access to managed care contracts through the Company and its network of Integrated Medical Centers, will be relieved of certain administrative burdens, will enjoy the use of a sophisticated management information system, and may have the opportunity to increase their practice income. An Integrated Medical Center is usually established at the same location as the existing chiropractic practice, although in some instances it might be established at a new location. The Company also plans to develop Integrated Medical Centers in connection with strategic alliances with health clubs, corporations, government offices, or other organizations. In such cases, the Integrated Medical Center would be established at a location (such as a health club or office building) provided, leased or licensed to the Company by the other party to the strategic alliance. The Company would in turn seek to affiliate with a chiropractor who has an existing chiropractic practice located near the Integrated Medical Center. The chiropractor would maintain his or her existing practice at its existing location, but would arrange to see patients at the Integrated Medical Center as well. If the Company were unable to affiliate with a chiropractor with an existing practice located nearby, it would hire a chiropractor without an existing practice to work on site at the Integrated Medical Center. In this regard, in September 1996 the Company entered into a master license agreement (the "License Agreement") with Bally Total Fitness Corporation ("Bally's"), with respect to the development of Integrated Medical Centers within selected Bally's health clubs throughout the United States. Bally's is the largest commercial operator of fitness centers in the United States, with approximately 320 centers concentrated in 27 states and 4.2 million members. Pursuant to the License Agreement, the Company will pay Bally's a license fee equal to the greater of $15 ($10 for the first year) per square foot of the space used by the Integrated Medical Center or 12.5% of the fees the Company receives for its services to each Integrated Medical Center the Company develops at a Bally's Total Fitness Center. The initial term of the license agreement is five years, with five one-year mutual renewals. The first Integrated Medical Center to be developed by the Company at a Bally's Total Fitness Center is expected to be located in the Washington, D.C. metropolitan area. The Company is in the process of selecting a location. If it meets the Company's expectations, the Company expects to develop additional Integrated Medical Centers at other Bally's Total Fitness Centers. In such event, the Company expects to select Bally's Total Fitness Centers located near other Integrated Medical Centers. Integrated Medical Centers developed pursuant to the License Agreement will not treat patients covered by any federal or state funded health care program. Additionally, in November 1996 the Company signed a non-binding letter of intent with Complete Management, Inc. ("CMI"), pursuant to which it is contemplated that the Company and CMI will form a joint venture to develop Integrated Medical Centers at selected Bally's Total Fitness Centers or other health clubs in the greater New York City metropolitan area. The letter of intent contemplates that CMI, upon execution of a definitive joint venture agreement, will be issued warrants to purchase 100,000 shares of the Company's Common Stock at an exercise price equal to 120% of the initial public offering price per share. The Company cannot predict whether the letter of intent will lead to a definitive agreement or whether the terms of any such definitive agreement will be the same as the terms contemplated by the letter of intent. New York health care regulatory requirements are extremely restrictive and prohibit many arrangements permitted in other states. For example, the provision of many services, such as physical therapy and occupational therapy, may subject a facility to New York's lengthy hospital licensing regulations. In addition, New York prohibits publicly held companies from owning health care facilities, and further prohibits companies from entering into management contracts with certain health care facilities. The cost to the Company to develop an Integrated Medical Center not connected with a strategic alliance has averaged $30,000, which consists of approximately $10,000 in cash and approximately $20,000 (out of a possible $40,000) in the form of a loan. Cash provided by the Company may be used for computer software, legal fees, professional credentialing, training, an administrative starter kit, and travel. The loan may be used for items such as professional salaries, computer hardware, signage, and insurance. The loan bears interest at the rate of 10% per annum, is secured by the assets of the Integrated Medical Center, is guaranteed by the Affiliated Chiropractor, and is payable within five years. The Company believes that the average cost to the Company to develop an Integrated Medical Center in connection with a strategic alliance will be approxi- 33 35 mately $150,000 in cash. These funds are expected to be used for leasehold improvements, equipment, professional salaries, information systems, and working capital. An Integrated Medical Center is expected to expand its services in three phases. The first phase involves the medical treatment of neuromusculoskeletal conditions of the Affiliated Chiropractor's patients who are referred by the Affiliated Chiropractor for reasons of medical necessity. This is accomplished by utilizing a rotating part-time medical doctor supported by a consulting neurologist. The second phase, generally expected to be after an Integrated Medical Center has been in operation for six to twelve months of operation, involves, depending on the market, adding other providers such as a physical therapist or massage therapist. The third phase, generally expected to be after 12 to 24 months of operation, depending on an Integrated Medical Center's results, involves utilizing a medical doctor on a full time basis. This allows the Integrated Medical Center to provide services to patients of managed care plans and, subject to certain structural revisions to its contractual arrangements, to patients of federal or state funded health care programs, as well as to provide weight management and other wellness programs. The Company intends to facilitate the growth of the Integrated Medical Centers by arranging for the provision of ancillary services, such as medical imaging, rehabilitation, diagnostics, and weight management either by contract with third party providers or by acquisition of other businesses. The Company believes that the ability to offer ancillary services will make the Integrated Medical Centers more attractive to patients, health care practitioners, and third party payors. The acquisition or other provision of certain of such other services may, however, trigger additional licensing requirements. As of the date of this Prospectus, the Company has no understandings, commitments, or agreements with respect to any acquisitions. The Company may from time to time take advantage of opportunities that are related to the integration of traditional and alternative medicine that do not fit into its expansion strategy. In this regard, in November 1996 the Company entered into a management subcontract agreement (the "IPM Agreement") with Integrated Physicians Management Co., LLC ("IPM") to manage for IPM nine medical clinics that were integrated by IPM, subject to the approval of the clinics. The clinics are located in Illinois (one), Nebraska (five), Wisconsin (two), and Texas (one). In general, IPM's fees under the contracts subject to the IPM Agreement are either 10% of a clinic's gross collections for all services or 20% of its gross collections for medical services only. The Company is to be paid 80% of the fees that IPM would have been paid in the absence of the IPM Agreement. The Company will not be required to provide and will not provide services to the clinics until such time as the management agreements between IPM and the clinics are deemed by the Company's special health care regulatory counsel to be in compliance with applicable federal and state laws. The clinics are not Integrated Medical Centers, and do not operate under the Complete Wellness Medical Center(SM) name, but the Company will attempt to have them become Integrated Medical Centers in the future. As of the date of this Prospectus, one clinic had consented to the IPM Agreement, and the others had not yet made a decision. To date, the Company has augmented the efforts of its management and staff through consulting arrangements with various persons and entities. These consultants have directed their efforts primarily toward identifying potential chiropractors and chiropractic practices with which to affiliate and toward providing assistance with the integration process. In November 1996, the Company entered into a five year consulting agreement (the "Kats Agreement") with Kats Management, LLC ("Kats Management"), a company under common control with IPM that provides management and consulting services to over 600 chiropractic clinics. Under the Kats Agreement, Kats Management agreed to advise and assist the Company in (i) identifying and negotiating with chiropractors and their existing chiropractic practices with which the Company might affiliate for the purpose of developing additional Integrated Medical Centers and (ii) developing Integrated Medical Centers. The Company agreed to pay Kats Management for each management agreement entered into by the Company with a chiropractor and existing chiropractic practice identified by Kats Management (i) a commission equal to 20% of the Company's integration fee under such management agreement during the initial term of the management agreement (see "-- Agreements With Affiliated Chiropractors and Other Licensed Practitioners -- Integrated Medical Center Management and Security Agreement"), (ii) a fixed fee not to exceed $350, and (iii) a bonus of $10,000 for each of the first five such management agreements and $5,000 for each of the next 25 such management agreements. In addition, the Company agreed to grant Kats 34 36 Management nonqualified options to purchase 11,000 shares of Common Stock under the Company's 1994 Stock Option Plan at an exercise price equal to 75% of the initial public offering price per share. See "Management -- Employment Agreements." The Company expects to continue using consultants after the consummation of this Offering. See "Certain Transactions." The Company has been approached by medical doctors interested in integrating their traditional medicine practices with alternative medicine practices ("reverse integration"). The Company has entered into a consulting agreement pursuant to which the Company may seek advice or assistance in connection with reverse integration, but has taken no action with respect to, and has not explored the business or financial ramifications of, reverse integration. The Company expects to explore the feasibility of reverse integration after the consummation of the Offering. There can be no assurance that the Company will develop a reverse integration model or, if developed, that it would be successfully implemented. THE COMPANY'S INTEGRATED MEDICAL CENTERS Since the Company commenced operations in January 1995, it has developed its current business primarily through the establishment of affiliations with chiropractors and their existing chiropractic practices. As of the date of this Prospectus, the Company has developed eight Integrated Medical Centers. In addition, the Company has entered into 36 binding agreements with chiropractors and their existing chiropractic practices to develop additional Integrated Medical Centers, and is planning to develop one Integrated Medical Center pursuant to the License Agreement with Bally's in a location to be determined. Most Integrated Medical Centers occupy approximately 1,200 to 1,500 square feet of space under a lease or sublease in an office building or shopping center. The Company expects that most Integrated Medical Centers located in a health club in connection with a strategic alliance will occupy approximately 800 to 1,200 square feet of space. The Company prefers to have locations at ground level to make the Integrated Medical Center as easily accessible to patients as possible, but the Company may not always be successful in securing such locations. In Integrated Medical Centers developed in the same location as an existing chiropractic practice, the Company makes suggestions concerning office decor and layout, but does not seek to impose uniform design standards. In Integrated Medical Centers developed in connection with a strategic alliance, the Company expects to have a greater degree of uniformity in design and layout, but must retain flexibility to work with the space which is available. All Integrated Medical Centers operate under a name that includes the words "Complete Wellness Medical Center(SM)", followed by a geographic reference to the city and/or street at which the Integrated Medical Center is located. Each Integrated Medical Center has signage bearing its name. The Company has applied for federal servicemark registration for the mark "Complete Wellness Medical Center(SM)" as well as the mark "Complete Wellness Centers(SM)". In November 1996 the Company received non-final office actions from the Patent & Trademark Office ("PTO") noting certain objections to the applications which must be resolved before the registrations will be issued. Although the PTO initially refused registration of the marks on the Principal Register on the grounds that the marks are "merely descriptive," it noted that Applicant may amend its applications to seek registration on the Supplemental Register. The Company has until May 1997 to respond to these office actions. It may present arguments to overcome the initial refusal to register the marks on the Principal Register, or it may agree to amend the applications to the Supplemental Register. No conflicting marks owned by other parties were cited by the PTO against the applications as a bar to registration. The Integrated Medical Centers take advantage of underutilized space and time. In Integrated Medical Centers developed in the same location as an existing chiropractic practice, the medical doctor either has access to an examination room that is not otherwise being used, or a staggered hours appointment schedule is implemented. Traditional chiropractic office hours are Mondays, Wednesdays, and Fridays from 9 a.m. to 12 noon and from 3 p.m. to 7 p.m., and Tuesdays and Thursdays from 3 p.m. to 7 p.m. If an examination room is not available for use by a medical doctor or other health care practitioner during those periods, appointments with such practitioners will be scheduled primarily during periods when chiropractic appointments are not scheduled. 35 37 Similarly, the medical doctor can use existing chiropractic equipment and examination tables, with only minor equipment additions during the initial phase of integration. Chiropractic offices are typically equipped with otoscopes, opthalmoscopes, and blood pressure cuffs. Minor additions are mostly for nondurable goods such as latex gloves, alcohol swabs, and paper rolls. When the services of a consulting neurologist are added, it becomes necessary to obtain an electromyography machine, although neurologists often own or lease their own machines. When the services of a physical therapist are added, it becomes necessary to add more equipment, such as free weights, a hydrocolator (machine to heat hot packs), cold packs, and certain other staple items. When primary care services are added, the Integrated Medical Center must acquire an electrocardiogram machine and equipment for use in drawing blood, exercise stress testing, and trigger point injections. Equipment acquired after the opening date of an Integrated Medical Center is paid for by the Integrated Medical Centers or the Affiliated Chiropractors' management companies, depending on the type of equipment. The type of ancillary staff added and the type of equipment used can vary from one Integrated Medical Center to another depending upon the patient base. If an Integrated Medical Center is located in an area with large numbers of clerical workers/typists, a common problem might be carpal tunnel syndrome, and the Integrated Medical Center would have equipment necessary to treat that condition. If an Integrated Medical Center is located in an area with a high concentration of senior citizens, a common problem might be stroke, and the Integrated Medical Center would provide the services not only of a neurologist but also a physiatrist, a medical doctor with specialty training in physical medicine, including rehabilitation for stroke victims. SERVICES AND OPERATIONS Recruiting and Training The Company seeks new affiliations with chiropractors by referrals from Affiliated Chiropractors and by advertising in trade magazines. It also conducts mailings of its marketing information to chiropractors in specific geographic regions in which it is interested in developing additional Integrated Medical Centers. The Company acquires and maintains address lists of prospects for these mailings, conducts information seminars for prospective affiliates, conducts telemarketing efforts, and advertises through its Internet web site. Affiliated Chiropractors are given introductory materials regarding the operations of the Company and Integrated Medical Centers and undergo a credentialing process by an accredited credentialing firm which verifies their education, professional licenses, and malpractice history, if any. The Company then requires each Affiliated Chiropractor and certain other employees to attend a one-day intensive integration seminar, at which they are taught the basic principles behind managing a multi-disciplinary health care clinic. On-site technical training takes place soon after this seminar and is conducted by the Company's billing and integration specialists. Follow-on remote and, if necessary, on site computer software training is also provided, together with telephone support thereafter. Affiliated Chiropractors work under (i) employment agreements with the Integrated Medical Centers which provide for a base salary and (ii) contractual arrangements with the Company, the Integrated Medical Centers, and the Affiliated Chiropractors' management companies which reward them based upon their performance and the operating results of the Integrated Medical Centers, including collecting on receivables and cost containment efforts. In addition, the Company recently adopted its 1996 Restricted Stock Option Plan for Health Care Professionals and has reserved an aggregate of 100,000 shares of Common Stock for issuance pursuant to the plan. No options have been granted under this plan thus far and none may be issued until the Company has determined that all applicable federal and state laws have been satisfied. See "-- Government Regulation -- Federal Medicare and Medicaid Related Regulation" and "Management -- Stock Option Plans." Management Information System The Company believes that effective and efficient integration of clinical, patient and financial data enhances the quality of patient care and provides a competitive advantage in negotiating and bidding for managed care contracts. The Company's management information system links its existing Integrated 36 38 Medical Centers to the Company's central administrative offices and provides the capability for patient scheduling, billing, data assessment, clinical outcome evaluation, utilization review, routine business management, and electronic medical records storage and retrieval. The system enables the Company to collect and store data which allows the Company to track and report utilization and outcomes to insurance carriers, monitor the status and progress of Integrated Medical Centers, and conduct quality assurance comparisons. The Company trains Affiliated Chiropractors and staff in the use of its management information system. After the initial training is completed, the Company provides ongoing support by telephone, by computer linkage, and, if necessary, by a visit from a member of the Company's staff. Information regarding an Integrated Medical Center's performance is currently accessible by authorized personnel at the Company's principal executive office and at any other Integrated Medical Center by computer-to-computer linkage using modems and telephone lines. The Company intends to use a portion of the proceeds of this Offering to make its management information system accessible by authorized personnel through the Internet, which the Company believes will allow networking among Integrated Medical Centers at a lower cost than the system currently in use. See "Use of Proceeds." The Company has established an Internet web site at http://www.CompleteWellness.com. Advertising and Marketing In seeking to attract new patients to the Integrated Medical Centers, the Company intends to advertise and market their services utilizing television, radio, and print advertising, as well as internal marketing promotions. In appropriate circumstances, the Company intends to tailor its marketing efforts to the demands of a particular market. The Company's advertising and marketing efforts will be focused at the national and regional (county, metropolitan area, or state) levels and, in the latter case, will cover all Integrated Medical Centers within the region. An individual Integrated Medical Center may elect to advertise its services locally at its own expense. The Company's regional and national advertising and marketing will be paid for by a $200 per month marketing fee that each Integrated Medical Center is required to pay, typically beginning six months after integration. The fees are deposited by the Company in a segregated account and will be used only for regional and national advertising and marketing. The Company has not conducted any such regional or national advertising and marketing prior to the date of this Prospectus. THIRD PARTY REIMBURSEMENT The Company's ability to collect its management fees in a timely manner, or at all, is affected by whether the Integrated Medical Center is reimbursed for its medical services and the amount of reimbursement. The Company's own cash flow could be adversely affected by the Integrated Medical Centers' long collection cycle from various third party payors. Further, third party payors may reject the Integrated Medical Centers' medical claims if, in their judgment, the procedures performed were not medically necessary or if the charges exceeded such payors' allowable fee standards. In addition, the reimbursement forms required by third party payors for payment of medical claims are long, detailed and complex and payments may be delayed or refused unless these forms are properly completed in a timely manner. It is common practice for third party payors to initially deny/reject the first submission of a medical claim. This does not mean that the claim will not be ultimately paid. The Integrated Medical Centers normally would re-submit the claim with such revised information as requested and/or forms and documentation. Outstanding claims that continue to be disputed after one year or more could then be submitted to an arbitration process. Normally, when final arbitration decisions are about to be rendered, the third party payor will settle. Under current law, the Company is entitled to collect the settlement amount, filing fees and interest on the agreed-upon payment. Although the Integrated Medical Centers will take all legally available steps, including legally prescribed arbitration, to collect their receivables, there is a significant risk that some Integrated Medical Centers' receivables may not be collected. Third party payors are not generally familiar with reimbursing for traditional and alternative health care services such as chiropractic in the same medical practice. The third party payors may disagree with the descriptions or coding of a bill for medical services, or may contest a code or description under a lesser (e.g. chiropractic) fee schedule. Such disagreements on billing code or description of professional services, 37 39 particularly where the third party payor is a federal or state funded health care program, can result in lesser reimbursement, which can have a material adverse effect on the Integrated Medical Center and ultimately on the Company. Persistent disagreements or alleged "upcoding" can result in allegations of fraud or false billing, both of which constitute felonies. Such an allegation, if proven, can result in forfeitures of payment, civil money penalties, civil fines, suspensions, or disbarment from participating in federal or state funded health care programs, and have a material adverse effect on the Company. Investigation and prosecutions for fraudulent or false billing can have a material adverse effect on the Company, even where such allegations are disproven. The health care industry is undergoing significant change as third party payors increase their efforts to control the cost, use and delivery of health care services. Several states have taken measures to reduce the reimbursement rates paid to health care providers in their states. The Company believes that additional reductions will be implemented from time to time. Reductions in Medicare rates often lead to reductions in the reimbursement rates of other third party payors as well and the Company believes that such further reductions are probable. Changes in Medicare reimbursement rates or other changes in reimbursements by third party payors to Integrated Medical Centers could have a material adverse affect on the Company. AGREEMENTS WITH AFFILIATED CHIROPRACTORS AND OTHER LICENSED PRACTITIONERS The Company provides management services to Integrated Medical Centers pursuant to a Management and Security Agreement ("M&S Agreement") between the Company and each Integrated Medical Center or a licensed medical doctor on behalf of an Integrated Medical Center to be formed, and an Integrated Medical Center Management and Security Agreement ("IMCM&S Agreement") among the Company, the Affiliated Chiropractor in his or her individual capacity, the Affiliated Chiropractor's existing chiropractic practice (whether or not incorporated), and the Affiliated Chiropractor on behalf of a separate management company to be formed and to be owned by the Affiliated Chiropractor ("Admincorp"). In general, the M&S Agreement and the IMCM&S Agreement are entered into at or about the same time, before the Company provides any services for the Integrated Medical Centers, the Affiliated Chiropractors, or the Admincorps. Management and Security Agreement Under the M&S Agreement, the Company agrees to (i) manage certain non-medical aspects of the Integrated Medical Center (including record keeping, billing and collection, handling non-professional personnel, patient scheduling, and continuing education), (ii) provide capital, facilities, equipment, computer software and training, (iii) implement advertising and marketing programs, (iv) arrange for certain legal and accounting services, and (v) assist in identifying and recruiting medical doctors. As compensation for these services, the Integrated Medical Center agrees to pay the Company flat monthly fees that reflect the fair market value of the services. The initial amount of the fees is determined by the Company and the Integrated Medical Center. The fees are reviewed periodically by the Company and the Integrated Medical Center and adjusted if necessary. The Company typically retains an independent third party to assist in determining fair market value, but is not required to do so. The fees for Integrated Medical Centers treating patients served by federal or state funded health programs may not be adjusted more than once annually. The costs to the Company to provide the computer software, legal services, training and certain other items required of it by the M&S Agreement to develop an Integrated Medical Center not connected with a strategic alliance have averaged $30,000, which consists of approximately $10,000 in cash and approximately $20,000 (out of a possible $40,000) in the form of a loan. The loan may used for items such as professional salaries, computer hardware, signage and insurance. The loan is evidenced by a promissory note, bears interest at the rate of 10% per annum, is secured by the assets of the Integrated Medical Center, is guaranteed by the Affiliated Chiropractor pursuant to a separate guaranty agreement, and is payable within five years. In addition, the Company may make other advances to the Integrated Medical Center from time to time for working capital purposes. If the Company were to make such an advance, it would bear interest at the rate of 10% per annum and be secured by such collateral as the Company in its discretion deemed appropriate. The Company expects that the M&S Agreement for an Integrated Medical Center developed in connection with a 38 40 strategic alliance would require the Company to bear development costs which the Company believes will approximate $150,000. The M&S Agreements are for terms of 35 years and may be terminated by the Company or by the Integrated Medical Center for a material breach by the other party that remains uncorrected for more than ten days after notification or for the dissolution, bankruptcy or insolvency of the other party. In addition, the Company may terminate the M&S Agreement if the Integrated Medical Center fails to meet material standards of managed care payors. Termination does not relieve either party for any indebtedness incurred before the date of termination. The M&S Agreements require that the Company enter into a separate management agreement with the Admincorp pursuant to which the Admincorp assumes responsibility for day-to-day administration of the Integrated Medical Center. Integrated Medical Center Management and Security Agreement Under the IMCM&S Agreement, the Company provides the training, software and services required to integrate the Integrated Medical Center after the Affiliated Chiropractor successfully completes the credentialing process and information regarding the existing chiropractic practice is verified. Typically, such credentialing occurs and such services are provided within 120 days after execution of the IMCM&S Agreement. The Admincorp agrees to provide such services as may be necessary or appropriate to satisfy the daily operational, practice development, and administrative requirements of the Integrated Medical Center, including record keeping, billing and collection (using software provided by the Company), supervision of non-professional personnel, ordering of medical and non-medical supplies, maintenance of furniture, fixtures, and equipment, establishment of continuing education policies for professional personnel, local advertising, and responsibility for ensuring maintenance of all permits and licenses required to be maintained by the Integrated Medical Center and its professional personnel. These services are provided in the discretion and best judgment of the Admincorp, subject to operating protocols, procedures, reports, and disclosure requests established jointly by the Integrated Medical Center, the Company, and the Admincorp, and generally at the cost of the Admincorp. Except with respect to an Integrated Medical Center developed in connection with a strategic alliance, the Affiliated Chiropractor or the Admincorp, as the case may be, also agrees to lease a specified portion of office space and equipment to the Company at fair market, proportionate use-based, value. The Company then subleases such office space and equipment to the Integrated Medical Center at fair market, proportionate use-based, value. In the case of a strategic alliance, the other party to the strategic alliance would lease or license the space for the Integrated Medical Center to the Company, which would then sublease or sublicense the space to the Integrated Medical Center at the same rate. The Company agrees to pay the Administrator a monthly fee equal to the sum of the management fee and lease income actually paid to the Company by the Integrated Medical Center. In general, the Admincorp agrees to pay the Company a one time enrollment fee of $500 to defray the cost of credentialing and verification, an operations fee for goods and services furnished by the Company of $250 per month, a marketing and practice development fee of $200 per month, and a monthly integration fee equal to 20% (if the initial term of the IMCM&S Agreement is five years) or 15% (if the initial term is ten years) of the sum of (i) the management fee and lease income actually paid to the Company by the Integrated Medical Center and (ii) the Integrated Medical Center's expenses, until the sum reaches $500,000 in any one year, and 10% of the sum for the remainder of that year. Integration fees cover general consultations, negotiation of managed care contracts, hiring professional and non-professional employees, legal consultation and non-medical training. For Integrated Medical Centers located in Illinois or that render services to patients covered by federal or state funded health care programs (which is prohibited by the IMCM&S Agreement without the prior written consent of the Company), the integration fee is capped on a per annum basis. The initial term of the IMCM&S Agreement is for a period of either five years or ten years, and may be renewed in five year increments up to four times by mutual agreement of the parties. The Affiliated Chiropractor and the Admincorp may terminate the IMCM&S Agreement if the Company materially breaches it and does not remedy the breach within ten days after notification. The Company may terminate the IMCM&S Agreement for a variety of reasons, including without limitation a material breach by the Admincorp that remains uncorrected for more than ten days after notification, misuse by the Admincorp of 39 41 funds received by or on behalf of the Company or the Integrated Medical Center, the dissolution, bankruptcy, or insolvency of the Admincorp or the death of the Affiliated Chiropractor, and the failure by the Admincorp or the Affiliated Chiropractor to meet material standards of managed care payors. Termination does not relieve any party for any indebtedness incurred before the date of termination. Upon termination, the Company is to pay the Admincorp an amount equal to 80% of the Integrated Medical Center's accounts receivable less any amount owed by the Admincorp to the Company or the Integrated Medical Center. Employment Agreements With Affiliated Chiropractors The IMCM&S Agreement requires the Affiliated Chiropractor to enter into an employment agreement with the Integrated Medical Center pursuant to which he or she agrees to work as a licensed chiropractor for a mutually agreed upon salary. The initial term of the employment agreement is five years. It renews automatically if the IMCM&S Agreement is renewed and terminates automatically if the IMCM&S Agreement is terminated. The Affiliated Chiropractor may terminate the employment agreement if the Integrated Medical Center materially breaches it and does not remedy the breach within ten days after notification. The Integrated Medical Center may terminate the employment agreement for a variety of reasons, including without limitation a material breach by the Affiliated Chiropractor that remains uncorrected for more than ten days after notification, misuse by the Affiliated Chiropractor of funds received by or on behalf of the Company or the Integrated Medical Center, the death, disability, or incapacity of the Affiliated Chiropractor, the failure by the Affiliated Chiropractor to meet material standards of managed care payors, or for "cause," defined as chronic dependency on drugs or alcohol, gross neglect or gross misconduct, disqualification or revocation of license to practice chiropractic, and inability to obtain malpractice insurance in amounts and with carriers acceptable to the Integrated Medical Center. The Affiliated Chiropractor agrees to maintain in confidence certain information regarding the Integrated Medical Center. Employment Agreements With Other Health Care Practitioners The Integrated Medical Centers enter into employment agreements with all licensed health care practitioners employed by the Integrated Medical Centers. Typically, the agreements provide that the practitioners retain independent discretion and exercise independent judgment concerning the treatment of patients and that the Integrated Medical Center is responsible for the nonhealth care aspects of the practice, including provision of malpractice insurance. The practitioner and the Integrated Medical Center agree upon a salary and benefits. The term of the agreement is one year, with the first 120 days being a probationary period during which the Integrated Medical Center may terminate it for any reason. After the probationary period, the Integrated Medical Center may terminate the agreement if the practitioner becomes disabled or for "cause," defined as including without limitation chronic dependency on drugs or alcohol, gross neglect or gross misconduct, disqualification or revocation of license to practice the applicable profession, inability to obtain malpractice insurance in amounts and with carriers acceptable to the Integrated Medical Center, a material adverse change in the business or economic prospects of the Integrated Medical Center as determined solely by the Integrated Medical Center, and cessation of the Integrated Medical Center's business. In addition, either party may terminate the agreement by giving 60 days prior written notice to the other party. The agreement provides that the practitioner will not compete with or solicit patients of the Integrated Medical Center for one year after termination of the agreement. Formation of Integrated Medical Centers The Integrated Medical Center is formed as a general business corporation wholly-owned by the Company in states (such as Florida and Virginia) in which general business corporations are permitted to own medical practices. The Integrated Medical Center is formed as a professional corporation owned by one or more medical doctors (each a "Qualified M.D.") licensed to practice medicine under applicable state law, in states (such as Illinois) that prohibit the corporate practice of medicine. A Qualified M.D. may, but need not, be an employee of the Company, an Integrated Medical Center, and/or an affiliate of the Company. A qualified M.D. of a professional corporation that treats patients covered by a federal or state funded health care program, may not, however, refer patients to, influence the referral of patients to, or furnish medical 40 42 services on behalf of any Integrated Medical Center. A Qualified M.D. may own stock in more than one Integrated Medical Center formed as a professional corporation. Each Qualified M.D. enters into an agreement giving the Company the right to direct the transfer of his or her stock in the Integrated Medical Center to another Qualified M.D. in the Company's discretion, as well as a pre-signed resignation as a director and officer of the professional corporation. See "Certain Transactions." Qualified M.D.'s are paid fees by the Integrated Medical Centers for serving as officers or directors thereof. Qualified M.D.'s are also indemnified in their role as such by the Company. GOVERNMENT REGULATION Various state and federal laws regulate the relationship between providers of health care services and physicians, and, as a business in the health care industry, the Company is subject to these laws and regulations. The Company is also subject to laws and regulations relating to business corporations in general. Although many aspects of the Company's business operations have not been the subject of state or federal regulatory interpretation, the Company believes its operations are in material compliance with applicable laws. There can be no assurance, however, that a review of the business practices of the Company or its Integrated Medical Centers by courts or regulatory authorities would not result in a determination that could adversely affect the operations of the Company or the Integrated Medical Centers, or that the health care regulatory environment will not change so as to restrict the Company's operations or its ability to expand them. See "Risk Factors." Licensure. Every state imposes licensing requirements on individual physicians and on certain other types of health care providers and facilities. Many states require regulatory approval, including licenses to render care or certificates of need, before establishing certain types of heath care facilities or offering services which entail the acquisition of expensive medical equipment. While the performance of management services on behalf of a medical practice does not currently require any regulatory approval, there can be no assurance that such activities will not be subject to licensure in the future. Corporate Practice of Medicine. The laws of many states prohibit business corporations from engaging in the practice of medicine, such as through employment arrangements with physicians. These laws vary from state to state and are enforced by the state courts and regulatory authorities with broad discretion. The Company will not employ physicians to practice medicine, will not represent to the public that it offers medical services, and will not control or interfere with the practice of medicine by physicians in the Integrated Medical Centers. Integrated Medical Centers in states that prohibit the corporate practice of medicine will be organized as professional corporations or other entities that are specifically authorized to employ physicians. Accordingly, the Company believes that its current and intended operations do not and will not violate applicable state laws regulating the unlicensed practice of medicine by a business corporation. However, because the laws governing the corporate practice of medicine vary from state to state, any expansion of the operations of the Company to a state with strict corporate practice of medicine laws may require the Company to modify its operations with respect to one or more of such practices, which may result in increased financial risk to the Company. Further, there can be no assurance that the Company's arrangements will not be successfully challenged as constituting the unauthorized practice of medicine or that certain provisions of the management services agreements or covenants not to compete will be enforceable. See "Risk Factors -- State Laws Regarding Prohibition of Corporate Practice of Medicine." Fee-Splitting Prohibitions. The laws of some states (including Illinois) prohibit physicians from splitting professional fees. These statutes are sometimes quite broad and as a result prohibit otherwise legitimate business arrangements. Florida, for example, prohibits only fee-splitting arrangements that are based on referrals. Penalties for violating these fee-splitting statutes or regulations may include revocation, suspension, or probation of a physician's license, or other disciplinary action, as well as monetary penalties. Alleged violations of the fee-splitting laws have also been used successfully by physicians to declare a contract to be void as against public policy. Pursuant to the terms of the management agreements with the Integrated Medical Centers, the Company will receive a management fee based upon a fair market value of its services. See "-- Agreements With 41 43 Affiliated Chiropractors and Other Licensed Practitioners." While the Company believes that its compensation arrangements comply with state fee-splitting laws, there can be no assurance that these compensation arrangements will not be construed by state or judicial authorities as being proscribed by the fee-splitting laws. State Anti-kickback and Self-Referral Laws. A number of states in which the Company conducts business or plans to conduct business (including Florida, Illinois and Maryland) have enacted laws that prohibit the payment for referrals and other types of kickback arrangements. Such state laws typically apply to all patients regardless of their insurance coverage. In addition, a number of states (including Florida, Illinois and Maryland) have enacted laws which to varying degrees prohibit physician self-referrals. Illinois, for example, has a broad self-referral law which regulates all health care workers (including physicians), regardless of the patient's source of payment. Subject to certain limited exceptions, the Illinois law prohibits referrals for health services provided by or through licensed health care workers to an entity outside the health care worker's office or group practice in which the health care worker is an investor, unless the health care worker directly provides health services within the entity and will be personally involved with the provision of care to the referred patient. In April 1992, the State of Florida enacted a Patient Self-Referral Act that severely restricts patient referrals for certain services, prohibits markups of certain procedures and requires health care providers to disclose ownership in businesses to which patients are referred. The Company believes it is likely that more states will adopt similar legislation. The Company believes that its operations comply with current statutory provisions, although there can be no assurance that state anti-kickback and self-referral laws will not be interpreted more broadly or amended in the future to be more expansive. In addition, expansion of the operations of the Company to certain jurisdictions may require it to comply with such jurisdictions' regulations, which could lead to structural and organizational modifications of the Company's form of relationships with managed practices. Such changes, if any, could have an adverse effect on the Company. State Regulation of Insurance Business and HMOs. Laws in all states regulate the business of insurance and the operation of health maintenance organizations, or HMOs. Many states also regulate the establishment and operation of networks of health care providers. Many state insurance commissioners have interpreted their states' insurance statutes to prohibit entities from entering into risk-based managed care contracts unless there is an entity licensed to engage in the business of insurance, such as an HMO, in the chain of contracts. An entity not licensed to engage in the business of insurance that contracts directly with a self-insured employer in such a state may be deemed to be engaged in the unlicensed business of insurance. While these laws do not generally apply to the hiring and contracting of physicians by other health care providers, there can be no assurance that regulatory authorities of the states in which the Company operates would not apply these laws to require licensure of the Company's operations as an insurer, as an HMO, or as a provider network. The Company believes that it is in compliance with these laws in the states in which it does business, but there can be no assurance that future interpretations of insurance and health care network laws by regulatory authorities in these states or in the states into which the Company may expand will not require licensure or a restructuring of some or all of the Company's operations. Federal Medicare and Medicaid Related Regulation. There are a number of federal laws prohibiting certain activities and arrangements relating to services or items which are reimbursable by federal or state funded health care programs. Certain provisions of the Social Security Act, commonly referred to as the "Anti-kickback Amendments," prohibit the offer, payment, solicitation or receipt of any form of remuneration either in return for the referral of federal or state health care reimbursement program patients or patient care opportunities, or in return for the recommendation, arrangement, purchase, lease or order of items or services that are covered by such federal or state health care funded programs. The Anti-kickback Amendments are broad in scope and have been broadly interpreted by courts in many jurisdictions. Read literally, the statute places at risk many otherwise legitimate business arrangements, potentially subjecting such arrangements to lengthy, expensive investigations and prosecutions initiated by federal and state governmental officials. In July 1991, in part to address concerns regarding the Anti-kickback Amendments, the federal government published regulations that provide exceptions, or "safe harbors," for certain transactions that will be deemed not to violate the Anti-kickback Amendments. Among the safe harbors included in the regulations were provisions relating to the sale of physician practices, management and personal services agreements, and 42 44 employee relationships. Additional proposed safe harbors were published in September 1993 offering protections under the Anti-kickback Amendments to eight new activities, including referrals within group practices consisting of active investors. Proposed amendments to clarify these safe harbors were published in July 1994 which, if adopted, would cause substantive retroactive changes to the 1991 regulations. Violation of the Anti-kickback Amendments is a felony, punishable by substantial civil fines and imprisonment for up to five years. In addition, the Department of Health and Human Services may impose civil penalties excluding violators from participation in federal or state funded health care reimbursement programs. Although the Company believes that its current operations are not in violation of the Anti-kickback Amendments, there can be no assurance that regulatory authorities will not determine that the Company's operations are in violation of the Anti-kickback Amendments. Significant prohibitions against physician self-referrals for services covered by Medicare and Medicaid programs were enacted, subject to certain exceptions, by Congress in the Omnibus Budget Reconciliation Act of 1993. These prohibitions, commonly known as "Stark II," amended prior physician self-referral legislation known as "Stark I" (which applied only to clinical laboratory referrals) by significantly enlarging the list of services and investment interests to which the referral prohibitions apply. Effective January 1, 1995 and subject to certain exceptions, Stark II prohibits a physician or a member of his immediate family from referring Medicare or Medicaid patients to any entity providing "designated health services" in which the physician has an ownership or investment interest, or with which the physician has entered into a compensation arrangement. The designated health services include the provision of clinical laboratory services, radiology services, including magnetic resonance imaging, computerized axial tarrography scans and ultrasound services, radiation therapy services, physical and occupational therapy services, durable medical equipment, parenteral and enteral nutrients, equipment and supplies, orthotics and prosthetic devices and supplies, outpatient prescription drugs, home health services and inpatient and outpatient hospital services. The Integrated Medical Centers do not provide any of these services as of the date of this Prospectus, although they may do so in the future. The penalties for violating Stark II include a prohibition on Medicaid and Medicare reimbursement and civil penalties of as much as $15,000 for each violative referral and $100,000 for participation in a "circumvention scheme." A physician's ownership of publicly traded securities of a corporation with equity exceeding $75 million as of the end of its most recent fiscal year is not deemed to constitute an ownership or investment interest in that corporation under Stark II. The Company will not issue options under its 1996 Restricted Stock Option Plan for Health Care Professionals until such time that it meets the $75 million safe harbor requirement. See "Management -- Stock Option Plans." The Company believes that its operations and those of the Integrated Medical Centers currently are not in violation of Stark I or Stark II; however, the Stark legislation is broad and ambiguous. Interpretative regulations clarifying the provisions of Stark I were issued on August 14, 1995. Stark II regulations have yet to be proposed. While the Company believes it is in compliance with the Stark legislation, future regulations could require the Company to modify the form of its relationships with the Integrated Medical Centers. Moreover, the violation of Stark I or II by any of the Integrated Medical Centers could result in significant fines and loss of reimbursement which would adversely affect the Company. COMPETITION The managed health care industry, including the provider practice management industry, is highly competitive. The Company competes with other companies for physicians and other practitioners of health care services as well as for patients. The Company competes not only with national and regional physician practice management companies, but also with local providers, many of which are trying to combine their own services with those of other providers into integrated delivery networks. Certain of the companies are significantly larger, provide a wider variety of services, have greater financial and other resources, have greater experience furnishing provider practice management services, and have longer established relationships with buyers of these services, than the Company, and provide at least some of the services provided by the Company. In addition, companies with greater resources than the Company that are not presently engaged in the provision of integrated provider practice management services could decide to enter the business and engage in activities similar to those in which the Company engages. There can be no assurance that the Company will be able to compete effectively. 43 45 EMPLOYEES As of December 9, 1996, the Company had 11 employees and eight Integrated Medical Centers had a total of 61 employees. The Company's 11 employees consist of 8 in finance and administration and 3 in sales and marketing. Neither the Company's employees nor those of the Integrated Medical Centers are represented by any labor union. The Company believes that relations with its employees are satisfactory. PROPERTIES The Company does not own any property. The Company's executive and administrative offices are located in approximately 1,350 square feet of office space in Washington, DC. The Company pays $1,350 per month rent, on a month-to-month basis. After the completion of this Offering, the Company intends to lease approximately 3,000 to 5,000 square feet of space for its executive offices in Montgomery County, Maryland. The Company has received a low interest rate loan commitment in the amount of $45,000 from the Montgomery County Economic Development Fund in order to defray its relocation costs. The loan is to bear interest at the rate of 7% per annum with a ten year amortization, with payment deferred until the end of 1997. The loan is to be secured by the Company's capital assets. The loan will be converted to a grant if the Company generates more than 50 jobs and establishes a new Integrated Medical Center in Montgomery County by the end of 1997. The loan commitment expires on January 31, 1997, however, the Company intends to seek an extension of the expiration date. PROFESSIONAL LIABILITY The Integrated Medical Centers employ health care practitioners for the delivery of health care services to the public. They are exposed to the risk of professional liability claims. The Company does not itself provide such services or control the provision of health care services by the Integrated Medical Centers' practitioners or their compliance with regulatory and other requirements in that regard. The Company might nevertheless be held liable for medical negligence on their part. The Company's management service agreements with the Integrated Medical Centers require the Integrated Medical Centers to maintain, at their expense, professional liability insurance for themselves and the licensed health care practitioners employed by or otherwise associated with them in the minimum amount of $1,000,000 for each occurrence and $3,000,000 in the aggregate, or such greater amounts as may be required by applicable state law. If an Integrated Medical Center or a licensed health care practitioner employed by or associated with it cannot obtain insurance of the type and in the amounts required by the Company, the Company will arrange for coverage through a policy maintained by the Company. In addition, the Company maintains general liability, workers' compensation and professional liability insurance. The Company's professional liability insurance is limited to $1,000,000 per occurrence and $3,000,000 in the aggregate per practitioner per policy period. The professional liability insurance is provided under a "claims-made" policy. The policy provides coverage for covered claims made during the policy's term and does not provide coverage for losses occurring during the policy's term for which a claim is made subsequent to the policy's termination. Finally, the licensed health care practitioners are required to indemnify the Integrated Medical Centers which, in turn, are required to indemnify the Company against liability and expenses for or related to professional liability claims arising out of the medical negligence of the health care practitioner. There can be no assurance, however, that the Company, its employees, or the licensed health care practitioners employed by or associated with the Integrated Medical Centers will not be subject to claims in amounts that exceed the coverage limits or that such coverage will be available when needed. Further, there can be no assurance that professional liability insurance will continue to be available to the Company in the future at adequate levels or at an acceptable cost to the Company. A successful claim against the Company in excess of the Company's insurance coverage could have a material adverse effect upon the Company's business. Claims against the Company, regardless of their merits or eventual outcome, also may have an adverse effect upon the Company. 44 46 LEGAL PROCEEDINGS There are no pending legal proceedings to which the Company or its properties is subject. A former employee has raised the possibility of instituting a legal or arbitration proceeding regarding the alleged breach by the Company of an employment agreement with the former employee. The Company believes that it has meritorious defenses against his claims, and if a proceeding is commenced, intends to vigorously defend itself. Management believes that if a legal or arbitration proceeding were instituted and decided against the Company, it would not have a material adverse effect on the Company. 45 47 MANAGEMENT DIRECTORS, EXECUTIVE OFFICERS, AND KEY EMPLOYEES The names and ages of the directors, executive officers, and key employees of the Company, and their positions with the Company, are as follows:
NAME AGE POSITION - ------------------------------ --- ------------------------------------------------------ C. Thomas McMillen(2)......... 44 Chairman of the Board, Chief Executive Officer, and Director E. Eugene Sharer(2)........... 63 President, Chief Operating Officer, and Director Danielle F. Milano, M.D....... 41 Vice President-Medical Affairs Michael T. Brigante........... 42 Vice President-Finance, Chief Financial Officer, Treasurer and Secretary Eric S. Kaplan, D.C........... 44 Senior Director of Operations and Development Robert J. Mrazek(1)........... 51 Director James T. McMillen, M.D.(1).... 51 Director Robert S. Libauer(1)(2)....... 77 Director
- --------------- (1) Member of the Audit and Compensation Committees. (2) Member of the Acquisition and Affiliation Committee. C. Thomas McMillen, the Company's founder, has been the Chairman of the Board of Directors and Chief Executive Officer since its formation in November 1994. He was also the President of the Company until April 1996. In 1993, Mr. McMillen formed McMillen and Company, Inc., a health care consulting firm, and subsequently from November 1993 through March 1994, assumed the role of Chief Administrative Officer of Clinicorp, Inc., a publicly-traded physician practice management company. Mr. McMillen was also a director of Clinicorp, Inc. from January 1993 through December 1994. Clinicorp, Inc. filed for Chapter 11 bankruptcy protection in June 1996. From 1987 to 1993, Mr. McMillen served three consecutive terms in the U.S. House of Representatives from the 4th Congressional District of Maryland. He was named by President Clinton to Co-Chair the President's Council on Physical Fitness and Sports in 1993. Mr. McMillen was a collegiate all-American basketball player at the University of Maryland and a member of the 1972 United States Olympic Basketball Team. He completed his education at Oxford University on a Rhodes Scholarship and played professional basketball for 11 years in the National Basketball Association, before becoming a Member of Congress. Mr. McMillen is currently a member of the Board of Directors of Kellstrom Industries, Inc., Commodore Applied Technologies, Inc., CHG Inc., and Orion Acquisition Corporation I (of which he is also the secretary and treasurer). Mr. McMillen is the brother of James J. McMillen, a director of the Company. E. Eugene Sharer has been President, Chief Operating Officer, and a director of the Company since April 1996. From 1990 to 1995 he was President and Chief Operating Officer of R.O.W. Sciences, Inc., a health research company. In August 1995, Mr. Sharer formed Sharer Associates, a management consulting company. From 1989 to 1990 he was Executive Vice President, Chief Operating Officer and Director of Iverson Technology Corporation and from 1985 through 1988, he was President and Director of Calculon Corporation and a Vice President of Atlantic Research Corporation, the parent company of Calculon. Between 1980 and 1985, Mr. Sharer was Vice President of the Systems Group at Computer Sciences Corporation. He currently serves as a director and member of the Executive Committee, Secretary, chair of the Membership Committee and chair of the Nominating Committee of the Suburban Maryland High Technology Council. He also serves on the Industrial and Professional Advisory Committee of the Department of Computer Science and Engineering, College of Engineering at the Pennsylvania State University. Danielle F. Milano, M.D., has been Vice President -- Medical Affairs since January 1996. From October 1994 to December 1995, she was Medical Director of Rivington House Health Care Facility in New York, New York. From October 1990 to October 1994, Dr. Milano was attending physician at New York 46 48 University School of Medicine and Director of the AIDS Clinic at Bellevue Hospital in New York, New York. She is a graduate of New York University School of Medicine, completed her residency at Lenox Hill hospital and is board certified in internal medicine. Michael T. Brigante has been Vice President -- Finance, Chief Financial Officer, Treasurer and Secretary since October 1, 1996. Mr. Brigante was a consultant to the Company from March 1996 through September 1996. He was the sole principal in an independent consulting firm from January 1995 to February 1996. In 1988 Mr. Brigante joined MAC Products, Inc., a manufacturer of electrical parts and components, and served as chief financial officer and controller until starting his own consulting firm in January 1995. From 1986 to 1988 Mr. Brigante served as senior manager of international financial systems with the SeaLand Corporation. Mr. Brigante is a certified public accountant. Eric S. Kaplan, D.C., has been Senior Director of Operations and Development since August 1996. From June 1993 to August 1996, Dr. Kaplan was president of two subsidiaries of Clinicorp, Inc., Medical Diagnostic Imaging of America and Clinicare Wellness Centers. From 1978 to June 1993, he was the founder and owner of six chiropractic, weight loss, and medical clinics in south Florida. Robert S. Libauer has been a director of the Company since June 1995. Since 1971, he has been the managing partner of Libauer and Company, a financial consulting firm. James J. McMillen, M.D., has been a director of the Company since November 1994. From 1977 to the present, Dr. McMillen has been in private medical practice in St. Joseph, Missouri. He is board certified in internal medicine. Dr. McMillen is the brother of C. Thomas McMillen. Robert J. Mrazek has been a director of the Company since January 1995. Since 1993, Mr. Mrazek has been a legislative affairs consultant. From 1983 to January 1993, he served five consecutive terms in the U.S. House of Representatives from the 3rd Congressional District of New York. COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors has established an Audit Committee, a Compensation Committee, and an Acquisition and Affiliation Committee. Audit Committee. The Audit Committee has the responsibility for reviewing and supervising the financial controls of the Company. The Audit Committee makes recommendations to the Board of Directors of the Company with respect to the Company's financial statements and the appointment of independent auditors, reviews significant audit and accounting policies and practices, meets with the Company's independent public accountants concerning, among other things, the scope of audits and reports, and reviews the performance of overall accounting and financial controls of the Company. The Audit Committee consists of Mr. Mrazek, Dr. McMillen, and Mr. Libauer. Compensation Committee. The Compensation Committee has the responsibility for reviewing the performance of the officers of the Company and recommending to the Board of Directors of the Company salary and bonus amounts for all officers of the Company, subject to the terms of existing employment agreements. The Compensation Committee also has the responsibility for oversight and administration of the Company's long-term incentive plans and other compensatory plans. The Compensation Committee consists of Mr. Mrazek, Dr. McMillen, and Mr. Libauer. Acquisition and Affiliation Committee. The Acquisition and Affiliation Committee has the responsibility for reviewing and approving affiliations or strategic alliances with chiropractors and their existing chiropractic practices, corporations, governmental entities, or other entities as well as acquisitions of other businesses. Proposed acquisitions involving the issuance of equity securities of the Company will be referred to the Board of Directors. The members of the Acquisition and Affiliation Committee are Mr. McMillen, Mr. Sharer, and Mr. Libauer. 47 49 EXECUTIVE COMPENSATION The following table sets forth information concerning the annual compensation of the Company's Chief Executive Officer for services in all capacities to the Company during the Company's last fiscal year. SUMMARY COMPENSATION TABLE
ANNUAL FISCAL COMPENSATION NAME AND PRINCIPAL POSITION YEAR SALARY - ------------------------------------------------------------------------ ------ ------------ C. Thomas McMillen...................................................... 1995 * Chief Executive Officer
- --------------- * Mr. McMillen did not receive any compensation nor was any compensation accrued for fiscal years 1994 or 1995 nor were any options granted to him. No other executive officer received compensation in excess of $100,000 during the Company's last fiscal year. DIRECTOR COMPENSATION The Company does not currently compensate, and does not anticipate compensating its directors for their services as directors, except that each of the Company's non-employee directors, after the completion of the Offering, will receive a director's fee of $500 per meeting for attendance at Board of Directors or committee meetings. In addition, each of the Company's directors receives reimbursement of all ordinary and necessary expenses incurred in attending any meeting or any committee meeting of the Board of Directors. Currently, all directors hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified. The Company's executive officers are appointed annually and serve at the direction of the Board of Directors, subject to the terms of existing employment agreements. EMPLOYMENT AGREEMENTS In July 1996, the Company entered into an employment agreement with Mr. McMillen providing for his employment, as Chairman of the Board and Chief Executive Officer, for a term expiring in March 1999. The employment agreement provides for an annual base salary for Mr. McMillen of $90,000 that shall increase to $150,000 upon the closing of the Offering. All salary payments are being accrued until the closing of the Offering and will be paid with a portion of the net proceeds of the Offering. See "Use of Proceeds." Mr. McMillen may participate in all executive benefit plans and has the use of a Company car. The agreement also provides, among other things, that if his employment is terminated without cause (as defined in the agreement), the Company will pay an amount equal to one year's base salary, payable over a one year period. In March 1996 the Company entered into an employment agreement with Mr. Sharer providing for his employment as President and Chief Operating Officer for a term expiring in March 1999. The employment agreement provides for an annual base salary for Mr. Sharer of $150,000 effective upon closing of this Offering, and for participation in all executive benefit plans, as well as an automobile allowance of $1,000 per month. Mr. Sharer was granted options to purchase 116,667 shares of the Company's Common Stock at an exercise price of $0.03 per share. On the date of such grant, 16,667 of those options were exercisable, of which 10,000 were exercised. The remaining options will vest in equal installments on April 1, 1997, April 1, 1998, and March 31, 1999. The agreement also provides, among other things, that, if his employment is terminated without cause (as defined in the agreement) the Company will pay to him an amount equal to one year's base salary, payable over a one year period. In January 1996, the Company entered into an employment agreement with Dr. Milano, providing for her employment as Vice President-Medical Affairs, for a term expiring on December 31, 1998. The employment agreement provides for an annual base salary of $120,000 beginning August 1, 1996, of which $6,000 per month will be accrued until the closing of the Offering and paid with a portion of the net proceeds of the Offering, and for participation in all executive benefit plans plus an automobile allowance of $500 per month. See "Use of Proceeds." Dr. Milano was granted options to purchase 46,667 shares of the Company's Common 48 50 Stock at an exercise price of $0.03 per share. The options have vested as to 16,667 shares and will vest as to 15,000 shares on October 1, 1997, and as to 15,000 shares on September 30, 1998. Any additional compensation Dr. Milano receives for services as a Qualified Physician (as described under "Business -- Agreements with Affiliated Chiropractors and Other Licensed Practitioners -- Formation of Integrated Medical Centers") will be offset against her base salary. See "Certain Transactions." The agreement also provides, among other things, that, if her employment is terminated without cause (as defined in the agreement), the Company will pay her an amount equal to six month's salary, payable over a six month period. In October 1996, the Company entered into an employment agreement with Mr. Brigante, providing for his employment as Vice President-Finance and Chief Financial Officer, for a term expiring on September 30, 1999. The employment agreement provides for annual base salary of $60,000 until the closing of the Offering, at which time the annual base salary is to be increased to $95,000, and for participation in all executive benefit plans plus an automobile allowance of $500 per month. Mr. Brigante was granted options to purchase 40,000 shares of the Company's Common Stock at an exercise price of $0.03 per share. The options have vested as to 13,333 shares and will vest as to 13,333 shares on each of October 1, 1997 and 1998. The agreement also provides that if his employment is terminated without cause (as defined in the agreement), the Company will pay him an amount equal to six month's base salary, payable over a six month period. Each of the employment agreements with Messrs. McMillen, Sharer, and Brigante and with Dr. Milano requires the full-time services of such employees. Mr. McMillen's employment agreement requires that he devote a minimum of 40 hours per week to his responsibilities as Chairman and Chief Executive Officer. The agreements also contain covenants restricting the employee from engaging in any activities competitive with the business of the Company during the term of such agreement and for a period of one year thereafter, and prohibiting the employee from disclosing confidential information regarding the Company. STOCK OPTION PLANS 1994 Stock Option Plan. The Company's 1994 Stock Option Plan (the "1994 Plan") was adopted by the Company's Board of Directors and approved by the shareholders of the Company in December 1994. The 1994 Plan was amended by the Board of Directors, with shareholder approval, in 1995, so as to increase the number of shares available under the 1994 Plan to 400,000 from 60,000. The purpose of the 1994 Plan is to attract and retain qualified personnel, to provide additional incentives to employees, officers, directors, consultants and advisors of the Company, and to promote the Company's business. As of the date of this Prospectus, options to purchase 351,166 shares of Common Stock at a weighted average per share exercise price of $0.60 were outstanding. A total of 11,167 shares of Common Stock are available for grant under the 1994 Plan, of which options to purchase 11,000 shares will be granted to Kats Management at an exercise price per share equal to 75% of the initial public offering price per share upon consummation of the Offering. See "Business -- Expansion Strategy." The 1994 Plan will terminate in April 2004, unless sooner terminated by the Board of Directors. The 1994 Plan provides for the grant of both incentive stock options, intended to qualify as such under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified stock options. The Board may delegate administration of the 1994 Plan to the Compensation Committee. Subject to the limitations set forth in the 1994 Plan, the Board of Directors (or the Compensation Committee) has the authority to select the persons to whom grants are to be made, to designate the number of shares to be covered by each option, to determine whether an option is to be an incentive stock option or a nonqualified stock option, to establish vesting schedules, and, subject to certain restrictions, to specify the type of consideration to be paid to the Company upon exercise and to specify other terms of the options. The maximum term of options granted under the 1994 Plan is ten years. Options granted under the 1994 Plan are non-transferable and generally expire 90 days after the termination of an optionee's service to the Company. Although no specific vesting schedule is required under the 1994 Plan, options previously granted under the 1994 Plan have generally provided for vesting in three equal annual installments. The exercise price of incentive stock options must equal at least the fair market value of the Common Stock on the date of grant, 49 51 except that the exercise price of incentive stock options granted to any person who at the time of grant owns stock possessing more than 10% of the total combined voting power of all classes of stock must be at least 110% of the fair market value of such stock on the date of grant. 1996 Stock Option Plan. In October 1996, the Board of Directors of the Company, with shareholder approval, adopted its 1996 Stock Option Plan (the "1996 Plan") covering up to 200,000 shares of the Common Stock, pursuant to which officers, directors, employees, advisors and consultants to the Company are eligible to receive incentive and/or nonqualified stock options. The 1996 Plan, which expires in September 2006, will be administrated by the Compensation Committee of the Board of Directors. The selection of participants, allotment of shares, determination of price, and other conditions relating to the grant of options will be determined by the Compensation Committee in its sole discretion. Incentive stock options granted under the 1996 Plan are exercisable for a period of up to 10 years from the date of grant at an exercise price which is not less than the fair market value of the Common Stock on the date of the grant, except that the term of an incentive stock option granted under the 1996 Plan to a shareholder owning more than 10% of the outstanding Common Stock may not exceed five years and its exercise price may not be less than 110% of the fair market value of the Common Stock on the date of the grant. Subject to the consummation of this Offering, options to purchase an aggregate of 24,000 shares, exercisable at the initial public offering price per share for a ten-year period, will be granted to all of the members of the Company's Advisory Board. See "-- Advisory Board." No other options have been granted under the 1996 Plan. 1996 Restricted Stock Option Plan for Health Care Professionals. In October 1996, the Board of Directors adopted, and the stockholders of the Company approved, the 1996 Restricted Stock Option Plan for Health Care Professionals (the "1996 Professionals Plan"), which expires in October 2006. The 1996 Professionals Plan permits the Company to grant nonqualified stock options to licensed health care professionals affiliated with the Company and in most cases employed by an Integrated Medical Center. The aggregate amount of Common Stock with respect to which options may be granted may not exceed 100,000 shares. The Board of Directors has delegated to the Compensation Committee the authority to grant options under such a plan, to construct and interpret such plan, and to make all other determinations and take all actions necessary or advisable for the administration of such plan. The exercise price for options granted under the 1996 Professionals Plan may be no less than 85% of the fair market value of the Common Stock on the date of grant. Options granted under the 1996 Professionals Plan will expire no later than the tenth anniversary of the date of grant. No options had been granted under the 1996 Professionals Plan as of the date of this Prospectus. See "Business -- Government Regulation -- Federal Medicare and Medicaid Related Regulation" for a discussion of certain regulatory constraints on the grant of options under the 1996 Professionals Plan. EXECUTIVE BONUS PLAN Effective January 1, 1996, the Company established an Executive Bonus Plan for Key Executives (the "Bonus Plan") to reward executive officers and other key employees based upon the performance of the Company and such individuals. Under the Bonus Plan, the Company has discretion to award bonuses in an aggregate amount equal to 10% of the Company's pre-tax income for a particular fiscal year (the "Bonus Fund"). The maximum amount of the Bonus Fund for any year is $5 million. Under the terms of existing employment agreements, which expire on various dates from December 31, 1998 through September 30, 1999, the Bonus Fund has been allocated as follows: 30% to Mr. McMillen, 30% to Mr. Sharer, 10% to Mr. Brigante, 10% to Dr. Milano, and 20% to Dr. Kaplan. Awards under the Bonus Fund are not exclusive of other bonuses that may be awarded by the Board of Directors or the Compensation Committee from time to time. LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION The Company has included in its Certificate of Incorporation and By-laws provisions to (i) eliminate the personal liability of its directors and officers for monetary damages resulting from breaches of their fiduciary duty (provided that such provisions do not eliminate liability for breaches of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, violations under Section 174 of the Delaware General Corporation Law, or for any transaction from which the director and/or officer derived an improper personal benefit), and (ii) indemnify its directors and officers to the fullest 50 52 extent permitted by the Delaware General Corporation Law, including circumstances in which indemnification is otherwise discretionary. The Company believes that these provisions are necessary to attract and retain qualified persons as directors and officers. The Company has not entered into indemnification agreements with any of its directors and officers with the exceptions of the Company's Vice President-Medical Affairs in her capacity as the sole stockholder, officer, and director of an Illinois professional corporation formed in connection with an Integrated Medical Center, and with the Company's President in his capacity as an officer of certain medical corporations in Florida and Virginia affiliated with the Company. The Company may in the future enter into separate indemnification agreements with its directors and officers containing provisions which may in some respects be broader than the specific indemnification provisions contained in the Company's Certificate of Incorporation and By-laws. ADVISORY BOARD Subject to the consummation of the Offering, the Company has established an Advisory Board (the "Advisory Board") initially comprised of three members with experience in the areas of scientific, clinical, and regulatory strategy and standards. The Advisory Board will meet periodically with the Company's Board of Directors and management to discuss matters relating to the Company's business activities. Members of the Advisory Board will be reimbursed by the Company for out-of-pocket expenses incurred in serving on the Advisory Board. The Company will grant to members of the Advisory Board, subject to the consummation of this Offering, options to purchase up to 24,000 shares of Common Stock at an exercise price equal to the initial public offering price per share, vesting over three years. The members of the Company's Advisory Board and their primary professional or academic affiliations are listed below. Marc S. Micozzi, M.D., Ph.D., is Chairman of the Advisory Board and Distinguished Scientist in the American Registry of Pathology, Inc., and the executive director of the College of Physicians of Philadelphia. From 1986 to 1995, he served as the founding Director of the National Museum of Health and Medicine in Washington, working with former Surgeon General C. Everett Koop, S.D. to develop national health education programs for health professionals and the public. Prior to 1986, Dr. Micozzi was a Senior Investigator at the National Cancer Institute, National Institutes of Health, Bethesda, Maryland. He recently authored the Fundamentals of Complementary and Alternative Medicine, a textbook for physicians and medical students that lays the foundation for a broad understanding of complementary and alternative medicine. He was the founding editor of the Journal of Alternative and Complementary Medicine. Richard A Lippin, M.D., is currently the Corporate Medical Director for ARCO Chemical Company where he is responsible for the management of occupational and environmental medical programs for ARCO Chemical Company worldwide. Dr. Lippin has served on the Board of Directors of the American College of Occupational and Environmental Medicine and currently serves on the governing council of the College of Physicians of Philadelphia. He is also a member of the faculty at Thomas Jefferson University in Philadelphia, Pennsylvania. Dr. Lippin is the founder and immediate past president of the International Arts and Medicine Association. James M. Rippe, M.D., is currently the Director of the Center for Clinical and Lifestyle Research and Associate Professor of Medicine (Cardiology) at Tufts University School of Medicine. Dr. Rippe has written over 100 publications on issues in medicine, health and fitness, and weight management. He has also written 14 books including seven medical texts and seven books on health and fitness for the general public. His recent book, Fit Over Forty, was published in May 1996. Dr. Rippe has served as a Senior Medical Advisor on corporate fitness to Johnson and Johnson Health Management. He serves as Chairman of the Advisory Board for the "Healthy Growing Up" program. Dr. Rippe is Medical and Child Development Director for the Discovery Zone and also serves as the Medical Advisor of the International Health, Racquet, and Sports Club Association and the Association of Quality Clubs. In 1989, Dr. Rippe was named Fitness Educator of the Year by the International Dance Exercise Association ("IDEA"). In 1990 he was named one of the 10 national "Healthy American Fitness Leaders" by the United States Jaycees and the President's Council on Physical Fitness and Sports. In 1992, he received a Lifetime Achievement Award from IDEA. 51 53 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Company's voting securities as of December 16, 1996, prior to the Offering, and after the Offering, assuming the automatic conversion of all outstanding shares of Series A Preferred Stock into Common Stock on the effective date of the Offering and as adjusted to reflect the sale of the Shares offered hereby by (i) each shareholder known by the Company to be the beneficial owner of more than 5% of any class of the Company's voting securities, (ii) each director of the Company and (iii) all officers and directors of the Company as a group. Except as otherwise indicated, the Company believes that the beneficial owners of the securities listed below have sole investment and voting power with respect to such securities, subject to community property laws where applicable.
NUMBER OF SHARES PERCENTAGE OF CLASS OF CLASS BENEFICIALLY OWNED BENEFICIALLY ------------------------------------- NAME OF BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING - -------------------------------------------- ---------------- ---------------- ---------------- COMMON STOCK C. Thomas McMillen(1)....................... 394,500 55.2% 21.2% 725 Independence Avenue, S.E. Washington, D.C. 20003 Robert S. Libauer(2)........................ 79,199 11.0% 4.2% 3701 Old Court Road, Unit 9 Baltimore, MD 21208 Danielle F. Milano, M.D.(3)................. 22,667 3.1% 1.2% 725 Independence Avenue, S.E. Washington, D.C. 20003 Robert J. Mrazek(4)......................... 16,500 2.3% * 301 Constitution Ave., N.E. Washington, D.C. 20002 E. Eugene Sharer(5)......................... 16,667 2.3% * 725 Independence Avenue, S.E. Washington, D.C. 20003 Michael T. Brigante(6)...................... 13,333 1.8% * 725 Independence Avenue, S.E. Washington, D.C. 20003 James J. McMillen, M.D.(4).................. 6,000 * * 4004 Miller Road St. Joseph, MO 64505 Reach Laboratories, Inc..................... 110,000 15.4% 5.9% 1000 NBC Center Lincoln, NE 68508 R. Michael Floyd............................ 72,866 10.2% 3.9% 5817 Ogden Court Bethesda, MD 20816 All officers and directors as a group (seven persons).................................. 526,366 69.4% 27.6% PREFERRED STOCK Zev E. Kaplan............................... 500 37.0% -- 3012 W. Charleston Boulevard Suite 140 Las Vegas, NV 89102 Joel Babbit................................. 300 22.2% -- 3350 Peachtree Road Suite 1550 Atlanta, GA 30324
52 54
NUMBER OF SHARES OF CLASS PERCENTAGE OF CLASS BENEFICIALLY BENEFICIALLY OWNED NAME OF BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING ------- ----- Peter G. Kelly.............................. 250 18.5% -- 211 North Union Street Suite 300 Alexandria, VA 22314 George C. Finley............................ 100 7.4% -- 95 Glastonbury Boulevard Glastonbury, CT 06033 Pamela H. Shriver........................... 100 7.4% -- 2510 Stone Mill Road Baltimore, MD 21208
- --------------- * Percentage ownership is less than 1% (1) Includes 34,500 shares as to which Mr. McMillen has sole voting power until December 31, 2000, pursuant to irrevocable proxies from four other holders of Common Stock. See "Certain Transactions." (2) Includes 6,333 shares subject to warrants currently exercisable. (3) Includes 16,667 shares subject to stock options currently exercisable. Excludes 3,333 shares subject to warrants that are currently exercisable and owned by Dr. Milano's father, as to which she disclaims beneficial interest. (4) Mr. Mrazek and Dr. McMillen have each given Mr. McMillen an irrevocable proxy to vote their respective shares until December 31, 2000. See "Certain Transactions." (5) Includes 6,667 shares subject to stock options currently exercisable. (6) Includes 13,333 shares subject to stock options currently exercisable. 53 55 SELLING SECURITY HOLDERS The registration statement, of which this Prospectus forms a part, also relates to the registration by the Company, for the account of the Selling Security Holders, of an aggregate of (i) 157,142 shares of Common Stock (assuming an initial public offering price per Share of $7.00) issuable upon exercise of the Bridge Warrants, and (ii) the Bridge Warrants. The Selling Security Holders' Securities are not being underwritten by the Representative in connection with this Offering. The Selling Security Holders have agreed with the Company not to directly or indirectly offer, sell, transfer or otherwise encumber or dispose of any of their Common Stock for a period of 90 days after the date of this Prospectus without the consent of the Representative. See "Shares Eligible for Future Sale" and "Underwriting." The sale of the Selling Security Holders' Securities by the Selling Security Holders may be effected from time to time in transactions (which may include block transactions by or for the account of the Selling Security Holders) in the over-the-counter market or in negotiated transactions, or through the writing of options on the Selling Security Holders' Securities, a combination of such methods of sale, or otherwise. Sales may be made at fixed prices which may be changed, at market prices prevailing at the time of sale, or at negotiated prices. The Selling Security Holders may effect such transactions by selling the Selling Security Holders' Securities directly to purchasers, through broker-dealers acting as agents for the Selling Security Holders, or to broker-dealers who may purchase shares as principals and thereafter sell the Selling Security Holders' Securities from time to time in the over-the-counter market, in negotiated transactions, or otherwise. Such broker-dealers, if any, may receive compensation in the form of discounts, concessions or commissions from the Selling Security Holders and/or the purchasers for whom such broker-dealers may act as agents or to whom they may sell as principals or both (which compensation as to a particular broker-dealer may be in excess of customary commissions). The Selling Security Holders and broker-dealers, if any, acting in connection with such sales, might be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act and any commission received by them and any profit upon the resale of such securities might be deemed to be underwriting discounts and commissions under the Securities Act. Sales of any shares of Common Stock by the Selling Security Holders may depress the price of the Common Stock in any market that may develop for the Common Stock. 54 56 The following table sets forth certain information with respect to Selling Security Holders for whom the Company is registering shares of Common Stock and Bridge Warrants for resale to the public. None of the Selling Security Holders has had any position with, held any office, or had any other material relationship with the Company except that Complete Management, Inc. has signed a letter of intent with the Company to develop Integrated Medical Centers in the New York City metropolitan area and Jason Elkin is a consultant to the Company. See "Business -- Expansion Strategy" and "Certain Transactions."
AMOUNT OF AMOUNT OF AMOUNT OF SECURITIES SECURITIES BEING SECURITIES OWNED NAME OWNED(1) REGISTERED AFTER OFFERING(2) - --------------------------------------------------- --------- ---------------- ----------------- Complete Management, Inc. Common Stock..................................... 57,142 57,142 -0- Bridge Warrants.................................. 57,142 57,142 -0- Jason Elkin(3) Common Stock..................................... 21,429 21,249 -0- Bridge Warrants.................................. 21,429 21,249 -0- Joseph D. Gersh Common Stock..................................... 7,143 7,143 -0- Bridge Warrants.................................. 7,143 7,143 -0- Kanter Family Foundation Common Stock..................................... 7,143 7,143 -0- Bridge Warrants.................................. 7,143 7,143 -0- Stefanie Rubin Common Stock..................................... 7,143 7,143 -0- Bridge Warrants.................................. 7,143 7,143 -0- Arthur Steinberg Common Stock..................................... 3,571 3,571 -0- Bridge Warrants.................................. 3,571 3,571 -0- Robert Steinberg Common Stock..................................... 3,571 3,571 -0- Bridge Warrants.................................. 3,571 3,571 -0- Glenn Sutton, III Common Stock..................................... 7,143 7,143 -0- Bridge Warrants.................................. 7,143 7,143 -0- Universal Partners, L.P. Common Stock..................................... 7,143 7,143 -0- Bridge Warrants.................................. 7,143 7,143 -0- Christine Wally Common Stock..................................... 7,143 7,143 -0- Bridge Warrants.................................. 7,143 7,143 -0- Winfield Capital Corporation Common Stock..................................... 28,571 28,571 -0- Bridge Warrants.................................. 28,571 28,571 -0-
- --------------- (1) Number of shares of Common Stock represents number of shares issuable upon exercise of the Bridge Warrants. (2) Assumes that all Bridge Warrants will be exercised and that all shares issuable upon such exercise will be sold. (3) Mr. Elkin also holds currently exercisable options to purchase 5,000 shares of Common Stock. 55 57 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Seven of the Company's eight Integrated Medical Centers are owned by CWC LLC. The Company is the managing member of CWC LLC and owns 1% of its membership interests. As managing member the Company receives (i) a base fee of $7,500 per month, increased by $2,000 per month for each clinic acquired and/or managed by CWC LLC in excess of two clinics, and (ii) a commission in an amount equal to 1% of the prior year's revenue of any new clinic acquired and/or managed by CWC LLC. In addition, the Company is entitled to receive 50% of any cash flow distributions after the other members of CWC LLC have received a 12% preferred cumulative non-compounded annual return. The Company, as managing member, has the authority and responsibility to make substantially all management decisions for CWC LLC. In addition, the holders of more than 50% of the CWC LLC membership interests have granted the Company an irrevocable proxy to vote their membership interests as the Company sees fit. The proxy is valid for the life of CWC LLC. As a result of these irrevocable proxies, the financial statements of the Company and CWC LLC are consolidated for financial reporting purposes. In the future, the Company does not plan to open any additional Integrated Medical Centers owned directly or indirectly by CWC LLC, nor does it plan for CWC LLC to raise any additional capital. The Company has an option to purchase all of the membership interests of CWC LLC at an exercise price in an amount such that the other members would receive a 12% preferred, cumulative, non-compounded, annual return plus a multiple of their capital contributions ranging from 2 in the first year (1997) to 4 in the seventh year (2003), after taking into account any previously returned capital contribution and preferred cumulative return. The exercise price is payable to the members within 120 days of the Company's exercise of the option. The price may be paid, at the Company's election, either in cash, or, if any class of the Company's securities is publicly traded, 75% in cash and 25% in securities of that class valued at their initial public offering price. If securities constitute part of the exercise price, the securities will not be registered under the Securities Act or applicable state securities laws. CWC LLC has outstanding 13.3 Class A Units (membership interests other than that of the managing member). The following officers and directors of the Company or members of their immediate family hold the following interests in CWC LLC: a trust for the benefit of Wilma Sharer, the spouse of the Company's President and Chief Operating Officer, holds two Class A Units; Danielle Milano, the Company's Vice President-Medical Affairs, holds 1/5 of one Class A Unit; Jill Brigante, as custodian for Virginia Brigante and Jacqueline Brigante, the minor children of Michael Brigante, the Company's Vice President-Finance and Chief Financial Officer, holds 1/5 of one Class A Unit and 11/50 of one Class A Unit, respectively; and Robert Libauer, a director of the Company, holds 2 19/50 Class A Units. Each such person granted to the Company an irrevocable proxy to vote such person's respective ownership interest in CWC LLC. In August 1996, the Company entered into a consulting agreement with J.E.M., Inc. ("JEM"), the sole stockholders of which are Dr. Kaplan, the Company's Senior Director of Operations and Development, and his wife. Under the terms of the consulting agreement, JEM agreed to provide advice and assistance to the Company in connection with identifying and affiliating with chiropractors and their existing chiropractic practices and identifying, acquiring, and/or managing businesses engaged in providing services ancillary to those provided by Integrated Medical Centers. The Company agreed to pay JEM $6,000 per month for its services. The term of the consulting agreement expires in August 1999 and may be terminated sooner by mutual agreement of the parties, by the Company for "cause," defined as a violation by JEM of any material provision of the consulting agreement not remedied within 30 days after notification or JEM's conviction of a felony, upon termination of the employment agreement between Dr. Kaplan and the Company, or JEM's failure to meet certain performance goals. The Company, Mr. McMillen, Dr. McMillen, Mr. Mrazek, two other holders of Common Stock and all holders of Series A Preferred Stock are parties to a certain Stockholders' Agreement dated March 20, 1995 (the "Stockholders' Agreement"), pursuant to which such stockholders agreed to various restrictions on their ability to transfer the shares of Common Stock or Series A Preferred Stock owned by them, among other things. The holders of the Series A Preferred Stock, voting together as a class, were given the right to elect one director to the Company's Board of Directors. The holders of the Series A Preferred Stock have not 56 58 exercised this right to date. In addition, the holders of both the Series A Preferred Stock and the holders of Common Stock who are parties to the Stockholders' Agreement were given the preemptive right to purchase a pro rata portion of any issuance of equity securities of the Company other than issuances pursuant to the exercise of options granted under the 1994 Plan. The preemptive rights do not apply to any public offering of equity securities pursuant to a registration statement filed with the Commission, and expire in such event. All such holders have waived their preemptive rights for each issuance of equity securities by the Company prior to the date of this Prospectus other than pursuant to the exercise of stock options. The Stockholders' Agreement is to expire on March 20, 2015 or upon the earlier voluntary written agreement of the Company and such stockholders. The Company believes that the parties to the Stockholders' Agreement will agree to terminate it upon the consummation of this Offering. Dr. Milano is a "Qualified M.D." and serves as an officer, director, and the sole stockholder of an Integrated Medical Center in Illinois, Complete Wellness Medical Center of East Main Street, Carbondale, P.C. ("CWC Carbondale"). See "Business -- Agreements With Affiliated Chiropractors and Other Licensed Practitioners -- Formation of Integrated Medical Centers." In October 1996, Dr. Milano, CWC Carbondale, and the Company entered into a Stock Transfer Agreement (the "Stock Transfer Agreement") pursuant to which (i) Dr. Milano agreed not to sell, encumber, or otherwise transfer the shares of stock in CWC Carbondale owned by her without the written consent of CWC Carbondale and the Company and (ii) the Company has the right to direct the transfer of all or part of such shares to such transferee as it may designate for the sum of ten dollars, provided that the transferee is licensed to practice medicine in the State of Illinois. In order to facilitate the transfer, the Stock Transfer Agreement required the contemporaneous execution by Dr. Milano of a stock transfer assignment, a resignation as an officer and director of CWC Carbondale, and an Agreement for Sale of Business by Transfer of Capital Stock under which Dr. Milano agreed to transfer her shares in CWC Carbondale for the sum of ten dollars to a transferee to be designated by the Company for this purpose. In accordance with the Stock Transfer Agreement, the Company holds the stock transfer assignment, the resignation, and the Agreement for Sale of Business by Transfer of Capital Stock in escrow. Additionally, the Stock Transfer Agreement prohibits Dr. Milano, without prior written consent of CWC Carbondale and the Company, from amending the charter or bylaws of CWC Carbondale, agreeing to the merger or consolidation of CWC Carbondale with or into another corporation, dissolving or liquidating CWC Carbondale, authorizing the issuance of any additional shares of stock of CWC Carbondale, or approving any contract with Dr. Milano herself, members of her family, or related parties. The Company and Dr. Milano also entered into an indemnification agreement pursuant to which the Company agreed to indemnify her from and against claims made against her in her capacity as an officer or director of CWC Carbondale. See "Management -- Limitation of Directors' and Officers' Liability and Indemnification." As of the date of this Prospectus, the Company has advanced approximately $37,000 to Mr. McMillen without interest. Mr. McMillen has agreed to repay such amount upon consummation of the Offering. Dr. McMillen, Mr. Mrazek, and two other individuals have each given Mr. McMillen a proxy to vote on their behalf all of the shares of Common Stock owned by them. Each proxy is irrevocable and valid until December 31, 2000. See "Principal Stockholders." The Company believes that all prior transactions between the Company, its officers, directors or other affiliates of the Company have been on terms no less favorable than could have been obtained from unaffiliated third parties. Any future transactions with officers, directors, 5% stockholders or affiliates must be for valid business reasons, be on terms no less favorable to the Company than could be obtained from unaffiliated third parties, and be approved by a majority of the independent outside members of the Company's Board of Directors who do not have an interest in the transaction. 57 59 DESCRIPTION OF SECURITIES GENERAL The Company is authorized by its Certificate of Incorporation to issue an aggregate of 10,000,000 shares of Common Stock, par value $.0001665 per share, and 2,000,000 shares of preferred stock, par value $.01 per share (the "Preferred Stock"), of which 1,500 shares are designated as the Series A Preferred Stock. As of September 30, 1996, 714,967 shares of Common Stock were outstanding and held of record by nine stockholders, and 1,350 shares of Series A Preferred Stock were outstanding and held of record by seven stockholders. Upon consummation of this Offering, the outstanding shares of Series A Preferred Stock will automatically convert into 145,800 shares of Common Stock, and an aggregate of 1,860,767 shares of Common Stock will be outstanding. COMMON STOCK Holders of the Common Stock are entitled to one vote per share and, subject to the rights of the holders of the Preferred Stock, to receive dividends when and as declared by the Board of Directors, and to share ratably in the assets of the Company legally available for distribution in the event of the liquidation, dissolution or winding up of the Company. Holders of the Common Stock do not have subscription, redemption or conversion rights, nor do they have any preemptive rights other than holders of Common Stock who are parties to the Stockholders' Agreement, as and to the extent provided in the Stockholders' Agreement. See "Certain Transactions." In the event the Company were to elect to sell additional shares of its Common Stock following this Offering, investors in this Offering would have no prior right to purchase such additional shares. As a result, their percentage equity interest in the Company would be diluted. The shares of Common Stock offered hereby will be, when issued and paid for, fully paid and not liable for further call or assessment. Holders of the Common Stock do not have cumulative voting rights, which means that the holders of more than half of the outstanding shares of Common Stock (subject to the rights of the holders of the Preferred Stock) can elect all of the Company's directors, if they choose to do so. In such event, the holders of the remaining shares of Common Stock would not be able to elect any directors. The Board is empowered to fill any vacancies on the Board. Except as otherwise required by Delaware Law, and subject to the rights of the holders of Preferred Stock, all stockholder action is taken by vote of a majority of the outstanding shares of Common Stock voting as a single class present at a meeting of stockholders at which a quorum (consisting of a majority of the outstanding shares of the Common Stock) is present in person or by proxy. PREFERRED STOCK Preferred Stock may be issued in one or more series and having such rights, privileges and limitations, including voting rights, conversion privileges and/or redemption rights, as may, from time to time, be determined by the Board of Directors of the Company. Preferred Stock may be issued in the future in connection with acquisitions, financings or such other matters as the Board of Directors deems to be appropriate. In the event that any such shares of Preferred Stock are to be issued, a Certificate of Designation, setting forth the series of such Preferred Stock and the relative rights, privileges and limitations with respect thereto, shall be filed with the Secretary of State of the State of Delaware. The effect of such Preferred Stock is that the Company's Board of Directors alone, within the bounds and subject to the federal securities laws and Delaware law, may be able to authorize the issuance of Preferred Stock which could have the effect of delaying, deferring or preventing a change in control of the Company without further action by the stockholders and may adversely affect the voting and other rights of holders of Common Stock. The issuance of Preferred Stock with voting and conversion rights may also adversely affect the voting power of the holders of Common Stock, including the loss of voting control to others. The Company has designated 1,500 shares as Series A Preferred Stock and has issued 1,350 shares of these shares. The holders who purchased 1,350 shares of the Series A Preferred Stock and whose shares will convert into 145,800 shares Common Stock upon this Offering, have certain piggyback registration rights. Accordingly, if the Company proposes to register any of its securities, either for its own account or for the 58 60 account of other stockholders, the Company is required to notify such holders and to include in such registration all of the 145,800 shares of Common Stock requested to be included by them, subject to the discretion of the managing underwriter. The holders of Series A Preferred Stock have agreed that they will not seek to register any of their securities as part of this Offering. In addition, such holders have entered into lock-up agreements with the Representative. See "Shares Eligible for Future Sale" and "Underwriting". WARRANTS The following is a summary of certain provisions of the Warrants, but such summary does not purport to be complete and is qualified in all respects by reference to the actual text of the Warrant Agreement between the Company and American Stock Transfer & Trust Company (the "Warrant Agent"). A copy of the Warrant Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. See "Additional Information." Exercise Price and Terms. Each Warrant entitles the registered holder thereof to purchase, at any time, one share of Common Stock at a price of $ per share [120% of the initial public offering price per share of Common Stock], subject to adjustment in accordance with the anti-dilution and other provisions referred to below, at any time commencing , 1997 [six months after the date of this Prospectus] until , 2002 [five years after the date of this Prospectus]. The holder of any Warrant may exercise such Warrant by surrendering the certificate representing the Warrant to the Warrant Agent, with the subscription form thereon properly completed and executed, together with payment of the exercise price. No fractional shares will be issued upon the exercise of the Warrants. Adjustments. The exercise price and the number of shares of Common Stock purchasable upon the exercise of the Warrants are subject to adjustment upon the occurrence of certain events, including stock dividends, stock splits, combinations or reclassifications of the Common Stock, or sale by the Company of shares of its Common Stock or other securities convertible into Common Stock (exclusive of options and shares under the 1994 Plan, 1996 Plan and 1996 Professionals Plan, and other limited exceptions) at a price below the then applicable exercise price of the Warrants. Additionally, an adjustment would be made in the case of a reclassification or exchange of Common Stock, consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving corporation) or sale of all or substantially all of the assets of the Company, in order to enable warrant holders to acquire the kind and number of shares of stock or other securities or property receivable in such event by a holder of the number of shares of Common Stock that have been purchased upon the exercise of the Warrant. Redemption Provisions. Commencing , 1998 [18 months after the date of this Prospectus], the Warrants are subject to redemption, in whole but not in part, at $.10 per Warrant on 30 days' prior written notice, provided that the average closing bid price of the Common Stock as reported on Nasdaq equals or exceeds $ per share [160% of the initial public offering price] (subject to adjustment for stock dividends, stock splits, combinations or reclassifications of the Common Stock), for any 20 trading days within a period of 30 consecutive trading days ending on the fifth trading day prior to the date of the notice of redemption. In the event the Company exercises the right to redeem the Warrants, such Warrants will be exercisable until the close of business on the business day immediately preceding the date for redemption fixed in such notice. If any Warrant called for redemption is not exercised by such time, it will cease to be exercisable and the holder will be entitled only to the redemption price. Transfer, Exchange and Exercise. The Warrants are in registered form and may be presented to the Warrant Agent for transfer, exchange or exercise at any time (or commencing six months from the date of this Prospectus with respect to exercise) on or prior to their expiration date five years from the date of this Prospectus, at which time the Warrants become wholly void and of no value. If a market for the Warrants develops, the holder may sell the Warrants instead of exercising them. There can be no assurance, however, that a market for the Warrants will develop or continue. Modification of Warrants. The Company and the Warrant Agent may make such modifications to the Warrants as they deem necessary and desirable that do not adversely affect the interests of the Warrant holders. The Company may, in its sole discretion, lower the exercise price of the Warrants for a period of not 59 61 less than 30 days on not less than 30 days' prior written notice to the Warrant holders and the Representative. Modification of the number of securities purchasable upon the exercise of any Warrant, the exercise price and the expiration date with respect to any Warrant requires the consent of two-thirds of the warrant holders. No other modifications may be made to the Warrants without the consent of two-thirds of the warrant holders. The Warrants are not exercisable unless, at the time of the exercise, the Company has a current prospectus covering the shares of Common Stock issuable upon exercise of the Warrants, and such shares have been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the exercising holder of the Warrants. Although the Company will use its best efforts to have all of the shares of Common Stock issuable upon exercise of the Warrants registered or qualified on or before the exercise date and to maintain a current prospectus relating thereto until the expiration of the Warrants, there can be no assurance that it will be able to do so. The Warrants are separately transferable immediately upon issuance. Although the Securities will not knowingly be sold to purchasers in jurisdictions in which the Securities are not registered or otherwise qualified for sale, purchasers might buy Warrants in the after-market or may move to jurisdictions in which the shares underlying the Warrants are not so registered or qualified during the period that the Warrants are exercisable. In this event, the Company would be unable to issue shares to those persons desiring to exercise their Warrants, and holders of Warrants would have no choice but to attempt to sell the Warrants in a jurisdiction where such sale is permissible or allow them to expire unexercised. ANTI-TAKEOVER PROVISIONS Upon consummation of this Offering, the Company will be subject to the provisions of Section 203 of the Delaware General Corporation Law ("Section 203"). Section 203 provides, with certain exceptions, that a Delaware corporation may not engage in any of a broad range of business combinations with a person or an affiliate, or associate of such person, who is an "interested stockholder" for a period of three years from the date that such person became an interested stockholder unless: (i) the transaction resulting in a person becoming an interested stockholder, or the business combination, is approved by the Board of Directors of the corporation before the person becomes an interested stockholder; (ii) the interested stockholder acquired 85% or more of the outstanding voting stock of the corporation in the same transaction that makes such person an interested stockholder (excluding shares owned by persons who are both officers and directors of the corporation, and shares held by certain employee stock ownership plans); or (iii) on or after the date the person becomes an interested stockholder, the business combination is approved by the corporation's board of directors and by the holders of at least 66 2/3% of the corporation's outstanding voting stock at an annual or special meeting, excluding shares owned by the interested stockholder. Under Section 203, an "interested stockholder" is defined as any person who is: (i) the owner of 15% or more of the outstanding voting stock of the corporation; or (ii) an affiliate or associate of the corporation and who was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an interested stockholder. A corporation may, at its option, exclude itself from the coverage of Section 203 by amending its certificate of incorporation or bylaws, by action of its stockholders, to exempt itself from coverage, provided that such bylaw or certificate of incorporation amendment shall not become effective until 12 months after the date it is adopted. The Company has not adopted such an amendment to its Certificate of Incorporation or Bylaws. TRANSFER AGENT AND REGISTRAR AND WARRANT AGENT The Transfer Agent and Registrar for the Common Stock and the Warrant Agent for the Warrants is American Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005. 60 62 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this Offering, 1,860,767 shares of Common Stock and 1,000,000 Warrants will be outstanding. The 1,000,000 shares of Common Stock and 1,000,000 Warrants sold in the Offering (1,150,000 shares of Common Stock and 1,150,000 Warrants if the Over-allotment Option is exercised in full) will be freely tradeable without restriction or further registration under the Securities Act unless acquired by an "affiliate" of the Company (as that term is defined in the Securities Act) which securities will be subject to the resale limitations of Rule 144 under the Securities Act ("Rule 144"). In addition, the Company has agreed that the Bridge Warrants and the shares of Common Stock issuable upon exercise of the Bridge Warrants would be included in the registration statement of which this Prospectus forms a part. Assuming a price per Share of $7.00 in this Offering, a total of 157,142 shares of Common Stock will be issuable upon exercise of the Bridge Warrants. The Selling Security Holders have agreed not to, directly or indirectly, offer, sell, transfer, pledge, assign, hypothecate, or otherwise encumber or dispose of any such shares for a period of 90 days after the date of this Prospectus without the consent of the Representative. The remaining 860,767 shares of Common Stock which will be outstanding upon consummation of the Offering were issued by the Company in transactions that were exempt from the registration requirements under the Securities Act at various times from November 1994 through August 1996, and are therefore "restricted securities" within the meaning of Rule 144 ("Restricted Securities"). In general, Rule 144 allows a person who has beneficially owned Restricted Securities for at least two years, including persons who may be deemed affiliates of the Company, to sell, within any three-month period, up to the number of Restricted Securities that does not exceed the greater of (i) one percent of the Common Stock or other units of the class outstanding, and (ii) the average weekly trading volume in such securities during the four calendar weeks preceding the date on which notice of the sale is filed with the Commission. A person who is not deemed to have been an affiliate of the Company at any time during the 90 days preceding a sale and who has beneficially owned his Restricted Securities for at least three years would be entitled to sell such Restricted Securities without regard to the volume limitations described above and the other conditions of Rule 144. Notwithstanding the foregoing, each officer and director of the Company, substantially all holders of the shares of Common Stock and all holders of any options, warrants or other securities convertible, exercisable or exchangeable for shares of Common Stock have agreed not to, directly or indirectly, offer, sell, transfer, pledge, assign, hypothecate or otherwise encumber or dispose of any of the Company's securities, whether presently owned, for a period of 13 months after the date of this Prospectus without the prior written consent of the Representative (the "Lock-Up Period"). An appropriate legend shall be marked on the back of the stock certificates representing all such securities. Market sales of a substantial number of shares of Common Stock, or the availability of such shares for sale in the public market, could adversely affect prevailing market prices of the Common Stock. In addition, sales of either the Warrants or the underlying shares of Common Stock or even the existence of the Warrants, may depress the price of the Common Stock or the Redeemable Warrants in any market which may develop for such securities. Upon the termination of the Lock-Up Period, approximately 713,100 Restricted Securities will be immediately eligible for sale in the public market in reliance on Rule 144. The Commission has proposed certain amendments to Rule 144 that would reduce by one year the holding periods required for shares subject to Rule 144 to become eligible for resale in the public market. This proposal, if adopted, would increase the number of shares of Common Stock eligible for immediate resale following the expiration of the Lock-up Period. No assurance can be given as to whether or when the proposal will be adopted by the Commission. A total of 700,000 shares of Common Stock are reserved for issuance under the Company's three stock option plans. Upon completion of the Offering, options to purchase an aggregate of 144,331 shares of Common Stock will be outstanding. Each holder of options has agreed not to sell the shares issuable upon exercise of such options until the expiration of the Lock-Up Period. Upon expiration of the Lock-Up Period, options to purchase 323,550 shares will be exercisable. The Company intends to file a registration statement on Form S-8 registering all shares issuable upon exercise of options granted under the plans and, upon such registration, such shares will be eligible for resale in the public market. 61 63 UNDERWRITING The Underwriters named below (the "Underwriters"), for whom National Securities Corporation is acting as representative (in such capacity, the "Representative"), have severally agreed, subject to the terms and conditions of the Underwriting Agreement (the "Underwriting Agreement"), to purchase from the Company, and the Company has agreed to sell to the Underwriters on a firm commitment basis, the respective number of shares of Common Stock and Warrants set forth opposite their names:
NUMBER OF SHARES OF NUMBER OF UNDERWRITERS COMMON STOCK WARRANTS - ------------------------------------------------------------------- ------------ --------- National Securities Corporation.................................... ------------ --------- Total.................................................... 1,000,000 1,000,000 =========== ========
The Underwriters are committed to purchase all the shares of Common Stock and Warrants offered hereby, if any of such Securities are purchased. The Underwriting Agreement provides that the obligations of the several Underwriters are subject to conditions precedent specified therein. The Company has been advised by the Representative that the Underwriters propose initially to offer the Securities to the public at the initial public offering prices set forth on the cover page of this Prospectus and to certain dealers at such prices less concessions not in excess of $ per share of Common Stock and $ per Warrant. Such dealers may reallow a concession not in excess of $ per share of Common Stock and $ per Warrant to certain other dealers. After the commencement of the Offering, the public offering price, concession and reallowance may be changed by the Representative. The Representative has informed the Company that it does not expect sales to discretionary accounts by the Underwriters to exceed five percent of the Securities offered hereby. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Underwriters may be required to make. The Company has also agreed to pay to the Representative a non-accountable expense allowance equal to 3% of the gross proceeds derived from the sale of the Securities underwritten, of which $50,000 has been paid to date. The Company has granted to the Underwriters an Over-allotment Option, exercisable during the 45-day period from the date of this Prospectus, to purchase up to an additional 150,000 shares of Common Stock and/or an additional 150,000 Warrants at the initial public offering price per Share and per Warrant, respectively, offered hereby, less underwriting discounts and the non-accountable expense allowance. Such option may be exercised only for the purpose of covering over-allotments, if any, incurred in the sale of the Securities offered hereby. To the extent such option is exercised in whole or in part, each Underwriter will have a firm commitment, subject to certain conditions, to purchase the number of the additional Securities proportionate to its initial commitment. All officers and directors of the Company, substantially all stockholders of the Company, and all holders of any options, warrants or other securities convertible, exercisable or exchangeable for Common Stock have agreed not to offer, agree or offer to sell, sell, transfer, assign, encumber, grant an option for the purchase or sale of, pledge or otherwise dispose of any beneficial interest in such securities for a period of 13 months following the date of this Prospectus without the prior written consent of the Representative ("Lock-up Period"). An appropriate legend shall be marked on the face of certificates representing all such securities. The Selling Security Holders have agreed not to offer, agree or offer to sell, sell, transfer, assign, encumber, grant an option for the purchase or sale of, pledge or otherwise dispose of any beneficial interest in the Common Stock issuable upon exercise of the Bridge Warrants for a period of 90 days following the date of this Prospectus without the consent of the Representative. 62 64 In connection with this Offering, the Company has agreed to sell to the Representative, for nominal consideration, warrants to purchase from the Company up to 100,000 shares of Common Stock and/or up to 100,000 Warrants (the "Representative's Warrants"). The Representative's Warrants are initially exercisable at a price of $ per share [120% of the initial public offering price per share of Common Stock] and $ per Warrant [120% of the initial public offering price per Warrant] for a period of four years, commencing at the beginning of the second year after their issuance and sale. The Representative's Warrants provide for adjustment in the number of shares of Common Stock and Warrants issuable upon the exercise thereof as a result of certain subdivisions and combinations of the Common Stock. The Representative's Warrants grant to the holders thereof certain rights of registration for the securities issuable upon exercise thereof. The Underwriting Agreement provides that the Representative has a right of first refusal for a period of three years from the effective date of the Registration Statement with respect to any sale of securities by the Company or any of its present or future affiliates or subsidiaries. Prior to this Offering, there has been no public market for the Common Stock or the Warrants. Consequently, the initial public offering prices of the Common Stock and the Warrants and the exercise price of the Warrants have been determined by negotiation between the Company and the Representative and do not necessarily bear any relationship to the Company's asset value, net worth, or other established criteria of value. The factors considered in such negotiations, in addition to prevailing market conditions, included the history of and prospects for the industry in which the Company competes, an assessment of the Company's management, the prospects of the Company, its capital structure, the market for initial public offerings and certain other factors as were deemed relevant. Upon the exercise of any Warrants more than one year after the date of this Prospectus, which exercise was solicited by the Representative, and to the extent not inconsistent with the guidelines of the National Association of Securities Dealers, Inc. ("NASD") and the Rules and Regulations of the Commission, the Company has agreed to pay the Representative a commission that will not exceed 5% of the aggregate exercise price of such Warrants in connection with bona fide services provided by the Representative relating to any warrant solicitation undertaken by the Representative. In addition, the individual must designate the firm entitled to payment of such warrant solicitation fee. A warrant solicitation fee will be paid only to the Representative or another NASD member when such NASD member is specifically designated in writing as the soliciting broker. However, no compensation will be paid to the Representative in connection with the exercise of the Warrants if (a) the market price of the Common Stock is lower than the exercise price, (b) the Warrants are held in a discretionary account, or (c) the exercise of the Warrants is not solicited by the Representative . Unless granted an exemption by the Commission from Rule 10b-6 under the Exchange Act, the Representative and any soliciting broker-dealers will be prohibited from engaging in any market-making activities or solicited brokerage activities with regard to the Company's securities for the period from nine business days (or such other applicable period(s) as Rule 10b-6 may provide) prior to any solicitation of the exercise of the Warrants until the later of the termination of such solicitation activity or the termination (by waiver or otherwise) of any right that the Representative and any soliciting broker-dealers may have to receive a fee for the exercise of the Warrants following such solicitation. As a result, the Representative and any soliciting broker-dealers may be unable to continue to provide a market for the Common Stock or Warrants during certain periods while the Warrants are exercisable. If the Representative has engaged in any of the activities prohibited by Rule 10b-6 during the periods described above, the Representative has undertaken to waive unconditionally its rights to receive a commission on the exercise of such Warrants. In August 1996, the Representative acted as a non-exclusive placement agent for a portion of the Bridge Financing. The Representative received a 10% commission in the amount of $40,000. The foregoing is a summary of the principal terms of the agreements described above and does not purport to be complete. Reference is made to a copy of each such agreement which are filed as exhibits to the Registration Statement of which this Prospectus is a part. See "Additional Information." 63 65 LEGAL MATTERS The validity of the Securities offered hereby will be passed upon for the Company by Storch & Brenner, Washington, D.C. A partner of Storch & Brenner owns 8,400 shares of the Company's Common Stock. Winston & Strawn, Chicago, Illinois has served as special regulatory counsel to the Company. Orrick, Herrington & Sutcliffe LLP, New York, New York, has acted as counsel to the Underwriters in connection with this Offering. EXPERTS The consolidated financial statements of Complete Wellness Centers, Inc. as of December 31, 1995, and for the year then ended and for the period from the date of inception (November 17, 1994) through December 31, 1994, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") in Washington, D.C. a Registration Statement under the Securities Act with respect to the Securities offered hereby. This Prospectus, filed as a part of the Registration Statement, does not contain certain information set forth in or annexed as exhibits to the Registration Statement. For further information regarding the Company and the Securities offered hereby, reference is made to the Registration Statement and to the exhibits filed as a part thereof, which may be inspected at the office of the Commission without charge or copies of which may be obtained therefrom upon request to the Commission and payment of the prescribed fee. Statements contained in this Prospectus and the contents of any contract or other document are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. The Registration Statement and such exhibits and schedules may be inspected without charge at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of the Commission: New York Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048, and Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such material is also available electronically by means of the Commission's home page on the Internet at http:/www.sec.gov. 64 66 COMPLETE WELLNESS CENTERS, INC. CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM THE DATE OF INCEPTION (NOVEMBER 17, 1994) THROUGH DECEMBER 31, 1994 AND AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1995 (AUDITED) WITH REPORT OF INDEPENDENT AUDITORS, AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED) CONTENTS
PAGE ---- Report of Independent Auditors........................................................ F-2 Consolidated Financial Statements Consolidated Balance Sheets......................................................... F-3 Consolidated Statements of Operations............................................... F-4 Consolidated Statements of Stockholders' Deficit.................................... F-5 Consolidated Statements of Cash Flows............................................... F-6 Notes to Consolidated Financial Statements............................................ F-7
F-1 67 REPORT OF INDEPENDENT AUDITORS The Board of Directors Complete Wellness Centers, Inc. We have audited the accompanying consolidated balance sheet of Complete Wellness Centers, Inc. (the "Company"), as of December 31, 1995 and the related consolidated statements of operations, stockholders' deficit, and cash flows for the year then ended and for the period from the date of inception (November 17, 1994) through December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 1995 and the consolidated results of its operations and its cash flows for the year then ended and for the period from the date of inception (November 17, 1994) through December 31, 1994 in conformity with generally accepted accounting principles. Ernst & Young LLP Washington, DC July 18, 1996, except for Notes 1, 5 and 7 as to which the date is November 13, 1996 F-2 68 COMPLETE WELLNESS CENTERS, INC. CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 DECEMBER 31, ------------- 1995 ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents........................................ $ 63,834 $ 722,293 Patient receivables, net of allowance for doubtful accounts of $5,650 and $61,608......................................... 3,120 573,519 Advances to officers and other assets............................ 1,753 37,012 ---------- ----------- Total current assets............................................... 68,707 1,332,824 Furniture and equipment, net....................................... 57,324 217,088 ---------- ----------- Total assets....................................................... $ 126,031 $ 1,549,912 ========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable................................................. $ 135,925 $ 206,103 Accrued liabilities.............................................. -- 463,982 Notes payable.................................................... 730 1,100,730 ---------- ----------- Total current liabilities.......................................... 136,655 1,770,815 Convertible note payable........................................... 25,000 25,000 Minority interest.................................................. 24,543 326,793 Stockholders' deficit: Preferred Stock, $.01 par value per share, 2,000,000 shares authorized of which 1,500 are designated Series A, 12% Cumulative Convertible Preferred Stock, 1,350 shares issued and outstanding............................................... 14 14 Common Stock, $.0001665 par value per share; 10,000,000 shares authorized, 567,300 shares issued and outstanding, 714,967 shares issued and outstanding at December 31, 1995 and September 30, 1996, respectively.............................. 95 119 Additional capital............................................... 137,013 145,410 Accumulated deficit.............................................. (197,289) (718,239) ---------- ----------- Total stockholders' deficit........................................ (60,167) (572,696) ---------- ----------- Total liabilities and stockholders' deficit........................ $ 126,031 $ 1,549,912 ========== ===========
See accompanying notes. F-3 69 COMPLETE WELLNESS CENTERS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM THE DATE OF INCEPTION NINE MONTHS ENDED (NOVEMBER 17, 1994) SEPTEMBER 30, THROUGH YEAR ENDED ---------------------- DECEMBER 31, 1994 DECEMBER 31, 1995 1995 1996 ------------------- ----------------- -------- --------- (UNAUDITED) Operating revenue: Patient revenue................. $ -- $ 22,114 $ 8,618 $ 869,122 Management services income...... -- -- -- 4,160 ------- --------- -------- --------- -- 22,114 8,618 873,282 Direct expenses: Salary and consulting costs..... 1,400 93,131 59,283 249,293 Management fees................. -- 29,669 4,146 438,948 Rent............................ -- 4,501 400 160,988 Advertising and marketing....... -- 25,821 11,909 36,828 ------- --------- -------- --------- Total direct expenses............. 1,400 153,122 75,738 886,057 General and administrative........ -- 253,024 28,818 607,770 Depreciation and amortization..... -- 6,490 1,623 24,598 ------- --------- -------- --------- Operating deficit................. (1,400) (390,522) (97,561) (645,143) Interest expense.................. -- 930 13 24,229 Interest income................... -- 1,106 496 4,663 Minority interest................. -- 194,457 2,927 143,759 ------- --------- -------- --------- Net loss.......................... $(1,400) $(195,889) $(94,151) $(520,950) ======= ========= ======== ========= Pro forma net loss per share data (Unaudited -- Note 10): Net loss per common and common equivalent shares... $ (0.26) $ (0.43) Weighted average number of common and common equivalent shares outstanding................ 753,924 1,225,633
See accompanying notes. F-4 70 COMPLETE WELLNESS CENTERS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
PREFERRED STOCK COMMON STOCK --------------- ---------------- ADDITIONAL ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL ------ ------ ------- ------ ---------- ----------- --------- Date of inception (November 17, 1994)............................... -- $ -- -- $ -- $ -- $ -- $ -- Issuance of common stock............ -- -- 378,000 63 -- -- 63 Net loss............................ -- -- -- -- -- (1,400) (1,400) ----- --- ------- ---- -------- --------- --------- Balance at December 31, 1994.......... -- -- 378,000 63 -- (1,400) (1,337) Issuance of common stock............ -- -- 189,300 32 1,893 -- 1,925 Issuance of preferred stock......... 1,350 14 -- -- 134,986 -- 135,000 Recognition of the granting of below market stock options.............. -- -- -- -- 1 -- 1 Recognition of the granting of below market common stock warrants...... -- -- -- -- 133 -- 133 Net loss............................ -- -- -- -- -- (195,889) (195,889) ----- --- ------- ---- -------- --------- --------- Balance at December 31, 1995.......... 1,350 14 567,300 95 137,013 (197,289) (60,167) Issuance of common stock............ -- -- 110,000 18 -- -- 18 Exercise of stock options for shares of Complete Wellness Centers, Inc. common stock...................... -- -- 37,667 6 1,449 -- 1,455 Recognition of the granting of below market stock options.............. -- -- -- -- 4,988 -- 4,988 Recognition of the granting of below market common stock warrants...... -- -- -- -- 1,960 -- 1,960 Net loss............................ -- -- -- -- -- (520,950) (520,950) ----- --- ------- ---- -------- --------- --------- Balance at September 30, 1996 (unaudited)......................... 1,350 $ 14 714,967 $119 $145,410 $(718,239) $(572,696) ===== === ======= ==== ======== ========= =========
See accompanying notes. F-5 71 COMPLETE WELLNESS CENTERS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM DATE OF INCEPTION (NOVEMBER 17, NINE MONTHS ENDED 1994) THROUGH YEAR ENDED SEPTEMBER 30, DECEMBER 31, DECEMBER 31, ----------------------- 1994 1995 1995 1996 ------------- ------------ -------- ---------- (UNAUDITED) OPERATING ACTIVITIES Net loss.................................. $(1,400) $ (195,889) $(94,151) $ (520,950) Adjustments to reconcile net loss to net cash used in operating activities: Minority interest....................... -- (194,457) (2,927) (143,759) Depreciation and amortization........... -- 6,490 1,623 24,598 Provision for bad debts................. -- 5,650 -- 70,000 Recognition of the compensatory granting of non-qualified stock options....... -- 1 -- 4,988 Recognition of the granting of common stock warrants....................... -- 133 -- 1,960 Recognition of common stock issued for services rendered.................... -- 1,893 1,893 -- Changes in operating assets and liabilities: Patient receivables.................. -- (8,770) (6,235) (640,390) Advances to officers and other current assets..................... -- (1,753) (20,095) (35,259) Accounts payable..................... 1,337 134,588 29,713 70,178 Accrued liabilities.................. -- -- -- 463,982 ------- ---------- --------- ---------- Net cash used in operating activities..... (63) (252,114) (90,179) (704,652) INVESTING ACTIVITIES Purchase of equipment..................... -- (38,814) (26,129) (184,362) ------- ---------- --------- ---------- Net cash used in investing activities..... -- (38,814) (26,129) (184,362) FINANCING ACTIVITIES Proceeds from notes payable............... -- 39,730 -- 1,100,000 Proceeds from sale of common stock........ 63 32 32 18 Proceeds from sale of preferred stock..... -- 135,000 1,000 -- Proceeds from sale of equity in Complete Wellness Centers, LLC................... -- 219,000 169,000 446,000 Payments of notes payable................. -- (39,000) -- -- Exercise of stock options................. -- -- -- 1,455 ------- ---------- --------- ---------- Net cash provided by financing activities.............................. -- 354,762 170,032 1,547,473 ------- ---------- --------- ---------- Net increase in cash and cash equivalents............................. -- 63,834 53,724 658,459 Cash and cash equivalents at beginning of year................................. -- -- -- 63,834 ------- ---------- --------- ---------- Cash and cash equivalents at end of year.................................... $ -- $ 63,834 $ 53,724 $ 722,293 ======= ========== ========= ==========
See accompanying notes. F-6 72 COMPLETE WELLNESS CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM THE DATE OF INCEPTION (NOVEMBER 17, 1994) THROUGH DECEMBER 31, 1994 AND AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1995 (AUDITED) AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED) 1. ORGANIZATION AND BASIS OF PRESENTATION Complete Wellness Centers, Inc. (the "Company") was incorporated in Delaware in November 1994 and was in the development stage through December 31, 1994. The Company develops and operates integrated medical centers (the "Integrated Medical Centers") primarily in the States of Virginia and Florida. As of and for the year ended December 31, 1995, the Company's sole operation is the management of an Integrated Medical Center located in Virginia. The Company is the managing member of Complete Wellness Centers, LLC ("CWC, LLC") and has a 1% equity ownership interest. CWC, LLC acquired certain furniture and equipment of a chiropractic clinic for $15,000 in cash and a $25,000 note payable. The assets were used to establish an Integrated Medical Center at the same location as the previous chiropractic clinic. No working capital, patient files or employees were transferred as a result of the transaction. The Integrated Medical Center is managed by the Company. CWC, LLC was formed in Delaware in March 1995 and was capitalized through the issuance of 13.3 Class A units. The Company has an option for a seven-year period to purchase all of the units at an exercise price in an amount such that the Class A members shall receive a 12% cumulative preferred return plus a multiple of their capital contribution ranging from two in the first year to four in the seventh year. The exercise price shall be paid by the Company to the Class A members within 120 days of the Company exercising the call option and is payable either in cash or a combination of cash and, if it is publicly traded at the exercise date, stock of the Company. The Company has obtained irrevocable proxies valid for the life of CWC, LLC from the holders of a majority of the Class A units to exercise all of their voting rights. The consolidated financial statements reflect the accounts of Complete Wellness Centers, Inc. and CWC, LLC and its wholly-owned subsidiary Complete Wellness Center of Fredericksburg, Inc. Significant intercompany transactions have been eliminated. The financial statements of CWC, LLC are consolidated with the Company's financial statements because the Company has unilateral, perpetual and non-temporary control (via signed irrevocable proxies from the holders of a majority in interest of the membership interests of CWC, LLC) over the assets and business operations of CWC, LLC and, notwithstanding the lack of technical majority ownership, consolidation of CWC, LLC is necessary to present fairly the financial position and results of operations of the Company. The Company has recorded its obligation to the Class A members holding 99% of the members interest of CWC, LLC as minority interest. The Company's initial strategy was to develop approximately 25 Integrated Medical Centers through December 31, 1996. Management expected the cash flow generated from the Company's Integrated Medical Centers and the bridge loan (see Note 5) to provide sufficient working capital resources to enable the Company to implement this plan. To date the Company has developed 8 Integrated Medical Centers, is in the process of developing an additional 16 Integrated Medical Centers and now hopes to complete approximately 75 additional Integrated Medical Centers in 1997. Throughout the development period the Company has experienced continued operating losses and negative cash flows. The capital needs of continuing operations and the expected expansion will require the Company to obtain additional capital through incurring additional debt or the completion of private or public equity offerings. The Company does not currently have any committed sources of additional capital and substantially all of its assets are secured as collateral for notes issued in connection with the 1996 bridge loan. There can be no assurance that the Company will be able to F-7 73 COMPLETE WELLNESS CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1. ORGANIZATION AND BASIS OF PRESENTATION -- (CONTINUED) raise additional capital when needed on satisfactory terms or at all. If the Company is unable to secure additional sources of financing, when needed, its expansion strategy could be materially adversely affected. 2. SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Company considers cash and cash equivalents to include currency on hand, demand deposits, and all highly liquid investments with an original maturity of three months or less. FURNITURE AND EQUIPMENT Furniture and equipment are recorded at the lower of cost or net realizable value. Maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method at rates intended to amortize the cost of the related assets over their estimated useful lives. Furniture and equipment of the Company are reviewed for impairment whenever events or circumstances indicate that the asset's undiscounted expected cash flows are not sufficient to recover its carrying amount. The Company measures an impairment loss by comparing the fair value of the asset to its carrying amount. Fair value of an asset is calculated as the present value of expected future cash flows. INCOME TAXES Income taxes are provided using the liability method in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis (i.e., temporary differences). STOCK-BASED COMPENSATION The Company grants stock options for a fixed number of shares to employees. In October 1995, the FASB issued Statement No. 123, Accounting for Stock-Based Compensation, which provides an alternative to APB Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for stock-based compensation issued to employees. The Statement allows for a fair-value-based method of accounting for employee stock options and similar equity instruments and requires certain disclosure of the pro forma effect on net income and earnings per share of its fair-value-based accounting for those arrangements if the fair value method of accounting is not adopted. These disclosure requirements are effective for fiscal years beginning after December 15, 1995, or upon initial adoption of the statement, if earlier. The Company has elected to continue to account for stock-based compensation arrangements under APB Opinion No. 25 and accordingly recognizes compensation expense for the stock option grants as the difference between the fair value and the exercise price at the grant date but will provide the required pro forma disclosures in the December 31, 1996 consolidated financial statements. F-8 74 COMPLETE WELLNESS CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS Management has determined the estimated fair value of financial instruments using available market information and valuation methodologies. Cash equivalents, accounts receivable, accounts payable and accrued liabilities and other current assets and liabilities are carried at amounts which reasonably approximate their fair values. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have an effect on the estimated fair value amounts. INTERIM FINANCIAL STATEMENTS (UNAUDITED) The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. 3. ALLOWANCE FOR DOUBTFUL ACCOUNTS Details of the allowance for doubtful accounts receivable as of December 31, 1995 are as follows: Beginning balance................................................... $ -- Bad debt expense.................................................... 5,650 Accounts written off................................................ -- ------ Ending balance...................................................... $5,650 ======
4. FURNITURE AND EQUIPMENT Furniture and equipment consists of the following:
DECEMBER ASSET 31, LIVES 1995 ----- ----------- Furniture and equipment.................................. 5 $63,814 Less accumulated depreciation and amortization........... (6,490) ------- $57,324 =======
No interest was capitalized during 1995. The Company leases space of its wholly owned Integrated Medical Center (Complete Wellness Center of Fredericksburg) and its corporate office space on a month-by-month basis. 5. DEBT CONVERTIBLE NOTE PAYABLE The convertible note payable bears interest at 8% and is due July 17, 2000. Interest is payable quarterly while the principal is payable in one installment on the due date. The note is secured by a lien on the assets of Complete Wellness Centers of Fredericksburg. In the event of an initial public offering for CWC, LLC, the note, at the lendee's option, will be convertible into membership interests of CWC, LLC at the initial public offering price. F-9 75 COMPLETE WELLNESS CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. DEBT -- (CONTINUED) 1995 FINANCING In November 1995 the Company issued $39,730 of subordinated promissory notes bearing interest at 12%. In connection with the financing, the lendors have been issued detachable warrants with an exercise price of $.003333 to purchase 13,243 shares of the Company's Common Stock. Interest expense of $133 was recorded for these warrants. The Company repaid $39,000 of these notes in 1995. 1996 BRIDGE LOAN On August 15, 1996, the Company completed a private placement of $1.1 million of 12% notes. In connection with the agreement, the lendors have been issued detachable warrants with an exercise price of $0.003 to purchase 157,142 shares of Common Stock, assuming an initial public offering price of $7.00 per share (176,000 shares if the Company does not close an Initial Public Offering ("IPO") by June 30, 1997). An additional 2,857 warrants with an exercise price of $0.003 were given to an individual as consideration for assisting with the financing. Interest expense of $1,960 was recorded for those warrants through September 30, 1996. Additional interest expense of $5,880 will be recognized over the term of the loan for the warrants associated with this bridge loan. The outstanding notes bear interest at 12% and are callable on June 30, 1997 at the sole discretion of the lendors. Accrued interest is payable quarterly beginning January 1, 1997; principal is payable in one installment on the earlier of an IPO or the due date. The loan is secured by substantially all of the Company's assets. In the event of an IPO by the Company, the principal amount plus accrued interest becomes due. 6. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities recognized as of December 31, 1995 are presented below:
DECEMBER 31, 1995 ----------- Deferred tax assets: Start up costs......................................................... $ 448 Bad debt expense....................................................... 2,260 Operating loss carryforward............................................ 76,687 -------- Total deferred tax assets................................................ 79,395 Less valuation allowance................................................. (78,915) -------- Net deferred tax assets.................................................. 480 Deferred tax liabilities: Depreciation........................................................... (480) -------- Total deferred tax liabilities........................................... (480) Net deferred tax amount.................................................. $ -- ========
At December 31, 1995, the Company had net operating loss carryforwards for income tax purposes of approximately $192,000, which expire in 2010. The Company has a cumulative pretax loss for financial reporting purposes. Recognition of deferred tax assets will require generation of future taxable income. There can be no assurance that the Company will generate any earnings or any specific level of earnings in future years. Therefore, the Company established a F-10 76 COMPLETE WELLNESS CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. INCOME TAXES -- (CONTINUED) valuation allowance on deferred tax assets of $78,915 as of December 31, 1995. These carryforwards may be significantly limited under the Internal Revenue Service Code as a result of ownership changes resulting from the Company's redeemable convertible Preferred Stock financing and other equity offerings. Significant components of the provision for income taxes are as follows for the year ended:
DECEMBER 31, 1995 ----------- Current: Federal........................................................ -- State.......................................................... -- -------- Total current.................................................... -- Deferred: Federal........................................................ $ (65,971) State.......................................................... (12,385) Increase in valuation allowance................................ 78,356 -------- Total deferred................................................... $ -- ========
The effective tax rate on income before income taxes varies from the statutory federal income tax rate for the year ended December 31, 1995 as follows: Statutory rate...................................................... (34)% State taxes, net.................................................... (6)% Valuation allowance................................................. 40% --- 0% ===
7. STOCKHOLDERS' EQUITY STOCK SPLIT During 1995 the Company effected a one-hundred and eighty-for-one stock split of the Company's Common Stock and increased the number of authorized shares from 20,000 to 10,000,000. Pursuant to the authorization of the Board of Directors and Stockholders, the Company effected, on November 13, 1996, a one-for-three stock split. Authorized shares of Common Stock remain at 10,000,000. All share amounts reflected herein reflect the one-for-three stock split. CONVERTIBLE PREFERRED STOCK The Series A Convertible Preferred Stock ("Series A Preferred Stock") has a 12% cumulative preferred return payable upon declaration by the Board of Directors and liquidation preference equal to $100 per share plus accrued but unpaid dividends. There are no accrued, undeclared dividends at September 30, 1996. Each share of Series A Preferred Stock is convertible to 108 shares of Common Stock at the option of the holder and automatically in the event of an IPO of the Company's Common Stock. Beginning on March 17, 1996, at the unilateral option of the Company the Series A Preferred Stock may be redeemed for $112 per share plus accrued dividends. The holders of Series A Preferred Stock shares are entitled to vote on all matters submitted to a vote of the stockholders of the Company. The preferred shareholders have the number of votes equal to the number of whole shares of Common Stock into which each share of Series A Preferred Stock is then convertible. F-11 77 COMPLETE WELLNESS CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. STOCK OPTION PLAN The Company has a stock option plan providing for the grant of incentive and nonqualified stock options to employees, directors, consultants and advisors. Pursuant to the Plan, 400,000 shares of Common Stock have been reserved for issuance. No options are exercisable at December 31, 1995. At December 31, 1995 the following options have been granted:
NUMBER OF EXERCISE DATE OF GRANT SHARES GRANTED PRICE FAIR VALUE ------------------------------------------------ ---------------- -------- ---------- December 1, 1995................................ 4,333 $.03 $ .004 December 1, 1995................................ 36,667 $.03 $ .01
The 36,667 options granted December 1, 1995 include 33,333 performance options exercisable only upon the attainment of certain revenue goals. Options generally vest 33 1/3% each year beginning on the anniversary of the grant date. No options have been forfeited as of December 31, 1995. Through September 30, 1996, 36,667 options were forfeited. The 4,333 shares were granted to a consultant. The fair value of these securities was $.004 per share as determined by an independent valuation company. Nominal expense was recorded for these options as of December 31, 1995. A total of 545,800 shares of Common Stock have been reserved for stock option plans and conversion of preferred stock as of December 31, 1995. 9. COMMITMENTS The Company's Chief Executive Officer's (employed since inception of the Company) employment contract requires him to serve without cash compensation until July 1, 1996. As of July 1, 1996 he began accruing compensation at $90,000 per annum, payable upon the closing of an IPO. The Company's Chief Operating Officer's (employed in the second quarter of 1996) employment contract requires him to serve without cash compensation until the closing of an IPO. The Company leases certain furniture and equipment located at the corporate office from its Chief Executive Officer. The lease payments are $1,000 per month and are on a month-by-month basis. Future minimum lease payment under an automobile lease as of December 31, 1995 is approximately $4,500 payable in installments in 1996. 10. PRO FORMA NET LOSS PER COMMON SHARE (UNAUDITED) The Company's pro forma net loss per share calculations are based upon the weighted average number of shares of Common Stock outstanding and the number of shares of Common Stock resulting from the assumed conversion of the Series A Preferred Stock. Pursuant to the requirements of the Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 83, options to purchase Common Stock issued at prices below the initial public offering price during the twelve months immediately preceding the contemplated initial filing of the registration statement relating to the IPO, have been included in the computation of net loss per share as if they were outstanding for all periods presented (using the treasury method assuming repurchase of common stock at the estimated IPO price). Subsequent to the Company's IPO, options under the treasury stock method will be included to the extent they are dilutive. F-12 78 COMPLETE WELLNESS CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. PRO FORMA NET LOSS PER COMMON SHARE (UNAUDITED) -- (CONTINUED) The following table summarizes the computations of share amounts used and the computation of pro forma net loss per common share presented in the accompanying statements of operations:
NINE MONTHS YEAR ENDED ENDED DECEMBER 31, SEPTEMBER 30, 1995 1996 ------------ ------------- Common and common equivalent shares: Weighted average number of shares of common stock outstanding.... 567,300 714,967 Assumed conversion of the preferred stock as of January 1, 1995.......................................................... 145,800 145,800 --------- ---------- Number of shares of common stock outstanding during the period assuming conversion of the preferred stock as of January 1, 1995.......................................................... 713,100 860,767 Options to purchase common stock issued within one year of registration statement using the treasury stock method........ 40,824 364,866 --------- ---------- Total common and common equivalent shares of stock considered outstanding during the year...................................... 753,924 1,225,633 ========= ========== Net loss........................................................... $ (195,889) $ (520,950) ========= ========== Pro forma net loss per common and common equivalent shares......... $ (0.26) $ (0.43) ========= ==========
11. SUBSEQUENT EVENTS (UNAUDITED) INITIAL PUBLIC OFFERING On December 15, 1996, the Board of Directors authorized management of the Company to file a registration statement with the SEC permitting the Company to sell shares of its Common Stock to the public. If the IPO is closed under the terms presently anticipated, all of the Series A Preferred Stock outstanding will automatically convert into 145,800 shares of Common Stock. DEVELOPMENT AGREEMENTS The Company has entered into contracts with twenty chiropractors during the nine months ended September 30, 1996 to develop Integrated Medical Centers. The total costs of developing these centers are expected to be approximately $600,000. Under the agreements entered into in 1996, the Company will open new Integrated Medical Centers in the same location as existing chiropractic practices (the "Affiliated Practices"). The Integrated Medical Centers will employ a physician (the "MD") on a salaried basis to supervise the provision of health care services. The MD does not currently have an existing medical practice. Where permitted by state law, the Integrated Medical Centers will be wholly-owned by the Company. In other jurisdictions, the Integrated Medical Centers will be wholly-owned by another MD. Patients of the Integrated Medical Centers will be billed in the Integrated Medical Center's name and the Integrated Medical Centers will own the related accounts receivable. The Company will provide administrative services to the Integrated Medical Centers via a management contract. Patient revenue from services is reported at the estimated realizable amounts from patients and third party payors for services rendered. Substantially all of the patient service revenue of the Integrated Medical Centers is paid by the patients and traditional commercial insurers. The Integrated Medical Centers do not currently have any HMO contracts. F-13 79 COMPLETE WELLNESS CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. SUBSEQUENT EVENTS (UNAUDITED) -- (CONTINUED) The Company also entered into contractual arrangements with each chiropractor whereby (1) the Company will lease from the chiropractor certain facilities and equipment, and (2) the Integrated Medical Center will pay the Chiropractor a fixed salary to render chiropractic services to patients of the Integrated Medical Center. The chiropractor will continue to operate his or her existing Affiliated Practice separately from the Integrated Medical Center. The Company will not acquire the Affiliated Practice, its patient base, or its tangible assets. In addition, no consideration will be paid to the chiropractor at inception of the arrangements. The Company will not provide management services to, and will not receive any fees from, the existing Affiliated Practice. The agreements are for an initial period of either five or ten years. 1996 STOCK OPTIONS During 1996 the Company instituted another nonqualified stock option plan for employees, directors, consultants and advisors. Pursuant to the plan, up to 200,000 shares of Common Stock have been reserved for issuance. No options have been granted, exercised or forfeited. In 1996 the Company also instituted a separate nonqualified stock option plan for persons employed by or associated with the Company's Integrated Medical Centers. Pursuant to the plan, up to 100,000 shares of Common Stock have been reserved for issuance. No options have been granted, exercised or forfeited. SHAREHOLDER ADVANCE The Company has advanced approximately $37,000 to Mr. McMillen without interest. Mr. McMillen is to repay such amount upon consummation of the Offering. F-14 80 - ------------------------------------------------------ - ------------------------------------------------------ No dealer, salesperson or other person has been authorized to give any information or to make any representations other than those contained in this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or any Underwriter. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained herein is correct as of any date subsequent to the date hereof. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered hereby by anyone in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. ------------------ TABLE OF CONTENTS
PAGE ------ Prospectus Summary..................... 5 Risk Factors........................... 9 The Company............................ 18 Use of Proceeds........................ 19 Capitalization......................... 20 Dividend Policy........................ 21 Dilution............................... 21 Selected Financial Data................ 23 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 24 Business............................... 30 Management............................. 46 Principal Stockholders................. 52 Selling Security Holders............... 54 Certain Relationships and Related Transactions......................... 56 Description of Securities.............. 58 Shares Eligible for Future Sale........ 61 Underwriting........................... 62 Legal Matters.......................... 64 Experts................................ 64 Additional Information................. 64 Index to Financial Statements.......... F-1
------------------ Until , 1997 (25 days after the date of this Prospectus), all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a Prospectus. This delivery requirement is in addition to the obligations of dealers to deliver a Prospectus when acting as Underwriters and with respect to their unsold allotments or subscriptions. - ------------------------------------------------------ - ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ COMPLETE WELLNESS CENTERS, INC. 1,000,000 Shares of Common Stock and 1,000,000 Redeemable Common Stock Purchase Warrants ------------------- PROSPECTUS ------------------- NATIONAL SECURITIES CORPORATION , 1997 ------------------------------------------------------ ------------------------------------------------------ 81 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Pursuant to Section 102 of the Delaware General Corporation Law (the "DGCL"), the Registrant's Certificate of Incorporation contains the following provision regarding limitation of liability of directors and officers: A director of this corporation shall not be personally liable to the corporation or its stockholders for monetary damages for the breach of any fiduciary duty as a director, except in the case of (a) any breach of the director's duty of loyalty to the corporation or its stockholders, (b) acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (c) under section 174 of the General Corporation Law of the State of Delaware or (d) for any transaction from which the director derives an improper personal benefit. Any repeal or modification of this Article by the stockholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification. The Registrant is empowered by Section 145 of the DGCL, subject to the procedures and limitation stated therein, to indemnify any person against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with any threatened, pending or completed action, suit or proceeding in which such person is made a party by reason of his being or having been a director, officer, employer or agent of the Registrant. The statute provides that indemnification pursuant to its provisions is not exclusive of other rights of indemnification to which a person may be entitled under any by-law, agreement, vote of stockholders or disinterested directors, or otherwise. The Registrant's Certificate of Incorporation and the Registrant's By-laws both provide for indemnification of its officers and directors to the full extent permitted by the DGCL. The Company intends to apply for directors' and officers' liability insurance after the filing of this Registration Statement. Such insurance may insure against any liability asserted against any present or past director or officer incurred in the capacity of director or officer arising out of such status, whether or not the Company would have the power to indemnify such person. Reference is made to Section 7 of the Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement with respect to certain indemnification provisions for the benefit of the Registrant and its directors, officers and controlling persons. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth various expenses, other than the underwriters' fees, discounts and commissions, which are anticipated to be incurred in connection with the Offering. All amounts except the SEC registration fee, the Nasdaq filing fee, the Boston Stock Exchange filing fee, and the NASD filing fee are estimates. None of the expenses will be paid for by selling security holders. SEC registration fee........................................................ $ 6,501.68 Nasdaq filing fee........................................................... 8,194.10 Boston Stock Exchange fee................................................... 15,250.00 NASD filing fee............................................................. 2,646.00 Blue Sky fees and expenses.................................................. 40,000.00 Transfer Agent's fees and expenses.......................................... 5,000.00 Printing and engraving expenses............................................. 80,000.00 Accounting fees and expenses................................................ 150,000.00 Legal fees and expenses..................................................... 100,000.00 Miscellaneous............................................................... 17,408.22 ----------- Total.................................................................. $425,000.00 ===========
II-1 82 ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES Set forth below is certain information concerning sales by the Company of unregistered securities within the past three years. Such information with respect to the Company's Common Stock has been adjusted for (i) a 180-for-1 forward split of the Common Stock in November 1995, and (ii) a 1-for-3 reverse split of the Common Stock in November 1996. Exemptions from registration for other transactions are noted below. The consideration paid to the Company in respect of each issuance of securities was cash, unless otherwise indicated. (i) Effective November 1994, the Registrant issued a total of 378,000 shares of Common Stock to its four original stockholders (including C. Thomas McMillen and James J. McMillen), each of whom was also a director and/or officer of the Registrant at that time, for a price equal to $.0001665 per share. Exemption from registration under the Act is claimed pursuant to Section 4(2) thereof. (ii) Effective January 1995, the Registrant issued a total of 16,500 shares of Common Stock to a newly elected member of its board of directors (Robert J. Mrazek) for a price equal to $.0001665 per share. Exemption from registration under the Act is claimed pursuant to Section 4(2) thereof. (iii) Effective March 1995, the Registrant issued a total of 1,350 shares of its Series A, 12% Cumulative Convertible Preferred Stock, par value $.01 per share, to seven individuals for a price of $100 per share, each of whom had a pre-existing business and/or personal relationship with one or more of the Registrant's officers, directors, or controlling persons and was either an accredited investor within the meaning of Rule 501(a) under the Act or a sophisticated investor who had the financial resources to bear the loss of the investment and the means and opportunity to obtain information concerning the Registrant. Exemption from registration under the Act is claimed pursuant to Sections 3(b) and 4(2) thereof. (iv) Effective June 1995, the Registrant issued a total of 158,400 shares of Common Stock to a newly elected member of its board of directors (Robert S. Libauer) for a price equal to $.0001665 per share. Exemption from registration under the Act is claimed pursuant to Section 4(2) thereof. (v) Effective September 1995, the Registrant issued 6,000 shares of Common Stock to Danielle S. Milano, now an officer of the Registrant, and 8,400 shares of Common Stock to one of the Registrant's outside attorneys for a price equal to $.0001665 per share in both cases. Exemption from registration under the Act is claimed pursuant to Section 4(2) thereof. (vi) Effective November 1995, the Registrant issued $39,730 aggregate principal amount of subordinated promissory notes and warrants to purchase a total of 13,243 shares of Common Stock at an exercise price equal to $.003 per share to four individuals, one of whom was a director of the Registrant (Robert S. Libauer) and each of the others of whom had a pre-existing business and/or personal relationship with one or more of the Registrant's officers, directors, or controlling persons and was either an accredited investor within the meaning of Rule 501(a) under the Act or a sophisticated investor who had the financial resources to bear the loss of the investment and the means and opportunity to obtain information concerning the Registrant. Exemption from registration under the Act is claimed pursuant to Section 4(2) thereof. (vii) Effective April 1996, the Registrant issued 10,000 shares of Common Stock to its President and Chief Operating Officer (E. Eugene Sharer) upon his exercise of options to purchase such shares at an exercise price of $.03 per share pursuant to the Registrant's 1994 Stock Option Plan. Exemption from registration under the Act is claimed pursuant to Section 3(b) thereof. (viii) Effective April 1996, the Registrant issued 110,000 shares of Common Stock to a party (Reach Laboratories, Inc.) that had performed consulting and financial advisory services for the Registrant. The Registrant's Board of Directors determined the value of such past services to be no less than $3,300. The investor was an accredited investor within the meaning of Rule 501(a) under the Act. Exemption from registration under the Act is claimed pursuant to Section 4(2) thereof. II-2 83 (ix) Effective May 1996, the Registrant issued 23,333 shares of Common Stock to a consultant to the Registrant upon the consultant's exercise of options to purchase such shares at an exercise price of $.03 per share pursuant to the Registrant's 1994 Stock Option Plan. Exemption from registration under the Act is claimed pursuant to Section 3(b) thereof. (x) Effective June 1996, the Registrant issued 4,333 shares of Common Stock to a consultant to the Registrant upon the consultant's exercise of options to purchase such shares at an exercise price of $.03 per share pursuant to the Registrant's 1994 Stock Option Plan and a settlement agreement entered into between such parties in connection with litigation involving alleged breaches of the consulting agreement between such parties. Exemption from registration under the Act is claimed pursuant to Section 3(b) and/or Section 4(2) thereof. (xi) Effective August 1996, the Registrant issued $1,100,000 aggregate principal amount of secured promissory notes and warrants to purchase that number of shares of Common Stock determined by dividing such amount by the price per share of Common Stock in the offering subject to this Registration Statement at an exercise price of $.003 per share to 11 investors, each of whom was an accredited investor within the meaning of Rule 501(a) under the Act. The registrant also issued a warrant to purchase that number of shares of Common Stock determined by dividing such aggregate principal amount by the price per share of Common Stock in the offering subject to this Registration Statement at an exercise price of $.003 per share to a broker-dealer who acted as a placement agent for a portion of the financing. Exemption from registration under the Act is claimed pursuant to Section 4(2) thereof. II-3 84 ITEM 27. EXHIBITS
EXHIBIT NUMBER DESCRIPTION - -------------- ----------------------------------------------------------------------------- 1.1 Form of proposed Underwriting Agreement between the Company and National Securities Corporation, as Representative of the several Underwriters listed therein (the "Representative") 3.1 Certificate of Incorporation, as amended, of the Registrant 3.2 By-Laws of the Registrant 4.1 Specimen Common Stock Certificate* 4.2 Form of proposed Representative's Warrant Agreement between the Company and the Representative, including form of Representative's Warrant Certificate 4.3 Form of Warrant Agreement between the Company and American Stock Transfer & Trust Company as Warrant Agent, including form of Warrant Certificate 5.1 Opinion of Storch & Brenner* 10.1 Form of Stockholders' Agreement dated March 20, 1995 among the Registrant, certain holders of its Common Stock, and all holders of its Series A, 12% Cumulative Convertible Preferred Stock 10.2 Form of Warrant issued by the Registrant to each person or entity that provided funds to the Registrant in connection with a financing in November 1995 10.3 Form of Promissory Note and Warrant issued by the Registrant to each person or entity that provided funds to the Registrant in connection with a bridge financing completed in August 1996 and related Loan and Security Agreement 10.4 Form of Warrant issued to placement agent for the bridge financing completed in August 1996* 10.5 Form of Management and Security Agreement 10.6 Form of Integrated Medical Center Management and Security Agreement 10.7 Form of Affiliated Chiropractor Employment Agreement 10.8 Form of Medical Doctor Employment Agreement 10.9 Form of Physical Therapist Employment Agreement 10.10 Form of Acupuncturist Employment Agreement 10.11 Form of Nutrition Counselor Employment Agreement 10.12 Form of Fitness Specialist Employment Agreement 10.13 Form of Promissory Note from Integrated Medical Center 10.14 Form of Guaranty from Affiliated Chiropractor 10.15 Form of Medical Office Sublease 10.16 Form of Equipment Sublease 10.17 Employment Agreement dated as of July 1, 1996 between the Registrant and C. Thomas McMillen 10.18 Employment Agreement dated as of March 21, 1996 between the Registrant and E. Eugene Sharer 10.19 Employment Agreement dated as of January 1, 1996 between the Registrant and Danielle F. Milano 10.20 Employment Agreement dated as of October 1, 1996 between the Registrant and Michael T. Brigante 10.21 Employment Agreement dated as of August 26, 1996 between the Registrant and Eric S. Kaplan
II-4 85
EXHIBIT NUMBER DESCRIPTION - -------------- ----------------------------------------------------------------------------- 10.22 Consulting Agreement dated as of November 21, 1996 between the Registrant and Kats Management, L.L.C. 10.23 Consulting Agreement dated as of August 26, 1996 between the Registrant and J.E.M., Inc. 10.24 Registrant's 1994 Stock Option Plan 10.25 Registrant's 1996 Stock Option Plan 10.26 Registrant's 1996 Restricted Stock Option Plan for Health Care Professionals 10.27 Registrant's Executive Bonus Plan for Key Executives* 10.28 Master License Agreement dated as of September 16, 1996 between the Registrant and Bally Total Fitness Corporation 10.29 Management Subcontract Agreement dated as of November 1, 1996 between the Registrant and Integrated Physicians Management Co., LLC 10.30 Subordinate Chiropractor Employment Agreement 21.1 Subsidiaries of the Registrant* 23.1 Consent of Ernst & Young LLP 23.2 Consent of Storch & Brenner (included in the Opinion filed as Exhibit 5.1)* 24.1 Powers of Attorney (included on signature page) 27.1 Financial Data Schedule
- ------------------ * To be filed by amendment. ITEM 28. UNDERTAKINGS. (a) The Registrant hereby undertakes to: (1) File, during any period in which it offers or sells securities, a post-effective amendment to this Registration Statement to: (i) Include any prospectus required by section 10(a)(3) of the Securities Act; (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) Include any additional or changed material information on the plan of distribution. (2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of securities at that time to be the initial bona fide offering. (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. (b) The Registrant hereby undertakes to provide to the Representative, at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Representative to permit prompt delivery to each purchaser. II-5 86 (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Act"), may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (d) The Registrant hereby undertakes that it will: (1) For determining any liability under the Act, treat the information omitted from the form of prospectus filed as part of the Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant under Rule 424(b)(1) or (4) or 497(h) under the Act as part of this Registration Statement as of the time the Commission declared it effective. (2) For determining any liability under the Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and that offering of the securities at that time as the initial bona fide offering of those securities. II-6 87 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2, and has authorized this Registration Statement to be signed on its behalf by the undersigned in Washington, D.C., on December 19, 1996. COMPLETE WELLNESS CENTERS, INC. /s/ E. EUGENE SHARER By: E. Eugene Sharer President and Chief Operating Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints E. Eugene Sharer his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute, may lawfully do or cause to be done by virtue hereof. In accordance with the requirements of the Securities Act of 1933, this Registration Statement was signed by the following persons in the capacities and on the dates stated. /s/ C. THOMAS MCMILLEN Chairman of the Board, Chief December 18, 1996 - ------------------------------------- Executive C. Thomas McMillen Officer, and Director (Principal Executive Officer) /s/ E. EUGENE SHARER President, Chief Operating Officer, December 18, 1996 - ------------------------------------- and Director E. Eugene Sharer /s/ MICHAEL T. BRIGANTE Vice President, Chief Financial December 18, 1996 - ------------------------------------- Officer, Michael T. Brigante Treasurer, and Secretary (Principal Financial and Accounting Officer) /s/ ROBERT S. LIBAUER Director December 18, 1996 - ------------------------------------- Robert S. Libauer /s/ JAMES T. MCMILLEN Director December 18, 1996 - ------------------------------------- James T. McMillen /s/ ROBERT J. MRAZEK Director December 18, 1996 - ------------------------------------- Robert J. Mrazek
II-7 EX-1.1 2 UNDERWRITING AGREEMENT 1 EXHIBIT 1.1 OHS DRAFT 12/5/96 [Form of Underwriting Agreement - Subject to Additional Review] 1,000,000 SHARES OF COMMON STOCK AND 1,000,000 REDEEMABLE WARRANTS COMPLETE WELLNESS CENTERS, INC. UNDERWRITING AGREEMENT New York, New York , 1997 NATIONAL SECURITIES CORPORATION As Representative of the Several Underwriters listed on Schedule A hereto 1001 Fourth Avenue Suite 2200 Seattle, Washington 98154 Ladies and Gentlemen: Complete Wellness Centers, Inc., a Delaware corporation (the "Company"), confirms its agreement with National Securities Corporation ("National") and each of the underwriters named in Schedule A hereto (collectively, the "Underwriters," which term shall also include any underwriter substituted as hereinafter provided in Section 11), for whom National is acting as representative (in such capacity, National shall hereinafter be referred to as "you" or the "Representative"), with respect to the sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective numbers of shares ("Shares") of the Company's common stock, $.001665 par value per share ("Common Stock"), and redeemable common stock purchase warrants (the "Redeemable Warrants"), each to purchase one share of Common Stock, set forth in Schedule A hereto. The aggregate 1,000,000 Shares and 1,000,000 Redeemable Warrants will be separately tradeable upon issuance and are hereinafter referred to as the "Firm Securities." Each Redeemable Warrant is exercisable 2 commencing on ____________, 1997 [6 months from the date of this Agreement] until ____________, 2002 [60 months from the date of this Agreement], unless previously redeemed by the Company, at an initial exercise price of $_______ [120% of the initial public offering price] per share of Common Stock. The Redeemable Warrants may be redeemed by the Company at a redemption price of $.10 per Redeemable Warrant at any time after _____________, 1998 [18 months from the date of this Agreement] on thirty (30) days' prior written notice, provided that the closing bid price of the Common Stock equals or exceeds $_______________ [160% of the initial public offering price of Common Stock] per share, for any twenty (20) trading days within a period of thirty (30) consecutive trading days ending on the fifth trading day prior to the notice of redemption, all in accordance with the terms and conditions of the Warrant Agreement (herein defined). Upon your request, as provided in Section 2(b) of this Agreement, the Company shall also issue and sell to the Underwriters, acting severally and not jointly, up to an additional 150,000 shares of Common Stock and/or 150,000 Redeemable Warrants for the purpose of covering over-allotments, if any. Such 150,000 shares of Common Stock and 150,000 Redeemable Warrants are hereinafter collectively to as the "Option Securities." The Company also proposes to issue and sell to you warrants (the "Representative's Warrants") pursuant to the Representative's Warrant Agreement (the "Representative's Warrant Agreement") for the purchase of an additional 100,000 shares of Common Stock and/or 100,000 Redeemable Warrants. The shares of Common Stock and Redeemable Warrants issuable upon exercise of the Representative's Warrants are hereinafter referred to as the "Representative's Securities." The Firm Securities, the Option Securities, the Representative's Warrants and the Representative's Securities (collectively, hereinafter referred to as the "Securities") are more fully described in the Registration Statement and the Prospectus referred to below. 1. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, each of the Underwriters as of the date hereof, and as of the Closing Date (as hereinafter defined) and each Option Closing Date (as hereinafter defined), if any, as follows: (a) The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") a registration statement, and an amendment or amendments thereto, on Form SB-2 (No. 333-_________), including any related preliminary prospectus ("Preliminary Prospectus"), for the registration of the Firm Securities, the Option Securities and the Representative's Securities under the Securities Act of 1933, as amended (the "Act"), which registration statement and amendment or amendments have been prepared by the Company in conformity with the requirements of the Act, and the rules and regulations (the "Regulations") of the Commission under the Act. The Company will promptly file a further amendment to said registration statement in the form heretofore delivered to the Underwriters and will not file any other amendment thereto to which the Underwriters shall have objected in writing after having been furnished with a copy thereof. Except as the context may otherwise require, such registration statement, as amended, on file with the Commission at the time the registration statement becomes effective (including the prospectus, financial statements, schedules, exhibits and all other documents filed as a part thereof or incorporated therein (including, but not limited to those documents or information incorporated by reference therein) and all information deemed 2 3 to be a part thereof as of such time pursuant to paragraph (b) of Rule 430(A) of the Regulations), is hereinafter called the "Registration Statement", and the form of prospectus in the form first filed with the Commission pursuant to Rule 424(b) of the Regulations, is hereinafter called the "Prospectus." For purposes hereof, "Rules and Regulations" mean the rules and regulations adopted by the Commission under either the Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as applicable. (b) Neither the Commission nor any state regulatory authority has issued any order preventing or suspending the use of any Preliminary Prospectus, the Registration Statement or Prospectus or any part of any thereof and no proceedings for a stop order suspending the effectiveness of the Registration Statement or any of the Company's securities have been instituted or are pending or threatened. Each of the Preliminary Prospectus, the Registration Statement and Prospectus at the time of filing thereof conformed with the requirements of the Act and the Rules and Regulations, and none of the Preliminary Prospectus, the Registration Statement or Prospectus at the time of filing thereof contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except that this representation and warranty does not apply to statements made in reliance upon and in conformity with written information furnished to the Company with respect to the Underwriters by or on behalf of the Underwriters expressly for use in such Preliminary Prospectus, Registration Statement or Prospectus or any amendment thereof or supplement thereto. (c) When the Registration Statement becomes effective and at all times subsequent thereto up to the Closing Date (as defined herein) and each Option Closing Date (as defined herein), if any, and during such longer period as the Prospectus may be required to be delivered in connection with sales by the Underwriters or a dealer, the Registration Statement and the Prospectus will contain all statements which are required to be stated therein in accordance with the Act and the Rules and Regulations, and will conform to the requirements of the Act and the Rules and Regulations; neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, provided, however, that this representation and warranty does not apply to statements made or statements omitted in reliance upon and in strict conformity with information furnished to the Company in writing by or on behalf of any Underwriter expressly for use in the Preliminary Prospectus, Registration Statement or Prospectus or any amendment thereof or supplement thereto. (d) Each of the Company, the Company's wholly-owned subsidiaries, _____________________ (such subsidiaries being the only subsidiaries that are "significant subsidiaries" (as defined in the Rules and Regulations) of the Company, are hereinafter referred to individually as a "Subsidiary" and collectively as the "Subsidiaries"), has been duly organized and is validly existing as a corporation in good standing under the laws of the state of its incorporation. Except as set forth in the Prospectus, none of the Company nor the Subsidiaries owns an interest in any corporation, partnership, trust, joint venture or other business entity. Each of the Company and the Subsidiaries is duly qualified and licensed and in good standing 3 4 as a foreign corporation in each jurisdiction in which its ownership or leasing of any properties or the character of its operations requires such qualification or licensing. The Company owns, directly or indirectly, one hundred percent (100%) of the outstanding capital stock of each of the Subsidiaries, and all of such shares have been validly issued, are fully paid and non-assessable, were not issued in violation of any preemptive rights, and, except as set forth in the Prospectus, are owned free and clear of any liens, charges, claims, encumbrances, pledges, security interests, defects or other restrictions or equities of any kind whatsoever. Each of the Company and the Subsidiaries has all requisite power and authority (corporate and other), and has obtained any and all necessary authorizations, approvals, orders, licenses, certificates, franchises and permits of and from all governmental or regulatory officials and bodies (including, without limitation, those having jurisdiction over environmental or similar matters), to own or lease its properties and conduct its business as described in the Prospectus; each of the Company and the Subsidiaries is and has been doing business in compliance with all such authorizations, approvals, orders, licenses, certificates, franchises and permits and all applicable federal, state, local and foreign laws, rules and regulations; and none of the Company nor the Subsidiaries has received any notice of proceedings relating to the revocation or modification of any such authorization, approval, order, license, certificate, franchise, or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would materially and adversely affect the condition, financial or otherwise, or the earnings, position, prospects, value, operation, properties, business or results of operations of the Company or the Subsidiaries. The disclosures in the Registration Statement concerning the effects of federal, state, local, and foreign laws, rules and regulations on the Company's and the Subsidiaries' businesses as currently conducted and as contemplated are correct in all material respects and do not omit to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading in light of the circumstances under which they were made. (e) The Company has a duly authorized, issued and outstanding capitalization as set forth in the Prospectus under "Capitalization" and "Description of Securities" and will have the adjusted capitalization set forth therein on the Closing Date and each Option Closing Date, if any, based upon the assumptions set forth therein, and the Company is not a party to or bound by any instrument, agreement or other arrangement providing for it to issue any capital stock, rights, warrants, options or other securities, except for this Agreement, the Warrant Agreement, the Representative's Warrant Agreement and as described in the Prospectus. The Securities and all other securities issued or issuable by the Company conform or, when issued and paid for, will conform, in all respects to all statements with respect thereto contained in the Registration Statement and the Prospectus. All issued and outstanding securities of the Company have been duly authorized and validly issued and are fully paid and non-assessable and the holders thereof have no rights of rescission with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company. The Securities are not and will not be subject to any preemptive or other similar rights of any stockholder, have been duly authorized and, when issued, paid for and delivered in accordance with the terms hereof, will be validly issued, fully paid and non-assessable and will conform to the description thereof contained in the Prospectus; the holders thereof will not be subject to any liability solely as such holders; all corporate action required 4 5 to be taken for the authorization, issue and sale of the Securities has been duly and validly taken; and the certificates representing the Securities will be in due and proper form. Upon the issuance and delivery pursuant to the terms hereof of the Securities to be sold by the Company hereunder, the Underwriters or the Representative, as the case may be, will acquire good and marketable title to such Securities free and clear of any lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction or equity of any kind whatsoever. (f) The consolidated financial statements of the Company and the Subsidiaries, together with the related notes and schedules thereto, included in the Registration Statement, each Preliminary Prospectus and the Prospectus fairly present the financial position, income, changes in cash flow, changes in stockholders' equity and the results of operations of the Company and the Subsidiaries at the respective dates and for the respective periods to which they apply and such financial statements have been prepared in conformity with generally accepted accounting principles and the Rules and Regulations, consistently applied throughout the periods involved and such financial statements as are audited have been examined by Ernst & Young, LLP, who are independent certified public accountants within the meaning of the Act and the Rules and Regulations, as indicated in their reports filed therewith. There has been no adverse change or development involving a prospective adverse change in the condition, financial or otherwise, or in the earnings, position, prospects, value, operation, properties, business, or results of operations of the Company and the Subsidiaries taken as a whole, whether or not arising in the ordinary course of business, since the date of the financial statements included in the Registration Statement and the Prospectus and the outstanding debt, the property, both tangible and intangible, and the business of the Company and the Subsidiaries, conform in all material respects to the descriptions thereof contained in the Registration Statement and the Prospectus. Financial information (including, without limitation, any pro forma financial information) set forth in the Prospectus under the headings "Summary Financial Data", "Selected Consolidated Financial Data," "Capitalization," and "Management's Discussion and Analysis of Financial Condition and Results of Operations," fairly present, on the basis stated in the Prospectus, the information set forth therein, and have been derived from or compiled on a basis consistent with that of the audited financial statements included in the Prospectus; and, in the case of pro forma financial information, if any, the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. The amounts shown as accrued for current and deferred income and other taxes in such financial statements are sufficient for the payment of all accrued and unpaid federal, state, local and foreign income taxes, interest, penalties, assessments or deficiencies applicable to the Company and the Subsidiaries, whether disputed or not, for the applicable period then ended and periods prior thereto; adequate allowance for doubtful accounts has been provided for unindemnified losses due to the operations of the Company and the Subsidiaries; and the statements of income do not contain any items of special or nonrecurring income not earned in the ordinary course of business, except as specified in the notes thereto. (g) Each of the Company and the Subsidiaries (i) has paid all federal, state, local, and foreign taxes for which it is liable, including, but not limited to, withholding taxes and amounts payable under Chapters 21 through 24 of the Internal Revenue Code of 1986, as amended (the "Code"), and has furnished all information returns it is required to furnish pursuant to the Code, 5 6 (ii) has established adequate reserves for such taxes which are not due and payable, and (iii) does not have any tax deficiency or claims outstanding, proposed or assessed against it. (h) No transfer tax, stamp duty or other similar tax is payable by or on behalf of the Underwriters in connection with (i) the issuance by the Company of the Securities, (ii) the purchase by the Underwriters of the Firm Securities and the Option Securities from the Company and the purchase by the Representative of the Representative's Warrants from the Company, (iii) the consummation by the Company of any of its obligations under this Agreement, or (iv) resales of the Firm Securities and the Option Securities in connection with the distribution contemplated hereby. (i) Each of the Company and the Subsidiaries maintains insurance policies, including, but not limited to, general liability, malpractice and property insurance, which insures each of the Company, the Subsidiaries and their respective employees, against such losses and risks generally insured against by comparable businesses. None of the Company nor the Subsidiaries (A) has failed to give notice or present any insurance claim with respect to any matter, including but not limited to the Company's business, property or employees, under any insurance policy or surety bond in a due and timely manner, (B) has any disputes or claims against any underwriter of such insurance policies or surety bonds or has failed to pay any premiums due and payable thereunder, or (C) has failed to comply with all conditions contained in such insurance policies and surety bonds. There are no facts or circumstances under any such insurance policy or surety bond which would relieve any insurer of its obligation to satisfy in full any valid claim of the Company or any Subsidiary. (j) There is no action, suit, proceeding, inquiry, arbitration, investigation, litigation or governmental proceeding (including, without limitation, those having jurisdiction over environmental or similar matters), domestic or foreign, pending or threatened against (or circumstances that may give rise to the same), or involving the properties or business of, the Company or the Subsidiaries which (i) questions the validity of the capital stock of the Company, this Agreement, the Warrant Agreement or the Representative's Warrant Agreement, or of any action taken or to be taken by the Company pursuant to or in connection with this Agreement, the Warrant Agreement or the Representative's Warrant Agreement, (ii) is required to be disclosed in the Registration Statement which is not so disclosed (and such proceedings as are summarized in the Registration Statement are accurately summarized in all material respects), or (iii) might materially and adversely affect the condition, financial or otherwise, or the earnings, position, prospects, stockholders' equity, value, operation, properties, business or results of operations of the Company and the Subsidiaries taken as a whole. (k) The Company has full legal right, power and authority to authorize, issue, deliver and sell the Securities, enter into this Agreement, the Warrant Agreement and the Representative's Warrant Agreement and to consummate the transactions provided for in this Agreement, the Warrant Agreement and the Representative's Warrant Agreement; and this Agreement, the Warrant Agreement and the Representative's Warrant Agreement have each been duly and properly authorized, executed and delivered by the Company. Each of this Agreement, the Warrant Agreement and the Representative's Warrant Agreement constitutes a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its 6 7 terms, and none of the Company's issue and sale of the Securities, execution or delivery of this Agreement, the Warrant Agreement or the Representative's Warrant Agreement, its performance hereunder and thereunder, its consummation of the transactions contemplated herein and therein, or the conduct of its business as described in the Registration Statement, the Prospectus, and any amendments or supplements thereto, conflicts with or will conflict with or results or will result in any breach or violation of any of the terms or provisions of, or constitutes or will constitute a default under, or result in the creation or imposition of any lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction or equity of any kind whatsoever upon, any property or assets (tangible or intangible) of any of the Company or the Subsidiaries pursuant to the terms of (i) the certificate of incorporation or by-laws of any of the Company or the Subsidiaries, (ii) any license, contract, collective bargaining agreement, indenture, mortgage, deed of trust, lease, voting trust agreement, stockholders agreement, note, loan or credit agreement or any other agreement or instrument to which any of the Company or the Subsidiaries is a party or by which any of the Company or the Subsidiaries is or may be bound or to which either of its or their respective properties or assets (tangible or intangible) is or may be subject, or any indebtedness, or (iii) any statute, judgment, decree, order, rule or regulation applicable to any of the Company or the Subsidiaries of any arbitrator, court, regulatory body or administrative agency or other governmental agency or body (including, without limitation, those having jurisdiction over environmental or similar matters), domestic or foreign, having jurisdiction over any of the Company or the Subsidiaries or any of its or their respective activities or properties. (l) No consent, approval, authorization or order of, and no filing with, any court, regulatory body, government agency or other body, domestic or foreign, is required for the issuance of the Securities pursuant to the Prospectus and the Registration Statement, the performance of this Agreement, the Warrant Agreement and the Representative's Warrant Agreement and the transactions contemplated hereby and thereby, including without limitation, any waiver of any preemptive, first refusal or other rights that any entity or person may have for the issue and/or sale of any of the Securities, except such as have been or may be obtained under the Act or may be required under state securities or Blue Sky laws in connection with the Underwriters' purchase and distribution of the Firm Securities and the Option Securities, and the Representative's Warrants to be sold by the Company hereunder. (m) All executed agreements, contracts or other documents or copies of executed agreements, contracts or other documents filed as exhibits to the Registration Statement to which any of the Company or the Subsidiaries is a party or by which it or they may be bound or to which its or their respective assets, properties or business may be subject have been duly and validly authorized, executed and delivered by the Company or the Subsidiaries, as the case may be, and constitute the legal, valid and binding agreements of the Company or the Subsidiaries, as the case may be, enforceable against each of them in accordance with their respective terms. The descriptions in the Registration Statement of agreements, contracts and other documents are accurate and fairly present the information required to be shown with respect thereto by Form SB-2, and there are no contracts or other documents which are required by the Act to be described in the Registration Statement or filed as exhibits to the Registration Statement which are not described or filed as required, and the exhibits which have been filed are complete and correct copies of the documents of which they purport to be copies. 7 8 (n) Subsequent to the respective dates as of which information is set forth in the Registration Statement and Prospectus, and except as may otherwise be indicated or contemplated herein or therein, none of the Company nor the Subsidiaries has (i) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money, (ii) entered into any transaction other than in the ordinary course of business, or (iii) declared or paid any dividend or made any other distribution on or in respect of its capital stock of any class, and there has not been any change in the capital stock, or any change in the debt (long or short term) or liabilities or material adverse change in or affecting the general affairs, management, financial operations, stockholders' equity or results of operations of any of the Company or the Subsidiaries. (o) No default exists in the due performance and observance of any term, covenant or condition of any license, contract, collective bargaining agreement, indenture, mortgage, installment sale agreement, lease, deed of trust, voting trust agreement, stockholders agreement, partnership agreement, note, loan or credit agreement, purchase order, or any other agreement or instrument evidencing an obligation for borrowed money, or any other material agreement or instrument to which any of the Company or the Subsidiaries is a party or by which any of the Company or the Subsidiaries may be bound or to which the property or assets (tangible or intangible) of any of the Company or the Subsidiaries is subject or affected. (p) Each of the Company and the Subsidiaries has generally enjoyed a satisfactory employer-employee relationship with its employees and is in compliance with all federal, state, local, and foreign laws and regulations respecting employment and employment practices, terms and conditions of employment and wages and hours. There are no pending investigations involving any of the Company or the Subsidiaries by the U.S. Department of Labor, or any other governmental agency responsible for the enforcement of such federal, state, local, or foreign laws and regulations. There is no unfair labor practice charge or complaint against any of the Company or the Subsidiaries pending before the National Labor Relations Board or any lockout, strike, picketing, boycott, dispute, slowdown or stoppage pending or threatened against or involving any of the Company or the Subsidiaries, or any predecessor entity, and none has ever occurred. No representation question exists respecting the employees of any of the Company or the Subsidiaries, and no collective bargaining agreement or modification thereof is currently being negotiated by any of the Company or the Subsidiaries. No grievance or arbitration proceeding is pending under any expired or existing collective bargaining agreements of any of the Company or the Subsidiaries. No labor dispute with the employees of any of the Company or the Subsidiaries exists, or, is imminent. (q) None of the Company nor any of the Subsidiaries maintains, sponsors or contributes to any program or arrangement that is an "employee pension benefit plan," an "employee welfare benefit plan," or a "multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans"). None of the Company nor the Subsidiaries maintains or contributes, now or at any time previously, to a defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975 of the Code, which could subject the Company or the Subsidiaries to any tax penalty on prohibited 8 9 transactions and which has not adequately been corrected. Each ERISA Plan is in compliance with all reporting, disclosure and other requirements of the Code and ERISA as they relate to any such ERISA Plan. Determination letters have been received from the Internal Revenue Service with respect to each ERISA Plan which is intended to comply with Code Section 401(a), stating that such ERISA Plan and the attendant trust are qualified thereunder. None of the Company nor the Subsidiaries has ever completely or partially withdrawn from a "multiemployer plan." (r) None of the Company, the Subsidiaries, nor any of its or their respective employees, directors, stockholders, partners, or affiliates (within the meaning of the Rules and Regulations) of any of the foregoing has taken or will take, directly or indirectly, any action designed to or which has constituted or which might be expected to cause or result in, under the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities or otherwise. (s) Except as otherwise disclosed in the Prospectus, none of the patents, patent applications, trademarks, service marks, trade names and copyrights, and licenses and rights to the foregoing presently owned or held by any of the Company or the Subsidiaries, are in dispute so far as known by the Company or are in any conflict with the right of any other person or entity. Each of the Company and the Subsidiaries (i) owns or has the right to use, free and clear of all liens, charges, claims, encumbrances, pledges, security interests, defects or other restrictions or equities of any kind whatsoever, all patents, trademarks, service marks, trade names and copyrights, technology and licenses and rights with respect to the foregoing, used in the conduct of its business as now conducted or proposed to be conducted without infringing upon or otherwise acting adversely to the right or claimed right of any person, corporation or other entity under or with respect to any of the foregoing and (ii) is not obligated or under any liability whatsoever to make any payment by way of royalties, fees or otherwise to any owner or licensee of, or other claimant to, any patent, trademark, service mark, trade name, copyright, know-how, technology or other intangible asset, with respect to the use thereof or in connection with the conduct of its business or otherwise. (t) Each of the Company and the Subsidiaries has good and marketable title to, or valid and enforceable leasehold estates in, all items of real and personal property stated in the Prospectus to be owned or leased by it, free and clear of all liens, charges, claims, encumbrances, pledges, security interests, defects, or other restrictions or equities of any kind whatsoever, other than those referred to in the Prospectus and liens for taxes not yet due and payable. (u) Ernst & Young, LLP, whose report is filed with the Commission as a part of the Registration Statement, are independent certified public accountants as required by the Act and the Rules and Regulations. (v) The Company has caused to be duly executed legally binding and enforceable agreements pursuant to which each of the Company's officers, directors, stockholders and holders of securities exchangeable or exercisable for or convertible into shares of Common Stock has agreed (i) not to, directly or indirectly, issue, offer, offer to sell, sell, grant any option for 9 10 the sale or purchase of, assign, transfer, pledge, hypothecate or otherwise encumber or dispose of any shares of Common Stock or securities convertible into, exercisable or exchangeable for or evidencing any right to purchase or subscribe for any shares of Common Stock (either pursuant to Rule 144 of the Rules and Regulations or otherwise) or dispose of any beneficial interest therein for a period of not less than thirteen (13) months following the effective date of the Registration Statement without the prior written consent of the Representative and the Company and (ii) to waive all rights to request or demand the registration pursuant to the Act of any securities of the Company which are registered in the name of or beneficially owned by any such holder. During the 13 month period commencing on the effective date of the Registration Statement, the Company shall not, without the prior written consent of the Representative, sell, contract or offer to sell, issue, transfer, assign, pledge, distribute, or otherwise dispose of, directly or indirectly, any shares of Common Stock or any options, rights or warrants with respect to any shares of Common Stock. The Company will cause the Transfer Agent (as hereinafter defined) to mark an appropriate legend on the face of stock certificates representing all of such securities and to place "stop transfer" orders on the Company's stock ledgers. (w) There are no claims, payments, issuances, arrangements or understandings, whether oral or written, for services in the nature of a finder's or origination fee with respect to the sale of the Securities hereunder or any other arrangements, agreements, understandings, payments or issuance with respect to the Company, the Subsidiaries, or any of its or their respective officers, directors, stockholders, partners, employees or affiliates, that may affect the Underwriters' compensation, as determined by the National Association of Securities Dealers, Inc. ("NASD"). (x) The Common Stock has been approved for quotation on the Nasdaq Small Cap Market ("Nasdaq/NM"). (y) None of the Company, the Subsidiaries, nor any of its or their respective officers, employees, agents or any other person acting on behalf of any of the Company or the Subsidiaries has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any governmental agency (domestic or foreign) or instrumentality of any government (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who was, is, or may be in a position to help or hinder the business of any of the Company or the Subsidiaries (or assist any of the Company or the Subsidiaries in connection with any actual or proposed transaction) which (a) might subject any of the Company or the Subsidiaries, or any other such person to any damage or penalty in any civil, criminal or governmental litigation or proceeding (domestic or foreign), (b) if not given in the past, might have had a material adverse effect on the assets, business or operations of any of the Company or the Subsidiaries, or (c) if not continued in the future, might adversely affect the assets, business, condition, financial or otherwise, earnings, position, properties, value, operations or prospects of any of the Company or the Subsidiaries. The Company's and each Subsidiary's internal accounting controls are sufficient to cause each of the Company and the Subsidiaries to comply with the Foreign Corrupt Practices Act of 1977, as amended. 10 11 (z) Except as set forth in the Prospectus, no officer, director, stockholder or partner of the Company or of any Subsidiary, or any "affiliate" or "associate" (as these terms are defined in Rule 405 promulgated under the Rules and Regulations) of any of the foregoing persons or entities has or has had, either directly or indirectly, (i) an interest in any person or entity which (A) furnishes or sells services or products which are furnished or sold or are proposed to be furnished or sold by any of the Company or the Subsidiaries, or (B) purchases from or sells or furnishes to any of the Company or the Subsidiaries any goods or services, or (ii) a beneficiary interest in any contract or agreement to which the Company or any Subsidiary is a party or by which it may be bound or affected. Except as set forth in the Prospectus under "Certain Transactions," there are no existing agreements, arrangements, understandings or transactions, or proposed agreements, arrangements, understandings or transactions, between or among the Company or any Subsidiary, and any officer, director, or 5% or greater securityholder of the Company or any Subsidiary, or any partner, affiliate or associate of any of the foregoing persons or entities. (aa) Any certificate signed by any officer of the Company or any Subsidiary, and delivered to the Underwriters or to Underwriters' Counsel (as defined herein) shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby. (ab) The minute books of each of the Company and the Subsidiaries have been made available to the Underwriters and contain a complete summary of all meetings and actions of the directors (including committees thereof) and stockholders of each of the Company and the Subsidiaries, since the time of its incorporation, and reflect all transactions referred to in such minutes accurately in all material respects. (ac) Except and to the extent described in the Prospectus, no holders of any securities of the Company or of any options, warrants or other convertible or exchangeable securities of the Company have the right to include any securities issued by the Company in the Registration Statement or any registration statement to be filed by the Company or to require the Company to file a registration statement under the Act and no person or entity holds any anti-dilution rights with respect to any securities of the Company. (ad) The Company has as of the effective date of the Registration Statement (i) entered into an employment agreement with each of C. Thomas McMillen in the form filed as Exhibit ______ to the Registration Statement and (ii) purchased term key person insurance on the life of Mr. McMillen in the amount of $1 million which policy names the Company as the sole beneficiary thereof. (ae) As of the date hereof, the Company does not have more than _________ shares of Common Stock issued and outstanding (including securities with equivalent rights as the Common Stock and shares of Common Stock, or such equivalent securities, issuable upon exercise of any and all options, warrants and other contract rights and securities convertible directly or indirectly into shares of Common Stock or such equivalent securities, but excluding up to ___________ shares of Common Stock issuable upon the exercise of options granted under 11 12 the Company's 1996 Stock Option Plan at prices not less than the higher of the market value of the shares at the date of the grant or the offering price per share). (af) Each of the Company and the Subsidiaries confirms as of the date hereof that it is in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to Disclosure of Doing Business with Cuba, and each of the Company and the Subsidiaries further agrees that if it or any affiliate commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba after the date the Registration Statement becomes or has become effective with the Commission or with the Florida Department of Banking and Finance (the "Department"), whichever date is later, or if the information reported or incorporated by reference in the Prospectus, if any, concerning the Company's, any Subsidiary's or any affiliate's, business with Cuba or with any person or affiliate located in Cuba changes in any material way, the Company will provide the Department notice of such business or change, as appropriate, in a form acceptable to the Department. (ag) The Company is not, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds therefrom as described in the Prospectus under the caption "Use of Proceeds" will not be, an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act"). (ah) Each of the Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparations of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorizations; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (ai) The Company has entered into a warrant agreement substantially in the form filed as Exhibit ____ to the Registration Statement (the "Warrant Agreement") with the Representative and Continental Stock Transfer and Trust Company, as Warrant Agent, in form and substance satisfactory to the Representative, with respect to the Redeemable Warrants and providing for the payment of the commission contemplated by Section 4(v). 2. Purchase, Sale and Delivery of the Securities. (a) On the basis of the representations, warranties, covenants and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, and each Underwriter, severally and not jointly, agrees to purchase from the Company at a price of $_______ [90% of the public offering price] per Share and $_______ [90% of the public offering price] per Redeemable Warrant, that number of Firm Securities set forth in Schedule A opposite the name of such Underwriter, subject to such adjustment as the Representative in its sole discretion shall make to eliminate any sales or purchases of fractional 12 13 shares, plus any additional number of Firm Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 11 hereof. (b) In addition, on the basis of the representations, warranties, covenants and agreements herein contained, but subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase all or any part of an additional 150,000 shares of Common Stock at a price of $ ____ [90% of the public offering price] per share of Common Stock and/or an additional 150,000 Redeemable Warrants at a price of $______ [90% of the public offering price] per Redeemable Warrant. The option granted hereby will expire forty-five (45) days after (i) the date the Registration Statement becomes effective, if the Company has elected not to rely on Rule 430A under the Rules and Regulations, or (ii) the date of this Agreement if the Company has elected to rely upon Rule 430A under the Rules and Regulations, and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Firm Securities upon notice by the Representative to the Company setting forth the number of Option Securities as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for any such Option Securities. Any such time and date of delivery (an "Option Closing Date") shall be determined by the Representative, but shall not be later than three (3) full business days after the exercise of said option, nor in any event prior to the Closing Date, as hereinafter defined, unless otherwise agreed upon by the Representative and the Company. Nothing herein contained shall obligate the Underwriters to make any over-allotments. No Option Securities shall be delivered unless the Firm Securities shall be simultaneously delivered or shall theretofore have been delivered as herein provided. (c) Payment of the purchase price for, and delivery of certificates for, the Firm Securities shall be made at the offices of the Representative at 1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154, or at such other place as shall be agreed upon by the Representative and the Company. Such delivery and payment shall be made at 10:00 a.m. (New York City time) on _______________, 1997 or at such other time and date as shall be agreed upon by the Representative and the Company, but not less than three (3) nor more than five (5) full business days after the effective date of the Registration Statement (such time and date of payment and delivery being herein called the "Closing Date"). In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of certificates for, such Option Securities shall be made at the above-mentioned office of the Representative or at such other place as shall be agreed upon by the Representative and the Company on each Option Closing Date as specified in the notice from the Representative to the Company. Delivery of the certificates for the Firm Securities and the Option Securities, if any, shall be made to the Underwriters against payment by the Underwriters, severally and not jointly, of the purchase price for the Firm Securities and the Option Securities, if any, to the order of the Company for the Firm Securities and the Option Securities, if any, by New York Clearing House funds. In the event such option is exercised, each of the Underwriters, acting severally and not jointly, shall purchase that proportion of the total number of Option Securities then being purchased which the number of Firm Securities set forth in Schedule A hereto opposite the name of such Underwriter bears to the total number of Firm Securities, subject in each case to such adjustments as the Representative in its discretion shall make to eliminate any 13 14 sales or purchases of fractional shares. Certificates for the Firm Securities and the Option Securities, if any, shall be in definitive, fully registered form, shall bear no restrictive legends and shall be in such denominations and registered in such names as the Underwriters may request in writing at least two (2) business days prior to the Closing Date or the relevant Option Closing Date, as the case may be. The certificates for the Firm Securities and the Option Securities, if any, shall be made available to the Representative at such office or such other place as the Representative may designate for inspection, checking and packaging no later than 9:30 a.m. on the last business day prior to the Closing Date or the relevant Option Closing Date, as the case may be. (d) On the Closing Date, the Company shall issue and sell to the Representative Representative's Warrants at a purchase price of $.0001 per warrant, which Representative's Warrants shall entitle the holders thereof to purchase an aggregate of 100,000 shares of Common Stock and/or 100,000 Redeemable Warrants. The Representative's Warrants shall be exercisable for a period of four (4) years commencing one (1) year from the effective date of the Registration Statement at a price equaling one hundred twenty percent (120%) of the respective initial public offering price of the Shares and the Redeemable Warrants. The Representative's Warrant Agreement and form of Warrant Certificate shall be substantially in the form filed as Exhibit [___] to the Registration Statement. Payment for the Representative's Warrants shall be made on the Closing Date. 3. Public Offering of the Shares and Redeemable Warrants. As soon after the Registration Statement becomes effective as the Representative deems advisable, the Underwriters shall make a public offering of the Shares and Redeemable Warrants (other than to residents of or in any jurisdiction in which qualification of the Shares and Redeemable Warrants is required and has not become effective) at the price and upon the other terms set forth in the Prospectus. The Representative may from time to time increase or decrease the respective public offering price after distribution of the Shares and Redeemable Warrants has been completed to such extent as the Representative, in its sole discretion deems advisable. The Underwriters may enter into one of more agreements as the Underwriters, in each of their sole discretion, deem advisable with one or more broker-dealers who shall act as dealers in connection with such public offering. 4. Covenants and Agreements of the Company. The Company covenants and agrees with each of the Underwriters as follows: (a) The Company shall use its best efforts to cause the Registration Statement and any amendments thereto to become effective as promptly as practicable and will not at any time, whether before or after the effective date of the Registration Statement, file any amendment to the Registration Statement or supplement to the Prospectus or file any document under the Act or Exchange Act before termination of the offering of the Shares and Redeemable Warrants by the Underwriters of which the Representative shall not previously have been advised and furnished with a copy, or to which the Representative shall have objected or which is not in compliance with the Act, the Exchange Act or the Rules and Regulations. 14 15 (b) As soon as the Company is advised or obtains knowledge thereof, the Company will advise the Representative and confirm the notice in writing (i) when the Registration Statement, as amended, becomes effective, if the provisions of Rule 430A promulgated under the Act will be relied upon, when the Prospectus has been filed in accordance with said Rule 430A and when any post-effective amendment to the Registration Statement becomes effective; (ii) of the issuance by the Commission of any stop order or of the initiation, or the threatening, of any proceeding suspending the effectiveness of the Registration Statement or any order preventing or suspending the use of the Preliminary Prospectus or the Prospectus, or any amendment or supplement thereto, or the institution of proceedings for that purpose; (iii) of the issuance by the Commission or by any state securities commission of any proceedings for the suspension of the qualification of any of the Securities for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose; (iv) of the receipt of any comments from the Commission; and (v) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information. If the Commission or any state securities commission shall enter a stop order or suspend such qualification at any time, the Company will make every effort to obtain promptly the lifting of such order. (c) The Company shall file the Prospectus (in form and substance satisfactory to the Representative) or transmit the Prospectus by a means reasonably calculated to result in filing with the Commission pursuant to Rule 424(b)(1) (or, if applicable and if consented to by the Representative, pursuant to Rule 424(b)(4)) not later than the Commission's close of business on the earlier of (i) the second business day following the execution and delivery of this Agreement and (ii) the fifth business day after the effective date of the Registration Statement. (d) The Company will give the Representative notice of its intention to file or prepare any amendment to the Registration Statement (including any post-effective amendment) or any amendment or supplement to the Prospectus (including any revised prospectus which the Company proposes for use by the Underwriters in connection with the offering of the Securities which differs from the corresponding prospectus on file at the Commission at the time the Registration Statement becomes effective, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) of the Rules and Regulations), and will furnish the Representative with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such prospectus to which the Representative or Orrick, Herrington & Sutcliffe LLP ("Underwriters' Counsel") shall object. (e) The Company shall endeavor in good faith, in cooperation with the Representative, at or prior to the time the Registration Statement becomes effective, to qualify the Securities for offering and sale under the securities laws of such jurisdictions as the Representative may designate to permit the continuance of sales and dealings therein for as long as may be necessary to complete the distribution, and shall make such applications, file such documents and furnish such information as may be required for such purpose; provided, however, the Company shall not be required to qualify as a foreign corporation or file a general or limited consent to service of process in any such jurisdiction. In each jurisdiction where such qualification shall be effected, the Company will, unless the Representative agrees that such action is not at the time 15 16 necessary or advisable, use all reasonable efforts to file and make such statements or reports at such times as are or may reasonably be required by the laws of such jurisdiction to continue such qualification. (f) During the time when a prospectus is required to be delivered under the Act, the Company shall use all reasonable efforts to comply with all requirements imposed upon it by the Act and the Exchange Act, as now and hereafter amended and by the Rules and Regulations, as from time to time in force, so far as necessary to permit the continuance of sales of or dealings in the Securities in accordance with the provisions hereof and the Prospectus, or any amendments or supplements thereto. If at any time when a prospectus relating to the Securities is required to be delivered under the Act, any event shall have occurred as a result of which, in the opinion of counsel for the Company or Underwriters' Counsel, the Prospectus, as then amended or supplemented, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus to comply with the Act, the Company will notify the Representative promptly and prepare and file with the Commission an appropriate amendment or supplement in accordance with Section 10 of the Act, each such amendment or supplement to be satisfactory to Underwriters' Counsel, and the Company will furnish to the Underwriters copies of such amendment or supplement as soon as available and in such quantities as the Underwriters may request. (g) As soon as practicable, but in any event not later than forty-five (45) days after the end of the 12-month period beginning on the day after the end of the fiscal quarter of the Company during which the effective date of the Registration Statement occurs (ninety (90) days in the event that the end of such fiscal quarter is the end of the Company's fiscal year), the Company shall make generally available to its security holders, in the manner specified in Rule 158(b) of the Rules and Regulations, and to the Representative, an earnings statement which will be in the detail required by, and will otherwise comply with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules and Regulations, which statement need not be audited unless required by the Act, covering a period of at least twelve (12) consecutive months after the effective date of the Registration Statement. (h) During a period of seven (7) years after the date hereof, the Company will furnish to its stockholders, as soon as practicable, annual reports (including financial statements audited by independent public accountants) and unaudited quarterly reports of earnings, and will deliver to the Representative: i. concurrently with furnishing such quarterly reports to its stockholders, statements of income of the Company for each quarter in the form furnished to the Company's stockholders and certified by the Company's principal financial or accounting officer; ii. concurrently with furnishing such annual reports to its stockholders, a balance sheet of the Company as at the end of the preceding fiscal year, together with statements of operations, stockholders' equity, and cash flows of the Company for such fiscal year, 16 17 accompanied by a copy of the certificate thereon of independent certified public accountants; iii. as soon as they are available, copies of all reports (financial or other) mailed to stockholders; iv. as soon as they are available, copies of all reports and financial statements furnished to or filed with the Commission, the NASD or any securities exchange; v. every press release and every material news item or article of interest to the financial community in respect of the Company, or its affairs, which was released or prepared by or on behalf of the Company; and vi. any additional information of a public nature concerning the Company (and any future subsidiary) or its businesses which the Representative may request. During such seven-year period, if the Company has an active subsidiary, the foregoing financial statements will be on a consolidated basis to the extent that the accounts of the Company and its subsidiary(ies) are consolidated, and will be accompanied by similar financial statements for any significant subsidiary which is not so consolidated. (i) The Company will maintain a transfer agent and warrant agent ("Transfer Agent") and, if necessary under the jurisdiction of incorporation of the Company, a Registrar (which may be the same entity as the Transfer Agent) for its Common Stock and Redeemable Warrants. (j) The Company will furnish to the Representative or on the Representative's order, without charge, at such place as the Representative may designate, copies of each Preliminary Prospectus, the Registration Statement and any pre-effective or post-effective amendments thereto (two of which copies will be signed and will include all financial statements and exhibits), the Prospectus, and all amendments and supplements thereto, including any prospectus prepared after the effective date of the Registration Statement, in each case as soon as available and in such quantities as the Representative may request. (k) On or before the effective date of the Registration Statement, the Company shall provide the Representative with true original copies of duly executed, legally binding and enforceable agreements pursuant to which, for a period of thirteen (13) months from the effective date of the Registration Statement, each of the Company's stockholders and holders of securities exchangeable or exercisable for or convertible into shares of Common Stock agrees that it or he or she (i) will not, directly or indirectly, issue, offer to sell, sell, grant an option for the sale or purchase of, assign, transfer, pledge, hypothecate or otherwise encumber or dispose of any shares of Common Stock or securities convertible into, exercisable or exchangeable for or evidencing any right to purchase or subscribe for any shares of Common Stock (either pursuant to Rule 144 of the Rules and Regulations or otherwise) or dispose of any beneficial interest therein without the prior consent of the Representative (collectively, the "Lock-up Agreements") and (ii) waives, during such 13 month period, any and all rights to request or demand the registration pursuant to the Act, of any securities of the Company which 17 18 are registered in the name of or beneficially owned by it or he or she, respectively. During the 13 month period commencing on the effective date of the Registration Statement, the Company shall not, without the prior written consent of the Representative, sell, contract or offer to sell, issue, transfer, assign, pledge, distribute, or otherwise dispose of, directly or indirectly, any shares of Common Stock or any options, rights or warrants with respect to any shares of Common Stock. On or before the Closing Date, the Company shall deliver instructions to the Transfer Agent authorizing it to place appropriate legends on the certificates representing the securities subject to the Lock-up Agreements and to place appropriate stop transfer orders on the Company's ledgers. (l) None of the Company, the Subsidiaries, nor any of its or their respective officers, directors, stockholders, nor any of its or their respective affiliates (within the meaning of the Rules and Regulations) will take, directly or indirectly, any action designed to, or which might in the future reasonably be expected to cause or result in, stabilization or manipulation of the price of any securities of the Company. (m) The Company shall apply the net proceeds from the sale of the Securities in the manner, and subject to the conditions, set forth under "Use of Proceeds" in the Prospectus. No portion of the net proceeds will be used, directly or indirectly, to acquire any securities issued by the Company. (n) The Company shall timely file all such reports, forms or other documents as may be required (including, but not limited to, a Form SR as may be required pursuant to Rule 463 under the Act) from time to time, under the Act, the Exchange Act, and the Rules and Regulations, and all such reports, forms and documents filed will comply as to form and substance with the applicable requirements under the Act, the Exchange Act, and the Rules and Regulations. (o) The Company shall furnish to the Representative as early as practicable prior to each of the date hereof, the Closing Date and each Option Closing Date, if any, but no later than two (2) full business days prior thereto, a copy of the latest available unaudited interim financial statements of the Company (which in no event shall be as of a date more than thirty (30) days prior to the date of the Registration Statement) which have been read by the Company's independent public accountants, as stated in their letters to be furnished pursuant to Sections 6(l) and 6(m) hereof. (p) The Company shall cause the Common Stock and Redeemable Warrants to be quoted on Nasdaq and, for a period of seven (7) years from the date hereof, use its best efforts to maintain the Nasdaq quotation of the Common Stock and the Redeemable Warrants to the extent outstanding. (q) For a period of five (5) years from the Closing Date, the Company shall furnish to the Representative at the Company's sole expense, (i) daily consolidated transfer sheets relating to the Common Stock and Redeemable Warrants (ii) the list of holders of all of the Company's securities and (iii) a Blue Sky "Trading Survey" for secondary sales of the Company's securities prepared by counsel to the Company. 18 19 (r) As soon as practicable, (i) but in no event more than five (5) business days before the effective date of the Registration Statement, file a Form 8-A with the Commission providing for the registration under the Exchange Act of the Securities and (ii) but in no event more than thirty (30) days after the effective date of the Registration Statement, take all necessary and appropriate actions to be included in Standard and Poor's Corporation Descriptions and Moody's OTC Manual and to continue such inclusion for a period of not less than seven (7) years. (s) The Company hereby agrees that it will not, for a period of thirteen (13) months from the effective date of the Registration Statement, adopt, propose to adopt or otherwise permit to exist any employee, officer, director, consultant or compensation plan or similar arrangement permitting (i) the grant, issue, sale or entry into any agreement to grant, issue or sell any option, warrant or other contract right (x) at an exercise price that is less than the greater of the public offering price of the Shares set forth herein and the fair market value on the date of grant or sale or (y) to any of its executive officers or directors or to any holder of 5% or more of the Common Stock, except as provided in subsection (ii) of this subparagraph; (ii) the maximum number of shares of Common Stock or other securities of the Company purchasable at any time pursuant to options or warrants issued by the Company to exceed the aggregate _______ shares reserved for future issuance under the Company's Stock Option Plans described in footnote one (1) to the "Prospectus Summary - The Offering" section of the Prospectus; (iii) the payment for such securities with any form of consideration other than cash; or (iv) the existence of stock appreciation rights, phantom options or similar arrangements. (t) Until the completion of the distribution of the Securities, the Company shall not, without the prior written consent of the Representative and Underwriters' Counsel, issue, directly or indirectly, any press release or other communication or hold any press conference with respect to the Company or its activities or the offering contemplated hereby, other than trade releases issued in the ordinary course of the Company's business consistent with past practices with respect to the Company's operations. (u) For a period equal to the lesser of (i) seven (7) years from the date hereof, and (ii) the sale to the public of the Representative's Securities, the Company will not take any action or actions which may prevent or disqualify the Company's use of Form SB-2 (or other appropriate form) for the registration under the Act of the Representative's Securities. The Company further agrees to use its best efforts to file such post-effective amendments to the Registration Statement, as may be necessary, in order to maintain its effectiveness and to keep such Registration Statement effective while any of the Redeemable Warrants or Representative's Warrants remain outstanding. (v) Commencing one year and one day from the date hereof, if the Company engages the Representative as a warrant solicitation agent under the terms of the Warrant Agreement, the Company shall pay the Representative a commission equal to five percent (5%) of the exercise price of the Redeemable Warrants, payable on the date of the exercise thereof on the terms provided in the Warrant Agreement; provided, however, the Representative shall be entitled to receive the commission contemplated by this Section 4(x) only if: (i) the Representative has provided actual services in connection with the solicitation of the exercise of a Redeemable Warrant by a Warrantholder and (ii) the Warrantholder exercising a Redeemable 19 20 Warrant affirmatively designates in writing on the exercise form on the reverse side of the Redeemable Warrant Certificate that the exercise of such Warrantholder's Redeemable Warrant was solicited by the Representative. (w) For a period of three (3) years from the effective date of the Registration Statement, the Company hereby agrees to grant the Representative a preferential right of first refusal on the terms and subject to the conditions set forth in this paragraph, to purchase for cash for its account, or to sell for cash for the account of the Company, or of any present or future subsidiaries or affiliates thereof, any securities issued or to be issued by the Company, or any present or future subsidiaries or affiliates thereof, with respect to which the Company, or any present or future subsidiaries or affiliates thereof may seek a sale of such securities and the Company will consult, and will cause any such present or future subsidiaries or affiliates to consult with the Representative with regard to any such offering or placement and will offer, or cause any of its present or future subsidiaries to offer, to the Representative the opportunity, on terms not more favorable to the Company, or any present or future subsidiary or affiliate thereof than they can secure elsewhere, to purchase or sell any such securities. If the Representative fails to accept in writing such proposal made by the Company, or any present or future subsidiaries or affiliates thereof within thirty (30) business days after receipt of a notice containing such proposal (which notice may be delivered to the Representative simultaneously), then the Representative shall have no further claim or right with respect to the proposal contained in such notice. If, thereafter such proposal is modified, the Company shall again consult, and cause any present or future subsidiary or affiliate to consult, with the Representative in connection with such modification and shall in all respects have the same obligations and adopt the same procedures with respect to such proposal as are provided hereinabove with respect to the original proposal, except that the thirty (30) business day period provided hereinabove shall instead be twenty (20) business days. (x) For a period of five (5) years from the effective date of the Registration Statement, the Company hereby agrees to use its best efforts to nominate for election and elect one (1) person designated by the Representative to the Company's Board of Directors (the "Board"), which person shall be entitled to all fees, payments, expense reimbursements and other rights and privileges generally accorded to the other members of the Board. In the event the Representative elects not to exercise its right to designate one (1) person for election to the Board, then the Representative shall have the right to designate one (1) person to attend all meetings of the Board. The Company shall send to such person all notices and other correspondence and communications sent by the Company to members of the Board. Such designee of the Representative shall be reimbursed for all out-of-pocket expenses incurred in connection with his attendance of meetings of the Board. 5. Payment of Expenses. (a) The Company hereby agrees to pay on each of the Closing Date and the Option Closing Date (to the extent not paid at the Closing Date) all expenses and fees (other than fees of Underwriters' Counsel, except as provided in (iv) below) incident to the performance of the obligations of the Company under this Agreement, the Warrant Agreement and the Representative's Warrant Agreement, including, without limitation, (i) the fees and expenses of 20 21 accountants and counsel for the Company, (ii) all costs and expenses incurred in connection with the preparation, duplication, printing (including mailing and handling charges), filing, delivery and mailing (including the payment of postage with respect thereto) of the Registration Statement and the Prospectus and any amendments and supplements thereto and the printing, mailing (including the payment of postage with respect thereto) and delivery of this Agreement, the Warrant Agreement, the Representative's Warrant Agreement, the Agreement Among Underwriters, the Selected Dealer Agreements, and related documents, including the cost of all copies thereof and of the Preliminary Prospectuses and of the Prospectus and any amendments thereof or supplements thereto supplied to the Underwriters and such dealers as the Underwriters may request, in quantities as hereinabove stated, (iii) the printing, engraving, issuance and delivery of the Securities including, but not limited to, (x) the purchase by the Underwriters of the Firm Securities and the Option Securities and the purchase by the Representative of the Representative's Warrants from the Company, (y) the consummation by the Company of any of its obligations under this Agreement, the Warrant Agreement and the Representative's Warrant Agreement, and (z) resale of the Firm Securities and the Option Securities by the Underwriters in connection with the distribution contemplated hereby, (iv) the qualification of the Securities under state or foreign securities or "Blue Sky" laws and determination of the status of such securities under legal investment laws, including the costs of printing and mailing the "Preliminary Blue Sky Memorandum", the "Supplemental Blue Sky Memorandum" and "Legal Investments Survey," if any, and disbursements and fees of counsel in connection therewith (such fees not to exceed $40,000), (v) advertising costs and expenses, including but not limited to costs and expenses in connection with the "road show", information meetings and presentations, bound volumes and prospectus memorabilia and "tomb-stone" advertisement expenses, (vi) costs and expenses in connection with due diligence investigations, including but not limited to the fees of any independent counsel, expert or consultant retained, (vii) fees and expenses of the Transfer Agent and registrar and all issue and transfer taxes, if any, (viii) applications for assignment of a rating of the Securities by qualified rating agencies, (ix) the fees payable to the Commission and the NASD, and (x) the fees and expenses incurred in connection with the quotation of the Securities on Nasdaq and any other exchange. (b) If this Agreement is terminated by the Underwriters in accordance with the provisions of Section 6 or Section 12, the Company shall reimburse and indemnify the Underwriters for all of their actual out-of-pocket expenses, including the fees and disbursements of Underwriters' Counsel, less any amounts already paid pursuant to Section 5(c) hereof. (c) The Company further agrees that, in addition to the expenses payable pursuant to subsection (a) of this Section 5, it will pay to the Representative on the Closing Date by certified or bank cashier's check or, at the election of the Representative, by deduction from the proceeds of the offering contemplated herein a non-accountable expense allowance equal to three percent (3%) of the gross proceeds received by the Company from the sale of the Firm Securities, $50,000 of which has been paid to date. In the event the Representative elects to exercise the over-allotment option described in Section 2(b) hereof, the Company agrees to pay to the Representative on the Option Closing Date (by certified or bank cashier's check or, at the Representative's election, by deduction from the proceeds of the offering) a non-accountable expense allowance equal to three percent (3%) of the gross proceeds received by the Company from the sale of the Option Securities. 21 22 6. Conditions of the Underwriters' Obligations. The obligations of the Underwriters hereunder shall be subject to the continuing accuracy of the representations and warranties of the Company herein as of the date hereof and as of the Closing Date and each Option Closing Date, if any, as if they had been made on and as of the Closing Date or each Option Closing Date, as the case may be; the accuracy on and as of the Closing Date or Option Closing Date, if any, of the statements of the officers of the Company made pursuant to the provisions hereof; and the performance by the Company on and as of the Closing Date and each Option Closing Date, if any, of its covenants and obligations hereunder and to the following further conditions: (a) The Registration Statement shall have become effective not later than 12:00 P.M., New York time, on the date of this Agreement or such later date and time as shall be consented to in writing by the Representative, and, at the Closing Date and each Option Closing Date, if any, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or shall be pending or contemplated by the Commission and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of Underwriters' Counsel. If the Company has elected to rely upon Rule 430A of the Rules and Regulations, the price of the Shares and Redeemable Warrants and any price-related information previously omitted from the effective Registration Statement pursuant to such Rule 430A shall have been transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules and Regulations within the prescribed time period and, prior to the Closing Date, the Company shall have provided evidence satisfactory to the Representative of such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of Rule 430A of the Rules and Regulations. (b) The Representative shall not have advised the Company that the Registration Statement, or any amendment thereto, contains an untrue statement of fact which, in the Representative's opinion, is material, or omits to state a fact which, in the Representative's opinion, is material and is required to be stated therein or is necessary to make the statements therein not misleading, or that the Prospectus, or any supplement thereto, contains an untrue statement of fact which, in the Representative's opinion, is material, or omits to state a fact which, in the Representative's opinion, is material and is required to be stated therein or is necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (c) On or prior to each of the Closing Date and each Option Closing Date, if any, the Representative shall have received from Underwriters' Counsel, such opinion or opinions with respect to the organization of the Company, the validity of the Securities, the Registration Statement, the Prospectus and other related matters as the Representative may request and Underwriters' Counsel shall have received such papers and information as they request to enable them to pass upon such matters. (d) At the Closing Date, the Underwriters shall have received the favorable opinion of Storch & Brenner, counsel to the Company and the Subsidiaries, dated the Closing Date, addressed to the Underwriters and in form and substance satisfactory to Underwriters' Counsel, to the effect that: 22 23 i. each of the Company and the Subsidiaries (A) has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction, (B) is duly qualified and licensed and in good standing as a foreign corporation in each jurisdiction in which its ownership or leasing of any properties or the character of its operations requires such qualification or licensing, and (C) has all requisite corporate power and authority, and has obtained any and all necessary authorizations, approvals, orders, licenses, certificates, franchises and permits of and from all governmental or regulatory officials and bodies (including, without limitation, those having jurisdiction over environmental or similar matters), to own or lease its properties and conduct its business as described in the Prospectus; each of the Company and the Subsidiaries is and has been doing business in compliance with all such authorizations, approvals, orders, licenses, certificates, franchises and permits and all federal, state and local laws, rules and regulations; and, none of the Company nor the Subsidiaries has received any notice of proceedings relating to the revocation or modification of any such authorization, approval, order, license, certificate, franchise, or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would materially adversely affect the business, operations, condition, financial or otherwise, or the earnings, business affairs, position, prospects, value, operation, properties, business or results of operations of the Company and the Subsidiaries taken as whole. The disclosures in the Registration Statement concerning the effects of federal, state and local laws, rules and regulations on each of the Company's and the Subsidiaries' businesses as currently conducted and as contemplated are correct in all material respects and do not omit to state a fact required to be stated therein or necessary to make the statements contained therein not misleading in light of the circumstances in which they were made. ii. The Company owns, directly or indirectly, one hundred percent (100%) of the outstanding capital stock of each of the Subsidiaries, and all such shares have been validly issued, are fully paid and non-assessable, were not issued in violation of any preemptive rights and are owned free and clear of any liens, charges, claims, encumbrances, pledges, security interests, defects or other restrictions or equities of any kind whatsoever; iii. except as described in the Prospectus, none of the Company nor the Subsidiaries owns an interest in any other corporation, partnership, joint venture, trust or other business entity; iv. the Company has a duly authorized, issued and outstanding capitalization as set forth in the Prospectus, and any amendment or supplement thereto, under "CAPITALIZATION", and the Company is not a party to or bound by any instrument, agreement or other arrangement providing for it to issue, sell, transfer, purchase or redeem any capital stock, rights, warrants, options or other securities, except for this Agreement, the Warrant Agreement and the Representative's Warrant Agreement and as described in the Prospectus. The Securities and all other securities issued or issuable by the Company conform in all material respects to all statements with respect thereto contained in the Registration Statement and the Prospectus. All issued and outstanding securities of the Company have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no rights of rescission with respect thereto, 23 24 and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company or any similar rights granted by the Company. The Securities to be sold by the Company hereunder and under the Warrant Agreement and the Representative's Warrant Agreement are not and will not be subject to any preemptive or other similar rights of any stockholder, have been duly authorized and, when issued, paid for and delivered in accordance with the terms hereof, will be validly issued, fully paid and non-assessable and conform to the description thereof contained in the Prospectus; the holders thereof will not be subject to any liability solely as such holders; all corporate action required to be taken for the authorization, issue and sale of the Securities has been duly and validly taken; and the certificates representing the Securities are in due and proper form. The Representative's Warrants and the Redeemable Warrants constitute valid and binding obligations of the Company to issue and sell, upon exercise thereof and payment therefor, the number and type of securities of the Company called for thereby. Upon the issuance and delivery pursuant to this Agreement of the Firm Securities and the Option Securities and the Representative's Warrants to be sold by the Company, the Underwriters and the Representative, respectively, will acquire good and marketable title to the Firm Securities and the Option Securities and the Representative's Warrants free and clear of any pledge, lien, charge, claim, encumbrance, pledge, security interest, or other restriction or equity of any kind whatsoever. No transfer tax is payable by or on behalf of the Underwriters in connection with (A) the issuance by the Company of the Securities, (B) the purchase by the Underwriters of the Firm Securities and the Option Securities from the Company, and the purchase by the Representative of the Representative's Warrants from the Company (C) the consummation by the Company of any of its obligations under this Agreement, the Warrant Agreement or the Representative's Warrant Agreement, or (D) resales of the Firm Securities and the Option Securities in connection with the distribution contemplated hereby. v. the Registration Statement is effective under the Act, and, if applicable, filing of all pricing information has been timely made in the appropriate form under Rule 430A, and no stop order suspending the use of the Preliminary Prospectus, the Registration Statement or Prospectus or any part of any thereof or suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or, to the best of such counsel's knowledge, threatened or contemplated under the Act; vi. each of the Preliminary Prospectus, the Registration Statement, and the Prospectus and any amendments or supplements thereto (other than the financial statements and other financial and statistical data included therein, as to which no opinion need be rendered) comply as to form in all material respects with the requirements of the Act and the Rules and Regulations. vii. to the best of such counsel's knowledge, (A) there are no agreements, contracts or other documents required by the Act to be described in the Registration Statement and the Prospectus and filed as exhibits to the Registration Statement other than those described in the Registration Statement (or required to be filed under the Exchange Act 24 25 if upon such filing they would be incorporated, in whole or in part, by reference therein) and the Prospectus and filed as exhibits thereto, and the exhibits which have been filed are correct copies of the documents of which they purport to be copies; (B) the descriptions in the Registration Statement and the Prospectus and any supplement or amendment thereto of contracts and other documents to which the Company or any Subsidiary is a party or by which it is bound, including any document to which the Company or any Subsidiary is a party or by which it is bound, incorporated by reference into the Prospectus and any supplement or amendment thereto, are accurate and fairly represent the information required to be shown by Form SB-2; (C) there is not pending or threatened against any of the Company or the Subsidiaries any action, arbitration, suit, proceeding, inquiry, investigation, litigation, governmental or other proceeding (including, without limitation, those having jurisdiction over environmental or similar matters), domestic or foreign, pending or threatened against (or circumstances that may give rise to the same), or involving the properties or business of any of the Company or the Subsidiaries which (x) is required to be disclosed in the Registration Statement which is not so disclosed (and such proceedings as are summarized in the Registration Statement are accurately summarized in all respects), (y) questions the validity of the capital stock of the Company or this Agreement, the Warrant Agreement or the Representative's Warrant Agreement, or of any action taken or to be taken by the Company pursuant to or in connection with any of the foregoing; (D) no statute or regulation or legal or governmental proceeding required to be described in the Prospectus is not described as required; and (E) there is no action, suit or proceeding pending, or threatened, against or affecting any of the Company or the Subsidiaries before any court or arbitrator or governmental body, agency or official (or any basis thereof known to such counsel) in which there is a reasonable possibility of a decision which may result in a material adverse change in the condition, financial or otherwise, or the earnings, position, prospects, stockholders' equity, value, operation, properties, business or results of operations of any of the Company or the Subsidiaries, which could adversely affect the present or prospective ability of the Company to perform its obligations under this Agreement, the Warrant Agreement or the Representative's Warrant Agreement or which in any manner draws into question the validity or enforceability of this Agreement, the Warrant Agreement or the Representative's Warrant Agreement; viii. the Company has full legal right, power and authority to enter into each of this Agreement, the Warrant Agreement and the Representative's Warrant Agreement, and to consummate the transactions provided for therein; and each of this Agreement, the Warrant Agreement and the Representative's Warrant Agreement has been duly authorized, executed and delivered by the Company. Each of this Agreement, the Warrant Agreement and the Representative's Warrant Agreement, assuming due authorization, execution and delivery by each other party thereto constitutes a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting enforcement of creditors' rights and the application of equitable principles in any action, legal or equitable, and except as rights to indemnity or contribution may be limited by applicable law), and none of the Company's execution or delivery of this Agreement, the 25 26 Warrant Agreement and the Representative's Warrant Agreement, its performance hereunder or thereunder, its consummation of the transactions contemplated herein or therein, or the conduct of its business as described in the Registration Statement, the Prospectus, and any amendments or supplements thereto, conflicts with or will conflict with or results or will result in any breach or violation of any of the terms or provisions of, or constitutes or will constitute a default under, or result in the creation or imposition of any lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction or equity of any kind whatsoever upon, any property or assets (tangible or intangible) of any of the Company or the Subsidiaries pursuant to the terms of, (A) the certificate of incorporation or by-laws of any of the Company or the Subsidiaries, (B) any license, contract, collective bargaining agreement, indenture, mortgage, deed of trust, lease, voting trust agreement, stockholders agreement, note, loan or credit agreement or any other agreement or instrument to which any of the Company or the Subsidiaries is a party or by which it is or they are or may be bound or to which any of its or their respective properties or assets (tangible or intangible) is or may be subject, or any indebtedness, or (C) any statute, judgment, decree, order, rule or regulation applicable to any of the Company or the Subsidiaries of any arbitrator, court, regulatory body or administrative agency or other governmental agency or body (including, without limitation, those having jurisdiction over environmental or similar matters), domestic or foreign, having jurisdiction over any of the Company or the Subsidiaries or any of its or their respective activities or properties. ix. no consent, approval, authorization or order, and no filing with, any court, regulatory body, government agency or other body (other than such as may be required under Blue Sky laws, as to which no opinion need be rendered) is required in connection with the issuance of the Firm Securities and the Option Securities pursuant to the Prospectus and the Registration Statement, the issuance of the Representative's Warrants, the performance of this Agreement, the Warrant Agreement and the Representative's Warrant Agreement, and the transactions contemplated hereby and thereby; x. the properties and business of each of the Company and the Subsidiaries conform in all material respects to the description thereof contained in the Registration Statement and the Prospectus; and each of the Company and the Subsidiaries has good and marketable title to, or valid and enforceable leasehold estates in, all items of real and personal property stated in the Prospectus to be owned or leased by it, in each case free and clear of all liens, charges, claims, encumbrances, pledges, security interests, defects or other restrictions or equities of any kind whatsoever, other than those referred to in the Prospectus and liens for taxes not yet due and payable; xi. none of the Company nor the Subsidiaries is in breach of, or in default under, any term or provision of any license, contract, collective bargaining agreement, indenture, mortgage, installment sale agreement, deed of trust, lease, voting trust agreement, stockholders' agreement, partnership agreement, note, loan or credit agreement or any other agreement or instrument evidencing an obligation for borrowed money, or any other agreement or instrument to which any of the Company or the Subsidiaries is a party or by which any of the Company or the Subsidiaries may be bound or to which the respective 26 27 properties or assets (tangible or intangible) of any of the Company or the Subsidiaries is subject or affected; and none of the Company nor the Subsidiaries is in violation of any term or provision of its Articles of Incorporation or By-Laws or in violation of any franchise, license, permit, judgment, decree, order, statute, rule or regulation; xii. the statements in the Prospectus under "RISK FACTORS," "THE COMPANY," "BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN TRANSACTIONS," "DESCRIPTION OF SECURITIES," and "SHARES ELIGIBLE FOR FUTURE SALE" have been reviewed by such counsel, and insofar as they refer to statements of law, descriptions of statutes, licenses, rules or regulations or legal conclusions, are correct in all material respects; xiii. the Securities have been accepted for quotation on Nasdaq; xiv. the persons listed under the caption "PRINCIPAL STOCKHOLDERS" in the Prospectus are the respective "beneficial owners" (as such phrase is defined in regulation 13d-3 under the Exchange Act) of the securities set forth opposite their respective names thereunder as and to the extent set forth therein; xv. none of the Company, the Subsidiaries nor any of their respective officers, stockholders, employees or agents, nor any other person acting on behalf of any of the Company or the Subsidiaries has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any governmental agency or instrumentality of any government (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who is or may be in a position to help or hinder the business of any of the Company or the Subsidiaries (or assist it in connection with any actual or proposed transaction) which (A) might subject any of the Company or the Subsidiaries to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (B) if not given in the past, might have had an adverse effect on the assets, business or operations of the Company and the Subsidiaries taken as a whole, as reflected in any of the financial statements contained in the Registration Statement, or (C) if not continued in the future, might adversely affect the assets, business, operations or prospects of the Company and the Subsidiaries taken as a whole; xvi. no person, corporation, trust, partnership, association or other entity has the right to include and/or register any securities of the Company in the Registration Statement, require the Company to file any registration statement or, if filed, to include any security in such registration statement; xvii. except as described in the Prospectus, there are no claims, payments, issuances, arrangements or understandings for services in the nature of a finder's or origination fee with respect to the sale of the Securities hereunder or financial consulting arrangements or any other arrangements, agreements, understandings, payments or issuances that may affect the Underwriters' compensation, as determined by the NASD; 27 28 xviii. assuming due execution by the parties thereto other than the Company, the Lock-up Agreements are legal, valid and binding obligations of the parties thereto, enforceable against the party and any subsequent holder of the securities subject thereto in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting enforcement of creditors' rights and the application of equitable principles in any action, legal or equitable, and except as rights to indemnity or contribution may be limited by applicable law); xix. except as described in the Prospectus, none of the Company nor the Subsidiaries (A) maintains, sponsors or contributes to any ERISA Plans, (B) maintains or contributes, now or at any time previously, to a defined benefit plan, as defined in Section 3(35) of ERISA, and (C) has ever completely or partially withdrawn from a "multiemployer plan"; xx. the minute books of each of the Company and the Subsidiaries have been made available to the Underwriters and contain a complete summary of all meetings and actions of the directors and stockholders of the Company since the time of its incorporation and reflect all transactions referred to in such minutes accurately in all material respects; xxi. except as set forth in the Prospectus and to the best knowledge of such counsel, no officer, director or stockholder of any of the Company or the Subsidiaries, or any "affiliate" or "associate" (as these terms are defined in Rule 405 promulgated under the Rules and Regulations) of any of the foregoing persons or entities has or has had, either directly or indirectly, (A) an interest in any person or entity which (x) furnishes or sells services or products which are furnished or sold or are proposed to be furnished or sold by any of the Company or the Subsidiaries, or (y) purchases from or sells or furnishes to any of the Company or the Subsidiaries any goods or services, or (B) a beneficial interest in any contract or agreement to which any of the Company or the Subsidiaries is a party or by which it or they may be bound or affected. Except as set forth in the Prospectus under "CERTAIN TRANSACTIONS," there are no existing agreements, arrangements, understandings or transactions, or proposed agreements, arrangements, understandings or transactions, between or among any of the Company or the Subsidiaries, and any officer, director, or 5% or greater securityholder of any of the Company or the Subsidiaries, or any affiliate or associate of any such person or entity; xxii. each of the Company and the Subsidiaries is in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to Disclosure of Doing Business with Cuba; xxiii. to the best of such counsel's knowledge, after due inquiry, there is no action, suit, proceeding, inquiry, investigation, litigation or governmental proceeding, domestic or foreign, pending or threatened (or circumstances that may give rise to the same) involving the Company's or any Subsidiary's production, use, testing, manufacturing or marketing of any products or services, which (i) questions the authority of the Company or any Subsidiary to produce, use, test, manufacture or market any products or services as described in the Prospectus, (ii) questions the completeness or accuracy of data 28 29 generated by any trials, tests or studies being conducted by or on behalf of the Company or any of its Subsidiaries, (iii) is required to be disclosed in the Prospectus which is not so disclosed, or (iv) might materially and adversely affect the condition, financial or otherwise, or the earnings, prospects, value, operations or business of the Company and the Subsidiaries, taken as a whole. xxiv. none of the Company, the Subsidiaries or any of their respective affiliates shall be subject to the requirements of or shall be deemed an "Investment Company," pursuant to and as defined under, respectively, the Investment Company Act. Such counsel shall state that such counsel has participated in conferences with officers and other representatives of the Company and the Subsidiaries, and representatives of the independent public accountants for the Company and the Subsidiaries, at which conferences such counsel made inquiries of such officers, representatives and accountants and discussed the contents of the Preliminary Prospectus, the Registration Statement, the Prospectus, and related matters and, although such counsel is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Preliminary Prospectus, the Registration Statement and Prospectus, on the basis of the foregoing, no facts have come to the attention of such counsel which lead them to believe that either the Registration Statement or any amendment thereto, at the time such Registration Statement or amendment became effective or the Preliminary Prospectus or Prospectus or amendment or supplement thereto as of the date of such opinion contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading (it being understood that such counsel need express no opinion with respect to the financial statements and schedules and other financial and statistical data included in the Preliminary Prospectus, the Registration Statement or the Prospectus). Such counsel shall further state that its opinions may be relied upon by Underwriters' Counsel in rendering its opinion to the Underwriters. In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws other than the laws of the United States and jurisdictions in which they are admitted, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance satisfactory to Underwriters' Counsel) of other counsel acceptable to Underwriters' Counsel, familiar with the applicable laws; (B) as to matters of fact, to the extent they deem proper, on certificates and written statements of responsible officers of each of the Company and the Subsidiaries and certificates or other written statements of officers of departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of each of the Company and the Subsidiaries, provided that copies of any such statements or certificates shall be delivered to Underwriters' Counsel if requested. The opinion of such counsel for the Company and the Subsidiaries shall state that the opinion of any such other counsel is in form satisfactory to such counsel and that the Representative, Underwriters' Counsel and they are each justified in relying thereon. Any opinion of counsel for the Company and the Subsidiaries shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treatise, written policy or other document relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991) or any comparable state accord. 29 30 (e) At the Closing Date, the Underwriters shall have received the favorable opinion of Winston & Strawn, special regulatory counsel to the Company and the Subsidiaries, dated the Closing Date, addressed to the Underwriters, in form and substance satisfactory to Underwriters' Counsel to the effect that: i. the statements in the Prospectus under "RISK FACTORS--Risks Associated with Managed Case Contracts,""RISK FACTORS--Government Regulation" and "BUSINESS--Government Regulation" have been reviewed by such counsel, and insofar as they refer to statements of law, descriptions of statutes, licenses, rules or regulations or legal conclusions, are correct in all material respects, do not contain any untrue statement of a material fact and do not omit to state a fact required to be stated therein or necessary to make the statements contained therein not misleading; ii. to the best of such counsel's knowledge, the Company and the Subsidiaries are in compliance in all material respects with all federal, state, local and foreign rules, orders, regulations with respect to the Company's business as currently conducted and as contemplated; iii. each of the Company and the Subsidiaries has obtained all necessary and required approvals, authorizations, licenses, orders, permits, certificates and franchises of and from all governmental or regulatory officials and bodies, domestic and foreign, to conduct its respective business as described in the Prospectus; and none of such approvals, authorizations, licenses, orders, permits, certificates and franchises have been revoked, restricted or limited in any matter and all of such approvals, authorizations, licenses, orders, permits, certificates and franchises are in full force and effect; iv. to the best of such counsel's knowledge, there is no action, suit, proceeding, inquiry, investigation, litigation or governmental proceeding, domestic or foreign, pending or threatened (or circumstances that may give rise to the same) against or affecting any of the Company or the Subsidiaries before any court or arbitrator or governmental body, agency or official in which there is a reasonable possibility of a decision which may result in a material adverse change in the condition, financial or otherwise, or the earnings, position, prospects, stockholders' equity, value, operation, properties, business or results of operations of any of the Company or the Subsidiaries. (f) At each Option Closing Date, if any, the Underwriters shall have received the favorable opinions of each of Storch & Brenner, counsel to the Company and the Subsidiaries, and Winston & Strawn, special regulatory counsel to the Company and the Subsidiaries, dated such Option Closing Date, addressed to the Underwriters and in form and substance satisfactory to Underwriters' Counsel confirming as of such Option Closing Date the statements made by each of Storch & Brenner, and Winston & Strawn, in their respective opinions delivered on the Closing Date. 30 31 (g) On or prior to each of the Closing Date and each Option Closing Date, if any, Underwriters' Counsel shall have been furnished such documents, certificates and opinions as they may reasonably require for the purpose of enabling them to review or pass upon the matters referred to in subsection (c) of this Section 6, or in order to evidence the accuracy, completeness or satisfaction of any of the representations, warranties or conditions of the Company, or herein contained. (h) Prior to each of the Closing Date and each Option Closing Date, if any, (i) there shall have been no material adverse change nor development involving a prospective change in the condition, financial or otherwise, earnings, position, value, properties, results of operations, prospects, stockholders' equity or the business activities of any of the Company or the Subsidiaries, whether or not in the ordinary course of business, from the latest dates as of which such condition is set forth in the Registration Statement and Prospectus; (ii) there shall have been no transaction, not in the ordinary course of business, entered into by any of the Company or the Subsidiaries, from the latest date as of which the financial condition of the Company and the Subsidiaries is set forth in the Registration Statement and Prospectus which is adverse to the Company and the Subsidiaries taken as a whole; (iii) none of the Company nor the Subsidiaries shall be in default under any provision of any instrument relating to any outstanding indebtedness; (iv) none of the Company nor the Subsidiaries shall have issued any securities (other than the Securities) or declared or paid any dividend or made any distribution in respect of its capital stock of any class and there has not been any change in the capital stock or any material change in the debt (long or short term) or liabilities or obligations of any of the Company or the Subsidiaries (contingent or otherwise); (v) no material amount of the assets of any of the Company or the Subsidiaries shall have been pledged or mortgaged, except as set forth in the Registration Statement and Prospectus; (vi) no action, suit or proceeding, at law or in equity, shall have been pending or threatened (or circumstances giving rise to same) against any of the Company or the Subsidiaries, or affecting any of its or their respective properties or businesses before or by any court or federal, state or foreign commission, board or other administrative agency wherein an unfavorable decision, ruling or finding may adversely affect the business, operations, earnings, position, value, properties, results of operations, prospects or financial condition or income of the Company and the Subsidiaries taken as a whole; and (vii) no stop order shall have been issued under the Act and no proceedings therefor shall have been initiated, threatened or contemplated by the Commission. (i) At each of the Closing Date and each Option Closing Date, if any, the Underwriters shall have received a certificate of the Company signed by the principal executive officer and by the chief financial or chief accounting officer of the Company, dated the Closing Date or Option Closing Date, as the case may be, to the effect that each of such persons has carefully examined the Registration Statement, the Prospectus and this Agreement, and that: i. The representations and warranties of the Company in this Agreement are true and correct, as if made on and as of the Closing Date or the Option Closing Date, as the case may be, and the Company has complied with all agreements and covenants and satisfied all conditions contained in this Agreement on its part to be performed or satisfied at or prior to such Closing Date or Option Closing Date, as the case may be; 31 32 ii. No stop order suspending the effectiveness of the Registration Statement or any part thereof has been issued, and no proceedings for that purpose have been instituted or are pending or, to the best of each of such person's knowledge, are contemplated or threatened under the Act; iii. The Registration Statement and the Prospectus and, if any, each amendment and each supplement thereto, contain all statements and information required to be included therein, and none of the Registration Statement, the Prospectus nor any amendment or supplement thereto includes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading and neither the Preliminary Prospectus or any supplement thereto included any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and iv. Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, (a) none of the Company nor the Subsidiaries has incurred up to and including the Closing Date or the Option Closing Date, as the case may be, other than in the ordinary course of its business, any material liabilities or obligations, direct or contingent; (b) none of the Company nor the Subsidiaries has paid or declared any dividends or other distributions on its capital stock; (c) none of the Company nor the Subsidiaries has entered into any transactions not in the ordinary course of business; (d) there has not been any change in the capital stock or long-term debt or any increase in the short-term borrowings (other than any increase in the short-term borrowings in the ordinary course of business) of any of the Company or the Subsidiaries; (e) none of the Company nor the Subsidiaries has sustained any loss or damage to its or their respective properties or assets, whether or not insured; (f) there is no litigation which is pending or threatened (or circumstances giving rise to same) against any of the Company or the Subsidiaries or any affiliated party of any of the foregoing which is required to be set forth in an amended or supplemented Prospectus which has not been set forth; and (g) there has occurred no event required to be set forth in an amended or supplemented Prospectus which has not been set forth. References to the Registration Statement and the Prospectus in this subsection (j) are to such documents as amended and supplemented at the date of such certificate. (j) By the Closing Date, the Underwriters will have received clearance from the NASD as to the amount of compensation allowable or payable to the Underwriters, as described in the Registration Statement. (k) At the time this Agreement is executed, the Underwriters shall have received a letter, dated such date, addressed to the Underwriters in form and substance satisfactory (including the non-material nature of the changes or decreases, if any, referred to in clause (iii) below) in all respects to the Underwriters and Underwriters' Counsel, from Ernst & Young, LLP: 32 33 i. confirming that they are independent certified public accountants with respect to the Company and the Subsidiaries within the meaning of the Act and the applicable Rules and Regulations; ii. stating that it is their opinion that the consolidated financial statements and supporting schedules of the Company and the Subsidiaries included in the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Act and the Rules and Regulations thereunder and that the Representative may rely upon the opinion of Ernst & Young, LLP with respect to the consolidated financial statements and supporting schedules included in the Registration Statement; iii. stating that, on the basis of a limited review which included a reading of the latest available unaudited interim financial statements of each of the Company and the Subsidiaries, a reading of the latest available minutes of the stockholders and board of directors and the various committees of the boards of directors of each of the Company and the Subsidiaries, consultations with officers and other employees of each of the Company and the Subsidiaries responsible for financial and accounting matters and other specified procedures and inquiries, nothing has come to their attention which would lead them to believe that (A) the unaudited consolidated financial statements and supporting schedules of the Company and the Subsidiaries included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the Act and the Rules and Regulations or are not fairly presented in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited consolidated financial statements of the Company and the Subsidiaries included in the Registration Statement, or (B) at a specified date not more than five (5) days prior to the effective date of the Registration Statement, there has been any change in the capital stock or long-term debt of any of the Company or the Subsidiaries, or any decrease in the stockholders' equity or net current assets or net assets of any of the Company or the Subsidiaries as compared with amounts shown in the September 30, 1996 balance sheet included in the Registration Statement, other than as set forth in or contemplated by the Registration Statement, or, if there was any change or decrease, setting forth the amount of such change or decrease, and (C) during the period from September 30, 1996 to a specified date not more than five (5) days prior to the effective date of the Registration Statement, there was any decrease in net revenues, net earnings or increase in net earnings per common share of any of the Company or the Subsidiaries, in each case as compared with the corresponding period beginning January 1, 1995, other than as set forth in or contemplated by the Registration Statement, or, if there was any such decrease, setting forth the amount of such decrease; iv. setting forth, at a date not later than five (5) days prior to the date of the Registration Statement, the amount of liabilities of the Company and the Subsidiaries taken as a whole (including a break-down of commercial paper and notes payable to banks); v. stating that they have compared specific dollar amounts, numbers of shares, percentages of revenues and earnings, statements and other financial information pertaining 33 34 to the Company and the Subsidiaries set forth in the Prospectus in each case to the extent that such amounts, numbers, percentages, statements and information may be derived from the general accounting records, including work sheets, of the Company and the Subsidiaries and excluding any questions requiring an interpretation by legal counsel, with the results obtained from the application of specified readings, inquiries and other appropriate procedures (which procedures do not constitute an examination in accordance with generally accepted auditing standards) set forth in the letter and found them to be in agreement; vi. statements as to such other matters incident to the transaction contemplated hereby as the Representative may request. (l) At the Closing Date and each Option Closing Date, if any, the Underwriters shall have received from Ernst & Young, LLP a letter, dated as of the Closing Date or the Option Closing Date, as the case may be, to the effect that they reaffirm that statements made in the letter furnished pursuant to subsection (k) of this Section, except that the specified date referred to shall be a date not more than five (5) days prior to the Closing Date or the Option Closing Date, as the case may be, and, if the Company has elected to rely on Rule 430A of the Rules and Regulations, to the further effect that they have carried out procedures as specified in clause (v) of subsection (k) of this Section with respect to certain amounts, percentages and financial information as specified by the Representative and deemed to be a part of the Registration Statement pursuant to Rule 430A(b) and have found such amounts, percentages and financial information to be in agreement with the records specified in such clause (v). (m) On each of the Closing Date and each Option Closing Date, if any, there shall have been duly tendered to the Representative for the several Underwriters' accounts the appropriate number of Securities. (n) No order suspending the sale of the Securities in any jurisdiction designated by the Representative pursuant to subsection (e) of Section 4 hereof shall have been issued on either the Closing Date or the Option Closing Date, if any, and no proceedings for that purpose shall have been instituted or shall be contemplated. (o) On or before the Closing Date, the Company shall have executed and delivered to the Representative, (i) the Representative's Warrant Agreement substantially in the form filed as Exhibit [___] to the Registration Statement, in final form and substance satisfactory to the Representative, and (ii) the Representative's Warrants in such denominations and to such designees as shall have been provided to the Company. (p) On or before the Closing Date, the Firm Securities and Option Securities shall have been duly approved for quotation on Nasdaq, subject to official notice of issuance. (q) On or before the Closing Date, there shall have been delivered to the Representative all of the Lock-up Agreements, in form and substance satisfactory to Underwriters' Counsel. 34 35 (r) On or before the Closing Date, the Company shall have executed and delivered to the Representative and the Transfer Agent the Warrant Agreement substantially in the form filed as Exhibit [___] to the Registration Statement, in final form and substance satisfactory to the Representative. If any condition to the Underwriters' obligations hereunder to be fulfilled prior to or at the Closing Date or the relevant Option Closing Date, as the case may be, is not so fulfilled, the Representative may terminate this Agreement or, if the Representative so elects, it may waive any such conditions which have not been fulfilled or extend the time for their fulfillment. 7. Indemnification. (a) The Company agrees to indemnify and hold harmless each of the Underwriters (for purposes of this Section 7 "Underwriter" shall include the officers, directors, partners, employees, agents and counsel of the Underwriter, including specifically each person who may be substituted for an Underwriter as provided in Section 11 hereof), and each person, if any, who controls the Underwriter ("controlling person") within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from and against any and all losses, claims, damages, expenses or liabilities, joint or several (and actions, proceedings, investigations, inquiries, suits and litigation in respect thereof), whatsoever (including but not limited to any and all expenses whatsoever reasonably incurred in investigating, preparing or defending against any such claim, action, proceeding, investigation, inquiry, suit or litigation, commenced or threatened, or any claim whatsoever), as such are incurred, to which the Underwriter or such controlling person may become subject under the Act, the Exchange Act or any other statute or at common law or otherwise or under the laws of foreign countries, arising out of or based upon (A) any untrue statement or alleged untrue statement of a material fact contained (i) in any Preliminary Prospectus, the Registration Statement or the Prospectus (as from time to time amended and supplemented); (ii) in any post-effective amendment or amendments or any new registration statement and prospectus in which is included securities of the Company issued or issuable upon exercise of the Securities; or (iii) in any application or other document or written communication (in this Section 7 collectively called "application") executed by the Company or based upon written information furnished by the Company in any jurisdiction in order to qualify the Securities under the securities laws thereof or filed with the Commission, any state securities commission or agency, Nasdaq or any other securities exchange; (B) the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of the Prospectus, in the light of the circumstances under which they were made), or (C) any breach of any representation, warranty, covenant or agreement of the Company contained herein or in any certificate by or on behalf of the Company or any of its officers delivered pursuant hereto, unless, in the case of clause (A) or (B) above, such statement or omission was made in reliance upon and in strict conformity with written information furnished to the Company with respect to any Underwriter by or on behalf of such Underwriter expressly for use in any Preliminary Prospectus, the Registration Statement or Prospectus, or any amendment thereof or supplement thereto, or in any application, as the case may be. 35 36 The indemnity agreement in this subsection (a) shall be in addition to any liability which the Company may have at common law or otherwise. (b) Each of the Underwriters agrees severally, but not jointly, to indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the Registration Statement, and each other person, if any, who controls the Company within the meaning of the Act, to the same extent as the foregoing indemnity from the Company to the Underwriters but only with respect to statements or omissions, if any, made in any Preliminary Prospectus, the Registration Statement or Prospectus or any amendment thereof or supplement thereto or in any application made in reliance upon, and in strict conformity with, written information furnished to the Company with respect to any Underwriter by such Underwriter expressly for use in such Preliminary Prospectus, the Registration Statement or Prospectus or any amendment thereof or supplement thereto or in any such application, provided that such written information or omissions only pertain to disclosures in the Preliminary Prospectus, the Registration Statement or Prospectus directly relating to the transactions effected by the Underwriters in connection with this Offering. The Company acknowledges that the statements with respect to the public offering of the Firm Securities and the Option Securities set forth under the heading "Underwriting" and the stabilization legend in the Prospectus have been furnished by the Underwriters expressly for use therein and constitute the only information furnished in writing by or on behalf of the Underwriters for inclusion in the Prospectus. (c) Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any claim, action, suit, investigation, inquiry, proceeding or litigation, such indemnified party shall, if a claim in respect thereof is to be made against one or more indemnifying parties under this Section 7, notify each party against whom indemnification is to be sought in writing of the commencement thereof (but the failure so to notify an indemnifying party shall not relieve it from any liability which it may have under this Section 7 except to the extent that it has been prejudiced in any material respect by such failure or from any liability which it may have otherwise). In case any such claim, action, suit, investigation, inquiry, proceeding or litigation is brought against any indemnified party, and it notifies an indemnifying party or parties of the commencement thereof, the indemnifying party or parties will be entitled to participate therein, and to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party. Notwithstanding the foregoing, the indemnified party or parties shall have the right to employ its or their own counsel in any such case but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties unless (i) the employment of such counsel shall have been authorized in writing by the indemnifying parties in connection with the defense of thereof at the expense of the indemnifying party, (ii) the indemnifying parties shall not have employed counsel reasonably satisfactory to such indemnified party to have charge of the defense thereof within a reasonable time after notice of commencement thereof, or (iii) such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to one or all of the indemnifying parties (in which case the indemnifying parties shall not have the right to direct the defense thereof on behalf of the indemnified party or parties), in any of which events such fees and expenses of one additional counsel shall be borne by the indemnifying parties. In no event shall 36 37 the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one claim, action, suit, investigation, inquiry, proceeding or litigation or separate but similar or related claims, actions, suits, investigations, inquiries, proceedings or litigation in the same jurisdiction arising out of the same general allegations or circumstances. Anything in this Section 7 to the contrary notwithstanding, an indemnifying party shall not be liable for any settlement of any claim, action, suit, investigation, inquiry, proceeding or litigation effected without its written consent; provided, however, that such consent was not unreasonably withheld. An indemnifying party will not, without the prior written consent of the indemnified parties, settle, compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit, investigation, inquiry, proceeding or litigation in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim, action, suit, investigation, inquiry, proceeding or litigation), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit, investigation, inquiry, proceeding or litigation and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) In order to provide for just and equitable contribution in any case in which (i) an indemnified party makes claim for indemnification pursuant to this Section 7, but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that the express provisions of this Section 7 provide for indemnification in such case, or (ii) contribution under the Act may be required on the part of any indemnified party, then each indemnifying party shall contribute to the amount paid as a result of such losses, claims, damages, expenses or liabilities (or actions in respect thereof) (A) in such proportion as is appropriate to reflect the relative benefits received by each of the contributing parties, on the one hand, and the party to be indemnified on the other hand, from the offering of the Firm Securities and the Option Securities or (B) if the allocation provided by clause (A) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of each of the contributing parties, on the one hand, and the party to be indemnified on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitable considerations. In any case where the Company is the contributing party and the Underwriters are the indemnified party, the relative benefits received by the Company on the one hand, and the Underwriters, on the other, shall be deemed to be in the same proportion as the total net proceeds from the offering of the Firm Securities and the Option Securities (before deducting expenses) bear to the total underwriting discounts received by the Underwriters hereunder, in each case as set forth in the table on the Cover Page of the Prospectus. Relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, or by the Underwriters, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, expenses or liabilities (or actions in respect thereof) referred to above in this 37 38 subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), the Underwriters shall not be required to contribute any amount in excess of the underwriting discount applicable to the Firm Securities and the Option Securities purchased by the Underwriters hereunder. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7, each person, if any, who controls the Company or the Underwriter within the meaning of the Act, each officer of the Company who has signed the Registration Statement, and each director of the Company shall have the same rights to contribution as the Company or the Underwriter, as the case may be, subject in each case to this subsection (d). Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect to which a claim for contribution may be made against another party or parties under this subsection (d), notify such party or parties from whom contribution may be sought, but the omission so to notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have hereunder or otherwise than under this subsection (d), or to the extent that such party or parties were not adversely affected by such omission. The contribution agreement set forth above shall be in addition to any liabilities which any indemnifying party may have at common law or otherwise. 8. Representations and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement or contained in certificates of officers of the Company submitted pursuant hereto, shall be deemed to be representations, warranties and agreements at the Closing Date and the Option Closing Date, as the case may be, and such representations, warranties and agreements of the Company and the indemnity agreements contained in Section 7 hereof, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriter, the Company, any controlling person of any Underwriter or the Company, and shall survive termination of this Agreement or the issuance and delivery of the Securities to the Underwriters and the Representative, as the case may be. 9. Effective Date. This Agreement shall become effective at 10:00 a.m., New York City time, on the next full business day following the date hereof, or at such earlier time after the Registration Statement becomes effective as the Representative, in its discretion, shall release the Securities for sale to the public; provided, however, that the provisions of Sections 5, 7 and 10 of this Agreement shall at all times be effective. For purposes of this Section 9, the Securities to be purchased hereunder shall be deemed to have been so released upon the earlier of dispatch by the Representative of telegrams to securities dealers releasing such securities for offering or the release by the Representative for publication of the first newspaper advertisement which is subsequently published relating to the Securities. 10. Termination. (a) Subject to subsection (b) of this Section 10, the Representative shall have the right to terminate this Agreement, (i) if any domestic or international event or act or occurrence has 38 39 materially adversely disrupted, or in the Representative's opinion will in the immediate future materially adversely disrupt, the financial markets; or (ii) if any material adverse change in the financial markets shall have occurred; or (iii) if trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the NASD, the Boston Stock Exchange, the Commission or any governmental authority having jurisdiction over such matters; or (iv) if trading of any of the securities of the Company shall have been suspended, or any of the securities of the Company shall have been delisted, on any exchange or in any over-the-counter market; (v) if the United States shall have become involved in a war or major hostilities, or if there shall have been an escalation in an existing war or major hostilities or a national emergency shall have been declared in the United States; or (vi) if a banking moratorium has been declared by a state or federal authority; or (vii) if a moratorium in foreign exchange trading has been declared; or (viii) if the Company shall have sustained a loss material or substantial to the Company by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act which, whether or not such loss shall have been insured, will, in the Representative's opinion, make it inadvisable to proceed with the offering, sale and/or delivery of the Securities; or (ix) if there shall have been such a material adverse change in the conditions or prospects of the Company, or such material adverse change in the general market, political or economic conditions, in the United States or elsewhere, that, in each case, in the Representative's judgment, would make it inadvisable to proceed with the offering, sale and/or delivery of the Securities or (x) if C. Thomas McMillen shall no longer serve the Company in his present capacity. (b) If this Agreement is terminated by the Representative in accordance with the provisions of Section 10(a) the Company shall promptly reimburse and indemnify the Representative for all of its actual out-of-pocket expenses, including the fees and disbursements of counsel for the Underwriters (less amounts previously paid pursuant to Section 5(c) above). Notwithstanding any contrary provision contained in this Agreement, if this Agreement shall not be carried out within the time specified herein, or any extension thereof granted to the Representative, by reason of any failure on the part of the Company to perform any undertaking or satisfy any condition of this Agreement by it to be performed or satisfied (including, without limitation, pursuant to Section 6 or Section 12) then, the Company shall promptly reimburse and indemnify the Representative for all of its actual out-of-pocket expenses, including the fees and disbursements of counsel for the Underwriters (less amounts previously paid pursuant to Section 5(c) above). In addition, the Company shall remain liable for all Blue Sky counsel fees and disbursements, expenses and filing fees (such Blue Sky counsel fees not to exceed $40,000). Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement (including, without limitation, pursuant to Sections 6, 10, 11 and 12 hereof), and whether or not this Agreement is otherwise carried out, the provisions of Section 5 and Section 7 shall not be in any way affected by such election or termination or failure to carry out the terms of this Agreement or any part hereof. 11. Substitution of the Underwriters. If one or more of the Underwriters shall fail (otherwise than for a reason sufficient to justify the termination of this Agreement under the provisions of Section 6, Section 10 or Section 12 hereof) to purchase the Securities which it or they are obligated to purchase on such date under this Agreement (the "Defaulted Securities"), the Representative shall have the right, within 24 hours thereafter, to make arrangement for one 39 40 or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representative shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the total number of Firm Securities to be purchased on such date, the non-defaulting Underwriters shall be obligated to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or (b) if the number of Defaulted Securities exceeds 10% of the total number of Firm Securities, this Agreement shall terminate without liability on the part of any non-defaulting Underwriters (or, if such default shall occur with respect to any Option Securities to be purchased on an Option Closing Date, the Underwriters may at the Representative's option, by notice from the Representative to the Company, terminate the Underwriters' obligation to purchase Option Securities from the Company on such date). No action taken pursuant to this Section 11 shall relieve any defaulting Underwriter from liability in respect of any default by such Underwriter under this Agreement. In the event of any such default which does not result in a termination of this Agreement, the Representative shall have the right to postpone the Closing Date for a period not exceeding seven (7) days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. 12. Default by the Company. If the Company shall fail at the Closing Date or at any Option Closing Date, as applicable, to sell and deliver the number of Securities which it is obligated to sell hereunder on such date, then this Agreement shall terminate (or, if such default shall occur with respect to any Option Securities to be purchased on an Option Closing Date, the Underwriters may at the Representative's option, by notice from the Representative to the Company, terminate the Underwriters' obligation to purchase Option Securities from the Company on such date) without any liability on the part of any non-defaulting party other than pursuant to Section 5, Section 7 and Section 10 hereof. No action taken pursuant to this Section 12 shall relieve the Company from liability, if any, in respect of such default. 13. Notices. All notices and communications hereunder, except as herein otherwise specifically provided, shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representative at National Securities Corporation, 1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154, Attention: Steven A. Rothstein, Chairman, with a copy to Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103, Attention: Lawrence B. Fisher, Esq. Notices to the Company shall be directed to the Company at 725 Independence Avenue, S.E., Washington, D.C. 20003, Attention: C. Thomas McMillen, Chairman and Chief Executive Officer, with a copy to Storch & Brenner, 1001 Connecticut Avenue, N.W., Washington, D.C. 20036, Attention: Anthony Cipiti, Esq. 40 41 14. Parties. This Agreement shall inure solely to the benefit of and shall be binding upon, the Underwriters, the Company and the controlling persons, directors and officers referred to in Section 7 hereof, and their respective successors, legal representatives and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provisions herein contained. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. 15. Construction. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York without giving effect to the choice of law or conflict of laws principles. 16. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which taken together shall be deemed to be one and the same instrument. 17. Entire Agreement; Amendments. This Agreement, the Warrant Agreement and the Representative's Warrant Agreement constitute the entire agreement of the parties hereto and supersede all prior written or oral agreements, understandings and negotiations with respect to the subject matter hereof. This Agreement may not be amended except in a writing, signed by the Representative and the Company. 41 42 If the foregoing correctly sets forth the understanding between the Underwriters and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among us. Very truly yours, COMPLETE WELLNESS CENTERS, INC. By: ------------------------------------- C. Thomas McMillen Chairman and Chief Executive Officer Confirmed and accepted as of the date first above written. NATIONAL SECURITIES CORPORATION For itself and as Representative of the several Underwriters named in Schedule A hereto. By: ------------------------------- Steven A. Rothstein Chairman 43 SCHEDULE A
NUMBER OF FIRM SECURITIES NAME OF UNDERWRITERS TO BE PURCHASED -------------------- --------------- National Securities Corporation . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 =========
EX-3.1 3 CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF COMPLETE WELLNESS CENTERS, INC. The undersigned incorporator, in order to form a corporation under the General Corporation Law of Delaware, certifies as follows: FIRST: The name of the corporation is Complete Wellness Centers, Inc. SECOND: The registered office of the corporation is to be located at The Corporation Trust Company. The name of its registered agent at that address is 1209 Orange Street, Wilmington, New Castle County, DE 19801. THIRD: The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: The corporation shall have the authority to issue 21,500 shares, consisting of 20,000 shares of common stock, par value $.01, and 1,500 shares of preferred stock, par value $.01. The board of directors may authorize the issuance from time to time of the preferred stock in one or more series and with such designations and such powers, preferences and rights, and the qualifications, limitations or restrictions thereof (which may differ with respect to each series) and such powers as the board may fix by resolution, FIFTH: The name and mailing address of the incorporator are as follows: C. Thomas McMillen 1103 South Carolina Avenue, S.E. Washington, D.C, 20003 SIXTH: Whenever a compromise or arrangement is proposed between the corporation and its creditors or any class of them and/or between the corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a 2 meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the corporation, as the case may be, and also on the corporation. SEVENTH: A director of this corporation shall not be personally liable to the corporation or its stockholders for monetary damages for the breach of any fiduciary duty as a director, except in the case of (a) any breach of the director's duty of loyalty to the corporation or its stockholders, (b) acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (c) under section 174 of the General Corporation Law of the State of Delaware or (d) for any transaction from which the director derives an improper personal benefit. Any repeal or modification of this Article by the stockholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification. -- EIGHTH: The corporation shall, to the fullest extent permitted by law, as the same is now or may hereafter be in effect, indemnify each person (including the heirs, executors, administrators and other personal representatives of such person) against expenses including attorneys' fees, judgments, fines and amounts paid in settlement, actually and reasonably incurred by such person in connection with any threatened, pending or completed suit, action or proceeding (whether civil, criminal, administrative or investigative in nature or otherwise) in which such person may be involved by reason of the fact that he or she is or was a director or officer of the corporation or is or was serving any other incorporated or unincorporated enterprise in such capacity at the request of the corporation. NINTH: Unless, and except to the extent that, the by-laws of the corporation shall so require, the election of directors of the corporation need not be by written ballot. TENTH: The corporation hereby confers the power to adopt, amend or repeal bylaws of the corporation upon the directors. 3 IN WITNESS WHEREOF, I have hereunto set my hand this 17 day of November, 1994. /s/ C. THOMAS MCMILLEN ------------------------- C. Thomas McMillen Sole Incorporator 4 COMPLETE WELLNESS CENTERS, INC. CERTIFICATE OF DESIGNATION OF PREFERENCES, RIGHTS, AND LIMITATIONS OF SERIES A, 12% CUMULATIVE COVERTIBLE PREFERRED STOCK Complete Wellness Centers, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), does hereby certify: That, pursuant to authority conferred upon the Board of Directors of the Corporation ("Board of Directors") by the Certificate of Incorporation of the Corporation (the "Certificate"), and pursuant to the provisions of the Delaware General Corporation Law, said Board of Directors, on March 13, 1995, pursuant to a unanimous written consent, duly ratified and adopted resolutions providing for the issuance of one series, aggregating One Thousand Five Hundred (1,500) shares, of Series A, 12% Cumulative Convertible Preferred Stock, par value $.01 per share, which resolutions are as follows: WHEREAS, the Certificate of Incorporation of the Corporation authorizes for issuance a class of shares of capital stock known as Preferred Stock, par value $.01 per share (the "Preferred Stock"), issuable by the Board of Directors from time to time; WHEREAS, the Certificate of Incorporation of the Corporation authorizes the Board of Directors to determine the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued Preferred Stock, to fix the number of shares constituting any such class and to determine the designation thereof or any of them; and WHEREAS, on or about November 14, 1994, the Board of Directors of the Corporation, pursuant to its authority as aforesaid, determined and fixed the rights, preferences, privileges and restrictions relating to a class of said Preferred Stock to be designated "Series A, 12% Cumulative Convertible Preferred Stock" (the "Series A Preferred Stock"). NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby ratifies its prior actions and hereby fixes and determines the designation of the number of shares constituting, and the rights, preferences, privileges and restrictions relating to, the Series A Preferred Stock as follows: 5 1. Designation. The designation of the series of stock created by this resolution shall be "Series A, 12% Cumulative Convertible Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting the Series A Preferred shall be Fifteen Hundred (1,500). Each share of the Series A Preferred Stock shall have a stated value equal to $100. 2. Dividends. The holders of the Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of the funds of the Corporation legally available therefore, cumulative dividends at the annual rate of $12 per share payable $6.00 per share on each January 31st and July 31st, commencing January 1, 1996. Such dividends shall be payable in cash or in kind. In the year in which shares of Series A Preferred Stock are issued, in the event that the payment date for the purchase of shares of Series A Preferred Stock shall be other than January 31st or July 31st, the initial dividend shall accumulate and be payable pro rata only from the date of payment to the Corporation for the respective shares of Series A Preferred Stock. If the dividend on the Series A Preferred Stock for any dividend period shall not have been paid or set apart in full for the Series A Preferred Stock, the aggregate deficiency shall be cumulative and shall be fully paid or set apart for payment before any dividends shall be paid upon or set apart for payment for any class of common stock of the Corporation or any other class of preferred stock of the Corporation ranking junior thereto. Accumulations of dividends on the Series A Preferred Stock shall not bear interest. 3. Liquidation Preference. In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or otherwise, after payment or provision for payment of the debts and other liabilities of the Corporation, the holders of the Series A Preferred Stock shall be entitled to receive, before the holders of any of the common stock or other classes of preferred stock of the Corporation ranking junior thereto, out of the remaining net assets of the Corporation, the amount of $100 in cash or in kind for each share of Series A Preferred Stock, plus an amount equal to all dividends accrued but unpaid, if any, with respect to each such share up to the date fixed for distribution. After such payment shall have been made in full to the holders of the outstanding Series A Preferred Stock, or funds or assets necessary for such payment shall have been set aside in trust for the account of the holders of the outstanding Series A Preferred Stock, so as to be and continue to be available therefor, the holders of the outstanding Series A Preferred Stock shall be entitled to no further participation in such distribution of the assets of the Corporation. 2 6 In the event, after payment or provision for payment of the debts and other liabilities of the corporation, the remaining net assets of the Corporation are not sufficient to pay the liquidation preference of the holders of the Series A Preferred Stock, no such distribution shall be made on account of any shares of any other class or series of capital stock of the Corporation ranking on a parity with the shares of the Series A Preferred Stock upon such liquidation unless proportionate distributive amounts shall be paid on account of each share of the Series A Preferred Stock, ratably, in proportion to the full distributable amounts for which holders of all such parity shares, including other shares of Series A Preferred Stock, are respectively entitled upon such liquidation. 4. Conversion of Preferred Stock into Common Stock. Each share of the Series A Preferred Stock shall be under paragraph 4(a) below convertible at the option of the holder thereof and under paragraph 4(b) below automatically and mandatorily converted upon the occurrence of the event described therein; in either event, any such shares of Series A Preferred Stock shall be converted into fully paid and non-assessable shares of the Corporation's common stock, par value $.01 per share (the "Common Stock"). A. Elective Conversion. Subject to any other provision of this paragraph 4, each holder of record of any share(s) of Series A Preferred Stock shall have the right to convert such holder's share(s) of Series A Preferred Stock, in whole or in part, including all accrued but unpaid dividends, if any, in accordance with the Conversion Ratio (defined below), subject to the adjustments set forth below, at his or her option, at any time and from time to time after the issuance of such shares of Series A Preferred Stock. In case any shares of Series A Preferred Stock shall have been called for redemption pursuant to paragraph 5 hereof, any election to convert under this paragraph 4(a) with respect to the shares so called for redemption shall cease and terminate at the close of business on the tenth day prior to the date fixed for the redemption of such shares, unless default shall be made in the payment of the redemption price. Any holder of a share or shares of Series A Preferred Stock electing to convert his or her Series A Preferred Stock into Common Stock shall surrender the certificate(s) representing all of the share(s) of Series A Preferred Stock so to be converted, duly endorsed to the Corporation or in blank, at the principal office of the Corporation (or such other place as may be designated by the Corporation), and shall give written notice to the Corporation at said office that he or she elects to convert the same and therein set forth the name or names (with the address or 3 7 addresses) in which the shares of Common Stock are to be issued. If the last day of the exercise period of the conversion right in the city where the principal place of business of the Corporation (or in the city of the principal office of such other entity as the Corporation shall have designated as the place so to surrender Series A Preferred Stock for conversion, as aforesaid) shall be a legal holiday or a day on which banking institutions are authorized by law to close, then such conversion right may be exercised in such city on the next succeeding day not in such city a legal holiday or a day on which banking institutions are authorized by law to close. (b) Mandatory Conversion. Each share of the Series A Preferred Stock, and all accrued but unpaid dividends, if any, shall automatically and mandatorily convert, without the option of any holder of any share(s) of Series A Preferred Stock or any action of the Corporation, to shares of Common Stock in accordance with the Conversion Ratio (defined below) on the date on which a registration statement is declared effective by the U.S. Securities and Exchange Commission ("SEC"), or any other Federal agency at the time administering the Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the SEC issued under such Act, as they each may, from time to time, be in effect with respect to Common Stock. As soon as practicable after the Automatic Conversion Date, the Corporation shall provide each holder of record of Series A Preferred Stock with notice of the automatic conversion and the Automatic Conversion Date and call upon the holders to surrender to the Corporation, in the manner and at the place designated, the certificate(s) representing shares of the Series A Preferred Stock. Such notice shall be by mail to each holder of the Series A Preferred Stock at the address last shown on the records of the Corporation for such holder or given by such holder to the Corporation for the holder for the purpose of notice or, if no such address appears or is given, at the place where the principal executive office of the Corporation is located. Notwithstanding any failure by a holder to deliver the certificates representing his or her shares of Series A Preferred Stock, after the Automatic Conversion Date all such certificates of the Series A Preferred Stock shall be deemed to represent the appropriate number of shares of Common Stock. Notwithstanding any provision contained in this paragraph 4(b), no share of the Series A Preferred Stock called for redemption pursuant to paragraph 5 hereof shall automatically and mandatorily convert at any time after the Corporation has provided notice of its intent to redeem such 4 8 shares pursuant to paragraph 5 hereof, unless the Corporation shall provide notice to the holder on or before the date specified for redemption of such shares of Series A Preferred Stock that it elects to have the mandatory conversion provisions of this paragraph 4(b) apply and override the Corporation's notice of redemption (the "Notice of Cancellation"). Unless such Notice of Cancellation is provided, the automatic and mandatory conversion under this paragraph 4(b) shall cease and terminate with respect to all shares of Series A Preferred Stock so called for redemption at the close of business on the date that the Corporation provides notice of such redemption pursuant to Paragraph 5 hereof. The Corporation's redemption, including any related notice to redeem, of certain shares of the Series A Preferred Stock shall have no effect on the automatic and mandatory conversion under paragraph 4(b) of those other shares of Series A Preferred Stock with respect to which notice of redemption was not provided. (c) Additional Provisions Applicable to All Conversions. Any conversion of Series A Preferred Stock into Common Stock pursuant to this paragraph 4 shall be subject to the following additional terms and provisions: (1) All shares of the Series A Preferred Stock and all accrued but unpaid dividends, if any, shall be convertible (or, as the case may be, automatically converted) into Common Stock at the rate of one and eight-tenths (1.8) shares of Common Stock for each share of Series A Preferred Stock (the "Conversion Ratio"), subject to the adjustments set forth in this paragraph 4(c) below. (2) In the event that the Corporation shall at any time subdivide or combine in a greater or lesser number of shares the outstanding shares of Common Stock, the number of shares of Common Stock issuable upon conversion of any shares of Series A Preferred Stock prior to the occurrence of such event shall be proportionately increased in the case of subdivision or decreased in the case of a combination, effective in either case at the close of business on the date when such subdivision or combination shall become effective. (3) In the event that the Corporation shall be consolidated with or merged into any other corporation, provision shall be made as part of the terms of such consolidation or merger so that any holder of Series A Preferred Stock may thereafter receive in lieu of Common Stock otherwise issuable to him upon conversion of his or her Series A Preferred Stock, but only in accordance with the conversion ratio stated in this paragraph 4, the same kind and amount of securities as may be distributable upon such consolidation or merger with respect to the Common Stock. 5 9 (4) In the event that the Corporation shall at any time pay to the holders of Common Stock a dividend in Common Stock, the number of shares of Common Stock of the Corporation issuable upon any conversion of the Series A Preferred Stock shall be proportionately increased, effective following the close of business on the record date for determination of the holders of Common Stock entitled to such dividend. (5) The issuance of certificates for shares of Common Stock upon conversion of any shares of the Series A Preferred Stock shall be made without charge for any tax in respect of such issuance. However, if any certificate is to be issued in a name other than that of the holder of record as the Series A Preferred Stock so converted, the person or persons requesting the issuance thereof shall pay to the Corporation the amount of any tax which may be payable in respect of any transfer involved in such issuance, or shall establish to the satisfaction of the Corporation that such tax has been paid or is not due and payable. 5. Redemption of Preferred Stock. The Series A Preferred Stock of any holder shall be redeemable, in whole or in part, at the option of the Corporation by resolution of its Board of Directors, from time to time and at anytime, commencing one year after the date that the Series A Preferred Stock certificate was issued to the original holder of such shares of Series A Preferred Stock. The redemption price shall equal $112, plus all dividends accrued and unpaid on the Series A Preferred Stock so redeemed up to the date fixed for redemption. The Corporation shall give notice of redemption as hereinafter provided. In the event that less than the entire amount of the Series A Preferred Stock outstanding is redeemed at any one time, the shares to be redeemed shall be selected by lot in a manner to be determined by the Board of Directors of the Corporation. The Corporation shall give notice of redemption not less than thirty (30) nor more than sixty (60) days prior to the date fixed for redemption of the Series A Preferred Stock or any part thereof. Such notice shall specify the time and place thereof and shall be given by mail to each holder of record of shares of Series A Preferred Stock chosen for redemption at the address last shown on the records of the Corporation for such holder or given by such holder to the Corporation for the purpose of notice or, if no such address appears or is given, at the place where the principal executive office of the Corporation is located. Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the holder received the notice. 6 10 Upon such redemption date, or upon such earlier date as the Board of Directors shall designate for payment of the redemption price (unless the Corporation shall default in the payment of the redemption price as set forth in such notice), the holders of shares of Series A Preferred Stock selected for redemption to whom notice has been duly given shall cease to be stockholders with respect to such shares and shall have no interest in or claim against the Corporation by virtue thereof and shall have no other rights with respect to such shares except the right to convert such shares within the time hereinafter set forth and except the right to receive the moneys payable upon such redemption from, the Corporation or otherwise, without interest thereon, upon surrender (and endorsement, if required by the Corporation) of the certificates, and the shares represented thereby shall no longer be deemed to be outstanding. Upon redemption or conversion of any share of Series A Preferred Stock in the manner set out herein, or upon purchase of any share of Series A Preferred Stock by the Corporation, the shares so acquired by the Corporation shall be cancelled. After giving any notice of redemption and prior to the close of business on the tenth day prior to the redemption date, as hereinafter provided, the holders of the Series A Preferred Stock so called for redemption may convert such stock into Common Stock of the Corporation in accordance with the conversion privileges set forth in paragraph 4(a) hereof. In the event that the Corporation shall at any time subdivide or combine in a greater or lesser number of shares the outstanding shares of Series A Preferred Stock or issue shares of Common Stock as the form of a dividend paid with respect to its Common Stock, the consideration payable upon redemption of the Series A Preferred Stock shall be proportionately decreased in the case of subdivision or increased in the case of a combination or the payment of such a stock dividend, effective in either case at the close of business on the date when such subdivision or combination shall become effective. 6. Voting Rights. Except as may be otherwise provided by law, by the Certificate of Incorporation of the Corporation or by this Section 6, the Series A Preferred Stock shall vote together with the Common Stock as a single class on all actions to be taken by the stockholders of the Corporation. Each share of Series A Preferred Stock shall entitle the holder thereof to one and eight-tenths (1.8) votes per share. 7 11 IN WITNESS WHEREOF, the undersigned, being the President of the Corporation, for the purpose of adopting and ratifying the Certificate of Designation of Series A Preferred Stock of the Corporation pursuant to the Delaware Code, has executed this Certificate of Designation of Series A Preferred Stock on behalf of the Corporation, and has caused the same to be attested by the Secretary of the Corporation, hereby declaring and certifying that this is his act and deed and the facts herein stated are true, and accordingly has hereunto set his hand this 14th day of March, 1995. COMPLETE WELLNESS CENTERS, INC. By: /s/ C. THOMAS MCMILLEN --------------------------- C. Thomas McMillen President ATTEST: /s/ MARY E. CLEGG - ----------------- Mary E. Clegg Secretary 8 12 District of Columbia ) SS.: ) The foregoing instrument was acknowledged before me this 14 day of March, 1995, by C. Thomas McMillen as president of Complete Wellness Centers, Inc., a Delaware corporation, on behalf of the corporation. He is (check one) ______ personally known to me or DI has produced ___________________ _________________ as identification. Notary Public: Signature /s/ CAROLINE F. KLEMP -------------------------- (Notarial Seal) -------------------------- District of Columbia Commission #: My Commission expires: Caroline F. Klemp Notary Public, Dist. of Columbia Commission Expires April 30, 1996 District of Columbia ) SS.: ) The foregoing instrument was acknowledged before me this 14 day of March, 1995, by Mary E. Clegg as secretary of Complete Wellness Centers, Inc., a Delaware corporation, on behalf of the corporation. She is (check one) ___________ personally known to me or ___X___ has produced ___DI____ as identification. Notary Public: Signature /s/ CAROLINE F. KLEMP -------------------------- -------------------------- (Notarial Seal) District of Columbia Commission #: My commission expires: Caroline F. Klemp Notary Public, Dist. of Columbia Commission Expires April 30, 1996 9 13 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF COMPLETE WELLNESS CENTERS, INC. Complete Wellness Centers, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies that: ONE: The Certificate of Incorporation of the corporation is hereby amended by deleting in their entirety Articles SECOND and FOURTH and by substituting in lieu thereof the following new Articles SECOND and FOURTH: SECOND: The registered office of the corporation is to be located at 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The name of its registered agent at that address is The Corporation Trust Company. FOURTH: The corporation shall have the authority to issue 12,000,000 shares of stock, consisting of 10,000,000 shares of common stock with a par value of $.0000555 per share, and 2,000,000 shares of preferred stock with a par value of $.01 per share. The board of directors may authorize the issuance from time to time of shares of the preferred stock in one or more series, in such number of shares and with such powers, designations, preferences, and relative, participating, optional or other rights, if any, or the qualifications, limitations, or restrictions thereof, if any (which may differ with respect to each series) as the board may fix by resolution. TWO: Upon the effectiveness of this certificate, each share of the corporation's common stock with a par value of $.01 per share that was authorized immediately prior to such effectiveness shall automatically be split and changed into 180 shares of its common stock with a par value of $.0000555 per share, and shall be included within the 10,000,000 shares of common stock authorized in the foregoing amendment. THREE: In accordance with the applicable provisions of Sections 141 and 242 of the General Corporation Law of the State of Delaware, the board of directors of the corporation, by the unanimous written consent of its members, adopted a resolution setting forth the foregoing amendment, declaring its advisability, and directing that it be submitted for the consideration of all of the stockholders of the corporation entitled to vote thereon by means of written consent in lieu of a special meeting. 14 FOUR: The foregoing amendment was duly adopted by unanimous written consent of the stockholders in accordance with the applicable provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. FIVE: The foregoing amendment was duly adopted in accordance with Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, Complete Wellness Centers, Inc. has caused this certificate to be signed by C. Thomas McMillen, its President, and attested by Mary E. Clegg, its Secretary, on November 8, 1995. COMPLETE WELLNESS CENTERS, INC. By /s/ C. THOMAS MCMILLEN -------------------------------- President ATTEST: By /s/ MARY E. CLEGG ------------------------------ Secretary 2 15 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF COMPLETE WELLNESS CENTERS, INC. Complete Wellness Centers, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies that: ONE: The Certificate of Incorporation of the corporation, as previously amended, is hereby further amended by deleting in its entirety Article FOURTH and by substituting in lieu thereof the following new Article FOURTH: FOURTH: The corporation shall have the authority to issue 12,000,000 shares of stock, consisting of 10,000,000 shares of common stock with a par value of $.0001665 per share, and 2,000,000 shares of preferred stock with a par value of $.01 per share. The board of directors may authorize the issuance from time to time of shares of the preferred stock in one or more series, in such number of shares and with such powers, designations, preferences, and relative, participating, optional or other rights, if any, or the qualifications, limitations, or restrictions thereof, if any (which may differ with respect to each series) as the board may fix by resolution. TWO: Upon the effectiveness of this certificate, each three shares of the corporation's common stock with a par value of $.0000555 per share that were authorized immediately prior to such effectiveness shall automatically be combined and changed into one share of its common stock with a par value of $.0001665 per share, and shall be included within the 10,000,000 shares of common stock authorized in the foregoing amendment. No fractional shares shall be issued by reason of the foregoing combination, but the corporation shall pay, in lieu of any such fractional shares, cash equal to the fair value of such fractional shares, as determined by the board of directors of the corporation. THREE: In accordance with the applicable provisions of Sections 141 and 242 of the General Corporation Law of the State of Delaware, the board of directors of the corporation, by the unanimous written consent of its members, adopted a resolution setting forth the foregoing amendment, declaring its advisability, and directing that it be submitted for the consideration of all of the stockholders of the corporation entitled to vote thereon by means of written consent in lieu of an annual or special meeting. 16 FOUR: The foregoing amendment was duly adopted by unanimous written consent of the stockholders in accordance with the applicable provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. FIVE: The foregoing amendment was duly adopted in accordance with Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, Complete Wellness Centers, Inc. has caused this certificate to be signed by E. Eugene Sharer, its President, and attested by Michael T. Brigante, its Secretary, on October 31, 1996. COMPLETE WELLNESS CENTERS, INC. By /s/ E. EUGENE SHARER ------------------------------- President ATTEST: By /s/ MICHAEL T. BRIGANTE ----------------------------- Secretary 2 EX-3.2 4 BY-LAWS 1 EXHIBIT 3.2 BY-LAWS OF COMPLETE WELLNESS CENTERS, INC. 1. MEETINGS OF STOCKHOLDERS. 1.1 Annual Meeting. The annual meeting of stockholders shall be held in the first week of May in each year, or as soon thereafter as practicable, and shall be held at a place and time determined by the board of directors (the "Board"). 1.2 Special Meetings. Special meetings of the stockholders may be called by resolution of the Board or the president and shall be called by the president or secretary upon the written request (stating the purpose or purposes of the meeting) of a majority of the directors then in office or of the holders of a majority of the outstanding shares entitled to vote. Only business related to the purposes set forth in the notice of the meeting may be transacted at a special meeting. 1.3 Place and Time of Meetings. Meetings of the stockholders may be held in or outside Delaware at the place and time specified by the Board or the officers or stockholders requesting the meeting. 1.4 Notice of Meetings; Waiver of Notice. Written notice of each meeting of stockholders shall be given to each stockholder entitled to vote at the meeting, except that (a) it shall not be necessary to give notice to any stockholder who submits a signed waiver of notice before or after the meeting, and 2 (b) no notice of an adjourned meeting need be given, except when required under section 1.5 below or by law. Each notice of a meeting shall be given, personally or by mail, not fewer than 10 nor more than 60 days before the meeting and shall state the time and place of the meeting, and, unless it is the annual meeting, shall state at whose direction or request the meeting is called and the purposes for which it is called. If mailed, notice shall be considered given when mailed to a stockholder at his address on the corporation's records. The attendance of any stockholder at a meeting, without protesting at the beginning of the meeting that the meeting is not lawfully called or convened, shall constitute a waiver of notice by him. 1.5 Quorum. At any meeting of stockholders, the presence in person or by proxy of the holders of a majority of the shares entitled to vote shall constitute a quorum for the transaction of any business. In the absence of a quorum, a majority in voting interest of those present or, if no stockholders are present, any officer entitled to preside at or to act as secretary of the meeting, may adjourn the meeting until a quorum is present. At any adjourned meeting at which a quorum is present, any action may be taken that might have been taken at the meeting as originally called. No notice of an adjourned meeting need be given, if the time and place are announced at the meeting at which the adjournment is taken, except that, if adjournment is for more than 30 days or if, after the adjournment, a new record date is - 2 - 3 fixed for the meeting, notice of the adjourned meeting shall be given pursuant to section 1.4. 1.6 Voting; Proxies. Each stockholder of record shall be entitled to one vote for each share registered in his name. Corporate action to be taken by stockholder vote, other than the election of directors, shall be authorized by a majority of the votes cast at a meeting of stockholders, except as otherwise provided by law or by section 1.8. Directors shall be elected in the manner provided in section 2.1. Voting need not be by ballot, unless requested by a majority of the stockholders entitled to vote at the meeting or ordered by the chairman of the meeting. Each stockholder entitled to vote at any meeting of stockholders or to express consent to or dissent from corporate action in writing without a meeting may authorize another person to act for him by proxy. No proxy shall be valid after three years from its date, unless it provides otherwise. 1.7 List of Stockholders. Not fewer than 10 days prior to the date of any meeting of stockholders, the secretary of the corporation shall prepare a complete list of stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in his name. For a period of not fewer than 10 days prior to the meeting, the list shall be available during ordinary business hours for inspection by any stockholder for any purpose germane to the meeting. During this period, the list shall be kept either (a) at - 3 - 4 a place within the city where the meeting is to be held, if that place shall have been specified in the notice of the meeting, or (b) if not so specified, at the place where the meeting is to be held. The list shall also be available for inspection by stockholders at the time and place of the meeting. 1.8 Action by Consent Without a Meeting. Any action required or permitted to be taken at any meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not fewer than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voting. Prompt notice of the taking of any such action shall be given to those stockholders who did not consent in writing. 2. BOARD OF DIRECTORS. 2.1 Number, Qualification, Election and Term of Directors. The business of the corporation shall be managed by the entire Board, which initially shall consist of 3 directors. The number of directors may be changed by resolution of a majority of the Board or by the stockholders, but no decrease may shorten the term of any incumbent director. Directors shall be elected at each annual meeting of stockholders by a plurality of the votes cast and shall hold office until the next annual meeting of stockholders and until the election and qualification of their respective - 4 - 5 successors, subject to the provisions of section 2.9. As used in these by-laws, the term "entire Board" means the total number of directors the corporation would have, if there were no vacancies on the Board. 2.2 Quorum and Manner of Acting. A majority of the entire Board shall constitute a quorum for the transaction of business at any meeting, except as provided in section 2.10. Action of the Board shall be authorized by the vote of the majority of the directors present at the time of the vote, if there is a quorum, unless otherwise provided by law or these by-laws. In the absence of a quorum, a majority of the directors present may adjourn any meeting from time to time until a quorum is present. 2.3 Place of Meetings. Meetings of the Board may be held in or outside Delaware. 2.4 Annual and Regular Meetings. Annual meetings of the Board, for the election of officers and consideration of other matters, shall be held either (a) without notice immediately after the annual meeting of stockholders and at the same place, or (b) as soon as practicable after the annual meeting of stockholders, on notice as provided in section 2.6. Regular meetings of the Board may be held without notice at such times and places as the Board determines. If the day fixed for a regular meeting is a legal holiday, the meeting shall be held on the next business day. - 5 - 6 2.5 Special Meetings. Special meetings of the Board maybe called by the chairman of the board, the president or by a majority of the directors. 2.6 Notice of Meeting; Waiver of Notice. Notice of the time and place of each special meeting of the Board, and of each annual meeting not held immediately after the annual meeting of stockholders and at the same place, shall be given to each director by mailing it to him at his residence or usual place of business at least three days before the meeting, or by delivering or telephoning or telegraphing it to him at least two days before the meeting. Notice of a special meeting also shall state the purpose or purposes for which the meeting is called. Notice need not be given to any director who submits a signed waiver of notice before or after the meeting or who attends the meeting without protesting at the beginning of the meeting the transaction of any business because the meeting was not lawfully called or convened. Notice of any adjourned meeting need not be given, other than by announcement at the meeting at which the adjournment is taken. 2.7 Board or Committee Action Without a Meeting. Any action required or permitted to be taken by the Board or by any committee of the Board may be taken without a meeting, if all the members of the Board or the committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents by the members of the Board or the - 6 - 7 committee shall be filed with the minutes of the proceedings of the Board or the committee. 2.8 Participation in Board or Committee Meetings by Conference Telephone. Any or all members of the Board or any committee of the Board may participate in a meeting of the Board or the committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at the meeting. 2.9 Resignation and Removal of Directors. Any director may resign at any time by delivering his resignation in writing to the president or secretary of the corporation, to take effect at the time specified in the resignation; the acceptance of a resignation, unless required by its terms, shall not be necessary to make it effective. Any or all of the directors may be removed at any time, either with or without cause, by vote of a plurality of the stockholders. 2.10 Vacancies. Any vacancy in the Board, including one created by an increase in the number of directors, may be filled for the unexpired term by a majority vote of the remaining directors, though less than a quorum. 2.11 Compensation. Directors shall receive such compensation as the Board determines, together with reimbursement of their reasonable expenses in connection with the performance of - 7 - 8 their duties. A director also may be paid for serving the corporation or its affiliates or subsidiaries in other capacities. 3. COMMITTEES. 3.1 Executive Committee. The Board, by resolution adopted by a majority of the entire Board, may designate an executive committee of one or more directors, which shall have all the powers and authority of the Board, except as otherwise provided in the resolution, section 141(c) of the General Corporation Law of Delaware or any other applicable law. The members of the executive committee shall serve at the pleasure of the Board. All action of the executive committee shall be reported to the Board at its next meeting. 3.2 Other Committees. The Board, by resolution adopted by a majority of the entire Board, may designate other committees of one or more directors, which shall serve at the Board's pleasure and have such powers and duties as the Board determines. 3.3 Rules Applicable to Committees. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In case of the absence or disqualification of any member of a committee, the member or members present at a meeting of the committee and not disqualified, whether or not a quorum, may unanimously appoint another director to act at the meeting in place of the absent or disqualified - 8 - 9 member. All action of a committee shall be reported to the Board at its next meeting. Each committee shall adopt rules of procedure and shall meet as provided by those rules or by resolutions of the Board. 4. OFFICERS. 4.1 Number; Security. The executive officers of the corporation shall be the chairman of the board, the president, one or more vice presidents (including an executive vice president, if the Board so determines), a secretary and a treasurer. Any two or more offices may be held by the same person. The board may require any officer, agent or employee to give security for the faithful performance of his duties. 4.2 Election; Term of Office. The executive officers of the corporation shall be elected annually by the Board, and each such officer shall hold office until the next annual meeting of the Board and until the election of his successor, subject to the provisions of section 4.4. 4.3 Subordinate Officers. The Board may appoint subordinate officers (including assistant secretaries and assistant treasurers), agents or employees, each of whom shall hold office for such period and have such powers and duties as the Board determines. The Board may delegate to any executive officer or committee the power to appoint and define the powers and duties of any subordinate officers, agents or employees. - 9 - 10 4.4 Resignation and Removal of Officers. Any officer may resign at any time by delivering his resignation in writing to the president or secretary of the corporation, to take effect at the time specified in the resignation; the acceptance of a resignation, unless required by its terms, shall not be necessary to make it effective. Any officer elected or appointed by the Board or appointed by an executive officer or by a committee may be removed by the Board either with or without cause, and in the case of an officer appointed by an executive officer or by a committee, by the officer or committee that appointed him or by the president. 4.5 Vacancies. A vacancy in any office may be filled for the unexpired term in the manner prescribed in sections 4.2 and 4.3 for election or appointment to the office. 4.6 The Chairman of the Board. The chairman of the board, who shall be a director of the corporation, shall be the chief executive officer of the corporation. He shall preside at all meetings of the Board and of the stockholders at which he shall be present. He shall have and may exercise such powers as are, from time to time, assigned to him by the Board and as may be provided by law. 4.7 The President. The president shall be the chief operating officer of the corporation. In the absence of the chairman of the board, he shall preside at all meetings of the Board and of the stockholders. Subject to the direction and control of the Board, he shall have control of general and active - 10 - 11 management of the business of the corporation and shall see that all orders and resolutions of the Board are carried into effect. He may execute contracts, deeds, and other instruments on behalf of the corporation as are authorized by the Board. He shall perform such additional functions and duties as the Board may from time to time prescribe. 4.8 Vice President. Each vice president shall have such powers and duties as the Board or the president assigns to him. 4.9 The Treasurer. The treasurer shall be the chief financial officer of the corporation and shall be in charge of the corporation's books and accounts. Subject to the control of the Board, he shall have such other powers and duties as the Board or the president assigns to him. 4.10 The Secretary. The secretary shall be the secretary of, and keep the minutes of, all meetings of the Board and the stockholders, shall be responsible for giving notice of all meetings of stockholders and the Board, and shall keep the seal and, when authorized by the Board, apply it to any instrument requiring it. Subject to the control of the Board, he shall have such powers and duties as the Board or the president assigns to him. In the absence of the secretary from any meeting, the minutes shall be kept by the person appointed for that purpose by the presiding officer. - 11 - 12 4.11 Salaries. The Board may fix the officers' salaries, if any, or it may authorize the president to fix the salary of any other officer. 5. SHARES. 5.1 Certificates. The corporation's shares shall be represented by certificates in the form approved by the Board. Each certificate shall be signed by the president or a vice president, and by the secretary or an assistant secretary or the treasurer or an assistant treasurer, and shall be sealed with the corporation's seal or a facsimile of the seal. Any or all of the signatures on the certificate may be a facsimile. 5.2 Transfers. Shares shall be transferable only on the corporation's books, upon surrender of the certificate for the shares, properly endorsed. The Board may require satisfactory surety before issuing a new certificate to replace a certificate claimed to have been lost or destroyed. 5.3 Determination of Stockholders of Record. The Board may fix, in advance, a date as the record date for the determination of stockholders entitled to notice of or to vote at any meeting of the shareholders, or to express consent to or dissent from any proposal without a meeting, or to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action. The record date may not be more than 60 or - 12 - 13 fewer than 10 days before the date of the meeting or more than 60 days before any other action. 6. INDEMNIFICATION AND INSURANCE. 6.1 Right to Indemnification. Each person who was or is a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action or inaction in an official capacity while serving as director, officer, employee or agent, shall be indemnified and held harmless by the corporation to the fullest extent permitted by the General Corporation Law of Delaware, as amended from time to time, against all costs, charges, expenses, liabilities and losses (including attorney's fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and that indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his heirs, executors and administrators; provided, however, that, except as provided in section 6.2, the corporation - 13 - 14 shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by that person, only if that proceeding (or part thereof) was authorized by the Board. The right to indemnification conferred in these by-laws shall be a contract right and shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the General Corporation Law of Delaware, as amended from time to time, requires, the payment of such expenses incurred by a director or officer in his capacity as a director or officer (and not in any other capacity in which service was or is rendered by that person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced, if it shall ultimately be determined that such director or officer is not entitled to be indemnified under these by-laws or otherwise. The corporation may, by action of its Board, provide indemnification to employees and agents of the corporation with the same scope and effect as the foregoing indemnification of directors and officers. 6.2 Right of Claimant to Bring Suit. If a claim under section 6.1 is not paid in full by the corporation within 30 days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if - 14 - 15 successful in whole or in part, the claimant also shall be entitled to be paid the expense of prosecuting that claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition, where the required undertaking, if any, is required and has been tendered to the corporation) that the claimant has failed to meet a standard of conduct that makes it permissible under Delaware law for the corporation to indemnify the claimant for the amount claimed. Neither the failure of the corporation (including its Board, its independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is permissible in the circumstances because he has met that standard of conduct, nor an actual determination by the corporation (including its Board, its independent counsel or its stockholders) that the claimant has not met that standard of conduct, shall be a defense to the action or create a presumption that the claimant has failed to meet that standard of conduct. 6.3 Non-Exclusivity of Rights. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this section 6 shall not be exclusive of any other right any person may have or hereafter acquire under any statute, provision of the certificate of incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. - 15 - 16 6.4 Insurance. The corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the corporation would have the power to indemnify such person against that expense, liability or loss under Delaware law. 6.5 Expenses as a Witness. To the extent any director, officer, employee or agent of the corporation is by reason of such position, or a position with another entity at the request of the corporation, a witness in any action, suit or proceeding, he shall be indemnified against all costs and expenses actually and reasonably incurred by him or on his behalf in connection therewith. 6.6 Indemnity Agreements. The corporation may enter into agreement with any director, officer, employee or agent of the corporation providing for indemnification to the fullest extent permitted by Delaware law. 7. MISCELLANEOUS. 7.1 Seal. The Board shall adopt a corporate seal, which shall be in the form of a circle and shall bear the corporation's name and the year and state in which it was incorporated. - 16 - 17 7.2 Fiscal Year. The Board may determine the corporation's fiscal year. Until changed by the Board, the last day of the corporation's fiscal year shall be December 31. 7.3 Voting of Shares in Other Corporations. Shares in other corporations held by the corporation may be represented and voted by an officer of this corporation or by a proxy or proxies appointed by one of them. The Board may, however, appoint some other person to vote the shares. 7.4 Amendments. By-laws may be amended, repealed or adopted by the directors and, to the extent provided by statute, by the stockholders. [As amended and restated through June 16, 1995.] - 17 - EX-4.2 5 FORM OF PROPOSED REP'S WARRANT AGT 1 EXHIBIT 4.2 OHS DRAFT 12/5/96 [FORM OF REPRESENTATIVE'S WARRANT AGREEMENT] [SUBJECT TO ADDITIONAL REVIEW] - -------------------------------------------------------------------------------- COMPLETE WELLNESS CENTERS, INC. AND NATIONAL SECURITIES CORPORATION ----------------- REPRESENTATIVE'S WARRANT AGREEMENT DATED AS OF ________, 1997 - -------------------------------------------------------------------------------- 2 REPRESENTATIVE'S WARRANT AGREEMENT dated as of _______, 1997 between COMPLETE WELLNESS CENTERS, INC., a Delaware corporation (the "Company"), and NATIONAL SECURITIES CORPORATION (hereinafter referred to variously as the "Holder" or the "Representative"). W I T N E S S E T H: WHEREAS, the Company proposes to issue to the Representative warrants ("Warrants") to purchase up to an aggregate 100,000 shares of Common Stock, $.001665 par value, of the Company and/or 100,000 redeemable common stock purchase warrants of the Company ("Redeemable Warrants"), each Redeemable Warrant to purchase one additional share of Common Stock; and WHEREAS, the Representative has agreed pursuant to the underwriting agreement (the "Underwriting Agreement") dated as of the date hereof between the Company and the several Underwriters listed therein to act as the Representative in connection with the Company's proposed public offering of up to 1,000,000 shares of Common Stock and 1,000,000 Redeemable Warrants (the "Public Warrants") at a public offering price of $____ per share of Common Stock and $.10 per Public Warrant (the "Public Offering"); and WHEREAS, the Warrants to be issued pursuant to this Agreement will be issued on the Closing Date (as such term is defined in the Underwriting Agreement) by the Company to the Representative in consideration for, and as part of the Representative's compensation in connection with, the Representative acting as the Representative pursuant to the Underwriting Agreement; 3 NOW, THEREFORE, in consideration of the premises, the payment by the Representative to the Company of an aggregate ten dollars ($10.00), the agreements herein set forth and other good and valuable consideration, hereby acknowledged, the parties hereto agree as follows: 1. Grant. The Representative (or its designees) is hereby granted the right to purchase, at any time from _______, 1998 [one year from the effective date of the Registration Statement], until 5:30 P.M., New York time, on _______, 2002 [five years from the effective date of the Registration Statement], up to an aggregate of 100,000 shares of Common Stock and/or 100,000 Redeemable Warrants at an initial exercise price (subject to adjustment as provided in Section 8 hereof) of $____ per share of Common Stock [120% of the initial public offering price per share] and $____ per Redeemable Warrant [120% of the initial public offering price per Redeemable Warrant], subject to the terms and conditions of this Agreement. One Redeemable Warrant is exercisable to purchase one additional share of Common Stock at an initial exercise price of $_____ [120% of the initial public offering price per share] from _______, 1998 [one year from the effective date of the registration statement] until 5:30 p.m. New York time on _____, 2002 [five years from the effective date of the registration statement], at which time the Redeemable Warrants shall expire. Except as set forth herein, the shares of Common Stock and the Redeemable Warrants issuable upon exercise of the Warrants are in all respects identical to the shares of Common Stock and the Public Warrants being purchased by the Underwriters for resale to the public pursuant to the terms and provisions of the Underwriting Agreement. The shares of Common Stock and the Redeemable Warrants issuable upon exercise of the Warrants are sometimes hereinafter referred to collectively as the "Securities." - 2 - 4 2. Warrant Certificates. The warrant certificates (the "Warrant Certificates") delivered and to be delivered pursuant to this Agreement shall be in the form set forth in Exhibit A, attached hereto and made a part hereof, with such appropriate insertions, omissions, substitutions, and other variations as required or permitted by this Agreement. 3. Exercise of Warrant. Section 3.1 Method of Exercise. The Warrants initially are exercisable at an aggregate initial exercise price (subject to adjustment as provided in Section 8 hereof) per share of Common Stock and Redeemable Warrant set forth in Section 6 hereof payable by certified or official bank check in New York Clearing House funds, subject to adjustment as provided in Section 8 hereof. Upon surrender of a Warrant Certificate with the annexed Form of Election to Purchase duly executed, together with payment of the Exercise Price (as hereinafter defined) for the shares of Common Stock and/or Redeemable Warrants purchased at the Company's principal executive offices in New York (presently located at 725 Independence Avenue, S.E., Washington, D.C. 20003) the registered holder of a Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a certificate or certificates for the shares of Common Stock so purchased and a certificate or certificates for the Redeemable Warrants so purchased. The purchase rights represented by each Warrant Certificate are exercisable at the option of the Holder thereof, in whole or in part (but not as to fractional shares of the Common Stock and Redeemable Warrants underlying the Warrants). In the event the Company redeems all of the Public Warrants (other than the Redeemable Warrants underlying the Warrants), then the Warrants may only be exercised if such exercise is accompanied by the simultaneous exercise of the Redeemable Warrant(s) underlying the Warrants being so exercised. Warrants may be exercised to purchase all or part of the shares of Common Stock together with an equal or - 3 - 5 unequal number of the Redeemable Warrants represented thereby. In the case of the purchase of less than all the shares of Common Stock and/or Redeemable Warrants purchasable under any Warrant Certificate, the Company shall cancel said Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like tenor for the balance of the shares of Common Stock and/or Redeemable Warrants purchasable thereunder. Section 3.2 Exercise by Surrender of Warrant. In addition to the method of payment set forth in Section 3.1 and in lieu of any cash payment required thereunder, the Holder(s) of the Warrants shall have the right at any time and from time to time to exercise the Warrants in full or in part by surrendering the Warrant Certificate in the manner specified in Section 3.1 hereof. The number of shares of Common Stock to be issued pursuant to this Section 3.2 shall be equal to the difference between (a) the number of shares of Common Stock in respect of which the Warrants are exercised and (b) a fraction, the numerator of which shall be number of shares of Common Stock in respect of which the Warrants are exercised multiplied by the Exercise Price and the denominator of which shall be the Market Price (as defined in Section 3.3 hereof) of the Common Stock. The number of Redeemable Warrants to be issued pursuant to this Section 3.2 shall be equal to the difference between (a) the number of Redeemable Warrants in respect of which the Warrants are exercised and (b) a fraction, the numerator of which shall be the number of Redeemable Warrants in respect of which the Warrants are exercised multiplied by the Exercise Price and the denominator of which shall be the Market Price (as defined in Section 3.3 hereof) of the Redeemable Warrants. Solely for the purposes of this paragraph, Market Price shall be calculated either (i) on the date on which the form of election attached hereto is deemed to have been sent to the Company pursuant to Section 14 - 4 - 6 hereof ("Notice Date") or (ii) as the average of the Market Prices for each of the five trading days preceding the Notice Date, whichever of (i) or (ii) is greater. Section 3.3 Definition of Market Price. As used herein, the phrase "Market Price" at any date shall be deemed to be (i) when referring to the Common Stock, the last reported sale price, or, in case no such reported sale takes place on such day, the average of the last reported sale prices for the last three (3) trading days, in either case as officially reported by the principal securities exchange on which the Common Stock is listed or admitted to trading or by the Nasdaq Small Cap Market ("Nasdaq Small Cap"), or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted by the National Association of Securities Dealers Automated Quotation System ("Nasdaq"), the average closing bid price as furnished by the National Association of Securities Dealers, Inc. ("NASD") through Nasdaq or similar organization if Nasdaq is no longer reporting such information, or if the Common Stock is not quoted on Nasdaq, as determined in good faith (using customary valuation methods) by resolution of the members of the Board of Directors of the Company, based on the best information available to it or (ii) when referring to a Redeemable Warrant, the last reported sales price, or, in the case no such reported sale takes place on such day, the average of the last reported sale prices for the last three (3) trading days, in either case as officially reported by the principal securities exchange on which the Redeemable Warrants are listed or admitted to trading or by Nasdaq Small Cap, or, if the Redeemable Warrants are not listed or admitted to trading on any national securities exchange or quoted by Nasdaq, the average closing bid price as furnished by the NASD through Nasdaq or similar organization if Nasdaq is no longer reporting such information, or if the Redeemable Warrants are not quoted on Nasdaq or are no longer - 5 - 7 outstanding, the Market Price of a Redeemable Warrant shall equal the difference between the Market Price of the Common Stock and the Exercise Price of the Redeemable Warrant. 4. Issuance of Certificates. Upon the exercise of the Warrants, the issuance of certificates for shares of Common Stock and/or Redeemable Warrants and/or other securities, properties or rights underlying such Warrants and, upon the exercise of the Redeemable Warrants, the issuance of certificates for shares of Common Stock and/or other securities, properties or rights underlying such Redeemable Warrants shall be made forthwith (and in any event within five (5) business days thereafter) without charge to the Holder thereof including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall (subject to the provisions of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be directed by, the Holder thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificates in a name other than that of the Holder, and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Warrant Certificates and the certificates representing the shares of Common Stock and the Redeemable Warrants underlying the Warrants and the shares of Common Stock underlying the Redeemable Warrants (and/or other securities, property or rights issuable upon the exercise of the Warrants or the Redeemable Warrants) shall be executed on behalf of the Company by the manual or facsimile signature of the then Chairman or Vice Chairman of the Board of Directors or President or Vice President of the Company. Warrant Certificates shall - 6 - 8 be dated the date of execution by the Company upon initial issuance, division, exchange, substitution or transfer. Certificates representing the shares of Common Stock and Redeemable Warrants, and the shares of Common Stock underlying each Redeemable Warrant (and/or other securities, property or rights issuable upon exercise of the Warrants) shall be dated as of the Notice Date (regardless of when executed or delivered) and dividend bearing securities so issued shall accrue dividends from the Notice Date. 5. Restriction On Transfer of Warrants. The Holder of a Warrant Certificate, by its acceptance thereof, covenants and agrees that the Warrants are being acquired as an investment and not with a view to the distribution thereof; that the Warrants may not be sold, transferred, assigned, hypothecated or otherwise disposed of, in whole or in part, for a period of one (1) year from the date hereof, except to officers of the Representative. 6. Exercise Price. Section 6.1 Initial and Adjusted Exercise Price. Except as otherwise provided in Section 8 hereof, the initial exercise price of each Warrant shall be $____ [120% of the initial public offering price] per share of Common Stock and $_____ per Redeemable Warrant [120% of the initial public offering price per Public Warrant]. The adjusted exercise price shall be the price which shall result from time to time from any and all adjustments of the initial exercise price in accordance with the provisions of Section 8 hereof. Any transfer of a Warrant shall constitute an automatic transfer and assignment of the registration rights set forth in Section 7 hereof with respect to the Securities or other securities, properties or rights underlying the Warrants. Section 6.2 Exercise Price. The term "Exercise Price" herein shall mean the initial exercise price or the adjusted exercise price, depending upon the context or unless otherwise specified. - 7 - 9 7. Registration Rights. Section 7.1 Registration Under the Securities Act of 1933. The Warrants, the shares of Common Stock and Redeemable Warrants or other securities issuable upon exercise of the Warrants, and the shares of Common Stock or other securities issuable upon exercise of the Redeemable Warrants have not been registered under the Securities Act of 1933, as amended (the "Act"). The Warrants, and upon exercise in part or in whole of the Warrants, certificates representing the shares of Common Stock and the Redeemable Warrants or other securities underlying the Warrants, and, upon exercise in whole or in part of the Redeemable Warrants, certificates representing the shares of Common Stock or other securities underlying the Redeemable Warrants (all of the foregoing hereinafter collectively referred to as the "Warrant Securities") shall bear a legend substantially similar to the following: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended ("Act"), and may not be offered or sold except pursuant to (i) an effective registration statement under the Act, (ii) to the extent applicable, Rule 144 under the Act (or any similar rule under such Act relating to the disposition of securities), or (iii) an opinion of counsel, if such opinion shall be reasonably satisfactory to counsel to the issuer, that an exemption from registration under such Act is available. Section 7.2 Piggyback Registration. If, at any time commencing after the date hereof and expiring seven (7) years thereafter, the Company proposes to register any of its securities under the Act (other than pursuant to Form S-4, Form S-8 or a comparable registration statement) it will give written notice by registered mail, at least thirty (30) days prior to the filing of each such registration statement, to the Representative and to all other Holders of the Warrants and/or the Warrant Securities of its intention to do so. If the Representative or other Holders of the Warrants and/or Warrant Securities notify the Company within twenty (20) - 8 - 10 business days after receipt of any such notice of its or their desire to include any such securities in such proposed registration statement, the Company shall afford the Representative and such Holders of the Warrants and/or Warrant Securities the opportunity to have any such Warrant Securities registered under such registration statement. Notwithstanding the provisions of this Section 7.2, the Company shall have the right at any time after it shall have given written notice pursuant to this Section 7.2 (irrespective of whether a written request for inclusion of any such securities shall have been made) to elect not to file any such proposed registration statement, or to withdraw the same after the filing but prior to the effective date thereof. Section 7.3 Demand Registration. (a) At any time commencing after the date hereof and expiring five (5) years thereafter, the Holders of the Warrants and/or Warrant Securities representing a "Majority" (as hereinafter defined) of such securities (assuming the exercise of all of the Warrants) shall have the right (which right is in addition to the registration rights under Section 7.2 hereof), exercisable by written notice to the Company, to have the Company prepare and file with the Securities and Exchange Commission (the "Commission"), on one occasion, a registration statement and such other documents, including a prospectus, as may be necessary in the opinion of both counsel for the Company and counsel for the Representative and Holders, in order to comply with the provisions of the Act, so as to permit a public offering and sale of their respective Warrant Securities for nine (9) consecutive months by such Holders and any other Holders of the Warrants and/or Warrant Securities who notify the Company within ten (10) days after receiving notice from the Company of such request. - 9 - 11 (b) The Company covenants and agrees to give written notice of any registration request under this Section 7.3 by any Holder or Holders to all other registered Holders of the Warrants and the Warrant Securities within ten (10) days from the date of the receipt of any such registration request. (c) In addition to the registration rights under Section 7.2 and subsection (a) of this Section 7.3, at any time commencing after the date hereof and expiring five (5) years thereafter, any Holder of Warrants and/or Warrant Securities shall have the right, exercisable by written request to the Company, to have the Company prepare and file, on one occasion, with the Commission a registration statement so as to permit a public offering and sale for nine (9) consecutive months by any such Holder of its Warrant Securities provided, however, that the provisions of Section 7.4(b) hereof shall not apply to any such registration request and registration and all costs incident thereto shall be at the expense of the Holder or Holders making such request. (d) Notwithstanding anything to the contrary contained herein, if the Company shall not have filed a registration statement for the Warrant Securities within the time period specified in Section 7.4(a) hereof pursuant to the written notice specified in Section 7.3(a) of a Majority of the Holders of the Warrants and/or Warrant Securities, the Company may, at its option, upon the written notice of election of a Majority of the Holders of the Warrants and/or Warrant Securities requesting such registration, repurchase (i) any and all Warrant Securities of such Holders at the higher of the Market Price per share of Common Stock and per Redeemable Warrant on (x) the date of the notice sent pursuant to Section 7.3(a) or (y) the expiration of the period specified in Section 7.4(a) and (ii) any and all Warrants of such Holders at such Market Price less the Exercise Price of such Warrant. Such repurchase shall - 10 - 12 be in immediately available funds and shall close within two (2) days after the later of (i) the expiration of the period specified in Section 7.4(a) or (ii) the delivery of the written notice of election specified in this Section 7.3(d). Section 7.4 Covenants of the Company With Respect to Registration. In connection with any registration under Section 7.2 or 7.3 hereof, the Company covenants and agrees as follows: (a) The Company shall use its best efforts to file a registration statement within thirty (30) days of receipt of any demand therefor, shall use its best efforts to have any registration statements declared effective at the earliest possible time, and shall furnish each Holder desiring to sell Warrant Securities such number of prospectuses as shall reasonably be requested. (b) The Company shall pay all costs (excluding fees and expenses of Holder(s)' counsel and any underwriting or selling commissions), fees and expenses in connection with all registration statements filed pursuant to Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's legal and accounting fees, printing expenses, blue sky fees and expenses. The Holder(s) whose Warrant Securities are the subject of such registration statement will pay all costs, fees and expenses in connection with any registration statement filed pursuant to Section 7.3(c). (c) The Company will take all necessary action which may be required in qualifying or registering the Warrant Securities included in a registration statement for offering and sale under the securities or blue sky laws of such states as reasonably are requested by the Holder(s), provided that the Company shall not be obligated to execute or file any general - 11 - 13 consent to service of process or to qualify as a foreign corporation to do business under the laws of any such jurisdiction. (d) The Company shall indemnify the Holder(s) of the Warrant Securities to be sold pursuant to any registration statement and each person, if any, who controls such Holders within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or otherwise, arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify each of the Underwriters contained in Section 7 of the Underwriting Agreement. (e) The Holder(s) of the Warrant Securities to be sold pursuant to a registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, its officers and directors and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holders, or their successors or assigns, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in Section 7 of the Underwriting Agreement pursuant to which the Underwriters have agreed to indemnify the Company. - 12 - 14 (f) Nothing contained in this Agreement shall be construed as requiring the Holder(s) to exercise their Warrants prior to the initial filing of any registration statement or the effectiveness thereof. (g) The Company shall not permit the inclusion of any securities other than the Warrant Securities to be included in any registration statement filed pursuant to Section 7.3 hereof, or permit any other registration statement to be or remain effective during the effectiveness of a registration statement filed pursuant to Section 7.3 hereof, without the prior written consent of the Holders of the Warrants and Warrant Securities representing a Majority of such securities. (h) The Company shall furnish to each Holder participating in the offering and to each underwriter, if any, a signed counterpart, addressed to such Holder or underwriter, of (i) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, an opinion dated the date of the closing under the underwriting agreement), and (ii) a "cold comfort" letter dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the underwriting agreement) signed by the independent public accountants who have issued a report on the Company's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities. - 13 - 15 (i) The Company shall as soon as practicable after the effective date of the registration statement, and in any event within 15 months thereafter, make "generally available to its security holders" (within the meaning of Rule 158 under the Act) an earnings statement (which need not be audited) complying with Section 11(a) of the Act and covering a period of at least 12 consecutive months beginning after the effective date of the registration statement. (j) The Company shall deliver promptly to each Holder participating in the offering requesting the correspondence and memoranda described below and to the managing underwriters, copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit each Holder and underwriter to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of the NASD. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times and as often as any such Holder or underwriter shall reasonably request. (k) The Company shall enter into an underwriting agreement with the managing underwriters selected for such underwriting by Holders holding a Majority of the Warrant Securities requested to be included in such underwriting, which may be the Representative. Such agreement shall be satisfactory in form and substance to the Company, each Holder and such managing underwriter(s), and shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter(s). The Holders shall be parties to any underwriting - 14 - 16 agreement relating to an underwritten sale of their Warrant Securities and may, at their option, require that any or all of the representations, warranties and covenants of the Company to or for the benefit of such underwriter(s) shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the underwriter(s) except as they may relate to such Holders and their intended methods of distribution. (l) In addition to the Warrant Securities, upon the written request therefor by any Holder(s), the Company shall include in the registration statement any other securities of the Company held by such Holder(s) as of the date of filing of such registration statement, including without limitation restricted shares of Common Stock, options, warrants or any other securities convertible into shares of Common Stock. (m) For purposes of this Agreement, the term "Majority" in reference to the Holders of Warrants or Warrant Securities, shall mean in excess of fifty percent (50%) of the then outstanding Warrants or Warrant Securities that (i) are not held by the Company, an affiliate, officer, creditor, employee or agent thereof or any of their respective affiliates, members of their family, persons acting as nominees or in conjunction therewith and (ii) have not been resold to the public pursuant to a registration statement filed with the Commission under the Act. 8. Adjustments to Exercise Price and Number of Securities. Section 8.1 Subdivision and Combination. In case the Company shall at any time subdivide or combine the outstanding shares of Common Stock, the Exercise Price shall forthwith be proportionately decreased in the case of subdivision or increased in the case of combination. - 15 - 17 Section 8.2 Stock Dividends and Distributions. In case the Company shall pay a dividend in, or make a distribution of, shares of Common Stock or of the Company's capital stock convertible into Common Stock, the Exercise Price shall forthwith be proportionately decreased. An adjustment made pursuant to this Section 8.2 shall be made as of the record date for the subject stock dividend or distribution. Section 8.3 Adjustment in Number of Securities. Upon each adjustment of the Exercise Price pursuant to the provisions of this Section 8, the number of Warrant Securities issuable upon the exercise at the adjusted exercise price of each Warrant shall be adjusted to the nearest full amount by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Securities issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. Section 8.4 Definition of Common Stock. For the purpose of this Agreement, the term "Common Stock" shall mean (i) the class of stock designated as Common Stock in the Certificate of Incorporation of the Company as may be amended as of the date hereof, or (ii) any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. In the event that the Company shall after the date hereof issue securities with greater or superior voting rights than the shares of Common Stock outstanding as of the date hereof, the Holder, at its option, may receive upon exercise of any Warrant either the Warrant Securities or a like number of such securities with greater or superior voting rights. - 16 - 18 Section 8.5 Merger or Consolidation. In case of any consolidation of the Company with, or merger of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger which does not result in any reclassification or change of the outstanding Common Stock), the corporation formed by such consolidation or merger shall execute and deliver to the Holder a supplemental warrant agreement providing that the holder of each Warrant then outstanding or to be outstanding shall have the right thereafter (until the expiration of such Warrant) to receive, upon exercise of such Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or merger, by a holder of the number of securities of the Company for which such Warrant might have been exercised immediately prior to such consolidation, merger, sale or transfer. Such supplemental warrant agreement shall provide for adjustments which shall be identical to the adjustments provided in Section 8. The above provision of this subsection shall similarly apply to successive consolidations or mergers. Section 8.6 No Adjustment of Exercise Price in Certain Cases. No adjustment of the Exercise Price shall be made: (a) Upon the issuance or sale of the Warrants or the Warrant Securities issuable upon the exercise of the Warrants; (b) If the amount of said adjustment shall be less than two cents (2 cent.) per Warrant Security, provided, however, that in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment so carried forward, shall amount to at least two cents (2 cent.) per Warrant Security. - 17 - 19 9. Exchange and Replacement of Warrant Certificates. Each Warrant Certificate is exchangeable without expense, upon the surrender thereof by the registered Holder at the principal executive office of the Company, for a new Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of Warrant Securities in such denominations as shall be designated by the Holder thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrants, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof. 10. Elimination of Fractional Interests. The Company shall not be required to issue certificates representing fractions of shares of Common Stock or Redeemable Warrants upon the exercise of the Warrants, nor shall it be required to issue scrip or pay cash in lieu of fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up to the nearest whole number of shares of Common Stock or Redeemable Warrants or other securities, properties or rights. 11. Reservation and Listing of Securities. The Company shall at all times reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issuance upon the exercise of the Warrants and the Redeemable Warrants, such number of shares of Common Stock or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the - 18 - 20 Warrants and payment of the Exercise Price therefor, all shares of Common Stock, Redeemable Warrants and other securities issuable upon such exercise shall be duly and validly issued, fully paid, non-assessable and not subject to the preemptive rights of any stockholder. The Company further covenants and agrees that upon exercise of the Redeemable Warrants underlying the Warrants and payment of the respective Redeemable Warrant exercise price therefor, all shares of Common Stock and other securities issuable upon such exercises shall be duly and validly issued, fully paid, non-assessable and not subject to the preemptive rights of any stockholder. As long as the Warrants shall be outstanding, the Company shall use its best efforts to cause all shares of Common Stock issuable upon the exercise of the Warrants and Redeemable Warrants and all Redeemable Warrants underlying the Warrants to be listed (subject to official notice of issuance) on all securities exchanges on which the Common Stock or the Public Warrants issued to the public in connection herewith may then be listed and/or quoted on Nasdaq Small Cap or Nasdaq. 12. Notices to Warrant Holders. Nothing contained in this Agreement shall be construed as conferring upon the Holders the right to vote or to consent or to receive notice as a stockholder in respect of any meetings of stockholders for the election of directors or any other matter, or as having any rights whatsoever as a stockholder of the Company. If, however, at any time prior to the expiration of the Warrants and their exercise, any of the following events shall occur: (a) the Company shall take a record of the holders of its shares of Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of current or retained earnings or capital surplus (in - 19 - 21 accordance with applicable law), as indicated by the accounting treatment of such dividend or distribution on the books of the Company; or (b) the Company shall offer to all the holders of its Common Stock any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (c) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; then, in any one or more of said events, the Company shall give written notice of such event at least thirty (30) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, convertible or exchangeable securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. Failure to give such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment of any such dividend, or the issuance of any convertible or exchangeable securities, or subscription rights, options or warrants, or any proposed dissolution, liquidation, winding up or sale. 13. Redeemable Warrants. The form of the certificate representing Redeemable Warrants (and the form of election to purchase shares of Common Stock upon the exercise of Redeemable Warrants and the form of assignment printed on the reverse thereof) shall be substantially as set forth in - 20 - 22 Exhibit "A" to the Warrant Agreement dated as of the date hereof by and between the Company and Continental Stock Transfer and Trust Company (the "Redeemable Warrant Agreement"). Each Redeemable Warrant issuable upon exercise of the Warrants shall evidence the right to initially purchase a fully paid and non-assessable share of Common Stock at an initial purchase price of $______ [120% of the Public Warrant offering price] from ______ 1998 [one year from the effective date of the Registration Statement] until 5:30 p.m. New York time on _________ 2002 [5 years from the effective date of the Registration Statement] at which time the Redeemable Warrants, unless the exercise period has been extended, shall expire. The exercise price of the Redeemable Warrants and the number of shares of Common Stock issuable upon the exercise of the Redeemable Warrants are subject to adjustment, whether or not the Warrants have been exercised and the Redeemable Warrants have been issued, in the manner and upon the occurrence of the events set forth in Section 8 of the Redeemable Warrant Agreement, which is hereby incorporated herein by reference and made a part hereof as if set forth in its entirety herein. Subject to the provisions of this Agreement and upon issuance of the Redeemable Warrants underlying the Warrants, each registered holder of such Redeemable Warrant shall have the right to purchase from the Company (and the Company shall issue to such registered holders) up to the number of fully paid and non-assessable shares of Common Stock (subject to adjustment as provided herein and in the Redeemable Warrant Agreement), free and clear of all preemptive rights of stockholders, provided that such registered holder complies with the terms governing exercise of the Redeemable Warrant set forth in the Redeemable Warrant Agreement, and pays the applicable exercise price, determined in accordance with the terms of the Redeemable Warrant Agreement. Upon exercise of the Redeemable Warrants, the Company shall forthwith issue - 21 - 23 to the registered holder of any such Redeemable Warrant in his name or in such name as may be directed by him, certificates for the number of shares of Common Stock so purchased. Except as otherwise provided in this Agreement, the Redeemable Warrants underlying the Warrants shall be governed in all respects by the terms of the Redeemable Warrant Agreement. The Redeemable Warrants shall be transferable in the manner provided in the Redeemable Warrant Agreement, and upon any such transfer, a new Redeemable Warrant Certificate shall be issued promptly to the transferee. The Company covenants to, and agrees with, the Holder(s) that without the prior written consent of the Holder(s), which will not be unreasonably withheld, the Redeemable Warrant Agreement will not be modified, amended, canceled, altered or superseded, and that the Company will send to each Holder, irrespective of whether or not the Warrants have been exercised, any and all notices required by the Redeemable Warrant Agreement to be sent to holders of Redeemable Warrants. 14. Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made and sent when delivered, or mailed by registered or certified mail, return receipt requested: (a) If to the registered Holder of the Warrants, to the address of such Holder as shown on the books of the Company; or (b) If to the Company, to the address set forth in Section 3 hereof or to such other address as the Company may designate by notice to the Holders. 15. Supplements and Amendments. The Company and the Representative may from time to time supplement or amend this Agreement without the approval of any Holders of Warrant Certificates (other than the Representative) in order to cure any ambiguity, to - 22 - 24 correct or supplement any provision contained herein which may be defective or inconsistent with any provisions herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and the Representative may deem necessary or desirable and which the Company and the Representative deem shall not adversely affect the interests of the Holders of Warrant Certificates. 16. Successors. All the covenants and provisions of this Agreement shall be binding upon and inure to the benefit of the Company, the Holders and their respective successors and assigns hereunder. 17. Termination. This Agreement shall terminate at the close of business on _______, 2004. Notwithstanding the foregoing, the indemnification provisions of Section 7 shall survive such termination until the close of business on _______, 2010. 18. Governing Law; Submission to Jurisdiction. This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of said State without giving effect to the rules of said State governing the conflicts of laws. The Company, the Representative and the Holders hereby agree that any action, proceeding or claim against it arising out of, or relating in any way to, this Agreement shall be brought and enforced in the courts of the State of New York or of the United States of America for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company, the Representative and the Holders hereby irrevocably waive any objection to such exclusive jurisdiction or inconvenient forum. Any such process or summons to be served upon any of the Company, the Representative and the Holders (at the option of the party bringing such action, proceeding or claim) may be - 23 - 25 served by transmitting a copy thereof, by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 14 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the party so served in any action, proceeding or claim. The Company, the Representative and the Holders agree that the prevailing party(ies) in any such action or proceeding shall be entitled to recover from the other party(ies) all of its/their reasonable legal costs and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. 19. Entire Agreement; Modification. This Agreement (including the Underwriting Agreement and the Redeemable Warrant Agreement to the extent portions thereof are referred to herein) contains the entire understanding between the parties hereto with respect to the subject matter hereof and may not be modified or amended except by a writing duly signed by the party against whom enforcement of the modification or amendment is sought. 20. Severability. If any provision of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Agreement. 21. Captions. The caption headings of the Sections of this Agreement are for convenience of reference only and are not intended, nor should they be construed as, a part of this Agreement and shall be given no substantive effect. 22. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company and the Representative and any other registered Holder(s) of the Warrant Certificates or Warrant Securities any legal or equitable right, remedy or claim under this Agreement; and this Agreement shall be for the - 24 - 26 sole benefit of the Company and the Representative and any other registered Holders of Warrant Certificates or Warrant Securities. 23. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. - 25 - 27 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. COMPLETE WELLNESS CENTERS, INC. By: ------------------------------------- Name: Title: Attest: - ---------------------------- Secretary NATIONAL SECURITIES CORPORATION By: ------------------------------------- Name: Title: 28 EXHIBIT A [FORM OF WARRANT CERTIFICATE] THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN. EXERCISABLE ON OR BEFORE 5:30 P.M., NEW YORK TIME, __________, 2002 No. W- Warrants to Purchase ____ Shares of Common Stock and/or ____ Redeemable Warrants WARRANT CERTIFICATE This Warrant Certificate certifies that __________, or registered assigns, is the registered holder of _____________ Warrants to purchase initially, at any time from __________, 1998 [one year from the effective date of the Registration Statement] until 5:30 p.m. New York time on ___________, 2002 [five years from the effective date of the Registration Statement] ("Expiration Date"), up to __________ fully-paid and non-assessable shares of common stock, $.001665 par value ("Common Stock"), of COMPLETE WELLNESS CENTERS, INC., a Delaware corporation (the "Company"), and/or _____ Redeemable Warrants of the Company (one Redeemable Warrant entitling the owner to purchase one fully-paid and non-assessable share of Common Stock) at the initial exercise price, subject to adjustment in certain events (the "Exercise Price"), of $______ [120% of the initial public offering price] per share of Common Stock and $____ [120% of the initial public offering price] per Redeemable Warrant upon surrender of this Warrant Certificate and payment of the Exercise Price at an office or agency of the Company, but subject to the conditions set forth herein and in the warrant agreement dated as of _______, 1997 between the Company and NATIONAL SECURITIES A-1 29 CORPORATION (the "Warrant Agreement"). Payment of the Exercise Price shall be made by certified or official bank check in New York Clearing House funds payable to the order of the Company or by surrender of this Warrant Certificate. No Warrant may be exercised after 5:30 p.m., New York time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, hereby shall thereafter be void. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. The Warrant Agreement provides that upon the occurrence of certain events the Exercise Price and the type and/or number of the Company's securities issuable thereupon may, subject to certain conditions, be adjusted. In such event, the Company will, at the request of the holder, issue a new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and/or type of securities issuable upon the exercise of the Warrants; provided, however, that the failure of the Company to issue such new Warrant Certificates shall not in any way change, alter, or otherwise impair, the rights of the holder as set forth in the Warrant Agreement. Upon due presentment for registration of transfer of this Warrant Certificate at an office or agency of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided herein and in the Warrant Agreement, without any charge except for any tax or other governmental charge imposed in connection with such transfer. Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such number of unexercised Warrants. The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All terms used in this Warrant Certificate which are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement. A-2 30 IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its corporate seal. Dated as of ___________, 1996 COMPLETE WELLNESS CENTERS, INC. By: ------------------------------------- Name: Title: A-3 31 [FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1] The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase: / / shares of Common Stock; ----------------------- / / Redeemable Warrants; ----------------------- / / shares of Common Stock together with an equal ----------------------- number of Redeemable Warrants; or / / shares of Common Stock together with ----------------------- Redeemable Warrants. ----------------------- and herewith tenders in payment for such securities a certified or official bank check payable in New York Clearing House Funds to the order of Complete Wellness Centers, Inc. in the amount of $_______________________, all in accordance with the terms of Section 3.1 of the Representative's Warrant Agreement dated as of ______________________, 1997 between Complete Wellness Centers, Inc. and National Securities Corporation. The undersigned requests that a certificate for such securities be registered in the name of ______ _________________________ whose address is ___________________________________ and that such Certificate be delivered to ____________________________________ whose address is ______________________________________________. Dated: Signature ------------------------------------------------ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ----------------------------------------------------------- (Insert Social Security or Other Identifying Number of Holder) A-4 32 [FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2] The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase: / / shares of Common Stock; ----------------------- / / Redeemable Warrants; ----------------------- / / shares of Common Stock together with an equal ----------------------- number of Redeemable Warrants; or / / shares of Common Stock together with ----------------------- Redeemable Warrants. ----------------------- and herewith tenders in payment for such securities ________ Warrants all in accordance with the terms of Section 3.2 of the Representative's Warrant Agreement dated as of __________________, 1997 between Complete Wellness Centers, Inc. and National Securities Corporation. The undersigned requests that a certificate for such securities be registered in the name of _______________ _________________________________________ whose address is _________________________________________ and that such Certificate be delivered to ______________________________________ whose address is __________________________________________________. Dated: Signature ------------------------------------------------ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ----------------------------------------------------------- (Insert Social Security or Other Identifying Number of Holder) A-5 33 [FORM OF ASSIGNMENT] (To be executed by the registered holder if such holder desires to transfer the Warrant Certificate.) FOR VALUE RECEIVED ____________________________________ hereby sells, assigns and transfers unto ________________________________________________________________________________ (Please print name and address of transferee) this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ______________ Attorney, to transfer the within Warrant Certificate on the books of the within-named Company, with full power of substitution. Dated: Signature: -------------------------- ------------------------------ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ---------------------------------------- (Insert Social Security or Other Identifying Number of Assignee) A-6 EX-4.3 6 FORM OF WARRANT AGT BET THE COMPANY/AM STOCK TRAN 1 EXHIBIT 4.3 OHS DRAFT 11/11/96 [Form of Warrant Agreement Subject to Additional Review] ================================================================================ COMPLETE WELLNESS CENTERS, INC. AND AMERICAN STOCK TRANSFER AND TRUST COMPANY ------------------- WARRANT AGREEMENT DATED AS OF ___________ __, 1997 ================================================================================ 2 AGREEMENT, dated this ____ day of __________, 1997, by and among COMPLETE WELLNESS CENTERS, INC., a Delaware corporation (the "Company"), and AMERICAN STOCK TRANSFER AND TRUST COMPANY, as Warrant Agent (the "Warrant Agent"). W I T N E S S E T H: WHEREAS, in connection with (i) the offering to the public of up to 1,000,000 shares of Common Stock (as defined in Section 1) and 1,000,000 redeemable common stock purchase warrants (the "Warrants"), each warrant entitling the holder thereof to purchase one additional share of Common Stock, (ii) the over-allotment option to purchase up to an additional 150,000 shares of Common Stock and/or 150,000 Warrants (the "Over-allotment Option"), and (iii) the sale to National Securities Corporation ("National" or the "Representative") of warrants (the "Representative's Warrants") to purchase up to 100,000 shares of Common Stock and/or 100,000 Warrants, the Company will issue up to 1,250,000 Warrants (subject to increase as provided in the Representative's Warrant Agreement); and WHEREAS, the Company desires to provide for the issuance of certificates representing the Warrants; and WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company, and the Warrant Agent is willing to so act, in connection with the issuance, registration, transfer, exchange and redemption of the Warrants, the issuance of certificates representing the Warrants, the exercise of the Warrants and the rights of the holders thereof. NOW, THEREFORE, in consideration of the premises and the mutual agreements hereinafter set forth and for the purpose of defining the terms and provisions of the Warrants and the certificates representing the Warrants and the respective rights and obligations thereunder 3 of the Company, National, the holders of certificates representing the Warrants and the Warrant Agent, the parties hereto agree as follows: SECTION 1. Definitions. As used herein, the following terms shall have the following meanings, unless the context shall otherwise require: (a) "Act" shall mean the Securities Act of 1933, as amended. (b) "Common Stock" shall mean the authorized stock of the Company of any class, whether now or hereafter authorized, which has the right to participate in the voting and in the distribution of earnings and assets of the Company without limit as to amount or percentage. (c) "Commission" shall mean the Securities and Exchange Commission. (d) "Corporate Office shall mean the office of the Warrant Agent (or its successor) at which at any particular time its business in New York, New York, shall be administered, which office is located on the date hereof at 2 Broadway. (e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (f) "Exercise Date" shall mean, subject to the provisions of Section 5(b) hereof, as to any Warrant, the date on which the Warrant Agent shall have received both (i) the Warrant Certificate representing such Warrant, with the exercise form thereon duly executed by the Registered Holder thereof or his attorney duly authorized in writing, and (ii) payment in cash or by official bank or certified check made payable to the Warrant Agent for the account of the Company, of the amount in lawful money of the United States of America equal to the applicable Purchase Price (as hereinafter defined) in good funds. 2 4 (g) "Initial Warrant Exercise Date" shall mean _____________ __, 1997 [6 months from the effective date of the Registration Statement]. (h) "Initial Warrant Redemption Date" shall mean _______________ __, 1998 [18 months from the effective date of the Registration Statement]. (i) "NASD" shall mean the National Association of Securities Dealers, Inc. (j) "Nasdaq" shall mean the Nasdaq Small Cap Market. (k) "Purchase Price" shall mean, subject to modification and adjustment as provided in Section 8, $_____ [120% of the initial public offering price of the Common Stock] and further subject to the Company's right, in its sole discretion, to decrease the Purchase Price for a period of not less than 30 days on not less than 30 days' prior written notice to the Registered Holders and National. (l) "Redemption Date" shall mean the date (which may not occur before the Initial Warrant Redemption Date) fixed for the redemption of the Warrants in accordance with the terms hereof. (m) "Redemption Price" shall mean the price at which the Company may, at its option, redeem the Warrants, in accordance with the terms hereof, which price shall be $0.10 per Warrant, subject to adjustment from time to time pursuant to the provisions of Section 9 hereof. (n) "Registered Holder" shall mean the person in whose name any certificate representing the Warrants shall be registered on the books maintained by the Warrant Agent pursuant to Section 6. 3 5 (o) "Transfer Agent" shall mean Continental Stock Transfer and Trust Company, or its authorized successor. (p) "Underwriting Agreement" shall mean the underwriting agreement dated ______________ __, 1997 [the date of the Prospectus] between the Company and the several underwriters listed therein relating to the purchase for resale to the public of the 1,000,000 shares of Common Stock and 1,000,000 Warrants. (q) "Representative's Warrant Agreement" shall mean the agreement dated as of _______________ __, 1997 [the date of the Prospectus] between the Company and National relating to and governing the terms and provisions of the Representative's Warrants. (r) "Warrant Certificate" shall mean a certificate representing each of the Warrants substantially in the form annexed hereto as Exhibit A. (s) "Warrant Expiration Date" shall mean, unless the Warrants are redeemed as provided in Section 9 hereof prior to such date, 5:30 p.m. (New York time), on ______________ __, 2002 [60 months after the date of the Prospectus], or the Redemption Date as defined herein, whichever date is earlier; provided that if such date shall in the State of New York be a holiday or a day on which banks are authorized to close, then 5:30 p.m. (New York time) on the next following day which, in the State of New York, is not a holiday or a day on which banks are authorized to close. Upon five business days' prior written notice to the Registered Holders, the Company shall have the right to extend the Warrant Expiration Date. SECTION 2. Warrants and Issuance of Warrant Certificates. (a) Each Warrant shall initially entitle the Registered Holder of the Warrant Certificate representing such Warrant to purchase at the Purchase Price therefor from the Initial Warrant Exercise Date until the Warrant Expiration Date one share of Common Stock 4 6 upon the exercise thereof in accordance with the terms hereof, subject to modification and adjustment as provided in Section 8. (b) Upon execution of this Agreement, Warrant Certificates representing the number of Warrants sold pursuant to the Underwriting Agreement (subject to modification and adjustment as provided in Section 8) shall be executed by the Company and delivered to the Warrant Agent. (c) Upon exercise of the Representative's Warrants as provided therein, Warrant Certificates representing all or a portion of 100,000 Warrants to purchase up to an aggregate of 100,000 shares of Common Stock (subject to modification and adjustment as provided in Section 8 hereof and in the Representative's Warrant Agreement), shall be countersigned, issued and delivered by the Warrant Agent upon written order of the Company signed by its Chairman of the Board, Chief Executive Officer, President or a Vice President and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary. (d) From time to time, up to the Warrant Expiration Date or the Redemption Date, whichever date is earlier, the Warrant Agent shall countersign and deliver Warrant Certificates in required denominations of one or whole number multiples thereof to the person entitled thereto in connection with any transfer or exchange permitted under this Agreement. Except as provided herein, no Warrant Certificates shall be issued except (i) Warrant Certificates initially issued hereunder and those issued on or after the Initial Warrant Exercise Date, upon the exercise of fewer than all Warrants held by the exercising Registered Holder, (ii) Warrant Certificates issued upon any transfer or exchange of Warrants, (iii) Warrant Certificates issued in replacement of lost, stolen, destroyed or mutilated Warrant Certificates pursuant to Section 7, (iv) Warrant Certificates issued pursuant to the Representative's Warrant 5 7 Agreement, and (v) at the option of the Company, Warrant Certificates in such form as may be approved by its Board of Directors, to reflect any adjustment or change in the Purchase Price, the number of shares of Common Stock purchasable upon exercise of the Warrants or the Redemption Price therefor made pursuant to Section 8 hereof. SECTION 3. Form and Execution of Warrant Certificates. (a) The Warrant Certificates shall be substantially in the form annexed hereto as Exhibit A (the provisions of which are hereby incorporated herein) and may have such letters, numbers or other marks of identification or designation and such legends, summaries or endorsements printed, lithographed or engraved thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Warrants may be listed, or to conform to usage. The Warrant Certificates shall be dated the date of issuance thereof (whether upon initial issuance, transfer, exchange or in lieu of mutilated, lost, stolen or destroyed Warrant Certificates) and issued in registered form. Warrants shall be numbered serially with the letter W on the Warrants. (b) Warrant Certificates shall be executed on behalf of the Company by its Chairman of the Board, Chief Executive Officer, President or any Vice President and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary, by manual signatures or by facsimile signatures printed thereon, and shall have imprinted thereon a facsimile of the Company's seal. Warrant Certificates shall be manually countersigned by the Warrant Agent and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Warrant Certificates shall cease to be 6 8 such officer of the Company before the date of issuance of the Warrant Certificates or before countersignature by the Warrant Agent and issue and delivery thereof, such Warrant Certificates, nevertheless, may be countersigned by the Warrant Agent, issued and delivered with the same force and effect as though the person who signed such Warrant Certificates had not ceased to be such officer of the Company. After countersignature by the Warrant Agent, Warrant Certificates shall be delivered by the Warrant Agent to the Registered Holder promptly and without further action by the Company, except as otherwise provided by Section 4(a) hereof. SECTION 4. Exercise. (a) Warrants in denominations of one or whole number multiples thereof may be exercised by the Registered Holder thereof commencing at any time on or after the Initial Warrant Exercise Date, but not after the Warrant Expiration Date, upon the terms and subject to the conditions set forth herein and in the applicable Warrant Certificate. A Warrant shall be deemed to have been exercised immediately prior to the close of business on the Exercise Date and the person entitled to receive the securities deliverable upon such exercise shall be treated for all purposes as the holder, upon exercise thereof, as of the close of business on the Exercise Date. If Warrants in denominations other than whole number multiples thereof shall be exercised at one time by the same Registered Holder, the number of full shares of Common Stock which shall be issuable upon exercise thereof shall be computed on the basis of the aggregate number of full shares of Common Stock issuable upon such exercise. As soon as practicable on or after the Exercise Date and in any event within five business days after such date, if one or more Warrants have been exercised, the Warrant Agent on behalf of the Company shall cause to be issued to the person or persons entitled to receive the same a Common Stock certificate or certificates for the shares of Common Stock deliverable upon such 7 9 exercise, and the Warrant Agent shall deliver the same to the person or persons entitled thereto. Upon the exercise of any one or more Warrants, the Warrant Agent shall promptly notify the Company in writing of such fact and of the number of securities delivered upon such exercise and, subject to subsection (b) below, shall cause all payments of an amount in cash or by check made payable to the order of the Company, equal to the Purchase Price, to be deposited promptly in the Company's bank account. (b) At any time upon the exercise of any Warrants after one year and one day from the date hereof, the Warrant Agent shall, on a daily basis, within two business days after such exercise, notify National of the exercise of any such Warrants and shall, on a weekly basis (subject to collection of funds constituting the tendered Purchase Price, but in no event later than five business days after the last day of the calendar week in which such funds were tendered), remit to National an amount equal to five percent (5%) of the Purchase Price of such Warrants then being exercised unless National shall have notified the Warrant Agent that the payment of such amount with respect to such Warrant is violative of the General Rules and Regulations promulgated under the Exchange Act, or the rules and regulations of the NASD or applicable state securities or "blue sky" laws, or the Warrants are those underlying the Representative's Warrants in which event, the Warrant Agent shall have to pay such amount to the Company; provided, that the Warrant Agent shall not be obligated to pay any amounts pursuant to this Section 4(b) during any week that such amounts payable are less than $1,000 and the Warrant Agent's obligation to make such payments shall be suspended until the amount payable aggregates $1,000, and provided further, that, in any event, any such payment (regardless of amount) shall be made not less frequently than monthly. Notwithstanding the foregoing, National shall be entitled to receive the commission contemplated by this Section 4(b) 8 10 as Warrant solicitation agent only if: (i) National has provided actual services in connection with the solicitation of the exercise of a Warrant by a Registered Holder and (ii) the Registered Holder exercising a Warrant affirmatively designates in writing on the exercise form on the reverse side of the Warrant Certificate that the exercise of such Registered Holder's Warrant was solicited by National. (c) The Company shall not be required to issue fractional shares on the exercise of Warrants. Warrants may only be exercised in such multiples as are required to permit the issuance by the Company of one or more whole shares. If one or more Warrants shall be presented for exercise in full at the same time by the same Registered Holder, the number of whole shares which shall be issuable upon such exercise thereof shall be computed on the basis of the aggregate number of shares purchasable on exercise of the Warrants so presented. If any fraction of a share would, except for the provisions provided herein, be issuable on the exercise of any Warrant (or specified portion thereof), the Company shall pay an amount in cash equal to such fraction multiplied by the then current market value of a share of Common Stock, determined as follows: (1) If the Common Stock is listed, or admitted to unlisted trading privileges on a national securities exchange, or is traded on Nasdaq, the current market value of a share of Common Stock shall be the closing sale price of the Common Stock at the end of the regular trading session on the last business day prior to the date of exercise of the Warrants on whichever of such exchanges or Nasdaq had the highest average daily trading volume for the Common Stock on such day; or (2) If the Common Stock is not listed or admitted to unlisted trading privileges on any national securities exchange, or listed, quoted or reported for trading on Nasdaq, but is 9 11 traded in the over-the-counter market, the current market value of a share of Common Stock shall be the average of the last reported bid and asked prices of the Common Stock reported by the National Quotation Bureau, Inc. on the last business day prior to the date of exercise of the Warrants; or (3) If the Common Stock is not listed, admitted to unlisted trading privileges on any national securities exchange, or listed, quoted or reported for trading on Nasdaq, and bid and asked prices of the Common Stock are not reported by the National Quotation Bureau, Inc., the current market value of a share of Common Stock shall be an amount, not less than the book value thereof as of the end of the most recently completed fiscal quarter of the Company ending prior to the date of exercise, determined by the members of the Board of Directors of the Company exercising good faith and using customary valuation methods. SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc. (a) The Company covenants that it will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issue upon exercise of Warrants, such number of shares of Common Stock as shall then be issuable upon the exercise of all outstanding Warrants. The Company covenants that all shares of Common Stock which shall be issuable upon exercise of the Warrants shall, at the time of delivery thereof, be duly and validly issued and fully paid and nonassessable and free from all preemptive or similar rights, taxes, liens and charges with respect to the issue thereof, and that upon issuance such shares shall be listed on each securities exchange, if any, on which the other shares of outstanding Common Stock of the Company are then listed. (b) The Company covenants that if any securities to be reserved for the purpose of exercise of Warrants hereunder require registration with, or approval of, any 10 12 governmental authority under any federal securities law before such securities may be validly issued or delivered upon such exercise, then the Company will file a registration statement under the federal securities laws or a post-effective amendment, use its best efforts to cause the same to become effective and to keep such registration statement current while any of the Warrants are outstanding and deliver a prospectus which complies with Section 10(a)(3) of the Act, to the Registered Holder exercising the Warrant (except, if in the opinion of counsel to the Company, such registration is not required under the federal securities law or if the Company receives a letter from the staff of the Commission stating that it would not take any enforcement action if such registration is not effected). The Company will use its best efforts to obtain appropriate approvals or registrations under state "blue sky" securities laws with respect to any such securities. However, Warrants may not be exercised by, or shares of Common Stock issued to, any Registered Holder in any state in which such exercise would be unlawful. (c) The Company shall pay all documentary, stamp or similar taxes and other governmental charges that may be imposed with respect to the issuance of Warrants, or the issuance or delivery of any shares of Common Stock upon exercise of the Warrants; provided, however, that if shares of Common Stock are to be delivered in a name other than the name of the Registered Holder of the Warrant Certificate representing any Warrant being exercised, then no such delivery shall be made unless the person requesting the same has paid to the Warrant Agent the amount of transfer taxes or charges incident thereto, if any. (d) The Warrant Agent is hereby irrevocably authorized as the Transfer Agent to requisition from time to time certificates representing shares of Common Stock or other securities required upon exercise of the Warrants, and the Company will comply with all such requisitions. 11 13 SECTION 6. Exchange and Registration of Transfer. (a) Warrant Certificates may be exchanged for other Warrant Certificates representing an equal aggregate number of Warrants of the same class or may be transferred in whole or in part. Warrant Certificates to be exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and, upon satisfaction of the terms and provisions hereof, the Company shall execute and the Warrant Agent shall countersign, issue and deliver in exchange therefor the Warrant Certificate or Certificates which the Registered Holder making the exchange shall be entitled to receive. (b) The Warrant Agent shall keep, at its office, books in which, subject to such reasonable regulations as it may prescribe, it shall register Warrant Certificates and the transfer thereof in accordance with customary practice. Upon due presentment for registration of transfer of any Warrant Certificate at such office, the Company shall execute and the Warrant Agent shall issue and deliver to the transferee or transferees a new Warrant Certificate or Certificates representing an equal aggregate number of Warrants of the same class. (c) With respect to all Warrant Certificates presented for registration of transfer, or for exchange or exercise, the subscription or exercise form, as the case may be, on the reverse thereof shall be duly endorsed or be accompanied by a written instrument or instruments of transfer and subscription, in form satisfactory to the Company and the Warrant Agent, duly executed by the Registered Holder thereof or his attorney-in-fact duly authorized in writing. (d) A service charge may be imposed by the Warrant Agent for any exchange or registration of transfer of Warrant Certificates. In addition, the Company may 12 14 require payment by such Holder of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. (e) All Warrant Certificates surrendered for exercise or for exchange in case of mutilated Warrant Certificates shall be promptly canceled by the Warrant Agent and thereafter retained by the Warrant Agent until termination of this Agreement. (f) Prior to due presentment for registration of transfer thereof, the Company and the Warrant Agent may deem and treat the Registered Holder of any Warrant Certificate as the absolute owner thereof and of each Warrant represented thereby (notwithstanding any notations of ownership or writing thereon made by anyone other than a duly authorized officer of the Company or the Warrant Agent) for all purposes and shall not be affected by any notice to the contrary. SECTION 7. Loss or Mutilation. Upon receipt by the Company and the Warrant Agent of evidence satisfactory to them of the ownership of and the loss, theft, destruction or mutilation of any Warrant Certificate and (in the case of loss, theft or destruction) of indemnity satisfactory to them, and (in case of mutilation) upon surrender and cancellation thereof, the Company shall execute and the Warrant Agent shall (in the absence of notice to the Company and/or the Warrant Agent that a new Warrant Certificate has been acquired by a bona fide purchaser) countersign and deliver to the Registered Holder in lieu thereof a new Warrant Certificate of like tenor representing an equal aggregate number of Warrants. Applicants for a substitute Warrant Certificate shall also comply with such other reasonable regulations and pay such other reasonable charges as the Warrant Agent may prescribe. 13 15 SECTION 8. Adjustment of Purchase Price and Number of Shares of Common Stock Deliverable. (a) Except as hereinafter provided, in the event the Company shall, at any time or from time to time after the date hereof and prior to the Warrant Expiration Date, issue or sell any shares of Common Stock for a consideration per share less than the Purchase Price or issue any shares of Common Stock as a stock dividend to the holders of Common Stock, or subdivide or combine the outstanding shares of Common Stock into a greater or lesser number of shares (any such issuance, subdivision or combination being herein called a "Change of Shares"), then, and thereafter upon each further Change of Shares, the Purchase Price for the Warrants (whether or not the same shall be issued and outstanding) in effect immediately prior to such Change of Shares shall be changed to a price (including any applicable fraction of a cent to the nearest cent) determined by dividing (i) the sum of (a) the total number of shares of Common Stock outstanding immediately prior to such Change of Shares, multiplied by the Purchase Price in effect immediately prior to such Change of Shares and (b) the consideration, if any, received by the Company upon such sale, issuance, subdivision or combination, by (ii) the total number of shares of Common Stock outstanding immediately after such Change of Shares; provided, however, that in no event shall the Purchase Price be adjusted pursuant to this computation to an amount in excess of the Purchase Price in effect immediately prior to such computation, except in the case of a combination of outstanding shares of Common Stock. For the purposes of any adjustment to be made in accordance with this Section 8(a), the following provisions shall be applicable: (A) In case of the issuance or sale of shares of Common Stock (or of other securities deemed hereunder to involve the issuance or sale of shares of Common Stock) for a 14 16 consideration part or all of which shall be cash, the amount of the cash portion of the consideration therefor deemed to have been received by the Company shall be (i) the subscription price, if shares of Common Stock are offered by the Company for subscription, or (ii) the public offering price (before deducting therefrom any compensation paid or discount allowed in the sale, underwriting or purchase thereof by underwriters or dealers or others performing similar services, or any expenses incurred in connection therewith), if such securities are sold to underwriters or dealers for public offering without a subscription offering, or (iii) the gross amount of cash actually received by the Company for such securities, in any other case. (B) In case of the issuance or sale (otherwise than as a dividend or other distribution on any stock of the Company, and otherwise than on the exercise of options, rights or warrants or the conversion or exchange of convertible or exchangeable securities) of shares of Common Stock (or of other securities deemed hereunder to involve the issuance or sale of shares of Common Stock) for a consideration part or all of which shall be other than cash, the amount of the consideration therefor other than cash deemed to have been received by the Company shall be the value of such consideration as determined in good faith by the Board of Directors of the Company, using customary valuation methods and on the basis of prevailing market values for similar property or services. (C) Shares of Common Stock issuable by way of dividend or other distribution on any stock of the Company shall be deemed to have been issued immediately after the opening of business on the day following the record date for the determination of shareholders entitled to receive such dividend or other distribution and shall be deemed to have been issued without consideration. 15 17 (D) The reclassification of securities of the Company other than shares of Common Stock into securities including shares of Common Stock shall be deemed to involve the issuance of such shares of Common Stock for a consideration other than cash immediately prior to the close of business on the date fixed for the determination of security holders entitled to receive such shares, and the value of the consideration allocable to such shares of Common Stock shall be determined as provided in subsection (B) of this Section 8(a). (E) The number of shares of Common Stock at any one time outstanding shall be deemed to include the aggregate maximum number of shares issuable (subject to readjustment upon the actual issuance thereof) upon the exercise of options, rights or warrants and upon the conversion or exchange of convertible or exchangeable securities. (b) Upon each adjustment of the Purchase Price pursuant to this Section 8, the number of shares of Common Stock purchasable upon the exercise of each Warrant shall be the number derived by multiplying the number of shares of Common Stock purchasable immediately prior to such adjustment by the Purchase Price in effect prior to such adjustment and dividing the product so obtained by the applicable adjusted Purchase Price. (c) In case the Company shall at any time after the date hereof issue options, rights or warrants to subscribe for shares of Common Stock, or issue any securities convertible into or exchangeable for shares of Common Stock, for a consideration per share (determined as provided in Sections 8(a) and 8(b) and as provided below) less than the Purchase Price in effect immediately prior to the issuance of such options, rights or warrants, or such convertible or exchangeable securities, or without consideration (including the issuance of any such securities by way of dividend or other distribution), the Purchase Price for the Warrants (whether or not the same shall be issued and outstanding) in effect immediately prior to the 16 18 issuance of such options, rights or warrants, or such convertible or exchangeable securities, as the case may be, shall be reduced to a price determined by making the computation in accordance with the provisions of Sections 8(a) and 8(b) hereof, provided that: (A) The aggregate maximum number of shares of Common Stock, as the case may be, issuable or that may become issuable under such options, rights or warrants (assuming exercise in full even if not then currently exercisable or currently exercisable in full) shall be deemed to be issued and outstanding at the time such options, rights or warrants were issued, for a consideration equal to the minimum purchase price per share provided for in such options, rights or warrants at the time of issuance, plus the consideration, if any, received by the Company for such options, rights or warrants; provided, however, that upon the expiration or other termination of such options, rights or warrants, if any thereof shall not have been exercised, the number of shares of Common Stock deemed to be issued and outstanding pursuant to this subsection (A) (and for the purposes of subsection (E) of Section 8(a) hereof) shall be reduced by the number of shares as to which options, warrants and/or rights shall have expired, and such number of shares shall no longer be deemed to be issued and outstanding, and the Purchase Price then in effect shall forthwith be readjusted and thereafter be the price that it would have been had adjustment been made on the basis of the issuance only of the shares actually issued plus the shares remaining issuable upon the exercise of those options, rights or warrants as to which the exercise rights shall not have expired or terminated unexercised. (B) The aggregate maximum number of shares of Common Stock issuable or that may become issuable upon conversion or exchange of any convertible or exchangeable securities (assuming conversion or exchange in full even if not then currently convertible or exchangeable in full) shall be deemed to be issued and outstanding at the time of issuance of 17 19 such securities, for a consideration equal to the consideration received by the Company for such securities, plus the minimum consideration, if any, receivable by the Company upon the conversion or exchange thereof; provided, however, that upon the termination of the right to convert or exchange such convertible or exchangeable securities (whether by reason of redemption or otherwise), the number of shares of Common Stock deemed to be issued and outstanding pursuant to this subsection (B) (and for the purposes of subsection (E) of Section 8(a) hereof) shall be reduced by the number of shares as to which the conversion or exchange rights shall have expired or terminated unexercised, and such number of shares shall no longer be deemed to be issued and outstanding, and the Purchase Price then in effect shall forthwith be readjusted and thereafter be the price that it would have been had adjustment been made on the basis of the issuance only of the shares actually issued plus the shares remaining issuable upon conversion or exchange of those convertible or exchangeable securities as to which the conversion or exchange rights shall not have expired or terminated unexercised. (C) If any change shall occur in the price per share provided for in any of the options, rights or warrants referred to in subsection (A) of this Section 8(c), or in the price per share or ratio at which the securities referred to in subsection (B) of this Section 8(c) are convertible or exchangeable, such options, rights or warrants or conversion or exchange rights, as the case may be, to the extent not theretofore exercised, shall be deemed to have expired or terminated on the date when such price change became effective in respect of shares not theretofore issued pursuant to the exercise or conversion or exchange thereof, and the Company shall be deemed to have issued upon such date new options, rights or warrants or convertible or exchangeable securities. 18 20 (d) In case of any reclassification or change of outstanding shares of Common Stock issuable upon exercise of the Warrants (other than a change in par value, or from par value to no par value, or from no par value to par value or as a result of a subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary of the Company in which merger the Company is the continuing corporation) and which does not result in any reclassification or change of the then outstanding shares of Common Stock or other capital stock issuable upon exercise of the Warrants (other than a change in par value, or from par value to no par value, or from no par value to par value or as a result of subdivision or combination) or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, then, as a condition of such reclassification, change, consolidation, merger, sale or conveyance, the Company, or such successor or purchasing corporation, as the case may be, shall make lawful and adequate provision whereby the Registered Holder of each Warrant then outstanding shall have the right thereafter to receive on exercise of such Warrant the kind and amount of securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance by a holder of the number of securities issuable upon exercise of such Warrant immediately prior to such reclassification, change, consolidation, merger, sale or conveyance and shall forthwith file at the Corporate Office of the Warrant Agent a statement signed by its Chief Executive Officer, President or a Vice President and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary evidencing such provision. Such provisions shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in Sections 8(a), (b) and (c). The above provisions of this Section 8(d) shall similarly apply to successive reclassifications and 19 21 changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. (e) Irrespective of any adjustments or changes in the Purchase Price or the number of shares of Common Stock purchasable upon exercise of the Warrants, the Warrant Certificates theretofore and thereafter issued shall, unless the Company shall exercise its option to issue new Warrant Certificates pursuant to Section 2(e) hereof, continue to express the Purchase Price per share and the number of shares purchasable thereunder as the Purchase Price per share and the number of shares purchasable thereunder were expressed in the Warrant Certificates when the same were originally issued. (f) After each adjustment of the Purchase Price pursuant to this Section 8, the Company will promptly prepare a certificate signed by the Chairman, Chief Executive Officer or President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, of the Company setting forth: (i) the Purchase Price as so adjusted, (ii) the number of shares of Common Stock purchasable upon exercise of each Warrant, after such adjustment, and (iii) a brief statement of the facts accounting for such adjustment. The Company will promptly file such certificate with the Warrant Agent and cause a brief summary thereof to be sent by ordinary first class mail to each Registered Holder at his last address as it shall appear on the registry books of the Warrant Agent. No failure to mail such notice nor any defect therein or in the mailing thereof shall affect the validity thereof except as to the holder to whom the Company failed to mail such notice, or except as to the holder whose notice was defective. The affidavit of an officer of the Warrant Agent or the Secretary or an Assistant Secretary of the Company that such notice has been mailed shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 20 22 (g) No adjustment of the Purchase Price shall be made as a result of or in connection with (A) the issuance or sale of shares of Common Stock pursuant to options, warrants, stock purchase agreements and convertible or exchangeable securities outstanding or in effect on the date hereof and on the terms described in the final prospectus relating to the public offering contemplated by the Underwriting Agreement; or (B) the issuance or sale of shares of Common Stock if the amount of said adjustment shall be less than $.10, provided, however, that in such case, any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment that shall amount, together with any adjustment so carried forward, to at least $.10. In addition, Registered Holders shall not be entitled to cash dividends paid by the Company prior to the exercise of any Warrant or Warrants held by them. SECTION 9. Redemption. (a) Commencing on the Initial Warrant Redemption Date, the Company may, on 30 days' prior written notice, redeem all the Warrants at ten cents ($.10) per Warrant, provided, however, that before any such call for redemption of Warrants can take place, the average closing bid price for the Common Stock as reported by Nasdaq, if the Common Stock is then traded on Nasdaq (or the closing sale price, if the Common Stock is then traded on a national securities exchange) shall have equalled or exceeded $______ [160% of the initial public offering price per share of Common Stock] per share for any twenty (20) trading days within a period of thirty (30) consecutive trading days ending on the fifth trading day prior to the date on which the notice contemplated by (b) and (c) below is given (subject to adjustment in the event of any stock splits or other similar events as provided in Section 8 hereof). 21 23 (b) In case the Company shall exercise its right to redeem all of the Warrants, it shall give or cause to be given notice to the Registered Holders of the Warrants, by mailing to such Registered Holders a notice of redemption, first class, postage prepaid, at their last address as shall appear on the records of the Warrant Agent. Any notice mailed in the manner provided herein shall be conclusively presumed to have been duly given whether or not the Registered Holder receives such notice. Not less than five (5) business days prior to the mailing to the Registered Holders of the Warrants of the notice of redemption, the Company shall deliver or cause to be delivered to National a similar notice telephonically and confirmed in writing together with a list of the Registered Holders (including their respective addresses and number of Warrants beneficially owned) to whom such notice of redemption has been or will be given. (c) The notice of redemption shall specify (i) the redemption price, (ii) the Redemption Date, which shall in no event be less than thirty (30) days after the date of mailing of such notice, (iii) the place where the Warrant Certificate shall be delivered and the redemption price shall be paid, (iv) if National is engaged as a Warrant solicitation agent, that National shall receive the commission contemplated by Section 4(b) hereof, and (v) that the right to exercise the Warrant shall terminate at 5:30 p.m. (New York time) on the business day immediately preceding the date fixed for redemption. No failure to mail such notice nor any defect therein or in the mailing thereof shall affect the validity of the proceedings for such redemption except as to a holder (a) to whom notice was not mailed or (b) whose notice was defective. An affidavit of the Warrant Agent or the Secretary or Assistant Secretary of the Company that notice of redemption has been mailed shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 22 24 (d) Any right to exercise a Warrant shall terminate at 5:30 p.m. (New York time) on the business day immediately preceding the Redemption Date. The redemption price payable to the Registered Holders shall be mailed to such persons at their addresses of record. (e) The Company shall indemnify National and each person, if any, who controls National within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or otherwise, arising from the registration statement or prospectus referred to in Section 5(b) hereof to the same extent and with the same effect (including the provisions regarding contribution) as the provisions pursuant to which the Company has agreed to indemnify National contained in Section 7 of the Underwriting Agreement. (f) Five business days prior to the Redemption Date, the Company shall furnish to National (i) an opinion of counsel to the Company, dated such date and addressed to National, and (ii) a "cold comfort" letter dated such date addressed to National, signed by the independent public accountants who have issued a report on the Company's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants' letter, with respect to events subsequent to the date of such financial 23 25 statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities. SECTION 10. Concerning the Warrant Agent. (a) The Warrant Agent acts hereunder as agent and in a ministerial capacity for the Company and National, and its duties shall be determined solely by the provisions hereof. The Warrant Agent shall not, by issuing and delivering Warrant Certificates or by any other act hereunder, be deemed to make any representations as to the validity or value or authorization of the Warrant Certificates or the Warrants represented thereby or of any securities or other property delivered upon exercise of any Warrant or whether any stock issued upon exercise of any Warrant is fully paid and nonassessable. (b) The Warrant Agent shall not at any time be under any duty or responsibility to any holder of Warrant Certificates to make or cause to be made any adjustment of the Purchase Price or the Redemption Price provided in this Agreement, or to determine whether any fact exists which may require any such adjustments, or with respect to the nature or extent of any such adjustments, when made, or with respect to the method employed in making the same. It shall not (i) be liable for any recital or statement of fact contained herein or for any action taken, suffered or omitted by it in reliance on any Warrant Certificate or other document or instrument believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties, (ii) be responsible for any failure on the part of the Company to comply with any of its covenants and obligations contained in this Agreement or in any Warrant Certificate, or (iii) be liable for any act or omission in connection with this Agreement except for its own negligence, bad faith or willful misconduct. 24 26 (c) The Warrant Agent may at any time consult with counsel satisfactory to it (who may be counsel for the Company or for National) and shall incur no liability or responsibility for any action taken, suffered or omitted by it in good faith in accordance with the opinion or advice of such counsel. (d) Any notice, statement, instruction, request, direction, order or demand of the Company shall be sufficiently evidenced by an instrument signed by the Chairman of the Board of Directors, Chief Executive Officer, President or any Vice President (unless other evidence in respect thereof is herein specifically prescribed). The Warrant Agent shall not be liable for any action taken, suffered or omitted by it in accordance with such notice, statement, instruction, request, direction, order or demand reasonably believed by it to be genuine. (e) The Company agrees to pay the Warrant Agent reasonable compensation for its services hereunder and to reimburse it for its reasonable expenses hereunder; the Company further agrees to indemnify the Warrant Agent and save it harmless from and against any and all losses, expenses and liabilities, including judgments, costs and counsel fees, for anything done or omitted by the Warrant Agent in the execution of its duties and powers hereunder except losses, expenses and liabilities arising as a result of the Warrant Agent's negligence, bad faith or willful misconduct. (f) The Warrant Agent may resign its duties and be discharged from all further duties and liabilities hereunder (except liabilities arising as a result of the Warrant Agent's own gross negligence or willful misconduct), after giving 30 days' prior written notice to the Company. At least 15 days prior to the date such resignation is to become effective, the Warrant Agent shall cause a copy of such notice of resignation to be mailed to the Registered Holder of each Warrant Certificate at the Company's expense. Upon such resignation, or any 25 27 inability of the Warrant Agent to act as such hereunder, the Company shall appoint in writing a new warrant agent. If the Company shall fail to make such appointment within a period of 15 days after it has been notified in writing of such resignation by the resigning Warrant Agent, then the Registered Holder of any Warrant Certificate may apply to any court of competent jurisdiction for the appointment of a new warrant agent. Any new warrant agent, whether appointed by the Company or by such a court, shall be a bank or trust company having a capital and surplus, as shown by its last published report to its stockholders, of not less than $10,000,000 or a stock transfer company. After acceptance in writing of such appointment by the new warrant agent is received by the Company, such new warrant agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as the Warrant Agent, without any further assurance, conveyance, act or deed; but if for any reason it shall be necessary or expedient to execute and deliver any further assurance, conveyance, act or deed, the same shall be done at the expense of the Company and shall be legally and validly executed and delivered by the resigning Warrant Agent. Not later than the effective date of any such appointment the Company shall file notice thereof with the resigning Warrant Agent and shall forthwith cause a copy of such notice to be mailed to the Registered Holder of each Warrant Certificate. (g) Any corporation into which the Warrant Agent or any new warrant agent may be converted or merged, any corporation resulting from any consolidation to which the Warrant Agent or any new warrant agent shall be a party, or any corporation succeeding to the corporate trust business of the Warrant Agent or any new warrant agent shall be a successor warrant agent under this Agreement without any further act, provided that such corporation is eligible for appointment as successor to the Warrant Agent under the provisions of the preceding 26 28 paragraph. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed to the Company and to the Registered Holders of each Warrant Certificate. (h) The Warrant Agent, its subsidiaries and affiliates, and any of its or their officers or directors, may buy and hold or sell Warrants or other securities of the Company and otherwise deal with the Company in the same manner and to the same extent and with like effect as though it were not Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. (i) The Warrant Agent shall retain for a period of two years from the date of exercise any Warrant Certificate received by it upon such exercise. SECTION 11. Modification of Agreement. The Warrant Agent and the Company may by supplemental agreement make any changes or corrections in this Agreement (i) that they shall deem appropriate to cure any ambiguity or to correct any defective or inconsistent provision or manifest mistake or error herein contained; or (ii) that they may deem necessary or desirable and which shall not adversely affect the interests of the holders of Warrant Certificates; provided, however, that this Agreement shall not otherwise be modified, supplemented or altered in any respect except with the consent in writing of the Registered Holders representing not less than 66-2/3% of the Warrants then outstanding; provided, further, that no change in the number or nature of the securities purchasable upon the exercise of any Warrant, or to increase the Purchase Price therefor or to accelerate the Warrant Expiration Date, shall be made without the consent in writing of the Registered Holder of the Warrant Certificate representing such Warrant, other than such changes as are presently specifically prescribed by this Agreement as originally 27 29 executed. In addition, this Agreement may not be modified, amended or supplemented without the prior written consent of National, other than to cure any ambiguity or to correct any provision which is inconsistent with any other provision of this Agreement or to make any such change that is necessary or desirable and which shall not adversely affect the interests of National and except as may be required by law. SECTION 12. Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been made when delivered or mailed first-class registered or certified mail, postage prepaid, as follows: if to the Registered Holder of a Warrant Certificate, at the address of such holder as shown on the registry books maintained by the Warrant Agent; if to the Company at 725 Independence Avenue, S.E., Washington, D.C. 20003, Attention: C. Thomas McMillen, Chairman and Chief Executive Officer, or at such other address as may have been furnished to the Warrant Agent in writing by the Company; and if to the Warrant Agent, at its Corporate Office. Copies of any notice delivered pursuant to this Agreement shall also be delivered to National Securities Corporation, 1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154-1100, Attention: General Counsel, or at such other address as may have been furnished to the Company and the Warrant Agent in writing. SECTION 13. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to conflicts of laws. 28 30 SECTION 14. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Company, National, the Warrant Agent and their respective successors and assigns and the holders from time to time of Warrant Certificates or any of them. Nothing in this Agreement is intended or shall be construed to confer upon any other person any right, remedy or claim, in equity or at law, or to impose upon any other person any duty, liability or obligation. SECTION 15. Termination. This Agreement shall terminate at the close of business on the Expiration Date of all of the Warrants or such earlier date upon which all Warrants have been exercised or redeemed, except that the Warrant Agent shall account to the Company for cash held by it and the provisions of Section 10 hereof shall survive such termination. SECTION 16. Counterparts. This Agreement may be executed in several counterparts, which taken together shall constitute a single document. 29 31 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. [SEAL] COMPLETE WELLNESS CENTERS, INC. By: ----------------------------- Name: Title: Attest: By: -------------------------- Name: Title: AMERICAN STOCK TRANSFER AND TRUST COMPANY, As Warrant Agent By: ----------------------------- Name: Title: 32 EXHIBIT A No. W __________ VOID AFTER _________, 2002 WARRANTS REDEEMABLE WARRANT CERTIFICATE TO PURCHASE ONE SHARE OF COMMON STOCK COMPLETE WELLNESS CENTERS, INC. CUSIP _______ THIS CERTIFIES THAT, FOR VALUE RECEIVED or registered assigns (the "Registered Holder") is the owner of the number of Redeemable Warrants (the "Warrants") specified above. Each Warrant initially entitles the Registered Holder to purchase, subject to the terms and conditions set forth in this Certificate and the Warrant Agreement (as hereinafter defined), one fully paid and nonassessable share of Common Stock, $.001665 par value, of Complete Wellness Centers, Inc., a Delaware corporation (the "Company"), at any time between _______________, 1997 (the "Initial Warrant Exercise Date"), and the Expiration Date (as hereinafter defined) upon the presentation and surrender of this Warrant Certificate with the Subscription Form on the reverse hereof duly executed, at the corporate office of Continental Stock Transfer and Trust Company, as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment of $_____, [120% of the initial public offering price of the Common Stock] subject to adjustment (the "Purchase Price"), in lawful money of the United States of America in cash or by check made payable to the Warrant Agent for the account of the Company. This Warrant Certificate and each Warrant represented hereby are issued pursuant to and are subject in all respects to the terms and conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated _______________, 1997 [date of the Prospectus], between the Company and the Warrant Agent. In the event of certain contingencies provided for in the Warrant Agreement, the Purchase Price and the number of shares of Common Stock subject to purchase upon the exercise of each Warrant represented hereby are subject to modification or adjustment. Each Warrant represented hereby is exercisable at the option of the Registered Holder, but no fractional interests will be issued. In the case of the exercise of less than all the Warrants represented hereby, the Company shall cancel this Warrant Certificate upon the A-1 33 surrender hereof and shall execute and deliver a new Warrant Certificate or Warrant Certificates of like tenor, which the Warrant Agent shall countersign, for the balance of such Warrants. The term "Expiration Date" shall mean 5:30 p.m. (New York time) on the date which is fifty-four (54) months after the Initial Warrant Exercise Date. If each such date shall in the State of New York be a holiday or a day on which the banks are authorized to close, then the Expiration Date shall mean 5:30 p.m. (New York time) on the next following day which in the State of New York is not a holiday or a day on which banks are authorized to close. The Company shall not be obligated to deliver any securities pursuant to the exercise of this Warrant unless a registration statement under the Securities Act of 1933, as amended (the "Act"), with respect to such securities is effective or an exemption thereunder is available. The Company has covenanted and agreed that it will file a registration statement under the Federal securities laws, use its best efforts to cause the same to become effective, use its best efforts to keep such registration statement current, if required under the Act, while any of the Warrants are outstanding, and deliver a prospectus which complies with Section 10(a)(3) of the Act to the Registered Holder exercising this Warrant. This Warrant shall not be exercisable by a Registered Holder in any state where such exercise would be unlawful. This Warrant Certificate is exchangeable, upon the surrender hereof by the Registered Holder at the corporate office of the Warrant Agent, for a new Warrant Certificate or Warrant Certificates of like tenor representing an equal aggregate number of Warrants, each of such new Warrant Certificates to represent such number of Warrants as shall be designated by such Registered Holder at the time of such surrender. Upon due presentment and payment of any tax or other charge imposed in connection therewith or incident thereto, for registration of transfer of this Warrant Certificate at such office, a new Warrant Certificate or Warrant Certificates representing an equal aggregate number of Warrants will be issued to the transferee in exchange therefor, subject to the limitations provided in the Warrant Agreement. Prior to the exercise of any Warrant represented hereby, the Registered Holder shall not be entitled to any rights of a stockholder of the Company, including, without limitation, the right to vote or to receive dividends or other distributions, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided in the Warrant Agreement. Subject to the provisions of the Warrant Agreement, this Warrant may be redeemed at the option of the Company, at a redemption price of $0.10 per Warrant, at any time commencing after ______________, 1998 [18 months after the effective date of the Registration Statement], provided that the average closing bid price for the Common Stock as reported by the Nasdaq Small Cap Market (or the closing sale price, if the Common Stock is then traded on a national securities exchange), shall have equalled or exceeded $_________ [160% of the initial public offering price per share of Common Stock] per share for any twenty (20) trading days within a period of thirty (30) consecutive trading days ending on the fifth trading day prior to the Notice of Redemption, as defined below (subject to adjustment in the event of any stock splits or other similar events). Notice of redemption (the "Notice of Redemption") shall be given not later than the thirtieth day before the date fixed for redemption, all as provided in the Warrant Agreement. On and after the date fixed for redemption, the Registered Holder shall A-2 34 have no rights with respect to the Warrants except to receive the $.01 per Warrant upon surrender of this Warrant Certificate. Under certain circumstances, National Securities Corporation may be entitled to receive an aggregate of five percent (5%) of the Purchase Price of the Warrants represented hereby. Prior to due presentment for registration of transfer hereof, the Company and the Warrant Agent may deem and treat the Registered Holder as the absolute owner hereof and of each Warrant represented hereby (notwithstanding any notations of ownership or writing hereon made by anyone other than a duly authorized officer of the Company or the Warrant Agent) for all purposes and shall not be affected by any notice to the contrary, except as provided in the Warrant Agreement. This Warrant Certificate shall be governed by and construed in accordance with the laws of the State of New York without giving effect to conflicts of laws. This Warrant Certificate is not valid unless countersigned by the Warrant Agent. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed, manually or in facsimile by two of its officers thereunto duly authorized and a facsimile of its corporate seal to be imprinted hereon. Dated: COMPLETE WELLNESS CENTERS, INC. [SEAL] By: ---------------------------- Name: Title: By: ---------------------------- --------------- Secretary COUNTERSIGNED: AMERICAN STOCK TRANSFER AND TRUST COMPANY, as Warrant Agent By: ---------------------------------- Authorized Officer A-3 35 SUBSCRIPTION FORM To Be Executed by the Registered Holder in Order to Exercise Warrants The undersigned Registered Holder hereby irrevocably elects to exercise ________________________ Warrants represented by this Warrant Certificate, and to purchase the securities issuable upon the exercise of such Warrants, and requests that certificates for such securities shall be issued in the name of PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER --------------------------- --------------------------- --------------------------- --------------------------- (please print or type name and address) and be delivered to --------------------------- --------------------------- --------------------------- --------------------------- (please print or type name and address) and if such number of Warrants shall not be all the Warrants evidenced by this Warrant Certificate, that a new Warrant Certificate for the balance of such Warrants be registered in the name of, and delivered to, the Registered Holder at the address stated below. A-4 36 IMPORTANT: PLEASE COMPLETE THE FOLLOWING: 1. The exercise of this Warrant was solicited by National Securities Corporation. / / 2. The exercise of this Warrant was solicited by _____________________________________. / / 3. The exercise of this Warrant was not solicited. / / Dated: X --------------------- --------------------------------------- --------------------------------------- --------------------------------------- Address --------------------------------------- Social Security or Taxpayer Identification Number --------------------------------------- Signature Guaranteed --------------------------------------- A-5 37 ASSIGNMENT To Be Executed by the Registered Holder in Order to Assign Warrants FOR VALUE RECEIVED, _______________________________, hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- (please print or type name and address) _____________________________________________ of the Warrants represented by this Warrant Certificate, and hereby irrevocably constitutes and appoints _____________________________________ Attorney to transfer this Warrant Certificate on the books of the Company, with full power of substitution in the premises. Dated: X ---------------------- ----------------------------------- Signature Guaranteed ----------------------------------- THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. A-6 EX-10.1 7 FORM OF STOCKHOLDERS' AGREEMENT MARCH 20, 1995 1 EXHIBIT 10.1 STOCKHOLDERS' AGREEMENT This Stockholders' Agreement ("Agreement") is made and entered into as of the 20th day of March, 1995, by and among (i) Complete Wellness Centers, Inc., a Delaware corporation ("the Corporation"), (ii) C. Thomas McMillen (hereinafter sometimes referred to as "McMillen") and other holders of the Corporation's outstanding Common Stock (as defined below), and (iii) the holders of the Corporation's Series A, 12% Cumulative Convertible Preferred Stock (the "Preferred Stock") listed on Schedule A attached hereto (the "Preferred Stockholders"). For purposes hereof, McMillen, the other holders of outstanding Common Stock, and the Preferred Stockholders are sometimes individually referred to herein as a "Stockholder" or collectively as the "Stockholders". RECITALS 1. The authorized capital stock of the Corporation consists of Twenty Thousand (20,000) shares of common stock, par value $.01 per share (the "Common Stock"), and Fifteen Hundred (1,500) shares of Series A, 12% Cumulative Convertible Preferred Stock, par value $.01 per share. 2. The Stockholders own all of the issued and outstanding Common Stock and all of the issued and outstanding Preferred Stock, and constitute all of the stockholders of the Corporation as of the date of this Agreement. 3. The Corporation and the Stockholders believe that it is in the best interests of the Corporation and of the Stockholders to (i) provide certain rights of first refusal with respect to any 2 transfer of Common Stock and/or Preferred Stock (collectively, the "Shares") now held or hereafter acquired by the Stockholders; (ii) require all transferees of Shares to become parties to this Agreement, and (iii) provide the Stockholders with certain rights in the event of any future issuance of equity securities by the Corporation. NOW, THEREFORE, in consideration of the above Recitals and the mutual agreements set forth below, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by all parties, the parties hereto hereby agree as follows: 1. Transfer Restrictions/Legend. (a) The terms "Transferred", "Transfer" and all other derivations thereof shall mean to sell, assign, transfer, divide, combine, donate, exchange, distribute, mortgage, finance, refinance, pledge, encumber, hypothecate and/or otherwise dispose of in whole or in part (including, without limitation, by way of or as a result of a judicial decree or any dissolution, liquidation, termination, insolvency, bankruptcy, withdrawal, death or incompetency). (b) There shall be stamped, typed or printed on each certificate or document evidencing any Shares a legend restricting Transfer of such Shares, which legend shall be substantially as follows: Transfer of the shares represented by this certificate is limited and restricted in several respects by the provisions of a certain Stockholders' Agreement dated as of March 20, 1995, a copy of which is on file in the principal office of - 2 - 3 the Corporation. Prospective transferees are referred to that Stockholders' Agreement for further information. Accordingly, neither this certificate nor any of the shares of stock of the Corporation evidenced hereby may be transferred (as that term is defined in the Stockholders' Agreement) except in compliance with the provisions of the aforesaid Stockholders' Agreement. (c) The Corporation agrees, for and on behalf of itself and its successors and assigns, that (i) it shall not issue, transfer or reissue any shares of Common Stock or Preferred Stock in violation of the provisions of this Agreement, and (ii) all certificates representing shares of Common Stock and Preferred Stock issued to and held by any Stockholder shall bear a legend in substantially the form specified in Section 1(b) hereof. 2. Rights of First Refusal. (a) Definitions. The following terms shall have the following meanings whenever used in this Agreement: (i) "Bona Fide Offer" shall mean a legally enforceable offer, in writing, made and signed by an offeror or offerors who is or are a person or persons or entity or entities financially capable of carrying out the terms of such Bona Fide Offer. (ii) "Bona Fide Offeror" shall mean the person or persons making the Bona Fide Offer. (iii) "Registered Notice" shall mean notice sent by registered or certified mail, return receipt requested, and first-class postage prepaid or by actual delivery by messenger or overnight delivery service; and, if such Registered Notice is sent with respect to a Bona Fide Offer (as provided for in Section 2(b) - 3 - 4 hereof), such Registered Notice shall contain a true and complete copy of the Bona Fide Offer, setting forth the number of Shares to be sold by the Stockholder, the price thereof and all of the terms and conditions thereof, with the name(s), address(es) (both home and office) and business(es) or other occupation(s) of the offeror or offerors. Any notice which does not contain all such requisite information shall not be considered a "Registered Notice" for the purposes of Section 2(b) hereof. (iv) "Selling Stockholder" shall mean the Stockholder who shall have received a Bona Fide Offer pursuant to this Section 2 and who is desirous of selling some or all of his/her Shares pursuant to such Bona Fide Offer: "Remaining Stockholders" shall mean the Stockholders other than the Selling Stockholder. (b) Receipt of Bona Fide Offer by Stockholder/Right of First Refusal. (i) In the event that a Stockholder shall receive a Bona Fide Offer to purchase any or all of such Stockholder's Shares, and in the further event that the Stockholder shall desire to accept such Bona Fide Offer, such Selling Stockholder shall promptly send Registered Notice to the Corporation and to the Remaining Stockholders. Such Registered Notice shall offer to sell such Selling Stockholder's Shares that are the subject of the Bona Fide Offer to the Remaining Stockholders on terms the same as those in such Bona Fide Offer (the "Bona Fide Offer Terms"). Each of the Remaining Stockholders shall then have the right to purchase from the Selling Stockholder, at the Bona Fide Offer Terms, a pro rata - 4 - 5 share of such Shares (based on the number of Shares held by such Remaining Stockholders) as are subject to such Bona Fide Offer (the "Bona Fide Offer Shares"); provided that any such purchase must be made within twenty (20) days after receipt of such Registered Notice. For purposes of this Section 2, the Corporation and/or a Remaining Stockholder shall accept any offer to purchase shares, if at all, by notifying the Selling Stockholder, in writing, of its or his election to purchase such Bona Fide Offer Shares, in the manner set forth in Section 2(a)(iii) for Registered Notice, and including in such notice a bank or cashiers' check for the total purchase price of the Bona Fide Offer Shares to be so purchased. (ii) To the extent one or more of such Remaining Stockholders do not purchase their pro rata share of the Bona Fide Offer Shares as set forth in Section 2(b)(i), such Selling Stockholder shall sell the Bona Fide Offer Shares to any of the Remaining Stockholders at the Bona Fide Offer Terms; provided that such Remaining Stockholders purchase such Bona Fide Offer Shares within ten (10) days after the Selling Stockholder notifies such Stockholders of their right to purchase such Bona Fide Offer Shares pursuant to this Section 2(b)(ii). (iii) If, after the applicable time periods prescribed in Sections 2(b)(i) or 2(b)(ii), as the case may be, the Remaining Stockholders do not purchase all of the Bona Fide Offer Shares, the Corporation shall have the option for a period of fifteen (15) days to purchase any or all of such Bona Fide Offer Shares upon the Bona Fide Offer Terms. - 5 - 6 (iv) If all Bona Fide Offer Shares are not purchased by the Remaining Stockholders and/or the Corporation pursuant to this Section 2(b), such Selling Stockholder may sell such Bona Fide Offer Shares to the Bona Fide Offeror, at the Bona Fide Offer Terms for a period of time not to exceed forty (40) days from the date the Registered Notice is received by the Corporation. Any sale of Bona Fide Offer Shares may not be made after such forty (40) day period, or to a person other than the Bona Fide Offeror without again complying with the provisions of this Section 2. (c) Notwithstanding anything in this Section 2 to the contrary, McMillen shall have the right to transfer to one or more third party(s) up to an aggregate of 100 shares of Common Stock without regard to the foregoing obligations or restrictions on transfer, which, until such time as McMillen shall have transferred the foregoing number of such shares, shall be inapplicable. 3. Issuance of Equity Securities by the Corporation. In the event that the Corporation proposes to issue any additional equity securities in the future other than pursuant to the exercise of options granted in accordance with the Corporation's Stock Option Plan, the Corporation shall notify the Stockholders of such intention in writing not less than thirty (30) days prior to such issuance. The Stockholders shall have the right as a condition to any such issuance of equity securities by the Corporation, to purchase from the Corporation on the same terms as such proposed issuance, a pro rata portion of the equity securities to be so issued, provided that such Stockholder shall beneficially - 6 - 7 own shares of the Corporation's Common Stock or Preferred Stock at the time of such issuance. Notwithstanding anything herein to the contrary, any and all rights granted to the Stockholders in this Section 3 shall not apply to any public offering of equity securities by the Corporation pursuant to a registration statement filed with the U.S. Securities and Exchange Commission, in which case the provisions of this Section 3 shall be null and void. 4. Transfers of Shares. (a) Conditions/Transferee Rights. Subject to the provisions of Sections 1, 2 and subsections (b) and (c) of this Section 4, any person (other than the Corporation or a Stockholder) who acquires any Shares, shall, as a condition to such transfer, become a party to this Agreement and take such Shares pursuant to all provisions, conditions and covenants of this Agreement, by executing a supplement to this Agreement in substantially the form of Exhibit "B" attached hereto and such other documents as the Corporation may reasonably request. Upon the execution of such supplement and the Transfer of Shares, such transferee shall have all of the rights and privileges of the Stockholders under this Agreement, if applicable at the time of such Transfer. Accordingly, for purposes of this Agreement, the term "Stockholder" shall be deemed to include any such transferee. (b) Notice. Prior to any Transfer or attempted Transfer of any Shares, the holder of such Shares shall, in addition to providing any notice required pursuant to Section 2 hereof, give written notice to the Corporation of such holder's intention to - 7 - 8 effect such Transfer. Each such notice (i) shall describe the manner and circumstances of the proposed Transfer, and shall state how the provisions of this Stockholders' Agreement applicable to such Transfer shall be satisfied, which statement shall be acceptable to the Corporation in its reasonable discretion. (c) Response and Transfer. As promptly as practicable (but in no event later than three (3) days after the holder delivers such notice pursuant to Section 4(b)), the Corporation shall review the notice and any other items provided by the holder with said notice and shall notify the person who gave such notice whether or not the requirements of Section 4(b) have been satisfied. If such requirements have been satisfied, such holder shall be immediately entitled to Transfer such Shares, in accordance with the terms of the notice delivered by such holder to the Corporation and in accordance with this Agreement (including adherence to the requirements of Section 2 hereof regarding rights of first refusal). If such requirements have not been satisfied, the holder may cure any defect or deficiency and re-submit such written notice, whereupon the provisions of Section 4(b) shall again apply. Each certificate or other document evidencing Shares issued upon any such Transfer shall bear the restrictive legend set forth in Section 1(b), unless in the opinion of counsel to the Corporation such legend is not applicable. - 8 - 9 5. Election of Director. The holders of the Preferred Stock, voting together as a class, shall have the right to elect one director to the Board of Directors of the Corporation. 6. Termination. This Agreement shall terminate twenty (20) years from the date hereof or upon the earlier voluntary written agreement of the Corporation and all then Stockholders. 7. Integration. This Agreement sets forth all (and are intended by all parties hereto to be an integration of all) of the promises, agreements, conditions, understanding, warranties, representations and covenants among the parties hereto with respect to the subject matter hereof and no other writings or agreements, written or oral, express or implied, shall be held to affect the provisions hereof. 8. Waiver. No failure of any party to exercise any power, right or remedy given it hereunder, or to insist upon the strict compliance by any other party with any obligation, covenant, term, condition, warranty or agreement hereunder, and no custom or practice at variance with the terms of this Agreement, shall constitute a waiver of such party's right to demand exact compliance with the terms hereof at any time and from time to time. Further, no waiver by any party of any covenant, condition or agreement hereof on the part of any other party hereto to be kept and/or performed shall be - 9 - 10 considered to constitute a waiver of the same or any other covenant, condition or provision or any subsequent breach thereof. 9. Interpretation. This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of Delaware, without giving effect to the principles of conflicts of law. 10. Partial Invalidity. Should any immaterial part of this Agreement for any reason be declared or held invalid, such invalidity shall not affect the validity of any remaining portion, which remaining portion shall remain in force and effect as if this Agreement had been executed with the invalid portion thereof eliminated, and it is hereby declared the intention of the parties hereto that they would have executed the remaining portion of this Agreement without including therein any such part, parts or portion which may, for any reason, be hereafter declared or held invalid. 11. Amendments. Neither this Agreement nor any provision hereof may be amended, modified, changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the amendment, modification, change, waiver, discharge or termination is sought. 12. Notices. All notices pertaining to this Agreement shall be either (a) hand-delivered or (b) sent by registered or certified mail, return receipt requested, with first class postage prepaid, (1) if to a - 10 - 11 Stockholder, then to the last address of such to the Corporation, then to Complete Wellness Centers, Inc., 1103 South Carolina Ave., S.E., Washington, D.C. 20003, Attention: President, with a copy to the Law Firm of Proskauer Rose Goetz & Mendelsohn, Suite 800, 1233 Twentieth Street, N.W., Washington, D.C. 20036-2396, Attention: Joseph E. Casson, Esquire, or at any other address that may be given by one party to all others by notice pursuant to this Section. Such notices, if sent by registered or certified mail, shall be deemed to have been delivered at the time of mailing. Any notice which is required to be delivered within a stated period of time shall be considered timely if either hand-delivered or postmarked on or before midnight of the last day of such period. 13. Further Assurance. Each of the parties hereto agrees hereafter to promptly execute, swear to, acknowledge under oath, and deliver such further documents and instruments, and to promptly do such further acts and things, as may be necessary, appropriate or incidental to carry out the intent and purpose of this Agreement. 14. Burden and Benefit. This Agreement is binding upon, and inures to the benefit of, the parties hereto and their respective spouses, heirs, executors, administrators, personal and legal representatives, successors and permitted assigns. 15. Counterparts. This Agreement may be executed and sealed in one or more counterparts and, in such event, all such counterparts shall - 11 - 12 constitute originals and all such counterparts shall constitute a single agreement. 16. Survival. All representations, warranties, agreements, covenants and indemnifications made by the parties or otherwise set forth in this Agreement shall survive and be effective to the expiration of the applicable statute of limitations. IN WITNESS WHEREOF, the Corporation and the Stockholders have executed and sealed this Agreement, by their duly authorized officers or individually, as the case may be, all done as of the day and year hereinabove first written. WITNESS: COMPLETE WELLNESS CENTERS, INC. By: - ------------------------ ------------------------------ C. Thomas McMillen - 12 - 13 STOCKHOLDERS: ----------------------------------- C. Thomas McMillen ----------------------------------- Dr. James Joseph McMillen ----------------------------------- James K. Gibson ----------------------------------- Dr. Judy Niemyer ----------------------------------- Joel Babbit ----------------------------------- Robert Mrazek ------------------------------------ Peter Kelly ----------------------------------- George Finley ----------------------------------- James Whitehead ----------------------------------- Charles Driesell ----------------------------------- Sen. Russ Potts ----------------------------------- Zev Kaplan ----------------------------------- Pam Shriver - 13 - 14 EXHIBIT A PREFERRED STOCKHOLDERS Joel Babbit Peter Kelly George Finley James Whitehead Sen. Russ Potts Zev Kaplan Pam Shriver - 14 - 15 EXHIBIT B SUPPLEMENT FOR TRANSFEREES The undersigned, ___________________________________________ _______________________________ ("Transferee"), as of _________, 19__, hereby: 1. Agrees, pursuant to and in accordance with Section 4(a) of the Stockholders' Agreement dated as of March 20, 1995 ("Stockholders' Agreement"), by and among Complete Wellness Centers, Inc. and the Stockholders (as that term is defined in the Stockholders' Agreement), and as a condition to the transfer to the undersigned Transferee of the Shares of Common Stock and/or Preferred Stock (as those terms are defined in the Stockholders' Agreement), in whole or in part, hereby to become a party to and be deemed a Stockholder for all purposes of the Stockholders' Agreement. 2. Make all representations and warranties set forth in, and agrees to all other provisions of, the Stockholders' Agreement. IN WITNESS WHEREOF, the undersigned Transferee has executed and sealed this instrument as of the date first written above. ------------------------------ By: (SEAL) -------------------------- , ------------------ ------ - 15 - EX-10.2 8 FORM OF WARRANT ISSUED BY THE REGISTRANT 1 EXHIBIT 10.2 THIS WARRANT HAS NOT BEEN REGISTERED UNDER FEDERAL OR STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION UNDER SUCH LAWS OR THE AVAILABILITY OF AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS EVIDENCE BY AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. WARRANT TO PURCHASE COMMON STOCK COMPLETE WELLNESS CENTERS, INC. THIS CERTIFIES THAT, for value received, __________________ (Holder) is entitled to purchase, on the terms hereof, _________ shares of common stock, par value $0.0000555 per share, of Complete Wellness Centers, Inc., a Delaware corporation (Company), at per share price of $0.01, subject to adjustment as provided herein. This Warrant is issued pursuant to the provisions of the Purchase Agreement dated as of October 4, 1995 (Agreement)relating hereto, and this Warrant and the common stock issuable upon exercise of this Warrant shall be subject to, and the Holder shall be bound by, all the provisions of the Agreement, and shall be deemed to have made the representations and warranties set forth in Section 2 of the Agreement with respect to the securities evidenced by this Warrant. Additionally, the following terms shall apply to this Warrant: 1. EXERCISE OF WARRANT. The terms and conditions upon which this Warrant may be exercised and the common stock covered hereby (Warrant Stock) may be purchased are as follows: 1.1. Voluntary Exercise. This Warrant may be exercised in full or in part at any time after October 4, 1996; provided that in no case may this Warrant be exercised later than 5:00 p.m. eastern time on October 4, 2000 (Expiration Date), after which time this Warrant shall terminate and shall be void. 1.2. Number of Shares. The number of shares of common stock for which this Warrant is initially exercisable is ___________, which number is subject to adjustment pursuant to Section 2 of this Warrant. 1.3. Purchase Price. The per share purchase price for the shares of common stock to be issued upon exercise of this Warrant shall be $0.01, subject to adjustment as provided herein. 1.4. Method of Exercise. The exercise of the purchase rights evidenced by this Warrant shall be effected by (a) the surrender of the Warrant, together with a duly executed copy of the form of subscription attached hereto, to the Company at its principal offices and (b) the delivery of the purchase price by check or bank draft payable to the Company's order or by wire transfer to the 2 Company's account for the number of shares for which the purchase rights hereunder are being exercised or any other form of consideration approved by the Company's board of directors. 1.5. Issuance of Shares. Upon the exercise of the purchase rights evidenced by this Warrant, a certificate or certificates for the purchased shares shall be issued to the Holder as soon as practicable. 2. CERTAIN ADJUSTMENTS. 2.1. Common Stock Dividends. If the Company at any time prior to the expiration of this Warrant shall pay a dividend with respect to common stock payable in shares of common stock, then the purchase price per share shall be adjusted, from and after the date of determination of the stockholders entitled to receive such dividend, to that price determined by multiplying the per share purchase price in effect by a fraction (i) the numerator of which shall be the total number of shares of common stock outstanding immediately prior to such dividend and (ii) the denominator of which shall be the total number of shares of common stock outstanding immediately after such dividend; provided, however, that the aggregate purchase price shall not be adjusted. 2.2. Mergers, Consolidations, or Sale of Assets. If at any time there shall be a capital reorganization (other than a combination or subdivision of Warrant Stock provided for herein), or a merger or consolidation of the Company with or into another corporation, or the sale of the Company's properties and assets as, or substantially as, an entirety to any other person, then, as a part of such reorganization, merger, consolidation or sale, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified in this Warrant and upon payment of the purchase price, the number of shares of stock or other securities or property of the Company or the successor corporation resulting from such reorganization, merger, consolidation or sale, to which a holder of the common stock deliverable upon exercise of this Warrant would have been entitled under the provisions of the agreement in such reorganization, merger, consolidation or sale if this Warrant had been exercised immediately before that reorganization, merger, consolidation or sale. In any such case, appropriate adjustment (as determined in good faith by the Company's board of directors) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after the reorganization, merger, consolidation or sale to the end that the provisions of this Warrant (including adjustment of the purchase price then in effect and the number of shares of Warrant Stock) shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon exercise of this Warrant; provided, however, that the aggregate purchase price shall not be adjusted. 2.3. Splits and Subdivisions. In the event the Company should at an time or from time to time fix a record date for the effectuation of a split or subdivision of the outstanding shares of common stock or the determination of the holders of common stock entitled to receive a dividend or other distribution payable in additional shares of common stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of common stock (Common Stock Equivalents) without payment of any consideration by such holder for the 3 3 additional shares of common stock or Common Stock Equivalents (including the additional shares of common stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such distribution, split, or subdivision if no record date is fixed), the purchase price shall be appropriately decreased and the number of shares of Warrant Stock shall be appropriately increased in proportion to such increase of outstanding shares; provided, however, that the aggregate purchase price shall not be adjusted. 2.4. Combination of Shares. If the number of shares of common stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of common stock, the purchase price per share shall be appropriately increased and the number of shares of Warrant Stock shall be appropriately decreased in proportion to such decrease in outstanding shares; provided, however, that the aggregate purchase price shall not be adjusted. 2.5. Adjustments for Other Distributions. In the event the Company shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by the Company or other persons, assets (excluding cash dividends) or options or rights not referred to in subsections 2.1 or 2.3, then, in each such case for the purpose of this subsection 2.5, upon exercise of this Warrant the holder hereof shall be entitled to a proportionate share of any such distribution as though such holder was the holder of the number of shares of common stock into which this Warrant may be exercised as of the record date fixed for the determination of the holders of common stock entitled to receive such distribution; provided, however, that the aggregate purchase price shall not be adjusted. 2.6. Certificate as to Adjustments. In the case of each adjustment or readjustment of the purchase price pursuant to this Section 2, the Company will promptly compute such adjustment or readjustment in accordance with the terms hereof and cause a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based to be delivered to the holder of this Warrant. The Company will, upon the written request at any time of the holder of this Warrant, furnish or cause to be furnished to such holder a certificate setting forth: (a) Such adjustments and readjustments; (b) The purchase price at the time in effect; and (c) The number of shares of Warrant Stock and the amount, if any, of other property at the time receivable upon exercise of this Warrant. 2.7. Notices of Record Date, etc. In the event of: (a) Any taking by the Company of a record of the holders of any class of securities of the Company for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend payable out of earned surplus at the same rate as that of the 4 4 last such cash dividend theretofore paid) or other distribution, or any right to subscribe for, purchase, or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right; or (b) Any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all of the assets of the Company to any other person or any consolidation or merger involving the Company; or (c) Any voluntary or involuntary dissolution, liquidation, or winding-up of the Company, the Company will mail to the holder of this Warrant at least twenty (20) days prior to the earliest date specified therein, a notice specifying: (i) The date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right; and (ii) The date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation, or winding-up is expected to become effective and the record date for determining stockholders entitled to vote thereon. 3. FRACTIONAL SHARES. No fractional share shall be issued in connection with any exercise of this Warrant. In lieu of the issuance of such fractional share, the Company shall make a cash payment equal to the then fair market value of such fractional share as determined in good faith by the Company's board of directors. 4. RESERVATION OF COMMON STOCK. The Company shall at all times reserve and keep available out of its authorized but unissued shares of commons stock, solely for the purpose of effecting the exercise of this Warrant, such number of its shares of common stock as shall from time to time be sufficient to effect the exercise of this Warrant; and if at any time the number of authorized but unissued shares of common stock shall not be sufficient to effect the exercise of this Warrant in its entirety, in addition to such other remedies as shall be available to the holder of this Warrant, the Company will use its reasonable best efforts to take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of common stock to such number of shares as shall be sufficient for such purpose. 5. PRIVILEGE OF STOCK OWNERSHIP. 5 5 Prior to the exercise of this Warrant, the Holder shall not be entitled, by virtue of holding this Warrant, to any rights of a stockholder of the Company, including (without limitation) the right to vote, receive dividends or other distributions, exercise preemptive rights or be notified of stockholder meetings, and the Holder shall not be entitled to any notice or other communication concerning the business or affairs of the Company. Nothing in this Section 5, however, shall limit the right of the Holder to participate in distributions to the extent set forth in Section 2 or be provided the notices described in Section 2 if the Holder ultimately exercises this Warrant. 6. LIMITATION OF LIABILITY. Except as otherwise provided herein, in the absence of affirmative action by the Holder to purchase the Warrant Stock, no mere enumeration herein of the rights or privileges of the holder hereof shall give rise to any liability of such holder for the purchase price or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 7. TRANSFERS AND EXCHANGES. 7.1. Transfers. Subject to the terms and conditions of the Agreement and compliance with applicable federal and state securities laws, this Warrant is transferable in whole or in part by the Holder. 7.2. Exchanges. All new warrants issued in connection with transfers or exchanges shall be identical in form and provision to this Warrant except as to the number of shares and the identity of the Holder. 8. SUCCESSORS AND ASSIGNS. The terms and provisions of this Warrant shall be binding upon the Company and the Holder and their respective successors and assigns, subject to the restrictions set forth in the Agreement. 9. LOSS, THEFT, DESTRUCTION, OR MUTILATION OF WARRANT. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction, or mutilation of this Warrant, and in case of loss, theft, or destruction, of indemnity or security reasonably satisfactory to the Company, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of this Warrant, if mutilated, the Company will make and deliver a new warrant of like tenor and dated as of such cancellation, in lieu of this Warrant. 6 6 10. WEEKENDS, HOLIDAYS, ETC. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday, or legal holiday, then such action may be taken or such right may be exercised on the next succeeding day that is not a Sunday or legal holiday. 11. GOVERNING LAW The terms and conditions of this Warrant shall be governed by and construed in accordance with Delaware law as such laws are applied to agreements which are entered into solely between Delaware residents and are to be performed entirely within that state. [Remainder of this page left blank intentionally] Dated: October 4, 1995 COMPLETE WELLNESS CENTERS, INC. By: ----------------------------- C. Thomas McMillen, President 7 SUBSCRIPTION TO: Complete Wellness Centers, Inc. ------------------------------- ------------------------------- ------------------------------- Ladies and Gentlemen: The undersigned, _____________________________________, hereby elects to purchase, pursuant to the provisions of the Warrant dated October 4, 1995 held by the undersigned, _________ shares of the common stock of Complete Wellness Centers, Inc., a Delaware corporation, and tenders herewith payment of the purchase price of such shares in full. The undersigned hereby represents and warrants that the undersigned is acquiring such stock for the undersigned's own account and not for resale or with a view to, or for resale in connection with, the distribution of any part thereof, and accepts such shares subject to the restrictions of the Purchase Agreement dated as of October 4, 1995 relating thereto. The undersigned hereby remakes all representations set forth in Section 2 of the Purchase Agreement. If the number of shares being purchased hereunder is not all of the shares covered by the Warrant, the undersigned requests that a new warrant for the balance of shares covered by such Warrant be registered in the name of and delivered to the undersigned. Date: --------------------- By: --------------------------- (Signature) Name: --------------------------- Address: --------------------------- --------------------------- EX-10.3 9 FORM OF PROMISSORY NOTE 1 EXHIBIT 10.3 THIS NOTE HAS NOT BEEN REGISTERED UNDER FEDERAL OR STATE SECURITIES LAWS. IF IT IS DEEMED TO BE A SECURITY UNDER SUCH LAWS, IT MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION UNDER SUCH LAWS OR THE AVAILABILITY OF AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. PROMISSORY NOTE $ Washington, DC August 15, 1996 FOR VALUE RECEIVED, Complete Wellness Centers, Inc., a Delaware corporation (Maker), promises to pay to the order of__________ ______________________, or any subsequent holder of this Note (Holder), on or before June 30, 1997, the principal sum of _____ ______________ dollars ($_______) in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts and to accrue interest at the rate specified below on the unpaid balance commencing as of August 15, 1996. Maker promises to pay simple interest on the unpaid balance at the rate of twelve (12) percent per annum on each January 1 and April 1 during the term hereof, commencing January 1, 1997. This Note shall mature and the entire principal amount hereof and all accrued but unpaid interest hereon shall become due and payable on June 30, 1997. This Note may be prepaid at any time, and from time to time, in whole or in part, without penalty or premium. Any such prepayments shall be applied first to accrued interest, if any, and then to the reduction of principal. If Maker shall complete a firm commitment underwritten initial public offering of its common stock, pursuant to a registration statement (other than a registration statement on Form S-4 or S-8) filed with the Securities and Exchange Commission, Maker shall prepay the entire principal amount, without premium or penalty, and accrued interest on the date Maker receives the proceeds of the sale of such common stock. This Note is issued pursuant to, is entitled to the benefits of, and is subject to the terms of, a Loan and Security Agreement dated as of August 15, 1996 among Maker and the persons named in Schedule I thereto, providing for the issuance of the Secured Promissory Notes of the Company up to an aggregate principal amount of $1,100,000. This Note shall be governed by and construed in accordance with the laws of the District of Columbia. 2 IN WITNESS WHEREOF, Maker has executed this Note as of the date and year first above written. COMPLETE WELLNESS CENTERS, INC. By: ----------------------------- Its: For Georgia Holders THIS NOTE HAS BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF CODE SECTION 10-5-9 OF THE "GEORGIA SECURITIES ACT OF 1973," AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT. 2 3 LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT is entered into as of this 15th day of August, 1996 by and among the persons listed on Schedule I hereto (individually a "Lender" and collectively the "Lenders"), and COMPLETE WELLNESS CENTERS, INC., a Delaware corporation (the "Borrower" or "Debtor"). RECITALS Each Lender has entered into a Subscription/Purchase Agreement (the "Purchase Agreement") pursuant to which the Lenders agreed, upon certain terms and conditions, to purchase notes from the Debtor up to an aggregate principal amount of $1,100,000 (the "Notes"). The proceeds of the Notes are to be used to finance the medical integration of chiropractic clinics, to cover costs associated with an initial public offering, and for general working capital purposes. In order to induce the Lenders to purchase the Notes, the Debtor has agreed to assign and pledge as security for repayment of the Notes a first lien security interest in all of its equipment, fixtures, tangible personal property, accounts, inventory, patents, copyrights, trademarks, licenses and certain other related property of the Debtor now owned or hereafter acquired. The Lenders have required that the Debtor execute this Agreement in order to evidence the grant of the security interest referred to above and to set forth their respective rights, remedies, covenants and agreements with respect to the purchase of the Notes by the Lenders. NOW, THEREFORE, in consideration of the above and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I. TERMS OF NOTES. 1.1. Purchase of Notes. Upon waiver or satisfaction of the conditions to the purchase of the Notes set forth in the Purchase Agreement, each Lender shall purchase from the Debtor a Note in the principal 4 amount set opposite its name in Schedule I hereto. The purchase price of the Notes shall equal the principal amount of the Notes. The Notes shall be issued under this Agreement and shall be equally and ratably secured by this Agreement. 1.2. Form and Tenor of Notes. (a) Each Note shall be in the form of Appendix A hereto. (b) The Notes shall bear interest, shall mature and become due and payable, shall be subject to mandatory prepayment and may be prepaid as set forth therein. 1.3. Equal and Ratable Obligations. The Notes shall be equal and ratable obligations of the Debtor and all payments (including optional and mandatory prepayments and payments from funds received from the enforcement of the security interests granted hereunder) shall be made to each Holder of the Notes in the proportion the principal amount of the Notes held by such holder bears to the aggregate entire principal amount of all Notes then outstanding. 1.4. No Subordination. The payment of and the security for the Notes shall not be subordinate to any other indebtedness of the Debtor, now existing or hereafter incurred, other than Permitted Encumbrances. 1.5. New Notes. The Debtor will at any time, at its expense, at the request of the holder of any Note, and upon surrender of such Note for such purpose, issue new Notes in exchange therefor, registered in the name of the holder or such person or persons as may be designated by such holder, dated the date to which interest has been paid on the surrendered Note, in denominations of $25,000 or any integral multiple of $25,000, in an aggregate principal amount equal to the unpaid principal amount of such Note and substantially in the form of such Note with appropriate variations. 1.6. Replacement of Notes. Upon receipt of evidence satisfactory to the Debtor of the loss, theft, destruction or mutilation of any Note and, in the case of any such loss, theft or destruction, upon delivery of indemnity satisfactory to the Debtor, or, in the case of any such mutilation, upon surrender and cancellation of such Note, the Debtor will issue a new Note, of like tenor, in lieu of, and dated the date to which interest 2 5 has been paid on, such lost, stolen, destroyed or mutilated Note. 1.7 Negotiability, Registration and Transfer of the Notes. The Notes shall be negotiable, subject to the provisions for registration and transfer contained in this Agreement and in the Notes, and shall be registered as to both principal and interest. So long as the Notes shall remain outstanding, the Debtor shall maintain and keep books for the registration and transfer of the Notes; and upon presentation thereof for such purpose at such office, the Debtor shall register the Notes therein (which registration shall include the address of the Holder of the Notes) and permit the Note to be transferred thereon. The Notes shall be transferable only upon the books of the Debtor, which shall be kept for that purpose at the office of the Debtor, at the written request of the Holder thereof or his attorney duly authorized in writing, upon surrender thereof, together with a written instrument of transfer satisfactory to the Debtor and duly executed by the Holder or his attorney duly authorized in writing. Upon surrender of the Notes for transfer and acceptance of this Agreement, in writing, and the obligations and rights hereof by any transferee of a Note, the Debtor shall issue, in the name of the transferEe, a new Note or Notes of the same aggregate principal amount, maturity and interest rate as the surrendered Note. The Debtor shall pay all out-of-pocket costs and expenses incurred by the Debtor in connection with any such transfer, except a sum sufficient to pay any tax or governmental charge. The Debtor may deem and treat the person in whose name the Notes shall be registered upon the books of the Debtor as the absolute owner of the Notes, whether the Notes shall be overdue or not, for the purpose of receiving payment of, or on account of, the principal of, premium, if any, and interest on, the Notes and for all other purposes, and all such payments so made to any such registered Holder or upon his order shall be valid and effectual to satisfy and discharge the liability upon the Notes to the extent of the sum or sums so paid, and the Debtor shall not be affected by any notice to the contrary. The Debtor shall not be required to transfer the Notes on the records for the Notes within 15 days before any payment is due. 1.8 Payments. All payments of interest on the Notes shall be paid by check or draft mailed by the Debtor to the holders of the Notes on the date such payment is due. Payments 3 6 of principal shall be made by wire transfer in immediately available funds, marked for attention as indicated by the Lender to a bank account designated by such Lender. 1.9 Note Holders' Rights. (a) The holders of the Notes recognize that they or their representatives will act as Secured Party (as defined below). For purposes of administration of this Agreement, each Lender shall be named as Secured Party on all financing statements to be filed with respect to the collateral hereunder and the Lenders hereby agree that they shall hold all security pledged hereunder for the benefit of the holders of all of the Notes all in accordance with this Agreement. (b) All rights and powers of the Secured Party hereunder shall be exercised by the holders of two-thirds of the principal amount of the Notes then outstanding; provided, however, that (i) the principal amount of any Note, the interest payable on any Note and the time any payment must be made under any Note may not be changed without the consent of the holder of the Note and (ii) none of the collateral may be released and this Agreement may not be amended in any material respect (other than to add additional collateral, rights, powers and duties in favor of the Holders of Notes and to clarify the existing provisions of this Agreement) without the consent of the holders of all of the Notes. ARTICLE II: DEFINITIONS 2.1 As used in this Agreement capitalized terms shall have the meanings as defined when initially used and the following terms shall have the following meanings: (a) "Account" or "Accounts" means any right of the Debtor to payment for goods of any type or description (including, without limitation, Inventory, as hereinafter defined) sold or leased, or for services rendered, which is not evidenced by an Instrument or Chattel Paper, whether or not the right to payment has been earned by performance, and shall include any and all contract rights. (b) "Business Day" means a day which is not a legal holiday in the District of Columbia and is not a day on which banks are by law or executive order permitted to close for business. 4 7 (c) "Chattel Paper" means any writing or writings held by the Debtor, held in the Debtor's name or held for the Debtor, which evidences both a monetary obligation and a security interest in or lease of specific goods. (d) "Debtor's Liabilities" means the obligations of the Debtor to make all payments required to be made under the Notes or this Agreement and the prompt and faithful compliance and performance of the Debtor of its obligations under this Agreement. (e) "Default" or "default" means when used in reference to this Agreement the failure to observe or perform in any material respect any obligation, covenant or agreement contained in this Agreement, without regard to any grace period provided for therein. (f) "Equipment" means all of the tangible personal property (other than Inventory) of the Borrower including, but not limited to, fixed assets, furniture, fixtures, machinery, computers, equipment, leasehold improvements and all replacements therefor, attachments and accessories thereto, parts and tools belonging thereto and substitutions therefor. (g) "Holder" shall mean, with respect to a Note, the registered holder of the Note on the books of the Debtor, as registrar. (h) "Instrument" or "Instruments" means any negotiable instrument, security or other writing held by the Debtor, held in the Debtor's names or held for the Debtor, which evidences a right to the payment of money for goods sold or leased, monies invested, or services rendered or to be rendered or commissions earned or to be earned, which is not itself a security agreement or lease, and which is of a type which is in the ordinary course of business transferred by delivery with any necessary endorsement or assignment. (i) "Inventory" means the inventory of the Debtor of every type and nature, wherever located, including, without limitation, all supplies and materials, reusable, disposable or otherwise, whether held for sale, lease or other disposition, for furnishing to others or for use or consumption in the business of the Debtor, whether raw materials, work in process, finished goods or materials or otherwise, whether in the actual or constructive possession or control of the Debtor, a lessee from the Debtor, or any other third party for the account of the Debtor, or any other party together with all accessories, wrappings, attachments, additions, parts and replacements 5 8 therefor and thereto. (j) "Permitted Encumbrances" (i) means encumbrances approved in writing by the Lenders, (ii) liens for taxes not delinquent or being contested in good faith and by appropriate proceedings, (iii) liens in connection with workers compensation, unemployment insurance or other social security obligations, (iv) deposits or pledges to secure bids, tenders, contracts (other than contracts for the payment of money), leases and obligations of like nature arising in the ordinary course of business, (v) mechanics, materialmens, landlords, carriers or other like liens arising in the ordinary course of business with respect to obligations which are not due or which are being contested in good faith, and (vi) any mortgage, encumbrance or other lien upon, or security interest in, any property, or interest therein, hereafter acquired by the Borrower or any Subsidiary which mortgage, encumbrance, lien or security interest is created contemporaneously with such acquisitions to secure or provide for the payment or financing of any part of the purchase price thereof, or the assumption of any mortgage, encumbrance or lien upon, or security interest in, any such property hereafter acquired existing at the time of such acquisition, or the acquisition of any such property subject to any mortgage, encumbrance or lien upon, or security interest in, without the assumption thereof, provided that (A) the indebtedness secured by any such mortgage, encumbrance, lien or security interest so created, assumed or existing shall not exceed 80% of the cost of the property covered thereby to the person acquiring the same, and (B) each such mortgage, encumbrance, lien or security interest shall attach only to the property so acquired and fixed improvements thereon, and (C) the acquisition to which any such mortgage, encumbrance, lien or security interest relates shall not result in a default under any provision of this Agreement. (k) "Purchaser" includes all buyers or lessees of any Inventory from the Debtor and all customers for whom services have been rendered or materials furnished by the Debtor. (l) "Secured Party" shall mean and refer to the holders of the Notes, as secured party hereunder; provided, however, that for purposes of exercising remedies and discretion hereunder, the holders of two-thirds of the principal amount of Notes then outstanding shall control the action of the Secured Party hereunder. For purposes of the administration of this Agreement, all notices to the Secured Party shall be mailed to the Lenders at their addresses set forth in Schedule I hereto. (m) "Subsidiary" means any corporation, partnership, joint venture or other entity more than 50% of the 6 9 ownership interests of which is owned by the Debtor or any other Subsidiary of the Debtor. ARTICLE III: COLLATERAL 3.1 As collateral security for the Liabilities, the Debtor hereby grants to the Lenders and their successors and assigns as holders of the Notes, jointly, for the benefit of the holders of all of the Notes a continuing security interest in, and transfers to them a security interest in, the following property (hereinafter sometimes collectively called the "Collateral"): (a) all of Debtor's Accounts, including all existing Accounts and all Accounts hereafter coming into existence; and (b) all of Debtor's Instruments, regardless of whether they may be in existence at the present time, may come into existence in the future or may be executed in the future; and (c) all of Debtor's Chattel Paper, regardless of whether it may be in existence at the present time, may come into existence in the future or may arise in the future; and (d) all of Debtor's notes, drafts, acceptances, instruments, documents of title, policies and certificates of insurance, chattel paper, guaranties and securities now or hereafter received by the Debtor, or in which the Debtor has or acquires an interest; and (e) all of Debtor's now owned or hereafter acquired Inventory, wherever located including all interest of the Debtor now existing or hereafter arising in goods as to which an Account for goods sold or delivered or services rendered has arisen or as to which any Chattel Paper has been executed and delivered to the Debtor; and (f) all of Debtor's now owned or hereafter acquired Equipment, wherever located, together with any and all parts, additions, replacements, accessions and substitutions thereto or therefor and all licenses and other rights of the Debtor relating thereto, whether in the actual or constructive possession or control of the Debtor, a lessee from the Debtor or any other third party for the account of the Debtor; and 7 10 (g) all of Debtor's now existing or hereafter acquired or arising documents, general intangibles and any other intangible personal property of every kind and description including, without limitation, all choses in action, contracts, trademarks, copyrights, patents, trade names, trade styles, trade secrets, operating rights, licenses, franchises, leases of Equipment, leases of real property, leases of other personal property, registrations, applications and tax refunds; and (h) all of Debtor's now existing or hereafter created or coming into existence books and records including, without limitation, ledgers, books of account, records, computer programs, computer disks or tape files, computer printouts, computer runs and other computer prepared information; and (i) all products of the foregoing; and (j) all cash and non-cash proceeds (including, without limitation, insurance proceeds) of the foregoing. ARTICLE IV: COVENANTS, REPRESENTATIONS AND WARRANTIES 4.1 So long as this Agreement is in effect, and until such time as all the Debtor's Liabilities shall have been fully paid and discharged, the Debtor covenants and agrees that it and, to the extent applicable, its Subsidiaries: (a) will, when requested by the Secured Party from time to time give the Secured Party specific assignments of Accounts, Instruments and Chattel Paper as or after they come into existence, together with schedules thereof in a form satisfactory to the Secured Party and will, upon request, execute and deliver to the Secured Party any instrument, document, financing statement, supplemental agreement, power of attorney, assignment, transfer or other writing which the Secured Party may deem necessary or desirable to carry out the purposes of this Agreement, to perfect the Secured Party's security interest in the Accounts, Instruments, Chattel Paper, Inventory and other Collateral, or to enable the Secured Party to enforce its security interest in any of the foregoing; (b) will maintain, in accordance with sound accounting practice, accurate records and books of account showing, among other things, all Accounts, Instruments, Chattel Paper and other Collateral, and the collections thereon; and the Secured Party, or anyone on their behalf, shall have the right to 8 11 call at their offices and other places of business during reasonable business hours at intervals to be determined by them, before or after an Event of Default hereunder and, without hindrance or delay, to inspect, audit, check and make extracts from the books, records, ledgers, journals, orders, receipts, correspondence and other data relating to Accounts, Instruments, Chattel Paper and other Collateral; (c) will inform the Secured Party on a regular basis as to which of the Accounts, Instruments and Chattel Paper, if any, arise out of contracts with the United States or any department, agency or instrumentality thereof, and upon the request of the Secured Party, shall execute any instruments and take any further steps as may be required by the Secured Party in order that all monies due or to become due under such contract shall be assigned to the Secured Party, and that notice thereof be given to the Government under the Federal Assignment of Claims Act to the extent permitted by law; (d) will, if requested by the Secured Party, mark its Instruments and Chattel Paper and all of its records concerning its Accounts, Instruments and Chattel Paper which have been assigned to the Secured Party in a manner satisfactory to the Secured Party to show that they have been assigned to the Secured Party subject to Permitted Encumbrances; (e) will preserve and maintain its existence in good standing under the laws of the State of Delaware; and (f) will maintain the net proceeds of the Notes in an interest-bearing escrow account the terms of which will allow for the release of $50,000 each time the Borrower executes a definitive agreement with a chiropractor to medically integrate a chiropractic clinic; provided, however, that if $1,100,000 aggregate principal amount of Notes are outstanding on the date of this Agreement and if the Borrower executes a definitive master license agreement with Bally Total Fitness Corporation, the terms of the escrow account will allow for the release of up to $200,000 upon the execution of such definitive master license agreement to establish clinics as provided therein. Although the financial covenants set forth herein are continuing financial covenants, the accounting principles to be applied at any given point in time shall be the generally accepted accounting principles as in effect as of the date thereof. 4.2 Any holder may assign or transfer the Notes held by it and may assign and transfer as collateral security therefor 9 12 its security interest in the whole or any part of the Collateral provided by the Debtor under this Agreement, subject to the terms of the Notes. Such transferee shall have the same rights and powers with reference to such security interest, and to the obligations of the Debtor and the benefit of this Agreement, as are hereby given to the original Secured Party. ARTICLE V: EVENTS OF DEFAULT 5.1 The occurrence of any one or more of the following events shall constitute an Event of Default under this Agreement: (a) the failure to pay the principal of any of the Notes or to pay the interest thereon or any other amount due hereunder, for more than 30 days after the same shall become due and payable, as applicable; or (b) the failure of the Debtor to comply with the obligations of the Debtor under Sections 4.1(e); or (c) the failure by the Debtor to observe or perform the obligations under Article IV (other than those specified in Section 5.1(b)) which failure is not cured within thirty (30) days after notice thereof has been given by the Secured Party to the Debtor; or (d) the making or furnishing to the Secured Party of any representation, warranty or certificate in connection with this Agreement or any other of the Debtor's Liabilities which is materially inaccurate; or (e) the making of an assignment for the benefit of its creditors by the Debtor or any guarantor of any of the Debtor's Liabilities; or (f) the commencement of proceedings by or against Debtor or any guarantor of any of the Debtor's Liabilities in bankruptcy or for reorganization or for the readjustment of debts under the Federal Bankruptcy Code or under any other law, whether state or federal, now or hereafter existing for the relief of debtors or the admission, in writing, of any inability to pay its debts as they mature; or (g) the appointment of a receiver or trustee for the Debtor or for any substantial part of any of its assets, or the institution of any proceedings for the dissolution, or the full or partial liquidation, of the Debtor. 10 13 If an Event of Default has occurred, the Secured Party shall have the right to declare payment of the Notes, and all other of the Debtor's Liabilities to be due and payable forthwith, and thereupon, to avail itself of such rights with respect to the Collateral pledged hereunder provided in the Uniform Commercial Code of the District of Columbia regardless of whether such Code has been enacted in the jurisdiction where rights or remedies are asserted (including, without limitation, the right to direct notification and the right to require the Debtor to assemble any Collateral and to make it available to the Secured Party at a place reasonably convenient to both parties), or as otherwise provided by law. The parties hereto hereby declare that all Accounts transferred to the Secured Party hereunder are transferred to secure the Notes and are not being sold to the Secured Party, regardless of whether any assignment thereof which is separate from this Agreement is in form absolute. 5.2 (a) Upon the occurrence of an Event of Default hereunder, Secured Party may foreclose its security interest in the Inventory, Equipment and/or other Collateral in any way permitted by law, or it may enter any of the Debtor's premises or other premises without resort to judicial process and without incurring liability to the Debtor therefor, and the Secured Party may thereupon, or at any time thereafter, in its discretion, without notice or demand, except such notice as may be specifically required by law, take the Inventory, Equipment and/or other Collateral subject to its security interest and, if removable, remove the same to such place as it may deem advisable, or it may require the Debtor to make the Inventory, Equipment and/or other Collateral available to the Secured Party at a convenient place and, with or without having the Inventory, Equipment and/or other Collateral at the time or place of sale, the Secured Party may sell the Inventory, Equipment and/or other Collateral, or any part thereof, at public or private sales, at any time or place, in one or more sales, at such price or prices and upon such terms, either for cash, credit or future delivery, as the Secured Party may elect. At any such sale, the Secured Party may bid for and become the purchaser, and such sale or sales may be held without demand of performance, notice of intention to sell, the time or place of sale, or any other matter, except such notice as may be specifically required by law, it being agreed that any notification required by Section 9-504 of the Uniform Commercial Code as enacted in the District of Columbia or in any corresponding provision in the Uniform Commercial Code as enacted in any other state or by any other law, is reasonably and properly given if mailed by certified or registered mail, postage prepaid, to the Debtor at least fifteen (15) days before any sale or other disposition of any of the 11 14 Collateral, and the purchaser at any such sale shall thereafter hold the Inventory, Equipment and/or other Collateral sold absolutely free from any claim or right of the Debtor of whatsoever kind, including any equity of redemption of the Debtor, and such demand, notice, right and equity are hereby expressly waived and released by the Debtor. (b) The Secured Party may, at its option, make any payments or take any other action it may deem necessary or desirable to cure any Event of Default or to conserve or improve the Collateral, and the Debtor shall, upon demand, reimburse the Secured Party for all such advances and expenses together with interest at the default rate borne by the Notes from the date of advance or payment of the same. (c) The Secured Party shall receive the proceeds of any such sale or sales and, after deducting therefrom any and all costs and expenses incurred in securing possession of Inventory, Equipment and/or other Collateral, in moving, storing, repairing, finishing the manufacture of and preparing same for sale, and in connection with the sale thereof, apply the net proceeds toward the payment of the Debtor's Liabilities, as provided in Section 5.3 hereof. 5.3 All monies collected pursuant to this Article shall, after payment of the costs and expenses of the collection of such monies and of the expenses, liabilities and advances incurred or made by the Secured Party, including interest thereon as provided herein, be applied as follows: First -- to the payment of all payments of interest then due on the Notes; provided, however, if the amount is insufficient to pay all such accrued interest, then payments to the holders of the Notes shall be made in proportion to the amount of Notes then held by such holders in relation to the total amount of Notes then outstanding; Second -- to the payment of all principal of the Notes, without distinction or priority; provided, however, if the amount collected is insufficient to pay all of such principal, payments to the holders of the Notes shall be made in proportion to the principal amount of the Notes then held by such holders in relation to the principal amount of the Notes then outstanding; and Third -- to pay the holders of the Notes, the Secured Party and any other parties entitled thereto all other of the Debtor's obligations. 12 15 If such net proceeds should be insufficient to pay the same, and should there be a deficiency, then the Debtor shall forthwith, upon demand, pay such deficiency to the Secured Party; or if such proceeds be more than sufficient to pay the same, then in case of a surplus, such surplus shall be accounted for and paid over to the Debtor to the extent allowed by law and to the extent no other claim for such surplus has been made by any other party, provided that there are no Debtor's Liabilities then outstanding, in which event such surplus shall be applied to such Debtor's Liabilities. 5.4 The Debtor waives presentment, demand for payment, protest, notice of protest and notice of dishonor with respect to all commercial paper at any time held by the Secured Party on which it is in any way liable, notice of nonpayment at maturity of any and all Accounts, Instruments, Chattel Paper and other Collateral and, except where expressly required hereby, notice of any action taken by the Secured Party. Exercise of or failure to exercise any right of the Secured Party shall not affect any subsequent right of the Secured Party to exercise the same. Whether before or after default, the Secured Party shall have the right to compromise, extend or renew any Account, Instrument, Chattel Paper or other Collateral, or to deal with the same in whatever manner it may deem advisable as provided herein. The Debtor agrees that the Secured Party shall have no duty or obligation to collect or enforce any Account, Instrument, Chattel Paper or other Collateral. 5.5 Any delay on the part of the Secured Party in exercising any power, privilege or right under this Agreement shall not operate as a waiver thereof, and no single or partial exercise of any power, privilege or right hereunder shall preclude other or further exercise thereof, or the exercise of any other power, privilege or right. The waiver by the Secured Party of any Event of Default hereunder shall not constitute a waiver of any subsequent defaults or Events of Default, but shall be restricted to the default or Event of Default so waived. The failure of the Secured Party to enforce any of the terms and provisions hereof, or its failure to declare an Event of Default hereunder, shall apply only in the particular instance, and shall not operate as a continuing waiver. If any part of this Agreement should be contrary to any law which the Secured Party might seek to apply or enforce, or should be otherwise defective, the other provisions of this Agreement shall not be affected thereby, but shall continue in full force and effect. All rights, remedies and powers of the Secured Party hereunder are irrevocable and cumulative, and not alternative or exclusive, and shall be in addition to all other rights, remedies and powers given hereby or by any other instruments or any laws now existing 13 16 or hereafter enacted. ARTICLE VI: MISCELLANEOUS 6.1 This Agreement, and all of the terms, conditions and covenants herein contained, shall be binding upon the parties hereto and their successors and assigns, and shall inure to the benefit of the parties hereto and to the successors and assigns of the Secured Party, but shall not inure to the benefit of any other person, firm or corporation. 6.2 The laws of the District of Columbia shall govern the construction of this Agreement and the rights and duties of the parties hereto with respect to all collateral and all notes and other documents evidencing or otherwise executed in connection with the loans hereunder. 6.3 This Agreement may not be changed, modified or amended except by a writing signed by all of the parties hereto. 6.4 A carbon, photographic or other reproduction of this Agreement or of a financing statement is sufficient as a financing statement and may be filed as such. 6.5 In the event of conflict between the terms of any of the documentation relating to this Agreement or the relationships and rights between the Secured Party and the Debtor hereunder, the Secured Party shall have the right to elect which of such conflicting terms shall be applicable in such event of conflict. 6.6 When used in this Agreement, the singular of any word shall include the plural, the plural shall include the singular, and the use of any gender shall include all genders. 6.7 All titles and headings of or in this Agreement are for reference purposes only; they are not intended to nor shall they be construed to in any way limit the substantive provisions contained in this Agreement or any part thereof. 6.8 Notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered or mailed by certified or registered mail to the parties at their addresses as shown below (in the case of the Debtor) or on Schedule I hereto (in the case of the Lenders) or to such other address any party hereto shall designate to the other parties in writing: 14 17 Complete Wellness Centers, Inc. Attention: President 725 Independence Avenue, S.E. Washington, D.C. 20003 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. Debtor: ------ COMPLETE WELLNESS CENTERS, INC. By: -------------------------------- Its: 15 18 Secured Party: ------------- ----------------------------------- Signature ----------------------------------- Print Name ----------------------------------- Street ----------------------------------- City, State, Zip 16 19 THIS WARRANT HAS NOT BEEN REGISTERED UNDER FEDERAL OR STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION UNDER SUCH LAWS OR THE AVAILABILITY OF AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS EVIDENCED BY AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. WARRANT TO PURCHASE COMMON STOCK COMPLETE WELLNESS CENTERS, INC. THIS CERTIFIES THAT, for value received, __________________ (Holder) is entitled to purchase, on the terms hereof, shares of common stock of Complete Wellness Centers, Inc., a Delaware corporation (Company). This Warrant is issued pursuant to the provisions of the Subscription/Purchase Agreement dated as of __________, 1996 (Agreement) relating hereto, and this Warrant and the common stock issuable upon exercise of this Warrant shall be subject to, and the Holder shall be bound by, all the provisions of the Agreement, and shall be deemed to have made the representations and warranties set forth in Section 4 of the Agreement with respect to the securities evidenced by this Warrant. Additionally, the following terms shall apply to this Warrant: 1. EXERCISE OF WARRANT. The terms and conditions upon which this Warrant may be exercised and the common stock covered hereby (Warrant Stock) may be purchased are as follows: 1.1. Voluntary Exercise. (a) This Warrant may be exercised upon or after the first to occur of (i) the effectiveness of a registration statement (other than a registration statement on Form S-4 or S-8) under the Securities Act of 1933, as amended, for a firm commitment underwritten initial public offering of shares of common stock of the Company or (ii) June 30, 1997. In no case may this Warrant be exercised later than 5:00 p.m. eastern time on December 31, 1999 (Expiration Date), after which time this Warrant shall terminate and shall be void. (b) The Company will mail to the Holder a notice specifying the date on which the registration statement for any such initial public offering is expected to be declared effective by the Securities and Exchange Commission (Effective Date). Such notice shall be mailed at least 60 days prior to the date therein specified. 1.2. Number of Shares. The number of shares of common stock for which this Warrant is initially exercisable is (i) that number of shares of common stock of the Company equal to the quotient obtained by dividing $_________ by the price per share of common stock offered to the public in 20 2 an initial public offering subject to Section 1.1(a)(i) hereof, or (ii) if such an initial public offering is not completed on or before June 30, 1997, _________ shares of the Company's common stock, par value $0.0000555 per share, subject to adjustment pursuant to Section 2 of this Warrant. 1.3. Purchase Price. The per share purchase price for the shares of common stock to be issued upon exercise of this Warrant shall be $0.001, subject to adjustment as provided herein. 1.4. Method of Exercise. The exercise of the purchase rights evidenced by this Warrant shall be effected by the following actions if taken within 20 days after receipt of the notice from the Company of a proposed initial public offering or, in the absence of such a notice, if taken after June 30, 1997 and prior to the Expiration Date: (a) the surrender of the Warrant, together with a duly executed copy of the form of subscription attached hereto, to the Company at its principal offices and (b) the delivery of the purchase price by check or bank draft payable to the Company's order or by wire transfer to the Company's account for the number of shares for which the purchase rights hereunder are being exercised or any other form of consideration approved by the Company's board of directors. 1.5. Issuance of Shares. Upon the exercise of the purchase rights evidenced by this Warrant, a certificate or certificates for the purchased shares shall be issued to the Holder as soon as practicable. The Holder shall for all purposes be deemed to have become the holder of record of the number of shares of common stock evidenced by such certificate from the date on which this Warrant was surrendered and payment of the purchase price was received by the Company, regardless of the date of delivery of such certificate. 1.6. Election to Register. If the Holder (a) elects (in accordance with the terms of Section 6 hereof) to have Warrant Stock covered by a Registration Statement (as defined in Section 6) relating to an initial public offering subject to Section 1.1(a)(i) hereof, (b) wishes to exercise this Warrant on the date of effectiveness of such Registration Statement, and (c) so notifies the Company prior to the date of such effectiveness (in accordance with the terms of this Warrant), the Company will arrange to issue to the Holder certificates representing such Warrant Stock on the date of such effectiveness. 2. CERTAIN ADJUSTMENTS. The provisions of this Section 2 shall apply if and only if an initial public offering subject to Section 1.1(a)(i) hereof is not completed on or before June 30, 1997: 2.1. Common Stock Dividends. If the Company at any time prior to the expiration of this Warrant shall pay a dividend with respect to common stock payable in shares of common stock, then the purchase price per share shall be adjusted, from and after the date of determination of the stockholders entitled to receive such dividend, to that price determined by multiplying the per share purchase price in effect by a fraction (i) the numerator of which shall be the total number of shares of common stock outstanding immediately prior to such dividend and (ii) the denominator 21 3 of which shall be the total number of shares of common stock outstanding immediately after such dividend; provided, however, that the aggregate purchase price shall not be adjusted. 2.2. Mergers, Consolidations, or Sale of Assets. If at any time there shall be a capital reorganization (other than a combination or subdivision of Warrant Stock provided for herein), or a merger or consolidation of the Company with or into another corporation, or the sale of the Company's properties and assets as, or substantially as, an entirety to any other person, then, as a part of such reorganization, merger, consolidation or sale, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified in this Warrant and upon payment of the purchase price, the number of shares of stock or other securities or property of the Company or the successor corporation resulting from such reorganization, merger, consolidation or sale, to which a holder of the common stock deliverable upon exercise of this Warrant would have been entitled under the provisions of the agreement in such reorganization, merger, consolidation or sale if this Warrant had been exercised immediately before that reorganization, merger, consolidation or sale. In any such case, appropriate adjustment (as determined in good faith by the Company's board of directors) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after the reorganization, merger, consolidation or sale to the end that the provisions of this Warrant (including adjustment of the purchase price then in effect and the number of shares of Warrant Stock) shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon exercise of this Warrant; provided, however, that the aggregate purchase price shall not be adjusted. 2.3. Splits and Subdivisions. In the event the Company should at an time or from time to time fix a record date for the effectuation of a split or subdivision of the outstanding shares of common stock or the determination of the holders of common stock entitled to receive a dividend or other distribution payable in additional shares of common stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of common stock (Common Stock Equivalents) without payment of any consideration by such holder for the additional shares of common stock or Common Stock Equivalents (including the additional shares of common stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such distribution, split, or subdivision if no record date is fixed), the purchase price shall be appropriately decreased and the number of shares of Warrant Stock shall be appropriately increased in proportion to such increase of outstanding shares; provided, however, that the aggregate purchase price shall not be adjusted. 2.4. Combination of Shares. If the number of shares of common stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of common stock, the purchase price per share shall be appropriately increased and the number of shares of Warrant Stock subject to Section 1.2(ii) hereof shall be appropriately decreased in proportion to such decrease in outstanding shares; provided, however, that the aggregate purchase price shall not be adjusted. 22 4 2.5. Adjustments for Other Distributions. In the event the Company shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by the Company or other persons, assets (excluding cash dividends) or options or rights not referred to in subsections 2.1 or 2.3, then, in each such case for the purpose of this subsection 2.5, upon exercise of this Warrant the holder hereof shall be entitled to a proportionate share of any such distribution as though such holder was the holder of the number of shares of common stock into which this Warrant may be exercised as of the record date fixed for the determination of the holders of common stock entitled to receive such distribution; provided, however, that the aggregate purchase price shall not be adjusted. 2.6. Certificate as to Adjustments. In the case of each adjustment or readjustment of the purchase price pursuant to this Section 2, the Company will promptly compute such adjustment or readjustment in accordance with the terms hereof and cause a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based to be delivered to the holder of this Warrant. The Company will, upon the written request at any time of the holder of this Warrant, furnish or cause to be furnished to such holder a certificate setting forth: (a) Such adjustments and readjustments; (b) The purchase price at the time in effect; and (c) The number of shares of Warrant Stock and the amount, if any, of other property at the time receivable upon exercise of this Warrant. 2.7. Notices of Record Date, etc. In the event of: (a) Any taking by the Company of a record of the holders of any class of securities of the Company for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend payable out of earned surplus at the same rate as that of the last such cash dividend theretofore paid) or other distribution, or any right to subscribe for, purchase, or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right; or (b) Any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all of the assets of the Company to any other person or any consolidation or merger involving the Company; or (c) Any voluntary or involuntary dissolution, liquidation, or winding-up of the Company, the Company will mail to the holder of this Warrant at least five (5) days prior to the earliest date specified therein, a notice specifying: 23 5 (i) The date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right; and (ii) The date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation, or winding-up is expected to become effective and the record date for determining stockholders entitled to vote thereon. 3. FRACTIONAL SHARES. No fractional share shall be issued in connection with any exercise of this Warrant. In lieu of the issuance of such fractional share, the Company shall make a cash payment equal to the then fair market value of such fractional share as determined in good faith by the Company's board of directors. 4. RESERVATION OF COMMON STOCK. The Company shall at all times reserve and keep available out of its authorized but unissued shares of commons stock, solely for the purpose of effecting the exercise of this Warrant, such number of its shares of common stock as shall from time to time be sufficient to effect the exercise of this Warrant; and if at any time the number of authorized but unissued shares of common stock shall not be sufficient to effect the exercise of this Warrant in its entirety, in addition to such other remedies as shall be available to the holder of this Warrant, the Company will use its reasonable best efforts to take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of common stock to such number of shares as shall be sufficient for such purpose. 5. PRIVILEGE OF STOCK OWNERSHIP. Prior to the exercise of this Warrant, the Holder shall not be entitled, by virtue of holding this Warrant, to any rights of a stockholder of the Company, including (without limitation) the right to vote, receive dividends or other distributions, exercise preemptive rights or be notified of stockholder meetings, and the Holder shall not be entitled to any notice or other communication concerning the business or affairs of the Company. Nothing in this Section 5, however, shall limit the right of the Holder to participate in distributions to the extent set forth in Section 2 or be provided the notices described in Section 2 if the Holder ultimately exercises this Warrant. 6. REGISTRATION OF SHARES. 6.1. Definitions. As used in this Section 6, the following terms shall have the following respective meanings: (a) "Commission" means the Securities and Exchange Commission, or any other Federal 24 6 agency at the time administering the 1933 Act. (b) "1934 Act" means the Securities Exchange Act of 1934, as amended, or any similar Federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect. (c) "1933 Act" means the Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect. (d) "Registration Statement" means a registration statement filed by the Company with the Commission for a firm commitment underwritten public offering and sale of common stock of the Company (other than a registration statement on Form S-4 or Form S-8, or their successors, or any other form for a limited purpose, or any registration statement covering only securities proposed to be issued in exchange for securities or assets of another corporation). (e) "Registration Expenses" means the expenses described in Section 6.4. (f) "Registrable Shares" means the Warrant Stock; provided, however, that the shares of common stock which are Registrable Shares shall cease to be Registrable Shares upon any sale of such shares pursuant to a Registration Statement, Section 4(1) of the 1933 Act, Rule 144 under the 1933 Act or otherwise. 6.2. Registration. (a) To the extent the Registrable Shares are not covered by an effective Registration Statement, whenever the Company proposes to file a Registration Statement covering shares of common stock, it will, prior to such filing, give written notice to Holder in accordance with Section 1.4 of its intention to do so and, upon the written request of Holder given within 20 days after the Company provides such notice, the Company shall use its good faith efforts to cause all Registrable Shares which the Company has been requested by Holder to register to be registered under the 1933 Act to the extent necessary to permit their sale or other disposition in accordance with the intended methods of distribution specified in the request of Holder; provided that the Company shall have the right to postpone or withdraw any registration effected pursuant to this Section 6.2(a) without obligation to Holder. (b) Notwithstanding any provision in this Section 6.2 to the contrary, in connection with any offering under this Section 6.2 involving an underwriting, the Company shall not be required to include any Registrable Shares in such underwriting unless Holder accepts the terms of the underwriting as agreed upon between the Company and the underwriters selected by it, and then only in such quantity as will not, in the sole discretion of the underwriters, jeopardize the success of the offering by the Company. If in the sole discretion of the managing underwriter or underwriters the registration of all, or part of, the Registrable Shares which the Holder has 25 7 requested to be included would adversely affect such public offering, then the Company shall be required to include in the underwriting only that number of Registrable Shares, if any, which the managing underwriter or underwriters believe may be sold without causing such adverse effect. If the number of Registrable Shares to be included in the underwriting in accordance with the foregoing is less than the total number of shares which the Holder has requested to be included, then the Holder shall participate in the underwriting pro rata based upon its total ownership of Registrable Shares compared to the total number of shares held by others pursuant to separate agreements with the Company for which registration has been requested. Holder shall not transfer any shares covered by the Registration Statement for up to 90 days if, in the discretion of the managing underwriter or underwriters, such transfers would hinder the offering by the Company. 6.3. Allocation of Expenses. The Company will pay all Registration Expenses of all registrations under this Agreement; provided, however, that if a registration is withdrawn at the request of the holders requesting such registration (other than as a result of information concerning the business or financial condition of the Company which is made known to the holders after the date on which such registration was requested), each of the holders shall pay the Registration Expenses of such registration pro rata in accordance with the number of its Registrable Shares included in such registration. For purposes of this Section 6, the term "Registration Expenses" shall mean all expenses incurred by the Company in complying with this Section 6, including, without limitation, all registration and filing fees, exchange listing fees, printing expenses, fees and disbursements of counsel for the Company, state Blue Sky fees and expenses, transfer agent fees, cost of engraving of stock certificates, costs for mailing and tombstone advertising, cost of preparing the Registration Statement, related exhibits, amendments and supplements thereto, underwriting documents, selected dealer agreements, preliminary and final prospectuses, and the expense of any special audits incident to or required by any such registration, but excluding underwriting discounts and selling commissions attributable to the Registrable Shares and the fees and expenses of the holder's own counsel and accountants, which shall be borne by such holders. 6.4. Indemnification and Contribution. In the event of any registration of any of the Registrable Shares under the 1933 Act, pursuant to this Section 6, the Company will indemnify and hold harmless the seller of such Registrable Shares against any losses, claims, damages or liabilities, joint or several, to which such seller may become subject under the 1933 Act, the 1934 Act, state securities laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which such Registrable Shares were registered under the 1933 Act, any preliminary prospectus or final prospectus contained in the Registration Statement, or any amendment or supplement to such Registration Statement, or arise out of or are based upon the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and the Company will reimburse such seller for any legal or any other expenses reasonably incurred by such seller in connection with investigating and defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any 26 8 such loss, claim, damage, liability or expense arises out of or is based upon any untrue statement or omission made in such Registration Statement, preliminary prospectus or prospectus, or any such amendment or supplement, in reliance upon and in conformity with information furnished to the Company by or on behalf of such seller, specifically for use in the preparation thereof, or as a result of the failure of such seller, or any agent of such seller, to deliver any amendments and supplements to any Registration Statement and the prospectus included in any such Registration Statement. In the event of any registration of any of the Registrable Shares under the 1933 Act pursuant to this Agreement, each seller of Registrable Shares, severally and not jointly will indemnify and hold harmless the Company, each of its directors and officers and each underwriter and each person, if any, who controls the Company or any such underwriter within the meaning of the 1933 Act or the 1934 Act, against any losses, claims, damages or liabilities, joint or several, to which the Company, such directors and officers, underwriter or controlling person may become subject under the 1933 Act, 1934 Act, state securities laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement under which such Registrable Shares were registered under the 1933 Act, any preliminary prospectus or final prospectus contained in the Registration Statement, or any amendment or supplement to the Registration Statement, or arise out of or are based upon any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, if the statement or omission was made in reliance upon and in conformity with information furnished to the Company by or on behalf of such seller, specifically for use in connection with the preparation of such Registration Statement, prospectus, amendment or supplement, and each seller of Registrable Shares will reimburse the Company, each of its directors and officers, each underwriter and each controlling person, severally and not jointly, for any legal or other expenses reasonably incurred by the Company, each director and officer, each underwriter and each controlling person in connection with investigating and defending any such loss, claim, damage, liability or action. Each party entitled to indemnification under this Section 6.4 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claims to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided, that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld); and, provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 6. The Indemnified Party may participate in such defense at such party's expense. No Indemnifying Party, in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or 27 9 litigation. To provide for just and equitable contribution, if (i) an Indemnified Party makes a claim for indemnification pursuant to Section 6 (subject to the limitations thereof) but it is found in a final judicial determination, not subject to further appeal, that such indemnification may not be enforced in such case, even though this Section 6 expressly provides for indemnification in such case or (ii) any indemnified or indemnifying party seeks contribution under the 1933 Act, the 1934 Act, or otherwise, then the Indemnifying Party shall contribute to the losses, liabilities, claims, damages, and expenses whatsoever based on relevant equitable considerations such as the relative fault of such Indemnifying Party(ies) in connection with the facts which resulted in such losses, liabilities, claims, damages, and expenses. 6.5. Information by Holder. Each holder of Registrable Shares included in a Registration Statement shall furnish to the Company such information regarding such holder and the distribution proposed by such holder as the Company may reasonably request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section 6. 7. LIMITATION OF LIABILITY. Except as otherwise provided herein, in the absence of affirmative action by the Holder to purchase the Warrant Stock, no mere enumeration herein of the rights or privileges of the holder hereof shall give rise to any liability of such holder for the purchase price or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 8. TRANSFERS AND EXCHANGES. 8.1. Transfers. Subject to the terms and conditions of the Agreement and compliance with applicable federal and state securities laws, this Warrant is transferable in whole or in part by the Holder. 8.2. Exchanges. All new warrants issued in connection with transfers or exchanges shall be identical in form and provision to this Warrant except as to the number of shares and the identity of the Holder. 9. SUCCESSORS AND ASSIGNS. The terms and provisions of this Warrant shall be binding upon the Company and the Holder and their respective successors and assigns, subject to the restrictions set forth in the Agreement. 10. LOSS, THEFT, DESTRUCTION, OR MUTILATION OF WARRANT. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, 28 10 destruction, or mutilation of this Warrant, and in case of loss, theft, or destruction, of indemnity or security reasonably satisfactory to the Company, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of this Warrant, if mutilated, the Company will make and deliver a new warrant of like tenor and dated as of such cancellation, in lieu of this Warrant. 11. WEEKENDS, HOLIDAYS, ETC. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday, or legal holiday, then such action may be taken or such right may be exercised on the next succeeding day that is not a Sunday or legal holiday. 12. GOVERNING LAW The terms and conditions of this Warrant shall be governed by and construed in accordance with Delaware law as such laws are applied to agreements which are entered into solely between Delaware residents and are to be performed entirely within that state. Dated: August 15, 1996 COMPLETE WELLNESS CENTERS, INC. By: ----------------------------- Its: For Georgia Holders THIS WARRANT HAS BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF CODE SECTION 10-5-9 OF THE "GEORGIA SECURITIES ACT OF 1973," AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT. 29 SUBSCRIPTION TO: Complete Wellness Centers, Inc. ------------------------------- ------------------------------- ------------------------------- Ladies and Gentlemen: The undersigned, _____________________________________, hereby elects to purchase, pursuant to the provisions of the Warrant dated August 15, 1996 held by the undersigned, _________ shares of the common stock of Complete Wellness Centers, Inc., a Delaware corporation, and tenders herewith payment of the purchase price of such shares in full. The undersigned hereby represents and warrants that the undersigned is acquiring such stock for the undersigned's own account and not for resale or with a view to, or for resale in connection with, the distribution of any part thereof, and accepts such shares subject to the restrictions of the Subscription/Purchase Agreement (Agreement) dated as of ____________, 1996 relating thereto. The undersigned hereby remakes all representations set forth in Section 4 of the Agreement. If the number of shares being purchased hereunder is not all of the shares covered by the Warrant, the undersigned requests that a new warrant for the balance of shares covered by such Warrant be registered in the name of and delivered to the undersigned. Date: --------------------- By: --------------------------- (Signature) Name: --------------------------- Address: --------------------------- --------------------------- EX-10.5 10 FORM OF MANAGEMENT AND SECURITY AGT 1 EXHIBIT 10.5 MANAGEMENT AND SECURITY AGREEMENT (CWC, INC.) THIS MANAGEMENT AND SECURITY AGREEMENT (the "Agreement") is entered into as of the _____ day of ________________, 199_ by and between Complete Wellness Centers, Inc., a Delaware corporation ("CWC") having its principal office at 725 Independence Avenue, Washington, D.C. 20003, licensed to do business in the State of ((State)) or shall be so licensed at the time of Integration and ((CWMC_Name)), a ((State)) professional or business corporation, as the case may be and referred to hereinafter as "Medcorp." WHEREAS, CWC provides integrated practice consulting and management services to various healthcare companies either directly or through a designee; and WHEREAS, CWC desires to provide comprehensive administrative and other management services to Medcorp as more particularly described hereinafter; and WHEREAS Medcorp desires to avail itself of the services rendered by CWC or CWC's designee on an exclusive basis, NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties hereto agree as follows: DEFINITIONS. "Administrator" is defined as ((CWMC_Name)), a management company with which CWC shall contract pursuant to a separate agreement (the "Integrated Contract") to perform the day-to-day Management Services required by Medcorp. "Advances" are defined as those funds advanced by CWC to Medcorp to fund costs, operating deficits and expenses at an interest rate of Ten percent (10%) per annum and secured by appropriate security as determined in CWC's sole discretion. The Advances are not included in the Loan proceeds and shall be evidence by appropriate documentation. "Agreement" is defined as the Management and Security Agreement entered into by and between Complete Wellness Centers, Inc. and Medcorp, the parties hereto. "Collective Advertising" is defined as regional and/or national advertising and "Yellow Page" advertising for clusters of clinics. "CWC Fee" is defined as the fair market value of services received by CWC for goods and services rendered to Medcorp pursuant to Exhibit "A" attached hereto. "CWC Services" is defined as all services rendered by CWC such as general consultation; marketing support; group purchasing; managed care contracts; ongoing consulting; loan to Medcorp; agreements and protocols with regard to the Integrated Practice; recruitment of medical doctors plus all Management Services (as defined hereinafter). "Confidential Information" is defined as the terms and conditions of this Agreement or any information of any kind, nature or description concerning any matters affecting or relating to the business of the other party hereto, including, without limiting the foregoing, the names of Patients, the prices paid for goods and services, manner of operation of business or plans or processes, or any other data or information of any kind, nature or description which effects or relates to the other's business without regard to whether any or all of the foregoing would be deemed confidential information or a trade secret under applicable state law. "Equipment" is defined as office and medical equipment that the Administrator owns or in which the Administrator has leasehold rights. "FEP" is defined as Medicare, Medicaid, CHAMPUS and of CHAMPVA or any other federal entitlement program. "Integrated Contract" is defined as that certain Integrated Medical Center Management and Security Agreement between CWC and the Administrator, inter alia, pursuant to which the Administrator shall perform the day to day Management Services required by Medcorp. "Integrated Practice" is defined as a healthcare practice offering medical care and chiropractic services, including primary and specialty healthcare, all in accordance with applicable federal and state laws, rules and regulations. "Integration Date" is defined as the date when the Medcorp commences rendering medical services. "Loan" is defined as that certain loan from CWC to Medcorp, not to exceed Forty Thousand dollars ($40,000.00). Repayment of the Loan is waived is waived for the first ninety (90) days after the Integration Date. Payments of interest only, at the rate of ten percent (10%) per annum, shall commence on the ninety first (91st) day after the Integration Date and shall be due and payable on the same day of the next nine (9) months thereafter at which time payments of principal as well as interest shall be due. Payments of principal plus interest thereon shall commence immediately thereafter and shall be paid monthly in forty eight (48) equal, consecutive payments. The Loan shall be due and payable upon termination of the Integrated Contract and shall be secured by a blanket lien on all of Medcorp's assets. "Management Services" are defined as those services as may be necessary or appropriate to meet the daily operational practice development and administrative requirements of the Medcorp. Such services shall include but are not limited to marketing and promotion of the Medcorp's practice, practice development, supervision of personnel, facilities management, personnel and human-resource administration, purchasing, billing. collecting and providing for legal and accounting services. Specifically, Management Services shall include: 1) record keeping and information provision; 2) billing and collection; 3) maintenance of Medcorp identity; 4) non-professional personnel matters; 5) computer systems; 6) equipment, supplies, furnishings; 7) stationery, business cards and billing forms; 8) continuing education; 9) scheduling; and 10) training. "Medcorp" is defined as a professional or business corporation, as the case may be, operating an Integrated Practice. "Medcorp Expenses" are defined as including, but not limited to: a. payroll or other compensation of professional personnel, payroll taxes, payroll service fees, unemployment insurance and other withholdings; b. compensation in an amount equal to ______________________ but not to exceed Six Thousand Dollars ($6,000.00) per annum, payable in monthly increments, to an appropriately licensed medical doctor for serving as Medcorp shareholder and director in such states where Medcorp is a professional corporation; c. employee benefits for professional employees (as determined by Medcorp with Administrator's and CWC's approval); d. professional liability (malpractice) or other insurance (in such instances where the Administrator fails to provide the required coverage for Medcorp); e. bank fees or lockbox fees; and f. loan interest and principal payments. CWC Revenue is not included in Medcorp Expenses. "Note" is defined as that certain promissory note executed by Medcorp evidencing the Loan. "Office Space" is defined as the office space which the Administrator owns or in which the Administrator has leasehold rights and located at ((Address 1)). "Patient" is defined as those persons receiving professional services or related care at the Medcorp's professional employees' request. 2 "Professional Employee Identification" is defined as the advertising of the availability at Medcorp of Medcorp's professional employees in compliance with appropriate advertising guidelines. "Restricted Area" is defined as a five (5 ) mile radius if in a rural area, two (2 ) mile radius if in a suburban area, and ten (10) block radius if in an urban center of any Integrated Practice to which CWC is furnishing management services, either directly or indirectly. "Term" is defined as thirty five (35) years from the date hereof. "Transition Period" is defined as the first ninety (90) days after Integration Date. 1. GENERAL PROVISIONS a. Term of Agreement. This Agreement shall commence on the Integration Date and shall continue in full force and effect for the Term unless earlier terminated as provided for herein. b. Integrated Practice. Within one hundred twenty (120) days of execution of this Agreement, CWC shall provide the services required for the proper functioning of an Integrated Practice by the Medcorp. c. Use of Office Space and Equipment. The Medcorp shall have the right to use the Office Space and the Equipment in a manner which is necessary and appropriate for the efficient and effective conduct of an Integrated Practice. d. Payment of Costs and Expenses. Until such time that the Medcorp generates cash receipts sufficient to cover Medcorp Expenses or in the event that the Medcorp is operating at a deficit, CWC shall make Advances to fund said costs . Such Advances shall be repaid upon termination of the Initial Term of the Integrated Contract as defined therein. e. Exclusivity. Medcorp hereby retains CWC as the sole and exclusive manager of all non-therapeutic services required by Medcorp and CWC accepts such assignment as provided for herein. CWC is authorized to take such actions which, in the reasonable exercise of its discretion, it deems necessary or appropriate in order to meet the daily requirements of Medcorp. 2. CWC OBLIGATIONS a. Generally. In order to allow the Administrator and Medcorp to operate on an efficient basis, CWC will provide the CWC Services, in its discretion and at its own cost (except where otherwise noted), set forth below: (1) General Consultation. Consultation and seminars with regard to non-medical matters related to the management of an Integrated Practice including, but not limited to training of professionals and advertising. (2) Computer Software. Initial software, installation , and initial training (up to sixteen (16) hours) prior to the Integration Date. (3) Managed Care Contracts. Best efforts to make managed care contract arrangements available to the Medcorp. CWC reserves the right to contract with one or more managed care entities on behalf of the Medcorp and to negotiate a payment rate with respect to any and all such contractual arrangements, subject to Medcorp and Administrator's approval. (4) Forms, Stationery, and Business Cards. Initial starter kit of forms to be used by the Medcorp. CWC shall also provide a thirty (30) day initial supply of stationery and business cards. (5) Legal Support and Documentation. Cause the legal documentation required to establish an Integrated Practice including, but not limited to the formation of Medcorp (as a business or professional corporation, as appropriate) and medical and other professional employment and consulting contracts to be provided. CWC shall cause ongoing legal support and updates to assist the Administrator in complying with legal, regulatory, protocol and insurance requirements to be provided. (6) Advertising and Practice Development Support. Selected resources in the field of promotion/advertising by making advertising programs, group purchasing power, practice development support, and Professional Employee Identification available to Medcorp. (7) Medical Doctor. Assist in locating, recruiting and training (non-medical matters) medical doctors on Medcorp's behalf and upon selection of such medical doctors shall negotiate the terms of their employment on the Medcorp's behalf. (8) Office Space and Equipment Sub-Lease. Sublet to Medcorp pursuant to the terms of a written lease, the Equipment and the Office Space at fair market value for a period to run concurrent with the duration of the Integrated Contract but in no event for a period less than one year unless prevented by circumstances beyond CWC's control. (9) Lease of CWC Name. Lease the "Complete Wellness Center" name, or a derivation thereof, to Medcorp for the term of this Agreement. b. Appointment of Administrator. CWC shall appoint an Administrator to perform day-to-day services on Medcorp's behalf. The Management Services shall be performed by the Administrator acting in its best judgement, however, Administrator shall abide by all operating protocols, procedures, reports and disclosure requests established jointly by Medcorp, CWC and the Administrator. c. Billing and Collecting. CWC shall exercise best efforts to prepare and submit all bills, claim forms and other documentation required for Medcorp to obtain payment or reimbursement from any and all payors in connection with the treatment of Patients at the Office. (1) Appointment as Attorney in Fact. In seeking payment, CWC shall act as Medcorp's agent and shall indicate on its billhead that it is billing in the name of Medcorp. Medcorp hereby appoints CWC, for the term hereof, as its true and lawful attorney in fact, with full power of assignment and substitution, to bill Patients on Medcorp's behalf; collect accounts receivable arising out of such billings; and receive payments on behalf of Medcorp from any and all insurance companies and third party payors, except as may be precluded by law with respect to FEP accounts. In connection with its billing activities, CWC may take possession of, and endorse in the name of Medcorp, any and all notes, drafts and other instruments received by way of payment. (2) Payments received by Medcorp. Medcorp shall immediately remit to CWC any payments received directly from payors for application in accordance with the terms of this Agreement. (3) Handling Proceeds of Collection. Medcorp shall not bill Patients or any third party payors for professional services rendered at the Office other than as provided for herein. All proceeds shall be deposited by CWC in accordance with the terms of this Agreement in a bank account(s) of its selection. CWC may authorize designated signatories with respect to such bank account(s) as it deems appropriate. d. Loan to Medcorp. In order to allow the Administrator and Medcorp to operate on an efficient basis, CWC will provide the Loan to Medcorp as described herein: (1) Loan. Loan to Medcorp within five (5) days of satisfactory Verification (as defined in the Integrated Contract) an amount not to exceed Forty Thousand Dollars ($40,000.00) at an interest rate of Ten percent (10%) per annum during the Transition Period for the purpose of advancing the medical doctor's salary during the Transition Period and for providing equipment and supplies, including any additional computer hardware required; leasehold improvements; signage; marketing advertising and miscellaneous. CWC shall furnish Medcorp with invoices and/or other appropriate documentation evidencing an expenditure not to exceed Forty Thousand Dollars ($40,000). Medcorp shall execute such documentation as is 2 3 usual and customary for loans of such a nature, including, but not limited to, the Note which shall be secured by a blanket lien on all Medcorp assets. 3. MEDCORP OBLIGATIONS a. Sale of Equipment. Medcorp shall sell to Administrator upon termination of the Integrated Contract and upon repayment of the Loan and Advance(s), all non-proprietary equipment purchased from the proceeds of the Loan and/or Advance(s) for the sum of One Dollar ($l.00). b. Security Interest. So long as any amount of the Loan and/or Advance(s), interest thereon, or any other sum which may be due under this Agreement and/or the Integrated Contract remains unpaid, CWC shall have, and Medcorp hereby grants, a continuing security interest in all assets owned by Medcorp, including, but not limited to, all accounts receivables (unless otherwise prohibited by law) due Medcorp, from the date of this Agreement or hereafter acquired, evidencing any obligation to Medcorp and all accessories thereto, substitutions therefor and replacements, products and proceeds thereof. Medcorp agrees that from time to time, at the expense of Medcorp, Medcorp shall promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary, or that CWC may reasonably request, in order to perfect any security interest granted or purported to be granted by Medcorp herein or to enable CWC to exercise and enforce its rights and remedies hereunder with respect to the collateral in which a security interest has been granted. Without limiting the generality of the foregoing, Medcorp shall execute and file such security agreements, financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as CWC may request, in order to perfect and preserve the security interest granted or purported to be granted hereby by Medcorp. 4. BANK ACCOUNTS a. Bank Account. All funds collected by the Administrator for the account of the Medcorp shall be deposited in a bank account maintained by the Administrator for and in the name of the Medcorp. CWC has the right to debit the bank account of Medcorp for unpaid obligations of Medcorp with respect to payroll, taxes and the CWC Fee and any unpaid amounts due under the Loan. 5. COMPENSATION a. CWC Fee. In consideration of the provision of CWC's Services to the Medcorp as provided for herein, CWC shall be entitled, under the terms and conditions herein, to the CWC Fee which shall be paid monthly and shall be due no later than the tenth (10th) day of each month. 6. TERMINATION a. Termination by CWC. CWC may, at any time at its election, terminate this Agreement by delivering written notice of termination to the Medcorp upon the occurrence of any of the following events. (1) a material breach by Medcorp of any of its obligations hereunder which, after ten (10) days written notice from CWC, has not been corrected by CWC; or (2) the dissolution, liquidation or bankruptcy of the Medcorp, the appointment of a receiver for the assets of the Medcorp, assignment by the Medcorp of assets for the benefit of creditors or any action taken or suffered by the Medcorp (with respect to the Medcorp) under any bankruptcy or insolvency act; or (3) The failure by the Medcorp to meet material standards of managed care payers. b. Termination by Medcorp. Medcorp may at any time at its election terminate this Agreement upon the occurrence of any of the following events: (1) a material breach by CWC of any of its obligations hereunder which, after ten (10) days' written notice from the Medcorp, has not been corrected by CWC, or (2) the dissolution, liquidation or bankruptcy of CWC, the appointment of a receiver for the assets of CWC, assignment by CWC of assets for the benefit of creditors or any action taken or suffered by CWC under any bankruptcy or insolvency act. c. Effect of Termination. Expiration or early termination of this Agreement shall not relieve, release or discharge any party hereto from any obligation, debt or liability which may previously have accrued and which remains to be performed upon the date of termination. d. Distribution of Funds. Upon termination of this Agreement, CWC shall first be paid any amount due under the CWC Fee and shall then be reimbursed for any amount outstanding under the Loan, Advances and liquidated damages unless otherwise agreed to in writing by CWC. 7. INSURANCE a. Malpractice Insurance. Medcorp, at its sale cost and expense shall provide (unless otherwise provided by professional employee,) keep and maintain throughout the entire term of this Agreement, professional liability insurance coverage on the Medcorp and all its professional employees in the minimum amount of One Million Dollars ($1,000,000.00) for each occurrence and Three Million Dollars ($3,000,000.00) in the aggregate or as legally required, whichever amount is greater, written an a company licensed to do business in the State of Medcorp's incorporation. The insurance policy or policies so obtained shall name the Administrator and CWC as an additional insured party thereunder where permitted. Such policy or policies shall also provide for at least thirty (30) days advance written notice from the insurer as to any alteration of coverage, cancellation or other termination be given the Administrator and CWC and to any other person or entity designated by CWC. b. Other Insurance. Medcorp shall maintain insurance with financially sound and reputable insurance companies or associations in such amounts and cowering such risks as are usually carried by companies engaged in the same or a similar business and similarly situated, which insurance may provide for reasonable deductibility from coverage thereof. The insurance policy or policies so obtained shall name the Administrator and CWC as an additional insured party thereunder where permitted. Such policy or policies shall also provide for at least thirty (30) days advance written notice from the insurer as to any alteration of coverage, cancellation or other termination be given the Administrator and CWC and to any other person or entity designated by CWC. 8. COVENANTS NOT TO COMPETE OR SOLICIT, TRADE SECRETS AND CUSTOMER LISTS. a. Medcorp's Restrictions During the Term of the Agreement. During the term of this Agreement neither Medcorp nor any shareholder or partner of Medcorp, shall operate, manage or otherwise be involved with any other entity which renders chiropractic or medical services within the Restricted Area. During the term of this Agreement neither the Administrator and/or Client, nor any shareholder or partner of the Administrator and/or Client, shall operate, manage or otherwise be involved with an Integrated Practice without the written consent of CWC. b. CWC's Restrictions During the Term of this Agreement. During the term of this Agreement neither CWC nor any shareholder holding in excess of five percent (5%) of CWC stock, or partner, shall operate, manage or otherwise be involved with any other entity which renders chiropractic and/or medical services within the "Restricted Area" of the Medcorp. c. Confidential information. Each party hereto acknowledges and agrees that each will have access to certain Confidential Information and trade secrets of the other and that such information constitutes valuable, sale, special and unique property. The parties hereto further acknowledge and agree that each of them will not, at any time during or after the term hereof, in any fashion, form, or manner either directly or indirectly, divulge, disclose or communicate to any person, firm, or corporation in any manner whatsoever, Confidential Information. During such period, each party hereto shall be deemed to have a vital and protectable interest in such information and shall be 3 4 entitled to injunctive relief if necessary to protect against and remedy wrongful disclosure or use of such information. d. Irreparable Damage. The parties hereto acknowledge and agree that consideration has been given to the nature and scope of the business and activities of both Medcorp and CWC and that the covenants contained in this Paragraph concerning territorial, substantive and time limitations are in all respects fair and reasonable in view of the facts involved. In the event that any court shall determine that the time, substantive and territorial limitations contained herein are not fair and reasonable, this Agreement shall nevertheless be enforced as to such time, substantive and territorial limits as are reasonable. e. Injunctive Relief. The parties further agree that in the event of the breach of any provision of this Agreement, and particularly this Paragraph, each party shall be entitled to a permanent injunction or similar court order enjoining The breaching party from acting in a fashion contrary to this Paragraph and that pending such determination the breaching party shall accede to a temporary restraining order, without prejudice to any other rights that the non-breaching party may have, all at the breaching party's expense. f. Independent Agreement. The covenants contained herein shall be construed as an independent agreement and the existence of any claim which the breaching party may have against the non-breaching party will not constitute a defense to the enforcement by the non-breaching party, by injunctive relief or otherwise, of the provisions contained herein. 9. REPRESENTATIONS a. FEP. Medcorp hereby represents to CWC that neither the Medcorp nor any of its professional employees shall render diagnosis, treatment, or evaluation to insureds of any FEP without first obtaining written authorization from CWC. In the event that such treatment is rendered, CWC shall be provided with immediate notice at which time CWC may terminate this Agreement for cause at CWC's discretion. The parties agree that if a violation of this paragraph results in termination of this Agreement then the party causing such breach shall be liable to the other party for any and all damages caused and/or sustained, including, but not limited to, the payment of any fines, liquidated damages, attorneys fees, costs and expenses. b. No Practice of Medicine. The parties hereto acknowledge that neither the Administrator nor CWC are authorized or qualified to engage in any activity which may be construed or be deemed to constitute the practice of medicine. Therefore, and notwithstanding any provision or implication to the contrary herein, neither CWC nor the Administrator shall engage in any activity which shall or may be deemed to constitute the practice of medicine, nor shall either of them in any way supervise or determine the method or standards of the medical care provided by the Medcorp's professional employees. Specifically, and without limitation, neither CWC nor the Administrator shall (a) determine whether or not or when a patient shall be admitted and/or discharged; or (b) determine or judge the standards and conduct of medical care set by the Medcorp's professional employees. c. No Referrals. Neither the Administrator nor CWC shall refer patients to the Medcorp. d. Access to Books and Records. The Medcorp agrees to give CWC or CWC's designee such access to its books, records and data as each may require. Any information so derived shall be subject to Paragraph 8c. e. Independent Contracting Parties. Medcorp and CWC are independent contracting parties and the relationship between them is that of a purchaser and an independent supplier of non-medical services respectively. Nothing in this Agreement shall be construed to create a principal-agent, employer-employee, master-servant, partner or joint venture relationship between them. The Medcorp shall, at all times, be the sole employer of its professional personnel, arrange directly with such employees for all salaries and other remuneration: and be ultimately responsible for the payment of all applicable federal, state, or local withholding or similar taxes and provision of worker's compensation and disability insurance, except as otherwise set forth herein, no party hereto shall have the authority to bind any other party hereto. f. Management of the Integrated Healthcare Facilities. Medcorp acknowledges and agrees that CWC is free to enter into agreements similar to the one memorialized herein with other persons or other entities. 10. MISCELLANEOUS a. Assignment. Medcorp shall not assign any of its right, title and interest under this Agreement without the prior written consent of CWC. For purposes hereof, any issuance, reissuance, sale, assignment or other conveyance, or the issuance of warrants, options or rights to subscribe to, purchase or otherwise acquire any shares of stock in Medcorp or securities convertible into shares of its stock, or the entry into any contract regarding same shall constitute an assignment of this Agreement. Such purported assignment shall be null and void and of no effect whatsoever, Medcorp also agrees that in the event of involuntary transfer of stock due to death of, or legal action against, any stockholder, at the election of the non-transferring entity, this Agreement shall be deemed breached by the other. CWC may assign any of its rights hereunder. b. Specific Performance. It is agreed that any breach or evasion of any of the terms of this Agreement by either party hereto will result in immediate and irreparable injury to the other party, and recourse to injunction and/or specific performance, as well as to all other legal or equitable remedies to which such injured party may be entitled, will be authorized under such circumstances. c. Indemnity. Each party hereto hereby agrees to indemnify, defend and hold the other harmless from and against any and all costs, losses, claims, demands and liabilities, including reasonable attorneys' fees which arise out of or relate to any breach by the other of any of the terms and conditions in this Agreement; any negligent or intentional wrongful act of the other; any act or omission of the other which constitutes negligence; or any other act not authorized under the terms of this Agreement. If either party or any of its shareholders or affiliates is made a party to litigation or obligation or otherwise incurs any loss or expense as a result of the other's activities unconnected with the other's business at hereunder, such party shall forthwith upon demand, reimburse the other party or such individuals for any and all expenses incurred as a result thereof. d. Waiver of Breach. The parties understand and intend that each restriction agreed to hereunder shall be construed as separable and divisible from every other restriction, and that the unenforceability, in whole or in part, of any other restriction will not affect the enforceability of the remaining restrictions. It is further understood that one or more, or all of such restrictions, may be enforced in whole or in part as the circumstances warrant. No waiver of any one breach of the restrictions contained in this Agreement shall be deemed a waiver of any future breach. Each party hereby acknowledges that it is fully cognizant of the restrictions set forth in this Agreement and agrees that these provisions shall survive the termination of this Agreement for any reason. e. Notices. Except as otherwise provided herein, all requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been given if delivered personally, by prepaid telex, telegram, FAX or mailed first class, post prepaid, certified United States Mail, return receipt requested, to the party who is to receive such notice, request, demand or communication at such party's address as set forth herein. Any party hereto may change its address for notice by giving to the other party written notice of such change. Any notice given hereunder shall be effective (i) if delivered personally, when delivered, (ii) if sent by telex, telegram or FAX, twenty-four (24) hours after sending, and (iii) if mailed, seventy-two (72) hours after the date of the mailing. f. Commitments Binding Only Upon Written Consent. Notwithstanding any provision herein to the contrary, it is expressly understood and agreed that neither party hereto shall have the right to make any contracts or commitments for or on behalf of the other party without the prior written consent of such other party. g. Time of Essence. Time is of the essence in regard to the obligations established hereunder. The parties hereto agree that they shall cooperate in good faith to accomplish the objectives of this Agreement and, documents and take such further action as may be reasonably necessary to effectuate the terms, conditions and purposes of this Agreement. h. Entire Agreement. This Agreement contains the entire understanding of The parties with respect to the subject matter hereof, 4 5 supersedes any prior agreement between the parties, and may not be changed or terminated orally. No change, termination or attempted waiver of any of the provisions hereof shall be binding unless in writing and signed by the party against whom the same is sought to be enforced. i. Successors and Assigns. The provisions of this Agreement are intended for the regulation of relations among the parties hereto. This Agreement is not intended for the benefit of creditors or other third parties, and no rights are granted to such individuals or entities except where expressly referenced herein. J. Captions. The headings and captions herein are intended for convenience reference only, and shall not be deemed interpretative of the contents of such sections. k. Execution in Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one and the same instrument. l. Governing Law. All matters concerning the validity and interpretation of and performance under this Agreement shall be governed by the laws of the State of Maryland (without regard to the conflict of laws principles thereof) and venue shall be laid in Montgomery County. m. Arbitration. Except for any claim based on fraud or seeking injunctive relief, any controversy, dispute or disagreement arising out of or relating to this Agreement, or the breach thereof, including without limitation any dispute concerning the scope of this Arbitration clause, shall be settled by arbitration, which shall be conducted in Montgomery County, Maryland, in accordance with the National Health Lawyer's Association ("NHLA") Alternative Dispute Resolution Service Rules of Procedure of Arbitration. The courts located in Montgomery County, Maryland, shall have exclusive jurisdiction for the entry of judgment upon any award rendered by such arbitration panel. The parties hereto consent to such exclusive jurisdiction and venue. n. Attorneys' Fees. Anything to the contrary contained herein notwithstanding, in the event of litigation or arbitration between the parties hereto, with respect to the subject matter hereof, the prevailing party in such proceeding shall be entitled to an award of costs and fees, including reasonable attorneys fees, incurred by reason of such proceeding, including costs and fees on appeal, if any. o. No Act Contrary To Law. Nothing herein shall be construed so as to require the commission of any act contrary to law, and wherever there is any statute, law, ordinance or regulation which is inconsistent with this Agreement, such statute, law, ordinance or regulation shall prevail, and, in such event, the provision herein in conflict automatically shall be cur-railed, limited or eliminated to the extent necessary to bring it within legal limitations. p. Changes in Law and Regulations. In the event any applicable federal. state or local law or any regulation, order or policy issued under any such law is changed (or any judicial interpretation thereof is developed or changed) in a way which will have a material adverse affect on the practical realization of the benefits anticipated by one or more parties to this Agreement, the adversely affected party or parties shall notify the other party or parties in writing of such change and the offset of such change. The parties shall enter into good faith negotiations to modify this Agreement to compensate for such change. If an agreement on a method for modifying this Agreement is not reached within thirty (30) days of such written notice, the matter shall be submitted to a mediation with a single mediator for mediation in Montgomery County. Maryland, pursuant to the rules and procedures of the NHLA Alternative Dispute Resolution Service Rules of Procedure for Mediation. q. Force Majeure. If any party's ability to perform its obligations hereunder is limited or prevented in whole or in part due directly to acts of God, war, invasion, acts of foreign enemy, hostilities (whether war be declared or not), strikes and/or industrial dispute, delay on the part of a supplier or transportation delay, such party, without liability of any kind, shall be excused, discharged, and released from performance to the extent such performance is limited, delayed or prevented. 5 6 IN WITNESS WHEREOF, the undersigned have hereunto set their hands the day and year first above written. ((CWMC_Name)) By: ------------------------------------------- ((Title)) ((First_Name)) ((Last_Name)), President Complete Wellness Centers, Inc., a Delaware Corporation By: ------------------------------------------- E. Eugene Sharer, President 6 7 EXHIBIT "A" Office Space rental per annum: Equipment rental per annum: Marketing and promotion per annum Supervision of personnel per annum Facilities management per annum Personnel and human-resource administration per annum Group Purchasing services per annum Billing and Collection Forty thousand dollar loan interest cost per annum General Consultation per annum Negotiation of managed care contracts per annum Training professionals in multi-disciplinary protocols per annum Updates on protocols, public relations, and regulatory and legislative changes per annum Provide retail, cluster marketing and public relations campaigns per annum Assist in locating, recruiting and training (non-medical matters) medical doctors per annum Record-Keeping and Information Provision per annum Hiring of Non-Professional Personnel Scheduling per annum Training in systems, procedures and protocols of non-professional personnel per annum 7 EX-10.6 11 FORM OF INTEGRATED MEDICAL CENTER MAN & SEC AGT 1 EXHIBIT 10.6 INTEGRATED MEDICAL CENTER MANAGEMENT AND SECURITY AGREEMENT THIS INTEGRATED MEDICAL CENTER MANAGEMENT AND SECURITY AGREEMENT (the "Agreement") is entered into as of _______ day of ____________, 19_____, by and among Complete Wellness Centers, Inc., a Delaware corporation ("CWC"), ((Company)), a sole proprietorship, partnership, business or professional corporation (the "Existing Chiropractic Practice"), having its principal office(s) at ((Address1)), ((City)), ((State)) ((PostalCode)) (the "Office Space"); ((Title)) ((First_Name)) ((Last_Name)), (the "Client"), an individual licensed to practice chiropractic in the State of ((State)), and who owns or controls the Existing Chiropractic Practice; and a corporation to be formed and owned by such Client (the "Administrator"). The Administrator, Client, and Existing Chiropractic Practice shall be referred to herein collectively as (the "Affiliated Parties"). WHEREAS CWC provides management services to various health care companies; and WHEREAS, CWC desires to provide management services to a professional or business corporation to be formed ("Medcorp") which shall offer medical and chiropractic services, including primary and specialty care, at the Office Space, all in accordance with applicable federal and state laws, rules and regulations (the "Integrated Medical Center"); and WHEREAS, CWC and Medcorp have entered into or shall enter into a contract for goods and services whereby CWC shall receive fair market value for those goods and services rendered by CWC to Medcorp; and WHEREAS Client shall be employed by Medcorp in his/her capacity as a chiropractor; and WHEREAS the Existing Chiropractic Practice and/or Client owns the Office Space and all the equipment contained therein (the "Equipment") or owns the respective leasehold rights thereto; and WHEREAS Client shall lease, or cause the Existing Chiropractic Practice to lease said Office Space and Equipment to CWC; and WHEREAS CWC shall lease such Office Space and Equipment to the Medcorp on a fair market value basis; and WHEREAS, CWC shall render valuable services to Administrator on an ongoing basis. CWC shall receive as consideration for its services the following fees from Administrator: - - Enrollment Fee: $500 (one time only) payable upon execution of the Agreement. - - Operations Fee: $250 per month for the term of the Agreement, commencing on ______________,19____. - - Integration Fee: 20% (15% if the Initial Term is 10 years) of the sum of the collected CWC Revenues and Medcorp Expenses (see definition in paragraph 5.a.4.ii) until such sum is equal to $500,000 for any year of the Agreement. For the remainder of that particular year, the Integration Fee shall be reduced to 10%, for all sums in excess of $500,000. Such fee shall be payable monthly during the term of the Agreement. WHEREAS, Administrator shall receive as compensation for its services all CWC Revenues defined as all management fees and lease income earned by CWC from Medcorp based on a fair market value of goods and services but remitted only when actually collected by CWC; NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties hereto agree as described herein. 1. TERM The initial term of the Agreement shall commence on the date hereof and, unless earlier terminated as provided herein or extended by mutual agreement, shall end on (please check option) (option 1 [ ], Five (5) years from the date commencing ninety (90) days after medical services are first rendered at the Integrated Medical Center (the date medical services are first rendered shall be referred to herein as the "Integration Date") or option 2 [ ], ten (10) years from the date commencing ninety (90) days after the Integration Date) ("Initial Term"). At the end of the Initial Term of the Agreement, and upon mutual agreement of the parties hereto, the Administrator shall have the option to renew the Agreement for four (4) subsequent five (5) year term(s) (the "Renewal Term(s)") after the expiration of the Initial Term upon the same terms and conditions contained herein except as modified by Paragraph 5.b.1. The Renewal Term options shall be deemed automatically exercised unless written notice of termination is given by any party hereto not less than thirty (30) days prior to the expiration of the Initial Term or the particular Renewal Term. 2. GENERAL PROVISIONS a. Establishment of the Integrated Medical Center. Within thirty (30) days of execution of the Agreement, the following information (collectively "Verification") must be submitted by the Affiliated Parties to and be approved by CWC prior to the establishment of an Integrated Medical Center: - profiling of the Existing Chiropractic Practice, - credentialing of the Client, - landlord written approval of the establishment of an Integrated Medical Center at the Office Space, Within one hundred twenty (120) days of execution of the Agreement, CWC shall provide to the Affiliated Parties and Medcorp the services required for the establishment of an Integrated Medical Center and the commencement of medical and chiropractic services at the Integrated Medical Center. Any delay of the submission of information necessary for Verification by the Affiliated Parties shall result in like delay in the Integration Date. b. Employment Agreement. On or before the Integration Date, Client shall execute an employment agreement with Medcorp for the rendering of services within the scope of the Client's license to Medcorp under such terms and conditions as are acceptable to all parties hereto. In addition, Client shall be paid bonuses throughout the employment term which shall be acceptable to the Medcorp and all parties hereto. The term of employment shall be coterminous with the Agreement. c. Office Space and Equipment. The Client and/or Existing Chiropractic Practice, as the case may be, hereby leases to CWC the Office Space (subject to landlord's approval) and the Equipment at the lease rate of $1.00 per annum for a term that is coterminous with this Agreement. The Client and/or Existing Chiropractic Practice, as the case may be, hereby authorizes CWC to lease to Medcorp the Office Space (subject to Landlord approval) and Equipment as required by Medcorp to operate as an Integrated Medical Center at the Office Space for a term which shall be coterminous with this Agreement and for such good and valuable consideration as is provided for in the Medical Office Sublease (the "Medical Office Sublease") and the Equipment Sublease (the "Equipment Sublease") between CWC and Medcorp. In the event that such Office Space and Equipment are in need of replacement or supplementation for any reason, Administrator shall replace or supplement the same (with CWC's written approval with respect to an addition or replacement to the Office Space) to the extent necessary. d. Ratification of Agreement. The parties hereto agree and acknowledge that the Administrator is either an existing entity or an entity to be formed by the Client. Client shall provide CWC with a valid Certificate of Incorporation or Certificate of Good Standing for the Administrator and shall cause the Agreement to be ratified by Administrator. 3. CWC OBLIGATIONS a. General. In order to allow the Integrated Medical Center to be operated on an efficient basis, CWC will provide the following services, in its discretion and its cost, (except where otherwise noted) to the Affiliated Parties and Medcorp, as set forth below: 1) Consultation. During the term of the Agreement CWC will provide consultation and seminars on non-medical matters related to the Integrated Medical Center including, but not limited to, billing and collection, practice development, protocols, training the professionals, marketing, advertising, etc. 1 2 2) Loan to Medcorp. Within five (5) days of satisfactory Verification (or sooner upon mutual agreement), CWC shall make available funding of up to Forty Thousand Dollars ($40,000) at an interest rate of ten percent (10%) per annum to Medcorp (the "Loan") during the first ninety (90) days after the Integration Date (the "Transition Period") for the purpose of providing the below listed items to Medcorp, subject to Administrator's and CWC's approval and subject to the execution by Medcorp of such documentation as is usual and customary for loans of such a nature, including, but not limited to, a promissory note (the "Note") and a blanket lien on all Medcorp's assets. Administrator agrees that a portion of the Loan shall be used for the purpose of advancing the salary of the medical doctor employed by the Medcorp during the Transition Period and that the balance shall be used by CWC on Medcorp's behalf, to furnish and equip the Medcorp as described herein: Equipment and supplies including any additional computer hardware required; leasehold improvements; signage; marketing, advertising; payment of salary to medical doctor(s) during the Transition Period and miscellaneous. CWC shall furnish Administrator and Medcorp with invoices and/or other appropriate documentation evidencing an expenditure of up to Forty Thousand Dollars ($40,000). Repayment of the Loan and interest thereon is waived during the Transition Period. Thereafter, interest payments only shall be paid monthly for the next nine (9) months. Payments of principal plus interest thereon shall commence on the twelve (12) month anniversary of the Integration Date and shall be paid monthly thereafter in forty eight (48) equal, consecutive payments. In the event that this Agreement terminates sooner for whatever reason, the Note from Medcorp shall become immediately due and payable. This Note shall be personally guaranteed by the Client. The Administrator shall grant a secured lien to CWC against all fees due from CWC. In the event the Administrator elects not to utilize the Loan, the costs referenced above shall be the sole responsibility of the Administrator, with the exception of the payment of salary to the medical doctor during the Transition Period. With respect to the payment of salary to the medical doctor, the Administrator shall advance the necessary funds to the Medcorp ("Administrator Advances"). Such Administrator Advances shall be promptly repaid as funds become available to Medcorp as a result of collections. 3) Payment of Costs and Expenses. Until such time that the Medcorp generates cash receipts sufficient to cover Medcorp Expenses or in the event that the Medcorp is operating at a deficit, CWC may, in its sole discretion, fund said costs, operating deficits and expenses. Such advances (the "Advances") must be collateralized by the appropriate security as determined in CWC's sole discretion and shall bear interest at the rate of ten percent (10%) per annum. This subparagraph shall not be applicable to any Loan drawdowns. Such Advances shall be repaid upon termination of the Agreement, or upon expiration of the Initial Term, whichever is sooner. 4) Credentialing. Until the completion of the Transition Period, CWC will be responsible for the costs of credentialing of all Professional Employees. 5) Computer Software. Prior to the Integration Date, CWC shall provide the initial software, installation, and initial training (up to eight (8) hours) to be used in the Integrated Medical Center. Any subsequent training shall be at the Administrator's sole expense. 6) Forms, Stationery and Business Cards. CWC shall provide the initial starter kit of forms to be used by the Integrated Medical Center. CWC shall also provide a thirty (30) day initial supply of stationery and business cards. 7) Legal Support and Documentation. CWC shall cause to be prepared the legal documentation required to establish an Integrated Medical Center including, but not limited to, the formation of Medcorp (as a business or professional corporation depending on state law), the formation of Administrator, the execution of the Management and Security Agreement between CWC and Medcorp (the "Management Agreement) and the provision of medical and other professional employment and consulting contracts. CWC shall cause on-going legal support and updates to assist the Administrator in complying with legal, regulatory, protocol and insurance requirements to be provided. 8) Advertising and Practice Development Support. CWC shall provide Medcorp and Administrator with selected resources in the field of promotion/advertising by making advertising programs, group purchasing power, practice development support, and Professional Employee identification available to Medcorp and the Administrator. CWC shall use the funds from the Collective Advertising Fee to provide such advertising and publicity campaigns (See paragraph 5.a.3). 9) Managed Care Contracts. CWC shall exercise best efforts to make managed care contract arrangements available to the Medcorp. CWC reserves the right to contract with one or more managed care entities on behalf of the Medcorp and to negotiate a payment rate with respect to any and all such contractual arrangements, subject to Medcorp and Administrator's approval. Although CWC shall be obligated under such contracts, said contracts shall be subject to Administrator's prior approval. 10) Professional Employees. CWC shall assist in locating, recruiting and training (in non-medical matters) Professional Employees on Medcorp's behalf and upon selection of such Professional Employees, assist in negotiating the terms of their employment, with Administrator's approval, on Medcorp's behalf. Professional Employees are defined as all licensed health care providers. Costs of recruitment of Professional Employee(s) shall be borne by the Administrator. 11) Sale of Equipment. CWC shall cause Medcorp to sell to Administrator, upon termination of the Initial Term or the Renewal Term(s) of the Agreement and upon repayment of the Loan and Advances, all non-proprietary equipment purchased from the proceeds of the Loan for the sum of One Dollar ($1). 4. ADMINISTRATOR OBLIGATIONS a. General. CWC hereby exclusively retains the Administrator, and the Administrator hereby accepts such retention to provide such services as may be necessary or appropriate to meet the daily operational, practice development, and administrative requirements of the Medcorp. Such services shall include but are not limited to marketing and promotion of the Medcorp's practice, practice development, supervision of non-professional personnel, facilities administration, purchasing, billing, collections and causing the provision of legal and accounting services. The administrative services are to be performed by the Administrator acting in its best judgment; however, Administrator shall abide by all operating protocols, procedures, reports and disclosure requests established jointly by Medcorp, CWC and the Administrator. The Administrator shall provide the following in its discretion and at its costs (except where otherwise noted) to Medcorp as set forth below: 1. Record-Keeping and Information Provision. The Administrator shall use the computer software provided by CWC to maintain accurate records of Medcorp's operation, including, but not limited to, records related to revenues, expenses, taxes, inventory, fixed assets, personnel matters, patient records, billing and collection, patient visits and scheduling, and shall obtain all required licenses and permits where appropriate. 2. Billing and Collecting. The Administrator shall be responsible for the billing and collection for services rendered at the Medcorp and shall bill on behalf of the Medcorp for all such services. 3. Name of Integrated Medical Center. The Administrator shall maintain appropriate and independent telephone listings, etc. in order to identify the Integrated Medical Center as of the Integration Date. The Integrated Medical Center's name shall be used on all signage, stationary, and other forms of identification. The Existing Chiropractic Practice may continue to maintain its identification and advertise its telephone number at its own expense. 4. Professional Personnel Matters. Hiring and firing of Professional Employees shall be the sole responsibility of the Medcorp. The form and content of all agreements relative to the hiring and firing of such Professional Employees and the review of credentialling applications shall be subject to the joint input, guidance and approval of CWC, Medcorp and the Administrator. 5. Credentialing. Subsequent to the Transition Period, Administrator will be responsible for the costs of credentialing of all Professional Employees through a credentialing firm selected by CWC at a cost not to exceed $100.00 per Professional Employee. 2 3 6. Non-Professional Personnel Matters. Hiring decisions relative to non-Professional Employees shall be the sole responsibility of the Administrator and such employment costs shall be the obligation of the Administrator. 7. Computer Systems. Subsequent to the initial installation and training in the use of software by CWC, the Administrator shall maintain and repair, add, replace and upgrade computer software and pay any software maintenance and licensing fees. The cost of such software support, updates, maintenance and training will be borne by the Administrator. (The Administrator agrees that all trainee personnel are required to be computer literate to the extent that he/she understands computer system fundamentals and has worked with computer systems in the past). The Administrator shall also pay communication costs (i.e. telephone, internet) for such computer hardware and software, the cost of which will be dependent on the size of the practice and system usage. The Administrator shall also pay for the hardware support and maintenance. The Administrator shall cooperate in the conversion to and use of such software for the Integrated Medical Center. CWC reserves the right, in its sole and absolute discretion, to install software of its own choosing. 8. Equipment, Supplies, Furnishings and Fixtures. The Administrator shall have the obligation to order such supplies, including medical supplies as requested by Medcorp, and maintain and repair such Equipment, furnishings, and fixtures and to replace and add Equipment furnishings, and fixtures to meet the reasonable needs of the Medcorp and to cause it to present a clean and attractive appearance. 9. Stationery/Business Cards, Billing Forms. Commencing thirty (30) days after Integration, the Administrator will be responsible for the ordering of all stationery, business cards, and billing and collection forms previously approved and provided by CWC. CWC has negotiated a group purchasing agreement with a supplier and shall order such supplies for Administrator on request. 10. Continuing Education. The Administrator will be responsible for the establishment of a policy to cause all Professional Employees to meet their respective obligations concerning continuing educational requirements under applicable law and licensure standards. 11. Scheduling. The Administrator will schedule patient visits and activities at the Professional Employee's request. 12. Training. During the term of the Agreement, the Administrator will be responsible for determining the training needs of its staff and shall pay for the cost of travel, lodging, meals of all non-medical personnel to attend seminars to be trained in systems, procedures and protocols of the Integrated Medical Center. 13. Insurance Coverage. a. Malpractice Insurance. Administrator, at the Medcorp's sole cost and expense on or before the Integration Date, shall provide (unless otherwise provided by Professional Employee and as approved by CWC) keep and maintain throughout the entire term of the Agreement, professional liability insurance coverage on the Medcorp and all applicable Professional Employees in the minimum amount of One Million Dollars ($1,000,000.00) for each occurrence and Three Million Dollars ($3,000,000.00) in the aggregate or as legally required, whichever amount is greater, underwritten by a company licensed to do business in the state of Medcorp's incorporation. The insurance policy or policies so obtained shall name the Administrator and CWC as an additional insured party thereunder where permitted. Administrator shall provide to CWC a certificate of insurance evidencing such coverage. Such policy or policies shall also provide that at least thirty (30) days advance written notice from the insurer as to any alteration of coverage, cancellation or other termination be given the Administrator and CWC and to any other person or entity designated by CWC. In the event the Administrator does not provide the required professional liability insurance coverage, CWC shall provide such insurance coverage to Medcorp at Medcorp's sole cost and expense. b. Other Insurance. The Administrator, at its sole cost and expense on or before the Integration Date, shall maintain insurance on the Medcorp's behalf with financially sound and reputable insurance companies or associations, in such amounts and covering such risks as are usually carried by companies engaged in the same or similar business and similarly situated, including business interruption insurance, which insurance may provide for reasonable deductibility from coverage thereof. The insurance policy or policies so obtained shall name the Administrator and CWC as an additional insured party thereunder where permitted. The Administrator shall provide to CWC a certificate of insurance evidencing such coverage. Such policy or policies shall also provide for at least thirty (30) days advance written notice from the insurer as to any alteration of coverage, cancellation or other termination be given the Administrator and CWC and to any other person or entity designated by CWC. In the event the Administrator does not provide adequate insurance as determined by CWC in its sole discretion, CWC shall provide such insurance coverage to Medcorp, at Medcorp's sole cost and expense. 14. Individual Permits/Licenses. The Administrator will be responsible for ensuring the maintenance of all permits and licenses required to be maintained by the Medcorp and by Professional Employees employed by the Medcorp during the period of time such Professional Employees provide services thereat. 15. Payroll Taxes. The Administrator represents and warrants to CWC each of the following, and shall indemnify CWC and Medcorp and their respective officers and directors and hold them harmless from all liabilities, claims, losses, costs and expenses, including without limitation, attorneys' fees and disbursements, arising out of or resulting from the breach by Administrator of any of the following with respect to Medcorp. This subparagraph shall survive termination of the Agreement: - Administrator, on behalf of Medcorp, will at all times remain current in payments, with respect to all taxes, including payroll taxes. - Administrator, on behalf of Medcorp, shall execute an IRS form Power of Attorney in favor of CWC for the purpose of directing the IRS to send copies of all notices to CWC. - Administrator, on behalf of Medcorp, shall at Medcorp's cost and expense, retain the services of a payroll service with notice to CWC of default by Medcorp to pay any payroll taxes when due. 16. Advertising and Practice Development. The Administrator shall be responsible for such practice development and advertising services as the Administrator may determine from time to time to be reasonably necessary for the promotion of a healthcare practice, including liaison to the community in order to apprise individuals and groups of the nature and availability of professional services thereat. 17. Vendors. The Administrator shall supply CWC with a list of its utility suppliers and its landlord and request said vendors and landlord to furnish CWC with notice concerning late payments by Administrator. b. Operating Expenses. Except as set forth herein, the Administrator shall be responsible for the payment of all of the costs, expenses and taxes incurred in connection with the operation of Administrator including salaries, payroll taxes, benefits, bonuses, rent, practice development and advertising, supplies, maintenance, continuing education (including travel expenses related thereto), postage, travel and entertainment, Equipment rental, interest, lease payments, and all other valid Administrator expenses, and, except as otherwise provided for herein, shall have the sole and exclusive right to decide whether and to what extent such expenses are to be incurred. c. Obligations For Payment. Notwithstanding any provision herein to the contrary, in the event any item is not paid by Administrator, CWC has the right, but not the obligation, to make payment on such account on behalf of the Administrator and to charge any such amount to the Administrator. Such amount shall be deducted from the Administrative Fee. d. Applicable Laws and Regulations. The Administrator shall manage the operations of the Medcorp in accordance with the requirements of applicable law and professional standards. The laws and regulations with which the Administrator shall insure compliance include, but are not limited to, all applicable state and federal statutes, permit and licensing requirements, state and federal anti-kickback regulations, self-referral and disclosure requirements and prohibitions. e. Security Interest. So long as any amount of the Loan, interest thereon, or any other sum which may be due under the Agreement remains unpaid, CWC shall have, and Administrator hereby grants, a continuing security interest in all Administrative Fees (except as otherwise prohibited by law) due Administrator, from the date of the Agreement or hereafter acquired, evidencing any obligation to 3 4 Administrator and all accessions thereto, substitutions therefor and replacements, products and proceeds thereof. Administrator agrees that from time to time, at the expense of Administrator, Administrator shall promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary, or that CWC may reasonably request, in order to perfect any security interest granted or purported to be granted by Administrator herein or to enable CWC to exercise and enforce its rights and remedies hereunder with respect to the collateral in which a security interest has been granted. 5. COMPENSATION a. Compensation to CWC. In consideration of and as reimbursement of expenses incurred in the provision of services to the Administrator as provided for herein, Administrator shall pay to CWC the following: 1. Enrollment Fee. Upon execution of the Agreement, the Existing Chiropractic Practice shall pay CWC a Five Hundred Dollar ($500) one-time start up fee ("Enrollment Fee") in order to defray the costs of Verification. 2. Operations Fee. As a minimum guaranteed payment for goods and services provided by CWC, Administrator shall pay CWC a Two Hundred and Fifty Dollar ($250) fee ("Operation's Fee") which shall be paid monthly for the term of the Agreement and shall be due no later than the tenth (10th) day of each month. 3. Collective Marketing Fee. During the term of the Agreement, Administrator shall pay to CWC Two Hundred Dollars ($200) per month which shall be paid no later than the tenth (10th) day of each month beginning the sixth (6th) month after the Integration Date. CWC shall deposit such funds into a designated and segregated account to be solely used by CWC for regional and/or national advertising and public relations campaigns ("Collective Advertising"). 4. Integration Fee. During the term of the Agreement, Administrator shall pay to CWC, a fee ("Integration Fee") equal to 20% (15% if the Initial Term is ten (10) years) of the sum of the items listed below until such sum equals $500,000. Thereafter,, for any year of the Agreement that the sum of the items listed below exceeds $500,000, the Integration Fee for the remainder of that particular year shall be reduced to 10%. (i) collected CWC Revenues (as defined in the recitals). (ii) Medcorp Expenses ("Medcorp Expenses") which shall include, but not be limited to: - Payroll or other compensation of Professional Employees, payroll taxes, payroll service fees, unemployment insurance, or other withholdings. - Compensation in an amount up to Two Thousand Four Hundred Dollars ($2,400) per annum to a licensed medical doctor for serving as Medcorp's shareholder (in the case where Medcorp is a professional corporation as required by state law), payable monthly. - Employee benefits of the Professional Employees (as determined by Medcorp with Administrator and CWC's approval). - Professional liability (malpractice) or other insurance (in the case where Administrator fails to provide the required coverage for Medcorp.) - Bank fees or lockbox fees. - Loan interest payments. Medcorp Expenses shall not include CWC Revenues. The Integration Fee shall be payable no later than the tenth (10th) day of each month. 5. Miscellaneous. A late charge of one and one half percent (1.5%) per month shall be added to the monthly payment for each and every month that any or all of Operations, Collective Marketing, and Integration fees are late. The Enrollment, Operations, Collective Marketing, and Integration fees (collectively the "CWC Fees") are nonrefundable except as provided for herein. b. Compensation to Administrator 1. Administrative Fee. In consideration of and as reimbursement of expenses incurred in the provision of administrative services to Medcorp as provided for herein, CWC shall pay to Administrator a fee ("Administrative Fee"). The Administrative Fee shall be remitted to Administrator monthly based on provisional calculations which shall be subject to correction from time to time thereafter, but in any and all events, as soon as reliable financial information is available at the end of each quarter. The Administrative Fee shall be equal to all of CWC's Revenues but remitted only when actually collected by CWC. The Administrator agrees and acknowledges that for accounting purposes, the Administrative Fee shall be divided into two components: fees received as a result of management services rendered and fees received as a result of leasing the Office Space and the Equipment. 2. Equity Incentive. In the event that CWC's shares are publicly traded at any time while the Agreement remains in effect, then subject to applicable federal and state statutes, laws and regulations, CWC shall establish an option program for the benefit of current and future clients (including the Client) and for the current and future Professional Employees of those corporations with which CWC is in privity. 3. Severance. Upon termination of the Agreement, CWC shall pay Administrator an amount equal to eighty percent (80%) of CWC's accounts receivable due from Medcorp less the balance due Medcorp or CWC from Administrator pursuant to any outstanding liability under the Agreement, including but not limited to the Loan, Advances and CWC Fees. 6. BANK ACCOUNTS a. Bank Account. All funds collected by the Administrator for the account of the Medcorp shall be deposited in a bank account maintained by the Administrator for and in the name of the Medcorp ("Medcorp Account"). The Administrator shall transfer all funds, after payment of Medcorp expenses, from the Medcorp to a second bank account maintained by the Administrator for CWC ("CWC Account"). Such transfer shall be subject to periodic adjustment, at least quarterly, to reconcile such transfer with the amount owed to CWC by Medcorp pursuant to the Management Agreement between Medcorp and CWC. The Administrator may withdraw from the CWC account the Administrator's Fee due to the Administrator. The Administrator shall provide CWC with a reconciled monthly statement of both accounts, including a statement of all fees paid monthly to the Administrator from the CWC account. CWC has the right, but not the obligation, to debit either account for any unpaid obligations of the Medcorp or Administrator. 7. COVENANTS a. Administrator's Covenants. Administrator hereby agrees and covenants that: 1. The Administrator shall conduct itself in a professional manner in managing the Medcorp's affairs . 2. The Administrator shall act in good faith and apply as much time and effort to the administration of the Medcorp as was applied to the Existing Chiropractic Practice during the year preceding the Agreement. b. Client's Covenants. Client hereby agrees and covenants that: 1. Client shall conduct himself/herself in a professional manner with respect to the Administrator's, CWC's and Medcorp's affairs. 2. During the Initial Term and Renewal Terms of the Agreement, Client shall continue to practice and perform in Medcorp in the same manner as he/she did at the Existing Chiropractic Practice during the year preceding the Agreement. In the event that Client wishes to limit or curtail his/her practice then he/she, with CWC's approval of such chiropractor (which shall not be unreasonably withheld), may hire a chiropractor to replace him/her with regard to rendering chiropractic services at Medcorp. 4 5 3. Client hereby authorizes CWC to perform any such credit reference investigations that CWC (at its own cost) in its sole discretion deems necessary. 4. Client agrees and acknowledges that the rent owing to the Client or the Existing Chiropractic Practice, as the case may be, by CWC, if any, shall be subject to actual collection of rent by CWC from Medcorp as provided for in the Medical Office Sublease and the Equipment Sublease respectively. 8. TERMINATION a. Termination by CWC. CWC may, at any time at its election, terminate the Agreement by delivering written notice of termination to the Administrator upon the occurrence of any of the following events: 1. any misallocation, misappropriation or other diversion or misapplication by the Administrator of funds received by or for the Medcorp and/or CWC; 2. a material breach by the Administrator of any of the obligations established hereunder which cannot be corrected or, if such breach can be corrected, if after ten (10) days' written notice from CWC, such breach has not been corrected by the Administrator; 3. the dissolution, liquidation or bankruptcy of the Administrator, the appointment of a receiver for the assets of the Administrator, assignment by the Administrator of assets for the benefit of creditors or any action taken or suffered by the Administrator (with respect to the Administrator) under any bankruptcy or insolvency act; 4. the death of the Administrator's managing shareholder and/or Client; 5. any act or practice by the Administrator and/or Client which is damaging or detrimental to the business or reputation of CWC or the Medcorp, as determined in CWC's sole discretion, any illegal acts, actual or threatened violation of applicable federal or state laws or regulations; 6. the failure by the Administrator and/or Client to meet material standards of managed care payers; 7. the failure by Administrator and/or Client to meet or maintain Verification standards; 8. the failure by the Administrator and/or Client to be authorized to conduct a business in the manner contemplated herein or qualified to maintain insurance coverage with respect thereto; or 9. failure to provide medical services at Medcorp for ten (10) consecutive business days as a result of the Administrator's failure to approve the requisite Professional Employee employment agreement(s). b. Termination by Affiliated Parties. The Affiliated Parties may, at their election, terminate the Agreement by delivering written notice to terminate to CWC upon the occurrence of any of the following: 1. at any time during the first five (5) business days after the execution of the Agreement, 2. a material breach by CWC of any of the obligations established hereunder which cannot be corrected or if such breach can be corrected, if after ten (10) days written notice from the Administrator, such breach has not been corrected by CWC. c. Effect of Termination. Expiration or early termination of the Agreement shall not relieve, release or discharge any party hereto from any obligation, debt or liability which may previously have accrued and which remains to be performed upon the date of termination. 9. COVENANTS NOT TO COMPETE OR SOLICIT; TRADE SECRETS AND CUSTOMER LISTS. a. Affiliated Parties' Restrictions During the Term of the Agreement. During the term of the Agreement neither the Affiliated Parties, nor any shareholder or partner of the Affiliated Parties, shall operate, manage or otherwise be involved with any other entity which renders chiropractic or medical services within a ten (10) block radius if in an urban center, within a two (2) mile radius if in a suburban area, and within a five (5) mile radius if in a rural area of any Integrated Practice to which CWC is providing management services, either directly or indirectly (the "Restricted Area") with the exception of chiropractic services rendered through or by the Existing Chiropractic Practice. During the term of the Agreement, neither the Affiliated Parties, nor any shareholder or partner of the Affiliated Parties shall operate, manage or otherwise be involved with an integrated medical center without the written consent of CWC. b. CWC's Restrictions During the Term of the Agreement. During the term of the Agreement neither CWC, nor any officer or director, shall operate, manage or otherwise be involved with any other entity which renders chiropractic and/or medical services within the "Restricted Area" of the Medcorp. c. Affiliated Parties' Restriction after the Term of the Agreement. In the event that CWC terminates the Agreement pursuant to paragraphs 8a(1), 8a(2), 8a(3), 8a(5), 8a(6), 8a(7), 8a(8) or 8a(9) herein, then the Client agrees that for a period of two (2) years after such termination, neither the Affiliated Parties nor any entity in which the Affiliated Parties have an equity ownership either directly or indirectly, shall operate, manage or otherwise engage in the operation of any healthcare practice offering medical services, including primary and specialty healthcare within the Restricted Area. Client may, however, resume operation of his/her Existing Chiropractic Practice. d. Right of First Refusal. The Administrator or the Existing Chiropractic Practice shall afford CWC the right of first refusal with respect to any proposed sale of the Administrator or the Existing Chiropractic Practice or any controlling interest herein while the Agreement remains in effect. In the event that the Administrator or the Existing Chiropractic Practice receives or elicits a bona fide offer to purchase the Administrator or the Existing Chiropractic Practice or any controlling interest therein, it shall cause such offer to be communicated in writing to CWC, which shall thereupon have fifteen (15) days after the receipt of the communication to match or decline to match the offer. If CWC shall decline to match the offer, the Administrator or Existing Chiropractic Practice, as the case may be, shall have ninety (90) days in which to close the transaction in accordance with the terms of the offer. If the transaction shall not have closed within such 90-day period, the Administrator or Existing Chiropractic Clinic shall be obliged to treat the offer as a new offer and to comply again with the provisions contained herein. In any event, this paragraph is subject to Paragraph 11(c). e. Confidential Information. All the parties hereto acknowledge and agree that each will have access to certain confidential information and trade secrets of the other. Such confidential information and trade secrets include but are not limited to the names of patients, forms, referral relationships, protocols, billing and collection procedures, managed care relationships, etc. The parties hereto further acknowledge and agree that each of them will not, at any time during or after the term hereof, in any fashion, form, or manner either directly or indirectly, divulge, disclose or communicate to any person, firm, or corporation in any manner whatsoever, such confidential information. During such period, each party hereto shall be deemed to have a vital and protectable interest in such information and shall be entitled to injunctive relief if necessary to protect against and remedy wrongful disclosure or use of such information. f. Irreparable Damage. The parties hereto acknowledge and agree that consideration has been given to the nature and scope of the business and activities of both the Affiliated Parties and CWC and that the covenants contained in this Paragraph 9 concerning territorial, substantive and time limitations are in all respects fair and reasonable in view of the facts involved. In the event that any court shall determine that the time, substantive and territorial limitations contained herein are not fair and reasonable, the Agreement shall nevertheless be enforced as to such time, substantive and territorial limits as are reasonable. g. Injunctive Relief. The parties further agree that in the event of the breach of any provision of the Agreement, and particularly Paragraph 9 hereof, each party shall be entitled to a permanent injunction or similar court order enjoining the breaching party from acting in a fashion contrary to Paragraph 9 and that pending such determination the breaching party shall accede to a temporary restraining order, without prejudice to any other rights that the non-breaching party may have, all at the breaching party's expense. h. Independent Agreement. The covenants contained in Paragraph 9 shall be construed as an independent agreement and the existence of any claim which the breaching party may have against the non-breaching party will not 5 6 constitute a defense to the enforcement by the non-breaching party, by injunctive relief or otherwise, of the provisions of Paragraph 9. i. Continuation of Chiropractic Practice. All the foregoing not-withstanding, Client may, at his/her discretion, reactivate his/her chiropractic practice at any location upon termination of the Agreement for any reason whatsoever. 10. REPRESENTATIONS a. FEP. Administrator hereby represents to CWC that neither the Medcorp nor any of its Professional Employees shall render diagnosis, treatment, or evaluation to insureds of any federal entitlement program such as Medicare, Medicaid, CHAMPUS and/or CHAMPVA ("FEP") without first obtaining written authorization from CWC. In the event that such treatment is rendered, CWC shall be provided with immediate notice at which time CWC may terminate the Agreement for cause at CWC's discretion. The parties agree that if a violation of this paragraph results in termination of the Agreement, then the party causing such breach shall be liable to the other parties for any and all damages caused and/or sustained, including, but not limited to, the payment of any fines, damages, attorneys fees, costs and expenses. b. Professional Services. Client may render healthcare services to any FEP insured patient under his/her own auspices and for his/her own benefit through the Existing Chiropractic Practice. However, Client shall cease rendering such services on his/her own behalf and render such services on behalf of Medcorp in the event that CWC has agreed in writing to the provision by Medcorp of such services. c. No Practice of Medicine. The parties hereto acknowledge that the parties hereto are not authorized or qualified to engage in any activity which may be construed or be deemed to constitute the practice of medicine. Therefore, and notwithstanding any provision or implication to the contrary herein, the Administrator shall not engage in any activity which shall or may be deemed to constitute the practice of medicine, nor shall it in any way supervise or determine the methods or standards of the medical care provided by the Medcorp's Professional Employees. Specifically, and without limitation, the Administrator shall not (a) determine whether or not or when a patient shall be admitted and/or discharged; or (b) determine or judge the standards and conduct of medical care set by the Medcorp's Professional Employees. d. No Referrals. Neither the Administrator nor CWC shall refer patients to the Medcorp. e. Access to Books and Records. The Medcorp and the Affiliated Parties agree to give to the other, or the other's designee, such access to its books, records and data as each may require including records related to the Existing Chiropractic Practice. The Existing Chiropractic Practice agrees to authorize CWC to perform any such audits that CWC in its sole discretion (and at its own cost) deems necessary. Any information so derived shall be subject to Paragraph 9e. f. Independent Contracting Parties. The Administrator and CWC are independent contracting parties and the relationship between them is that of a purchaser and an independent supplier of non-medical services respectively. Nothing in the Agreement shall be construed to create a principal-agent, employer-employee, master-servant, partner or joint venture relationship between them. The Medcorp shall, at all times, be the sole employer of its Professional Employees; arrange directly with such Professional Employees for all salaries and other remuneration; and be ultimately responsible for the payment of all applicable federal, state, or local withholding or similar taxes and provision of worker's compensation and disability insurance. g. Administration of Other Integrated Healthcare Facilities. The Affiliated Parties acknowledge and agree that CWC is free to enter into agreements similar to the one memorialized herein with other persons or other entities. 11. MISCELLANEOUS a. Ancillary Services. Upon mutual agreement between CWC and Medcorp, CWC, through its subsidiaries or affiliated entities, may supply to the Administrator radiology, diagnostic and other ancillary services for use by the Medcorp. The Administrator shall provide to CWC such patient information and materials, including insurance information, as CWC shall require in order to provide for the proper billing of such services in accordance with applicable legal requirements and limitations. b. Compliance with Law. Upon written request of any regulatory agency, or any of their duly authorized representatives, the Administrator shall make available the contracts, books, documents and records needed to verify the nature, extent and cost of services provided hereunder. Such inspection shall be available for a period of seven years after the rendering of services under the Agreement. If the Administrator performs any of its duties hereunder through a subcontract with a value of Ten Thousand Dollars ($10,000) or more over a twelve (12) month period, the Administrator shall include this provision or one similar in character and content in such subcontract. c. Assignment. The Affiliated Parties shall not assign any of their respective rights, title and interest under the Agreement without the prior written consent of CWC. For purposes hereof, any issuance, reissuance, sale, assignment or other conveyance, or the issuance of warrants, options or rights to subscribe to, purchase or otherwise acquire any shares of stock in the respective Affiliated Parties or securities convertible into shares of their respective stock, or the entry into any contract regarding same shall constitute an assignment of the Agreement. Such purported assignment shall be null and void and of no effect whatsoever. The Affiliated Parties also agree that in the event of involuntary transfer of stock due to death of, or legal action against, any stockholder, at the election of CWC, the Agreement shall be deemed terminated unless otherwise agreed to in writing by CWC. CWC may assign any of its rights hereunder. d. Specific Performance. It is agreed that any breach or evasion of any of the terms of the Agreement by any party hereto will result in immediate and irreparable injury to the other parties, and recourse to injunction and/or specific performance, as well as to all other legal or equitable remedies to which such injured parties may be entitled, will be authorized under such circumstances. e. Indemnity. Each party hereto hereby agrees to indemnify, defend and hold the other harmless from and against any and all costs, losses, claims, demands and liabilities, including reasonable attorneys' fees which arise out of or relate to any breach by the other of any of the terms and conditions in the Agreement; any negligent or intentional wrongful act of the other; any act or omission of the other which constitutes negligence; or any other act not authorized under the terms of the Agreement. If any party or any of its shareholders or affiliates is made a party to litigation or obligation or otherwise incurs any loss or expense as a result of the other's activities unconnected with the other's business hereunder, such parties shall forthwith upon demand, reimburse the other party or such individuals for any and all expenses incurred as a result thereof. f. Waiver of Breach. The parties understand and intend that each restriction agreed to hereunder shall be construed as separable and divisible from every other restriction, and that the unenforceability, in whole or in part, of any other restriction will not affect the enforceability of the remaining restrictions. It is further understood that one or more, or all of such restrictions, may be enforced in whole or in part as the circumstances warrant. No waiver of any one breach of the restrictions contained in the Agreement shall be deemed a waiver of any future breach. Each party hereby acknowledges that it is fully cognizant of the restrictions set forth in the Agreement and agrees that these provisions shall survive the termination of the Agreement for any reason. g. Notices. Except as otherwise provided herein, all requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been given if delivered personally, by prepaid telex, telegram, FAX or mailed first class, postage prepaid, certified United States Mail, return receipt requested, to the party who is to receive such notice, request, demand or communication at such party's address as set forth herein. Any party hereto may change its address for notice by giving to the other party written notice of such change. Any notice given hereunder shall be effective (i) if delivered personally, when delivered, (ii) if sent by telex, telegram or FAX, twenty-four (24) hours after sending, and (iii) if mailed, seventy-two (72) hours after the date of the mailing. h. Commitments Binding Only Upon Written Consent. Notwithstanding any provision herein to the contrary, it is expressly understood and agreed that no party hereto shall have the right to make any contracts or commitments for or on behalf of any other party without the prior written consent of such other party. i. Time of Essence. Time is of the essence in regard to the obligations established hereunder. The parties hereto agree that they shall cooperate in good faith to accomplish the objectives of the Agreement and its related documents and take such further action as may be reasonably necessary to effectuate the terms, conditions and purposes of the Agreement. 6 7 j. Entire Agreement. The Agreement contains the entire understanding of the parties with respect to the subject matter hereof, supersedes any prior agreement between the parties, and may not be changed or terminated orally. No change, termination or attempted waiver of any of the provisions hereof shall be binding unless in writing and signed by the party against whom the same is sought to be enforced. k. Successors and Assigns. The provisions of the Agreement are intended for the regulation of relations among the parties hereto. The Agreement is not intended for the benefit of creditors or other third parties, and no rights are granted to such individuals or entities except where expressly referenced herein. l. Captions. The headings and captions herein are intended for convenience reference only, and shall not be deemed interpretative of the contents of such sections. m. Execution in Counterparts. The Agreement may be executed in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one and the same instrument. n. Governing Law. All matters concerning the validity and interpretation of and performance under the Agreement shall be governed by the laws of the State of Maryland (without regard to the conflict of laws principles thereof) and venue shall be laid in Montgomery County. o. Arbitration. Except for any claim based on fraud or seeking injunctive relief, any controversy, dispute or disagreement arising out of or relating to the Agreement, or the breach thereof, including without limitation any dispute concerning the scope of this arbitration clause, shall be settled by arbitration, which shall be conducted in Montgomery County, Maryland, in accordance with the National Health Lawyer's Association ("NHLA") Alternative Dispute Resolution Service Rules of Procedure of Arbitration. The courts located in Montgomery County, Maryland, shall have exclusive jurisdiction for the entry of judgment upon any award rendered by such arbitration panel. The parties hereto consent to such exclusive jurisdiction and venue. p. Attorneys' Fees. Anything to the contrary contained herein notwithstanding, in the event of litigation or arbitration between the parties hereto, with respect to the subject matter hereof, the prevailing party in such proceeding shall be entitled to an award of costs and fees, including reasonable attorneys fees, incurred by reason of such proceeding, including costs and fees on appeal, if any. q. No Act Contrary To Law. Nothing herein shall be construed so as to require the commission of any act contrary to law, and wherever there is any statute, law, ordinance or regulation which is inconsistent with the Agreement, such statute, law, ordinance or regulation shall prevail, and, in such event, the provision herein in conflict automatically shall be curtailed, limited or eliminated to the extent necessary to bring it within legal limitations. r. Changes in Law and Regulations. In the event any applicable federal, state or local law or any regulation, order or policy issued under any such law is changed (or any judicial interpretation thereof is developed or changed) in a way which will have a material adverse effect on the practical realization of the benefits anticipated by one or more parties to the Agreement, the adversely affected party or parties shall notify the other party or parties in writing of such change and the effect of such change. The parties shall enter into good faith negotiations to modify the Agreement to compensate for such change. If an agreement on a method for modifying the Agreement is not reached within thirty (30) days of such written notice, the matter shall be submitted to a mediation with a single mediator for mediation in Montgomery County, Maryland, pursuant to the rules and procedures of the NHLA Alternative Dispute Resolution Service Rules of Procedure for Mediation. s. Force Majeure. If any party's ability to perform its obligations hereunder is limited or prevented in whole or in part due directly to acts of God, war, invasion, acts of foreign enemy, hostilities (whether war be declared or not), strikes and/or industrial dispute, delay on the part of a supplier or transportation delay, such party, without liability of any kind, shall be excused, discharged, and released from performance to the extent such performance is limited, delayed or prevented. 7 8 IN WITNESS WHEREOF, the undersigned have hereunto set their hands the day and year first above written. COMPLETE WELLNESS CENTERS, INC. ("CWC") By: -------------------------------------------------------- (SIGNATURE) Name: E. Eugene Sharer ------------------------------------------------------ Title: President ------------------------------------------------------ Address: 725 Independence Ave., S.E. --------------------------------------------------- City, State, Zip: Washington, D.C. 20003 ------------------------------------------ Telephone, Fax: (202) 543-6800/ 543-5360 --------------------------------------------- "CLIENT" ((Title)) ((First_Name)) ((Last_Name)) - ----------------------------------------------------------------------------- Address: ((Address1)) ---------------------------------------------------- City, State, Zip: ((City)), ((State)) ((PostalCode)) ------------------------------------------------------------ Telephone, Fax: ((Phone))/((Fax)) --------------------------------------------- Social Security Number ------------------------------------- "ADMINISTRATOR", A CORPORATION TO BE FORMED By: -------------------------------------------------------- (SIGNATURE) Name: ((Title)) ((First_Name)) ((Last_Name)) ------------------------------------------------------------------------ Title: ------------------------------------------------------ Address: ((Address1)) ---------------------------------------------------- City, State, Zip: ((City)), ((State)) ((PostalCode)) ------------------------------------------------------------ Telephone, Fax: ((Phone))/((Fax)) --------------------------------------------- "EXISTING CHIROPRACTIC PRACTICE" By: -------------------------------------------------------- (SIGNATURE) Name: ((Title)) ((First_Name)) ((Last_Name)) ------------------------------------------------------------------------ Title: ------------------------------------------------------ Address: ((Address1)) ---------------------------------------------------- City, State, Zip: ((City)), ((State)) ((PostalCode)) ------------------------------------------------------------ Telephone, Fax: ((Phone))/((Fax)) --------------------------------------------- Taxpayer I.D. Number --------------------------------------- 8 EX-10.7 12 FORM OF AFFILIATED CHIROPRACTOR EMP AGT 1 EXHIBIT 10.7 CHIROPRACTOR EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as of the day of __________, 19__, by and between ((CWMC_Name)), a ((State)) corporation to be formed for the purposes of conducting an integrated healthcare practice ("Employer") having its principal office at ((Address1)), ((City)), ((State)) ((PostalCode)) (the "Office"), and ((Title)) ((First_Name)) ((Last_Name)), an individual licensed to practice chiropractic in the State of ((State)), or ("Employee"). W I T N E S S E T H: WHEREAS Employer is a corporation duly licensed in the State of ((State)) and which provides integrated healthcare services; and WHEREAS Employer wishes to employ Employee, an individual who is actively practicing and is duly licensed to provide chiropractic services in the state of ((State)), on an exclusive basis, as an employee of Employer to provide chiropractic services subject to the rules thereof and the standards of the profession in effect in the State of ((State)); and WHEREAS Employee desires to render such services to Employer; and WHEREAS Employee is the President of the Management Company (defined herein) rendering administrative services to Employer, NOW, THEREFORE, in consideration of the representations, warranties and mutual covenants set forth herein, the parties hereto hereby agree as follows: 1. EMPLOYMENT REPRESENTATIONS. Upon the terms and subject to the conditions set forth herein, Employer hereby employs Employee as a licensed Chiropractor and Employee hereby accepts such employment and represents to Employer that he is presently licensed and qualified to engage in the practice of chiropractic in the State of ((State)); that he is not presently subject to any pending disciplinary investigation or proceeding nor knows of any reason why his license to so practice may be suspended, revoked, or otherwise impaired. 2. TERM. The term of employment under this Agreement (the "Employment Term") shall be for a period of five years commencing on the Integration Date as defined in that certain Integrated Medical Center Management and Security Agreement ("Integrated Contract") dated of even date herewith to which the Employee named herein is a party , unless earlier terminated under the terms hereof (the "Commencement Date"); provided, that Employee must complete and submit any credentialling application provided to Employee by Employer and must present his qualifications as set forth in Paragraph 1 hereof to Employer prior to the Commencement Date in order for this Agreement to become effective and for the Employment Term to commence. This Agreement shall automatically renew concomitant with the Integrated Contract unless ((Title)) ((First_Name)) ((Last_Name)) exercises his option to hire a replacement chiropractor pursuant to Paragraph 7b(2) of the Integrated Contract. 3. INDEPENDENT JUDGEMENT. Although Employee is an employee of Employer under the terms of this Agreement, Employee shall retain independent discretion and exercise independent judgment in the manner and means of providing services in regard to the diagnosis and treatment of patients treated. Employee recognizes, acknowledges and agrees that Administrator shall manage all non-medical aspects of Employer's practice. 4. SCOPE OF DUTIES. a. Full Time and Exclusive Employment. During the period of his employment under the terms hereof, Employee will devote his full working time and efforts to the performance of his duties on behalf of the Employer. b. General Activities. Employee will render his services to Employer as a licensed Chiropractor and in such capacity he shall perform such duties as are customary in such practice of Chiropractic. c. Conduct. Employee will at all times conduct himself in compliance with all federal, state and local laws, rules and regulations and canons of professional ethics. d. Location of Employment. Employee shall perform his duties hereunder at the "Office". e. Billing. The Employer shall perform, or cause to have performed, billing and collection functions for all services provided by the Employee. The Employee hereby authorizes the Employer to accept, or refuse to accept, on Employee's behalf, any assignment of insurance benefits from any patient receiving treatment from the Employee pursuant to this Agreement. At Employer's request, Employee shall list and designate with such insurance or third party payor the Employer's address and designated officer as the sole address to which all payment(s) or payment voucher(s) for treatment rendered by the Employee shall be mailed. This Agreement constitutes an assignment by the Employee to the Employer of all funds owing or collected for treatment rendered by the Employee pursuant to this Agreement (the "Receivables") so long as such assignment is not in violation of any law or statute. The Employee shall take all steps necessary to assist in the billing and collection of funds due for services rendered by the Employee. All funds collected with respect to services provided pursuant to this Agreement shall be the exclusive property of the Employer. f. Patient Records. Employee shall maintain adequate and complete records with regard to services rendered to patients. Nothing herein contained shall be construed to prevent any patient from requesting transfer of his/her records to Employee upon the termination of this Agreement, and such materials or photocopies thereof shall be delivered to Employee upon the written request of the subject patient, which request shall be honored promptly. Upon termination of this Agreement, Employee shall receive copies of such patient records that he is legally required to retain. Such records shall include the records of all patients to whom Employee has personally rendered treatment and/or who have requested in writing that their records be released to ((Title)) ((First_Name)) ((Last_Name)). Employer will facilitate Employee in obtaining these written 2 authorizations by providing all patients with such written authorization forms at the time of their first visit to Employer. The Employer shall keep all original records. g. Professional Services. ((Title)) ((First_Name)) ((Last_Name)) may render healthcare services to Medicare, Medicaid, CHAMPUS, CHAMPVA and any other federal entitlement program insured under his own auspices and for his own benefit. However, Medcorp retains to itself the right to render such services pursuant to Paragraph 10b of the Integrated Contract and upon thirty (30) days notice by Medcorp to ((Title)) ((First_Name)) ((Last_Name)), ((Title)) ((First_Name)) ((Last_Name)) shall cease rendering such services on his own behalf and render such services on behalf of Medcorp. 5. SALARY. In consideration of the services to be rendered by Employee hereunder, and as full compensation therefor, Employer agrees to pay Employee, and Employee agrees to accept from Employer, a salary at the rate of One Thousand Dollars ($1,000.00) per month during the first three months of this Agreement and per month thereafter during the Employment Term (the "Salary"), which dollar amount shall be prorated for the actual days employed during such period to the extent that the Agreement is earlier terminated. Such Salary shall be payable in accordance with the Employer's normal payroll policies, but not less often than monthly. Such Salary shall be subject to withholding for applicable taxes to the extent required by law. Any amounts due to the Employee from any previous employment or pursuant to his activities on behalf of the Administrator will not affect the terms of this Paragraph. 6. EMPLOYMENT BENEFITS. During the term of his employment hereunder, Employee shall be entitled to vacation, sick leave, health benefits, and maternity leave as determined by the Administrator. a. Malpractice Insurance. Payment of the premiums for the Employee's malpractice insurance; provided, that such insurance shall be in such coverage amount and placed with such insurance carrier as shall be approved by Employer; and provided, further, that such malpractice insurance shall not cover Employee during the performance of any activities not directly related to the Employee's employment by Employer. 7. TERMINATION OF EMPLOYMENT. a. Termination by Employer. Employer may, at any time at its election, terminate this Agreement forthwith by delivering written notice of termination to the Administrator upon the occurrence of any of the following events: (1) any misallocation, misappropriation or other diversion or misapplication by the Employee of funds received by or for the Employer and/or CWC; (2) a material breach by the Employee of any of the obligations established hereunder which cannot be corrected or, if such breach can be corrected, if after ten days' written notice from Employer such breach has not been corrected by the Employee; (3) the death of the Employee; (4) any act or practice by the Employee which is\ damaging or detrimental to the business or reputation of Employer, including but not limited to illegal acts, actual or threatened violation of applicable federal or state laws or regulations; (5) the failure by the Employee to meet material standards of managed care payors; (6) the failure by Employee to meet or maintain profiling or credentialling standards; (7) the disability or legal incapacity of the Employee; or (8) for "Cause". The term "Cause" as used herein shall mean that Employee (i) has been found, in the reasonable belief of Employer, to suffer chronic dependency on drugs or alcohol; (ii) in carrying out his duties hereunder, has committed gross neglect or gross misconduct; (iii) has become legally disqualified to practice Chiropractic in the State of ((State)) , or has been put on probation by the ((State)) State Board, or has had his license to practice Chiropractic in the State of ((State)) suspended or revoked; or (iv) is unable to obtain the appropriate malpractice insurance covering his professional conduct, in coverage amounts and/or with insurance carriers acceptable to Employer. b. Automatic Termination. This Agreement is intended to be coterminous with the Integrated Contract. Accordingly, in the event that the Integrated Contract is terminated for whatever reason, this Agreement shall also terminate unless the parties elect by an agreement in writing to continue it in effect. This subparagraph shall not relieve any party of responsibility for wrongful termination of the Integrated Contract or this Agreement. c. Employee's Termination. Employee may terminate this Agreement at any time upon two (2) weeks notice to Employer upon a material breach by the Employer of any of the obligations established hereunder which cannot be corrected or, if such breach can be corrected, if after ten days' written notice from Employee such breach has not been corrected by the Employer. d. Effect of Termination. Expiration or early termination of this Agreement shall not relieve, release or discharge any party hereto from any obligation, debt or liability which may previously have accrued and which remains to be performed upon the date of termination. e. Distribution of Records. Upon termination, Employee shall receive copies of such patient records that he is legally required to retain. Such records shall include the records of all patients to whom ((Title)) ((First_Name)) ((Last_Name)) has personally rendered treatment and/or who have requested in writing that their records be released to Employee. Employer will facilitate Employee in obtaining these written authorizations by providing all patients with such written authorization forms at the time of their first visit to Employer. Employer shall keep all original records. f. Post-Termination Cooperation Re Accounts. For a period of two (2) years after termination of this 3 Agreement, Employee shall cooperate fully and assist Employer in efforts to collect all accounts receivable for services performed by Employee while employed by Employer, including without limitation, transferring all funds actually paid or made payable to Employee with respect to such accounts receivable, and appearing in any court of law within which any cause of action is brought to seek enforcement of Employer's right to collect on any and all such accounts. Employee agrees to notify Employer, in writing, of a change of address of Employee's business or residence during such two (2) year period so that Employer will be able to locate Employee to carry out the terms of this Paragraph. Employee shall receive up to two hundred and fifty dollars ($250.00) per day for providing assistance under the terms of this Paragraph and, in addition, Employer shall reimburse Employee for all reasonable costs and expenses incurred by Employee, as approved in advance in writing by Employer, relating to such assistance. The terms and conditions of this Paragraph shall survive termination of this Agreement. 8. COVENANTS NOT TO COMPETE OR SOLICIT, TRADE SECRETS AND CUSTOMER LISTS. a. Confidential Information. Employee acknowledges and agrees that he will have access to certain confidential information and trade secrets of the Employer and that such information constitutes valuable, sole, special and unique property of Employer. Employee further acknowledges and agrees that Employee will not, at any time during or after the term hereof, in any fashion, form, or manner either directly or indirectly, divulge, disclose or communicate to any person, firm, or corporation in any manner whatsoever, the terms and conditions of this Agreement or any information of any kind, nature or description concerning any matters affecting or relating to the business of Employer, including, without limiting the foregoing, the names of patients, the prices which Employer pays for goods and services and/or sells goods or services, Employer's manner of operation of Employers business or its plans or processes, or any other data or information of any kind, nature or description which affects or relates to Employer's business without regard to whether any or all of the foregoing would be deemed confidential information or a trade secret under applicable state law ("Confidential Information"). During such period, Employer shall be deemed to have a vital and protectable interest in such information and shall be entitled to injunctive relief if necessary to protect against and remedy wrongful disclosure or use of such information. b. Irreparable Damage. The parties hereto acknowledge and agree that consideration has been given to the nature and scope of the business and activities of both the Employee and the Employer and that the covenants contained in this Paragraph 8 concerning territorial, substantive and time limitations are in all respects fair and reasonable in view of the facts involved. In the event that any court shall determine that the time, substantive and territorial limitations contained herein are not fair and reasonable, this Agreement shall nevertheless be enforced as to such time, substantive and territorial limits as are reasonable. c. Injunctive Relief. The parties further agree that in the event of the breach of any provision of this Agreement, and particularly Paragraph 8 hereof, each party shall be entitled to a permanent injunction or similar court order enjoining the breaching party from acting in a fashion contrary to Paragraph 8 and that pending such determination the breaching party shall accede to a temporary restraining order, without prejudice to any other rights that the non-breaching party may have, all at the breaching party's expense. d. Independent Agreement. The covenants contained in Paragraph 8 shall be construed as an independent agreement and the existence of any claim which the breaching party may have against the non-breaching party will not constitute a defense to the enforcement by the non-breaching party. e. Continuation of Chiropractic Practice. All the foregoing notwithstanding, Employee may, at his discretion, reactivate his own chiropractic practice at any location upon termination of this Agreement for any reason whatsoever. The Employee may also continue to maintain and advertise his own telephone number at his own personal cost and expense during the term of this Agreement and may continue to so use said telephone number upon termination of this Agreement. This provision shall survive the termination of this Agreement. 9. MISCELLANEOUS a. Specific Performance. It is agreed that any breach or evasion of any of the terms of this Agreement by either party hereto will result in immediate and irreparable injury to the other party, and recourse to injunction and/or specific performance, as well as to all other legal or equitable remedies to which such injured party may be entitled, will be authorized under such circumstances. b. Indemnity. Employee hereby agrees to indemnify, defend and hold Employer harmless from and against any an all costs, losses, claims, demands and liabilities, including reasonable attorneys' fees which arise out of or relate to any breach by Employee of any of the terms and conditions in this Agreement; any negligent or intentional wrongful act of Employee; any act or omission of Employee which constitutes professional negligence; or any other act of Employee not authorized under the terms of this Agreement. If Employer or any of its shareholders or affiliates is made a party to litigation or obligation or otherwise incurs any loss or expense as a result of Employee's activities unconnected with Employer's business at the Medcorp, Employee shall forthwith upon demand, reimburse Employer or such individuals for any and all expenses incurred as a result thereof. c. Waiver of Breach. The parties understand and intend that each restriction agreed to by Employee under the terms of this Agreement shall be construed as separable and divisible from every other restriction, and that the unenforceability, in whole or in part, of any other restriction will not affect the enforceability of the remaining restrictions. It is further understood that one or more, or all of such restrictions, may be enforced in whole or in part as the circumstances warrant. No waiver of any one breach of the restrictions contained in this Agreement shall be deemed a waiver of any future breach. Employee hereby acknowledges that it is fully cognizant of the restrictions set forth in Paragraph 8 of this Agreement and agrees that these provisions shall survive the termination of this Agreement for any reason. 4 d. Notices. Except as otherwise provided herein, all requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been given if delivered personally, by prepaid telex, telegram, facsimile ("FAX") or mailed first class, return receipt requested, to the party who is to receive such notice, request, demand or communication at such party's address as set forth on the signature page hereof. Any party hereto may change its address for notice by giving to the other party written notice of such change. Any notice given hereunder shall be effective (i) if delivered personally, when delivered, (ii) if sent by telex, telegram or FAX, twenty-four (24) hours after sending, and (iii) if mailed, seventy-two (72) hours after the date of the mailing. e. Commitments Binding only upon Written Consent. Notwithstanding any provision herein to the contrary, it is expressly understood and agreed that Employee shall not have the right to make any contracts or commitments for or on behalf of Employer without the prior written consent of Employer. f. Time of Essence. Time is of the essence in regard to the obligations established hereunder. The parties hereto agree that they shall cooperate in good faith to accomplish the objectives of this Agreement and, documents and take such further action as may be reasonably necessary to effectuate the terms, conditions and purposes of this Agreement. g. Entire Agreement. This Agreement contains the entire understanding of the parties with respect to the subject matter hereof, supersedes any prior agreement between the parties, and may not be changed or terminated orally. No change, termination or attempted waiver of any of the provisions hereof shall be binding unless in writing and signed by the party against whom the same is sought to be enforced. h. Modification. This Agreement shall not be changed, modified or amended, except by a writing signed by the parties hereto and this Agreement may not be discharged except by performance in accordance with its terms or by a writing signed by the parties hereto. i. Successors and Assigns. This Agreement is binding upon and shall inure to the benefit of the respective heirs, legal representatives, successors and assigns of the Employer. The services to be provided by Employee herein are of a personal nature and may not be assigned by him in whole or in part. j. Exclusive Rights. The rights and the obligations of the Employee under this Agreement are exclusive except as otherwise provided herein, however this Agreement shall not be construed to prevent the Employer from simultaneously retaining, contracting with, or otherwise obtaining professional services from any other person or entity. k. Severability. In the event that any one or more of the provisions of this Agreement shall be declared to be illegal or unenforceable under any law, rule or regulation of any government having jurisdiction over the parties hereto, such illegality or unenforceability shall not affect the validity and enforceability of the other provisions of this Agreement. l. Captions. The headings and captions herein are intended for convenient reference only, and shall not be deemed to be interpretative of the contents of such sections. m. Execution in Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one and the same instrument. n. Governing Law. All matters concerning the validity and interpretation of and performance under this Agreement shall be governed by the laws of the State of ((State)) (without regard to the conflict of laws principles thereof). o. Arbitration. Any controversy, dispute or disagreement arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration, which shall be conducted in ((City)), State of ((State)), in accordance with the National Health Lawyer's Association ("NHLA") Alternative Dispute Resolution Service Rules of Procedure for Arbitration, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. p. No Act Contrary to Law. Nothing herein shall be construed so as to require the commission of any act contrary to law, and wherever there is any statute, law, ordinance or regulation which is inconsistent with this Agreement, such statute, law, ordinance or regulation shall prevail, and, in such event, the provision herein in conflict automatically shall be curtailed, limited or eliminated to the extent necessary to bring it within legal limitations. IN WITNESS WHEREOF, the parties hereto have executed this document or caused its execution by a duly authorized officer, all as of the day and year first above written. (CWMC Name) a (State) corporation to be formed By: ---------------------------------------- E. Eugene Sharer, President Employee BY: ---------------------------------------- (Title)(First Name)(Last Name) EX-10.8 13 FORM OF MEDICAL EMPLOYMENT AGT 1 EXHIBIT 10.8 MEDICAL DOCTOR EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (the "Agreement") is entered into this _____ day of _____________________________, 199___, between ________, a __________ corporation ("Employer"), and _______, an individual or professional corporation ("Employee"). RECITALS A. Employer is a professional corporation which provides healthcare services in the State of __________ at the office located at _______________ the ("Office"). Employer wishes to employ Employee, an individual who is actively practicing and is duly licensed to provide medical services in the State of __________, as an employee to treat the patients of the Office, subject to the rules thereof and the standards of the profession in effect in the State where the Office is located. B. Employee is willing to be employed by Employer, and Employer is willing to employ Employee, all in accordance with the terms, covenants and conditions hereinafter set forth. C. Employee is willing to be employed by Employer and perform all duties and services incident to his position, and such other duties as may be prescribed by the Board of Directors of the Company from time to time. NOW, THEREFORE, in consideration of the mutual premises and covenants herein contained, the parties hereto agree as follows: 1. NATURE OF EMPLOYMENT 1.1 Engagement. Employer does hereby employ and engage Employee as a Doctor of Medicine at the Office. Employee shall provide services within the parameters regulating professionals in the State in which the Office is located, as established in applicable federal and State local statutes, rules, regulations and ethical standards; perform such other duties as customarily are performed by a professional holding such a position. 1.2 Promotion Of Services. Employee shall exercise best efforts to promote the Office and the services rendered therein to the extent permitted by law, the applicable canons of professional ethics and the policies and procedures of Employer. 1.3 Application Form. Employee will complete and timely submit an Credentialing Application provided to Employee by Employer. 1.4 Call Schedule. Employee shall be available at all reasonable times as mutually agreed upon by Employee and Employer and shall be "on call" and capable of being available via phone or fax within one (1) hour after being called by Employer during established "on call" time periods. 1.5 Insurance Coverage. Employee shall, during the term of this Agreement, be and remain qualified for insurance coverage under a policy or policies of professional liability malpractice insurance with a nationally recognized insurance carrier, under terms acceptable to Employer. Employee shall provide and maintain, or cause to be provided and maintained, during the term of this Agreement, professional liability malpractice coverage with a nationally recognized insurance carrier, under terms acceptable to Employer, in an aggregate amount of not less than one million dollars ($1,000,000.00) per occurrence and three million dollars ($3,000,000.00) annual aggregate. Such insurance shall be purchased by Employee, naming and insuring Employee, Employer and the officers and directors of Employer, jointly and severally, from and against any and all liability, costs, damages, expenses and attorneys' fees resulting from or attributable to professional acts and/or omissions of Employee at or through the Office as authorized under the terms of this Agreement. 2 1.6 Working Hours. Employee shall devote Employee's best efforts to the practice of medicine pursuant to the terms of this Agreement. Standard working hours for Employee at the Office shall be as follow: Day Time ----------------------------------- ----------------------------------- ----------------------------------- 1.7 Additional Employment. The Employee shall devote his best efforts to the practice of medicine pursuant to the terms of this Agreement. The Employer may, during the term of this Agreement, otherwise engage in the practice of medicine outside of the Company, provided that such practice does not interfere with Employee's abilities to discharge Employee's obligations under this Agreement. 1.8 Personal Services Contract. This is a personal services contract between the parties, and, as a result, Employee may not assign or delegate any rights, duties or obligations established herein without the prior written consent of Employer, which consent may be withheld in Employer's sole and absolute discretion. Employer may assign this Agreement, in whole or in part, in its sole and absolute discretion without the consent of Employee. 2. MANNER OF PERFORMANCE 2.1 Performance Standards. Employee agrees that Employee shall at all times faithfully, industriously and to the best of Employee's ability, perform all of the duties required hereunder to the reasonable satisfaction of Employer. Such duties shall be rendered at the Office as hereinabove set forth, and at such other place or places as Employer shall in good faith require. Employee agrees to comply with all standards established by or on behalf of Employer for the purpose of attempting to ensure the quality of patient care provided in or through the Office. 2.2 Not Applicable 2.3 Not Applicable 2.2 Management of Practice. Employee recognizes, acknowledges and agrees that Employer's professional practice is managed by Complete Wellness Centers, Inc. ("Manager") pursuant to that certain Management Agreement between Employer and Manager ("the Management Agreement"), the general provisions of which have been made known to Employee, and Employee will abide by the terms and conditions contained therein to the extent that such terms are known by Employee and directed to the provision of professional services at the Office. In addition, several of the management services have been subcontracted to ____________("Clinic Manager"). As part of the Management Agreement, the Manager and the Clinic Manager shall provide and maintain, or cause to be provided and maintained, during the term of this Agreement, such facilities, equipment and supplies as it deems necessary for the performance by the Employer of the duties required under this Agreement. 2.3 Rules and Regulations. Employee shall observe and comply with all rules, regulations, policies, procedures and protocols of Employer and shall faithfully carry out the orders and directions of its officers and directors. Employee acknowledges and agrees that Employer has final authority with regard to the acceptance of patients and the fees to be charged to such patients with respect to professional services rendered at or through the Office. 2.4 Claims Processing. Employee shall cooperate with Employer in providing information, data, documents and forms needed to process bills, charges or claims arising out of the professional services rendered to patients at the Office. 2.5 Utilization Review and Quality Assurance. Employee shall practice in a manner consistent with, and remain subject to, any utilization or quality assurance review processes which Employer may institute in regard to its -2- 3 practice. 2.6 Medical Records. Employee shall maintain adequate and complete records in regard to services rendered to patients. Upon the expiration or termination of this Agreement, Employer shall retain all patient records and charts, provided that copies thereof shall be made available to Employee and the patient in accordance with law and prudent medical practice in order to permit the continuity of patient care and protect the confidentiality of patient medical information. 2.7 Patient Consent. Prior to undertaking any treatment regimen or implementing any treatment plan, Employee shall examine the patient to determine that the procedure(s) provided thereby are suitable; where necessary, inform the patient of the nature of the risks of and alternatives to such procedure(s); where appropriate, secure authorization and consent to such action and obtain for Employer's files such written consents and forms as may be required by federal, state and local law or prudent medical practice. 2.8 Patient Accounts. All patients shall be and remain the patients of Employer, provided that Employee shall exercise independent responsibility for the care and treatment of such individuals to the extent professional services are rendered pursuant to this Agreement. In the event any patient is deemed by operation of law or otherwise to be a patient of Employee, Employee shall and hereby does (i) irrevocably assign all accounts receivable from the treatment of such individuals to Employer, and (ii) irrevocably appoint Employer as the agent and true and lawful attorney-in-fact, with full power of assignment and substitution, to bill patients on Employee's behalf; to collect accounts receivable from all payors; and to take possession of and endorse in Employee's name all notes, drafts or instruments received by way of payment for such services (except where prohibited by law or regulation). Employer shall perform, either itself or pursuant to an agreement with another individual or entity, billing and collections for all services provided by Employee. The Employee hereby authorizes the Employer to accept, on behalf of the Employee, any assignment of insurance benefits (e.g., Medicare, Blue Cross/Blue Shield, etc.) from the Employee pursuant to this Agreement. At the request of the Employer, Employee shall list and designate with such insurance or other third party payor programs the address of the Employer, to the attention of such office(s) of the Employer as the Employer shall designate, or such other address at the Employer may designate, as the sole addressee to which all payment(s) or payment voucher(s) for services performed by the Employee shall be mailed. This Agreement shall constitute an assignment by the Employee to the Employer for all funds owing or collected for services rendered by the Employee pursuant to this Agreement, and the Employee shall take all additional steps reasonably requested by the Employer to assist in the billing and collection of funds due for services rendered by the Employee. All funds collected with respect to services provided pursuant to this Agreement shall be the exclusive property of the Employer. 2.9 Independent Judgment. Although Employee is an employee of Employer under the terms of this Agreement, Employee shall retain independent discretion and exercise independent judgment in the manner and means of providing services in regard to the diagnosis and treatment of patients treated at the Office. Employee is under the control of Employer as to the results of his work and not as to the means by which such results are accomplished. 3. TERM 3.1 Term. Except as otherwise provided herein, the term of this Agreement shall be for a period of days (the "Initial Term"), unless terminated as hereinafter provided, and thereafter automatically shall renew for successive one-year terms unless earlier terminated as provided for herein. 3.2 Not Applicable -3- 4 4. COMPENSATION AND BENEFITS 4.1 Compensation. Employee shall be compensated at a rate of $ dollars per hour, payable, as earned every other Friday, one week in advance, during the term of this Agreement. The Employee Compensation shall be subject to increase at any time, in Employer's sole discretion based upon Employee's level of performance under the terms of this Agreement and such other relevant factors as Employer may reasonably apply. 4.2 Not Applicable 4.3 Not Applicable 4.4 Sole Benefits. Employee acknowledges that the compensation and benefits established pursuant to this Section shall be the sole consideration provided by Employer for the services provided under the terms of this Agreement. Employee shall not solicit or accept payment from any patient, government entitlement program or third party payor for services rendered pursuant to this Agreement. 4.5 Reimbursement. Expenses incurred by Employee on Employer's behalf at Employer's written direction shall be reimbursed in full where approved in advance. In the event an expense paid on behalf of, or reimbursement contributed to, Employee is determined not to be an allowable tax deduction or credit of Employer and such determination is acceded to by Employer or rendered final by the State or federal taxing authority or court with final jurisdiction, Employee shall forthwith, upon ten (10) days' prior written notice and without regard to whether this Agreement shall then be terminated, reimburse Employer for the full amount of the out-of-pocket loss incurred by Employer as a result of any such disallowance. 5. NONDISCLOSURE OF INFORMATION CONCERNING CONFIDENTIAL BUSINESS INFORMATION, PATIENT RECORDS AND TRADE SECRETS 5.1 Employee Position. Employee recognizes that Employee's position with Company requires considerable responsibility and trust, and, in reliance on Employee's loyalty, the Company may entrust Employee with highly sensitive confidential, restricted and proprietary information involving Trade Secrets and Confidential Information. 5.2 Trade Secrets and Confidential Information. For the purposes of this Agreement, a "Trade Secret" is any scientific or technical information, design, process, procedure, formula or improvement that is valuable and not generally known to competitors of the Company. "Confidential Information" is any data or information, other than Trade Secrets, that is important, competitively sensitive, and not generally known by the public, including, but not limited to, the Company's initial development plans, bidding and pricing procedures, market strategies, internal performance statistics, financial data, confidential personnel information concerning employees of the Company, supplier data, operational or administrative plans, policy manuals, and terms and conditions of contracts and agreements. The terms "Trade Secret" and "Confidential Information" shall not apply to information which is (i) already in Employee's possession at the time of employment (unless such information was used in connection with formulating the Company's initial business plan, obtained by Employee from the Company or was obtained by Employee in the course of Employee's employment by the Company), (ii) received by Employee from a third party with no restriction on disclosure, or (iii) required to be disclosed by any applicable law. 5.3 Confidential Information. Employee acknowledges and agrees that he will have access to certain confidential information and trade secrets of the Employer and that such information constitutes valuable, special and unique property of Employer. Employee further acknowledges and agrees that Employee will not, at any time during or after the term hereof, in any fashion, form, or manner, either directly or indirectly, divulge, disclose or communicate to any person, firm, or corporation, in any manner whatsoever, the terms and conditions of this Agreement or any information of any kind, nature or description concerning any matters affecting or relating to the business of the Employer, including, without limiting the foregoing, the names of patients, the prices which Employer pays for goods or services or at which it provides services or sells products or goods, Employer's manner of operation referring services or -4- 5 business of the Employer, plans or processes, or any other data or information of any kind, nature or description which affects or relates to Employer's business, without regard to whether any or all of the foregoing would be deemed confidential information or a trade secret under applicable State law ("Confidential Information"). 5.4 Patient Information. Employee agrees that: 5.4.1 all patient names, addresses, telephone numbers, files, and records (collectively, "Patient Records") are and shall remain in the custody and control of Employer, and, except as necessary and permitted for insurance or other purposes directly related to the operation of the Office or proper patient care, or as authorized by law or patient consent, Employee shall not remove, copy, transfer, or transmit to any person, natural or corporate, any Patient Records at any time; 5.4.2 each Patient Record has a reasonable value to Employer of $5,000.00, and for each record, or any portion thereof, which Employee attempts to obtain and/or actually does obtain in contravention of this Section, the sum of $5,000.00 shall be paid to Employer as liquidated damages. The referenced sum shall be due and payable immediately upon the date of the violation or attempted violation of this Section, with such sum to bear interest at the maximum allowable legal rate from the due date to the actual date of payment in full; and 5.4.3 an actual or attempted violation of any provision of this Section by Employee, either directly or indirectly, shall be grounds for immediate termination of this Agreement. 5.5 Injunctive Relief. Employee recognizes and agrees that a violation of any of the provisions contained in this Section may cause irreparable damage and substantial loss to the goodwill of the Employer to Employer. The knowledge of the Employee of these matters would enable the Employee, upon termination of this Agreement, to compete with the Corporation. The exact amount of such damage of which may be impossible to ascertain, and that, for such reason, among others, Employer shall be entitled to an injunction without the necessity of posting bond therefor in order to restrain any further violation of such provisions. Such right to an injunction shall be in addition to, and not in limitation of, any other rights and remedies Employer may have against Employee, whether in law or equity, otherwise available under the terms of the is Agreement or under federal, state and local statutes, rules and regulation, including, but not limited to, the recovery of damages. The terms and conditions of this Section shall survive termination of this Agreement. 6. COVENANT NOT TO COMPETE 6.1 Not Applicable 6.2 Not Applicable 6.3 Not Applicable 7. COVENANT NOT TO SOLICIT Not Applicable 8. REPRESENTATIONS AND WARRANTIES 8.1 Representations and Warranties. Employee represents and warrants that he or she: 8.1.1 is and shall remain at all times during the term of this Agreement a professional licensed to provide services in the State in which the Office is located; 8.1.2 is not subject to any restriction that would prohibit entering into this Agreement, is fully able -5- 6 to perform each of the terms, conditions and covenants hereof, and is not restricted or prohibited from entering into or performing any of the terms or conditions hereof; and 8.1.3 is able to execute and perform under this Agreement without violating or breaching any agreement between Employee and any other person or entity. 8.2 Accuracy of Representations. Employee acknowledges and agrees that the truth and accuracy of the representations and warranties contained herein constitute a condition precedent to Employer's obligation to provide compensation pursuant to the terms and conditions of this Agreement. 8.3 Cooperation In Dispute Resolution. Employee recognizes that certain disputes may arise between Employer and third parties, the resolution of which may require the cooperation of Employee, including, but not limited to, Employee's providing factual information and giving depositions and testimony in judicial and administrative proceedings. Employee shall, during the term hereof and at all times after termination, cooperate with Employer to allow it to advance its position with respect to such disputes. Employer shall pay Employee UP TO $250 per day for such assistance and to reimburse Employee for all out-of-pocket expenses incurred in connection with such cooperation, provided that Employee obtains Employer's agreement in advance so to do and provides Employer with an itemized written account of such reimbursable expenses. The terms and conditions of this Section shall survive termination of this Agreement. 9. INDEMNITY Employee hereby agrees to indemnify, defend and hold Employer harmless from and against any and all costs, losses, claims, demands and liabilities, including reasonable attorneys' fees and costs, which arise out of or relate to any breach by Employee of any of the terms or conditions of this Agreement; any negligent or intentional wrongful act of Employee; any act or omission of Employee which constitutes professional negligence; or any other act of Employee not authorized under the terms of this Agreement. If Employer or any of its shareholders or affiliates is made a party to any litigation or obligation or otherwise incurs any loss or expense as a result of Employee's activities unconnected with Employer's business at the Office, Employee shall forthwith upon demand reimburse Employer or such individuals for any and all expenses incurred as a result thereof. The terms and conditions of this Section shall survive termination of this Agreement. 10. TERMINATION 10.1 Termination By Employer. Employer shall have the right to terminate Employee's employment hereunder forthwith upon, or at any time after, the occurrence of one or more of the following events: 10.1.1 Nonperformance of Employee's duties as an Employee for whatever reason, including Employee's disability for which Employer can make no reasonable accommodation. The term "disability" shall mean, for purposes of this Agreement, the inability of Employee to perform full-time regular duties as contemplated hereunder on account of a physical or mental condition for a period of 30 consecutive days, but shall exclude infrequent and temporary incapacity due to ordinary illness; 10.1.2 Employee's theft or other act of dishonesty; 10.1.3 The death of Employee; 10.1.4 The attempt by Employee to alienate, encumber, sell, transfer, assign, hypothecate or pledge to any person, natural or corporate, shares of stock of Employer, if then holding any, without the Employer's express written consent or in violation of law or in a manner prohibited by the Articles of Incorporation of Employer, the Bylaws of Employer, the Staff Bylaws, the shareholder agreements affecting the shares of stock of the Employer, or the provisions of this Agreement; -6- 7 10.1.5 The inability of Employee to qualify for malpractice insurance upon terms acceptable to, with an insurance carrier approved by, Employer as required herein; 10.1.6 A determination by Employer that Employee has acted in a manner contrary to the canons of professional ethics or the provisions of the Staff Bylaws or the Management Agreement, as such provisions or documents may be modified from time to time; 10.1.7 The unlawful harassment of other employees (including sexual harassment) or the conviction of Employee of a felony or other crime involving moral turpitude; 10.1.8 The abuse of drugs or alcohol; 10.1.9 The suspension, revocation or cancellation of the Employee's right to practice as a professional in the State in which services are provided hereunder; 10.1.10 The discovery by Employer that any of the information contained in the Credentialing Application is incorrect or false as of the date of completion; 10.1.11 The material breach by Employee of any of the provisions, representations, warranties or covenants established herein, or the repeated failure by Employee to comply with the policies and procedures of Employer or observe the orders and directions of its officers and directors; 10.1.12 A material adverse change in the business or economic prospects of Employer, as determined in Employer's discretion; 10.1.13 Upon the provision of thirty (30) days' prior written notice; 10.1.14 Not Applicable 10.1.15 Not Applicable 10.1.16 Not Applicable 10.2 Termination By Employee. Thereafter, Employee may terminate this Agreement on thirty (30) days' prior written notice. Employee agrees that if Employee breaches this Section, Employee will be liable, in addition to any other rights and remedies at law, for all of Employer's lost profits as a result of the breach, the costs incurred in obtaining the personnel necessary to staff the Office as a proximate cause of the breach, and attorneys' fees incurred as a result of any legal action brought to enforce the terms of this Agreement. 10.3 Duties Upon Termination. Employee hereby irrevocably agrees to return to Employer any and all copies of forms, documents or records which contain Confidential Information forthwith upon termination of this Agreement. Employer shall, as of the effective date of termination of this Agreement, be released of any responsibility or obligation hereunder except payment of compensation and benefits accrued to the effective date of such termination. 11. POST-TERMINATION DUTIES 11.1 Not Applicable 11.2 Not Applicable -7- 8 12. MISCELLANEOUS 12.1 Not Applicable 12.2 Enforcement. Employer and Employee acknowledge that Employee will be providing services hereunder which are of a personal, special, unique, unusual and extraordinary character. In recognition thereof, Employee agrees that, under certain circumstances, a breach of this Agreement cannot reasonably be compensated in damages and that Employer shall, under such circumstances, be entitled to injunctive relief. However, no remedy made available by virtue of this Section shall be exclusive of any other remedy available to the litigant, and each and every remedy hereunder shall be in addition to all other remedies available at law or in equity. 12.3 Not Applicable 12.4 Not Applicable 12.5 Not Applicable 12.6 Commitments Binding Only Upon Written Consent. Notwithstanding any provision herein to the contrary, it is expressly understood and agreed that Employee shall not have the right to make any contracts or commitments for or on behalf of Employer or the Office without the prior written consent of Employer. 12.7 Not Applicable 12.8 Waiver. No waiver or modification of this Agreement or any covenant, condition, or limitation herein shall be valid unless in writing and duly executed by the parties hereto, and no evidence of any waiver or modification shall affect this Agreement, or the rights or obligations of any party hereunder, unless such waiver or modification is in writing and duly executed by the parties hereto. The parties hereto further agree that the provisions of this Section may not be waived except as herein set forth. 12.9 Governing Law; Headings. This Agreement and performance hereunder shall be construed and enforced, and all lawsuits and special proceedings arising out of or related hereto shall be conducted, in accordance with the laws of the State in which services are rendered by Employee pursuant to this Agreement. The Section and Paragraph headings contained herein are for convenient reference only and shall not affect the meaning or interpretation of this Agreement. 12.10 Blue Lining; Severability. In the event any provision of this Agreement is held to be unenforceable or invalid under the laws of the United States or the State in which services are rendered by Employee pursuant to this Agreement, the parties hereto agree that such provision shall automatically be deemed modified for purposes of performance of this Agreement to the extent necessary to render it lawful and enforceable, or if such modification is not possible without materially altering the intent of the parties hereto, that such provision shall automatically be deemed severed from this Agreement. The validity of the remaining provisions of this Agreement shall not be affected by any such modification or severance. 12.11 Not Applicable 12.12 Not Applicable 12.13 Not Applicable 12.14 Not Applicable 12.15 Not Applicable -8- 9 12.16 Not Applicable 12.17 Not Applicable 12.18 Not Applicable IN WITNESS WHEREOF, the parties hereto have executed this instrument, or caused its execution by a duly authorized officer, all as of the day and year first above written. "EMPLOYER" ----------------------------------- [Name of Employer] By: ------------------------------ Name: ------------------------------ Title: ------------------------------ Address: ----------------------------------- ----------------------------------- ----------------------------------- "EMPLOYEE" ----------------------------------- [Name of Employee] ----------------------------------- [Signature] Address: ----------------------------------- ----------------------------------- ----------------------------------- -9- EX-10.9 14 FORM OF PHYSICAL THERAPIST EMPLOYMENT AGT 1 EXHIBIT 10.9 PHYSICAL THERAPIST EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as of the 25th day of June, 1996, by and between __________, a ____________ corporation with an office at ______________________, ___________, ________ _____________ ("Employer"), and __________ ________, __________, an individual residing at____________________________________________________ ("Employee"). W I T N E S S E T H: WHEREAS Employer is a corporation duly licensed in the State of ____________ and which provides healthcare services at its office located at _____________________ (the "Office") and WHEREAS Employer wishes to employ Employee, an individual who is actively practicing and is duly licensed and registered to provide physical therapy in the State of ____________, as an employee of Employer to provide physical therapy services subject to the rules thereof and the standards of the profession in effect in the State of ______________, and WHEREAS Employee desires to render such services to Employer, NOW, THEREFORE, in consideration of the representations, warranties and mutual covenants set forth herein, the parties hereto hereby agree as follows: SECTION I - REPRESENTATIONS 1. Representations. Upon the terms and subject to the conditions set forth herein, Employer hereby employs Employee as a registered physical therapist and Employee hereby accepts such employment and represents to Employer that he/she is presently licensed, registered and qualified to engage in the practice of physical therapy in the State of ___________________. 2. Management of Practice. Employee recognizes, acknowledges and agrees that Complete Wellness Centers, Inc. or its designee ("Management Company") shall manage all non-therapeutic aspects of Employer's practice. 3. Independent Judgement. Although Employee is an employee of Employer under the terms of this Agreement, Employee shall retain independent discretion and exercise independent judgement in the manner and means of providing services in regard to the diagnosis and treatment of patients treated. 4. Professional Conduct. Employee will at all times conduct himself/herself in compliance with all federal, state and local laws, rules and regulations, canons of professional ethics, and the non-physical therapy rules and regulations of the Employer. SECTION II - SCOPE OF DUTIES 1. Services. Employee will render his/her services to Employer as a licensed and registered physical therapist and in such capacity he/she shall perform such duties as are customary in the practice of physical therapy and as are assigned to him/her from time to time by Employer. Such duties shall include but not be limited to conducting office examinations and consultations, obtaining such continuing professional education as is necessary to maintain professional qualifications, and performing evening and weekend on-call coverage as shall be reasonably assigned to him. 2. Additional Locations. Employee will serve at such other locations as may be directed by Employer (the "Other Location"). Such Other Location shall not be located more than twenty-five (25) miles from the Office, unless mutually agreed upon and designated in writing. 3. Billing. The Employer shall perform, or cause to have performed, billing and collection functions for all services provided by the Employee. The Employee hereby authorizes the Employer to accept, or refuse to accept, on Employee's behalf, any assignment of insurance benefits from any patient receiving service from the Employee pursuant to this Agreement. At Employer's request, Employee shall list and designate with such insurance or third party payor the Employer's address and designated officer as the sole address to which all payment(s) or payment voucher(s) for services performed by the Employee shall be mailed. This Agreement constitutes an assignment by the Employee to the Employer of all funds owing or collected for services rendered by the Employee pursuant to this Agreement (the "Receivables") so long as such assignment is not in violation of any law or statute. The Employee shall take all steps necessary to assist in the billing and collection of funds due for services rendered by the Employee. All funds collected with respect to services provided pursuant to this Agreement shall be the exclusive property of the Employer. 4. Post-Termination Cooperation Re Receivables. For a period of two (2) years after termination of this Agreement, Employee shall cooperate fully and assist Employer in efforts to collect all Receivables for services performed by Employee while employed by Employer, including without limitation, transferring all funds actually paid or made payable to Employee with respect to such Receivables, and appearing in any court of law within which any cause of action is brought to seek enforcement of Employer's right to collect on any and all such Receivables. Employee agrees to notify Employer, in writing, of a change of address of Employee's business or residence during such two (2) year period so that Employer will be able to locate Employee to enforce the terms of this Section . Employee shall receive up to two hundred and fifty dollars ($250.00) per day for providing assistance under the terms of this Section and, in addition, Employer shall reimburse Employee for all reasonable costs and expenses incurred by Employee, as approved in advance in writing by Employer, relating to such assistance. The terms and conditions of this Section shall survive termination of this Agreement. SECTION III - TERM OF EMPLOYMENT 1. Term. The term of employment under this Agreement (the "Employment Term") shall be for the one-year period commencing the date hereof, unless earlier terminated under the terms hereof; provided, that Employee must complete and submit any credentialling application provided to Employee by Employer in order for this Agreement to become effective and for the Employment Term to commence. 2. Probationary Term. During the first one hundred twenty (120) days of the Employment Term of this Agreement, Employee acknowledges and agrees that he/she shall be on probation, and that during such time period or within fifteen (15) days after the conclusion of such probationary period, this Agreement may be terminated at the sole discretion of Employer with or without cause. Thereafter, this Agreement shall remain in effect for the term set forth in Section III 1 hereof, unless earlier terminated as provided for herein. SECTION IV - COMPENSATION AND BENEFITS 1.Compensation. Employee shall be compensated at a rate of $________ per ________ less any appropriate deductions, payable as earned, payable in accordance with Employer's normal payroll policies during the term of this Agreement (the "Salary"). 2. Benefits. Employee shall be entitled to those benefits, if any, as described in Exhibit "A" attached hereto. 3. Sole Benefits. Employee acknowledges that the compensation and benefits established pursuant to this Section shall be the sole consideration provided by Employer for the services provided under the terms of this Agreement. Employee shall not solicit or accept payment from any patient, government entitlement program or third party payor for services rendered pursuant to this Agreement. 4. Reimbursement. Expenses incurred by Employee on Employer's behalf at Employer's discretion shall be reimbursed in full where approved in writing, in advance. In the event an expense paid on behalf of, or reimbursement contributed to, Employee is determined not to be an allowable tax deduction or credit of Employer and such determination is acceded to by Employer or rendered final by the state or federal taxing authority or court with final jurisdiction, Employee shall, forthwith, upon ten (10) days' prior written notice and without regard to whether this Agreement shall then be terminated, reimburse Employer for the full amount of the out-of-pocket loss incurred by Employer as a result of any such disallowance. SECTION V - INSURANCE 1. Malpractice Insurance. Employer shall at its own cost and expense, provide and keep in force a malpractice insurance policy or policies of standard form in the State of ______________, with limits of not less than One Million ($1,000,000.00) Dollars per occurrence and Three Million ($3,000,000.00) Dollars in the aggregate. SECTION VI - PATIENT RELATIONSHIP 1. Confidential Information. Employee acknowledges and agrees that he/she will have access to certain confidential information and trade secrets of the Employer and that such information constitutes valuable, sole, special and unique property of Employer. Employee further acknowledges and agrees that Employee will not, at any time during or after the term hereof, in any fashion, form, or manner either directly or indirectly, divulge, disclose or communicate to any person, firm, or corporation in any manner whatsoever, the terms and conditions of this Agreement or any information of any kind, nature or description concerning any matters affecting or relating to the business of Employer, including, without limiting the foregoing, the names of patients, the prices which Employer pays for goods and services and/or sells goods or services, Employer's manner of operation of Employers business or its plans or processes, or any other data or information of any kind, nature or description which affects or relates to Employer's business without regard to whether any or all of the 2 foregoing would be deemed confidential information or a trade secret under applicable state law ("Confidential Information"). 2. Patient Accounts. All patients shall be and remain the patients of Employer provided that Employee shall exercise independent responsibility for the care and treatment of such individuals to the extent professional services are rendered pursuant to this Agreement. In the event any patient is deemed by operation of law or otherwise to be patient of Employee, Employee shall and hereby does (i) irrevocably assign all Receivables from the treatment of such individuals to Employer, and (ii) irrevocably appoints Employer as the agent and true and lawful attorney-in-fact, with full power of assignment and substitution where legally permissible, to bill patients on Employee's behalf; to collect Receivables from all payors; and to take possession of and endorse in Employee's name, all notes, drafts or instruments received by way of payment for such services (except where prohibited by law or regulation). (a) Employee agrees that each patient account has a reasonable value to Employer of five thousand dollars ($5,000.00), and for each record, or any portion thereof, which Employee attempts to obtain and/or actually does obtain in contravention of this Section, the sum of Five Thousand dollars ($5,000.00) shall be paid to Employer as liquidated damages. The referenced sum shall be due and payable immediately upon the date of the violation or attempted violation of this Section , with such sum to bear interest at the maximum allowable legal rate from the due date to the actual date of payment in full. (b) Paragraph VI 2a notwithstanding, Employee shall maintain adequate and complete records with regard to services rendered to patients. Upon the termination of Employee's employment hereunder, all patient files, records and charts shall remain with Employer, and Employee shall have no right to retain such materials; provided, however, that nothing herein contained shall be construed to prevent any patient from requesting transfer of his/her records to Employee upon the termination of this Agreement, and such materials or photocopies thereof shall be delivered to Employee upon the written request of the subject patient, which request shall be honored promptly upon the payment to Employer by Employee of all reasonable costs, if any, for reproduction and mailing of any such materials. Employer will send invoices to all patients for any services rendered by Employee prior to termination of his/her employment hereunder, and Employer will have the right to collect the full amounts thereof for its own account. SECTION VII - COVENANT NOT TO COMPETE During the term of this Agreement and thereafter the Employee shall not take any action whatsoever which may or might disturb the existing business relationship of the Employer with any of Employer's patients. 1. Restrictions. The Employee agrees that in the event Employer and Employee fail to extend this Agreement, then Employee covenants and agrees that for a period of one (1) year after the termination of his/her employment hereunder (the "Restricted Period"), he/she will not: (i) practice from an office located within a five (5) mile radius if in a rural area, two (2) mile radius if in a suburban area, and ten (10) block radius if in an urban center from Employer's Office or (ii) solicit, directly or indirectly, for treatment by Employee, or by any other doctor other than those employed by or who are shareholders of Employer, any persons who were patients of Employer during the Employment Term. 2. Irreparable Damages. The parties hereto acknowledge and agree that consideration has been given to the nature and scope of the business and activities of Employer and that the covenants contained in this Section concerning territorial, substantive and time limitations are in all respects fair and reasonable in view of the facts involved. In the event that any court shall determine that the time, substantive and territorial limitations contained herein are not fair and reasonable, this Agreement shall nevertheless be enforced as to such time, substantive and territorial limits as are reasonable. The parties further agree that Employer will be irreparably damaged in the event of a breach of any of the covenants set forth in this Section , and, accordingly, Employee agrees that such covenants shall be specifically enforceable and that, in addition to any other remedies, any breach or threatened breach thereof may be enjoined by any court of competent jurisdiction located in the State of _____________. 3. Injunctive Relief. The parties further agree that in the event of the breach of any provision of this Agreement, and particularly Section VII hereof, Employer shall be entitled to a permanent injunction or similar court order enjoining the Employee from acting in a fashion contrary to Section VII and that pending such determination the Employee shall accede to a temporary restraining order, without prejudice to any other rights that the Employer may have, all at Employee's expense. 4. Independent Agreement. The covenants contained in Section VII shall be construed as an independent agreement and the existence of any claim which the Employee may have against the Employer will not constitute a defense to the enforcement by the Employer, by injunctive relief or otherwise, of the provisions of Section VII. SECTION VIII - TERMINATION OF EMPLOYMENT 1. Disability of Employee. Notwithstanding anything in this Agreement to the contrary, Employer is hereby given the option to terminate Employee's employment in the event that Employee, during the employment term hereunder, becomes disabled to the extent that he/she is unable fully to perform his/her customary duties hereunder ("Disability"). Such option shall be exercised by Employer by giving notice, pursuant to Section IX 4 herein, to Employee of Employer's intention to terminate Employee's employment due to his/her Disability. Such termination shall take place on the fifteenth (15th) day following the mailing of such notice. For purposes of this Agreement, Employee shall be deemed to have become Disabled if, during the term of his/her employment hereunder, he/she is disabled as defined in Employer's disability plan, if any; provided, however, in the event that Employer does not maintain a disability plan, then to establish a status of Disability there must be a written certification of such Disability by a qualified medical doctor agreed to by Employer and Employee. In the absence of agreement, each party shall nominate a qualified medical doctor and the two doctors shall select a third doctor, who shall make the determination as to the Employee's Disability. 2. Termination by Employer for Cause. Notwithstanding any other provision of this Agreement, Employer may terminate Employee's employment for cause immediately upon the determination and notification to Employee thereof ("Cause Termination Date"). Upon such determination and notification, Employee's right to receive the Salary shall cease, and Employee shall be entitled to receive only such Salary as shall have been earned through the period ending with the Cause Termination Date. The term "Cause" as used herein shall mean that Employee (i) has committed a serious act (such as embezzlement) against Employer, with the intention of enriching himself/herself at the expense of Employer, or has failed to substantially perform his/her duties and responsibilities hereunder or otherwise committed a material breach of any of the terms of this Agreement, or has been convicted of any criminal act involving moral turpitude; or (ii) has been found, in the reasonable belief of Employer, to suffer chronic dependency on drugs or alcohol; or (iii) in carrying out his/her duties hereunder, has committed gross neglect or gross misconduct; or (iv) has become legally disqualified to practice physical therapy in the State of ____________, or has been put on probation by the State licensing authority for physical therapists, or has had his/her license to practice physical therapy in the State of State suspended or revoked; or (v) is unable to obtain physical therapy malpractice insurance covering his/her professional conduct, in coverage amounts and/or with insurance carriers acceptable to Employer and upon such terms as are acceptable to the Employer or (iv) there has occurred a material adverse change in the business or economic prospects of Employer as determined solely by Employer; or (vii) Employer has ceased providing services at the Office and Employee's services are not required at any Other Location. 3. Voluntary Termination. Either Employer or Employee may terminate the employment relationship provided for under the terms of this Agreement, for any reason and at any time during the Employment Term, on no less than thirty (30) days prior written notice to the other party hereto, with the last day of such notice period (unless such period shall be shortened or extended by mutual agreement) being the Termination Date. In the event of such voluntary termination, Employee shall receive a pro rata portion of the Salary, and pay for accrued but unused vacation days, through and including the Termination Date. Any rights and benefits Employee may have under any employee benefit plans and programs of Employer shall be determined in accordance with the terms of such plans and programs. SECTION IX - MISCELLANEOUS 1. Specific Performance. It is agreed that any breach or evasion of any of the terms of this Agreement by either party hereto will result in immediate and irreparable injury to the other party, and recourse to injunction and/or specific performance, as well as to all other legal or equitable remedies to which such injured party may be entitled, will be authorized under such circumstances. 2. Indemnity. Employee hereby agrees to indemnify, defend and hold Employer harmless from and against any an all costs, losses, claims, demands and liabilities, including reasonable attorneys' fees which arise out of or relate to any breach by Employee of any of the terms and conditions in this Agreement; any negligent or intentional wrongful act of Employee; any act or omission of Employee which constitutes professional negligence; or any other act of Employee not authorized under the terms of this Agreement. If Employer or any of its shareholders or affiliates is made a party to litigation or obligation or otherwise incurs any loss or expense as a result of Employee's activities unconnected with Employer's business, Employee shall forthwith upon demand, reimburse Employer or such individuals for any and all expenses incurred as a result thereof. 3. Waiver of Breach. The parties understand and intend that each 3 restriction agreed to by Employee under the terms of this Agreement shall be construed as separable and divisible from every other restriction, and that the unenforceability, in whole or in part, of any other restriction will not affect the enforceability of the remaining restrictions. It is further understood that one or more, or all of such restrictions, may be enforced in whole or in part as the circumstances warrant. No waiver of any one breach of the restrictions contained in this Agreement shall be deemed a waiver of any future breach. Employee hereby acknowledges that he/she is fully cognizant of the restrictions set forth in this Agreement and agrees that these provisions shall survive the termination of this Agreement for any reason. 4. Notices. Except as otherwise provided herein, all requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been given if delivered personally, by prepaid telex, telegram, facsimile ("FAX") or mailed first class, postage prepaid, certified United States Mail, return receipt requested, to the party who is to receive such notice, request, demand or communication at such party's address as set forth on the signature page hereof. Any party hereto may change its address for notice by giving to the other party written notice of such change. Any notice given hereunder shall be effective (i) if delivered personally, when delivered, (ii) if sent by telex, telegram or FAX, twenty-four (24) hours after sending, and (iii) if mailed, seventy-two (72) hours after the date of the mailing. 5. Commitments Binding Only Upon Written Consent. Notwithstanding any provision herein to the contrary, it is expressly understood and agreed that Employee shall not have the right to make any contracts or commitments for or on behalf of Employer without the prior written consent of Employer. 6. Time of Essence. Time is of the essence in regard to the obligations established hereunder. The parties hereto agree that they shall cooperate in good faith to accomplish the objectives of this Agreement and, documents and take such further action as may be reasonably necessary to effectuate the terms, conditions and purposes of this Agreement. 8. Successors and Assigns. The provisions of this Agreement are intended only for the regulation of relations among the parties hereto. This Agreement is not intended for the benefit of creditors or other third parties, and no rights are granted to such individuals or entities except where expressly referenced herein. However, Employer may, in its sole discretion, assign this Agreement by sale or otherwise, and the benefits and obligations of this Agreement shall inure to its successors and/or assigns. 9. Non-Exclusive Rights. The rights and the obligations of the Employer under this Agreement are non-exclusive, and this Agreement shall not be construed to prevent the Employer from simultaneously retaining, contracting with, or otherwise obtaining professional services from any other person or entity. 10. Captions. The headings and captions herein are intended for convenience reference only, and shall not be deemed to be interpretative of the contents of such sections. 11. Execution in Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one and the same instrument. 12. Governing Law. All matters concerning the validity and interpretation of and performance under this Agreement shall be governed by the laws of the State of State (without regard to the conflict of laws principles thereof). 13. Arbitration. Any controversy, dispute or disagreement arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration, which shall be conducted in the County of __________, State of ___________, in accordance with the National Health Lawyer's Association ("NHLA") Alternative Dispute Resolution Service Rules of Procedure for Arbitration, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. 14. No Act Contrary To Law. Nothing herein shall be construed so as to require the commission of any act contrary to law, and wherever there is any statute, law, ordinance or regulation which is inconsistent with this Agreement, such statute, law, ordinance or regulation shall prevail, and, in such event, the provision herein in conflict automatically shall be curtailed, limited or eliminated to the extent necessary to bring it within legal limitations. IN WITNESS WHEREOF, the parties hereto have executed this document or caused its execution by a duly authorized officer, all as of the day and year first above written. 4 ____________________________ By:_________________________ , President Employee By:_________________________ 5 EXHIBIT "A" EX-10.10 15 FORM OF ACUPUNCTURIST EMPLOYMENT AGT 1 EXHIBIT 10.10 ACUPUNCTURIST EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as of the __________ day of ____________________________, 19 ______, by and between _____________________, a ______ corporation with an office at __________ ("Employer"), and _____________________________________________________________, an individual residing at ______________________________________________________ ("Employee"). W I T N E S S E T H: WHEREAS Employer is a corporation duly licensed in the State of _____________ and which provides healthcare services at its office located at ________________________________ (the "Office") and WHEREAS Employer wishes to employ Employee, an individual who is actively practicing and is duly licensed to provide acupuncture in the State of ____________, as an employee of Employer to provide acupuncture services subject to the rules thereof and the standards of the profession in effect in the State of ____________, and WHEREAS Employee desires to render such services to Employer, NOW, THEREFORE, in consideration of the representations, warranties and mutual covenants set forth herein, the parties hereto hereby agree as follows: SECTION I - REPRESENTATIONS 1. Representations. Upon the terms and subject to the conditions set forth herein, Employer hereby employs Employee as a licensed acupuncturist and Employee hereby accepts such employment and represents to Employer that he/she is presently licensed and qualified to engage in the practice of acupuncture in the State of ____________. 2. Management of Practice. Employee recognizes, acknowledges and agrees that Complete Wellness Centers, Inc. or its designee ("Management Company") shall manage all non-therapeutic aspects of Employer's practice. 3. Independent Judgement. Although Employee is an employee of Employer under the terms of this Agreement, Employee shall retain independent discretion and exercise independent judgement in the manner and means of providing services in regard to the diagnosis and treatment of patients treated. 4. Professional Conduct. Employee will at all times conduct himself/herself in compliance with all federal, state and local laws, rules and regulations, canons of professional ethics, and the non-acupuncture rules and regulations of the Employer. SECTION II - SCOPE OF DUTIES 1. Services. Employee will render his/her services to Employer as a licensed acupuncturist and in such capacity he/she shall perform such duties as are customary in the practice of acupuncture and as are assigned to him/her from time to time by Employer. Such duties shall include but not be limited to conducting office examinations and consultations, obtaining such continuing professional education as is necessary to maintain professional qualifications, and performing evening and weekend on-call coverage as shall be reasonably assigned to him. 2. Additional Locations. Employee will serve at such other locations as may be directed by Employer (the "Other Location"). Such Other Location shall not be located more than twenty-five (25) miles from the Office, unless mutually agreed upon and designated in writing. 3. Billing. The Employer shall perform, or cause to have performed, billing and collection functions for all services provided by the Employee. The Employee hereby authorizes the Employer to accept, or refuse to accept, on Employee's behalf, any assignment of insurance benefits from any patient receiving service from the Employee pursuant to this Agreement. At Employer's request, Employee shall list and designate with such insurance or third party payor the Employer's address and designated officer as the sole address to which all payment(s) or payment voucher(s) for services performed by the Employee shall be mailed. This Agreement constitutes an assignment by the Employee to the Employer of all funds owing or collected for services rendered by the Employee pursuant to this Agreement (the "Receivables") so long as such assignment is not in violation of any law or statute. The Employee shall take all steps necessary to assist in the billing and collection of funds due for services rendered by the Employee. All funds collected with respect to services provided pursuant to this Agreement shall be the exclusive property of the Employer. 4. Post-Termination Cooperation Re Receivables. For a period of two (2) years after termination of this Agreement, Employee shall cooperate fully and assist Employer in efforts to collect all Receivables for services performed by Employee while employed by Employer, including without limitation, transferring all funds actually paid or made payable to Employee with respect to such Receivables, and appearing in any court of law within which any cause of action is brought to seek enforcement of Employer's right to collect on any and all such Receivables. Employee agrees to notify Employer, in writing, of a change of address of Employee's business or residence during such two (2) year period so that Employer will be able to locate Employee to enforce the terms of this Section. Employee shall receive up to two hundred and fifty dollars ($250.00) per day for providing assistance under the terms of this Section and, in addition, Employer shall reimburse Employee for all reasonable costs and expenses incurred by Employee, as approved in advance in writing by Employer, relating to such assistance. The terms and conditions of this Section shall survive termination of this Agreement. SECTION III - TERM OF EMPLOYMENT 1. Term. The term of employment under this Agreement (the "Employment Term") shall be for the one-year period commencing the date hereof, unless earlier terminated under the terms hereof; provided, that Employee must complete and submit any credentialling application provided to Employee by Employer in order for this Agreement to become effective and for the Employment Term to commence. 2. Probationary Term. During the first one hundred twenty (120) days of the Employment Term of this Agreement, Employee acknowledges and agrees that he/she shall be on probation, and that during such time period or within fifteen (15) days after the conclusion of such probationary period, this Agreement may be terminated at the sole discretion of Employer with or without cause. Thereafter, this Agreement shall remain in effect for the term set forth in Section III 1 hereof, unless earlier terminated as provided for herein. SECTION IV - COMPENSATION AND BENEFITS 1.Compensation. Employee shall be compensated at a rate of $__________ ____ per ________ less any appropriate deductions, payable as earned, payable in accordance with Employer's normal payroll policies, during the term of this Agreement (the "Salary"). 2. Benefits. Employee shall be entitled to those benefits, if any, as described in Exhibit "A" attached hereto. 3. Sole Benefits. Employee acknowledges that the compensation and benefits established pursuant to this Section shall be the sole consideration provided by Employer for the services provided under the terms of this Agreement. Employee shall not solicit or accept payment from any patient, government entitlement program or third party payor for services rendered pursuant to this Agreement. 4. Reimbursement. Expenses incurred by Employee on Employer's behalf at Employer's discretion shall be reimbursed in full where approved in writing, in advance. In the event an expense paid on behalf of, or reimbursement contributed to, Employee is determined not to be an allowable tax deduction or credit of Employer and such determination is acceded to by Employer or rendered final by the state or federal taxing authority or court with final jurisdiction, Employee shall, forthwith, upon ten (10) days' prior written notice and without regard to whether this Agreement shall then be terminated, reimburse Employer for the full amount of the out-of-pocket loss incurred by Employer as a result of any such disallowance. SECTION V - INSURANCE 1. Malpractice Insurance. Employer shall at its own cost and expense, provide and keep in force a malpractice insurance policy or policies of standard form in the State of ____________, with limits of not less than One Million ($1,000,000.00) Dollars per occurrence and Three Million ($3,000,000.00) Dollars in the aggregate. SECTION VI - PATIENT RELATIONSHIP 1. Confidential Information. Employee acknowledges and 2 agrees that he/she will have access to certain confidential information and trade secrets of the Employer and that such information constitutes valuable, sole, special and unique property of Employer. Employee further acknowledges and agrees that Employee will not, at any time during or after the term hereof, in any fashion, form, or manner either directly or indirectly, divulge, disclose or communicate to any person, firm, or corporation in any manner whatsoever, the terms and conditions of this Agreement or any information of any kind, nature or description concerning any matters affecting or relating to the business of Employer, including, without limiting the foregoing, the names of patients, the prices which Employer pays for goods and services and/or sells goods or services, Employer's manner of operation of Employers business or its plans or processes, or any other data or information of any kind, nature or description which affects or relates to Employer's business without regard to whether any or all of the foregoing would be deemed confidential information or a trade secret under applicable state law ("Confidential Information"). 2. Patient Accounts. All patients shall be and remain the patients of Employer provided that Employee shall exercise independent responsibility for the care and treatment of such individuals to the extent professional services are rendered pursuant to this Agreement. In the event any patient is deemed by operation of law or otherwise to be patient of Employee, Employee shall and hereby does (i) irrevocably assign all Receivables from the treatment of such individuals to Employer, and (ii) irrevocably appoints Employer as the agent and true and lawful attorney-in-fact, with full power of assignment and substitution where legally permissible, to bill patients on Employee's behalf; to collect Receivables from all payors; and to take possession of and endorse in Employee's name, all notes, drafts or instruments received by way of payment for such services (except where prohibited by law or regulation). (a) Employee agrees that each patient account has a reasonable value to Employer of five thousand dollars ($5,000.00), and for each record, or any portion thereof, which Employee attempts to obtain and/or actually does obtain in contravention of this Section , the sum of Five Thousand dollars ($5,000.00) shall be paid to Employer as liquidated damages. The referenced sum shall be due and payable immediately upon the date of the violation or attempted violation of this Section , with such sum to bear interest at the maximum allowable legal rate from the due date to the actual date of payment in full. (b) Paragraph VI 2a notwithstanding, Employee shall maintain adequate and complete records with regard to services rendered to patients. Upon the termination of Employee's employment hereunder, all patient files, records and charts shall remain with Employer, and Employee shall have no right to retain such materials; provided, however, that nothing herein contained shall be construed to prevent any patient from requesting transfer of his/her records to Employee upon the termination of this Agreement, and such materials or photocopies thereof shall be delivered to Employee upon the written request of the subject patient, which request shall be honored promptly upon the payment to Employer by Employee of all reasonable costs, if any, for reproduction and mailing of any such materials. Employer will send invoices to all patients for any services rendered by Employee prior to termination of his/her employment hereunder, and Employer will have the right to collect the full amounts thereof for its own account. SECTION VII - COVENANT NOT TO COMPETE During the term of this Agreement and thereafter the Employee shall not take any action whatsoever which may or might disturb the existing business relationship of the Employer with any of Employer's patients. 1. Restrictions. The Employee agrees that in the event Employer and Employee fail to extend this Agreement, then Employee covenants and agrees that for a period of one (1) year after the termination of his/her employment hereunder (the "Restricted Period"), he/she will not: (i) practice from an office located within a five (5) mile radius if in a rural area, two (2) mile radius if in a suburban area, and ten (10) block radius if in an urban center from Employer's Office or (ii) solicit, directly or indirectly, for treatment by Employee, or by any other doctor other than those employed by or who are shareholders of Employer, any persons who were patients of Employer during the Employment Term. 2. Irreparable Damages. The parties hereto acknowledge and agree that consideration has been given to the nature and scope of the business and activities of Employer and that the covenants contained in this Section concerning territorial, substantive and time limitations are in all respects fair and reasonable in view of the facts involved. In the event that any court shall determine that the time, substantive and territorial limitations contained herein are not fair and reasonable, this Agreement shall nevertheless be enforced as to such time, substantive and territorial limits as are reasonable. The parties further agree that Employer will be irreparably damaged in the event of a breach of any of the covenants set forth in this Section , and, accordingly, Employee agrees that such covenants shall be specifically enforceable and that, in addition to any other remedies, any breach or threatened breach thereof may be enjoined by any court of competent jurisdiction located in the State of ______. 3. Injunctive Relief. The parties further agree that in the event of the breach of any provision of this Agreement, and particularly Section VII hereof, Employer shall be entitled to a permanent injunction or similar court order enjoining the Employee from acting in a fashion contrary to Section VII and that pending such determination the Employee shall accede to a temporary restraining order, without prejudice to any other rights that the Employer may have, all at Employee's expense. 4. Independent Agreement. The covenants contained in Section VII shall be construed as an independent agreement and the existence of any claim which the Employee may have against the Employer will not constitute a defense to the enforcement by the Employer, by injunctive relief or otherwise, of the provisions of Section VII. SECTION VIII - TERMINATION OF EMPLOYMENT 1. Disability of Employee. Notwithstanding anything in this Agreement to the contrary, Employer is hereby given the option to terminate Employee's employment in the event that Employee, during the employment term hereunder, becomes disabled to the extent that he/she is unable fully to perform his/her customary duties hereunder ("Disability"). Such option shall be exercised by Employer by giving notice, pursuant to Section IX 4 herein, to Employee of Employer's intention to terminate Employee's employment due to his/her Disability. Such termination shall take place on the fifteenth (15th) day following the mailing of such notice. For purposes of this Agreement, Employee shall be deemed to have become Disabled if, during the term of his/her employment hereunder, he/she is disabled as defined in Employer's disability plan, if any; provided, however, in the event that Employer does not maintain a disability plan, then to establish a status of Disability there must be a written certification of such Disability by a qualified medical doctor agreed to by Employer and Employee. In the absence of agreement, each party shall nominate a qualified medical doctor and the two doctors shall select a third doctor, who shall make the determination as to the Employee's Disability. 2. Termination by Employer for Cause. Notwithstanding any other provision of this Agreement, Employer may terminate Employee's employment for cause immediately upon the determination and notification to Employee thereof ("Cause Termination Date"). Upon such determination and notification, Employee's right to receive the Salary shall cease, and Employee shall be entitled to receive only such Salary as shall have been earned through the period ending with the Cause Termination Date. The term "Cause" as used herein shall mean that Employee (i) has committed a serious act (such as embezzlement) against Employer, with the intention of enriching himself/herself at the expense of Employer, or has failed to substantially perform his/her duties and responsibilities hereunder or otherwise committed a material breach of any of the terms of this Agreement, or has been convicted of any criminal act involving moral turpitude; or (ii) has been found, in the reasonable belief of Employer, to suffer chronic dependency on drugs or alcohol; or (iii) in carrying out his/her duties hereunder, has committed gross neglect or gross misconduct; or (iv) has become legally disqualified to practice acupuncture in the State of ______, or has been put on probation by the State licensing authority for acupuncturists, or has had his/her license to practice acupuncture in the State of ______ suspended or revoked; or (v) is unable to obtain acupuncture malpractice insurance covering his/her professional conduct, in coverage amounts and/or with insurance carriers acceptable to Employer and upon such terms as are acceptable to the Employer or (iv) there has occurred a material adverse change in the business or economic prospects of Employer as determined solely by Employer; or (vii) Employer has ceased providing services at the Office and Employee's services are not required at any Other Location. 3. Voluntary Termination. Either Employer or Employee may terminate the employment relationship provided for under the terms of this Agreement, for any reason and at any time during the Employment Term, on no less than thirty (30) days prior written notice to the other party hereto, with the last day of such notice period (unless such period shall be shortened or extended by mutual agreement) being the Termination Date. In the event of such voluntary termination, Employee shall receive a pro rata portion of the Salary, and pay for accrued but unused vacation days, through and including the Termination Date. Any rights and benefits Employee may have under any employee benefit plans and programs of Employer shall be determined in 3 accordance with the terms of such plans and programs. SECTION IX - MISCELLANEOUS 1. Specific Performance. It is agreed that any breach or evasion of any of the terms of this Agreement by either party hereto will result in immediate and irreparable injury to the other party, and recourse to injunction and/or specific performance, as well as to all other legal or equitable remedies to which such injured party may be entitled, will be authorized under such circumstances. 2. Indemnity. Employee hereby agrees to indemnify, defend and hold Employer harmless from and against any an all costs, losses, claims, demands and liabilities, including reasonable attorneys' fees which arise out of or relate to any breach by Employee of any of the terms and conditions in this Agreement; any negligent or intentional wrongful act of Employee; any act or omission of Employee which constitutes professional negligence; or any other act of Employee not authorized under the terms of this Agreement. If Employer or any of its shareholders or affiliates is made a party to litigation or obligation or otherwise incurs any loss or expense as a result of Employee's activities unconnected with Employer's business, Employee shall forthwith upon demand, reimburse Employer or such individuals for any and all expenses incurred as a result thereof. 3. Waiver of Breach. The parties understand and intend that each restriction agreed to by Employee under the terms of this Agreement shall be construed as separable and divisible from every other restriction, and that the unenforceability, in whole or in part, of any other restriction will not affect the enforceability of the remaining restrictions. It is further understood that one or more, or all of such restrictions, may be enforced in whole or in part as the circumstances warrant. No waiver of any one breach of the restrictions contained in this Agreement shall be deemed a waiver of any future breach. Employee hereby acknowledges that he/she is fully cognizant of the restrictions set forth in this Agreement and agrees that these provisions shall survive the termination of this Agreement for any reason. 4. Notices. Except as otherwise provided herein, all requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been given if delivered personally, by prepaid telex, telegram, facsimile ("FAX") or mailed first class, postage prepaid, certified United States Mail, return receipt requested, to the party who is to receive such notice, request, demand or communication at such party's address as set forth on the signature page hereof. Any party hereto may change its address for notice by giving to the other party written notice of such change. Any notice given hereunder shall be effective (i) if delivered personally, when delivered, (ii) if sent by telex, telegram or FAX, twenty-four (24) hours after sending, and (iii) if mailed, seventy-two (72) hours after the date of the mailing. 5. Commitments Binding Only Upon Written Consent. Notwithstanding any provision herein to the contrary, it is expressly understood and agreed that Employee shall not have the right to make any contracts or commitments for or on behalf of Employer without the prior written consent of Employer. 6. Time of Essence. Time is of the essence in regard to the obligations established hereunder. The parties hereto agree that they shall cooperate in good faith to accomplish the objectives of this Agreement and, documents and take such further action as may be reasonably necessary to effectuate the terms, conditions and purposes of this Agreement. 7. Entire Agreement. This Agreement contains the entire understanding of the parties with respect to the subject matter hereof, supersedes any prior agreement between the parties, and may not be changed or terminated orally. No change, termination or attempted waiver of any of the provisions hereof shall be binding unless in writing and signed by the party against whom the same is sought to be enforced. 8. Successors and Assigns. The provisions of this Agreement are intended only for the regulation of relations among the parties hereto. This Agreement is not intended for the benefit of creditors or other third parties, and no rights are granted to such individuals or entities except where expressly referenced herein. However, Employer may, in its sole discretion, assign this Agreement by sale or otherwise, and the benefits and obligations of this Agreement shall inure to its successors and/or assigns. 9. Non-Exclusive Rights. The rights and the obligations of the Employer under this Agreement are non-exclusive, and this Agreement shall not be construed to prevent the Employer from simultaneously retaining, contracting with, or otherwise obtaining professional services from any other person or entity. 10. Captions. The headings and captions herein are intended for convenience reference only, and shall not be deemed to be interpretative of the contents of such sections. 11. Execution in Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one and the same instrument. 12. Governing Law. All matters concerning the validity and interpretation of and performance under this Agreement shall be governed by the laws of the State of ___________ (without regard to the conflict of laws principles thereof). 13. Arbitration. Any controversy, dispute or disagreement arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration, which shall be conducted in the County of ____________, State of ____________, in accordance with the National Health Lawyer's Association ("NHLA") Alternative Dispute Resolution Service Rules of Procedure for Arbitration, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. 14. No Act Contrary To Law. Nothing herein shall be construed so as to require the commission of any act contrary to law, and wherever there is any statute, law, ordinance or regulation which is inconsistent with this Agreement, such statute, law, ordinance or regulation shall prevail, and, in such event, the provision herein in conflict automatically shall be curtailed, limited or eliminated to the extent necessary to bring it within legal limitations. 4 IN WITNESS WHEREOF, the parties hereto have executed this document or caused its execution by a duly authorized officer, all as of the day and year first above written. _______________________________________ By: ___________________________________ , President Employee: By: ___________________________________ Complete Wellness Centers, Inc. _______________________________________ E. Eugene Sharer 5 EXHIBIT "A" EX-10.11 16 FORM OF NUTRITION COUNSELOR EMPLOYMENT AGT 1 EXHIBIT 10.11 NUTRITION COUNSELOR EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as of the ________ day of _______________, 19__, by and between _____________, a __________ corporation with an office at ______________ ("Employer"), and __________________________________, an individual residing at ("Employee"). W I T N E S S E T H: WHEREAS Employer is a corporation duly licensed in the State of ________________ and which provides healthcare services at its office located at __________________________ (the "Office") and WHEREAS Employer wishes to employ Employee, an individual who is actively practicing and is duly licensed to provide nutrition counseling in the State of ____________, as an employee of Employer to provide nutrition counseling services subject to the rules thereof and the standards of the profession in effect in the State of _____________, and WHEREAS Employee desires to render such services to Employer, NOW, THEREFORE, in consideration of the representations, warranties and mutual covenants set forth herein, the parties hereto hereby agree as follows: SECTION I - REPRESENTATIONS 1. Representations. Upon the terms and subject to the conditions set forth herein, Employer hereby employs Employee as a licensed nutrition counselor and Employee hereby accepts such employment and represents to Employer that he/she is presently licensed and qualified to engage in the practice of nutrition counseling in the State of ______________. 2. Management of Practice. Employee recognizes, acknowledges and agrees that Complete Wellness Centers, Inc. or designee ("Management Company") shall manage all non-therapeutic aspects of Employer's practice. 3. Independent Judgement. Although Employee is an employee of Employer under the terms of this Agreement, Employee shall retain independent discretion and exercise independent judgement in the manner and means of providing services in regard to the diagnosis and treatment of patients treated. 4. Professional Conduct. Employee will at all times conduct himself/herself in compliance with all federal, state and local laws, rules and regulations, canons of professional ethics, and the non-nutrition counseling rules and regulations of the Employer. SECTION II - SCOPE OF DUTIES 1. Services. Employee will render his/her services to Employer as a licensed nutrition counselor and in such capacity he/she shall perform such duties as are customary in the practice of nutrition counseling and as are assigned to him/her from time to time by Employer. Such duties shall include but not be limited to conducting office examinations and consultations, obtaining such continuing professional education as is necessary to maintain professional qualifications, and performing evening and weekend on-call coverage as shall be reasonably assigned to him. 2. Additional Locations. Employee will serve at such other locations as may be directed by Employer (the "Other Location"). Such Other Location shall not be located more than twenty-five (25) miles from the Office, unless mutually agreed upon and designated in writing. 3. Billing. The Employer shall perform, or cause to have performed, billing and collection functions for all services provided by the Employee. The Employee hereby authorizes the Employer to accept, or refuse to accept, on Employee's behalf, any assignment of insurance benefits from any patient receiving service from the Employee pursuant to this Agreement. At Employer's request, Employee shall list and designate with such insurance or third party payor the Employer's address and designated officer as the sole address to which all payment(s) or payment voucher(s) for services performed by the Employee shall be mailed. This Agreement constitutes an assignment by the Employee to the Employer of all funds owing or collected for services rendered by the Employee pursuant to this Agreement (the "Receivables") so long as such assignment is not in violation of any law or statute. The Employee shall take all steps necessary to assist in the billing and collection of funds due for services rendered by the Employee. All funds collected with respect to services provided pursuant to this Agreement shall be the exclusive property of the Employer. 4. Post-Termination Cooperation Re Receivables. For a period of two (2) years after termination of this Agreement, Employee shall cooperate fully and assist Employer in efforts to collect all Receivables for services performed by Employee while employed by Employer, including without limitation, transferring all funds actually paid or made payable to Employee with respect to such Receivables, and appearing in any court of law within which any cause of action is brought to seek enforcement of Employer's right to collect on any and all such Receivables. Employee agrees to notify Employer, in writing, of a change of address of Employee's business or residence during such two (2) year period so that Employer will be able to locate Employee to enforce the terms of this Section . Employee shall receive up to two hundred and fifty dollars ($250.00) per day for providing assistance under the terms of this Section and, in addition, Employer shall reimburse Employee for all reasonable costs and expenses incurred by Employee, as approved in advance in writing by Employer, relating to such assistance. The terms and conditions of this Section shall survive termination of this Agreement. SECTION III - TERM OF EMPLOYMENT 1. Term. The term of employment under this Agreement (the "Employment Term") shall be for the one-year period commencing the date hereof, unless earlier terminated under the terms hereof; provided, that Employee must complete and submit any credentialling application provided to Employee by Employer in order for this Agreement to become effective and for the Employment Term to commence. 2 2. Probationary Term. During the first one hundred twenty (120) days of the Employment Term of this Agreement, Employee acknowledges and agrees that he/she shall be on probation, and that during such time period or within fifteen (15) days after the conclusion of such probationary period, this Agreement may be terminated at the sole discretion of Employer with or without cause. Thereafter, this Agreement shall remain in effect for the term set forth in Section III 1 hereof, unless earlier terminated as provided for herein. SECTION IV - COMPENSATION AND BENEFITS 1.Compensation. Employee shall be compensated at a rate of $___________ per __________ less any appropriate deductions, payable as earned, payable in accordance with Employer's normal payroll policies during the term of this Agreement (the "Salary"). 2. Benefits. Employee shall be entitled to those benefits, if any, as described in Exhibit "A" attached hereto. 3. Sole Benefits. Employee acknowledges that the compensation and benefits established pursuant to this Section shall be the sole consideration provided by Employer for the services provided under the terms of this Agreement. Employee shall not solicit or accept payment from any patient, government entitlement program or third party payor for services rendered pursuant to this Agreement. 4. Reimbursement. Expenses incurred by Employee on Employer's behalf at Employer's discretion shall be reimbursed in full where approved in writing, in advance. In the event an expense paid on behalf of, or reimbursement contributed to, Employee is determined not to be an allowable tax deduction or credit of Employer and such determination is acceded to by Employer or rendered final by the state or federal taxing authority or court with final jurisdiction, Employee shall, forthwith, upon ten (10) days' prior written notice and without regard to whether this Agreement shall then be terminated, reimburse Employer for the full amount of the out-of-pocket loss incurred by Employer as a result of any such disallowance. SECTION V - INSURANCE 1. Malpractice Insurance. Employer shall at its own cost and expense, provide and keep in force a malpractice insurance policy or policies of standard form in the State of _____________, with limits of not less than One Million ($1,000,000.00) Dollars per occurrence and Three Million ($3,000,000.00) Dollars in the aggregate. SECTION VI - PATIENT RELATIONSHIP 1. Confidential Information. Employee acknowledges and agrees that he/she will have access to certain confidential information and trade secrets of the Employer and that such information constitutes valuable, sole, special and unique property of Employer. Employee further acknowledges and agrees that Employee will not, at any time during or after the term hereof, in any fashion, form, or manner either directly or indirectly, divulge, disclose or communicate to any person, firm, or corporation in any manner whatsoever, the terms and conditions of this Agreement or any information of any kind, nature or description concerning any matters affecting or relating to the business of Employer, including, without limiting the foregoing, the names of patients, the prices which Employer pays for goods and services and/or sells goods or services, Employer's manner of operation of Employers business or its plans or processes, or any other data or information of any kind, nature or description which affects or relates to Employer's business without regard to whether any or all of the foregoing would be deemed confidential information or a trade secret under applicable state law ("Confidential Information"). 2. Patient Accounts. All patients shall be and remain the patients of Employer provided that Employee shall exercise independent responsibility for the care and treatment of such individuals to the extent professional services are rendered pursuant to this Agreement. In the event any patient is deemed by operation of law or otherwise to be patient of Employee, Employee shall and hereby does (i) irrevocably assign all Receivables from the treatment of such individuals to Employer, and (ii) irrevocably appoints Employer as the agent and true and lawful attorney-in-fact, with full power of assignment and substitution where legally permissible, to bill patients on Employee's behalf; to collect Receivables from all payors; and to take possession of and endorse in Employee's name, all notes, drafts or instruments received by way of payment for such services (except where prohibited by law or regulation). (a) Employee agrees that each patient account has a reasonable value to Employer of five thousand dollars ($5,000.00), and for each record, or any portion thereof, which Employee attempts to obtain and/or actually does obtain in contravention of this Section , the sum of Five Thousand dollars ($5,000.00) shall be paid to Employer as liquidated damages. The referenced sum shall be due and payable immediately upon the date of the violation or attempted violation of this Section , with such sum to bear interest at the maximum allowable legal rate from the due date to the actual date of payment in full. (b) Paragraph VI 2a notwithstanding, Employee shall maintain adequate and complete records with regard to services rendered to patients. Upon the termination of Employee's employment hereunder, all patient files, records and charts shall remain with Employer, and Employee shall have no right to retain such materials; provided, however, that nothing herein contained shall be construed to prevent any patient from requesting transfer of his/her records to Employee upon the termination of this Agreement, and such materials or photocopies thereof shall be delivered to Employee upon the written request of the subject patient, which request shall be honored promptly upon the payment to Employer by Employee of all reasonable costs, if any, for reproduction and mailing of any such materials. Employer will send invoices to all patients for any services rendered by Employee prior to termination of his/her employment hereunder, and Employer will have the right to collect the full amounts thereof for its own account. SECTION VII - COVENANT NOT TO COMPETE During the term of this Agreement and thereafter the Employee shall not take any action whatsoever which may or might disturb the existing business relationship of the Employer with any of Employer's patients. 3 1. Restrictions. The Employee agrees that in the event Employer and Employee fail to extend this Agreement, then Employee covenants and agrees that for a period of one (1) year after the termination of his/her employment hereunder (the "Restricted Period"), he/she will not: (i) practice from an office located within a five (5) mile radius if in a rural area, two (2) mile radius if in a suburban area, and ten (10) block radius if in an urban center from Employer's Office or (ii) solicit, directly or indirectly, for treatment by Employee, or by any other doctor other than those employed by or who are shareholders of Employer, any persons who were patients of Employer during the Employment Term. 2. Irreparable Damages. The parties hereto acknowledge and agree that consideration has been given to the nature and scope of the business and activities of Employer and that the covenants contained in this Section concerning territorial, substantive and time limitations are in all respects fair and reasonable in view of the facts involved. In the event that any court shall determine that the time, substantive and territorial limitations contained herein are not fair and reasonable, this Agreement shall nevertheless be enforced as to such time, substantive and territorial limits as are reasonable. The parties further agree that Employer will be irreparably damaged in the event of a breach of any of the covenants set forth in this Section, and, accordingly, Employee agrees that such covenants shall be specifically enforceable and that, in addition to any other remedies, any breach or threatened breach thereof may be enjoined by any court of competent jurisdiction located in the State of _____________. 3. Injunctive Relief. The parties further agree that in the event of the breach of any provision of this Agreement, and particularly Section VII hereof, Employer shall be entitled to a permanent injunction or similar court order enjoining the Employee from acting in a fashion contrary to Section VII and that pending such determination the Employee shall accede to a temporary restraining order, without prejudice to any other rights that the Employer may have, all at Employee's expense. 4. Independent Agreement. The covenants contained in Section VII shall be construed as an independent agreement and the existence of any claim which the Employee may have against the Employer will not constitute a defense to the enforcement by the Employer, by injunctive relief or otherwise, of the provisions of Section VII. SECTION VIII - TERMINATION OF EMPLOYMENT 1. Disability of Employee. Notwithstanding anything in this Agreement to the contrary, Employer is hereby given the option to terminate Employee's employment in the event that Employee, during the employment term hereunder, becomes disabled to the extent that he/she is unable fully to perform his/her customary duties hereunder ("Disability"). Such option shall be exercised by Employer by giving notice, pursuant to Section IX 4 herein, to Employee of Employer's intention to terminate Employee's employment due to his/her Disability. Such termination shall take place on the fifteenth (15th) day following the mailing of such notice. For purposes of this Agreement, Employee shall be deemed to have become Disabled if, during the term of his/her employment hereunder, he/she is disabled as defined in Employer's disability plan, if any; provided, however, in the event that Employer does not maintain a disability plan, then to establish a status of Disability there must be a written certification of such Disability by a qualified medical doctor agreed to by Employer and Employee. In the absence of agreement, each party shall nominate a qualified medical doctor and the two doctors shall select a third doctor, who shall make the determination as to the Employee's Disability. 2. Termination by Employer for Cause. Notwithstanding any other provision of this Agreement, Employer may terminate Employee's employment for cause immediately upon the determination and notification to Employee thereof ("Cause Termination Date"). Upon such determination and notification, Employee's right to receive the Salary shall cease, and Employee shall be entitled to receive only such Salary as shall have been earned through the period ending with the Cause Termination Date. The term "Cause" as used herein shall mean that Employee (i) has committed a serious act (such as embezzlement) against Employer, with the intention of enriching himself/herself at the expense of Employer, or has failed to substantially perform his/her duties and responsibilities hereunder or otherwise committed a material breach of any of the terms of this Agreement, or has been convicted of any criminal act involving moral turpitude; or (ii) has been found, in the reasonable belief of Employer, to suffer chronic dependency on drugs or alcohol; or (iii) in carrying out his/her duties hereunder, has committed gross neglect or gross misconduct; or (iv) has become legally disqualified to practice nutrition counseling in the State of ______________, or has been put on probation by the _____________ licensing authority for nutrition counselors, or has had his/her license to practice nutrition counseling in the State of _____________ suspended or revoked; or (v) is unable to obtain nutrition counseling malpractice insurance covering his/her professional conduct, in coverage amounts and/or with insurance carriers acceptable to Employer and upon such terms as are acceptable to the Employer or (iv) there has occurred a material adverse change in the business or economic prospects of Employer as determined solely by Employer; or (vii) Employer has ceased providing services at the Office and Employee's services are not required at any Other Location. 3. Voluntary Termination. Either Employer or Employee may terminate the employment relationship provided for under the terms of this Agreement, for any reason and at any time during the Employment Term, on no less than thirty (30) days prior written notice to the other party hereto, with the last day of such notice period (unless such period shall be shortened or extended by mutual agreement) being the Termination Date. In the event of such voluntary termination, Employee shall receive a pro rata portion of the Salary, and pay for accrued but unused vacation days, through and including the Termination Date. Any rights and benefits Employee may have under any employee benefit plans and programs of Employer shall be determined in accordance with the terms of such plans and programs. SECTION IX - MISCELLANEOUS 1. Specific Performance. It is agreed that any breach or evasion of any of the terms of this Agreement by either party hereto will result in immediate and irreparable injury to the other party, and recourse to injunction and/or specific performance, as well as to 4 all other legal or equitable remedies to which such injured party may be entitled, will be authorized under such circumstances. 2. Indemnity. Employee hereby agrees to indemnify, defend and hold Employer harmless from and against any an all costs, losses, claims, demands and liabilities, including reasonable attorneys' fees which arise out of or relate to any breach by Employee of any of the terms and conditions in this Agreement; any negligent or intentional wrongful act of Employee; any act or omission of Employee which constitutes professional negligence; or any other act of Employee not authorized under the terms of this Agreement. If Employer or any of its shareholders or affiliates is made a party to litigation or obligation or otherwise incurs any loss or expense as a result of Employee's activities unconnected with Employer's business, Employee shall forthwith upon demand, reimburse Employer or such individuals for any and all expenses incurred as a result thereof. 3. Waiver of Breach. The parties understand and intend that each restriction agreed to by Employee under the terms of this Agreement shall be construed as separable and divisible from every other restriction, and that the unenforceability, in whole or in part, of any other restriction will not affect the enforceability of the remaining restrictions. It is further understood that one or more, or all of such restrictions, may be enforced in whole or in part as the circumstances warrant. No waiver of any one breach of the restrictions contained in this Agreement shall be deemed a waiver of any future breach. Employee hereby acknowledges that he/she is fully cognizant of the restrictions set forth in this Agreement and agrees that these provisions shall survive the termination of this Agreement for any reason. 4. Notices. Except as otherwise provided herein, all requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been given if delivered personally, by prepaid telex, telegram, facsimile ("FAX") or mailed first class, postage prepaid, certified United States Mail, return receipt requested, to the party who is to receive such notice, request, demand or communication at such party's address as set forth on the signature page hereof. Any party hereto may change its address for notice by giving to the other party written notice of such change. Any notice given hereunder shall be effective (i) if delivered personally, when delivered, (ii) if sent by telex, telegram or FAX, twenty-four (24) hours after sending, and (iii) if mailed, seventy-two (72) hours after the date of the mailing. 5. Commitments Binding Only Upon Written Consent. Notwithstanding any provision herein to the contrary, it is expressly understood and agreed that Employee shall not have the right to make any contracts or commitments for or on behalf of Employer without the prior written consent of Employer. 6. Time of Essence. Time is of the essence in regard to the obligations established hereunder. The parties hereto agree that they shall cooperate in good faith to accomplish the objectives of this Agreement and, documents and take such further action as may be reasonably necessary to effectuate the terms, conditions and purposes of this Agreement. 7. Entire Agreement. This Agreement contains the entire understanding of the parties with respect to the subject matter hereof, supersedes any prior agreement between the parties, and may not be changed or terminated orally. No change, termination or attempted waiver of any of the provisions hereof shall be binding unless in writing and signed by the party against whom the same is sought to be enforced. 8. Successors and Assigns. The provisions of this Agreement are intended only for the regulation of relations among the parties hereto. This Agreement is not intended for the benefit of creditors or other third parties, and no rights are granted to such individuals or entities except where expressly referenced herein. However, Employer may, in its sole discretion, assign this Agreement by sale or otherwise, and the benefits and obligations of this Agreement shall inure to its successors and/or assigns. 9. Non-Exclusive Rights. The rights and the obligations of the Employer under this Agreement are non-exclusive, and this Agreement shall not be construed to prevent the Employer from simultaneously retaining, contracting with, or otherwise obtaining professional services from any other person or entity. 10. Captions. The headings and captions herein are intended for convenience reference only, and shall not be deemed to be interpretative of the contents of such sections. 11. Execution in Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one and the same instrument. 12. Governing Law. All matters concerning the validity and interpretation of and performance under this Agreement shall be governed by the laws of the State of ____________ (without regard to the conflict of laws principles thereof). 13. Arbitration. Any controversy, dispute or disagreement arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration, which shall be conducted in the County of ___________, State of ____________, in accordance with the National Health Lawyer's Association ("NHLA") Alternative Dispute Resolution Service Rules of Procedure for Arbitration, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. 14. No Act Contrary To Law. Nothing herein shall be construed so as to require the commission of any act contrary to law, and wherever there is any statute, law, ordinance or regulation which is inconsistent with this Agreement, such statute, law, ordinance or regulation shall prevail, and, in such event, the provision herein in conflict automatically shall be curtailed, limited or eliminated to the extent necessary to bring it within legal limitations. 5 IN WITNESS WHEREOF, the parties hereto have executed this document or caused its execution by a duly authorized officer, all as of the day and year first above written. By: ______________________________ , President Employee By: _______________________________ Complete Wellness Center, Inc. By: _______________________________ E. Eugene Sharer, President 6 EXHIBIT "A" EX-10.12 17 FORM OF FITNESS SPECIALIST EMPLOYMENT AGT 1 EXHIBIT 10.12 FITNESS SPECIALIST EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as of the _______ day of ____________________________, 19 ____, by and between Complete Wellness Medical Center of, _______________________________________ a Florida corporation with an office at 507 South Paula Drive ("Employer"), and ____________________________________ an individual residing at ______________________________________________________________________________ ___________________________________ ("Employee"). W I T N E S S E T H: WHEREAS Employer is a corporation duly licensed in the State of Florida and which provides healthcare services at its office located at _______________ (the "Office") and WHEREAS Employer wishes to employ Employee, an individual who is actively practicing and is duly certified to provide fitness training in the State of Florida, as an employee of Employer to provide fitness training services subject to the rules thereof and the standards of the profession in effect in the State of Florida, and WHEREAS Employee desires to render such services to Employer, NOW, THEREFORE, in consideration of the representations, warranties and mutual covenants set forth herein, the parties hereto hereby agree as follows: SECTION I - REPRESENTATIONS 1. Representations. Upon the terms and subject to the conditions set forth herein, Employer hereby employs Employee as a certified fitness specialist and Employee hereby accepts such employment and represents to Employer that he/she is presently certified and qualified to engage in the practice of fitness training in the State of Dunedin. 2. Management of Practice. Employee recognizes, acknowledges and agrees that Complete Wellness Centers, Inc. or its designee ("Management Company") shall manage all non-therapeutic aspects of Employer's practice. 3. Independent Judgement. Although Employee is an employee of Employer under the terms of this Agreement, Employee shall retain independent discretion and exercise independent judgement in the manner and means of providing services in regard to the diagnosis and treatment of patients treated. 4. Professional Conduct. Employee will at all times conduct himself/herself in compliance with all federal, state and local laws, rules and regulations,canons of professional ethics, and the non-fitness training rules and regulations of the Employer. SECTION II - SCOPE OF DUTIES 1. Services. Employee will render his/her services to Employer as a certified fitness specialist and in such capacity he/she shall perform such duties as are customary in the practice of fitness training and as are assigned to him/her from time to time by Employer. Such duties shall include but not be limited to conducting office examinations and consultations, obtaining such continuing professional education as is necessary to maintain professional qualifications, and performing evening and weekend on-call coverage as shall be reasonably assigned to him. 2. Additional Locations. Employee will serve at such other locations as may be directed by Employer (the "Other Location"). Such Other Location shall not be located more than twenty-five (25) miles from the Office, unless mutually agreed upon and designated in writing. 3. Billing. The Employer shall perform, or cause to have performed, billing and collection functions for all services provided by the Employee. The Employee hereby authorizes the Employer to accept, or refuse to accept, on Employee's behalf, any assignment of insurance benefits from any patient receiving service from the Employee pursuant to this Agreement. At Employer's request, Employee shall list and designate with such insurance or third party payor the Employer's address and designated officer as the sole address to which all payment(s) or payment voucher(s) for services performed by the Employee shall be mailed. This Agreement constitutes an assignment by the Employee to the Employer of all funds owing or collected for services rendered by the Employee pursuant to this Agreement (the "Receivables") so long as such assignment is not in violation of any law or statute. The Employee shall take all steps necessary to assist in the billing and collection of funds due for services rendered by the Employee. All funds collected with respect to services provided pursuant to this Agreement shall be the exclusive property of the Employer. 4. Post-Termination Cooperation Re Receivables. For a period of two (2) years after termination of this Agreement, Employee shall cooperate fully and assist Employer in efforts to collect all Receivables for services performed by Employee while employed by Employer, including without limitation, transferring allfunds actually paid or made payable to Employee with respect to such Receivables, and appearing in any court of law within which any cause of action is brought to seek enforcement of Employer's right to collect on any and all such Receivables. Employee agrees to notify Employer, in writing, of a change of address of Employee's business or residence during such two (2) year period so that Employer will be able to locate Employee to enforce the terms of this Section. Employee shall receive up to two hundred and fifty dollars ($250.00) per day for providing assistance under the terms of this Section and, in addition, Employer shall reimburse Employee for all reasonable costs and expenses incurred by Employee, as approved in advance in writing by Employer, relating to such assistance. The terms and conditions of this Section shall survive termination of this Agreement. SECTION III - TERM OF EMPLOYMENT 1. Term. The term of employment under this Agreement (the "Employment Term") shall be for the one-year period commencing the date hereof, unless earlier terminated under the terms hereof; provided, that Employee must complete and submit any credentialling application provided to Employee by Employer in order for this Agreement to become effective and for the Employment Term to commence. 2. Probationary Term. During the first one hundred twenty (120) days of the Employment Term of this Agreement, Employee acknowledges and agrees that he/she shall be on probation, and that during such time period or within fifteen (15) days after the conclusion of such probationary period, this Agreement may be terminated at the sole discretion of Employer with or without cause. Thereafter, this Agreement shall remain in effect for the term set forth in Section III 1 hereof, unless earlier terminated as provided for herein. SECTION IV - COMPENSATION AND BENEFITS 1. Compensation. Employee shall be compensated at a rate of $__________________ per ___________ less any appropriate deductions, payable as earned, payable in accordance with Employer's normal payroll policies during the term of this Agreement (the "Salary"). 2. Benefits. Employee shall be entitled to those benefits, if any, as described in Exhibit "A" attached hereto. 3. Sole Benefits. Employee acknowledges that the compensation and benefits established pursuant to this Section shall be the sole consideration provided by Employer for the services provided under the terms ofthis Agreement. Employee shall not solicit or accept payment from any patient, government entitlement program or third party payor for services rendered pursuant to this Agreement. 4. Reimbursement. Expenses incurred by Employee on Employer's behalf at Employer's discretion shall be reimbursed in full where approved in writing, in advance. In the event an expense paid on behalf of, or reimbursement contributed to, Employee is determined not to be an allowable tax deduction or credit of Employer and such determination is acceded to by Employer or rendered final by the state or federal taxing authority or court with final jurisdiction, Employee shall, forthwith, upon ten (10) days' prior written notice and without regard to whether this Agreement shall then be terminated, reimburse Employer for the full amount of the out-of-pocket loss incurred by Employer as a result of any such disallowance. 2 SECTION V - INSURANCE 1. Malpractice Insurance. Employer shall at its own cost and expense, provide and keep in force a malpractice insurance policy or policies of standard form in the State of Florida, with limits of not less than One Million ($1,000,000.00) Dollars per occurrence and Three Million ($3,000,000.00) Dollars in the aggregate. SECTION VI - PATIENT RELATIONSHIP 1. Confidential Information. Employee acknowledges and agrees that he/she will have access to certain confidential information and trade secrets of the Employer and that such information constitutes valuable, sole, special and unique property of Employer. Employee further acknowledges and agrees that Employee will not, at any time during or after the term hereof, in any fashion, form, or manner either directly or indirectly, divulge, disclose or communicate to any person, firm, or corporation in any manner whatsoever, the terms and conditions of this Agreement or any information of any kind, nature or description concerning any matters affecting or relating to the business of Employer, including, without limiting the foregoing, the names of patients, the prices which Employer pays for goods and services and/or sells goods or services, Employer's manner of operation of Employers business or its plans or processes, or any other data or information of any kind, nature or description which affects or relates to Employer's business without regard to whether any or all of the foregoing would be deemed confidential information or a trade secret under applicable state law ("Confidential Information"). 2. Patient Accounts. All patients shall be and remain the patients of Employer provided that Employee shall exercise independent responsibility for the care and treatment of such individuals to the extent professional services are rendered pursuant to this Agreement. In the event any patient is deemed by operation of law or otherwise to be patient of Employee, Employee shall and hereby does (i) irrevocably assign all Receivables from the treatment of such individuals to Employer, and (ii) irrevocably appoints Employer as the agent and true and lawful attorney-in-fact, with full power of assignment and substitution where legally permissible, to bill patients on Employee's behalf; to collect Receivables from all payors; and to take possession of and endorse in Employee's name, all notes, drafts or instruments received by way of payment for such services (except where prohibited by law or regulation). (a) Employee agrees that each patient account has a reasonable value to Employer of five thousand dollars ($5,000.00), and for each record, or any portion thereof, which Employee attempts to obtain and/or actually does obtain in contravention of this Section, the sum of Five Thousand dollars ($5,000.00) shall be paid to Employer as liquidated damages. The referenced sum shall be due and payable immediately upon the date of the violation or attempted violation of this Section, with such sum to bear interest at the maximum allowable legal rate from the due date to the actual date of payment in full. (b) Paragraph VI 2a notwithstanding, Employee shall maintain adequate and complete records with regard to services rendered to patients. Upon the termination of Employee's employment hereunder, all patient files, records and charts shall remain with Employer, and Employee shall have no right to retain such materials; provided, however, that nothing herein contained shall be construed to prevent any patient from requesting transfer of his/her records to Employee upon the termination of this Agreement, and such materials or photocopies thereof shall be delivered to Employee upon the written request of the subject patient, which request shall be honored promptly upon the payment to Employer by Employee of all reasonable costs, if any, for reproduction and mailing of any such materials. Employer will send invoices to all patients for any services rendered by Employee prior to termination of his/her employment hereunder, and Employer will have the right to collect the full amounts thereof for its own account. SECTION VII - COVENANT NOT TO COMPETE During the term of this Agreement and thereafter the Employee shall not take any action whatsoever which may or might disturb the existingbusiness relationship of the Employer with any of Employer's patients. 1. Restrictions. The Employee agrees that in the event Employer and Employee fail to extend this Agreement, then Employee covenants and agrees that for a period of one (1) year after the termination of his/her employment hereunder (the "Restricted Period"), he/she will not: (i) practice from an office located within a five (5) mile radius if in a rural area, two (2 ) mile radius if in a suburban area, and ten (10) block radius if in an urban center from Employer's Office or (ii) solicit, directly or indirectly, for treatment by Employee, or by any other doctor other than those employed by or who are shareholders of Employer, any persons who were patients of Employer during the Employment Term. 2. Irreparable Damages. The parties hereto acknowledge and agree that consideration has been given to the nature and scope of the business and activities of Employer and that the covenants contained in this Section concerning territorial, substantive and time limitations are in all respects fair and reasonable in view of the facts involved. In the event that any court shall determine that the time, substantive and territorial limitations contained herein are not fair and reasonable, this Agreement shall nevertheless be enforced as to such time, substantive and territorial limits as are reasonable. The parties further agree that Employer will be irreparably damaged in the event of a breach of any of the covenants set forth in this Section, and, accordingly, Employee agrees that such covenants shall be specifically enforceable and that, in addition to any other remedies, any breach or threatened breach thereof may be enjoined by any court of competent jurisdiction located in the State of Florida. 3. Injunctive Relief. The parties further agree that in the event of the breach of any provision of this Agreement, and particularly Section VII hereof, Employer shall be entitled to a permanent injunction or similar court order enjoining the Employee from acting in a fashion contrary to Section VII and that pending such determination the Employee shall accede to a temporary restraining order, without prejudice to any other rights that the Employer may have, all at Employee's expense. 4. Independent Agreement. The covenants contained in Section VII shall be construed as an independent agreement and the existence of any claim which the Employee may have against the Employer will not constitute a defense to the enforcement by the Employer, by injunctive relief or otherwise, of the provisions of Section VII. SECTION VIII - TERMINATION OF EMPLOYMENT 1. Disability of Employee. Notwithstanding anything in this Agreement to the contrary, Employer is hereby given the option to terminate Employee's employment in the event that Employee, during the employment term hereunder, becomes disabled to the extent that he/she is unable fully to perform his/her customary duties hereunder ("Disability"). Such option shall be exercised by Employer by giving notice, pursuant to Section IX 4 herein, to Employee of Employer's intention to terminate Employee's employment due to his/her Disability. Such termination shall take place on the fifteenth (15th) day following the mailing of such notice. For purposes of this Agreement, Employee shall be deemed to have become Disabled if, during the term of his/her employment hereunder, he/she is disabled as defined in Employer's disability plan, if any; provided, however, in the event that Employer does not maintain a disability plan, then to establish a status of Disability there must be a written certification of such Disability by a qualified medical doctor agreed to by Employer and Employee. In the absence of agreement, each party shall nominate a qualified medical doctor and the two doctors shall select a third doctor, who shall make the determination as to the Employee's Disability. 2. Termination by Employer for Cause. Notwithstanding any other provision of this Agreement, Employer may terminate Employee's employment for cause immediately upon the determination and notification to Employee thereof ("Cause Termination Date"). Upon such determination and notification, Employee's right to receive the Salary shall cease, and Employee shall be entitled to receive only such Salary as shall have been earned through the period ending with the Cause Termination Date. The term "Cause" as used herein shall mean that Employee (i) has committed a serious act (such as embezzlement) against Employer, with the intention of enriching himself/herself at the expense of Employer, or has failed to substantially perform his/her duties and responsibilities hereunder or otherwise committed a material breach of any of 3 the terms of this Agreement, or has been convicted of any criminal act involving moral turpitude; or (ii) has been found, in the reasonable belief of Employer, to suffer chronic dependency on drugs or alcohol; or (iii) in carrying out his/her duties hereunder, has committed gross neglect or gross misconduct; or (iv) has become legally disqualified to practice fitness training in the State of Florida, or has been put on probation by the Florida licensing authority for fitness specialists, or has had his/her license to practice fitness training in the State of Florida suspended or revoked; or (v) is unable to obtain fitnesstraining malpractice insurance covering his/her professional conduct, in coverage amounts and/or with insurance carriers acceptable to Employer and upon such terms as are acceptable to the Employer or (iv) there has occurred a material adverse change in the business or economic prospects of Employer as determined solely by Employer; or (vii) Employer has ceased providing services at the Office and Employee's services are not required at any Other Location. 3. Voluntary Termination. Either Employer or Employee may terminate the employment relationship provided for under the terms of this Agreement, for any reason and at any time during the Employment Term, on no less than thirty (30) days prior written notice to the other party hereto, with the last day of such notice period (unless such period shall be shortened or extended by mutual agreement) being the Termination Date. In the event of such voluntary termination, Employee shall receive a pro rata portion of the Salary, and pay for accrued but unused vacation days, through and including the Termination Date. Any rights and benefits Employee may have under any employee benefit plans and programs of Employer shall be determined in accordance with the terms of such plans and programs. SECTION IX - MISCELLANEOUS 1. Specific Performance. It is agreed that any breach or evasion of any of the terms of this Agreement by either party hereto will result in immediate and irreparable injury to the other party, and recourse to injunction and/or specific performance, as well as to all other legal or equitable remedies to which such injured party may be entitled, will be authorized under such circumstances. 2. Indemnity. Employee hereby agrees to indemnify, defend and hold Employer harmless from and against any an all costs, losses, claims, demands and liabilities, including reasonable attorneys' fees which arise out of or relate to any breach by Employee of any of the terms and conditions in this Agreement; any negligent or intentional wrongful act of Employee; any act or omission of Employee which constitutes professional negligence; or any other act of Employee not authorized under the terms of this Agreement. If Employer or any of its shareholders or affiliates is made a party to litigation or obligation or otherwise incurs any loss or expense as a result of Employee's activities unconnected with Employer's business, Employee shall forthwith upon demand, reimburse Employer or such individuals for any and all expenses incurred as a result thereof. 3. Waiver of Breach. The parties understand andintend that each restriction agreed to by Employee under the terms of this Agreement shall be construed as separable and divisible from every other restriction, and that the unenforceability, in whole or in part, of any other restriction will not affect the enforceability of the remaining restrictions. It is further understood that one or more, or all of such restrictions, may be enforced in whole or in part as the circumstances warrant. No waiver of any one breach of the restrictions contained in this Agreement shall be deemed a waiver of any future breach. Employee hereby acknowledges that he/she is fully cognizant of the restrictions set forth in this Agreement and agrees that these provisions shall survive the termination of this Agreement for any reason. 4. Notices. Except as otherwise provided herein, all requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been given if delivered personally, by prepaid telex, telegram, facsimile ("FAX") or mailed first class, postage prepaid, certified United States Mail, return receipt requested, to the party who is to receive such notice, request, demand or communication at such party's address as set forth on the signature page hereof. Any party hereto may change its address for notice by giving to the other party written notice of such change. Any notice given hereunder shall be effective (i) if delivered personally, when delivered, (ii) if sent by telex, telegram or FAX, twenty-four (24) hours after sending, and (iii) if mailed, seventy-two (72) hours after the date of the mailing. 5. Commitments Binding Only Upon Written Consent. Notwithstanding any provision herein to the contrary, it is expressly understood and agreed that Employee shall not have the right to make any contracts or commitments for or on behalf of Employer without the prior written consent of Employer. 6. Time of Essence. Time is of the essence in regard to the obligations established hereunder. The parties hereto agree that they shall cooperate in good faith to accomplish the objectives of this Agreement and, documents and take such further action as may be reasonably necessary to effectuate the terms, conditions and purposes of this Agreement. 7. Entire Agreement. This Agreement contains the entire understanding of the parties with respect to the subject matter hereof, supersedes any prior agreement between the parties, and may not be changed or terminated orally. No change, termination or attempted waiver of any of the provisions hereof shall be binding unless in writing and signed by the party against whom the same is sought to be enforced. 8. Successors and Assigns. The provisions of this Agreement are intended only for the regulation of relations among the parties hereto. This Agreement is not intended for the benefit of creditors or other third parties, and no rights are granted to such individuals or entities except where expressly referenced herein. However, Employer may, in its sole discretion, assign this Agreement by sale or otherwise, and the benefits and obligations of this Agreement shall inure to its successors and/or assigns. 9. Non-Exclusive Rights. The rights and the obligations of the Employer under this Agreement are non-exclusive, and this Agreement shall not be construed to prevent the Employer from simultaneously retaining, contracting with, or otherwise obtaining professional services from any other person or entity. 10. Captions. The headings and captions herein are intended for convenience reference only, and shall not be deemed to be interpretative of the contents of such sections. 11. Execution in Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one and the same instrument. 12. Governing Law. All matters concerning the validity and interpretation of and performance under this Agreement shall be governed by the laws of the State of Florida (without regard to the conflict of laws principles thereof). 13. Arbitration. Any controversy, dispute or disagreement arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration, which shall be conducted in the County of Pinellas, State of Florida, in accordance with the National Health Lawyer's Association ("NHLA") Alternative Dispute Resolution Service Rules of Procedure for Arbitration, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. 14. No Act Contrary To Law. Nothing herein shall be construed so as to require the commission of any act contrary to law, and wherever there is any statute, law, ordinance or regulation which is inconsistent with this Agreement, such statute, law, ordinance or regulation shall prevail, and, in such event, the provision herein in conflict automatically shall be curtailed, limited or eliminated to the extent necessary to bring it within legal limitations. 4 IN WITNESS WHEREOF, the parties hereto have executed this document or caused its execution by a duly authorized officer, all as of the day and year first above written. Complete Wellness Medical Center of Paula Drive, Dunedin, Inc. By: ------------------------------ Employee By: ------------------------------ 5 EXHIBIT "A" EX-10.13 18 FORM OF PROMISSORY NOTE FROM INTEGRATED MED CTR 1 EXHIBIT 10.13 PROMISSORY NOTE (CWC, INC..) $40,000.00 ----------------------- FOR VALUE RECEIVED, the undersigned, an ((State)) corporation having its principal office at ((Address1)), ((City)), ((State)) ((PostalCode)), and for purposes of identification referred to herein as "Medcorp" hereby promises to pay to the order of Complete Wellness Centers, Inc., a Delaware corporation ("CWC"), at its office at 725 Independence Avenue, SE Washington, DC 20003, in lawful money of the United States and in immediately available funds, the aggregate unpaid principal amount of all advances made hereunder which are not to exceed Forty Thousand Dollars ($40,000.00) which is to be repaid no later than five years from the date hereof (the "Maturity Date") and to pay interest (computed on the basis of a year of 365 days for the actual number of days elapsed) from the date of this Promissory Note (the "Note") on the outstanding principal balance of this Note, at an interest rate of ten percent (10%) per annum. This Note is issued pursuant to and is subject to the terms and provisions of that certain Management and Security Agreement of even date herewith, between Medcorp and CWC as the same may be amended, modified or supplemented from time to time (the "Agreement") and is the Note referred to therein. All capitalized terms not defined herein shall have the same definition as contained in the Agreement. The Note shall be secured by a blanket lien on all Medcorp assets, including, but not limited to all Medcorp's accounts receivables. Repayment of the Note is waived for the first ninety (90) days after the Integration Date; payments of interest only, shall commence on the ninety first (91st) day after the Integration Date and shall be due and payable on the same day of the next nine (9) months thereafter at which time payments of principal as well as interest shall be due. The principal amount of the Note shall then be amortized over the remainder of the term of the Agreement and shall be paid in addition to the interest payments. In any event, the Note shall be due and payable upon termination of the Agreement. The books, records and copies of invoices and receipts of CWC shall be evidence of any advance hereunder, the outstanding principal balance hereof, accrued interest hereon, and any payment of principal or interest hereunder. The Agreement contains provisions for acceleration of the maturity hereof upon the happening of certain stated events. In the event of a default in the terms and provisions of this Note or the Agreement, the whole amount of principal and interest shall, at the option of the holder of this Note, become immediately due and payable without diligence, demand, presentment, protest or notice of any kind whatsoever. Medcorp promises to pay costs of collection and reasonable attorneys' fees, including, but not limited to, such fees as are incurred at the appellate level, if default is made in the payment of this Note. The right to plead any and all statutes of limitation as a defense to this Note or to any agreement to pay the same, is hereby expressly waived by the undersigned to the full extent permitted by law. Any amount of principal hereof which is not paid when due, whether at the stated Maturity Date, by acceleration, or otherwise, shall bear interest from the date when due until said principal amount is paid in full, payable on demand, at a rate per annum at all times equal to the maximum legal rate of interest in the State of ((State)) or if no such rate then exists, then at the highest lawful rate of interest permitted under such other applicable law of CWC's choice in effect on the date thereof (the "Maximum Rate"). 2 Notwithstanding anything contained in this Note to the contrary, CWC shall never be deemed to have contracted for or to be entitled to receive, collect or apply as interest on the Note, any amount in excess of the amount permitted and calculated at the Maximum Rate, and, in the event CWC ever receives, collects or applies as interest any amount in excess of the amount permitted and calculated at the Maximum Rate, such amount which would be excessive interest shall be applied to the reduction of the unpaid principal balance of this Note, and, if the principal balance of this Note is paid in full, any remaining excess shall forthwith be paid to the Medcorp. In determining whether or not the interest paid or payable under any specific contingency exceeds the Maximum Rate, CWC and Medcorp shall, to the maximum extent permitted under applicable law, (i) characterize any non-principal payment (other than payments which are expressly designated as interest payments hereunder) as an expense, fee or premium, rather than as interest, (ii) exclude voluntary prepayments and the effect thereof, and (iii) spread the total amount of interest throughout the entire contemplated term of the Note. If payment of principal or interest under this Note shall become due on a Saturday, Sunday or legal holiday under the laws of the State of ((State)), such payment shall be made on the next succeeding business day and such extension of time shall in such case be included in computing interest in connection with such payment. This Note may be prepaid at any time without penalty. Nothing herein shall limit any right granted to CWC by any other instrument or by law or equity. This Note shall be governed by the laws of the State of Maryland. IN WITNESS WHEREOF, the undersigned has caused this Note to be executed by its officer or officers thereunto duly authorized and directed by appropriate corporate authority. ((CWMC_Name)) by: --------------------------------------- (Medcorp President), President EX-10.14 19 FORM OF GUARANTY FROM AFFILIATED CHIROPRACTOR 1 EXHIBIT 10.14 ABSOLUTE, UNCONDITIONAL, IRREVOCABLE AND {PRIVATE} LIMITED CONTINUING GUARANTY OF PAYMENT THIS ABSOLUTE, UNCONDITIONAL, IRREVOCABLIE AND LIMITED CONTINUING GUARANTY OF PAYMENT ("Guaranty') is made on this _____ day of __________, 19_____. WITNESSETH: WHEREAS, Complete Wellness Centers, Inc., a corporation organized under the laws of the State of Delaware (the "Company") has or will make a loan in the amount of Forty Thousand dollars ($40,000.00) to ______________________ (the "Debtor"), whose principal address is _______________________ (the "Loan"); and WHEREAS, the undersigned (hereinafter referred to individually and collectively as the "Guarantor" has represented and warranted to the Company that it will be benefited if such Loan is extended to the Debtor and/or in the transactions being funded with such Loan; and WHEREAS, the company has declined to make such Loan to the Debtor unless each Guarantor executes and delivers to the Company this Guaranty; NOW, THEREFORE, in order to induce the company to make such Loan to the Debtor and in consideration of other good and valuable consideration the receipt of which each Guarantor hereby acknowledges, each Guarantor agrees as follows. 1. Guaranteed Obligations. The Guarantor guarantees the payment to the Company of the Loan which may now or hereafter be due to the Company from the Debtor. 2. Guaranty Absolute, Unconditionally, Irrevocable and Continuing. The Guarantor as direct obligor and not merely as surety, hereby absolutely and unconditionally irrevocably guarantees to the Company, independently of the Debtor the full and complete payment when due (by acceleration or at stated maturity) of the Loan. The obligation of each Guarantor hereunder in respect of the Loan is absolute and unconditional irrespective of the genuiness provision of law which might otherwise constitute a defense or discharge of a Guarantor or hinder prompt enforcement of this Guaranty. This Guaranty shall be a continuing guaranty and shall cover and secure any amount at any time owing in respect of the Loan. Each Guarantor hereby irrevocably waives any right to require that the Company proceed against the Debtor or any other person, or proceed against or exhaust any collateral or security which the Company may now or hereafter hold as security for provision of law which might otherwise constitute a defense or discharge of a Guarantor or hinder prompt enforcement of this Guaranty. This Guaranty shall be a continuing guaranty and shall cover and secure any amount at any time owing in respect of the Loan. Each Guarantor hereby irrevocably waives any right to require that the Companyproceed against the Debtor or any other person, or proceed against or exhaust any collateral or security which the Company may now or hereafter hold as security for the Loan prior to collecting from such Guarantor hereunder. The Guaranty of each Guarantor hereunder shall continue to be effective, or shall be reinstated, as the case may be, if at any time any payment to the Company in respect of the Loan shall be rescinded or must otherwise be returned for any reason whatsoever, including without limitation upon the insolvency, bankruptcy or reorganization of the person or entity making such payment, all as though such payment had not been made. The Guarantor acknowledges that no oral or other agreements, understandings, representations or warranties exist with respect to this Guaranty or with respect to the obligations of the Guarantor under this Guaranty, except as specifically set forth in this Guaranty. 3. Payment. If the Debtor shall default in any payment when due under the Loan (by acceleration, upon maturity or otherwise), each Guarantor shall pay to the Company immediately upon demand the full amount of such payment in lawful currency of the United States of America and in immediately available funds. All such payments shall be made without setoff, deduction or withholding for any reason whatsoever, and shall be final and free from any claim or counterclaim of any other Guarantor or the Debtor. Demand upon each Guarantor shall be made by the Company by notice to such Guarantor as provided herein, setting forth the amount due and demanding payment. All sums payable by each Guarantor hereunder shall be paid to the Company at 725 Independence Avenue, Washington, DC 20003 (or at such other location as shall be designated by the Company in its notice to Guarantor) on the first working day in Washington, DC ("Business Day"), following the date notice is transmitted by telecopy of by telex with confirmed answer back or is delivered personally to such Guarantor, or three (3) days after notice is mailed to such Guarantor demanding payment. 4. Waiver. Each Guarantor hereby irrevocably waives notice of the extension and/or modification of the documents evidencing the Loan guaranteed by this Guaranty, or of the acceptance of this Guaranty, as well as protest, presentment, diligence, demand for payment (except as specified in Section 3 above), notice of default, nonpayment or dishonor of any Loan payment, and any other notice whatsoever except as expressly provided in this Guaranty. 5. Hold Harmless. Each Guarantor agrees to indemnity and hold the Company harmless upon demand for all expenses, losses, consequences or damages of the Company arising from or relating to any claim, demand,. action or proceeding by whomsoever brought in connection with or relating to this Guaranty or the Loan, including without limitation the payment of any court costs, the reasonable fees and expenses of legal counsel, whether in-house or outside counsel, and any other costs of collection incurred by the Company. In addition, each Guarantor agrees to payany documentary stamp taxes, intangible taxes of other taxes (except for federal or Maryland franchise or income taxes based on the Company's net income) which may now or hereafter apply to the Loan or any security therefore, and each Guarantor agrees to indemnify and hold the Company harmless upon demand from and against any liability, costs, attorney's fees, penalties, interest or expenses relating to any such taxes, as and when the same may be incurred. Each Guarantor further agrees to pay the Company on demand., and to indemnify and hold the Company harmless against, any and all other present or future taxes, levies, imposts, deductions, charges and withholdings imposed in connection with the Loan by the laws or governmental authorities of any jurisdiction other than the State of Maryland or the United States of America, and all payments to the Company under this Guaranty shall be made free and clear thereof and without deduction therefore. All amounts payable to the Company hereunder shall bear interest from the date they are expended by the Company until payment in full at the highest lawful rate then permitted by applicable law in the State of Maryland, or if no such rate then exists, at the highest lawful rate permitted under such other applicable law of Company's choice in effect on the date thereof. 6. Notices. Any notice of demand required or permitted to be given hereunder to any Guarantor shall be in writing and shall be: (a) personally delivered; (b) transmitted by postage prepaid, first class mail, (first class airmail if international); or (e) transmitted by telecopy or by telex with confirmed answer back to the address for such Guarantor registered from time to time on the Company's books. Such notice shall be deemed effective at the time of transmission; provided, however, that notice sent by mail shall be effective on the third day after mailing. 7. Statement of Account. Any statement of account maintained by the Company in the ordinary course of business and that is binding on the Debtor shall also be binding upon the Guarantor. Said statement of account shall be admissible, as evidence against the Guarantor to the same extent that it would be admissible against the Debtor but shall not be subject to any 2 defenses that Debtor might assert against the Company. 8. Acceleration. In the event that there has been a default under the terms of the Loan by the Debtor, the Company may, in its sole discretion, accelerate the unpaid balance of the Loan at any time and declare said amount to be immediately due and owing. 9. Severability. Any provision of this Guaranty which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction only, be effective only to the extent of such prohibition or unenforceability, without invalidating the remaining provisions hereof or affecting the validity or enforceability of such other provision in any other jurisdiction. In the event that any law invalidating sucha provision may be waived, it is hereby waived by each Guarantor to the fullest extent permitted by law in order that this Guaranty shall be deemed to be valid and binding agreement enforceable against such Guarantor in accordance with its terms. 10. Governing Law; Jurisdiction. The provisions of this Guaranty, and all rights and obligations hereunder, shall be governed by and construed in accordance with the laws of the State of Maryland without giving effect to the conflicts of laws provisions thereof, which is the place of negotiation, delivery and performance hereof. For any action or proceeding relating to or arising from this Guaranty, the Company and each Guarantor hereby, to the fullest extent permitted by law: (a) submits to the jurisdiction of the state and federal courts in the State of Maryland; (b) waives any immunity or exemption of any property, wherever located, from garnishment, levy, execution, seizure or attachment prior to or in execution of judgment, or sale under execution or other process for the collection of debts; (c) agrees that the venue of any such action or proceeding may be laid in Montgomery County (in addition to any place in which any collateral for the Loan which is the subject of such action or proceeding is then located, or where payment of such Loan should have been made by the Debtor) and waives any claim that the same is in inconvenient forum; and (e) stipulates that service of process in any such action or proceeding shall be properly made if mailed by any form of registered or certified mail (airmail if international), postage prepaid, to the address then registered in the Company's books for such Guarantor, and that any process so served shall be effective ten days after mailing; provided, however, that the foregoing shall not limit the Company's right to serve legal process in any other manner permitted by law or to bring any such action or proceeding in any other court of competent jurisdiction. JURY TRIAL WAIVER. EACH GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT (S)HE OR IT MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION BASED HEREIN, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS ABSOLUTE, UINCONDITIONAL AND CONTINUING GUARANTUY OF PAYMENT, OR OUT OF OR IN CONNECTION WITH ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION THEREWITH, OR ANY COURSE OF CONDUCT COURSE OF DEALINGM STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTIONS OR COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTIONS OR OMISSIONS OF ANY PARTY. GUARANTOR FURTHER ACKNOWLEDGES THAT THIS JURY TRIAL WAIVER PROVISION HAS BEEN EXPLAINED TO IT/HIM/HER COUNSEL AND THAT IT/HE/SHE UNDERSTANDS AND AGREES TO SAME. IN WITNESS WHEREOF, each Guarantor has executed and delivered this Guaranty of the day and year first above written. -------------------- (Signature) -------------------- Print Name -------------------- Social Security No. -------------------- Street Address -------------------- 3 City, State, Zip ------------------- Telephone No. STATE OF ---------- COUNTY OF The foregoing instrument was sworn to, subscribed and acknowledged before me this __________ day of __________, 19_____, by _____________________, individually. - ------------------------------ Notary Public, State of My commission Expires: EX-10.15 20 FORM OF MEDICAL OFFICE SUBLEASE 1 EXHIBIT 10.15 MEDICAL OFFICE SUB-LEASE THIS SUB-LEASE made as of the this _____ day of _____________________, 19__ (the "Lease"), by and between ((CWMC_Name)), a ((State)) professional corporation with offices at ((Address1)) (the "Lessee") and Complete Wellness Centers, Inc., a Delaware corporation licensed to do business in the state of ((State)) (the Lessor"). W I T N E S S E T H: WHEREAS the Lessor currently owns certain leasehold rights to office space located at ((Address1)) (the "Premises or "Office") and WHEREAS Lessee desires to let office space at the Premises in connection with it's operation of a medical practice at the Premises; and WHEREAS the Lessor desires to let such office space to the Lessee under the terms and conditions set forth below; NOW, THEREFORE, in consideration of the mutual covenants contained herein, and other good and valuable consideration, the parties hereto agree as follows: 1. PREMISES. The Lessor hereby leases to Lessee and Lessee hires from Lessor the Premises. Together with the Premises, Lessor hereby leases to Lessee for the term hereof all fixtures, furnishings and furniture appertaining thereto (but subject to any and all liens, financing statements, conditional sales contracts, etc., and to the terms of any equipment leases pertaining thereto). Further, Lessor agrees to provide to the Lessee the management services, personnel, equipment and supplies (hereinafter called the "CWC Services" described in the Management and Security Agreement of even date herewith by and between Lessor as "Manager" and Lessee as "Medcorp" therein (the "Management Agreement"), to which this Lease is annexed and made a part. 2. TERM. The term of this Lease shall be for a period to run concurrent with the term of that certain Integrated Medical Center Management and Security Agreement (the "Integrated Agreement") dated of even date herewith by and among Lessor, ((CWMC_Name)) and (but in no event for a period of less than one (1) year). 3. RENT. The rent to be paid by Lessee to Lessor for the Premises during the term hereof shall be in the amount, and paid in the manner, as follows: a. From and as of the date hereof and until one year from the date hereof (the "Anniversary Date"), the sum of ____________ dollars ($__________) per annum. b. The parties hereto shall mutually agree upon a revised rent on or before two months prior to the Anniversary Date of each Lease year (the "Revision Date"). If the parties fail to reach an agreement with regard to the revised rent before the Revision Date of any Lease year, then the Lessor may, in its sole discretion, determine the revised rent by giving written notice thereof to the Lessee on or before ten days prior to the Anniversary Date of the Lease year. In the event that the Lessee is dissatisfied with such revised rent, the Lessee's sole recourse shall be to notify the Lessor, within ten days after receipt of notice of the revised rent, of the Lessee's intention to terminate this Lease as of the sixtieth (60th) day from the date the notice is sent. Failure to so notify the Lessor of its termination of this Lease shall be deemed to be an acceptance by the Lessee of the revised rent, and the Lessee shall thereupon be obligated to make timely payments of the revised rent to the Lessor. c. The rent shall be payable in monthly installments. Payment of the rent shall be made by the Lessor, in its capacity as manager of the Lessee's business pursuant to the Management Agreement, by drawing a check or wire transfer or other bank transfer payable to the Lessor on the Lessee's account maintained by the Management Company pursuant to Section 2b of the Management Agreement. d. The Lessor and Lessee agree that upon termination or expiration of this Lease for any reason, the Lessor, as Manager, will continue to collect as agent of the Lessee, (pursuant to Section 2b of the Management Agreement) all of the Lessee's then outstanding accounts receivable for professional and ancillary services rendered and will continue to be paid from receipts therefrom any amounts outstanding from the Lessee pursuant to this Lease and/or the Management Agreement until all such amounts then or subsequently due the Lessor shall have been repaid in full. 4. TERMINATION This Lease may be terminated upon the happening of any of the following events: a. This Lease shall terminate automatically in the event that any ground lease, over lease or other lease (underlying lease") by which Lessor has an interest in the Premises is canceled, terminated or otherwise expires. Lessor shall give written notice to Lessee of the cancellation, termination or expiration of any underlying lease and shall specify therein the date of termination, which shall be the same as the date of termination of said underlying lease. b. This Lease shall terminate automatically upon the termination of the Integrated Agreement and/or Management Agreement for any reason whatsoever. c. This Lease shall terminate automatically at such time as the Lessee does not qualify for any reason as a professional corporation, including but not limited to the death or disqualification to practice medicine of every shareholder. For these and all other purposes, the determination of a physician's qualification to practice medicine vel non shall be made by the Lessee and/or by the applicable governmental and professional regulatory agencies, and the Lessor shall in no way make or contribute to such a determination. d. The Lessor may, at its sole option, immediately terminate this Lease: (1) in the event that the Lessee shall fail to make any payment or perform any duty or obligation imposed on it by this Lease or by the Management Agreement, or shall otherwise default under this Lease or under the Management Agreement, or shall otherwise give rise to a right of the Lessor to terminate the Management Agreement pursuant to the provisions thereof, and such default or occurrence shall continue for a period of ten (10) days after notice thereof has been given to the Lessor by the Lessor; or (2) upon the occurrence of a "change in control" of either the Lessor or of the Lessee; for these purposes, a "change of control" of a corporation shall have been deemed to have occurred (a) upon the merger or consolidation of said corporation with or into another corporation or entity, and irrespective of whether said corporation is the surviving entity; (b) upon the sale, transfer or other disposition of a significant portion of the assets of the corporation; (c) if any person or group of persons becomes the beneficial owner, directly or indirectly, of securities of the corporation representing fifty percent (50%) or more of the then outstanding securities of the corporation (whether by purchase or acquisition of such securities or by agreement to act in concert with respect to such securities or otherwise); or (d) if any person or entity owning or controlling more than fifty percent (50%) of the outstanding securities of the corporation at any time ceases to own of record or beneficially at least fifty percent (50%) of the then outstanding securities of the corporation; or (3) if the license to practice medicine of any physician who is a member of or is associated with the Lessee is suspended or revoked by any administrative agency of the State of ((State)) or a petition is filed by any administrative agency of the State of State seeking to suspend or revoke such license on any grounds, including but not limited to improper medical practice or improper conduct by such physician, unless such physician is immediately terminated 2 from any association with the Lessee and the Premises; or (4) if any physician who is a member of or is associated with the Lessee is convicted of a felony, unless such physician is immediately terminated from any association with the Lessee and with the Premises; or (5) upon the filing of a petition in voluntary bankruptcy or an assignment for the benefit of creditors by the Lessee, or upon other action taken or suffered, voluntarily or involuntarily, under any Federal or State law for the benefit of insolvents by the Lessee, except for the filing of a petition in involuntary bankruptcy against the Lessee, with the dismissal thereof within thirty (30) days thereafter; (6) If Lessee defaults in fulfilling any of the covenants of this Lease including the covenants for the payment of rent or additional rent; or if the demised Premises become vacant or deserted; or if the demised Premises are damaged by reason of negligence or carelessness of Lessee, its agents, employees or invitees; or if any execution or attachment shall be issued against Lessee or any of Lessee's property whereupon the demised Premises shall be taken or occupied by someone other than Lessee; or if Lessee shall make default with respect to any other agreement between Lessor and Lessee; or if Lessee shall fail to move into or take possession of the Premises within fifteen (15) days after the commencement of the term of this Lease, of which fact Lessor shall be the sole judge; then, in any one or more of such events, upon Lessor serving a written ten (10) days' notice upon Lessee specifying the nature of said default and upon the expiration of said ten (10) days, if Lessee shall have failed to comply with or remedy such default, or if the said default or omission complained of shall be of a nature that the same cannot be completely cured or remedied within the said ten (10) day period, and shall not thereafter with reasonable diligence and in good faith proceed to remedy or cure such default, then Lessor may serve a written three (3) days notice of cancellation of this Lease upon Lessee, and upon the expiration of said three (3) days, this Lease and the term thereunder shall end and expire as fully and completely as if the expiration of the three (3) day period were the day herein definitely fixed for the end and expiration of this Lease and the term thereof and Lessee shall then quit and surrender the demised Premises to Lessor but Lessee shall remain liable as hereinafter provided; or (7) if the notice provided for in Paragraph 4d(7) hereof shall have been given, and the term shall expire as aforesaid; then and in such event Lessor may without notice, re-enter the demised Premises either by force or otherwise, and dispossess Lessee by summary proceedings or otherwise, and the legal representative of Lessee or other occupant of demised Premises and remove their effects and hold the Premises as if this Lease had not been made, and Lessee hereby waives the service of notice of intention to re-enter or to institute legal proceedings to that end. If Lessee shall make default hereunder prior to the date fixed as the commencement of any renewal or extension of this Lease, Lessor may cancel and terminate such renewal or extension agreement by written notice. No failure or delay on the part of any party to exercise its right of termination hereunder for any one or more causes shall be considered to prejudice said party's right of termination for such or any other subsequent cause. Termination or cancellation of this Lease for any reason whatsoever shall in no way release any party from any payments, obligations or liabilities arising prior to termination or arising from acts or failures to act on or before the date of termination or otherwise due after termination pursuant to the terms of either this Lease or the Management Agreement. Furthermore, no termination of this Lease or of the Management Agreement shall in any way affect the survival; of any right, duty, or obligation which is expressly stated elsewhere in this Lease or in the Management Agreement to survive such termination. 5. ASSIGNMENT\SUBLETTING. Lessee may not, without the prior written consent of the Lessor, assign this Lease or any of the Lessee's interest therein, directly or indirectly, in whole or in part; nor may Lessee underlet, further sublet, or suffer or permit the Premises, or any part thereof, to be used by others, without the prior written consent of Lessor in each instance. For purposes of this paragraph 5, the term "assign" shall mean sell, assign, mortgage, hypothecate, pledge, create a security interest in or lien upon, encumber, give, place in trust, or otherwise voluntarily or involuntarily transfer. Any assignment or subletting by Lessee in violation of this paragraph shall be null and void and of no effect whatsoever. 6. LESSOR'S CONSENT. In any instance wherein Lessee requires the prior written consent of the Lessor, the granting or withholding of such consent shall be within the sole and absolute discretion of the Lessor, without limitation. 7. ALTERATIONS. Lessee shall make no changes in or to the demised Premises of any nature without Lessor's prior written consent. Subject to the prior written consent of Lessor, and to the provisions of this paragraph, Lessee at Lessee's expense, may make alterations, installations, additions or improvements which are non-structural and which do not affect utility services or plumbing and electrical lines, in or to the interior of the demised Premises by using contractors or mechanics first approved by Lessor. All fixtures and all panelling, partitions, railing and like installations, installed in the Premises at any time, either by Lessee or Lessor on Lessee's behalf (including trade fixtures), shall become the property of Lessee and shall remain upon and be surrendered with the demised Premises unless Lessor, by notice to Lessee no later than twenty (20) days prior to the date fixed as the termination of this Lease, elects to have them removed by Lessee, in which event, the same shall be removed from the Premises by Lessee forthwith, at Lessee's expense. Upon removal from the Premises of any installations as may be required by Lessor, Lessee shall immediately and at its expense, repair and restore the Premises to the condition existing prior to installation and repair any damage to the demised Premises or the building due to such removal. All property permitted or required to be removed by Lessee at the end of the term remaining in the Premises after Lessee's removal shall be deemed abandoned and may, at the election of the Lessor, either be retained as Lessor's property or may be removed from the Premises by Lessee at Lessee's expense. Lessee shall, before making any alterations, additions, installations or improvements, at its expense, obtain all permits, approvals and certificates required by any governmental or quasi-governmental bodies and (upon completion) certificates of final approval thereof and shall deliver promptly duplicates of all such permits, approvals and certificates to Lessor and Lessee agrees to carry and will cause Lessee's contractors and sub-contractors to carry such worker's compensation, general liability, personal and property damage insurance as Lessor may require. Lessee agrees to obtain and deliver to Lessor, written and unconditional waivers of mechanic's liens upon the real property in which the demised Premises are located, for all work, labor and services to be performed and materials to be furnished in connection with such work, signed by all contractors, sub-contractors, materialmen and laborers to become involved in such work. Notwithstanding the foregoing, if any mechanic's lien is filed against the demised Premises, or the building of which the same forms a part, for work claimed to have been done for, or materials furnished to, Lessee, whether or not done pursuant to this paragraph, the same shall be discharged by Lessee within ten (10) days thereafter, at Lessee's expense, by payment thereof or by filing the bond required by law. 8. REPAIRS. Lessor shall, on behalf of Lessee, and at Lessee's cost and expense, maintain and repair the public portions of the building, both exterior and interior. The expense thereof incurred by Lessor shall be collectable as additional rent from Lessee, after rendition of a bill or statement therefor, and payable in the same manner as set forth herein for the payment of rent. Lessee shall, throughout the term of this Lease, take good care of the demised Premises and the fixtures and appurtenances therein and at Lessee's sole cost and expense, make all non-structural repairs thereto as and when needed to preserve them in good working order and condition, reasonable wear and tear, obsolescence and damage from the elements, fire or other casualty, excepted. Notwithstanding the foregoing, all damage or injury to the demised Premises or to any other part of the building, or to its fixtures, equipment and appurtenances, whether requiring structural or non-structural repairs, caused by or resulting from carelessness, omission, neglect or improper conduct of Lessee, Lessee's servants, agents, employees, invitees or licensees, shall be repaired promptly by Lessee at its sole cost and expense, to the satisfaction of Lessor reasonably exercised. Lessee shall also repair all damage to the building and the demised Premises caused by the moving of Lessee's fixtures, furniture or equipment. All the aforesaid repairs shall be of quality or class equal to the original work or construction. If Lessee fails after ten days notice to proceed with due diligence to make repairs required to be made by Lessee, the same may be made by Lessor at the expense of Lessee and the expenses thereof incurred by Lessor shall be collectible as additional rent after rendition of a bill or statement therefor. Lessee shall give Lessor prompt notice of any defective condition in any plumbing, heating system or electrical lines located in, servicing or passing through the demised Premises and following such notice, Lessor shall remedy the condition with due diligence, on behalf of and at the expense of Lessee, which expense shall be collectible as additional rent and shall be payable in the same manner as is rent hereunder, as aforesaid. Except as is specifically provided for in Paragraph 11 or elsewhere in this Lease, there shall be no allowance to Lessee for a diminution of rental value and no liability on the part of Lessor by reason of inconvenience, annoyance or injury to business arising from Lessor, Lessee or others making or failing to make any repairs, alterations, additions or improvements in or to any portion of the building or the demised Premises or in and to the fixtures, appurtenances or equipment thereof. The provisions of this Paragraph 8 with respect to the making of repairs shall not apply in the case of fire or other casualty which is addressed in Paragraph 11 hereof. 3 9. WINDOW CLEANING. Lessee will not clean, nor require, permit, suffer or allow any window in the demised Premises to be cleaned, from the outside in violation of Section 202 of the Labor Law or any other applicable law or of the rules of any municipal or other governmental agency, board or body having or asserting jurisdiction. 10. SUBORDINATION. This Lease is subject and subordinate to all ground or underlying leases and to all mortgages which may now or hereafter affect such leases or the real property of which demised Premises are a part and to all renewals, modifications, consolidations, replacements and extensions of any such underlying leases and mortgages. This clause shall be self-operative and no further instrument of subordination shall be required by any ground or underlying lessee or by any mortgagee, affecting any Lease or the real property of which the demised Premises are a part. In confirmation of such subordination, Lessee shall execute promptly any certificate that Lessor may request. 11. DESTRUCTION, FIRE AND OTHER CASUALTY. If the demised Premises or any part thereof shall be damaged by fire or other casualty, Lessee shall give immediate notice thereof to Lessor and this Lease shall continue in full force and effect except as hereinafter set forth: a. If the demised Premises are partially damaged or rendered partially unusable by fire or other casualty, then the rent shall be apportioned from the day following the casualty until such repair shall be substantially completed, according to the part of the Premises which is usable, subject to Lessor's right to elect not to repair the same as hereinafter provided. b. If the demised Premises are totally damaged or rendered wholly unusable by fire or other casualty, then the rent shall be proportionately paid up to the time of the casualty and shall thenceforth cease until the date when the Premises shall have been repaired and restored by Lessor, subject to Lessor's right to elect not to repair the same as hereinafter provided. c. If the demised Premises are rendered wholly unusable, or if Lessor shall elect not to repair partially damaged or partially unusable portions of the Premises or (whether or not the demised premises are damaged in whole or in part) if the building shall be so damaged that Lessor shall decide to demolish it or to rebuild it, then, in any of such events, Lessor may elect to terminate this Lease by written notice to Lessee given within 90 days after such fire or casualty specifying a date for the expiration of the Lease, which date shall not be more than 60 days after the giving of such notice, and upon the date specified in such notice the term of this Lease shall expire as fully and completely as if such date were the date set forth above for the termination of this Lease and Lessee shall forthwith quit, surrender and vacate the Premises without prejudice however, to Lessor's rights and remedies against Lessee under the Lease provisions in effect prior to such termination, and any rent and additional rent owing shall be paid up to such date and any payments of rent made by Lessee which were on account of any period subsequent to such date shall be appropriately apportioned and/or returned to the Lessee. Unless Lessor shall serve a termination notice as provided for herein, Lessor shall make the repairs and restorations under the conditions of Paragraph 11 a. and 11 b. hereof, with all reasonable expedition subject to delays due to adjustment of insurance claims, labor troubles and causes beyond Lessor's control. d. In any such event wherein Lessor elects to restore or repair damage to the Premises as aforesaid, Lessor may require, as a prerequisite to its obligation to make such repairs and restoration, that Lessee agrees to such adjustment(s) in the rent payable hereunder as would, in the sole discretion of Lessor, reimburse Lessor for the actual, out-of-pocket cost and expense to Lessor of the performance of such repairs or restoration. e. Nothing contained hereinabove shall relieve Lessee from liability that may exist as a result of damage from fire or other casualty. Notwithstanding the foregoing, each party shall look first to any insurance in its favor before making any claim against the other party for recovery for loss or damage resulting from fire or other casualty, and to the extent that such insurance is in force and collectible and to the extent permitted by law, Lessor and Lessee each hereby releases and waives all right of recovery against the other or any one claiming through or under each of them by way of subrogation or otherwise. The foregoing release and waiver shall be in force only if both releasors' insurance policies contain a clause providing that such a release or waiver shall not invalidate the insurance and also, provided that such a policy can be obtained without additional premiums. Lessee acknowledges that Lessor will not carry insurance on Lessee's furniture and/or furnishings or any fixtures or equipment, improvements, or appurtenances removable by Lessee and agrees that Lessor will not be obligated to repair any damage thereto or replace the same. 12. EMINENT DOMAIN. If the whole or any part of the demised Premises shall be acquired or condemned by eminent domain for any public or quasi public use or purpose, then and in that event, the rent payable hereunder shall be paid up to the time of such taking and the term of this Lease shall cease and terminate from the date of title vesting in such proceeding and Lessee shall have no claim for the value of any unexpired term of said Lease. 13. ACCESS TO PREMISES. Lessor or Lessor's agents shall have the right (but shall not be obligated) to enter the demised Premises in any emergency at any time, and, at other reasonable times, to examine the same and to make such repairs, replacements and improvements as Lessor may deem necessary and reasonably desirable to the demised Premises or to any other portion of the building or which Lessor may elect to perform following Lessee's failure to make repairs or perform any work which Lessee is obligated to perform under this Lease, or for the purpose of complying with laws, regulations and other directions of governmental authorities. Lessee shall permit Lessor to use and maintain and replace pipes and conduits in and through the demised Premises and to erect new pipes and conduits therein. Lessor may, during the progress of any work in the demised Premises, take all necessary materials and equipment into said Premises without the same constituting an eviction nor shall the Lessee be entitled to any abatement of rent while such work is in progress nor to any damages by reason of loss or interruption of business or otherwise. Throughout the term hereof Lessor shall have the right to enter the demised Premises at reasonable hours for the purpose of showing the same to prospective purchasers or mortgagees of the Premises or of the building of which same are a part and during the last six months of the term for the purpose of showing same to prospective tenants and may, during said six months period, place upon the Premises the usual notice "To Let" and "For Sale" which notice Lessee shall permit to remain thereon without molestation. If Lessee is not present to open and permit an entry into the Premises, Lessor or Lessor's agents may enter the same whenever such entry may be necessary or permissible by master key or forcibly and provided reasonable care is exercised to safeguard Lessee's property and such entry shall not render Lessor or its agents liable therefor, nor in any event shall the obligations of Lessee hereunder be affected. 14. REMEDIES OF LANDLORD. In case of any default, re-entry, expiration and/or dispossess by summary proceedings or otherwise, (a) the rent shall become due thereupon and be paid up to the time of such re-entry, dispossess and/or expiration, together with such expenses as Lessor may incur for legal expenses, attorneys' fees, brokerage and/or putting the demised Premises in good order, or for preparing the same for re-rental; Lessor may re-let the Premises or any part or parts thereof, either in the name of Lessor or otherwise, for a term or terms, which may at Lessor's option be less than or exceed the period which would otherwise have constituted the balance of the term of this Lease and may grant concessions or free rent or charge a higher rental than that in this Lease, and/or (c) Lessee or the legal representatives of the Lessee shall also pay Lessor as liquidated damages for the failure of Lessee to observe and perform said Lessee's covenants herein contained, any deficiency between the rent hereby reserved and/or covenanted to be paid and the net amount, if any, of the rents collected on account of the Lease for each month of the period which would otherwise have constituted the balance of the term of this Lease. The failure or refusal of Lessor to re-let the Premises or any part or parts thereof shall not release or affect Lessee's liability for damages. In computing such liquidated damages there shall be added to the said deficiency such expenses as Lessor may incur in connection with re-letting such as legal expenses, attorneys' fees, brokerage and/or putting the demised Premises in good order, or for preparing the same for re-letting. Any such liquidated damages shall be paid in monthly installments by Lessee on the rent day specified in this Lease and any suit brought to collect the amount of the deficiency for any month shall not prejudice in any way the rights of Lessor to collect the deficiency for any subsequent month by a similar proceeding. Lessor, in putting the demised Premises in good order or preparing the same for re-rental may, at Lessor's option, make such alterations, repairs, replacements and/or decorations in the demised Premises as Lessor, in Lessor's sole judgment, considers advisable and necessary for the purpose of re-letting the demised Premises, and the making of such alterations, repairs, replacements and/or decorations shall not operate or be construed to release Lessee from liability hereunder as aforesaid. Lessor shall in no event be liable in any way whatsoever for failure to re-let the demised Premises, or in the event that the demised Premises are re-let, for failure to collect the rent thereof under 4 such re-letting, and in no event shall Lessee be entitled to receive any excess, if any, of such net rents collected over the sums payable by Lessee to Lessor hereunder. In the event of a breach or a threatened breach by Lessee of any of the covenants or provisions hereof, Lessor shall have the right of injunction and the right to invoke any remedy allowed at law or in equity as if re-entry, summary proceedings and other remedies were not herein provided for. Mention in this Lease of any particular remedy, shall not preclude Lessor from any other remedy, in law or in equity. Lessee hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Lessee being evicted or dispossessed for any cause, or in the event of Lessor obtaining possession of the demised Premises, by reason of the violation by Lessee of any of the covenants and conditions of this Lease, or otherwise. 15. NO REPRESENTATIONS BY LANDLORD. Neither Lessor nor Lessor's agents have made any representations or promises with respect to the physical condition of the building, the land upon which it is erected or the demised Premises, the rents, leases, expenses of operation or any other matter or thing affecting or related to the Premises except as herein expressly set forth and no rights, easements or licenses are acquired by the Lessee by implication or otherwise except as expressly set forth in the provisions of this Lease. Lessee has inspected the building and the demised Premises and is thoroughly acquainted with their condition, and agrees to take the same "as is" and acknowledges that the taking of possession of the demised Premises by Lessee shall be conclusive evidence that the said Premises and the building of which the same form a part were in good and satisfactory condition at the time such possession was so taken, except as to latent defects. All understandings and agreements heretofore made between the parties hereto are merged in this Lease, and the Management Agreement to which it is annexed, which alone fully and completely express the agreement between Lessor and Lessee and any executory agreement hereafter made shall be ineffective to change, modify, discharge or effect an abandonment of it in whole or in part, unless such executory agreement is in writing and signed by the party against whom enforcement of the change, modification, discharge or abandonment is sought. 16. END OF TERM. Upon the expiration or other termination of the term of this Lease, Lessee shall quit and surrender to Lessor the demised Premises, broom clean, in good order and condition, ordinary wear excepted, and Lessee shall remove all its property. Lessee's obligation to observe or perform this covenant shall survive the expiration or other termination of this Lease. If the last day of this Lease or any renewal thereof, falls on Sunday, this Lease shall expire at noon on the preceding Saturday unless it be a legal holiday in which case it shall expire at noon on the preceding business day. 17. QUIET ENJOYMENT. Lessor covenants and agrees with Lessee that upon Lessee paying the rent and additional rent and observing and performing all the terms, covenants and conditions, on Lessee's part to be observed and performed, and Lessee's observing and performing all the terms, covenants and conditions on Lessee's part to be performed under the Management Agreement, Lessee may peaceably and quietly enjoy the Premises hereby demised, subject, nevertheless, to the terms and conditions of this Lease including, but not limited to, Paragraph 16 hereof and to the ground leases, underlying leases and mortgages herein before and hereinafter mentioned. 18. INABILITY TO PERFORM. This Lease and the obligation of Lessee to pay rent hereunder and perform all of the other covenants and agreements hereunder on the part of Lessee to be performed shall in no way be affected, impaired or excused because Lessor is unable to fulfill any of its obligations under this Lease or to supply or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make, or is delayed in making any repair, additions, alterations or decorations or is unable to supply or is delayed in supplying any equipment or fixtures if Lessor is prevented or delayed from so doing by reason of strike or labor troubles or any cause whatsoever including, but not limited to, government preemption in connection with a National Emergency or by reason of any rule, order or regulation of any department or subdivision thereof or any government agency or by reason of the conditions of supply and demand which have been or are affected by war or other emergency. 19. SERVICES. Lessor shall provide all essential services to the Premises (e.g. water, electricity, gas, heat, air conditioning, etc.) on behalf of and at the expense of the Lessee, the cost of which services shall be included within the rent payable by Lessee hereunder (and the increase in which costs shall be included in any adjustments to the rent made pursuant to Paragraph 3 hereof. Lessor may require Lessee, at any time, to arrange with the utility companies supplying such services to have accounts therefor established in the name of the Lessee, after which Lessee shall pay the charges therefor directly to such utility companies. 20. RULES AND REGULATIONS. Lessee and Lessee's servants employees, agents, visitors, and licensees shall observe faithfully, and comply strictly with, the Rules and Regulations of the building and such other reasonable Rules and Regulations as Lessor or Lessor's agents may from time to time adopt. Notice of any additional rules and regulations shall be given in such manner as Lessor may elect. The right to dispute the reasonableness of any additional Rule or Regulation upon Lessee's part shall be deemed waived unless the same shall be asserted by service of a notice, in writing upon Lessor within ten (10) days after the giving of notice thereof. Nothing in this Lease contained shall be construed to impose upon Lessor any duty or obligation to enforce the Rules and Regulations or terms, covenants or conditions in any other Lease, as against any other tenant and Lessor shall not be liable to Lessee for violation of the same by any other tenant, its servants, employees, agents, visitors or licensees. 21. SECURITY. Lessee has deposited with Lessor the sum of twice the monthly rent as security for the faithful performance and observance by Lessee of the terms, provisions and conditions of this Lease; it is agreed that in the event Lessee defaults in respect of any of the terms, provisions and conditions of this Lease, including, but not limited to, the payment of rental and additional rent, Lessor may use, apply or retain the whole or any part of the security so deposited to the extent required for payment of any rent and additional rent or any other sum as to which Lessee is in default or for any sum which Lessor may expend or may be required to expend by reason of Lessee's default in respect of any of the terms, covenants and conditions of this Lease, including but not limited to, any damages or deficiency accrued before or after summary proceedings or other re-entry by Lessor. In the event that Lessee shall fully and faithfully comply with all of the terms, provisions, covenants and conditions of this Lease, the security shall be returned to the Lessee after the date fixed as the end of the Lease and after delivery of entire possession of the demised Premises to Lessor. In the event of a sale of the land and building or leasing of the building, of which the demised Premises form a part, Lessor shall have the right to transfer the security to the vendee or lessee and Lessor shall thereupon be released by Lessee from all liability for the return of such security; and Lessee agrees to look to the new Lessor solely for the return of such security; and it is agreed that the provisions hereof shall apply to every transfer or assignment made of the security to a new lessor. Lessee further covenants that it will not assign or encumber or attempt to assign or encumber the monies deposited herein as security and that neither Lessor nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. 22. INSURANCE AND INDEMNITY. a. Lessee, prior to commencing occupancy of the Premises, shall obtain, and shall maintain throughout the term of this Lease and any renewals thereof, a policy of comprehensive general liability insurance covering the Premises, with minimum limits of One Million ($1,000,000.00) dollars per occurrence for personal injury, death and/or property damage, and Three Million ($3,000,000.00) dollars aggregate, written with a company licensed to do business in the State of State and satisfactory to Lessor. Lessor shall be named as an additional insured under said policy. Lessee shall provide Lessor with a certificate evidencing such coverage prior to taking occupancy, which certificate shall set forth on its face: (1) that Lessor is an additional insured; (2) that such policy may not be terminated or canceled for any reason, shall not expire by its term and may not be altered or modified in any way without Lessor receiving at least thirty (30) days prior written notice of any of same; and (3) that Lessee is covered for contractual obligations, including specifically its obligations to indemnify Lessor, as set forth hereinafter and in the Management Agreement. b. Lessee hereby indemnifies, holds harmless and agrees to defend Lessor from and against any and all liability, losses, damages, claims, causes of action and expenses associated therewith (including reasonable attorneys' fees), of whatsoever nature and by whomsoever asserted arising, directly or 5 indirectly, out of any bodily injury, death or property damage occurring in, on or about (or claimed to have been occurred in, on or about) the Premises, or the Land, or the building of which the Premises are a part, or the sidewalks adjacent thereto, during the term of this Lease or any renewal thereof. This provision shall survive the expiration or sooner termination of this Lease. 23. SPECIFIC SUPERIOR INSTRUMENTS. In addition to the subordination set forth in Paragraph 10 hereof, and without in any way limiting the generality of the foregoing, it is agreed and understood that this Lease is subject and subordinate to those matters which are set forth in Exhibit "A" annexed hereto and made a part hereof. Lessee acknowledges receipt of true and complete copies of each and every document or instrument relative to the matters set forth herein and represents that it is aware of the terms and provisions of each of same and that this Lease is subordinate thereto. Although this clause is self-operative and no further instruments are necessary to confirm same, Lessee will deliver to Lessor, upon request, such instruments as may be required by Lessor or the holders of any of the instruments set forth in Exhibit "B" to evidence the subordination of this Lease thereto. If Lessee shall fail to execute any such instrument provided by Lessor within five (5) business days after request by Lessor, Lessor may execute same as attorney-in-fact for Lessee and Lessee hereby appoints Lessor as same. 24. ENTIRE AGREEMENT; NO MODIFICATION. This Lease (including the Management Agreement to which it is attached and which is incorporated herein by reference) and the Exhibits annexed hereto and made a part hereof, if any, constitute the entire agreement between the parties hereto with respect to the subject matter hereof, there being no representation, warranty or other agreement not herein expressly set forth or provided for. No change, modification, or amendment of or addition to this Agreement shall be valid unless in writing and executed by all of the parties hereto. 25. NOTICES. Any and all notices, designations, consents, offers, acceptances or any other communication provided for herein shall be given in writing by registered or certified mail to the parties at the addresses shown above. Each such communication shall be deemed to have been given at the time it is mailed at any regularly maintained post office. 26. NO WAIVER. No course of dealing nor any delay on the part of any party in exercising any rights hereunder or under the Management Agreement shall operate as a waiver of any of such rights. No waiver of any default or breach of this Lease or of the Management Agreement shall be deemed a continuing waiver or waiver of any other breach or default hereunder or under the Management Agreement. 27. SEVERABILITY. If any provision of this Lease or the application of any such provision to any party or in any circumstances shall be determined by any court or regulatory authority of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Lease or the application of such provision or provisions to such entity or circumstances other than those to which it is so determined to be invalid and unenforceable, shall not be affected thereby and shall be valid and enforceable to the fullest extent of the law. 28. BINDING EFFECT. This Lease shall inure to the benefit of the parties hereto and, except as otherwise provided herein, their respective successors and assigns as permitted herein. Nothing in this Lease, express or implied, is intended to or shall confer on any person other than the parties hereto, or (to the extent not prohibited) their respective successors or assigns, any rights, remedies, obligations or liabilities under or by reason of this Lease. 29. GOVERNING LAW. This Lease shall be interpreted and given effect in accordance with the laws of the State of State without giving effect to the conflict of laws provisions thereof. 30. CONFLICT WITH MANAGEMENT AGREEMENT. This Lease being attached to and made a part of the Management Agreement, is intended to complement and not to conflict with or in any way limit the terms and provisions of the Management Agreement. Accordingly, in the event of any conflict or inconsistency between the terms and provisions hereof and those of the Management Agreement, those of the Management Agreement will control. 32. SECTION HEADINGS. The section headings in this Lease are for convenience only, and are not to be construed as part of this Lease. 6 IN WITNESS WHEREOF, the undersigned have hereunto set their hands the day and year first above written. WITNESS: ((CWMC_Name)) - ----------------- by: ----------------------- , President Complete Wellness Centers, Inc. - ----------------- by: ----------------------- E. Eugene Sharer, President State of ((State)) County of ((County)) On this ____ day of ______________, 19__ before me personally came, to me known, who being by me duly sworn, did depose and say that he resides at; that he is the president of ((CWMC_Name)), the corporation described in, and which executed the foregoing instrument as Lessee; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation, and that he signed his name thereto by like order. --------------------------------- NOTARY PUBLIC State of Maryland County of Montgomery On this ____ day of ________, 19__ before me personally came E. Eugene Sharer, to me known, who being by me duly sworn, did depose and say that he resides at 12404 Beall Spring Road, Potomac, MD 20854; that he is the president of Complete Wellness Centers, Inc., the corporation described in, and which executed, the foregoing instrument, as Lessor; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors and said corporation, and that he signed his name thereto by like order. --------------------------------- NOTARY PUBLIC EX-10.16 21 FORM OF EQUIPMENT SUBLEASE 1 EXHIBIT 10.16 EQUIPMENT SUB-LEASE EQUIPMENT SUB-LEASE made this __ day of _______ , 19__ (the "Lease"), by and between Complete Wellness Centers, Inc., a Delaware corporation having its principal place of business at 725 Independence Avenue, Washington, DC 20003 ("Lessor") and ((CWMC_Name)), a ((State)) chartered professional corporation having its principal place of business at ((Address1)) ("Lessee"). TERMS AND CONDITIONS OF LEASE 1. LEASE. Lessor hereby leases to Lessee, and Lessee hereby hires and takes from Lessor the personal property described in Exhibit "A" attached (hereinafter, with all replacement parts, additions, repairs, and accessories incorporated therein and/or affixed thereto, referred to as "Equipment") upon the following terms and conditions. 2. TERMS OF RENTAL. A. Term. This Lease is for a term to run concurrent with the term of that certain Integrated Medical Center Management and Security Agreement (the "Integrated Agreement") dated of even date herewith by and among Lessor, ((CWMC_Name)) and (but in no event for a period of less than one (1) year). B. Annual Rental. The annual rental payment for the Equipment shall be $________, payable in arrears, in twelve consecutive monthly installments, plus applicable taxes thereon, as follows: Month 1 Month 5 Month 9 ---------- ----------- ------------ Month 2 Month 6 Month 10 ---------- ----------- ------------ Month 3 Month 11 ---------- ------------ Month 7 ----------- Month 4 Month 12 ---------- ------------ Month 8 -----------
Thereafter, annual rental payments shall be adjusted for additional one year terms pursuant to negotiation between the Lessor and the Lessee, but in no event shall the adjusted rental payment rate be less than the rental rate described herein. 3. DESTRUCTION OF EQUIPMENT. If any Equipment is totally destroyed, the liability of the Lessee to pay rent therefor may be discharged by paying to the Lessor all the rent due thereon, plus all the rent to become due thereon less the net amount of the recovery, if any, actually received by Lessor from insurance or otherwise for such loss or damage. Lessor shall not be obligated to undertake, by litigation or otherwise, the collection of any claim against any person for loss or damage of the Equipment. Except as expressly provided in this paragraph, the total or partial destruction of any Equipment, or total or partial loss of use or possession thereof to Lessee, shall not release or relieve Lessee from the duty to pay the rent herein provided. 4. NO WARRANTIES BY LESSOR; MAINTENANCE, COMPLIANCE WITH LAWS AND INSURANCE. LESSOR, NOT BEING THE MANUFACTURER OF THE EQUIPMENT, NOR MANUFACTURER'S AGENT, MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE FITNESS, QUALITY, DESIGN, CONDITION, CAPACITY, SUITABILITY, MERCHANTABILITY OR PERFORMANCE OF THE EQUIPMENT OR OF THE MATERIAL OR WORKMANSHIP THEREOF, IT BEING AGREED THAT THE EQUIPMENT IS LEASED "AS IS" AND THAT ALL SUCH RISKS, AS BETWEEN THE LESSOR AND THE LESSEE, ARE TO BE BORNE BY THE LESSEE AT ITS SOLE RISK AND EXPENSE. Lessee accordingly agrees not to assert any claim whatsoever against the Lessor based thereon. Lessee further agrees, regardless of cause, not to assert any claim whatsoever against the Lessor for loss of anticipatory profits or consequential damages. Lessor shall have no obligation to install, erect, test, adjust, or service the Equipment. No oral agreement, guaranty, promise, condition, representation, or warranty shall be binding; all prior conversations, agreements, or representations related hereto and/or to the Equipment are integrated herein, and no modification hereof shall be binding unless in writing signed by Lessor. Lessee agrees, at its own cost and expense, (a) to pay all shipping charges and other expenses incurred in connection with the shipment of the Equipment by the Seller to the Lessee; (b) to pay all charges and expenses in connection with the operation of each item of Equipment; (c) to comply with all governmental laws, ordinances, regulations, requirements, and rules with respect to the use, maintenance, and operation of each item of Equipment; (d) to maintain at all times public liability, property damage, fire with extended coverage, theft, and comprehensive insurance in an amount satisfactory to Lessor, protecting Lessor's interest as it may appear, delivering to Lessor evidence of such insurance coverage; all insurance policies shall provide that no cancellation thereof shall be effective without 30 days prior written notice to Lessor, and (e) to make all repairs and replacements required to be made to maintain the Equipment in good condition, reasonable wear and tear excepted. 5. TAXES. Lessee agrees that, during the term of this Lease, in addition to the rent and all other amounts provided herein to be paid, it will promptly pay all taxes, assessments, and other governmental charges (including penalties and interest, if any, and fees for titling or registration, if required) levied or assessed, (a) upon the interest of the Lessee in the Equipment or upon the use or operation thereof; or on the earnings arising therefrom, and (b) against Lessor on account of its acquisition or ownership of the Equipment or any part thereof, or the use or operation thereof or the leasing thereof to the Lessee, or the rent herein provided for, or the earnings arising therefrom, exclusive, however, of any taxes based on net income of Lessor. Lessee agrees to file, in behalf of Lessor, all required tax returns and reports concerning the Equipment with all appropriate governmental agencies, and within not more than 45 days after the due date of such filing to send Lessor confirmation, in form satisfactory to Lessor, of such filing. 6. LESSOR'S TITLE, RIGHT OF INSPECTION, AND IDENTIFICATION OF EQUIPMENT: Title to the Equipment shall at all times remain in the Lessor and Lessee will at all times protect and defend, at its own cost and expense, the title of Lessor from and against all claims, liens, and legal processes of creditors of the Lessee and keep all the Equipment free and clear from all such claims, liens, and processes. The Equipment is and shall remain personal property. Upon the expiration or termination of this Lease: (i) the Lessee at Lessee's sole expense shall return the Equipment unencumbered to Lessor at the place where the rent is payable or to such other place as Lessor and Lessee agree upon, and in the same condition as when received by Lessee, reasonable wear and tear resulting from use thereof alone excepted, or (ii) in lieu of returning the Equipment to the Lessor, Lessee agrees that Lessee will, upon request of Lessor, store the Equipment on Lessee's premises, at an inside location protected from the weather and elements, without charge to Lessor for a period of 180 days following the date of expiration or termination of this Lease. During such storage period Lessee shall not use the Equipment for any purpose. Upon expiration of such storage period Lessee shall not use the Equipment for any purpose. Upon expiration of such storage period Lessee will return the Equipment to the Lessor in accordance with the provisions of (i) above. Lessor shall have the right from time to time during reasonable business hours to enter upon the Lessee's premises or elsewhere for the purpose of confirming the existence, condition, and the proper maintenance of the Equipment during any period of storage. Lessor shall also have the right to demonstrate and show the Equipment to others. The foregoing rights of entry are subject to any applicable governmental laws, regulations and rules concerning industrial security. Lessee shall, upon the request of Lessor, and at its own expense firmly affix to the Equipment, in a conspicuous place, such a decal or metal plate as shall be supplied by Lessor showing Lessor as the owner and lessor of such Equipment. 7. POSSESSION, PLACE OF USE, AND CHANGES IN LOCATION OF EQUIPMENT. So long as Lessee shall not be in default under this Lease it shall be entitled to the possession and use of the Equipment in accordance with the terms of this Lease. The Equipment shall be used in the conduct of the lawful business of the Lessee and shall be kept at the address of Lessee set forth above. The Lessee shall not, without Lessor's prior written consent, remove the Equipment from such location, part with possession or control of the Equipment or attempt to purport to sell, pledge, mortgage, or otherwise encumber any of the Equipment or otherwise 2 dispose of or encumber any interest under this Lease. 8. PERFORMANCE OF OBLIGATIONS OF LESSEE BY LESSOR. In the event that the Lessee shall fail duly and promptly to perform any of its obligations under the provisions of paragraphs 4, 5, and 6 of this Lease, the Lessor may, at its option, perform the same for the account of Lessee without thereby waiving such default, and any amount paid or expense incurred (including reasonable attorney's fees), penalty, or other liability incurred by Lessor in such performance, together with interest at the rate of 1 1/2% per month thereon until paid by the Lessee to the Lessor, shall be payable by the Lessee upon demand as additional rent for the Equipment. 9. DEFAULT. An event of default shall occur if: (a) Lessee fails to pay when due any installment of rent and such failure continues for a period of 10 days, (b) Lessee shall fail to perform or observe any covenant, condition, or agreement to be performed or observed by it hereunder and such failure continues uncured for 15 days after written notice thereof to Lessee by Lessor, (c) Lessee ceases doing business as a going concern, makes an assignment for the benefit of creditors, admits in writing its inability to pay its debts as they become due, files a voluntary petition in bankruptcy, is adjudicated a bankrupt or an insolvent, files a petition seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar arrangement under any present or future statute, law, or regulation or files an answer admitting the material allegations of a petition filed against it in any such proceeding, consents to or acquiesces in the appointment of a trustee, receiver, or liquidator of it or of all or any substantial part of its assets or properties, or if it or its shareholders shall take any action looking to its dissolution or liquidation, (d) within 60 days after the commencement of any proceedings against Lessee seeking reorganization, arrangement, readjustment, liquidation, dissolution, or similar relief under any present or future state, law, or regulation, such proceedings shall not have been dismissed, or if within 60 days after the appointment without Lessee's written consent of any trustee, receiver, or liquidator of it or of all or any substantial part of its assets and properties, such appointment shall not be vacated, or (e) Lessee attempts to remove, sell, transfer, encumber, part with possession, or sublet the Equipment or any item thereof. Upon the occurrence of an event of default, Lessor shall have all the rights and remedies provided by applicable law and by this Lease. Notwithstanding that this agreement is a Lease and title to the Equipment is at all times in Lessor, Lessor may nevertheless at its option choose those rights and remedies of a secured party under the Uniform Commercial Code. In addition, Lessor, at its option, may: (a) declare all unpaid rentals and other sums due and to become due hereunder immediately due and payable; (b) proceed by appropriate court action or actions or other proceedings either at law or in equity to enforce performance by Lessee of any and all covenants of this Lease and to recover damages for the breach thereof; (c) demand that Lessee deliver the Equipment forthwith to Lessor at Lessee's expense at such place as Lessor may designate; and (d) without notice, liability or legal process, enter by itself and/or its agents into any premises of or under control or jurisdiction of Lessee or any agent of Lessee where the Equipment may be or by Lessor is believed to be, and repossess all or any item thereof, disconnecting and separating all thereof from any other property and using all force necessary and permitted by applicable law so to do, Lessee hereby expressly waiving all further rights to possession of the Equipment and all claims for injuries suffered through or loss caused by such repossession. Notwithstanding recovery of the Equipment by Lessor, Lessor shall, nevertheless, also be entitled to recover immediately as liquidated damages for loss of the bargain and not as penalty any unpaid rent that accrued on or before the occurrence of the event of the event of default plus an amount equal to the difference between the present value, as of the date of the occurrence of such event of default, of the aggregate rent reserved hereunder for the unexpired term of this Lease and the then present value of the aggregate rental value of all Equipment for such unexpired term which the Lessor reasonably estimates to be obtainable for the use of all of the Equipment during such unexpired term. If any statute governing the proceeding in which such damages are to be proved specifies the amount of such claim, Lessor shall be entitled to prove as and for damages for the breach an amount equal to that allowed under such statute. The provisions of this paragraph shall be without prejudice to any rights given to the Lessor by such statute to prove for any amounts allowed thereby. Should any proceedings be instituted by or against Lessor hereunder and/or for possession of any or all of the Equipment or for any other relief, Lessee shall pay a reasonable sum as attorney's fees. No remedy of Lessor hereunder shall be exclusive of any remedy herein or by law provided, but each shall be cumulative and in addition to every other remedy. 10. INDEMNITY. Lessee agrees that Lessor shall not be liable to Lessee for, and Lessee shall indemnify and save Lessor harmless from and against any and all liability, loss, damage, expense, causes of action, suits, claims, or judgments arising from or caused directly or indirectly by: (a) Lessee's failure to promptly perform any of its obligations under the provisions of paragraphs 4, 5, and 6 of this Lease, or (b) injury to person or property resulting from or based upon the actual or alleged use, operation, delivery, or transportation of any or all of the Equipment or its location or condition, or (c) inadequacy of the Equipment, or any part thereof, for any purpose or any deficiency or defect therein or the use or maintenance thereof or any repairs, servicing or adjustments thereto or any delay in providing or failure to provide any thereof or any interruption or loss of service or use thereof or any loss of business; and shall, at its own cost and expense, defend any and all suits which may be brought against Lessor, either alone or in conjunction with others upon any such liability or claim or claims and shall satisfy, pay, and discharge any and all judgments and fines that may be recovered against Lessor in any such action or actions, provided, however, that Lessor shall give Lessee written notice of any such claim or demand. 11. ASSIGNMENT, NOTICES, REMEDIES, AND WAIVERS. This Lease and all rights of Lessor hereunder shall be assignable by Lessor without Lessee's consent, but Lessee shall not be obligated to any assignee of the Lessor except after written notice of such assignment from the Lessor. Without the prior written consent of Lessor, the Lessee shall not assign this Lease or its interests hereunder or enter into any sublease with respect to the Equipment covered hereby, it being agreed Lessor will not unreasonably withhold its consent to a sublease of the Equipment. All notices relating hereto shall be delivered in person to an officer of the Lessor or Lessee or shall be mailed registered to Lessor or Lessee at its respective address above shown or at any later address last known to the sender. No remedy of Lessor hereunder shall be exclusive of any other remedy herein or by law provided, but each shall be cumulative and in addition to every other remedy. A waiver of a default shall not be a waiver of any other or a subsequent default. 12. FURTHER ASSURANCES. Lessee shall execute and deliver to Lessor, upon Lessor's request, such instruments and assurances as Lessor deems necessary or advisable for the confirmation or perfection of this Lease and Lessor's rights hereunder, including the filing or recording of this agreement at Lessor's option. 13. LEASE IRREVOCABILITY. This Lease is irrevocable for the full term hereof and for the aggregate rentals hereinabove reserved and the rent shall not abate by reason of termination of Lessee's right of possession and/or the taking of possession by the Lessor or for any other reason, and delinquent installments of rent shall bear interest at 1 1/2% per month if not prohibited by law, otherwise at the highest lawful contract rate. 14. RENEWAL. Any renewal privilege shown above shall be exercised by the Lessee giving the Lessor a notice in writing and paying the Lessor the amount of the renewal rental, at least 30 days prior to the commencement of the renewal term of the Lease. Upon such notification and payment, this Lease shall be renewed for the stated renewal term at the stated renewal rental with the other provisions and conditions of the Lease continuing unchanged. 15. NO PURCHASE OPTION. Lessee shall have no option to purchase or otherwise acquire title to or ownership of any of the Equipment and shall have only the right to use the same under and subject to the term and provisions of this Lease. 3 UNDERSIGNED AGREE TO ALL TERMS AND CONDITIONS SET FORTH ABOVE AND IN WITNESS WHEREOF, THEY HEREBY EXECUTE THIS LEASE. Complete Wellness Center, Inc. ((CWMC_Name)) by: by: ------------------------------- --------------------------- E. Eugene Sharer, President , President 4 EXHIBIT "A" Description of Leased Equipment OTHER MAKE KIND MODEL NO. SERIAL NO. PERTINENT I.D. EX-10.17 22 EMPLOYMENT AGT DATED JULY 1, 1996 1 EXHIBIT 10.17 July 1, 1996 Mr. C. Thomas McMillen 1103 South Carolina Avenue, S.E. Washington, D.C. 20003 Dear Mr. McMillen, This letter, when accepted by you in a manner hereinafter provided, will evidence the agreement among Complete Wellness Centers, Inc., a Delaware Corporation (the "Company") and Mr. C. Thomas McMillen (the "Employee") for the provision of certain services to be rendered by Employee to the Company (the "Agreement"), all under the following terms and conditions to wit: 1. EMPLOYMENT DUTIES The Company shall employ Employee as Chairman and Chief Executive Officer. Employee shall report to the Board of Directors. Employee shall devote his time and best efforts on a substantially full time basis to the business and affairs of the Company. Employee shall devote at least forty (40) hours per week to the business and affairs of the Company. (Nothing in this Agreement shall prohibit Employee from time to time engaging in other business arrangements and/or possessing an interest in other business ventures of any and every type and description subject to the provisions of Section 4.) 2. EMPLOYMENT TERM This Agreement shall commence on July 1, 1996, and shall end on March 31, 1999 (the "Employment Term") unless extended by the Company and Employee in writing or unless sooner terminated in accordance with the provisions of this Agreement. 3. COMPENSATION, EXPENSES, ETC. In consideration of performance of the services and activities hereby, the Company shall pay Employee compensation as follows: A. An initial base salary of ninety thousand dollars ($90,000) per annum, payable semi-monthly in arrears. At such time as the Company closes its initial public offering, the base salary shall be increased to one hundred fifty thousand dollars ($150,000) per annum. B. Employee shall receive an additional performance bonus (the "Bonus") equal to thirty 2 percent (30%) of the Company's Bonus Fund, in accordance with the Company's 1995 Bonus Plan for Key Executives. For the purpose of this Section 3, the "Bonus Fund" shall be equal to at least ten percent (10%) of the Company's pre-tax income. The maximum bonus fund is $5 million. C. The use of a Company car and payment of related expenses including gas, insurance, maintenance, etc. D. Four (4) weeks of compensated vacation which shall vest ratably throughout the year. E. The Company shall make available such health benefits and any other benefits as it makes available to its executive employees. F. Upon termination of this Agreement pursuant to Section 5(i) and 5(ii), Employee shall receive a severance payment equal to twelve (12) times the Employee's monthly compensation pursuant to Section 3(A) for the month prior to termination. Such severance shall be payable in twelve (12) monthly installments, beginning in the second calendar month following the month in which termination occurs. G. The Company shall provide Employee with an office and secretarial services comparable to those of its other executive employees. The Company shall deduct the usual withholding taxes from Employee's compensation consistent with standard practices and applicable federal and state laws. The Company shall reimburse Employee for any documented out of pocket expenses incurred in connection with the duties and responsibilities described herein, subject to the Company's policies. 4. COVENANT NOT TO COMPETE; NOT TO SOLICIT A. During the Employment Term and for one (1) year thereafter, the Employee will not without the prior written permission of the Company in each instance directly or indirectly carry on or participate in a business the same as or similar to or in competition with that conducted or engaged in by the Company or any of its subsidiaries or affiliates. B. The term "carry on or participate in a business the same as or similar to that conducted or engaged in by the Company or any of its subsidiaries or affiliates" shall include the Employee, directly or indirectly, doing any of the following listed acts, other than carrying on or engaging in activities expressly permitted under this Agreement: (i) carrying on or engaging in any such business as a principal, or solely or jointly with others as a director, officer, agent, employee, consultant or partner, or stockholder or limited partner owning more than five percent (5%) of the stock or equity interests in or securities convertible into more than five percent (5%) of the stock 2 3 of or equity interests in any corporation, association or limited partnership; or (ii) as agent or principal carrying on or engaging in any activities or negotiations with respect to the acquisition or disposition of any such business; or (iii) lending credit or money for the purpose of establishing or operating any such business; or (iv) giving advice to any other person, firm, association, corporation or other entity engaging in any such business; or (v) lending or allowing his name or reputation to be used in any such business; or C. In the event of a breach or threatened breach by the Employee of the provisions of this Section 4, the Company shall be entitled to injunctive relief against the Employee. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to the Employer for such breach or threatened breach, including without limitation the recovery of damages from the Employee. D. During the Employment Term and for one (1) year thereafter, the Employee will not without the prior written permission of the Company in each instance will not solicit, or attempt to solicit and employ any employee of the Company or any of its subsidiaries or affiliates, or commit an act the primary purpose of which is to induce employee of the Company or any of its subsidiaries or affiliates to leave such employment or significantly interfere with, disrupt or attempt to disrupt any past, present or prospective relationship, contractual or otherwise, relating to the business activities between the Company or any of its subsidiaries or affiliates and their respective prospects. E. The parties hereto consider the restrictions contained in this Section 4 to be reasonable. If, however, such restrictions are found by any court having jurisdiction to be unreasonable because they are (or any of them is) too broad, then such restrictions shall nevertheless remain effective, but shall be considered amended as to protection of business, time or geographic area in whatever manner is considered reasonable by that court and, as so amended, shall be enforced. F. The provisions of this Section 4 shall survive the expiration or termination, for any reason, or this Agreement and shall be separately enforceable. 5. TERMINATION This Agreement may be terminated prior to the end of the Employment Term, (i) by the written agreement between Company and Employee; (ii) by the death of Employee or his disability for a period of one hundred and twenty (120) consecutive days or the adjudicated mental incompetency of Employee; or (iii) by the Company for cause, where "cause" shall mean for purpose of this Agreement: (a) a violation by Employee of any material provision of this Agreement, a breach of fiduciary duty, manifest incompetence, plan dereliction or neglect of duty, or conduct; involving moral turpitude, where such violation, activity, or conduct is not remedied by Employee within thirty, (30) days of written notice from the 3 4 Company (b) employee's conviction of a felony 6. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION A. The Employee agrees that he will not, during the Employment Term or thereafter, make use of, divulge or otherwise disclose, directly or indirectly, any trade or business secret (including, without limitation, any customer list, data, records or financial information constituting a trade or business secret) concerning the business or policies of the Company or any of its subsidiaries or affiliates which he may have learned as a result of his employment during the Employment Term or prior thereto as shareholder, employee, officer and/or director or the Company except to the extent such use or disclosure is necessary to the performance of this Agreement and in furtherance of the Company's best interest. The provisions of this Section 5 shall survive the expiration or termination, for any reason, of this Agreement. B. The Employee shall not during the Employment Term or for one (1) year thereafter make use of, divulge or otherwise disclose, directly or indirectly, any confidential information concerning the business or policies of the Company or any of its subsidiaries or affiliates which he may have learned while a shareholder, employee, officer and/or director of the Company. C. In the event of a breach or threatened breach by the Employee of the provisions of this Section 6, the Company shall be entitled to an injunction restraining the Employee from disclosing, in whole or in part, any such trade or business secret and/or any such confidential information, or from rendering any services to a person, firm, corporation, association, or other entity to whom any such trade or business secret and/or any such confidential information, in whole or in part, has been disclosed or is threatened to be disclosed. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to the Company for such breach or threatened breach, including without limitation the recovery of damages from the Employee. D. The provisions of this Section 6 shall survive the expiration or termination, for any reason, of this Agreement and shall be separately enforceable. 7. AMENDMENT This Agreement may be amended only by the written agreement of the Company and Employee. 8. SUCCESSORS AND ASSIGNS The Company's rights and obligations under this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company; and the Company may delegate all or any part of its rights and obligations hereunder to any affiliate or subsidiary of the Company. 4 5 The Employee acknowledges and agrees that this Agreement is personal to him and his rights and interests hereunder may not be assigned, nor may his obligations and duties hereunder be delegated with exception of the voting rights assigned to Employee's spouse by Employee. 9. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland. 10. ENTIRE AGREEMENT This Agreement supersedes any and all other agreements, either oral or written heretofore made with respect to the subject matter hereof. 11. SEVERABILITY Any provision of this Agreement which is found to be unenforceable in any jurisdiction, shall, as to such jurisdiction only, be ineffective to the extent of such unenforceability, without invalidating or otherwise affecting the remaining provisions hereof. If any of the covenants against competition contained in Section 4 are found by a court having jurisdiction to be unreasonable in duration, geographical scope, or character of restriction, the covenant shall not be rendered unenforceable thereby, but rather the duration, geographical scope, or character of restriction of said covenant shall respectively be reduced or modified to render the covenant reasonable and the covenant shall be enforced as modified. 12. COUNTERPARTS This Agreement may be executed simultaneously in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall be binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of the parties reflected hereon as signatories. 13. NOTICES All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to: (i) Employee at the address shown above, or at such other address or addresses as Employee shall designate to the Company in accordance with this Section, or (ii) Company at the address set forth on the above letterhead, or at such other address as the Company shall designate to Employee in accordance with this section. 14. PRONOUNS Whenever the context may require, any pronouns used in this Agreement shall include the 5 6 corresponding masculine, feminine or neuter forms and the singular form of nouns and pronouns shall include the plural and vice versa. 15. MISCELLANEOUS A. No delay or omission by the Company or Employee in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company or Employee on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. B. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any of this Agreement. 6 7 * * * If the foregoing accurately sets out our agreement with regard to the above, please indicate your acceptance by executing and returning two copies of this letter to the undersigned. Very truly yours, COMPLETE WELLNESS CENTERS, INC. Board of Directors - ------------------------- Robert Mrazek - ------------------------- Robert Libauer - ------------------------- James Joseph McMillen - ------------------------- E. Eugene Sharer Accepted and agreed to this _____ day of ____________________, 1996 - ------------------------- C. Thomas McMillen "Employee" 7 EX-10.18 23 EMPLOYMENT AGT DATED MARCH 21, 1996 1 EXHIBIT 10.18 March 21, 1996 Mr. Eugene Sharer 12404 Beall Spring Road Potomac, MD 20854 Dear Mr. Sharer, This letter, when accepted by you in a manner hereinafter provided, will evidence the agreement among Mr. E. Eugene Sharer (the "Employee") and Complete Wellness Centers, Inc., a Delaware corporation (the "Company") for the provision of certain services to be rendered by Employee to the Company (the "Agreement"), all under the following terms and conditions to wit: 1. EMPLOYMENT DUTIES The Company shall employ Employee as President and Chief Operating Officer. Employee shall report to the Chairman of the Board and Chief Executive Officer, subject in all events to the control and supervision of the Board of Directors. Employee shall devote his time and best efforts on a substantially full time basis to the business and affairs of the Company. 2. EMPLOYMENT TERM This Agreement shall commence on April 1, 1996, and shall end on March 31, 1999 (the "Employment Term") unless extended by the Company and Employee in writing or unless sooner terminated in accordance with the provisions of this Agreement. 3. COMPENSATION, EXPENSES, ETC. In consideration of performance of the services and activities hereby, the Company shall pay Employee compensation as follows: A. An initial base salary at such time as the Company closes its initial public offering of one hundred fifty thousand dollars ($150,000) per annum payable semi - monthly in arrears. B. Employee shall receive an additional performance bonus (the "Bonus") equal to thirty percent (30%) of the Company's Bonus Fund, in accordance with the Company's 1995 Bonus Plan for Key Executives. For the purpose of this Section 3, the "Bonus Fund" shall be equal to at least ten percent (10%) of the Company's pre-tax income. The 2 maximum bonus fund is $5 million. C. An automobile and parking allowance of one thousand dollars ($1,000) per month. D. Four (4) weeks of compensated vacation which shall vest ratably throughout the year. E. The Company shall make available such health benefits and any other benefits as it makes available to its executive employees. F. Upon termination of this Agreement pursuant to Section 6(i) and 6(ii), Employee shall receive a severance payment equal to twelve (12) times the Employee's monthly compensation pursuant to Section 3(A) for the month prior to termination. Such severance shall be payable in twelve (12) monthly installments, beginning in the second calendar month following the month in which termination occurs. G. The Company shall provide Employee with an office and secretarial services comparable to those of its other executive employees. The Company shall deduct the usual withholding taxes from Employee's compensation consistent with standard practices and applicable federal and state laws. The Company shall reimburse Employee for any documented out of pocket expenses incurred in connection with the duties and responsibilities described herein, subject to the Company's policies. 4. STOCK OPTIONS Employee will be granted, on April 1, 1996, options (the "Options") to purchase three hundred fifty thousand (350,000) shares of the Company's common stock at an exercise price of $.01 per share under the Company's Stock Option Plan. Such Options represent the right to purchase approximately ten percent (10%) of the fully diluted outstanding shares of the company as of March 15, 1996. The Options will be evidenced by a stock option agreement and will vest with respect to 50,000 options on April 1, 1996, 100,000 options on April 1, 1997, 100,000 options on April 1, 1998, and 100,000 options on March 31, 1999 and shall be exercisable for a period of five years from April 1, 1996. However, in the event the Agreement is terminated pursuant to Sections 7(i), (ii), (iii) or demotion by CWC or succeeding entity, existing unexercised stock options shall immediately vest and shall be exercisable through March 31, 2001. 5. BOARD OF DIRECTOR APPOINTMENT Employee shall be appointed to the Company's Board of Directors by May 15, 1996. 2 3 6. OFFICE LOCATION On or before December 31, 1996, the Company shall move its executive office to the state of Maryland to a location mutually agreed upon by the Company and Employee. 7. TERMINATION This Agreement may be terminated prior to the end of the Employment Term, (i) by the written agreement between Company and Employee; (ii) by the death of Employee or his disability for a period of one hundred and twenty (120) consecutive days or the adjudicated mental incompetency of Employee; or (iii) by the Company for cause, where "cause" shall mean for purpose of this Agreement: (a) a violation by Employee of any material provision of this Agreement, a breach of fiduciary duty, manifest incompetence, plan dereliction or neglect of duty, or conduct; involving moral turpitude, where such violation, activity, or conduct is not remedied by Employee within thirty, (30) days of written notice from the Company (b) employee's conviction of a felony 8. COVENANT NOT TO COMPETE; NOT TO SOLICIT A. During the Employment Term and for one (1) year thereafter, the Employee will not without the prior written permission of the Company in each instance directly or indirectly carry on or participate in a business the same as or similar to or in competition with that conducted or engaged in by the Company or any of its subsidiaries or affiliates. B. The term "carry on or participate in a business the same as or similar to that conducted or engaged in by the Company or any of its subsidiaries or affiliates" shall include the Employee, directly or indirectly, doing any of the following listed acts, other than carrying on or engaging in activities expressly permitted under this Agreement: (i) carrying on or engaging in any such business as a principal, or solely or jointly with others as a director, officer, agent, employee, consultant or partner, or stockholder or limited partner owning more than five percent (5%) of the stock or equity interests in or securities convertible into more than five percent (5%) of the stock of or equity interests in any corporation, association or limited partnership; or (ii) as agent or principal carrying on or engaging in any activities or negotiations with respect to the acquisition or disposition of any such business; or (iii) lending credit or money for the purpose of establishing or operating any such business; or (iv) giving advice to any other person, firm, association, corporation or other entity engaging in any such business; or (v) lending or allowing his name or reputation to be used in any such business; or 3 4 C. In the event of a breach or threatened breach by the Employee of the provisions of this Section 7, the Company shall be entitled to injunctive relief against the Employee. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to the Employer for such breach or threatened breach, including without limitation the recovery of damages from the Employee. D. During the Employment Term and for one (1) year thereafter, the Employee will not without the prior written permission of the Company in each instance will not solicit, or attempt to solicit and employ any employee of the Company or any of its subsidiaries or affiliates, or commit an act the primary purpose of which is to induce employee of the Company or any of its subsidiaries or affiliates to leave such employment or significantly interfere with, disrupt or attempt to disrupt any past, present or prospective relationship, contractual or otherwise, relating to the business activities between the Company or any of its subsidiaries or affiliates and their respective prospects. E. The parties hereto consider the restrictions contained in this Section 7 to be reasonable. If, however, such restrictions are found by any court having jurisdiction to be unreasonable because they are (or any of them is) too broad, then such restrictions shall nevertheless remain effective, but shall be considered amended as to protection of business, time or geographic area in whatever manner is considered reasonable by that court and, as so amended, shall be enforced. F. The provisions of this Section 7 shall survive the expiration or termination, for any reason, or this Agreement and shall be separately enforceable. 9. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION A. The Employee agrees that he will not, during the Employment Term or thereafter, make use of, divulge or otherwise disclose, directly or indirectly, any trade or business secret (including, without limitation, any customer list, data, records or financial information constituting a trade or business secret) concerning the business or policies of the Company or any of its subsidiaries or affiliates which he may have learned as a result of his employment during the Employment Term or prior thereto as shareholder, employee, officer and/or director or the Company except to the extent such use or disclosure is necessary to the performance of this Agreement and in furtherance of the Company's best interest. The provisions of this Section 8 shall survive the expiration or termination, for any reason, of this Agreement. B. The Employee shall not during the Employment Term or for one (1) year thereafter make use of, divulge or otherwise disclose, directly or indirectly, any confidential information concerning the business or policies of the Company or any of its subsidiaries or affiliates which he may have learned while a shareholder, employee, officer and/or director of the Company. C. In the event of a breach or threatened breach by the Employee of the provisions of this 4 5 Section 7, the Company shall be entitled to an injunction restraining the Employee from disclosing, in whole or in part, any such trade or business secret and/or any such confidential information, or from rendering any services to any person, firm, corporation, association, or other entity to whom any such trade or business secret and/or any such confidential information, in whole or in part, has been disclosed or is threatened to be disclosed. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to the Company for such breach or threatened breach, including without limitation the recovery of damages from the Employee. D. The provisions of this Section 8 shall survive the expiration or termination, for any reason, of this Agreement and shall be separately enforceable. 10. AMENDMENT This Agreement may be amended only by the written agreement of the Company and Employee. 11. SUCCESSORS AND ASSIGNS The Company's rights and obligations under this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company; and the Company may delegate all or any part of its rights and obligations hereunder to any affiliate or subsidiary of the Company. The Employee acknowledges and agrees that this Agreement is personal to him and his rights and interests hereunder may not be assigned, nor may his obligations and duties hereunder be delegated with exception of the voting rights assigned to Employee's spouse by Employee. 12. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland. 13. ENTIRE AGREEMENT This Agreement supersedes any and all other agreements, either oral or written heretofore made with respect to the subject matter hereof. 14. SEVERABILITY Any provision of this Agreement which is found to be unenforceable in any jurisdiction, shall, as to such jurisdiction only, be ineffective to the extent of such unenforceability, without invalidating or otherwise affecting the remaining provisions hereof. If any of the covenants against competition contained in Section 8 are found by a court having jurisdiction to be unreasonable in duration, geographical scope, or character of restriction, the covenant shall not be rendered unenforceable thereby, but rather the duration, geographical scope, or character of restriction of said covenant shall respectively be reduced or modified to render the covenant reasonable and the covenant shall be enforced as modified. 5 6 15. COUNTERPARTS This Agreement may be executed simultaneously in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall be binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of the parties reflected hereon as signatories. 16. NOTICES All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to: (i) Employee at the address shown above, or at such other address or addresses as Employee shall designate to the Company in accordance with this Section, or (ii) Company at the address set forth on the above letterhead, or at such other address as the Company shall designate to Employee in accordance with this section. 17. PRONOUNS Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms and the singular form of nouns and pronouns shall include the plural and vice versa. 18. MISCELLANEOUS A. No delay or omission by the Company or Employee in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company or Employee on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. B. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any of this Agreement. 6 7 * * * If the foregoing accurately sets out our agreement with regard to the above, please indicate your acceptance by executing and returning two copies of this letter to the undersigned. Very truly yours, COMPLETE WELLNESS CENTERS, INC. By: ---------------------------- C. Thomas McMillen Chairman and CEO Accepted and agreed to this ___ day of _________________, 1996. - ----------------- E. Eugene Sharer "Employee" 7 EX-10.19 24 EMPLOYMENT AGT DATED JANUARY 1, 1996 1 EXHIBIT 10.19 January 1, 1996 Danielle Milano, M.D. 131 E. 31 St., #6F New York, NY 10016 Dear Dr. Milano: This letter, when accepted by you in a manner hereinafter provided, will evidence the agreement (the "Agreement") between Dr. Milano (the "Employee") and Complete Wellness Centers, Inc., a Delaware corporation, (the "Company"), for the provision of certain services to be rendered by Employee to the Company all under the following terms and conditions to wit: 1. EMPLOYMENT DUTIES The Company shall employ Employee as Vice President of Medical Affairs for oversight and management of the medical operations of the Company's Clinics (where "Clinic" shall mean any facility purchased or managed by the Company or its affiliates through which health care services are rendered). Employee shall report to the President, subject in all events to the control and supervision of the Board of Directors. Employee shall devote her time and best efforts on a substantially full time basis to the business and affairs of the Company. 2. EMPLOYMENT TERM This Agreement shall commence on January 1, 1996, and shall end on December 31, 1998 (the "Employment Term") unless extended by the Company and Employee in writing or unless sooner terminated in accordance with the provisions of this Agreement. 3. COMPENSATION, EXPENSES, ETC. In consideration of performance of the services and activities hereby, the Company shall pay Employee compensation as follows: A. Effective October 1, 1996, an initial base salary of one hundred twenty thousand dollars ($120,000) per annum, payable semi-monthly in arrears. Six thousand dollars ($6,000) per month of such base compensation shall be accrued until such time the Company closes its initial public offering at which time all accrued salary shall be payable in full. B. Employee shall receive an additional performance bonus (the "Bonus") equal to ten percent (10%) of the Company's Bonus Fund, in accordance with the Company's 1995 Bonus Plan for Key Executives. For the purpose of this Section 3, the "Bonus Fund" shall be equal to 2 at least ten percent (10%) of the Company's pre-tax income. The maximum bonus fund is $5 million. C. Employee shall receive an additional bonus of one thousand dollars ($1,000), payable one time, for every professional corporation managed by the Company that Employee is the licensed shareholder and shall be initiated after the Company closes its initial public offering and which will be paid by the professional corporation. D. At such time as the Company closes its initial public offering, an automobile and parking allowance of five hundred dollars ($500) per month. E. Four (4) weeks of compensated vacation which shall vest ratably throughout the year. F. The Company shall make available such health benefits and any other benefits as it makes available to its executive employees. G. Upon termination of this Agreement pursuant to Section 5(i) and 5(ii), Employee shall receive a severance payment equal to six (6) times the Employee's monthly compensation pursuant to Section 3(A) for the month prior to termination. Such severance shall be payable in six (6) monthly installments, beginning in the second calendar month following the month in which termination occurs. H. The Company shall provide Employee with an office and secretarial services comparable to those of its other executive employees. The Company shall deduct the usual withholding taxes from Employee's compensation consistent with standard practices and applicable federal and state laws. The Company shall be entitled to receive any compensation paid to Employee as a result of services rendered by Employee in any of the Company's affiliated clinics, or as a result of the Employee serving as the shareholder of a professional corporation managed by the Company. The Company shall reimburse Employee for any documented out of pocket expenses incurred in connection with the duties and responsibilities described herein, subject to the Company's policies. 4. STOCK OPTIONS Employee will be granted options to purchase one hundred and forty thousand (140,000) shares of the Company's common stock at an exercise price of one cent ($.01) per share under the Company's Stock Option Plan. These options will vest with respect to 50,000 options on October 1, 1996, 45,000 options on October 1, 1997, and 45,000 options on September 30, 1998. These options shall be exercisable for a period of five (5) years from the date hereof. However, in the event the Agreement is terminated, such options, shall be exercisable for a period of three (3) months form the date of 2 3 termination. 5. TERMINATION This Agreement may be terminated prior to the end of the Employment Term, (i) by the written agreement between Company and Employee; (ii) by the death of Employee or his disability for a period of one hundred and twenty (120) consecutive days or the adjudicated mental incompetency of Employee; or (iii) by the Company for cause, where "cause" shall mean for purpose of this Agreement: (a) a violation by Employee of any material provision of this Agreement, a breach of fiduciary duty, manifest incompetence, plan dereliction or neglect of duty, or conduct; involving moral turpitude, where such violation, activity, or conduct is not remedied by Employee within thirty, (30) days of written notice from the Company (b) employee's conviction of a felony. 6. COVENANT NOT TO COMPETE; NOT TO SOLICIT A. During the Employment Term and for one (1) year thereafter, the Employee will not without the prior written permission of the Company in each instance directly or indirectly carry on or participate in a business the same as or similar to or in competition with that conducted or engaged in by the Company or any of its subsidiaries or affiliates. B. The term "carry on or participate in a business the same as or similar to that conducted or engaged in by the Company or any of its subsidiaries or affiliates" shall include the Employee, directly or indirectly, doing any of the following listed acts, other than carrying on or engaging in activities expressly permitted under this Agreement: (i) carrying on or engaging in any such business as a principal, or solely or jointly with others as a director, officer, agent, employee, consultant or partner, or stockholder or limited partner owning more than five percent (5%) of the stock or equity interests in or securities convertible into more than five percent (5%) of the stock of or equity interests in any corporation, association or limited partnership; or (ii) as agent or principal carrying on or engaging in any activities or negotiations with respect to the acquisition or disposition of any such business; or (iii) lending credit or money for the purpose of establishing or operating any such business; or (iv) giving advice to any other person, firm, association, corporation or other entity engaging in any such business; or (v) lending or allowing his name or reputation to be used in any such business; or C. In the event of a breach or threatened breach by the Employee of the provisions of this Section 6, the Company shall be entitled to injunctive relief against the Employee. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to the Employer for such breach or threatened breach, including without limitation the recovery of damages from the Employee. 3 4 D. During the Employment Term and for one (1) year thereafter, the Employee will not without the prior written permission of the Company in each instance will not solicit, or attempt to solicit and employ any employee of the Company or any of its subsidiaries or affiliates, or commit an act the primary purpose of which is to induce employee of the Company or any of its subsidiaries or affiliates to leave such employment or significantly interfere with, disrupt or attempt to disrupt any past, present or prospective relationship, contractual or otherwise, relating to the business activities between the Company or any of its subsidiaries or affiliates and their respective prospects. E. The parties hereto consider the restrictions contained in this Section 6 to be reasonable. If, however, such restrictions are found by any court having jurisdiction to be unreasonable because they are (or any of them is) too broad, then such restrictions shall nevertheless remain effective, but shall be considered amended as to protection of business, time or geographic area in whatever manner is considered reasonable by that court and, as so amended, shall be enforced. F. The provisions of this Section 6 shall survive the expiration or termination, for any reason, or this Agreement and shall be separately enforceable. 7. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION A. The Employee agrees that he will not, during the Employment Term or thereafter, make use of, divulge or otherwise disclose, directly or indirectly, any trade or business secret (including, without limitation, any customer list, data, records or financial information constituting a trade or business secret) concerning the business or policies of the Company or any of its subsidiaries or affiliates which he may have learned as a result of his employment during the Employment Term or prior thereto as shareholder, employee, officer and/or director or the Company except to the extent such use or disclosure is necessary to the performance of this Agreement and in furtherance of the Company's best interest. The provisions of this Section 7 shall survive the expiration or termination, for any reason, of this Agreement. B. The Employee shall not during the Employment Term or for one (1) year thereafter make use of, divulge or otherwise disclose, directly or indirectly, any confidential information concerning the business or policies of the Company or any of its subsidiaries or affiliates which he may have learned while a shareholder, employee, officer and/or director of the Company. C. In the event of a breach or threatened breach by the Employee of the provisions of this Section 7, the Company shall be entitled to an injunction restraining the Employee from disclosing, in whole or in part, any such trade or business secret and/or any such confidential information, or from rendering any services to any person, firm, corporation, association, or other entity to whom any such trade or business secret and/or any such confidential information, in whole or in part, has been disclosed or is threatened to be 4 5 disclosed. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to the Company for such breach or threatened breach, including without limitation the recovery of damages from the Employee. D. The provisions of this Section 7 shall survive the expiration or termination, for any reason, of this Agreement and shall be separately enforceable. 8. AMENDMENT This Agreement may be amended only by the written agreement of the Company and Employee. 9. SUCCESSORS AND ASSIGNS The Company's rights and obligations under this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company; and the Company may delegate all or any part of its rights and obligations hereunder to any affiliate or subsidiary of the Company. The Employee acknowledges and agrees that this Agreement is personal to him and his rights and interests hereunder may not be assigned, nor may his obligations and duties hereunder be delegated with exception of the voting rights assigned to Employee's spouse by Employee. 10. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland. 11. ENTIRE AGREEMENT This Agreement supersedes any and all other agreements, either oral or written heretofore made with respect to the subject matter hereof. 12. SEVERABILITY Any provision of this Agreement which is found to be unenforceable in any jurisdiction, shall, as to such jurisdiction only, be ineffective to the extent of such unenforceability, without invalidating or otherwise affecting the remaining provisions hereof. If any of the covenants against competition contained in Section 9 are found by a court having jurisdiction to be unreasonable in duration, geographical scope, or character of restriction, the covenant shall not be rendered unenforceable thereby, but rather the duration, geographical scope, or character of restriction of said covenant shall respectively be reduced or modified to render the covenant reasonable and the covenant shall be enforced as modified. 5 6 13. COUNTERPARTS This Agreement may be executed simultaneously in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall be binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of the parties reflected hereon as signatories. 14. NOTICES All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to: (i) Employee at the address shown above, or at such other address or addresses as Employee shall designate to the Company in accordance with this Section, or (ii) Company at the address set forth on the above letterhead, or at such other address as the Company shall designate to Employee in accordance with this section. 15. PRONOUNS Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms and the singular form of nouns and pronouns shall include the plural and vice versa. 16. MISCELLANEOUS A. No delay or omission by the Company or Employee in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company or Employee on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. B. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any of this Agreement. 6 7 * * * If the foregoing accurately sets out our agreement with regard to the above, please indicate your acceptance by executing and returning two copies of this letter to the undersigned. Very truly yours, COMPLETE WELLNESS CENTERS, INC. By: ------------------------------- C. Thomas McMillen Chairman and President Accepted and agreed to this ___ day of _________________, 1995. - -------------------- Danielle Milano, MD "Employee" 7 EX-10.20 25 EMPLOYMENT AGT DATED OCTOBER 1, 1996 1 EXHIBIT 10.20 October 1, 1996 Mr. Michael Brigante 17 Daniel Drive Belle Mead, NJ 08502 Dear Mr. Brigante: This letter, when accepted by you in a manner hereinafter provided, will supersede the prior Consulting Agreement dated March 11, 1996 between Mr. Brigante and Complete Wellness Centers, Inc., a Delaware corporation (the "Company"), and will evidence the agreement among the Company and Mr. Brigante (the "Employee") for the provision of certain services to be rendered by Employee to the Company (the "Agreement"), all under the following terms and conditions to wit: 1. EMPLOYMENT DUTIES The Company shall employ Employee as Vice President of Finance and Chief Financial Officer. Employee shall report to the President and Chief Operating Officer, subject in all events to the control and supervision of the Board of Directors. Employee shall devote his time and best efforts on a substantially full time basis to the business and affairs of the Company. 2. EMPLOYMENT TERM This Agreement shall commence on October 1, 1996, and shall end on September 30, 1999 (the "Employment Term") unless extended by the Company and Employee in writing or unless sooner terminated in accordance with the provisions of this Agreement. 3. COMPENSATION, EXPENSES, ETC. In consideration of performance of the services and activities hereby, the Company shall pay Employee compensation as follows: A. An initial base salary of sixty thousand dollars ($60,000) per annum, payable semi-monthly in arrears. At such time as the initial public offering is closed, the base salary shall be increased to ninety five thousand dollars ($95,000) per annum, payable semi-monthly in arrears. B. Employee shall receive an additional performance bonus (the "Bonus") equal to ten percent (10%) of the Company's Bonus Fund, in accordance with the Company's 1995 2 Bonus Plan for Key Executives. For the purpose of this Section 3, the "Bonus Fund" shall be equal to at least ten percent (10%) of the Company's pre-tax income. The maximum bonus fund is $5 million. C. At such time as the Company closes its initial public offering, an automobile and parking allowance of five hundred dollars ($500) per month. D. Four (4) weeks of compensated vacation which shall vest ratably throughout the year. E The Company shall make available such health benefits and any other benefits as it makes available to its executive employees. F. Upon termination of this Agreement pursuant to Section 5(i) and 5(ii), Employee shall receive a severance payment equal to six (6) times the Employee's monthly compensation pursuant to Section 3(A) for the month prior to termination. Such severance shall be payable in twelve (12) monthly installments, beginning in the second calendar month following the month in which termination occurs. G. The Company shall provide Employee with an office and secretarial services comparable to those of its other executive employees. The Company shall deduct the usual withholding taxes from Employee's compensation consistent with standard practices and applicable federal and state laws. The Company shall reimburse Employee for any documented out of pocket expenses incurred in connection with the duties and responsibilities described herein, subject to the Company's policies. 4. STOCK OPTIONS The non-qualified stock options granted to Mr. Brigante pursuant to the Consulting Agreement shall be transferred to Mr. Brigante pursuant to this Agreement under the same terms and conditions. Under the Consulting Agreement, Consultant received non-qualified option to purchase up to one hundred twenty thousand (120,000) shares of the Company's common stock (the "Options") at an exercise price of one cent ($.01) per share, under the Company's Stock Option Plan which shall be evidenced by a stock option agreement. Sale of the shares of common stock issued to Consultant upon the exercise of the Options may be subject to limitations pursuant to Rule 144 under the Securities Act of 1933. The Options shall vest with respect to 33 1/3% on October 1, 1996, 33 1/3% on October 1, 1997, and 33 1/3% on September 30, 1998 and shall be exercisable for a period of five (5) years from the date of this Agreement. However, in the event this Agreement is terminated, the Options shall be exercisable for a period of three (3) months from the date of termination. 5. TERMINATION This Agreement may be terminated prior to the end of the Employment Term, 2 3 (i) by the written agreement between Company and Employee; (ii) by the death of Employee or his disability for a period of one hundred and twenty (120) consecutive days or the adjudicated mental incompetency of Employee; or (iii) by the Company for cause, where "cause" shall mean for purpose of this Agreement: (a) a violation by Employee of any material provision of this Agreement, a breach of fiduciary duty, manifest incompetence, plan dereliction or neglect of duty, or conduct; involving moral turpitude, where such violation, activity, or conduct is not remedied by Employee within thirty, (30) days of written notice from the Company (b) employee's conviction of a felony. 6. COVENANT NOT TO COMPETE; NOT TO SOLICIT A. During the Employment Term and for one (1) year thereafter, the Employee will not without the prior written permission of the Company in each instance directly or indirectly carry on or participate in a business the same as or similar to or in competition with that conducted or engaged in by the Company or any of its subsidiaries or affiliates. B. The term "carry on or participate in a business the same as or similar to that conducted or engaged in by the Company or any of its subsidiaries or affiliates" shall include the Employee, directly or indirectly, doing any of the following listed acts, other than carrying on or engaging in activities expressly permitted under this Agreement: (i) carrying on or engaging in any such business as a principal, or solely or jointly with others as a director, officer, agent, employee, consultant or partner, or stockholder or limited partner owning more than five percent (5%) of the stock or equity interests in or securities convertible into more than five percent (5%) of the stock of or equity interests in any corporation, association or limited partnership; or (ii) as agent or principal carrying on or engaging in any activities or negotiations with respect to the acquisition or disposition of any such business; or (iii) lending credit or money for the purpose of establishing or operating any such business; or (iv) giving advice to any other person, firm, association, corporation or other entity engaging in any such business; or (v) lending or allowing his name or reputation to be used in any such business; or C. In the event of a breach or threatened breach by the Employee of the provisions of this Section 6, the Company shall be entitled to injunctive relief against the Employee. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to the Employer for such breach or threatened breach, including without limitation the recovery of damages from the Employee. D. During the Employment Term and for one (1) year thereafter, the Employee will not without the prior written permission of the Company in each instance will not solicit, or attempt to solicit and employ any employee of the Company or any of its subsidiaries or affiliates, or commit an act the primary purpose of which is to induce employee of the 3 4 Company or any of its subsidiaries or affiliates to leave such employment or significantly interfere with, disrupt or attempt to disrupt any past, present or prospective relationship, contractual or otherwise, relating to the business activities between the Company or any of its subsidiaries or affiliates and their respective prospects. E. The parties hereto consider the restrictions contained in this Section 9 to be reasonable. If, however, such restrictions are found by any court having jurisdiction to be unreasonable because they are (or any of them is) too broad, then such restrictions shall nevertheless remain effective, but shall be considered amended as to protection of business, time or geographic area in whatever manner is considered reasonable by that court and, as so amended, shall be enforced. F. The provisions of this Section 6 shall survive the expiration or termination, for any reason, or this Agreement and shall be separately enforceable. 7. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION A. The Employee agrees that he will not, during the Employment Term or thereafter, make use of, divulge or otherwise disclose, directly or indirectly, any trade or business secret (including, without limitation, any customer list, data, records or financial information constituting a trade or business secret) concerning the business or policies of the Company or any of its subsidiaries or affiliates which he may have learned as a result of his employment during the Employment Term or prior thereto as shareholder, employee, officer and/or director or the Company except to the extent such use or disclosure is necessary to the performance of this Agreement and in furtherance of the Company's best interest. The provisions of this Section 7 shall survive the expiration or termination, for any reason, of this Agreement. B. The Employee shall not during the Employment Term or for one (1) year thereafter make use of, divulge or otherwise disclose, directly or indirectly, any confidential information concerning the business or policies of the Company or any of its subsidiaries or affiliates which he may have learned while a shareholder, employee, officer and/or director of the Company. C. In the event of a breach or threatened breach by the Employee of the provisions of this Section 7, the Company shall be entitled to an injunction restraining the Employee from disclosing, in whole or in part, any such trade or business secret and/or any such confidential information, or from rendering any services to any person, firm, corporation, association, or other entity to whom any such trade or business secret and/or any such confidential information, in whole or in part, has been disclosed or is threatened to be disclosed. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to the Company for such breach or threatened breach, including without limitation the recovery of damages from the Employee. D. The provisions of this Section 7 shall survive the expiration or termination, for any reason, 4 5 of this Agreement and shall be separately enforceable. 8. AMENDMENT This Agreement may be amended only by the written agreement of the Company and Employee. 9. SUCCESSORS AND ASSIGNS The Company's rights and obligations under this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company; and the Company may delegate all or any part of its rights and obligations hereunder to any affiliate or subsidiary of the Company. The Employee acknowledges and agrees that this Agreement is personal to him and his rights and interests hereunder may not be assigned, nor may his obligations and duties hereunder be delegated with exception of the voting rights assigned to Employee's spouse by Employee. 10. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland. 11. ENTIRE AGREEMENT This Agreement supersedes any and all other agreements, either oral or written heretofore made with respect to the subject matter hereof. 12. SEVERABILITY Any provision of this Agreement which is found to be unenforceable in any jurisdiction, shall, as to such jurisdiction only, be ineffective to the extent of such unenforceability, without invalidating or otherwise affecting the remaining provisions hereof. If any of the covenants against competition contained in Section 5 are found by a court having jurisdiction to be unreasonable in duration, geographical scope, or character of restriction, the covenant shall not be rendered unenforceable thereby, but rather the duration, geographical scope, or character of restriction of said covenant shall respectively be reduced or modified to render the covenant reasonable and the covenant shall be enforced as modified. 13. COUNTERPARTS This Agreement may be executed simultaneously in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall be binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of the parties reflected hereon as signatories. 5 6 14. NOTICES All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to: (i) Employee at the address shown above, or at such other address or addresses as Employee shall designate to the Company in accordance with this Section, or (ii) Company at the address set forth on the above letterhead, or at such other address as the Company shall designate to Employee in accordance with this section. 15. PRONOUNS Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms and the singular form of nouns and pronouns shall include the plural and vice versa. 16. MISCELLANEOUS A. No delay or omission by the Company or Employee in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company or Employee on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. B. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any of this Agreement. 6 7 * * * If the foregoing accurately sets out our agreement with regard to the above, please indicate your acceptance by executing and returning two copies of this letter to the undersigned. Very truly yours, COMPLETE WELLNESS CENTERS, INC. By: ---------------------------- E. Eugene Sharer President and COO Accepted and agreed to this ___ day of _________________, 1996. - ----------------- Michael Brigante "Employee" 7 EX-10.21 26 EMPLOYMENT AGT DATED AUGUST 26, 1996 1 EXHIBIT 10.21 August 26, 1996 Dr. Eric Kaplan 4727 Marlwood Lane North Palm Beach, FL 33418 Dear Dr. Kaplan, This letter, when accepted by you in a manner hereinafter provided, will evidence the agreement among Complete Wellness Centers, Inc., a Delaware Corporation (the "Company") and Dr. Eric Kaplan (the "Employee") for the provision of certain services to be rendered by Employee to the Company (the "Agreement"), all under the following terms and conditions to wit: 1. EMPLOYMENT DUTRES The Company shall employ Employee as Senior Director for Operations and Development. Employee shall report to the President and Chief Operating Officer subject in all events to the control and supervision of the Board of Directors. Employee shall devote his time and best efforts on a substantially full time basis to the business and affairs of the Company. It is understood by Employee and Company that Employee shall be primarily located in Florida but shall be available for travel to the Company's Headquarters office, field operations, and developmental prospects as needed and for up to three working, days per week, limited to a maximum of ten working days per month. Engagement. Company hereby employs Eric S. Kaplan with principal responsibilities as follows: (i) the integration and oversight of the search and acquisition and/or management of chiropractic clinics and their integration with medical professionals and services ("Integration"), (ii) the development of medical clinics that integrate traditional medical professionals with alternative medical providers including chiropractic ("Integrated Medical Centers"), (iii) the development of ancillary services to be offered at the Integrated Medical Centers. 2. EMPLOYMENT TERM This Agreement shall commence on August 26, 1996, and shall end three years from date of inception (the "Employment Term") unless extended by the Company and Employee in writing or unless sooner terminated in accordance with the provisions of this Agreement. The term of this Agreement is coterminous with the Consulting Agreement between the Company and J.E.M., Inc. 2 3. COMPENSATION, EXPENSES, ETC. In consideration of performance of the services and activities hereby, the Company shall pay Employee compensation as follows: A. A base salary of four thousand ($4,000) per month, which shall accrue until such time as the Company closes its initial public offering. Upon the close of the Company's initial public offering, all accrued salary shall be paid in full. At such time, the base salary shall be increased to forty eight thousand dollars ($48,000) per annum, in cash, paid semi-monthly in arrears. B. Employee shall receive a performance bonus (the "Bonus") equal to twenty percent (20%) of the Company's Bonus Fund, in accordance with the Company's 1995 Bonus Plan for Key Executives. For the purpose of this Section 3, the "Bonus Fund" shall be equal to at least ten percent (10%) of the Company's pre-tax income. Such bonus shall be paid within ninety (90) days after the end of each Company fiscal year which shall be December 31. C. After the initial public offering is closed, an automobile allowance of five hundred dollars ($500) per month. D. Four (4) weeks of compensated personal leave which shall vest ratably throughout the year. E. Upon termination of this Agreement pursuant to Sections 5a or 5b, Employee shall receive a severance payment equal to Sixty Thousand dollars ($60,000). Such severance shall be payable in six (6) equal monthly installments beginning in the second calendar month following the month in which termination occurs. F. The Company shall provide Employee with an office and secretarial services comparable to those of its other executive employees after the initial public offering. Until such public offering is closed, Employee shall work out of his home. G. The Company shall provide Employee with such medical and other benefits as the Company shall make available to its executive employees. The Company shall deduct the usual withholding taxes from Employee's compensation consistent with standard practices and applicable federal and state laws. The Company shall reimburse Employee for any documented out of pocket expenses incurred in connection with the duties and responsibilities described herein, subject to the Company's policies. 3 4. STOCK OPTIONS Employee will be granted upon execution of this Agreement options (the "Options") to purchase one hundred forty thousand (140,000) shares of the Company's common stock at an exercise price of $.20 per share under the Company's Incentive Stock Option Plan. The Options will be evidenced by a stock option agreement and will vest with respect to 40,000 options on August 26, 1996, 50,000 options on August 26, 1997, and 50,000 options on August 26, 1998 and shall be exercisable for a period of five years from August 26, 1996. However, in the event the Agreement is terminated pursuant to Sections 5a, b, c, or d, such Options shall be exercisable for a period of three (3) months from the date of termination, if they vested prior to termination. 5. TERMINATION This Agreement may be terminated prior to the end of the Employment Term, a) by the written mutual agreement between Company and Employee; b) by the death of Employee or Ws disability (with the exception of his present disability) for a period of one hundred and twenty (120) consecutive days or the adjudicated mental incompetency of Employee- or C) by the Company for cause, where "cause" shall mean for purpose of this Agreement: 1) a violation by Employee of any material provision of this Agreement, a breach of fiduciary duty, manifest incompetence, gross negligence of duty or conduct; where such violation, activity, or conduct is not remedied by Employee within thirty (30) days of written notice from the Company. 2) Employee's conviction of a felony; or d) by the Company or Employee if the initial public offering is not closed by January 3 1, 1997. e) by Employee within 30 days following the initial public offering; 6. COVENANT NOT TO COMPETE, NOT TO SOLICIT 6.1 This Section 6.1 A and B shall apply to Termination Sections 5a, 5b, or 5c and not 5d, or 5e. Section 6.1 C shall apply under all conditions of Section 5. A. During the Employment Term and for six (6) months thereafter, the Employee will not without the prior written permission of the Company (which shall not be unreasonably withheld in the event of participation by Employee in a business activity that is not directly related to the Company's or any of its subsidiaries' or affiliates' line of business), in each instance directly or indirectly carry on or participate in a business the same as or similar to or in competition with that conducted or engaged in by the Company or any of its subsidiaries or affiliates. 4 B. The term "carry on or participate in a business the same as or similar to that conducted or engaged in by the Company or any of its subsidiaries or affiliates" shall include the Employee, directly or indirectly, doing any of the following listed acts, other than carrying on or engaging in activities expressly permitted under this Agreement. (i) Carrying on or engaging in any such business as a principal, or solely or jointly with others as a director, officer, agent, employee, consultant or partner, or stockholder or limited partner owning more than five percent (5%) of the stock or equity interests in or securities convertible into more than five percent (5%) of the stock of or equity interests in any corporation, association or limited partnership; or (ii) As agent or principal carrying on or engaging in any activities or negotiations with respect to the acquisition or disposition of any such business; or (iii) Lending credit or money for the purpose of establishing or operating any such business; or (iv) Giving advice to any other firm, association, corporation or other entity engaging in any such business; or (v) Lending or allowing his name or reputation to be used in any such business; without Company's approval; or C. In the event of a breach or threatened breach by the Employee of the provisions of this Section 6, the Company shall be entitled to injunctive relief against the Employee. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to the Employer for such breach or threatened breach, including without limitation the recovery of damages from the Employee. 6.2 During the Employment Term and for one (1) year thereafter, the Employee will not without the prior written permission of the Company in each instance will not solicit, or attempt to solicit and employ any employee of the Company or any of its subsidiaries or affiliates, or commit an act the primary purpose of which is to induce any employee of the Company or any of its subsidiaries or affiliates to leave such employment or significantly interfere with, disrupt or attempt to disrupt any past, present or prospective relationship, contractual or otherwise, relating to the business activities between the Company or any of its subsidiaries or affiliates and their respective prospects. 6.3 The parties hereto consider the restrictions contained in this Section 6 to be reasonable. If, however, such restrictions are found by any court having jurisdiction to be unreasonable because they are (or any of them is) too broad, then such restrictions shall nevertheless remain effective, but shall be considered amended as to protection of business, time or geographic area in whatever manner is considered reasonable by that court and, as so amended, shall be enforced. 6.4 The provisions of this Section 6 shall survive the expiration or termination, for any reason, of this Agreement and shall be separately enforceable. 7 NON-DISCLOSURE OF CONFRDENTIAL INFORMATION 5 A. The Employee agrees that he will not, during the Employment Term or thereafter, make use of, divulge or otherwise disclose, directly or indirectly, any trade or business secret (including, without limitation, any customer list, data, records or financial information constituting a trade or business secret) concerning the business or policies of the Company or any of its subsidiaries or affiliates which he may have learned as a result of his employment during the Employment Term or prior thereto as shareholder, employee, officer and/or director or the Company except to the extent such use or disclosure is necessary to the performance of this Agreement and in furtherance of the Company's best interest. The provisions of this Section 7 shall survive the expiration or termination, for any reason, of this Agreement. However, any material brought to the Company by Employee is Employee's sole property which may be utilized by the Company during the term of this Agreement. B. The Employee shall not during the Employment Term or for six (6) months thereafter make use of, divulge or otherwise disclose, directly or indirectly, any confidential information concerning the business or policies of the Company or any of its subsidiaries or affiliates which he may have learned while a shareholder, employee, officer and/or director of the Company. C. In the event of a breach or threatened breach by the Employee of the provisions of this Section 7, the Company shall be entitled to an injunction restraining the Employee from disclosing, in whole or in part, any such trade or business secret and/ or any such confidential information, or from rendering any services to any person, firm, corporation association, or other entity to whom any such trade or business secret and/or any such confidential information, in whole or in part, has been disclosed or is threatened to be disclosed. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to the Company for such breach or threatened breach, including without limitation the recovery of damages from the Employee. D. The provisions of this Section 7 shall survive the expiration or termination, for any reason, of this Agreement and shall be separately enforceable. 8. AMENDMENT This Agreement may be amended only by the written agreement of the Company and Employee. 9. SUCCESSORS AND ASSIGNS The Company's rights and obligations under this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company; and the Company may delegate all or any part of its rights and obligations hereunder to any affiliate or subsidiary of the Company. 6 The Employee acknowledges and agrees that this Agreement is personal to him and Its rights and interests hereunder may not be assigned, nor may his obligations and duties hereunder be delegated. 10. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of 5 Maryland. 11. ENTIRE AGREEMENT This Agreement supersedes any and all other agreements, either oral or written heretofore made with respect to the subject matter hereof 12. SEVERABILITY Any provision of this Agreement which is found to be unenforceable in any jurisdiction, shall, as to such jurisdiction only, be ineffective to the extent of such unenforceability, without invalidating or otherwise affecting the remaining provisions hereof If any of the covenants against competition contained in Section 6 are found by a court having jurisdiction to be unreasonable in duration, geographical scope, or character of restriction, the covenant shall not be rendered unenforceable thereby, but rather the duration, geographical scope, or character of restriction of said covenant shall respectively be reduced or modified to render the covenant reasonable and the covenant shall be enforced as modified. 13. COUNTERPARTS This Agreement may be executed simultaneously in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall be binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of the parties reflected hereon as signatories. 14. NOTICES All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to: a) Employee at the address shown above, or at such other address or addresses as Employee shall designate to the Company in accordance with this Section, or b) Company at the address set forth on the above letterhead, or at such other address as the Company shall designate to Employee in accordance with this section. 7 15. PRONOUNS Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms and the singular form of nouns and pronouns shall include the plural and vice versa. 16. MISCELLANEOUS (1) No delay or omission by the Company or Employee in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company or Employee on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. (2) The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any of this Agreement. If the foregoing accurately sets out our agreement with regard to the above, please indicate your acceptance by executing and returning two copies of this letter to the undersigned. Very truly yours, COMPLETE WELLNESS CENTERS, INC Accepted and agreed to this _____ day of 1996. By: --------------------------------- ------------------------------------- E. Eugene Sharer Eric Kaplan, D.C. President and Chief Operating Officer EX-10.22 27 CONSULTING AGT DATED NOVEMBER 21, 1996 1 EXHIBIT 10.22 October 29, 1996 Kats Management, LLC 6200 South 58th Lincoln, Nebraska 68516 Gentlemen: This letter sets forth the terms and conditions of the contract (the "Agreement") among Kats Management, LLC (Consultant), and Complete Wellness Centers, Inc., a Delaware corporation (the "Company"), pursuant to which the Consultant will serve as an acquisition and integration consultant to the Company. This letter is a binding agreement among the parties. The terms of the Agreement are as follows: 1. TERM The term of this Agreement shall commence on November 1, 1996 and shall continue for five (5) years unless sooner terminated in accordance with Section 4. 2. CONSULTANT'S RESPONSIBILITIES A. Duties. (i) Affiliation Consultant Consultant agrees to act as an affiliation consultant on behalf of the Company. As such, Consultant will act for the purpose of identifying and bringing to successful contract closure certain chiropractors and their chiropractic clinics willing to establish a new business or professional corporation therein to provide integrated medical and chiropractic services (the "Integrated Medical Center"), in accordance with the Company's business plan as it may change from time to time. The terms of the integration contract with the chiropractic office and chiropractor will be set forth in a separate contract between the Company and the chiropractic clinic/chiropractor in the Integrated Medical Center Management and Security Agreement (the "Integration Contract"). In the performance of it's duties as an affiliation consultant, Consultant shall report to the Senior Director of Operations and Development and shall coordinate its efforts 1 2 with the Director of Integration and Acquisition and a consultant to the Company, J.K. Gibson & Associates, Inc. Consultant should have no obligation under this agreement to compensate James K. Gibson or J. K. Gibson & Associates, Inc. In the performance of its duties, Consultant must provide to the Company at a minimum the personal services of Dr. David Kats. Dr. Kats will be responsible for contact with potential integration candidates, distribution of Company materials to such candidates, gathering information from candidates as may be requested by the Company, undertaking such activity as may be required to cause candidate to sign an Integration Contract, and satisfying such obligations as may be reasonably required or directed by the Company for the purpose of advancing the Company's business plan. Notwithstanding anything herein to the contrary, Dr. Kats shall have no authority, express or implied, to bind the Company to any obligation, contract or commitment whatsoever, including, but not limited to, an Integration Contract, unless and until such Integration Contract is expressly adopted, authorized or ratified by the Company. (ii) Integration Consultant Consultant agrees to act as an integration consultant on behalf of the Company. As such, Consultant will act for the purpose of assisting the Company in the development of its Integrated Medical Centers. As part of the Agreement, the Company's Integrated Medical Centers' professionals and staff during the term of the Integration Contract, shall have the right, at no cost to the Integrated Medical Centers or its professionals and staff unless otherwise indicated and not including travel and housing and other miscellaneous travel expenses, to attend all Consultant's seminars and to receive in a manner similar to Consultant lifetime clients all doctor and staff manuals, access to Top-Flight for the customary price, bi-monthly newsletters, and tapes ("Kats Services"). Such services shall not include personal or phone consulting by Consultant. In the performance of duties as an integration consultant, Consultant shall report to the Senior Director of Operations and Development and must provide to the Company, at a minimum, the personal services of Dr. David Kats. 3. COMPENSATION In consideration of performance and activities herein, the Company shall pay as follows: A. Commissions. For each binding Integration Contract executed by the Company during the engagement as a direct result of Consultant's efforts, a commission in the amount equal to twenty percent (20%) of the Integration Fee (as defined in the Integration Contract and excluding any Enrollment, Operations or Collective Advertising Fees) received by the Company during the initial term of the 2 3 Integration Contract. If the Integration Contract is terminated after the initial term, Consultant shall receive the same proportional amount of the outstanding receivables due the Company. The initial term of the Integration Contract is defined as either the five (5) year or ten (10) year term. Any commission earned under this section shall be payable to Consultant within thirty (30) days of collection by the Company. The Company maintains a log of clients and contacts which documents the commission eligibility of the Company consultants. Letters of intent and/or contact reports are used to evidence the eligibility. In cases where multiple consultants may have had interface with prospective clients, the Senior Director of Operations and Development shall decide the allocation. It is expressly understood that if a Kats Management client joins the Company, the result is predominantly due to Consultant's effort and Consultant shall be given commission eligibility. Additionally, if a prospective client is not a Kats Management client and has not had Company or another consultant contact in the past six months, Consultant shall be given commission eligibility. B. Fees. (i) For each Integration Contract executed by the Company in which the chiropractor is a lifetime client of Consultant, a fee of three hundred fifty dollars ($350.00) per year, payable to Consultant during the initial term of the Integration Contract. Consultant will continue to provide practice development service to such chiropractor(s). or (ii) For each Integration Contract executed by the Company in which the chiropractor is a regular client of Consultant, a fee of two hundred fifty dollars ($250.00) per month, payable to Consultant during the initial term of the Integration Contract commencing during the first full month after execution of such Integration Contract. Consultant will continue to provide practice development services to such chiropractor(s). C. Bonus. A bonus of ten thousand dollars ($10,000) for each of the first five (5) Integration Contracts executed by the Company and five thousand dollars ($5,000) for each of the next twenty-five (25) Integrated Contracts executed by the Company as a direct result of Consultant's efforts. Said bonuses payable to the Consultant, forty five (45) days with respect to the first five (5) Integration Contracts and ninety (90) days with respect to the next twenty-five (25) Integration Contracts, after the execution of such Integration Contracts provided the Integration Contract is still in effect. D. Stock Options. On November 1, 1996, Consultant shall receive non-qualified options to purchase up to eleven thousand (11,000) shares of the Company's Common Stock (the "Options") at an exercise price of 75% of the initial public offering price, under the Company's 1994 Stock Option Plan which shall be evidenced by a stock option agreement. Sale of the Options may be subject to limitations pursuant to Rule 144 under the Securities Act of 1933. The Options 3 4 shall vest with respect to 3700 options on November 1, 1997, 3700 options on November 1, 1998, and 3600 options on November 1, 1999 and shall be exercisable for a period of five (5) years from the date of this Agreement. However, in the event this Agreement is terminated, the vested Options shall be exercisable for a period of three (3) months from the date of termination. E. Continued Payment. It is expressly understood that the term of this contract is for five years unless otherwise terminated according to Section 4, but that the payment of all monies due under Section 3 shall continue to be paid during the duration of the initial term of the Integration Contract. F. Miscellaneous. The Company shall reimburse Consultant for any documented out of pocket expenses incurred in connection with the responsibilities described herein, subject to the requirement of prior written approval of such expense. Also, it is expressly understood that if 50 or more non-Kats Management clients attend(s) regular Kats Management seminars, Consultant shall be entitled to recover its hard costs from the Company. 4. TERMINATION This Agreement may be terminated prior to the end of the term: A. by a written agreement among Consultant and Company; B. by the Company in the event of the death of David J. Kats or his disability for a period of one hundred and twenty (120) consecutive days or the adjudicated mental incompetence of David J. Kats C. by the Company or Consultant for Cause, where "Cause" shall mean breach of fiduciary duty or of the provisions of this Agreement, manifest incompetence, plain dereliction or neglect of duty persisted in after warning, or conviction of any future felony or conduct involving moral turpitude by Company or Consultant. 5. COVENANT NOT TO COMPETE A. During the Consulting Term and one (1) year thereafter, the Consultant will not without the prior written permission of the Company in each instance directly or indirectly carry on or participate in a business the same as or similar to or in competition with that conducted or engaged in by the Company or any of its subsidiaries or affiliates. B. The term "carry on or participate in a business the same as or similar to that conducted or engaged in by the Company or any of its subsidiaries or affiliates" shall include the Consultant, directly or indirectly, doing any of the following listed 4 5 acts, other than carrying on or engaging in activities expressly permitted under this Agreement: (i) carrying on or engaging in any such business as a principal, or solely or jointly with others as a director, officer, agent, employee, consultant or partner, or stockholder or limited partner owning more than five percent (5%) of the stock or equity interests in or securities convertible into more than five percent (5%) of the stock of or equity interests in any corporation, association or limited partnership; or (ii) as agent or principal carrying on or engaging in any activities or negotiations with respect to the acquisition or disposition of any such business; or (iii) lending credit or money for the purpose of establishing or operating any such business; or (iv) giving advice to any other person, firm, association, corporation or other entity engaging in any such business; or (v) lending or allowing his name or reputation to be used in any such business; C. In the event of a breach or threatened breach by the Consultant of the provisions of this Section 5, the Company shall be entitled to injunctive relief against the Consultant. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to the Company for such breach or threatened breach, including without limitation the recovery of damages from the Consultant. D. During the Consulting Term and for one (1) year thereafter, the Consultant will not without the prior written permission of the Company in each instance will not solicit, or attempt to solicit and employ any employee of the Company or any of its subsidiaries or affiliator, or commit an act the primary purpose of which is to induce employee of the Company or any of its subsidiaries or affiliates to leave such employment or significantly interfere with, disrupt or attempt to disrupt any past, present or prospective relationship, contractual or otherwise, relating to the business activities between the Company or any of its subsidiaries or affiliates and their respective prospects. E. The parties hereto consider the restrictions contained in this Section 5 to be reasonable. If, however, such restrictions are found by any court having jurisdiction to be unreasonable because they are (or any of them is) too broad, then such restrictions shall nevertheless remain effective, but shall be considered amended as to protection of business, time or geographic area in whatever manner is considered reasonable by that court and, as so amended, shall be enforced. F. The provisions of this Section 5 shall not include any services of the type provided by Consultant as of the date of execution of this Agreement (which shall exclude any integration services). 5 6 G. The provisions of this Section 5 shall not include any services of the type provided by an affiliate of the Consultant, Integrated Physicians Management Company, LLC, with respect to only the nine (9) clinics identified in Exhibit A H. The provisions of this Section 5 shall survive the expiration or termination, for any reason, or this Agreement and shall be separately enforceable. 6. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION A. The Consultant agrees that he will not, during the Consulting Term or thereafter, make use of, divulge or otherwise disclose, directly or indirectly, any trade or business secret (including, without limitation, any customer list, data, records or financial information constituting a trade or business secret) concerning the business or policies of the Company or any of its subsidiaries or affiliates which he may have learned as a result of his employment during the Consulting Term or prior thereto as shareholder, employee, officer and/or director or the Company except to the extent such use or disclosure is necessary to the performance of this Agreement and in furtherance of the Company's best interest. The provisions of this Section 6 shall survive the expiration or termination, for any reason, of this Agreement. B. The Consultant shall not during the Consulting Term or for one (1) year thereafter make use of, divulge or otherwise disclose, directly or indirectly, any confidential information concerning the business or policies of the Company or any of its subsidiaries or affiliates which he may have learned while a shareholder, employee, officer and/or director of the Company. C. In the event of a breach or threatened breach by the Consultant of the provisions of this Section 6, the Company shall be entitled to an injunction restraining the Consultant from disclosing, in whole or in part, any such trade or business secret and/or any such confidential information, or from rendering any services to any person, firm, corporation, association, or other entity to whom any such trade or business secret and/or any such confidential information, in whole or in part, has been disclosed or is threatened to be disclosed. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to the Company for such breach or threatened breach, including without limitation the recovery of damages from the Consultant. D. The provisions of this Section 6 shall survive the expiration or termination, for any reason, of this Agreement and shall be separately enforceable. 7. INDEPENDENT CONTRACTOR 6 7 Consultant is and shall remain an independent contractor at all times with respect to its performance hereunder, and shall have no right or authority to assume or create any obligation, express or implied, on behalf of the Company without the prior written consent of the Company as the case may be, in each instance. Nothing in this Agreement shall be construed as creating the relationship of employer and employee, master and servant, or principal and agent, nor that of partnership or joint venture. 8. FEES AND EXPENSES The Company and Consultant shall pay their own costs incidental to the execution of the Agreement, including attorney's fees, accountants, etc. 9. DISCRETION TO OFFER, DICTATE TERMS AND SIGN INTEGRATION CONTRACTS Notwithstanding (i) any provision that may be expressly or implicitly set forth herein, inferred, established by operation of law, or otherwise created, or (ii) any oral or written statements, omissions, representations or warranties that may be issued, omitted, uttered or signed by representatives of the Company or otherwise, or (iii) any efforts or time which Consultant may undertake or expend in the course of the engagement hereunder, each of the parties hereto expressly recognize and agree that the Company shall have full, final and absolute discretion to decide whether to offer, accept or sign an Integration Contract with acquisition candidates and clusters identified by Consultant. However acceptance of an integrated contract from the Company will not be unreasonably withheld and whether to establish, modify, limit or withdraw any of the terms or conditions of any Integration Contract which it may enter into through Consultant or any other agent or representative during the term of engagement as an acquisition consultant or thereafter. 10. AMENDMENT This Agreement may be amended only by the written agreement of the Company and Consultant. 11. SUCCESSORS AND ASSIGNS The Company's rights and obligations under this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company; and the Company may delegate all or any part of its rights and obligations hereunder to any affiliate or subsidiary of the Company. The Consultant acknowledges and agrees that this Agreement and its rights and interest hereunder may not be assigned, nor may its obligation and duties hereunder be delegated. 12. INDEMNIFICATION 7 8 Company agrees to indemnify and hold Consultant (including David J. Kats) harmless from and against any and all claims, actions, damages and liabilities whatsoever, asserted by any person or entity against Consultant, which claim, action, damage or liability results from or arises out of, the Company's negligent or intentional failure to perform or abide by agreements or obligations created as a result of the performance of the Consultant under the terms of this contract. Consultant agrees to indemnify and hold harmless the Company (and the Company's Officers and Director) from and against any and all claims, damages and liabilities whatsoever, asserted by any person or entity, resulting by reason of the intentional or unauthorized wrongful conduct of Consultant, David K. Kats, and/or any employee or agent. 13. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland. 14. ENTIRE AGREEMENT This Agreement supersedes any and all other agreements, either oral or written heretofore made with respect to the subject matter hereof. 15. SEVERABILITY Any provision of this Agreement which is found to be unenforceable in any jurisdiction, shall, as to such jurisdiction only, be ineffective to the extent of such unenforceability, without invalidating or otherwise affecting the remaining provisions hereof. If any of the covenants against competition contained in Section 5 are found by a court having jurisdiction to be unreasonable in duration, geographical scope, or character of restriction, the covenant shall not be rendered unenforceable thereby, but rather the duration, geographical scope, or character of restriction of said covenant shall respectively be reduced or modified to render the covenant reasonable and the covenant shall be enforced as modified. 16. COUNTERPARTS This Agreement may be executed simultaneously in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall be binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of the parties reflected hereon as signatories. 17. NOTICES 8 9 All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to: A. Consultant at the address shown above, or at such other address or addresses as Consultant shall designate to the Company in accordance with this Section, or B. Company at the address set forth on the above letterhead, or at such other address as the Company shall designate to Consultant in accordance with this section. 18. PRONOUNS Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms and the singular form of nouns and pronouns shall include the plural and vice versa. 19. MISCELLANEOUS A. No delay or omission by the Company or Consultant in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company or Consultant on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. B. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any of this Agreement. 9 10 * * * If the foregoing accurately sets out our agreement with regard to the above, please indicate your acceptance by executing and returning two copies of this letter to the undersigned. Very truly yours, COMPLETE WELLNESS CENTERS, INC. By: ------------------------------- E. Eugene Sharer President and COO Accepted and agreed to this ___ day of _________________, 1996. - --------------------- David J. Kats, DC Managing Member Kats Management, LLC 10 EX-10.23 28 CONSULTING AGT DATED AUGUST 26, 1996 1 EXHIBIT 10.23 CONSULTING AGREEMENT This Amended and Restated Agreement (the "Agreement"), dated as of August 1, 1996, is entered into by and between Complete Wellness Corporation, a Delaware Corporation (the "Company"), and J.E.M., Inc., a Delaware Corporation ("JEM"). WITNESSETH WHEREAS, the Company desires to engage JEM to provide consulting services. WHEREAS, JEM shall employ Eric S. Kaplan, D. C., an employee for the purposes of this Agreement; and WHEREAS, JEM desires to employ Eric S. Kaplan, D.C. and provide the aforescribed services, subject to the terms hereof. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, company, and JEM agree as follows: 1. ENGAGEMENT. Company hereby engages and retains JEM as follows: (a) the integration and recruitment of chiropractic clinic with medical professionals and services("Integration"), (b) the development of medical clinics that integrate traditional medical professionals with alternative providers including chiropractic ("Integrated Medical Centers"), (c) the development of ancillary services to be offered at the Integrated Medical Center. Consultant shall report to the president and chief operating officer, subject in all events to the control and supervision of the Board of Directors. Consultant shall provide that Eric S. Kaplan, D.C., devote his time and efforts on a substantially full time basis to the business and affairs of the Company. It is understood by Consultant and Company that Consultant shall be primarily located in Florida, but shall be available for travel to the Company's office, field operations, and developmental projects as needed. Such travel shall not exceed three (3) working days per week. It is also understood by Consultant and Company that Eric S. Kaplan, D.C., shall attend the Harvard Executive Training Program during the months of September and October 1998 and shall be available to the Company only on weekends during such period. 2. TERM. The term of the Agreement shall commence, on August 1, 1996, and shall terminate on July 31, 1999, unless sooner terminated in accordance with the terms hereof, or unless extended by a written agreement between the Company and JEM. The Agreement may be terminated prior to the end of its term for any of the following reasons: (a) a written agreement between JEM and Company; (b) the death or adjudicated mental incompetency or disability of Eric S. Kaplan, D.C. for a period of ninety (90) consecutive days; (c) by the Company for Cause, where "Cause" shall mean (i) a violation by JEM of any material provision of this Agreement, where such violation by JEM of any material provision of this Agreement, where such violation is not remedied by JEM within thirty (30) days of written notice from the Company or (ii) Eric S. Kaplan, D.C.'s conviction of a felony. 2 (d) in the event the Company does not close its initial public offering on or before February 28, 1997. 3. COMPENSATION, EXPENSES, ETC. In consideration of performance of the services and activities hereby, the Company shall pay Consultant compensation as follows: (a) an initial fee four thousand dollars ($4,000) per month, payable semimonthly, in arrears until such time as the Company closes its initial public offering. At such time, the base salary shall be increased to one hundred twenty thousand dollars ($120,000) per annum, payable semimonthly, in arrears, (b) consultant shall receive a performance bonus (the "Bonus") equal to twenty percent (20%) of the Company's Bonus Fund in accordance with the Company's 1996 Bonus Plan. For purposes of this Section 3, the "Bonus Fund" shall be equal to ten percent (10%) of the Company's pre-tax income (determined in accordance with generally accepted accounting principles by the Company's auditors) within ninety (90) days after the fiscal year (which is December 31), up to a maximum aggregate bonus fund of five million dollars ($5,000,000) and payable on the same basis as other executives of the Company subject to the Bonus Fund, (c) after the initial public offering is closed, the Consultant shall receive an automobile allowance of five hundred dollars ($500) per month, (d) after the initial public offering is closed, the Company will allow the Consultant four (4) weeks of compensated vacation which shall vest ratably throughout the year, (e) after the initial public offering is closed, the Company shall provide the Consultant with an office and secretarial services comparable to those of its other executive employees, (f) upon termination of this Agreement pursuant to sections 2a or 2b and upon the close of the initial public offering, Consultant shall receive a severance payment equal to twelve (12) times the Consultant's monthly compensation pursuant to section 3a for the month prior to termination. Such severance shall be payable in twelve (12) monthly installments, beginning in the second calendar month following the month in which termination occurs, 4. STOCK OPTIONS. Consultant's grant of stock option pursuant to the Agreement dated September , 1995 will be reduced to one hundred forty thousand (140,000) options ("Options"), giving the consultant the right to purchase one hundred forty thousand (140,000) shares of the Company's common stock at an exercise price of $.01 per share under the Company's 1994 Stock Option Plan. The options will be evidenced by a stock option agreement and will vest with respect to 30,000 options on August 1, 1996 30,000 options on August 1, 1997, 30,000 options on August 1, 1998, and 30,000 options on July 31, 1999 and shall be exercisable for a period of five years from August 1, 1996. However, in the event the Agreement is terminated pursuant to section 2,a,b, or c, such options shall be exercisable for a period of three (3) months from the date of termination if they vested prior to termination. 5. REIMBURSEMENT OF EXPENSES. The Company shall reimburse JEM for any documented out of pocket expenses incurred in connection with the duties and responsibilities described herein, subject to Company's policy with respect to such expenses, and which are considered reasonable and customary in the fulfillment of the duties described herein. 6. INDEPENDENT CONTRACTOR. The parties hereto presently believe and intend that JEM shall be classified, for tax purposes, as an independent contractor. Accordingly, JEM shall be responsible for all state and federal taxes incurred in connection with income received for services rendered under this Agreement. The Company shall not be responsible for any withholding of or contribution to such taxes. 7. COVENANT NOT TO COMPETE. (a) JEM covenants and agrees that during the term of this Agreement and in the event of the Company's close of its initial public offering, for a period of one (1) year thereafter, JEM shall not, directly or indirectly: 3 1. operate or own any interest in any business which has significant (viewed in relation to the business of the Company) activities relating to the acquisition, ownership, management of, or consultation regarding chiropractic and medical care, rehabilitation, physical therapy, occupational therapy, acupuncture, and/or diagnostic facilities (individually or collectively the "Clinic") other than affiliates of the Company or up to five percent (5%) of the equity securities of a publicly traded company. 2. compete with the Company or its subsidiaries or affiliates in the operation or development of any Clinic within the forty-eight (48) contiguous states of the United States of America. 3. be employed by or consult with any business which owns, manages, operates, or engages in the consulting business regarding Clinics if JEM's employment duties or consultation (other than insignificant or non-competitive activities) involves Clinic operations. 4. solicit or attempt to solicit any employee of the Company, or commit an act the primary purpose of which is to induce any employee of the Company or any of its affiliates to leave the Company's employ, or significantly interfere with, disrupt or attempt to disrupt any past, present, or prospective relationship, contractual or otherwise, relating to the Company's business activities between the Company and its prospects, customers and suppliers. Nothing in this subsection (a) will preclude JEM from continuing to provide management services to chiropractic practices in which JEM had a financial, contractual or developmental interest prior to the execution of this Agreement or to which the Company otherwise agrees to in writing. (b) The parties hereto consider the restrictions contained in Section 6 to be reasonable. If, however, such restrictions are found by any court having jurisdiction to be unreasonable because they are (or any of them is) too broad, then such restriction or restrictions shall nonetheless remain effective, but shall be considered amended as to protection of business, time, or geographic area in whatever manner is considered reasonable by that court and, as so amended, shall be enforced. (c) The provisions of this section, in the event of the Company's completion of its initial public offer, shall survive the termination, for any reason, of this Agreement and shall be separately enforceable. 7. DISCLOSURE OF CONFIDENTIAL INFORMATION. JEM recognizes and acknowledges that JEM's duties hereunder shall require JEM to have knowledge of matters unique to the Company, including trade secrets as to processes, pricing and other matters, and lists of the Company's prospects, customers and suppliers. JEM acknowledges that such information, processes and lists are valuable, special and unique assets of the Company's business. Accordingly, Consultant shall not, during the term of this agreement, and for a period of one (1) year thereafter, disclose any such information, processes, or lists to any reason or purpose whatsoever, except for the Company's benefit as determined in accordance with normal corporate processes. JEM agrees not to disclose the existence or nature of this Agreement to any third party without the written approval of the Company. The provisions of this Section 9 shall survive the termination, for any reason, of this Agreement and shall be separately enforceable. 8. REPRESENTATION AND WARRANTY. JEM hereby represents and warrants to Company that JEM has the right to enter into and perform this Agreement will not violate or constitute a breach of any other agreement or obligation to which JEM may be a party or otherwise bound. To the fullest extent permitted by law, JEM agrees to indemnify and hold harmless Company form and against all damages, losses, costs, and expenses (including reasonable attorneys' fees and expenses) that may be incurred by the Company by reason of any violation or breach of this Section 8. 9. AMENDMENT. This Agreement may be amended only by the written agreement of Company and JEM. 10. ASSIGNMENT. The rights and obligations of Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of Company. JEM, may not, however, assign or otherwise delegate the duties and obligations required hereunder. 4 11. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the state. 12. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original , but all of which together shall constitute one and the same instrument. This Agreement shall be binding when one or more counterparts hereof, individually or taken together, shall bear the signature of the parties reflected hereon as signatories. 13. ENTIRE AGREEMENT. This Agreement supersedes any and all other agreements, either oral or written, between the parties hereto relating to the subject matter hereof. 13. NOTICES. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, receipt requested, postage prepaid, addressed to Company or to JEM, as the case may be, at the addresses listed below, or at such other addresses as either party may designate to the other in accordance with this Section 16. If to Company: Complete Wellness Centers, Inc. 725 Independence Ave., SE Washington, D.C. 20003 attn: President If to JEM: J.E.M., Inc. attn: President 4727 Marlwood Lane North Palm Beach, FL 33418
15. PRONOUNS. Whenever the context may require, any pronouns used in this agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural and vice versa. 16. THIRD PARTY BENEFICIARIES. None of the provisions of this Agreement shall be for the benefit of or enforceable by any third party who is not a signatory to this Agreement. 17. MISCELANEOUS. (a) No delay or omission by the Company or JEM in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company or JEM on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. (b) The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of this Agreement. 5 * * * IN WITNESS WHEREOF, Company and JEM have executed this instrument, or caused its execution by a duly authorized officer, as of the day and year first above written. COMPLETE WELLNESS CENTERS, INC. By: -------------------------- Name: C. Thomas McMillen Title: President ("Company") J.E.M., INC. By: -------------------------- Name: Bonnie Kaplan Title: ----------------------- (J.E.M.) EX-10.24 29 REGISTRANT'S 1994 STOCK OPTION PLAN 1 EXHIBIT 10.24 COMPLETE WELLNESS CENTERS, INC. 1994 STOCK OPTION PLAN SECTION 1. PURPOSE. This 1994 Stock Option Plan is intended to provide incentives: (a) to the officers and other employees of Complete Wellness Centers, Inc. (the "Company") by providing such employees with opportunities to purchase stock in the Company pursuant to options granted hereunder that qualify as "incentive stock options" under Section 422(b) of the Internal Revenue Code of 1986, as amended; (b) to the officers and other employees of the Company by providing such persons with opportunities to purchase stock in the Company pursuant to options granted hereunder which do not qualify as "incentive stock options;" and (c) to consultants and certain other persons rendering services to the Company by providing such persons with opportunities to purchase stock in the Company pursuant to options granted hereunder which do not qualify as "incentive stock options." SECTION 2. DEFINITIONS. (a) "Agreements" shall have the meaning ascribed to the term as set forth in Section 6 hereof. (b) "Board of Directors" means the Board of Directors of the Company. (c) "Common Stock" means the common stock, $.0000555 par value per share, of the Company. (d) "Company" means Complete Wellness Centers, Inc., a Delaware corporation. (e) "Employee" means every individual performing services for the Company if the relationship between him/her and the person for whom he/she performs such services is the legal relationship of employer and employee as determined in accordance with Section 3401(c) of Internal Revenue Code and Treasury Regulations promulgated thereunder. A member of the Board of Directors in his/her sole capacity as such is not an Employee. (f) "Incentive Stock Option" means a right granted pursuant to this Plan to purchase Common Stock that satisfies the requirements of Section 422 of the Internal Revenue Code. (g) "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended. (h) "Nonqualified Stock Option" means a right granted pursuant to this Plan to purchase Common Stock that does not satisfy the requirements of Section 422 of the Internal Revenue Code. 1 2 (i) "Option" means a right granted pursuant to this Plan to purchase Common Stock which may be either an Incentive Stock Option or a Nonqualified Stock Option as determined by the Board of Directors. (j) "Optionee" means an individual who has received an Option under the Plan. (k) "Plan" means this stock option plan authorizing the granting of stock Options. (l) "Plan Administrators" shall have the meaning ascribed to the term as set forth in Section 5 hereof. (m) "Reserved Shares" shall have the meaning ascribed to the term as set forth in Section 3 hereof. SECTION 3. SHARES SUBJECT TO THE PLAN. Subject to adjustments pursuant to Section 8 of the Plan, no more than one million two hundred thousand (1,200,000) shares in the aggregate of the Company's Common Stock (the "Reserved Shares") may be issued pursuant to the Plan to eligible participants. The number of the Reserved Shares shall be reduced by the number of Options granted under the Plan. The Reserved Shares may be made available from authorized but unissued Common Stock of the Company, from Common Stock of the Company held as treasury stock, from any shares which may become available due to the expiration, cancellation or other termination of any Option previously granted by the Company, or from any combination of the foregoing. SECTION 4. ELIGIBILITY. The individuals eligible to receive Options under this Plan shall be such valued Employees of the Company, and such consultants and certain other persons rendering services to the Company, as the Board of Directors may from time to time determine and select. Employees shall be eligible to receive both Incentive Stock Options and Nonqualified Stock Options. Consultants and certain other persons rendering services to the Company shall be eligible to receive Nonqualified Stock Options. An Optionee may hold more than one Option. No Employee of the Company is eligible to receive any Incentive Stock Options if such Employee, at the time the option is granted, owns, beneficially or of record, in excess of 10% of the outstanding voting stock of the Company or a subsidiary thereof; provided, however, that such Employee will be eligible to receive an Incentive Stock Option if at the time such Option is granted the Option price is at least 110% of the fair market value (determined with regard to Section 422(c)(7) of the Internal Revenue Code) of the stock subject to the Option and such Option by its terms is not exercisable after the 2 3 expiration of five (5) years from the date such Option is granted. Pursuant to Section 422(d) of the Internal Revenue Code, no Option granted pursuant to this Plan shall be treated as an Incentive Stock Option to the extent that the aggregate fair market value (determined at the time the Option was granted) of Common Stock with respect to which Options (that otherwise qualify as Incentive Stock Options) are exercisable for the first time by an Employee during any calendar year (under all plans of the Company and its subsidiaries) exceeds $100,000. SECTION 5. ADMINISTRATION OF THE PLAN. (a) The Plan shall be administered by those members of the Board of Directors, or by a committee appointed by the Board of Directors, (in either event, the "Plan Administrators") who are disinterested persons within the meaning of Rule 16b-3(c)(2)(i) of the Securities Exchange Act of 1934, as amended ("Disinterested Persons"). (b) The Plan Administrators shall have the power, subject to, and within the limits of, the express provisions of the Plan: (i) To determine from time to time which eligible persons shall be granted Options under the Plan, and the time when any Option shall be granted to them; (ii) To determine the number of Options to be granted to any person; (iii) To grant Incentive Stock Options, Nonqualified Stock Options, or both, under the Plan to such persons; (iv) To determine the duration and purposes of leaves of absence which may be granted to Optionees without constituting a termination of their employment for purposes of the Plan; (v) To prescribe the terms and provisions of each Option granted under the Plan (which need not be identical); (vi) To determine the maximum period during which Options may be exercised; (vii) To construe and interpret the Plan and Options granted under it, and to establish, amend, and revoke rules and regulations for its administration; and 3 4 (viii) Generally, to exercise such powers and to perform such acts as are deemed necessary or expedient to promote the best interests of the Company with respect to the Plan. (c) Notwithstanding the foregoing, neither the Board of Directors, any committee thereof nor any person designated pursuant to paragraph (d) below may take any action which would cause any Plan Administrator to cease to be a Disinterested Person with regard to this Plan or any other stock option or other equity plan of the Company. (d) The Plan Administrators, in the exercise of these powers, may correct any defect or supply any omission, or reconcile any inconsistency in the Plan, or in any Option, in the manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. All determinations of the Plan Administrators shall be made by majority vote. Subject to any applicable provisions of the Company's By-laws, all decisions made by the Plan Administrators pursuant to the provisions of the Plan and related orders or resolutions of the Plan Administrators shall be final, conclusive and binding on all persons, including the Company, stockholders of the Company, Employees and Optionees. (e) The Plan Administrators may designate the Secretary of the Company, or other employees of the Company or competent professional advisors, to assist in the administration of this Plan and may grant authority to such persons to execute agreements or other documents on behalf of the Plan Administrators. (f) The Plan Administrators may employ such legal counsel, consultants and agents as they may deem desirable for the administration of this Plan and may rely upon any opinion received from any such counsel or consultant and any computation received from any such consultant or agent. No present or former Plan Administrator shall be liable for any action or determination made in good faith with respect to this Plan or any Option granted hereunder. To the maximum extent permitted by applicable law and the Company's Certificate of Incorporation and By-laws, each present or former Plan Administrator shall be indemnified and held harmless by the Company against any cost or expenses (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Company) arising out of any act or omission to act in connection with this Plan unless arising out of such person's own fraud or bad faith. Such indemnification shall be in addition to any rights of indemnification the person may have as a director, officer or employee or under the Certificate of Incorporation of the Company, the By-laws of the Company or otherwise. Expenses incurred by the Plan Administrators in the engagement of such counsel, consultant or agent shall be paid by the Company. 4 5 SECTION 6. OPTION TERMS AND CONDITIONS. The Options granted under the Plan shall be evidenced by written Option Agreements (the "Agreements") consistent with the terms of the Plan which shall be executed by the Company and the Optionee. The Agreements, in such form as the Plan Administrators shall from time to time approve, shall, incorporate the following terms and conditions: (a) Time of Exercise. Options shall be exercisable in accordance with the terms of the Agreements as approved by the Plan Administrators from time to time. Incentive Stock Options may be exercised only if, at all times during the period that begins on the date of the granting of the Incentive Stock Option and that ends on the day three (3) months before the date of such exercise, the Optionee was an Employee of the Company; provided, however, that if the Optionee is "disabled" within the meaning of Section 22(e) of the Internal Revenue Code, then the end of the preceding post-employment exercise period shall be extended to one (1) year. (b) Purchase Price. Except as otherwise provided in Section 4 hereof, the purchase price per share of Common Stock deliverable upon the exercise of an Incentive Stock Option shall not be less than the fair market value of the Common Stock on the date the Option is granted. The purchase price per share of Common Stock deliverable upon the exercise of a Nonqualified Stock Option shall be determined by the Plan Administrators in their sole discretion. (c) Method of Exercise. In order to exercise an Option in whole or in part, the Optionee shall give written notice to the Company at its principal place of business of such exercise, stating the number of shares with respect to which the Option is being exercised. Such notice shall be accompanied by full payment of the purchase price thereof in cash. The exercise date of the Option shall be the date the Company receives such notice with any necessary accompaniments in satisfactory order. (d) Transferability. An Option shall not be transferable by the Optionee other than at death and an Option granted to such Optionee is exercisable, during his lifetime, only by such Optionee. The Agreements may also contain such other terms, provisions, and conditions consistent with the Plan and applicable provisions of the Internal Revenue Code as the Plan Administrators may determine are necessary or proper. SECTION 7. RIGHTS OF STOCKHOLDERS AND OPTIONEE. An Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Option, unless and until: (a) the Option shall have been exercised pursuant to the terms thereof; (b) the Company 5 6 shall have issued and delivered the shares to the Optionee; and (c) the Optionee's name shall have been entered as a stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting and other ownership rights with respect to such shares. SECTION 8. ADJUSTMENTS IN THE EVENT OF CHANGES IN THE CAPITAL STRUCTURE, REORGANIZATION ANTI-DILUTION OR ACCOUNTING CHANGES. (a) Changes in Capital Structure. In the event of a change in the corporate structure or shares of the Company, the Plan Administrators (subject to any required action by the stockholders) shall make such equitable adjustments designed to protect against dilution as they may deem appropriate in the number and kind of shares authorized by the Plan and, with respect to outstanding Options in the number and kind of shares covered thereby and in the exercise price of such Options on the dates granted. For the purpose of this Section, a change in the corporate structure or shares of the Company shall include, but is not limited to, changes resulting from a recapitalization, stock split, consolidation, rights offering, stock dividend, reorganization, or liquidation. (b) Reorganization-Continuation of the Plan. Upon the effective date of the dissolution or liquidation of the Company, or a reorganization, merger or consolidation of the Company with one or more corporations in which the Company is not the surviving corporation, or of a transfer of substantially all of the Company's property or more than 80% of the then outstanding shares of the Company to another corporation not controlled by the Company's stockholders, the Plan and any Option previously granted under the Plan shall terminate unless provision be made in writing in connection with such transaction for the continuation of the Plan and for the assumption of the Options previously granted, or for the substitution of new Options covering the shares of a successor employer corporation, or a parent or subsidiary thereof, with appropriate adjustments (in accordance with the applicable provisions of the Internal Revenue Code) as to the number and kind of shares and price per share, in which event the Plan and the Options previously granted or new Options substituted therefor shall continue in the manner and under the terms as provided. (c) Reorganization-Termination of the Plan. In the event of a dissolution, liquidation, reorganization, merger, consolidation, transfer of assets or transfer of shares, as provided in Section 8(b) above, and if provision is not made in such transaction for the continuance of the Plan and for the assumption of Options previously granted or the substitution of new Options covering the shares of a successor employer corporation or a parent or subsidiary thereof, then an Optionee under the Plan shall be entitled to written notice prior to the effective date of any such transactions stating that rights under his Option must be exercised within 6 7 thirty (30) days of the date of such notice or they will be terminated. SECTION 9. GENERAL RESTRICTIONS. Each Option shall be subject to the requirement that, if at any time the Plan Administrators shall determine, in their discretion, that the listing or qualification of the shares or other securities subject to such Option upon any securities exchange, or under any state or federal law or the consent or approval of any government regulatory body, is necessary or desirable as a condition of, or in connection with the granting thereof or the issue or purchase of shares or payments of any amount thereunder, such Option may not be exercised in whole or in part and no amounts may be received thereunder unless such listing, qualification, consent or approval shall have been effected or obtained free of any conditions unacceptable to the Plan Administrators. SECTION 10. EMPLOYMENT. Nothing in this Plan shall be deemed to grant any right of continued employment to a participating employee or to limit or waive any rights of the Company to terminate such employment at any time, with or without cause. SECTION 11. AMENDMENT. Subject to the provisions of Sections 5(c) and 5(d) hereof, the Board of Directors of the Company shall have the power to amend or revise the terms of this Plan or any part thereof without further action of the stockholders; provided, however, that no such amendment shall impair any Option or deprive any Optionee of shares that may have been granted to him under the Plan without his consent; and provided, further, that no such amendment shall, without stockholder approval: (a) increase the aggregate number of the Reserved Shares for the purpose of the Plan; (b) change the class of individuals eligible to receive Options under the Plan; (c) extend the maximum period during which any Option may be granted or exercised; (d) reduce the Option price per share under any Option below fair market value; or (e) extend the term of the Plan. 7 8 SECTION 12. EFFECTIVE DATE AND TERMINATION OF PLAN. (a) The effective date of the Plan shall be April 15, 1995; provided, however, in the event that the Plan is not approved by the voting stockholders of the Company on or before December 31, 1994, the Plan and all Options granted and to be granted hereunder shall be null and void and the Company shall have no obligation of any nature whatsoever to any employee or other person arising out of the Plan or any options granted or to be granted hereunder. (b) The Board of Directors of the Company may terminate the Plan at any time with respect to any shares that are not subject to Options. Unless terminated earlier by the Board of Directors, the Plan shall terminate on April 15, 2004, and no Options shall be granted under this Plan after it has been terminated. Termination of this Plan shall not affect the right and obligation of any Optionee with respect to Options granted prior to termination. SECTION 13. WITHHOLDING TAXES. Whenever under the Plan shares are to be issued in satisfaction of Options granted hereunder, the Company shall have the right to require the recipient to make arrangements to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements, if any, prior to or following the delivery of any certificate or certificates for such shares. SECTION 14. QUALIFICATION. This Plan is adopted pursuant to, and is intended to comply with, the applicable provisions of the Internal Revenue Code and the regulations thereunder. Incentive Stock Options granted pursuant to this Plan are intended to be "incentive stock options" as that term is defined in Section 422 of the Internal Revenue Code and the regulations thereunder. In the event this Plan or any Incentive Stock Option granted pursuant to this Plan is in any way inconsistent with the applicable legal requirements of the Internal Revenue Code or any regulation thereunder, this Plan and any Incentive Stock Option granted pursuant to this Plan shall be deemed automatically amended as of the date hereof to conform to such legal requirements, if such conformity can be achieved by amendment. SECTION 15. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each Employee who receives an Incentive Stock Option must agree to notify the Company in writing immediately after the Employee makes a disqualifying disposition of any Common Stock acquired pursuant to the exercise of an Incentive Stock Option. For purposes of this Plan, a "disqualifying disposition" is any disposition (including any sale) of such Common Stock before the later of (i) two years after the date the 8 9 Employee was granted the Incentive Stock Option, or (ii) one year after the date the Employee acquired Common Stock by exercising the Incentive Stock Option. 9 EX-10.25 30 REGISTRANT'S 1996 STOCK OPTION PLAN 1 EXHIBIT 10.25 COMPLETE WELLNESS CENTERS, INC. 1996 STOCK OPTION PLAN 1. PURPOSE. This 1996 Stock Option Plan is intended to provide incentives: (a) to the officers and other employees of Complete Wellness Centers, Inc. (the "Company") or any of its subsidiaries by providing such employees with opportunities to purchase stock in the Company pursuant to options granted hereunder that qualify as "incentive stock options" under Section 422(b) of the Internal Revenue Code of 1986, as amended; (b) to the officers and other employees of the Company or any of its subsidiaries by providing such persons with opportunities to purchase stock in the Company pursuant to options granted hereunder which do not qualify as "incentive stock options;" and (c) to consultants and certain other persons rendering services to the Company or any of its subsidiaries (including without limitation members of the Scientific Advisory Board) by providing such persons with opportunities to purchase stock in the Company pursuant to options granted hereunder which do not qualify as "incentive stock options." 2. DEFINITIONS. (a) "Agreements" shall have the meaning ascribed to the term as set forth in Section 6 hereof. (b) "Board of Directors" means the Board of Directors of the Company. (c) "Common Stock" means the common stock, $.0001665 par value per share, of the Company. (d) "Company" means Complete Wellness Centers, Inc., a Delaware corporation. (e) "Employee" means every individual performing services for the Company or any subsidiary if the relationship between him/her and the person for whom he/she performs such services is the legal relationship of employer and employee as determined in accordance with Section 3401(c) of Internal Revenue Code and Treasury Regulations promulgated thereunder. Neither a member of the Board of Directors in his/her sole capacity as such, nor a member of the Scientific Advisory Board in his/her sole capacity as such, is an Employee. (f) "Fair market value" of a share of Common Stock as of any date shall be determined for purposes of this Plan as follows: (i) if the Common Stock is listed on a securities exchange or quoted through the Automated Quotation National Market System of the National Association of Securities Dealers, Inc. (NASDAQ), the fair market value shall equal the mean between the high and low sales prices on such exchange or through such market system, as the case may be, on such day or in the absence of reported sales on such day, the mean between the closing reported bid and asked prices on such exchange or through such market system, as the case may be, on such day, (ii) if the Common Stock is not listed or quoted as described in the preceding clause but is quoted through NASDAQ (but not through the National Market System), the fair market value shall equal the mean 2 between the closing bid and asked prices as quoted by the National Association of Securities Dealers, Inc., through NASDAQ for such day, and (iii) if the Common Stock is not listed or quoted on a securities exchange or through NASDAQ, then the fair market value shall be determined by such other method as the Plan Administrators determine to be reasonable and consistent with applicable requirements of the Internal Revenue Code and the regulations issued thereunder applicable to incentive options; provided, however, that if pursuant to clause (i) or (ii) fair market value is to be determined based upon the mean of bid and asked prices and the Plan Administrators determine that such mean does not properly reflect fair market value, then the fair market value shall be determined by the Plan Administrators as provided in clause (iii). (g) "Incentive Stock Option" means a right granted pursuant to this Plan to purchase Common Stock that satisfies the requirements of Section 422 of the Internal Revenue Code. (h) "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended. (i) "Nonqualified Stock Option" means a right granted pursuant to this Plan to purchase Common Stock that does not satisfy the requirements of Section 422 of the Internal Revenue Code. (j) "Option" means a right granted pursuant to this Plan to purchase Common Stock which may be either an Incentive Stock Option or a Nonqualified Stock Option as determined by the Board of Directors. (k) "Optionee" means an individual who has received an Option under the Plan. (l) "Plan" means this stock option plan authorizing the granting of stock Options. (m) "Plan Administrators" shall have the meaning ascribed to the term as set forth in Section 5 hereof. (n) "Reserved Shares" shall have the meaning ascribed to the term as set forth in Section 3 hereof. (o) "Scientific Advisory Board" means the advisory panel consisting of individuals with experience in the areas of scientific, clinical, and regulatory strategy and standards that will meet periodically and consult with the Board of Directors and management of the Company. (p) "Subsidiary" or "subsidiaries" means any subsidiary(ies) of the Company now existing or which become such after the effective date of the Plan. 3. SHARES SUBJECT TO THE PLAN. Subject to adjustments pursuant to Section 8 of the Plan, no more than two hundred thousand (200,000) shares in the aggregate of the Company's Common Stock (the "Reserved Shares") may be issued pursuant to the Plan to eligible participants. The number of the Reserved Shares shall be reduced by the number of Options granted under the Plan. The Reserved Shares may be made 2 3 available from authorized but unissued Common Stock of the Company, from Common Stock of the Company held as treasury stock, from any shares which may become available due to the expiration, cancellation or other termination of any Option previously granted by the Company, or from any combination of the foregoing. 4. ELIGIBILITY. The individuals eligible to receive Options under this Plan shall be such valued Employees of the Company or any of its subsidiaries, and such consultants and certain other persons rendering services to the Company or any of its subsidiaries (including without limitation members of the Scientific Advisory Board), as the Board of Directors may from time to time determine and select. Employees shall be eligible to receive both Incentive Stock Options and Nonqualified Stock Options. Consultants and certain other persons rendering services to the Company shall be eligible to receive Nonqualified Stock Options. An Optionee may hold more than one Option. No Employee of the Company or any of its subsidiaries is eligible to receive any Incentive Stock Options if such Employee, at the time the option is granted, owns, beneficially or of record, in excess of 10% of the outstanding voting stock of the Company or any of its subsidiaries; provided, however, that such Employee will be eligible to receive an Incentive Stock Option if at the time such Option is granted the Option price is at least 110% of the fair market value (determined with regard to Section 422(c)(7) of the Internal Revenue Code) of the stock subject to the Option and such Option by its terms is not exercisable after the expiration of five (5) years from the date such Option is granted. Pursuant to Section 422(d) of the Internal Revenue Code, no Option granted pursuant to this Plan shall be treated as an Incentive Stock Option to the extent that the aggregate fair market value (determined at the time the Option was granted) of Common Stock with respect to which Options (that otherwise qualify as Incentive Stock Options) are exercisable for the first time by an Employee during any calendar year (under all plans of the Company and its subsidiaries) exceeds $100,000. 5. ADMINISTRATION OF THE PLAN. (a) The Plan shall be administered by those members of the Board of Directors, or by a committee appointed by the Board of Directors, (in either event, the "Plan Administrators") who are disinterested persons within the meaning of Rule 16b-3(c)(2)(i) of the Securities Exchange Act of 1934, as amended ("Disinterested Persons"). (b) The Plan Administrators shall have the power, subject to, and within the limits of, the express provisions of the Plan: (i) To determine from time to time which eligible persons shall be granted Options under the Plan, and the time when any Option shall be granted to them; (ii) To determine the number of Options to be granted to any person; 3 4 (iii) To grant Incentive Stock Options, Nonqualified Stock Options, or both, under the Plan to such persons; (iv) To determine the duration and purposes of leaves of absence which may be granted to Optionees without constituting a termination of their employment for purposes of the Plan; (v) To prescribe the terms and provisions of each Option granted under the Plan (which need not be identical); (vi) To determine the maximum period during which Options may be exercised; (vii) To construe and interpret the Plan and Options granted under it, and to establish, amend, and revoke rules and regulations for its administration; and (viii) Generally, to exercise such powers and to perform such acts as are deemed necessary or expedient to promote the best interests of the Company and its subsidiaries with respect to the Plan. (c) Notwithstanding the foregoing, neither the Board of Directors, any committee thereof nor any person designated pursuant to paragraph (d) below may take any action which would cause any Plan Administrator to cease to be a Disinterested Person with regard to this Plan or any other stock option or other equity plan of the Company. (d) The Plan Administrators, in the exercise of these powers, may correct any defect or supply any omission, or reconcile any inconsistency in the Plan, or in any Option, in the manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. All determinations of the Plan Administrators shall be made by majority vote. Subject to any applicable provisions of the Company's Bylaws, all decisions made by the Plan Administrators pursuant to the provisions of the Plan and related orders or resolutions of the Plan Administrators shall be final, conclusive and binding on all persons, including the Company and its subsidiaries, stockholders of the Company, Employees and Optionees. (e) The Plan Administrators may designate the Secretary of the Company, or other employees of the Company or competent professional advisors, to assist in the administration of this Plan and may grant authority to such persons to execute agreements or other documents on behalf of the Plan Administrators. (f) The Plan Administrators may employ such legal counsel, consultants and agents as they may deem desirable for the administration of this Plan and may rely upon any opinion received from any such counsel or consultant and any computation received from any such consultant or agent. No present or former Plan Administrator shall be liable for any action or determination made in good faith with respect to this Plan or any Option granted hereunder. To the maximum extent permitted by applicable law and the Company's Certificate of Incorporation and Bylaws, each present or former Plan Administrator shall be indemnified and held harmless by the Company against any cost or 4 5 expenses (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Company) arising out of any act or omission to act in connection with this Plan unless arising out of such person's own fraud or bad faith. Such indemnification shall be in addition to any rights of indemnification the person may have as a director, officer or employee or under the Certificate of Incorporation of the Company, the Bylaws of the Company or otherwise. Expenses incurred by the Plan Administrators in the engagement of such counsel, consultant or agent shall be paid by the Company. 6. OPTION TERMS AND CONDITIONS. The Options granted under the Plan shall be evidenced by written Option Agreements (the "Agreements") consistent with the terms of the Plan which shall be executed by the Company and the Optionee. The Agreements, in such form as the Plan Administrators shall from time to time approve, shall, incorporate the following terms and conditions: (a) Time of Exercise. Options shall be exercisable in accordance with the terms of the Agreements as approved by the Plan Administrators from time to time. Incentive Stock Options may be exercised only if, at all times during the period that begins on the date of the granting of the Incentive Stock Option and that ends on the day three (3) months before the date of such exercise, the Optionee was an Employee of the Company or any of its subsidiaries; provided, however, that if the Optionee is "disabled" within the meaning of Section 22(e) of the Internal Revenue Code, then the end of the preceding post-employment exercise period shall be extended to one (1) year. (b) Purchase Price. Except as otherwise provided in Section 4 hereof, the purchase price per share of Common Stock deliverable upon the exercise of an Incentive Stock Option shall not be less than the fair market value of the Common Stock on the date the Option is granted. The purchase price per share of Common Stock deliverable upon the exercise of a Nonqualified Stock Option shall be determined by the Plan Administrators in their sole discretion. (c) Method of Exercise. In order to exercise an Option in whole or in part, the Optionee shall give written notice to the Company at its principal place of business of such exercise, stating the number of shares with respect to which the Option is being exercised. Such notice shall be accompanied by full payment of the purchase price thereof. The exercise date of the Option shall be the date the Company receives such notice with any necessary accompaniments in satisfactory order. (d) Method of Payment. The purchase price shall be paid for (i) in cash or by certified check or bank draft or money order payable to the order of the Company or (ii) with the consent of the Plan Administrators, and to the extent permitted by them (not later than the time of grant, in the case of an Incentive Stock Option), through delivery of shares of Common Stock having a fair market value on the date of exercise equal to the purchase price (but only if such shares have been held by the Option holder for a period of time sufficient to prevent a pyramid exercise that would create a charge to the Company's earnings) or (iii) any combination of the foregoing methods of payment. 5 6 (e) Transferability. An Option shall not be transferable by the Optionee other than at death and an Option granted to such Optionee is exercisable, during his lifetime, only by such Optionee. The Agreements may also contain such other terms, provisions, and conditions consistent with the Plan and applicable provisions of the Internal Revenue Code as the Plan Administrators may determine are necessary or proper. 7. RIGHTS OF STOCKHOLDERS AND OPTIONEE. An Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Option, unless and until: (a) the Option shall have been exercised pursuant to the terms thereof; (b) the Company shall have issued and delivered the shares to the Optionee; and (c) the Optionee's name shall have been entered as a stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting and other ownership rights with respect to such shares. 8. ADJUSTMENTS IN THE EVENT OF CHANGES IN THE CAPITAL STRUCTURE, REORGANIZATION ANTI-DILUTION OR ACCOUNTING CHANGES. (a) Changes in Capital Structure. In the event of a change in the corporate structure or shares of the Company, the Plan Administrators (subject to any required action by the stockholders) shall make such equitable adjustments designed to protect against dilution as they may deem appropriate in the number and kind of shares authorized by the Plan and, with respect to outstanding Options in the number and kind of shares covered thereby and in the exercise price of such Options on the dates granted. For the purpose of this Section, a change in the corporate structure or shares of the Company shall include, but is not limited to, changes resulting from a recapitalization, stock split, consolidation, rights offering, stock dividend, reorganization, or liquidation. (b) Reorganization--Continuation of the Plan. Upon the effective date of the dissolution or liquidation of the Company, or a reorganization, merger or consolidation of the Company with one or more corporations in which the Company is not the surviving corporation, or of a transfer of substantially all of the Company's property or more than 80% of the then outstanding shares of the Company to another corporation not controlled by the Company's stockholders, the Plan and any Option previously granted under the Plan shall terminate unless provision be made in writing in connection with such transaction for the continuation of the Plan and for the assumption of the Options previously granted, or for the substitution of new Options covering the shares of a successor employer corporation, or a parent or subsidiary thereof, with appropriate adjustments (in accordance with the applicable provisions of the Internal Revenue Code) as to the number and kind of shares and price per share, in which event the Plan and the Options previously granted or new Options substituted therefor shall continue in the manner and under the terms as provided. (c) Reorganization--Termination of the Plan. In the event of a dissolution, liquidation, reorganization, merger, consolidation, transfer of assets or transfer of shares, as provided in Section 8(b) above, and if provision is not made in such transaction for the continuance of the Plan and for 6 7 the assumption of Options previously granted or the substitution of new Options covering the shares of a successor employer corporation or a parent or subsidiary thereof, then an Optionee under the Plan shall be entitled to written notice prior to the effective date of any such transactions stating that rights under his Option must be exercised within thirty (30) days of the date of such notice or they will be terminated. 9. GENERAL RESTRICTIONS. Each Option shall be subject to the requirement that, if at any time the Plan Administrators shall determine, in their discretion, that the listing or qualification of the shares or other securities subject to such Option upon any securities exchange, or under any state or federal law or the consent or approval of any government regulatory body, is necessary or desirable as a condition of, or in connection with the granting thereof or the issue or purchase of shares or payments of any amount thereunder, such Option may not be exercised in whole or in part and no amounts may be received thereunder unless such listing, qualification, consent or approval shall have been effected or obtained free of any conditions unacceptable to the Plan Administrators. 10. EMPLOYMENT. Nothing in this Plan shall be deemed to grant any right of continued employment to a participating employee or to limit or waive any rights of the Company or any of its subsidiaries to terminate such employment at any time, with or without cause. 11. AMENDMENT. Subject to the provisions of Sections 5(c) and 5(d) hereof, the Board of Directors of the Company shall have the power to amend or revise the terms of this Plan or any part thereof without further action of the stockholders; provided, however, that no such amendment shall impair any Option or deprive any Optionee of shares that may have been granted to him under the Plan without his consent; and provided, further, that no such amendment shall, without stockholder approval: (a) increase the aggregate number of the Reserved Shares for the purpose of the Plan; (b) change the class of individuals eligible to receive Options under the Plan; (c) extend the maximum period during which any Option may be granted or exercised; (d) reduce the Option price per share under any Incentive Stock Option below fair market value; or (e) extend the term of the Plan. 7 8 12. EFFECTIVE DATE AND TERMINATION OF PLAN. (a) The effective date of the Plan shall be October 9, 1996; provided, however, in the event that the Plan is not approved by the voting stockholders of the Company on or before October 8, 1997, the Plan and all Options granted and to be granted hereunder shall be null and void and the Company shall have no obligation of any nature whatsoever to any employee or other person arising out of the Plan or any options granted or to be granted hereunder. (b) The Board of Directors may terminate the Plan at any time with respect to any shares that are not subject to Options. Unless terminated earlier by the Board of Directors, the Plan shall terminate on September 30, 2006, and no Options shall be granted under this Plan after it has been terminated. Termination of this Plan shall not affect the right and obligation of any Optionee with respect to Options granted prior to termination. 13. WITHHOLDING TAXES. Whenever under the Plan shares are to be issued in satisfaction of Options granted hereunder, the Company shall have the right to require the recipient to make arrangements to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements, if any, prior to or following the delivery of any certificate or certificates for such shares. 14. QUALIFICATION. This Plan is adopted pursuant to, and is intended to comply with, the applicable provisions of the Internal Revenue Code and the regulations thereunder. Incentive Stock Options granted pursuant to this Plan are intended to be "incentive stock options" as that term is defined in Section 422 of the Internal Revenue Code and the regulations thereunder. In the event this Plan or any Incentive Stock Option granted pursuant to this Plan is in any way inconsistent with the applicable legal requirements of the Internal Revenue Code or any regulation thereunder, this Plan and any Incentive Stock Option granted pursuant to this Plan shall be deemed automatically amended as of the date hereof to conform to such legal requirements, if such conformity can be achieved by amendment. 15. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each Employee who receives an Incentive Stock Option must agree to notify the Company in writing immediately after the Employee makes a disqualifying disposition of any Common Stock acquired pursuant to the exercise of an Incentive Stock Option. For purposes of this Plan, a "disqualifying disposition" is any disposition (including any sale) of such Common Stock before the later of (i) two years after the date the Employee was granted the Incentive Stock Option, or (ii) one year after the date the Employee acquired Common Stock by exercising the Incentive Stock Option. 8 EX-10.26 31 REGISTRANT'S 1996 RESTRICTED STOCK OPT PLAN 1 EXHIBIT 10.26 COMPLETE WELLNESS CENTERS, INC. 1996 RESTRICTED STOCK OPTION PLAN FOR HEALTH CARE PROFESSIONALS 1. The Purpose of the Plan. This 1996 Restricted Stock Option Plan (the "Plan") is intended to provide an opportunity for licensed health care professionals affiliated with Complete Wellness Centers, Inc., a Delaware corporation ("Company"), to acquire shares of the Company's common stock, $.0001665 par value per share ("Common Stock"). The Plan provides for the grant of options which are not intended to qualify as incentive stock options, as defined in Section 422 of the Internal Revenue Code of 1986, as amended ("Restricted Stock Options"). 2. Stock Subject to the Plan. The maximum numbers of shares of Common Stock which may be issued under Restricted Stock Options granted under the Plan shall be 100,000 which may be either authorized and unissued shares of Common Stock or shares of Common Stock held in the treasury of the Company, as shall be determined by the Board of Directors of the Company. If a Restricted Stock Option expires or terminates for any reason without being exercised in full, the unpurchased shares of Common Stock subject to such Restricted Stock Option shall again be available for purposes of the Plan. 3. Administration of the Plan. This Plan shall be administered by the Board of Directors of the Company or a committee appointed by the Board of Directors for the administration of the Plan, in the discretion of the Board of Directors. As used herein, the term "Committee" refers to such committee or, in the absence of appointment of such committee, to the Board of Directors. The Committee shall have full authority in its discretion to determine the eligible licensed health care professionals to whom Restricted Stock Options shall be granted and the terms and provisions of Restricted Stock Options, subject to the Plan. In making such determinations, the Committee may take into account such factors which the Committee deems relevant. Subject to the provisions of the Plan, the Committee shall have full and conclusive authority to interpret the Plan; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of the Restricted Stock Option agreements (which need not be identical); to determine the restrictions on 2 transferability of Common Stock acquired upon exercise of Restricted Stock Options; and to make all other determinations necessary or advisable for the proper administration of the Plan. 4. Terms and Conditions of Options. Subject to the following provisions, all Restricted Stock Options shall be in such form and upon such terms and conditions as the Committee, in its discretion, may from time to time determine. (a) Option Price. The option price per share shall in no event be less than 85% of the fair market value per share of Common Stock on the date the Restricted Stock Option is granted. "Fair market value" of a share of Common Stock as of any date shall be determined for purposes of the Plan as follows: (i) if the Common Stock is listed on a securities exchange or quoted through the Automated Quotation National Market System of the National Association of Securities Dealers, Inc. (NASDAQ), the fair market value shall equal the mean between the high and low sales prices on such exchange or through such market system, as the case may be, on such day or in the absence of reported sales on such day, the mean between the closing reported bid and asked prices on such exchange or through such market system, as the case may be, on such day, (ii) if the Common Stock is not listed or quoted as described in the preceding clause but is quoted through NASDAQ (but not through the National Market System), the fair market value shall equal the mean between the closing bid and asked prices as quoted by the National Association of Securities Dealers, Inc., through NASDAQ for such day, and (iii) if the Common Stock is not listed or quoted on a securities exchange or through NASDAQ, then the fair market value shall be determined by such other method as the Committee determines to be reasonable; provided, however, that if pursuant to clause (i) or (ii) fair market value is to be determined based upon the mean of bid and asked prices and the Committee determine that such mean does not properly reflect fair market value, then the fair market value shall be determined by the Committee as provided in clause (iii). (b) Date of Grant. For purposes of this subparagraph (b), the date a Restricted Stock Option is granted shall be the date on which the Committee has approved the terms and conditions of a stock option agreement evidencing the Restricted Stock Option ("Option Agreement") and has determined the recipient of the Restricted Stock Option and the number of shares covered by the Restricted Stock Option and has taken all such other action as is necessary to complete the grant of 2 3 the Restricted Stock Option. (c) Restricted Stock Option Term. No Restricted Stock Option shall be exercisable after the expiration of ten years from the date the Restricted Stock Option is granted. (d) Payment. Payment for all shares of Common Stock purchased pursuant to exercise of a Restricted Stock Option shall be made in cash or, if approved by the Committee either at the time of grant or at the time of exercise, by delivery of Common Stock of the Company at its fair market value on the date of delivery. Such payment shall be made at the time that the Restricted Stock Option or any part thereof is exercised, and no shares shall be issued until full payment therefor has been made. The holder of a Restricted Stock Option shall, as such, have none of the rights of a stockholder. (e) Nontransferability of Restricted Stock Options. Restricted Stock Options shall not be transferable or assignable except by will or by the laws of descent and distribution and shall be exercisable, during the holder's lifetime, only by the holder. (f) Disability. If the holder of a Restricted Stock Option ceases to be affiliated with the Company as a result of a disability as defined under Section 22(e) of the Code ("Disability"), Restricted Stock Options held by the holder may be exercised at any time during the 12-month period following the Disability, subject to any vesting schedule and the other terms and conditions of the holder's Option Agreement. 6. Changes in Capitalization; Merger; Liquidation. 6.1. The number of shares of Common Stock subject to Restricted Stock Options, the number of shares of Common Stock as to which Restricted Stock Options may be granted, the number of shares covered by each outstanding Restricted Stock Option and the price per share of each outstanding Restricted Stock Option shall be proportionately adjusted for (i) any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or combination of shares, (ii) the payment of a stock dividend in shares of Common Stock to holders of outstanding shares of Common Stock or (iii) any other increase or decrease in the number of such shares effected without receipt of consideration by the Company. If the Company shall be the surviving corporation in any merger, share exchange or 3 4 consolidation, recapitalization, reclassification of shares or similar reorganization, the holder of each outstanding Restricted Stock Option shall be entitled to purchase, at the same times and upon the same terms and conditions as are then provided in the Restricted Stock Option, the number and class of shares of Common Stock or other securities to which a holder of the number of shares of Common Stock at the time of such transaction would have been entitled to receive as a result of such transaction. Upon a merger, share exchange, consolidation or other business combination in which the Company is not the surviving corporation, the surviving corporation shall substitute another award of restricted stock options with equivalent value to outstanding Restricted Stock Options in a transaction to which Section 424(a) of the Code is applicable. In the event of a change in the Company's shares of Common Stock into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be Common Stock within the meaning of the Plan. A dissolution or liquidation of the Company shall cause each outstanding Restricted Stock Option to terminate. 6.2. In the event of any such changes in capitalization of the Company, the Committee may make such additional adjustments in the number and class of shares of Common Stock or other securities with respect to which Restricted Stock Options are outstanding and with respect to future grants of Restricted Stock Options as the Committee in its sole discretion shall deem equitable or appropriate, subject to the provisions of this Section 6. 6.3. The existence of the Plan and the Restricted Stock Options granted Pursuant to the Plan shall not affect in any way the right or power of the Company to make or authorize any adjustment, reclassification, reorganization or other change in its capital or business structure, any merger, share exchange or consolidation of the Company, any issue of debt or equity securities having preferences or priorities as to the Common Stock or the rights thereof, the dissolution or liquidation of the Company, any sale or transfer of all or any part of its business or assets, or any other corporate act or proceeding. 7. Termination and Amendment of the Plan. The Plan shall terminate on the date ten years after adoption of the Plan by the Board of Directors, and no Restricted Stock Options shall be 4 5 granted under the Plan after that date, but Restricted Stock Options granted before termination of the Plan shall remain exercisable thereafter until they expire or lapse according to their terms. The Plan may be terminated, modified or amended by the stockholders or the Board of Directors of the Company; provided, however, that no such termination, modification or amendment without the consent of the holder of a Restricted Stock Option shall adversely affect his or her rights under such Restricted Stock Option. 5 EX-10.28 32 MASTER LICENSE AGT DATED SEPT 16, 1996 1 EXHIBIT 10.28 MASTER LICENSE AGREEMENT THIS MASTER LICENSE AGREEMENT ("Agreement") is entered into as of ____________________________________, 1996, by and between Bally Total Fitness Corporation, a Delaware corporation ("Licensor"), and Complete Wellness Centers, Inc., a Delaware corporation ("Licensee"). RECITALS: A. WHEREAS, Licensor owns and operates a number of health club facilities throughout the United States of America (collectively, the "Clubs"); B. WHEREAS, Licensor and Licensee desire to have Licensee develop and manage complete wellness centers offering physical and occupational therapy, chiropractic and outpatient medical treatment within certain mutually agreed upon Clubs for the purposes set forth in Section 10 below (collectively, the "Centers"); and C. WHEREAS, Licensor and Licensee desire to enter into this Agreement to document the relationship between the parties with respect to the licensing, from time to time, of a specified area within certain Clubs to Licensee for use as a Center and to consolidate future licensing arrangements between the parties all upon the terms and conditions set out below. WITNESSETH: NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements of Licensor and Licensee hereinafter set forth and other good and valuable consideration and intending to be legally bound hereby, Licensor and Licensee hereby agree as follows: 1. RIGHT TO DEVELOP THE CENTERS. Subject to the terms and conditions herein set forth, Licensor hereby agrees to grant to Licensee during the term of this Agreement a license revocable in accordance with the terms of this Agreement (collectively and individually, "License") to develop, occupy and manage Centers in those certain areas (collectively and individually, the "License Area") located in available sites which are offered by Licensor and accepted by Licensee located within such Clubs as Licensor and Licensee shall, from time to time, agree upon at which time a description of such License Area (which shall consist of an area containing between 1,500 and 2,000 square feet) and its location within the Club for each License granted hereunder shall be placed on Exhibit "A" attached hereto and made a part hereof. Exhibit A shall be amended from time to time as set forth in this Agreement. The description set out on Exhibit A is for the convenience of the parties only. Licensor shall have the right, at its cost and expense, to relocate from time to time any License Area to another reasonably comparable area within the applicable Club provided that such relocation shall be made in consultation with Licensee. This License does not grant Licensee any possessory right to the License Area or the Clubs. Prior to the granting of 2 any individual License, Licensee shall be given the opportunity to inspect the proposed License Area and agrees to accept the same "AS IS" with no modifications by Licensor required. 2. TERM. Unless earlier terminated as set out herein, the initial term of this Agreement shall commence on the date this Agreement shall have been executed by the last of the parties hereto and shall expire on the fifth (5th) anniversary thereof. At the expiration of the initial term, the term shall automatically be extended for additional one (l)-year periods (not to exceed five (5) such one (l)-year extensions) unless either party gives the other written notice of its election to terminate this Agreement, which notice must be given at least four (4) months prior to the date of the next automatic extension and which termination will be effective as of the expiration of the initial term or the then current automatic extension, period, as the case may be; provided, however, if as of such expiration date the term bf any License has not yet expired, then the terms of this Agreement shall continue in full force and effect with respect to such Licenses until all such Licenses have expired. For purposes hereof, "Term" shall mean the initial term as same may be extended pursuant to the terms hereof. As used herein, the term 'License Year" shall mean and refer to each consecutive full twelve (1 2) calendar month period during the Term of, the Agreement, commencing on the first day of the Term of the Agreement. Unless earlier terminated as set out herein, each License hereunder shall be for a period (a) commencing upon the earlier to occur of (i) the date which is sixty (60) days after the Permits pertaining to construction are issued and (ii) commencement of business in the License Area (the "Rent Commencement Date") and (b) ending five (5) years thereafter; provided, however, that Licensee shall be subject to and bound by all of the terms of this Agreement commencing as of the earliest of the date Licensee takes possession of, applies for building permits for, or begins any construction on the applicable License Area or on the date of grant as evidenced by the amendment of Exhibit A to include the applicable License Area. An individual License will automatically and immediately terminate upon Licensor's (or any of its subsidiaries', affiliates' or franchisees') ceasing to operate the applicable Club or when the lease or other possessory agreement therefor terminates and Licensor shall give notice to Licensee of the happening of any such event. 3. LICENSEFEE. Licensee shall owe Licensor a monthly license fee("License Fee") in an amount equal to $10 per square foot per year during the first l2 months from and after the Rent Commencing Date. Thereafter, the License Fee will be the greater of $ 1 5 per square foot per year or 1 2.5 % of the Cash Receipts (as defined below) of the Licensee's fees which are derived from the Center which shall be payable as follows: (a) Licensee agrees that it will furnish to Licensor, not later than the 1 5th day following the end of each calendar month during the Term of this Agreement a true, accurate and correct statement of Cash Receipts and billings for products, services and transactions made at, upon or from the Center by Licensee during such calendar month, which has been certified as true and correct by an officer of Licensee (the "Statement"). (b) Concurrently with each Statement, Licensee shall pay to Licensor an amount equal to 12.5% of all Cash Receipts for transactions made in, upon, or from the License Area by Licensee which are for the period covered by the Statement. Notwithstanding anything herein to 3 the contrary, in no event shall any License Fee for any month be in an amount less than $.84 per square foot during the initial 12-month term or $1.25 per square foot thereafter. (c) Notwithstanding anything herein to the contrary, there shall be no abatement, apportionment or suspension of the License Fee except as set forth in Section 7 below. (d) Commencing at least one (1) month prior to each anniversary of this Agreement, the parties shall renegotiate in good faith and mutually determine the percentage used to calculate the License Fee payable hereunder for the immediately following year. If the parties are unable to agree upon a new License Fee percentage, then the License Fee percentage in effect at any time renegotiation commenced shall remain; provided, however, the parties shall continue to be obligated to meet every year to attempt in good faith to renegotiate such percentage. Licensee agrees to provide Licensor with quarterly and annual financial statements covering the operations hereunder. Such statement is due by the 30th day after the end of each calendar quarter or fiscal year, as the case may be. For the purpose of ascertaining the amounts payable as the License Fee, Licensee agrees to prepare and keep at its main office for a period of not less than three (3) years following the end of each License Year, adequate and accurate records of all billings for products or services, Cash Receipts and other transactions on or from the Center by Licensee. Licensee further agrees to keep at its main office for at least three (3) years following the end of each License Year, the gross income, sales, or any other Municipal, State or Federal tax returns with respect to said License Years and all pertinent original records. Pertinent original records shall include, but not be limited to: (i) sales journals, (ii) bank statements, (iii) monthly ledgers, and (iv) all other records normally examined by an independent certified accountant pursuant to generally accepted accounting principles in connection with auditing Licensee's billings, revenues and receipts. Licensor at all reasonable times during business hours, upon reasonable prior notice, shall have the right, at Licensor's expense, through any accountant or auditor, to inspect, examine and make copies of all or any of Licensee's books and records aforesaid relating to Licensee's billings and Cash Receipts which pertain to the Centers. Licensor agrees to keep all information relating to Licensee and Licensee's Statements in strict confidence (except that such information may be disclosed to Licensor's landlord, prospective purchasers, mortgagees and taxing authorities, if necessary, or if required to be disclosed pursuant to any legal proceedings, governmental requests or similar process). Upon reasonable prior notice and during normal business hours, Licensor may at any time (but not more frequently than twice each License Year) have an audit made of the foregoing records of Licensee and to the extent Licensee has or can reasonably obtain same, all records associated with the operation of the Center, by an accountant to be selected and paid for by Licensor. Licensee shall render all reasonable assistance to such accountant and provide access to all such records which may be necessary to conduct a full and complete audit of Licensee's billings and Cash Receipts. If it is determined that the actual billings and Cash Receipts for any period covered by a Statement exceeds the amount thereof reported in said Statement by three percent (3%) or more, (i) Licensee shall pay all of Licensor's out-of-pocket costs of said audit and (ii) it shall be an Event of Default pursuant to Section 21. Licensee agrees to keep such records relating to any License Year available for audit for a period of at least three (3) years following the close 4 of said License Year. Any sums due for such period as a result of such audit shall constitute additional License Fees due and shall be paid by Licensee within ten (10) days of notification of any such deficiency and, if such audit establishes that Licensee's Statement for such License Year was understated by three percent (3%) or more and Licensee has not shown, to Licensor's reasonable satisfaction, that Licensee has undertaken reasonable measures to prevent the reoccurrence of such understatement, Licensee shall also pay Licensor a charge equal to ten percent (10%) of the additional License Fees due as liquidated damages and not as a penalty. Failure to make an audit in any License Year shall not prejudice Licensor's right to examine prior License Years' records and collect additional License Fees due for such License Year. With respect to any License Year in which the accountant conducting a Cash Receipts audit determines in good faith that Licensee has failed to maintain the hereinabove specified records (except for any records destroyed or lost due to events beyond Licensee's control), Licensee agrees to pay to Licensor the cost of such audit but such payment by Licensee shall not preclude Licensor from seeking remedies to require specific performance from Licensee pertaining to Cash Receipts records. As used herein, the term "Cash Receipts" means the total amount of all cash payments (including cash payments received as finance charges and/or interest) received by Licensee in each License Year or partial License Year during the term of this Agreement in respect of (i) all transactions made by Licensee in, upon or from the Center in each month, less the total of (ii) all checks returned unpaid from the drawee bank, or refunds made in the normal or usual conduct of Licensee's business, provided that the transaction resulting in such return or refund was included in Cash Receipts initially, and also, less (iii) any sales tax, use tax, excise tax, retailer's occupational tax or similar tax which is collected by Licensee from its customers and paid to any State, Federal or local authority provided that said taxes are separately charged for. In computing Cash Receipts, all transactions of any type on credit (whether extended by Licensee or by any other party such as, without limitation, credit card issuers) shall be included in Cash Receipts. The License Fee shall be paid to the address set out in Section 20 hereof to the attention of the Accounts Receivable Department. Licensor and Licensee acknowledge and agree that the License Fee is consistent with the value of the License Area for general commercial purposes as determined in an arm's-length transaction and that the License Fee has not been determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between Licensor and Licensee, if any, or reflects any additional value that any party would attribute to the License Area as a result of its proximity or convenience to Licensor. All costs and expenses (including telephone charges) incurred by Licensee to operate and promote its business shall be paid in a timely manner by Licensee except that general utility costs and routine facility maintenance (exclusive of maintenance of the License Area which shall remain Licensee's obligation) shall be paid by Licensor; provided, however, in the event the Center generates any waste material which cannot be disposed of in the ordinary course of Licensor's garbage disposal, Licensee shall be responsible for disposal of its own waste at its sole cost and expense. 5 4. PERMITS AND INDEMNITY. Upon receipt of Licensor's and any required third party's written consent in accordance with Section 5 below, Licensee shall, at its sole cost and expense, promptly and diligently apply for and obtain all governmental and other applicable licenses, permits and approvals (the "Permits") required for the construction, installation, existence, repair, use, operation and removal of the Center and shall indemnify, defend and hold Licensor harmless from and against any and all costs, liabilities, claims, causes of action and expenses, including attorneys' and other professional fees, arising wholly or in part, directly or indirectly, from (a) any failure of Licensee to obtain such licenses, permits and approvals or (b) any violation of any applicable law, ordinance, code, rule or regulation or directive of any governmental authority or agreement by which the Club may be bound relating to the construction, installation, existence, repair, removal, use or operation of the Center. Licensee agrees to promptly provide Licensor with copies of all such licenses, permits and approvals. In the event Licensee is unable to obtain all Permits necessary for the construction of the License Area or operation of the Center within ninety (90) days after the initial application therefor, either party shall have the right to terminate the applicable License upon notice to the other. Licensor shall reasonably cooperate with Licensee's efforts to obtain Permits at Licensee's sole cost and expense. 5. APPROVAL OF PLANS; QUALITY AND MANNER OF WORK. Licensee shall not commence any alteration of the License Area until final plans and specifications therefor have been approved in writing by Licensor and all necessary Permits have been obtained. Licensee shall provide Licensor with plans and specifications for work it intends to do within the License Area within thirty (30) days after the parties have agreed upon the selection of such License Area and Licensor agrees to either approve or disapprove (with reasons therefor) such plans within sixty (60) days after receipt thereof. In the event any third party consent is required for the proposed alterations and improvements, any consent given by Licensor shall be conditional upon receiving such third party's consent and Licensor agrees to seek such consent reasonably promptly and Licensee shall cooperate with Licensor"s efforts to obtain such third party's consent. Upon Licensee's request, Licensor shall provide copies of such third party consents. Licensee agrees to reimburse Licensor for its reasonable out-ofpocket expenses incurred in having third parties review Licensee's plans and specifications or provide consent. Promptly after Licensor approves the plans and specifications for the Work, Licensee shall promptly and diligently apply for and pursue all necessary Permits and upon receipt thereof, Licensee shall promptly and diligently alter the License Area at its sole cost and expense in accordance with the plans and specifications approved BY Licensor and in accordance with all applicable laws, ordinances, codes, rules and regulations, the Permits and the directives of all governmental authorities having jurisdiction thereover and all agreements by which the License Area may be bound. All construction work performed by or on behalf of Licensee in connection with this Agreement (the "Work") shall be diligently completed, shall conform in material and workmanship to that of the Club, shall use new materials and shall be in compliance with all building codes and regulations and all insurance requirements of Licensor's and Licensee's respective insurance companies. Notwithstanding anything contained herein to the contrary, all Work to the applicable License Area must be completed by Licensee within sixty (60) days after issuance of all necessary Permits; subject, however, to reasonable extensions necessitated by acts of god, acts of war and labor activities unrelated to performance of Work at the Center. 6 Any additional Work shall be in accordance with the terms and conditions of this Section 5 and must receive Licensor's prior written consent. Licensee shall not have the right to make any improvements or alterations which are structural in nature or which affect any portion of the Club (except the License Area) or the exterior of the Club in which it is located without Licensor's prior written consent which may be withheld in Licensor's sole and absolute discretion. Licensee covenants and agrees that it shall use all reasonable efforts to minimize any interference with the operation of the Club and the Club's patrons use and enjoyment thereof during the performance of the Work and shall, if directed by a Licensor representative, work only during those hours which are less disruptive to the operation of the Club provided any such decrease in work hours shall be added to the period of time which Licensee has to complete the Work. Licensee will use its best efforts to assure that all Work shall be performed by personnel who will not, either by the conduct of their work or by their presence on the License Area, cause or lead to, directly or indirectly, any strike, picketing, handbilling, labor dispute, work slowdown or boycott affecting the License Area, the Club, the building in which same is located, or any part thereof; and Licensee shall indemnify, defend and hold Licensor harmless from and against any and all loss, damage, cost, expense, liability, claim and cause of action resulting from or arising out of any such strike, picketing, handbilling, labor dispute, work slowdown or boycott. Without limiting Licensor's rights and remedies, in the event any personnel performing any portion of the Work shall cause or lead to, directly or indirectly, any strike, picketing, handbilling, labor dispute, work slowdown or boycott affecting the License Area, the Club, the building in which same is located, or any part thereof, Licensee shall use its best efforts to cause such personnel to permanently leave the License Area within six (6) hours after Licensor's oral or written request therefor. 6. NON-INTERFERENCE. In constructing, installing, repairing, maintaining, using, operating or removing the Center, Licensee shall not interfere, and will not permit Licensee's clients, agents or employees to interfere, with access to or the use and operation of the License Area or the Club and shall cause each of them to observe all rules and regulations of each Club. 7. MAINTENANCE AND REPAIRS. Licensee, at its sole cost and expense, shall promptly repair any and all damage caused to the Club (including the License Area) by the construction, installation, repair, maintenance, existence, use or operation of the Center and shall exercise its best efforts to keep the License Area free of all debris resulting therefrom. Licensee shall, at its sole cost and expense, maintain the Center in a good, clean, sightly and safe condition and shall promptly make all repairs and replacements from time to time necessary to keep the Center in such condition. In the event Licensor ceases operating any Club due to the making of repairs, alterations or remodeling or for any other reason, then upon notice (and Licensor shall give ten (10) days' prior notice if reasonably practicable), Licensee will close the applicable Center during the time the Club is closed and the License Fee shall abate proportionally during such period when the Club is so closed. 8. PAYMENT FOR CONSTRUCTION. Licensee shall pay in full for all labor and materials supplied or furnished in connection with the construction, installation maintenance, repair and 7 removal of the Center and in connection with repairs to the License Area required to be made by Licensee hereunder, and shall, upon request, promptly furnish to Licensor such evidence of the payment thereof as Licensor shall reasonably request. Licensee shall procure performance and labor and material payment bonds, naming Licensor as co-obligee, in an amount, form and substance and with a company satisfactory to Licensor in its reasonable discretion, to insure performance and completion of all construction done by Licensee at the Club. 9. LIENS. If any mechanics or other lien shall at any time be filed against the License Area by reason of any labor, services or materials performed or furnished, or alleged to have been performed or furnished, to or for the benefit of Licensee or in connection with the Center, Licensee shall cause the same to be discharged of record or bonded to the satisfaction of Licensor within ten (1 0) days after notice of the filing thereof. Licensee shall indemnify, defend and save Licensor harmless from and against any and all liability and expense, including attorneys' and other professional fees, arising from or related to, wholly or in part, directly or indirectly, any labor, services or materials performed or furnished or alleged to have been performed or furnished, to or for the benefit of Licensee or in connection with the Center, regardless of whether such work or material has improved or increased the value of the License Area. 10. USE AND OPERATION OF THE CENTER. The Center shall be used solely as a physical, occupational therapy, chiropractic and outpatient medical center managed by Licensee during the business hours of the Club pursuant to the terms of this Agreement. Licensee shall manage the Center and shall be responsible for its day-today operations. Licensee shall operate the Center as a business separate and distinct from the Club and shall be solely responsible for all legal, contractual, and business obligations and operations of the Center. The operations of the Center shall not interfere with the operation of the Club except in a de minimus way. Clients of the Center shall have the right to use the facilities of the Club (including the bathrooms and showers), but only when accompanied by a Center staff member, and only to the extent such use is part of the treatment or therapy administered by the Center. Clients of the Center shall have no priority or preference over the members of the Club with respect to the use of any Club facilities or equipment and shall not be permitted to use any babysitting facilities, racquetball courts or tennis courts. Licensee shall at all times, at its sole cost and expense, maintain its equipment and facilities in a clean, wholesome, and sanitary condition. Licensee shall cause each Center to be operated in each License Area during the entire term of this Agreement with due diligence and efficiency. Licensee. shall require all of Licensee's clients and/or invitees and the patients, clients and/or invitees of anyone claiming through Licensee to sign a waiver of liability regarding their use of the Club which is acceptable to Licensor. 11. RULES AND REGULATIONS. Licensee and its employees, agents, contractors, and clients shall observe all rules and regulations of the Club and shall park their vehicles only in those areas designated by Licensor, if any. All clients, patients, agents, contractors, subcontractors, representatives, employees, and invitees of Licensee, and the use and operation of the Center, shall be subject to such rules and regulations as Licensor may from time to time promulgate, including, but not limited to, the rules and regulations of the Club and restrictions on the hours of use, and rules and regulations imposed upon Licensor by its landlord or any other agreement by which the Club may be bound so long as those rules and regulations which are promulgated by 8 Licensor do not unreasonably interfere with Licensee's use of the Center. Upon request from Licensee, Licensor shall provide copies of all rules and regulations then in effect at the Club. 12. ADVERTISING. Licensee may generally advertise and promote its business within the Club, at its own cost and expense after receiving Licensor's prior approval, which Licensor shall have no obligation to grant; provided, however, Licensee shall have the right to install signage within the License Area and directional signage which may be visible within the Club subject to Licensor's reasonable consent as to size and location. Licensor shall have the right to approve, in advance, any and all advertising or promotion of the Center which refers to the Licensor's facility, its name, or trademarks or service marks or which is disseminated to Licensor's members. Licensee shall have the right to approve in advance, any and all advertising or promotion of the Club which refers to Licensee's name, trademarks, or service marks. Licensee and Licensor shall make all efforts to protect the other's rights in any trademarks, service marks, or copyrighted material used in any advertisement or promotion of the Center or the Club. Licensee shall not issue any press release (broadcast or print) relating to this Agreement or the License arising hereunder without the prior written approval of Licensor. 13. WAIVER OF LIABILITY. Notwithstanding anything contained herein to the contrary, neither Licensor nor its agents, employees or representatives shall be responsible or liable to Licensee, Licensee's or its sublicensee's clients, patients, agents, contractors, subcontractors, representatives, employees or invitees or to anyone claiming by, through or under Licensee, and Licensee hereby waives all claims for damage or injury to persons or property, loss of business and any and all other losses or damages sustained by Licensee or any person claiming by, through or under Licensee, resulting, wholly or in part, directly or indirectly, from the construction, installation, existence, use, operation and/or removal of the Center except if caused by the gross negligence or willful misconduct of Licensor, its agents or employees. 14. COMPLIANCE WITH LAWS. Licensee, at its sole cost and expense, shall construct, develop, manage and cause the Center to be operated in a manner that complies with (a) all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations and ordinances affecting the Center and the operation thereof, including, without limitation, any of the foregoing which require the licensing or accreditation of physical therapists and other personnel, or which relate to physical therapy or other medical services, or the Americans with Disabilities Act, or the Occupational Safety and Health Act, whether or not any such statutes, laws, rules, orders, regulations or ordinances which may be hereafter enacted involve a change of policy on the part of the governmental body enacting the same, and (b) all rules, orders and regulations of the National Board of Fire Underwriters and Licensor's fire insurance rating organization or other bodies exercising similar functions in connection with the prevention of fire or the correction of hazardous conditions. 15. INDEMNIFICATION. (a) Licensee shall indemnify, defend and save Licensor harmless from and against any and all claims, actions, demands, damages, liabilities and expenses, including attorneys' and other professional fees, in connection with loss of life, personal injury and/or damage to 9 property arising from or related to, wholly or in part, directly or indirectly, the construction, installation, existence, use, operation and/or removal of the Center or any part thereof, and any activities of Licensee's or its sublicensee's clients, patients, agents, contractors, subcontractors, representatives, employees and invitees in the Club or on or about the License Area except to the extent caused by the gross negligence or willful misconduct of Licensor, its agents, employees or contractors. (b) Licensor shall indemnify, defend and save Licensee harmless from and against any and all claims, actions, damages, liabilities and expenses, including reasonable attorneys' and other professional fees, in connection with loss of life, personal injury and/or damage to property to the extent caused by the gross negligence or willful misconduct of Licensor, its agents, employees or contractors (but specifically excluding the patients, invitees, employees, contractors and agents of Licensee or of anyone claiming through Licensee) in the Club (exclusive of the License Area) except to the extent caused by the acts, omissions or negligence of Licensee, its agents, employees or contractors. 16. INSURANCE. Licensee shall obtain and keep in force, at its sole cost and expense and shall ensure that its sublesees maintain in full force and effect, the following: (a) comprehensive general liability insurance, including insurance against assumed or contractual liability, with respect to the Center, with a combined single limit of not less than One Million Dollars ($1,000,000) per occurrence, Two Million Dollars ($2,000,000) aggregate and Three Million Dollars ($3,000,000) in umbrella coverage with respect to bodily injury, personal injury, death and property damage, and shall name Licensor as an additional insured on such coverage; (b) worker's compensation insurance as required by law; and (c) professional liability insurance coverage in such coverage amounts and with such insurance companies as shall be acceptable to Licensor in its reasonable discretion; provided, however, that in no event shall such professional liability insurance coverage be less than One Million Dollars ($ 1,000,000) per occurrence; provided, further, however, if pursuant to the second paragraph of Section 25 below Licensee has an independent operator provide the services described in Section 10 at the Center, such independent operator and not Licensee shall maintain the professional liability insurance coverage required pursuant to this subsection (c). If Licensee obtains a claims-made professional liability insurance policy hereunder, Licensee shall purchase and maintain, at Licensee's sole cost and expense, extended coverage protection (commonly known as "tail coverage") insurance for not less than a period of twenty-one (21) years after the earlier of either the termination or expiration of this Agreement to assure protection against claims made after Licensee's professional liability insurance coverage under this Agreement has expired. A certificate of each such policy, together with a photocopy of each policy, shall be deposited with Licensor prior to the commencement of construction or operation of the Center. Such certificates shall state that such coverages shall not be amended, modified, cancelled or reduced without at least thirty (30) days written notice to Licensor. Prior to the expiration or termination of any such policy, Licensee shall deliver to Licensor a certificate of the new or renewal policy, together with a copy of the rider covering the Center. 17. TERMINATION. At Licensor's election, all alterations, improvements and fixtures (excluding Licensee's trade fixtures, personal property and equipment) shall become the property 10 of Licensor and remain in each License Area upon the expiration or earlier termination of the applicable License in which event they shall all be in good condition, reasonable wear and tear excepted; provided, however, Licensor shall have the right to notify Licensee that it will require the License Area to be restored to the condition it was in immediately prior to the performance of Licensee's Work in which event Licensee shall, within ten (10) days after the expiration or termination of the applicable License, remove all items required by Licensor to be removed, restore the License Area to its original condition, repair any damage caused by such removal, remove all debris caused thereby and leave the License Area broom-clean. Notwithstanding anything contained herein to the contrary, the terms of this Section 17 shall survive the expiration or earlier termination of this Agreement or the applicable License. At the expiration or earlier termination of each License, Licensee shall promptly surrender all keys for the License area to Licensor. 18. SELF-HELP. If Licensee shall fail to perform any obligation required to be performed by Licensee pursuant to this Agreement, then, in addition to and not in lieu of any other right or remedy available to Licensor, Licensor may perform any such obligation, on behalf and at the sole cost and expense of Licensee, and the reasonable cost of such performance, together with interest thereon from the date of such expenditure, shall be payable by Licensee to Licensor upon demand. Said interest shall be at the rate of twelve percent (1 2%) per annum or the highest interest rate permitted by applicable law, whichever is less. 19. SURVIVAL OF OBLIGATIONS. Notwithstanding anything to the contrary contained herein, the expiration of the term of this Agreement, whether by lapse of time or otherwise, shall not relieve Licensor or Licensee from their obligations accruing prior to the expiration of the term. 20. NOTICES. Any notice, request, demand, approval or consent given or required to be given under this Agreement shall be in writing and shall be deemed to have been given on the third (3rd) business day following the date on which the same shall have been mailed by United States registered or certified mail, return receipt requested, or one (1) business day following deposit with a nationally recognized overnight courier service, with all postal charges prepaid, addressed as follows: To Licensor: Bally Total Fitness Corporation 8700 W. Bryn Mawr Avenue Fifth Floor Chicago, Illinois 60631 Attention: Director of Property Management With a copy to: Bally Total Fitness Corporation 8700 West Bryn Mawr Second Floor Chicago, Illinois 60631 Attention: General Counsel
11 To Licensee: Complete Wellness Centers, Inc. 725 Independence Avenue, S.E. Washington, D.C. 20003 Attention: President With a copy to: Deborah Green, Esq. 666 Lexington Avenue Suite 206 Mount Kisco, NY 10549
Either party may, at any time, change its address for the above purposes by sending a notice to the other party in accordance with the terms hereof, but such notice of change of address shall only be effective upon receipt. 21. DEFAULT. If Licensee shall fail to pay the License Fee or any sum of money under this Agreement within ten (10) days after notice the same is due; or if Licensee shall fail to perform any other obligation of Licensee to be performed under the terms of this Agreement, and such failure shall continue for more than ten (10) days after notice thereof, then each such breach shall be deemed an event of default hereunder ("Event of Default"). The occurrence of each of the following shall also each be considered an Event of Default hereunder: (a) any misrepresentation of fact made by Licensee including, but not limited to, any misrepresentation with respect to the status of Licensee as an independent contractor; (b) if Licensee (i) makes an assignment for the benefit of creditors, (ii) becomes insolvent, (iii) is declared a bankrupt, (iv) has voluntarily filed a Petition in Bankruptcy or is the subject of any involuntary Petition in Bankruptcy, or (v) files a Petition for the appointment of a receiver for Licensee's business, provided in the event of an involuntary filing same is not removed within ninety (90) days; (c) if any lawsuit is brought against Licensor by virtue of Licensee's use or occupancy of the License Area and Licensee fails to cause such lawsuit to be dismissed within one hundred twenty (1 20) days or fails to post a bond sufficient to protect the interests of Licensor; (d) Licensee's (i) failure to initially open any Center for business within one hundred twenty (1 20) days after the receipt of all approvals, third party consents and Permits; (e) vacation, abandonment, or desertion of any License Area; (f) failure to operate its business in any License Area or failure or refusal to maintain the business hours as set out herein; provided, however, it shall not be a default if such closure is due to a fire or other casualty whereby the License Area cannot reasonably be operated and provided, further, Licensee thereafter repairs and re-opens the License area as diligently as possible; or (g) Licensee's understatement of the License Fee for any License by hnore than ten percent (1 0%) in any License Year provided it shall not be a default if Licensee shows that such understatement was the result of obvious clerical error and reasonable measures have been taken to prevent its reoccurrence. Upon the occurrence of an Event of Default, Licensor shall have the right to immediately terminate the applicable License involved in any such Event of Default by giving written notice thereof to Licensee in which event: (A) the term of such License shall expire and terminate with the same force and effect as though the date of such notice was the date fixed for the expiration of 12 such License term and all rights of Licensee pursuant to such License shall expire and terminate and Licensor shall be entitled to recover from Licensee, as liquidated damages and not as a penalty, a sum equal to $1 5,000 for each defaulting License; (B) Licensor shall have the right to declare due and payable and sue for and recover all License Fees and all other sums due and owing Licensor regarding such License as of such termination date; (C) Licensor shall have the right to recover all reasonable legal fees and other expenses incurred by Licensor in connection with the enforcement of any of Licensor's rights and remedies hereunder; and/or (D) Licensor shall be entitled to such other remedies as may be available to it at law or in equity. Upon the occurrence of the greater of (1) five (5) Events of Default or (11) Events of Default pursuant to at least five percent (5%) of the then existing Licenses, a "Master Default" shall be deemed to have occurred and Licensor shall have the right to any or all of the following remedies: (aa) to immediately terminate this Agreement; (bb) to immediately terminate any or all Licenses granted hereunder by giving written notice thereof to Licensee in which event (X) the term thereof shall expire and terminate with the same force and effect as though the date of such notice was the date fixed for the expiration of such License term and all rights of Licensee pursuant to such License shall expire and terminate and Licensor shall be entitled to recover from Licensee, as liquidated damages and not as a penalty, a sum equal to $10,000 for each License so terminated; (Y) Licensor shall have the right to declare due and payable and sue for and recover all License Fees and all other sums due and owing Licensor as of such termination date(s); and/or (Z) recover all reasonable legal fees and other expenses incurred by Licensor in connection with the enforcement of any of Licensor's rights and remedies hereunder; and/or (cc) to such other remedies as may be available to it at law or in equity. 22. NO WAIVER. No waiver of any covenant or condition or of the breach of any covenant or condition to be performed by either party shall be taken to constitute a waiver of any subsequent breach of such covenant or condition by such party nor to justify or authorize the non-observance on any other occasion of the same or of any other covenant or condition of this Agreement. The acceptance of the License Fee by Licensor at any time when Licensee is in default under any covenant or condition of this Agreement shall not be construed as a waiver of such default or of Licensor's right to terminate this Agreement on account of such default, nor shall any waiver or indulgence granted by either party to the other party be taken as an estoppel against the party granting such waiver or indulgence. 23. NO INTEREST IN PROPERTY: NO JOINT VENTURE. This Agreement is intended to grant a license only and is not intended nor shall it be construed as granting any interest or estate in the License Area or the Club. This Agreement is not intended to create, nor shall it be construed to create, a joint venture between Licensor and Licensee. All trademarks, trade names, service marks and copyrights of Licensor are to remain its property and are not at any time to be utilized, distributed, copied, or otherwise employed or acquired by Licensee except with Licensor's prior written approval. Licensee acknowledges that the name, reputation, and goodwill of Licensor constitute valuable and unique assets. All trademarks, trade names, service marks and copyrights of Licensee are to remain its property and are not at any time to be utilized, distributed, copied, or otherwise employed or acquired by Licensor except with Licensee's prior written approval. Licensor acknowledges that the name, reputation, and goodwill of Licensee constitute valuable 13 and unique assets. Licensee represents and warrants that neither it nor any individual, corporation, partnership or other entity which is controlled by, or under common control with Licensee, or which owns 50% or more of the equity of the Licensee, is controlled by or under common control with, or will become controlled by or under common control with, any person who has been convicted of or granted immunity from prosecution for any crime relating to moral turpitude. 24. NO OBLIGATION TO MAKE REFERRALS. Licensor shall have no obligation to Licensee to refer any persons to Licensee or the Center for treatment, consultation, or any otherreason. Licensee shall have no obligation to refer any persons to Licensor for membership in the Club or any other reason. 25. ASSIGNMENT. Licensor desires Licensee to manage the Center based upon Licensee's reputation and marketing ability, thus Licensee shall not assign this Agreement nor the license granted herein, in whole or in part, nor sublicense any part or all of it without the prior written consent of Licensor, which consent Licensor shall not unreasonably withhold. Licensee agrees that the withholding by Licensor of its consent of such proposed assignment or sublease will not be deemed "unreasonable" if, among other reasonable criteria to be examined by Licensor: (a) the net worth of the proposed subtenant or assignee is materially less than that of Licensee; (b) the proposed subtenant or assignee does not have a business reputation or standing in the community as good as that of Licensee (or Licensee's principals); (c) the intended use of the License Area by subtenant or assignee is different from the use permitted by Section 10 above; (d) the use of the License Area by the proposed subtenant or assignee would violate any laws, ordinances or governmental regulations; (e) the use of the License Area by the proposed subtenant or assignee would violate any other agreements or leases affecting the Club; (f) the assignment or sublease i@ for less than all of the License Area; or (g) an Event of Default has occurred under this Agreement or any License. Any change in ownership or management of Licensee, including the sale or transfer of all or a substantial portion of the capital stock of Licensee (except that Licensee shall have the right to "go public" and have its stock publicly traded on a U.S. stock exchange) or all or any substantial portion of the assets of Licensee, shall constitute an unpermitted assignment of this Agreement. Notwithstanding the foregoing, Licensee shall have the right to assign this Agreement or any License to any corporation, venture or entity provided that Licensee is and remains the managing partner thereof or holds a controlling interest therein or is a wholly-owned subsidiary of Licensee. Any assignment or sublease shall require that the proposed assignee shall enter into a written agreement with Licensor pursuant to which the assignee assumes all of the obligations imposed on the Licensee under this Agreement. No assignment or sublease shall relieve Licensee of or effectuate a release or assignment of Licensee's liabilities under the terms of this Agreement and Licensee shall in all events, be and remain liable to the Licensor throughout the entire Term hereof and of the Licenses. Furthermore, Licensee has the right to transfer certain of its duties and obligations under this Agreement to an independent operator provided that (i) an officer of Licensee certifies in writing to Licensor that Licensee has made an informed determination that each such independent operator is qualified to operate a Center and has not been convicted of (or pled nolo contendere to) any felony or any act involving moral turpitude, and (ii) Licensee obtains 14 the prior written consent of Licensor to each such transfer, which consent Licensor may give or withhold in its sole and absolute discretion, and (iii) Licensee remains primarily liable to Licensor for the performance of all of its obligations and duties under this Agreement and any License. If an approved independent operator no longer acts as an independent operator of Licensee, for whatever reason, Licensee will continue to be obligated to perform under all of the terms and conditions of this Agreement. Licensee shall require that a sufficient number of fully trained and competent personnel are employed for the operation of each Center. 26. SUBORDINATION AND TERMINATION RIGHT. (a) If any Club is leased or subleased to Licensor as tenant or subtenant or if Licensor's operation of any Club is subject to any management or other operating agreement, then this Agreement shall be subject and subordinate to each and every term and condition of any such lease, sublease and/or each and every other agreement which binds Licensor or pertains to the Clubs. Upon request, Licensor shall provide to Licensee copies or an abstract of relevant provisions of such agreement. (b) In the event Licensor subleases or assigns its lease for any Club after the commencement of a License for such Club, Licensor will so notify Licensee. Licensor (or its successor, sublessee or assign) shall then have thirty (30) days to notify Licensee that it is terminating the License for the applicable License Area in which event Licensee shall be entitled to receive from such terminating entity an amount equal to one hundred percent (100%) of the then unamortized cost of that portion of Licensee's approved alterations and improvements made hereunder (which shall not include furniture, trade fixtures, equipment, merchandise or other personal property installed in the License Area) for which Licensee has provided Licensor with paid invoices plus the sum of $1,000. The cost of such approved alterations and improvements shall be amortized on a straight line basis over the initial term of the applicable License. (c) If after the second full License Year, Licensee's Cash Receipts for any Center is less than $250,000 for any six (6)-month period covered by two of Licensee's consecutive quarterly financial statements, Licensor shall have the right to terminate the License for such Center; provided, however, Licensor agrees that it shall not exercise such termination right so long as Licensee shall pay License Fees for such Center in an amount equal to the License Fees that would be owed if the Cash Receipts for such Center for such two (2) consecutive quarters were at least $250,000. The right to terminate the License for such Center shall be exercised by Licensor giving written notice to Licensee within sixty (60) days after Licensor's receipt of Licensee's quarterly financial statement setting forth the Cash Receipts for such quarter, and shall be effective ninety (90) days after such notice. In the event any Club is closed pursuant to Paragraph 7 above, the $250,000 amount specified in this paragraph shall be prorated based upon the duration of such closure. 27. CONFIDENTIALITY. During the term of this Agreement, Licensee may receive, have access to, or learn of documents, records and information of a confidential and proprietary nature to Licensor, all of which would not be otherwise readily available to Licensee except for the licenses created by this Agreement. Licensee acknowledges that such information and similar data 15 is not generally known to the trade, is of a confidential nature, and is an asset of Licensor. Any information or data which becomes known to the public through no fault of Licensee, is disclosed to Licensee by a third party who is not under any obligation of confidentiality to Licensor, or which Licensee has knowledge of through no fault of its own prior to disclosure by Licensor of such information or data to it, shall not be considered confidential under this section. Licensee agrees, on behalf of itself and its directors, officers, shareholders, employees and operators that it shall not disclose, give, sell or otherwise transfer or make available, directly or indirectly, such confidential information and data to any third party. Licensee shall limit the dissemination of such confidential information or data within its organization to those individuals whose duties justify the need to know such information and shall require those individuals to protect and preserve the confidential and proprietary nature of such information and data in accordance with this section. Upon request of Licensor at any time, and upon the termination or expiration of this Agreement for any reason, Licensee shall promptly return all such confidential information and data, and any copies or Reproductions thereof, and work papers containing portions thereof, to Licensor at Licensee's expense, and Licensee agrees to make no further use of such confidential information and data. Licensee agrees that, if its agreements in this section are breached, a remedy in law may be inadequate and, therefore, without limiting any other remedy available at law or in equity, an injunction, specific performance or other forms of equitable relief or money damages or any combination thereof shall be available to Licensor. 28. GOVERNING LAW. This Agreement shall be governed by and interpreted according to the laws of the State of Illinois with respect to contracts entered into therein and to be performed therein. 29. LANDFORD'S CONSENT. Licensor and Licensee agree that the effectiveness of a License is contingent upon obtaining the consent thereto of Licensor's landlord or sublandlord, if required, pursuant to Licensor's lease or other agreement by which the License Area may be bound. Licensor shall exercise reasonable diligence to obtain the consent of such landlord. 30. CAPTIONS. The paragraph captions and headings of this Agreement are for convenience of reference only and in no way shall be used to construe or modify the provisions of this Agreement. 31. BINDING EFFECT. By its execution hereof, the individual executing this Agreement on behalf of the parties hereof represents that he or she is duly authorized to do so and that all proceedings required to authorize the execution hereof have been duly and properly taken and that this Agreement constitutes a legal, valid, binding, and enforceable obligation of such party. This Agreement and the covenants and conditions herein contained shall inure to the benefit of and be binding upon the parties hereto, their respective heirs, executors, personal representatives, successors and assigns. 32. WHOLE AGREEMENT. This Agreement shall constitute the entire agreement between the parties and supersedes all prior and contemporaneous negotiations and/or representations by either party hereto. This Agreement may not be varied, modified or amended except by an agreement in writing duly signed by the parties. 16 33. JOINT AND SEVERAL. If Licensee is a partnership or other business organization, the members of which are subject to personal liability or if Licensee is two (2) or more individuals or entities, the liability of each such member, individual or entity, shall be deemed joint and several. IN WITNESS WHEREOF, the parties hereto have executed this Li6ense as of the date first above written. LICENSOR: BALLY TOTAL FITNESS CORPORATION By: ----------------------------------------------- Its: Senior Vice President Date: , 1996 ---------------------------------- LICENSEE: COMPLETE WELLNESS CENTERS, INC. By: ------------------------------------------------ Its: Date: , 1996 -------------------------------------
17 EXHIBIT A Location of License Club License Area Grant Date - ---- ------------ ----------
19 EX-10.29 33 MANAGEMENT SUBCONTRACT AGT 1 EXHIBIT 10.29 MANAGEMENT SUBCONTRACT AGREEMENT This MANAGEMENT SUBCONTRACT AGREEMENT (the "Agreement") is entered into as of November 1, 1996 between Integrated Physicians Management Co., LLC, a Nebraska limited liability corporation ("IPM") and Complete Wellness Centers, Inc., a Delaware corporation ("CWC"). WHEREAS, IPM has executed management agreements with nine (9) chiropractic clinics (the "Clinics") and chiropractors (the "Participants"), collectively identified on Exhibit A, in order to establish an integrated facility on the premises of the Clinics capable of providing medical and chiropractic services. WHEREAS, IPM provides management services to professional corporations established (the PC's) in order to provide said integrated services and to Participants who have established integrated facilities with IPM's assistance. WHEREAS, CWC is qualified by experience to provide assistance to IPM in managing the PC's and providing management services to the Participants. WHEREAS, IPM wishes to engage CWC on an exclusive basis to provide management services to the PC's and Participants on IPM's behalf. NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties hereby agree as follows: 1) CWC OBLIGATIONS a. In General IPM hereby retains CWC as the sole and exclusive manager of the PC's or Participants, and CWC hereby accepts such assignment. CWC shall provide, to the reasonable satisfaction of IPM and in accordance with all applicable federal and state laws and regulations, such services as may be necessary or appropriate to meet the requirements to be provided by IPM as stipulated in the Integrated Facility Agreements between IPM and the Clinics and Participants as identified on Exhibit B, with the exception that CWC shall not be responsible for any Covered Costs as defined in said Integrated Facility Agreements. 1 2 b. Operating Expenses Except as set forth herein, CWC shall not be responsible for the payment of costs and expenses incurred in connection with the operations of the PC's except for the payment of three hundred dollars ($300) per month payable to Donald Janda, MD for services as the shareholder of Integrated Physicians of Nebraska, PC. c. Management of other Integrated Facilities IPM acknowledges and agrees that CWC is free to provide management services to other integrated facilities. 2) COMPENSATION a. Submanagement Fee For providing services described herein, CWC shall earn a submanagement fee (the "Submanagement Fee") equal to: One hundred percent (100%) of the collected revenues IPM is entitled to receive pursuant to and during the term of the Integrated Facility Agreements minus a payment to IPM of twenty percent (20%) of said collected revenues (the "IPM Fee"). b. Payment of Fees CWC shall be entitled to receive said renumeration under the same terms and conditions as IPM is entitled to as specified in the Integrated Facility Agreements. The IPM Fee shall be payable by CWC monthly. 3) TERM The term of this Agreement shall commence on the date hereof, and unless earlier terminated as provided for in Section 4 or extended by mutual agreement shall end upon the termination of all Integrated Facility Agreements. 4) TERMINATION This Agreement may be terminated prior to the end of the term: A. by a written agreement among IPM and CWC, B. by the IPM or CWC for Cause, where "Cause" shall mean breach of fiduciary duty or of the provisions of this Agreement, manifest incompetence, plain dereliction or neglect of duty persisted in after warning, or conviction of any felony or conduct involving moral turpitude by IPM or CWC. 2 3 5) INDEPENDENT CONTRACTOR CWC is and shall remain an independent contractor at all times with respect to its performance hereunder, and shall have no right or authority to assume or create any obligation , express or implied, on behalf of IPM without the prior written consent of IPM as the case may be, in each instance. Nothing in this Agreement shall be construed as creating the relationship of employer and employee, master and servant, or principal and agent, nor that of partnership or joint venture. 6) FEES AND EXPENSES IPM and CWC shall pay their own costs incidental to the execution of the Agreement, including attorney's fees, accountants, etc. 7) AMENDMENT This Agreement may be amended only by the written agreement of IPM and CWC. 8) SUCCESSORS AND ASSIGNS IPM and CWC acknowledge and agree that this Agreement and its rights and interest hereunder may not be assigned, nor may its obligation and duties hereunder be delegated without the written consent of the Clinics and Participants. 9) INDEMNIFICATIONS IPM agrees to indemnify and hold CWC harmless from and against any and all claims, actions, damages and liabilities whatsoever, asserted by any person or entity against CWC, which claim, action, damage or liability results from or arises out of IPM's negligent or intentional failure to perform or abide by agreements or obligations created as a result of the performance of CWC under the terms of this Agreement. In addition, IPM agrees to indemnify and hold CWC harmless from and against any and all claims, actions, damages, and liabilities, including but not limited to legal proceedings, asserted by any party to the Integrated Facility Agreements, which claim, action, damage or liability results from or arises out of IPM's failure to secure written consents from said party(s) to the delegation of responsibilities pursuant to this Agreement. CWC agrees to indemnify and hold harmless IPM from and against any and all claims, damages and liabilities whatsoever, asserted by any person or entity, resulting by reason of the intentional or unauthorized wrongful conduct of CWC. 3 4 10) GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland. 11) ENTIRE AGREEMENT This Agreement supersedes any and all other agreements, either oral or written heretofore made with respect to the subject matter hereof. 12) SEVERABILITY Any provision of this Agreement which is found to be uneforceable in any jurisdiction, shall, as to such jurisdiction only, be ineffective to the extent of such uneforceability, without invalidating or otherwise affecting the remaining provisions hereof. 13) COUNTERPARTS This Agreement may be executed simultaneously in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall be binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of the parties reflected hereon as signatories. 14) NOTICES All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to: A. CWC at the address shown above, or at such other address or addresses as CWC shall designate to IPM in accordance with this section. or B. IPM at the address set forth on the above letterhead, or at such other address as the IPM shall designate to CWC in accordance with this section. 15) PRONOUNS Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter form of nouns and pronouns shall include the plural and vice versa. 16) MISCELLANEOUS A. No delay or omission by IPM or CWC in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or 4 5 consent given by IPM or CWC on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right in any other occasion. B. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any or this Agreement. 5 6 IN WITNESS WHEREOF, IPM and CWC have executed this instrument, or caused its execution by a duly authorized officer, as of the day and year first above written. INTEGRATED PHYSICIANS MANAGEMENT CO., LLC By ----------------------------- David J. Kats, DC Managing Member COMPLETE WELLNESS CENTERS, INC. By ----------------------------- E. Eugene Sharer President and COO 6 7 EXHIBIT "A" Dr. Brian Brockman Ihle Chiropractic Clinic, PC 2506 North 72nd St. Omaha, NE 68134 (402) 397-3339 (ofc) (402) 399-9271 (fax) Dr. Gary Elsasser Elasser Chiropractic 11906 "I" St. Omaha, NE 68137 (402) 333-0352 (ofc) (402) 333-0731 (fax) Dr. Ritch Miller Downtown Chiropractic Health Center, PC 2111 Douglas St. Omaha, NE 68102 (402) 345-7500 (ofc) (402) 345-5228 (fax) Dr. James Rouse Rouse and Associates 308 East Northland Ave. Appleton, WI 54911 (414) 731-7113 (ofc) (414) 731-7118 (fax) Dr. Ray Roddan Procare Chiropractic Clinic 1075 Brookwood Dr. Green Bay, WI 54304 (414) 496-6000 (ofc) (414) 496-0998 (fax) Dr. Terry Shaw Quincy Back & Neck Care Center 1114 Broadway Quincy, IL 62301 (217) 224-3757 (ofc) (217) 224-5941 (fax) Dr. Lyle Koca Koca Chiropractic Clinic 721 N. 120th St. Omaha, NE 68154 (402) 496-4570 (ofc) (402) 496-0062 (fax) Dr. Jeff Clark Clark Chiropractic Clinic 10041 Maple St., Ste. B Omaha, NE 68134 (402) 393-0566 (ofc) (402) 393-6261 (fax) Dr. Chandler George Family Chiropractic Clinic 215 SE 17th Ave. Mineral Wells, TX 76067 (817) 328-1244 (ofc) (817) 325-4291 (fax) 7 8 EXHIBIT "B" 8 EX-10.30 34 CHIROPRACTOR EMPLOYMENT AGT 1 EXHIBIT 10.30 CHIROPRACTOR EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as of the _______ day of ____________________________, 19______, by and between ((CWMC_Name)), a ((State)) corporation with an office at ((Address1)), ((City)), ((State)) ((PostalCode)) ("Employer"), and ((FirstName)) ((LastName)), D.C., an individual residing at ((Address2)) ("Employee"). W I T N E S S E T H: WHEREAS Employer is a corporation duly licensed in the State of ((State)) and which provides healthcare services at its office located at ((Address1)), ((City)), ((State)) ((PostalCode)) (the "Office") and WHEREAS Employer wishes to employ Employee, an individual who is actively practicing and is duly licensed to provide chiropractic services in the State of ((State)), as an employee of Employer to provide chiropractic services subject to the rules thereof and the standards of the profession in effect in the State of ((State)), and WHEREAS Employee desires to render such services to Employer, NOW, THEREFORE, in consideration of the representations, warranties and mutual covenants set forth herein, the parties hereto hereby agree as follows: SECTION I - REPRESENTATIONS 1. Representations. Upon the terms and subject to the conditions set forth herein, Employer hereby employs Employee as a licensed chiropractor and Employee hereby accepts such employment and represents to Employer that he/she is presently licensed and qualified to engage in the practice of chiropractic in the State of ((State)). 2. Independent Judgement. Although Employee is an employee of Employer under the terms of this Agreement, Employee shall retain independent discretion and exercise independent judgement in the manner and means of providing services in regard to the diagnosis and treatment of patients treated. 3. Professional Conduct. Employee will at all times conduct himself/herself in compliance with all federal, state and local laws, rules and regulations, canons of professional ethics, and the non-chiropractic rules and regulations of the Employer. SECTION II - SCOPE OF DUTIES 1. Services. Employee will render his/her services to Employer as a licensed chiropractor and in such capacity he/she shall perform such duties as are customary in the practice of chiropractic and as are assigned to him/her from time to time by Employer. Such duties shall include but not be limited to conducting office examinations and consultations, obtaining such continuing professional education as is necessary to maintain professional qualifications, and performing evening and weekend on-call coverage as shall be reasonably assigned to him. 2. Billing. The Employer shall perform, or cause to have performed, billing and collection functions for all services provided by the Employee. The Employee hereby authorizes the Employer to accept, or refuse to accept, on Employee's behalf, any assignment of insurance benefits from any patient receiving service from the Employee pursuant to this Agreement. At Employer's request, Employee shall list and designate with such insurance or third party payor the Employer's address and designated officer as the sole address to which all payment(s) or payment voucher(s) for services performed by the Employee shall be mailed. This Agreement constitutes an assignment by the Employee to the Employer of all funds owing or collected for services rendered by the Employee pursuant to this Agreement (the "Receivables") so long as such assignment is not in violation of any law or statute. The Employee shall take all steps necessary to assist in the billing and collection of funds due for services rendered by the Employee. All funds collected with respect to services provided pursuant to this Agreement shall be the exclusive property of the Employer. 3. Post-Termination Cooperation. For a period of two (2) years after termination of this Agreement, Employee shall cooperate fully and assist Employer in efforts to collect all Receivables for services performed by Employee while employed by Employer, including without limitation, transferring all funds actually paid or made payable to Employee with respect to such Receivables, and appearing in any court of law within which any cause of action is brought to seek enforcement of Employer's right to collect on any and all such Receivables. Employee agrees to notify Employer, in writing, of a change of address of Employee's business or residence during such two (2) year period so that Employer will be able to locate Employee to enforce the terms of this Section. Employee shall receive up to two hundred and fifty dollars ($250.00) per day for providing assistance under the terms of this Section and, in addition, Employer shall reimburse Employee for all reasonable costs and expenses incurred by Employee, as approved in advance in writing by Employer, relating to such assistance. The terms and conditions of this Section shall survivetermination of this Agreement. SECTION III - TERM OF EMPLOYMENT 1. Term. The term of employment under this Agreement (the "Employment Term") shall be for the one-year period commencing the date hereof, unless earlier terminated under the terms hereof; provided, that Employee must complete and submit any credentialling application provided to Employee by Employer in order for this Agreement to become effective and for the Employment Term to commence. 2. Probationary Term. During the first one hundred twenty (120) days of the Employment Term of this Agreement, Employee acknowledges and agrees that he/she shall be on probation, and that during such time period or within fifteen (15) days after the conclusion of such probationary period, this Agreement may be terminated at the sole discretion of Employer with or without cause. Thereafter, this Agreement shall remain in effect for the term set forth in Section III 1 hereof, unless earlier terminated as provided for herein. SECTION IV - COMPENSATION AND BENEFITS 1.Compensation. Employee shall be compensated at a rate of $_____________ per ___________less any appropriate deductions, payable as earned, payable in accordance with Employer's normal payroll policies, during the term of this Agreement (the "Salary"). 2. Benefits. Employee shall be entitled to those benefits, if any, as described in Exhibit "A" attached hereto. 3. Sole Benefits. Employee acknowledges that the compensation and benefits established pursuant to this Section shall be the sole consideration provided by Employer for the services provided under the terms of this Agreement. Employee shall not solicit or accept payment from any patient, government entitlement program or third party payor for services rendered pursuant to this Agreement. 4. Reimbursement. Expenses incurred by Employee on Employer's behalf at Employer's discretion shall be reimbursed in full where approved in writing, in advance. In the event an expense paid on behalf of, or reimbursement contributed to, Employee is determined not to be an allowable tax deduction or credit of Employer and such determination is acceded to by Employer or rendered final by the state or federal taxing authority or court with final jurisdiction, Employee shall, forthwith, upon ten (10) days' prior written notice and without regard to whether this Agreement shall then be terminated, reimburseEmployer for the full amount of the out-of-pocket loss incurred by Employer as a result of any such disallowance. 2 SECTION V - INSURANCE 1. Malpractice Insurance. Employer shall at its own cost and expense, provide and keep in force a malpractice insurance policy or policies of standard form in the State of ((State)), with limits of not less than One Million ($1,000,000.00) Dollars per occurrence and Three Million ($3,000,000.00) Dollars in the aggregate. SECTION VI - PATIENT RELATIONSHIP 1. Confidential Information. Employee acknowledges and agrees that he/she will have access to certain confidential information and trade secrets of the Employer and that such information constitutes valuable, sole, special and unique property of Employer. Employee further acknowledges and agrees that Employee will not, at any time during or after the term hereof, in any fashion, form, or manner either directly or indirectly, divulge, disclose or communicate to any person, firm, or corporation in any manner whatsoever, the terms and conditions of this Agreement or any information of any kind, nature or description concerning any matters affecting or relating to the business of Employer, including, without limiting the foregoing, the names of patients, the prices which Employer pays for goods and services and/or sells goods or services, Employer's manner of operation of Employers business or its plans or processes, or any other data or information of any kind, nature or description which affects or relates to Employer's business without regard to whether any or all of the foregoing would be deemed confidential information or a trade secret under applicable state law ("Confidential Information"). 2. Patient Accounts. All patients shall be and remain the patients of Employer provided that Employee shall exercise independent responsibility for the care and treatment of such individuals to the extent professional services are rendered pursuant to this Agreement. In the event any patient is deemed by operation of law or otherwise to be patient of Employee, Employee shall and hereby does (i) irrevocably assign all Receivables from the treatment of such individuals to Employer, and (ii) irrevocably appoints Employer as the agent and true and lawful attorney-in-fact, with full power of assignment and substitution where legally permissible, to bill patients on Employee's behalf; to collect Receivables from all payors; and to take possession of and endorse in Employee's name, all notes,drafts or instruments received by way of payment for such services (except where prohibited by law or regulation). (a) Employee agrees that each patient account has a reasonable value to Employer of five thousand dollars ($5,000.00), and for each record, or any portion thereof, which Employee attempts to obtain and/or actually does obtain in contravention of this Section, the sum of Five Thousand dollars ($5,000.00) shall be paid to Employer as liquidated damages. The referenced sum shall be due and payable immediately upon the date of the violation or attempted violation of this Section, with such sum to bear interest at the maximum allowable legal rate from the due date to the actual date of payment in full. (b) Paragraph VI 2a notwithstanding, Employee shall maintain adequate and complete records with regard to services rendered to patients. Upon the termination of Employee's employment hereunder, all patient files, records and charts shall remain with Employer, and Employee shall have no right to retain such materials; provided, however, that nothing herein contained shall be construed to prevent any patient from requesting transfer of his/her records to Employee upon the termination of this Agreement, and such materials or photocopies thereof shall be delivered to Employee upon the written request of the subject patient, which request shall be honored promptly upon the payment to Employer by Employee of all reasonable costs, if any, for reproduction and mailing of any such materials. Employer will send invoices to all patients for any services rendered by Employee prior to termination of his/her employment hereunder, and Employer will have the right to collect the full amounts thereof for its own account. SECTION VII - COVENANTS NOT TO COMPETE OR SOLICIT. 1. Confidential Information. Employee acknowledges and agrees that he will have access to certain confidential information and trade secrets of the Employer and that such information constitutes valuable, sole, special and unique property of Employer. Employee further acknowledges and agrees that Employee will not, at any time during or after the term hereof, in any fashion, form, or manner either directly or indirectly, divulge, disclose or communicate to any person, firm, or corporation in any manner whatsoever, the terms and conditions of this Agreement or any information of any kind, nature or description concerning any matters affecting or relating to the business of Employer, including, without limiting the foregoing, the names of patients, the prices which Employer pays for goods and services and/or sells goods or services, Employer's manner of operation of Employers business or its plans or processes, or any other data or information of any kind, nature or description which affects or relates to Employer's business without regard to whether any or all ofthe foregoing would be deemed confidential information or a trade secret under applicable state law ("Confidential Information"). During such period, Employer shall be deemed to have a vital and protectable interest in such information and shall be entitled to injunctive relief if necessary to protect against and remedy wrongful disclosure or use of such information. 2. Irreparable Damage. The parties hereto acknowledge and agree that consideration has been given to the nature and scope of the business and activities of both the Employee and the Employer and that the covenants contained in this Paragraph 8 concerning territorial, substantive and time limitations are in all respects fair and reasonable in view of the facts involved. In the event that any court shall determine that the time, substantive and territorial limitations contained herein are not fair and reasonable, this Agreement shall nevertheless be enforced as to such time, substantive and territorial limits as are reasonable. 3. Injunctive Relief. The parties further agree that in the event of the breach of any provision of this Agreement, and particularly Paragraph 8 hereof, each party shall be entitled to a permanent injunction or similar court order enjoining the breaching party from acting in a fashion contrary to Paragraph 8 and that pending such determination the breaching party shall accede to a temporary restraining order, without prejudice to any other rights that the non-breaching party may have, all at the breaching party's expense. 4. Independent Agreement. The covenants contained in this Paragraph shall be construed as an independent agreement and the existence of any claim which the breaching party may have against the non-breaching party will not constitute a defense to the enforcement by the non-breaching party. 5. Continuation of Chiropractic Practice. All the foregoing notwithstanding, Employee may, at his discretion, reactivate his own chiropractic practice at any location upon termination of this Agreement for any reason whatsoever. The Employee may also continue to maintain and advertise his own telephone number at his own personal cost and expense during the term of this Agreement and may continue to so use said telephone number upon termination of this Agreement. This provision shall survive the termination of this Agreement. SECTION VIII - TERMINATION OF EMPLOYMENT 1. Disability of Employee. Notwithstanding anything in this Agreement to the contrary, Employer is hereby given the option to terminate Employee's employment in the event that Employee, during theemployment term hereunder, becomes disabled to the extent that he/she is unable fully to perform his/her customary duties hereunder ("Disability"). Such option shall be exercised by Employer by giving notice, pursuant to Section IX 4 herein, to Employee of Employer's intention to terminate Employee's employment due to his/her Disability. Such termination shall take place on the fifteenth (15th) day following the mailing of such notice. For purposes of this Agreement, Employee shall be deemed to have become Disabled if, during the term of his/her employment hereunder, he/she is disabled as defined in Employer's disability plan, if any; provided, however, in the event that Employer does not maintain a disability plan, then to establish a status of Disability there must be a written certification of such Disability by a qualified medical doctor agreed to by Employer and Employee. In the absence of agreement, each party shall nominate a qualified medical doctor 3 and the two doctors shall select a third doctor, who shall make the determination as to the Employee's Disability. 2. Termination by Employer for Cause. Notwithstanding any other provision of this Agreement, Employer may terminate Employee's employment for cause immediately upon the determination and notification to Employee thereof ("Cause Termination Date"). Upon such determination and notification, Employee's right to receive the Salary shall cease, and Employee shall be entitled to receive only such Salary as shall have been earned through the period ending with the Cause Termination Date. The term "Cause" as used herein shall mean that Employee (i) has committed a serious act (such as embezzlement) against Employer, with the intention of enriching himself/herself at the expense of Employer, or has failed to substantially perform his/her duties and responsibilities hereunder or otherwise committed a material breach of any of the terms of this Agreement, or has been convicted of any criminal act involving moral turpitude; or (ii) has been found, in the reasonable belief of Employer, to suffer chronic dependency on drugs or alcohol; or (iii) in carrying out his/her duties hereunder, has committed gross neglect or gross misconduct; or (iv) has become legally disqualified to practice chiropractic in the State of ((State)), or has been put on probation by the ((State)) State Board of Chiropractic Examiners, or has had his/her license to practice chiropractic in the State of ((State)) suspended or revoked; or (v) is unable to obtain chiropractic malpractice insurance covering his/her professional conduct, in coverage amounts and/or with insurance carriers acceptable to Employer and upon such terms as are acceptable to the Employer or (iv) there has occurred a material adverse change in the business or economic prospects of Employer as determined solely by Employer; or(vii) Employer has ceased providing services at the Office and Employee's services are not required at any Other Location. 3. Voluntary Termination. Either Employer or Employee may terminate the employment relationship provided for under the terms of this Agreement, for any reason and at any time during the Employment Term, on no less than thirty (30) days prior written notice to the other party hereto, with the last day of such notice period (unless such period shall be shortened or extended by mutual agreement) being the Termination Date. In the event of such voluntary termination, Employee shall receive a pro rata portion of the Salary, and pay for accrued but unused vacation days, through and including the Termination Date. Any rights and benefits Employee may have under any employee benefit plans and programs of Employer shall be determined in accordance with the terms of such plans and programs. SECTION IX - MISCELLANEOUS 1. Specific Performance. It is agreed that any breach or evasion of any of the terms of this Agreement by either party hereto will result in immediate and irreparable injury to the other party, and recourse to injunction and/or specific performance, as well as to all other legal or equitable remedies to which such injured party may be entitled, will be authorized under such circumstances. 2. Indemnity. Employee hereby agrees to indemnify, defend and hold Employer harmless from and against any an all costs, losses, claims, demands and liabilities, including reasonable attorneys' fees which arise out of or relate to any breach by Employee of any of the terms and conditions in this Agreement; any negligent or intentional wrongful act of Employee; any act or omission of Employee which constitutes professional negligence; or any other act of Employee not authorized under the terms of this Agreement. If Employer or any of its shareholders or affiliates is made a party to litigation or obligation or otherwise incurs any loss or expense as a result of Employee's activities unconnected with Employer's business, Employee shall forthwith upon demand, reimburse Employer or such individuals for any and all expenses incurred as a result thereof. 3. Waiver of Breach. The parties understand and intend that each restriction agreed to by Employee under the terms of this Agreement shall be construed as separable and divisible from every other restriction, and that the unenforceability, in whole or in part, of any other restriction will not affect the enforceability of the remaining restrictions. It is further understoodthat one or more, or all of such restrictions, may be enforced in whole or in part as the circumstances warrant. No waiver of any one breach of the restrictions contained in this Agreement shall be deemed a waiver of any future breach. Employee hereby acknowledges that he/she is fully cognizant of the restrictions set forth in this Agreement and agrees that these provisions shall survive the termination of this Agreement for any reason. 4. Notices. Except as otherwise provided herein, all requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been given if delivered personally, by prepaid telex, telegram, facsimile ("FAX") or mailed first class, postage prepaid, certified United States Mail, return receipt requested, to the party who is to receive such notice, request, demand or communication at such party's address as set forth on the signature page hereof. Any party hereto may change its address for notice by giving to the other party written notice of such change. Any notice given hereunder shall be effective (i) if delivered personally, when delivered, (ii) if sent by telex, telegram or FAX, twenty-four (24) hours after sending, and (iii) if mailed, seventy-two (72) hours after the date of the mailing. 5. Commitments Binding Only Upon Written Consent. Notwithstanding any provision herein to the contrary, it is expressly understood and agreed that Employee shall not have the right to make any contracts or commitments for or on behalf of Employer without the prior written consent of Employer. 6. Time of Essence. Time is of the essence in regard to the obligations established hereunder. The parties hereto agree that they shall cooperate in good faith to accomplish the objectives of this Agreement and, documents and take such further action as may be reasonably necessary to effectuate the terms, conditions and purposes of this Agreement. 7. Entire Agreement. This Agreement contains the entire understanding of the parties with respect to the subject matter hereof, supersedes any prior agreement between the parties, and may not be changed or terminated orally. No change, termination or attempted waiver of any of the provisions hereof shall be binding unless in writing and signed by the party against whom the same is sought to be enforced. 8. Successors and Assigns. The provisions of this Agreement are intended only for the regulation of relations among the parties hereto. This Agreement is not intended for the benefit of creditors or other third parties, and no rights are granted to such individuals or entities except where expressly referenced herein. However, Employer may,in its sole discretion, assign this Agreement by sale or otherwise, and the benefits and obligations of this Agreement shall inure to its successors and/or assigns. 9. Non-Exclusive Rights. The rights and the obligations of the Employer under this Agreement are non-exclusive, and this Agreement shall not be construed to prevent the Employer from simultaneously retaining, contracting with, or otherwise obtaining professional services from any other person or entity. 10. Captions. The headings and captions herein are intended for convenience reference only, and shall not be deemed to be interpretative of the contents of such sections. 11. Execution in Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one and the same instrument. 12. Governing Law. All matters concerning the validity and interpretation of and performance under this Agreement shall be governed by the laws of the State of ((State)) (without regard to the conflict of laws principles thereof). 13. Arbitration. Any controversy, dispute or disagreement arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration, which shall be conducted in the County of ((county)), State of ((State)), in accordance with the National Health Lawyer's Association 4 ("NHLA") Alternative Dispute Resolution Service Rules of Procedure for Arbitration, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. 14. No Act Contrary To Law. Nothing herein shall be construed so as to require the commission of any act contrary to law, and wherever there is any statute, law, ordinance or regulation which is inconsistent with this Agreement, such statute, law, ordinance or regulation shall prevail, and, in such event, the provision herein in conflict automatically shall be curtailed, limited or eliminated to the extent necessary to bring it within legal limitations. IN WITNESS WHEREOF, the parties hereto have executed this document or caused its execution by a duly authorized officer, all as of the day and year first above written. ((CWMC_Name)) By: ------------------------------ , President Employee: By: ------------------------------------------ ((FirstName)) ((LastName)), ((Job)) Complete Wellness Centers, Inc. By: --------------------------------------- E. Eugene Sharer, President 5 EXHIBIT "A" EX-23.1 35 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Financial Data" and "Experts" and to the use of our report dated July 18, 1996, except for Notes 1, 5 and 7 as to which the date is November 13, 1996 in the Registration Statement (Form SB-2 No. 333-XXX) and related Prospectus of Complete Wellness Centers, Inc. for the registration of 1,000,000 shares of its common stock and 1,000,000 redeemable common stock purchase warrants. Ernst & Young LLP Washington, D.C. December 18, 1996 EX-27.1 36 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1996 722,293 0 635,127 (61,608) 0 1,332,824 217,088 24,598 1,549,912 1,770,815 0 0 14 119 (572,829) 1,549,912 0 873,282 0 1,518,425 0 70,000 24,229 (520,950) 0 (520,950) 0 0 0 (520,950) (.43) 0
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