-----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, OlCSwoIrhFA2qvmiSnh5CulikV3Kky+JslWOIT0AX6X0D5QXW+LzVr/ksKlnVmOU UQ4PdM4DuafFlwSW52eiVQ== 0000950172-98-000060.txt : 19980126 0000950172-98-000060.hdr.sgml : 19980126 ACCESSION NUMBER: 0000950172-98-000060 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19980123 SROS: NASD GROUP MEMBERS: CHARLES E. DAVIDSON GROUP MEMBERS: IMPRIMIS INVESTORS LLC GROUP MEMBERS: JOSEPH M. JACOBS GROUP MEMBERS: WEXFORD MANAGEMENT LLC GROUP MEMBERS: WEXFORD SPECTRUM INVESTORS LLC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: COMPLETE WELLNESS CENTERS INC CENTRAL INDEX KEY: 0001022828 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 521910135 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-52319 FILM NUMBER: 98512053 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 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: WEXFORD MANAGEMENT LLC CENTRAL INDEX KEY: 0001048462 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 061442624 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 411 W PUTNAM AVENUE CITY: GREENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 2038627000 MAIL ADDRESS: STREET 1: 411 W PUTNAM AVENUE CITY: GREENWICH STATE: CT ZIP: 06830 SC 13D 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D (Rule 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO 13d- 1(a) AND AMENDMENTS THERETO FILED PURSUANT TO 13d-2(a) COMPLETE WELLNESS CENTERS, INC. - ------------------------------------------------------------------------------- (Name of Issuer) Common Stock, par value $.0001665 per share - ------------------------------------------------------------------------------- (Title of Class and Securities) 20452H4-10-3 - ------------------------------------------------------------------------------- (CUSIP Number of Class of Securities) Howard E. Sullivan, Esq. 411 West Putnam Avenue, Suite 125 Greenwich, Connecticut 06830 (203) 862-7400 - ------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) Copy to: Randall H. Doud, Esq. Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, New York 10022 (212) 735-3000 January 13, 1998 - ------------------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Statement because of Rule 13d-1(b)(3) or (4), check the following: ( ) See Rule 13d-1(a) for other parties to whom copies are to be sent. CUSIP No. 20452H4-10-3 13D - ------------------------------------------------------------------------------ 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON. Imprimis Investors LLC - ------------------------------------------------------------------------------ 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) (X) (b) ( ) - ------------------------------------------------------------------------------ 3. SEC USE ONLY - ------------------------------------------------------------------------------ 4. SOURCE OF FUNDS WC - ------------------------------------------------------------------------------ 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) ( ) - ------------------------------------------------------------------------------ 6. CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - ------------------------------------------------------------------------------ NUMBER OF 7. SOLE VOTING POWER -0- SHARES BENEFICIALLY 8. SHARED VOTING POWER OWNED BY 2,280,000 EACH 9. SOLE DISPOSITIVE POWER REPORTING -0- PERSON 10 SHARED DISPOSITIVE POWER WITH 2,280,000 - ------------------------------------------------------------------------------ 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,280,000 - ------------------------------------------------------------------------------ 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES ( ) - ------------------------------------------------------------------------------ 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 45.6% (based on 2,149,286 shares of Common Stock outstanding on January 12, 1998 and 2,850,000 shares of Common Stock issuable to the Reporting Person and the other Reporting Persons filing this Schedule 13D) - ------------------------------------------------------------------------------ 14. TYPE OF REPORTING PERSON OO - ------------------------------------------------------------------------------ CUSIP No. 20452H4-10-3 13D - ------------------------------------------------------------------------------ 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON. Wexford Spectrum Investors LLC - ------------------------------------------------------------------------------ 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) (X) (b) ( ) - ------------------------------------------------------------------------------ 3. SEC USE ONLY - ------------------------------------------------------------------------------ 4. SOURCE OF FUNDS WC - ------------------------------------------------------------------------------ 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) ( ) - ------------------------------------------------------------------------------ 6. CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - ------------------------------------------------------------------------------ NUMBER OF 7. SOLE VOTING POWER -0- SHARES BENEFICIALLY 8. SHARED VOTING POWER OWNED BY 570,000 EACH 9. SOLE DISPOSITIVE POWER REPORTING -0- PERSON 10 SHARED DISPOSITIVE POWER WITH 570,000 - ------------------------------------------------------------------------------ 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 570,000 - ------------------------------------------------------------------------------ 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES ( ) - ------------------------------------------------------------------------------ 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 11.4%(based on 2,149,286 shares of Common Stock outstanding on January 12, 1998 and 2,850,000 shares of Common Stock issuable to the Reporting Person and the other Reporting Persons filing this Schedule 13D) - ------------------------------------------------------------------------------ 14. TYPE OF REPORTING PERSON OO - ------------------------------------------------------------------------------ 13D CUSIP No. 20452H4-10-3 - ------------------------------------------------------------------------------ 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON. Wexford Management LLC - ------------------------------------------------------------------------------ 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) (X) (b) ( ) - ------------------------------------------------------------------------------ 3. SEC USE ONLY - ------------------------------------------------------------------------------ 4. SOURCE OF FUNDS AF - ------------------------------------------------------------------------------ 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) ( ) - ------------------------------------------------------------------------------ 6. CITIZENSHIP OR PLACE OF ORGANIZATION Connecticut - ------------------------------------------------------------------------------ NUMBER OF 7. SOLE VOTING POWER -0- SHARES BENEFICIALLY 8. SHARED VOTING POWER OWNED BY 2,850,000 EACH 9. SOLE DISPOSITIVE POWER REPORTING -0- PERSON 10 SHARED DISPOSITIVE POWER WITH 2,850,000 - ------------------------------------------------------------------------------ 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,850,000 - ------------------------------------------------------------------------------ 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES ( ) - ------------------------------------------------------------------------------ 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 57.0% (based on 2,149,286 shares of Common Stock outstanding on January 12, 1998 and 2,850,000 shares of Common Stock issuable to the Reporting Person and the other Reporting Persons filing this Schedule 13D) - ------------------------------------------------------------------------------ 14. TYPE OF REPORTING PERSON OO - ------------------------------------------------------------------------------ CUSIP No. 20452H4-10-3 13D - ------------------------------------------------------------------------------ 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON. Joseph M. Jacobs - ------------------------------------------------------------------------------ 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) (X) (b) ( ) - ------------------------------------------------------------------------------ 3. SEC USE ONLY - ------------------------------------------------------------------------------ 4. SOURCE OF FUNDS AF - ------------------------------------------------------------------------------ 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) ( ) - ------------------------------------------------------------------------------ 6. CITIZENSHIP OR PLACE OF ORGANIZATION United States of America - ------------------------------------------------------------------------------ NUMBER OF 7. SOLE VOTING POWER -0- SHARES BENEFICIALLY 8. SHARED VOTING POWER OWNED BY 2,850,000 EACH 9. SOLE DISPOSITIVE POWER REPORTING -0- PERSON 10 SHARED DISPOSITIVE POWER WITH 2,850,000 - ------------------------------------------------------------------------------ 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,850,000 - ------------------------------------------------------------------------------ 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES ( ) - ------------------------------------------------------------------------------ 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 57.0% (based on 2,149,286 shares of Common Stock outstanding on January 12, 1998 and 2,850,000 shares of Common Stock issuable to the Reporting Person and the other Reporting Persons filing this Schedule 13D) - ------------------------------------------------------------------------------ 14. TYPE OF REPORTING PERSON IA - ------------------------------------------------------------------------------ CUSIP No. 20452H4-10-3 13D - ------------------------------------------------------------------------------ 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON. Charles E. Davidson - ------------------------------------------------------------------------------ 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) (X) (b) ( ) - ------------------------------------------------------------------------------ 3. SEC USE ONLY - ------------------------------------------------------------------------------ 4. SOURCE OF FUNDS AF - ------------------------------------------------------------------------------ 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) ( ) - ------------------------------------------------------------------------------ 6. CITIZENSHIP OR PLACE OF ORGANIZATION United States of America - ------------------------------------------------------------------------------ NUMBER OF 7. SOLE VOTING POWER -0- SHARES BENEFICIALLY 8. SHARED VOTING POWER OWNED BY 2,850,000 EACH 9. SOLE DISPOSITIVE POWER REPORTING -0- PERSON 10 SHARED DISPOSITIVE POWER WITH 2,850,000 - ------------------------------------------------------------------------------ 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,850,000 - ------------------------------------------------------------------------------ 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES ( ) - ------------------------------------------------------------------------------ 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 57.0% (based on 2,149,286 shares of Common Stock outstanding on January 12, 1998 and 2,850,000 shares of Common Stock issuable to the Reporting Person and the other Reporting Persons filing this Schedule 13D) - ------------------------------------------------------------------------------ 14. TYPE OF REPORTING PERSON IN - ------------------------------------------------------------------------------ Item 1. Security and Issuer. This statement relates to the shares of common stock, par value $.0001665 per share (the "Common Stock"), of Complete Wellness Centers, Inc. a Delaware corporation (the "Company"). The Company has its principal executive offices at 725 Independence Avenue, Washington, D.C. 20003. Item 2. Identity and Background. (a) This statement is being filed by (i) Imprimis Investors LLC, a limited liability company organized under the laws of the State of Delaware ("Imprimis"), (ii) Wexford Spectrum Investors LLC, a limited liability company organized under the laws of the State of Delaware ("Wexford"), (iii) Wexford Management LLC, a Connecticut limited liability company ("Wexford Management"), (iv) Charles E. Davidson and (v) Joseph M. Jacobs (the individuals and entities referred to above, collectively, the "Reporting Persons") with respect to shares of Common Stock beneficially owned by the Reporting Persons. (b) The principal business and office address for the Reporting Persons is c/o Wexford Management LLC, 411 West Putnam Avenue, Greenwich, Connecticut 06830. (c) Imprimis is a Delaware limited liability company, the members of which are private investment funds. The principal business of Imprimis is investments. Wexford is a Delaware limited liability company, the members of which are private investment funds. The principal business of Wexford is investments. Wexford Management is the manager of Imprimis and Wexford. Wexford Management also serves as investment manager or sub-advisor to the members of Imprimis and Wexford. Charles E. Davidson is chairman and a controlling member of Wexford Management. Mr. Davidson also is a controlling person or an investor in a number of private companies, including certain members of Imprimis, Wexford and their controlling persons. Joseph M. Jacobs is president, managing member and a controlling member of Wexford Management. Mr. Jacobs also is a controlling person or an investor in a number of private companies, including certain members of Imprimis, Wexford and their controlling persons. (d) None of the Reporting Persons has during the last five years been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). (e) None of the Reporting Persons was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal of state securities laws or finding any violation with respect to such laws. (f) Mr. Davidson and Mr. Jacobs are United States citizens. Item 3. Source and Amount of Funds or Other Consideration. On January 13, 1998, Imprimis acquired from the Company common stock purchase warrants (the "Warrants") to purchase 2,280,000 shares common stock, par value .0001665 per share, of the Company (the "Common Stock"), at an initial exercise price of $1.75 per share, and 80,000 shares of senior redeemable preferred stock, par value $.01 per share (the "Preferred Stock"), of the Company. On the same date, Wexford acquired from the Company Warrants to purchase 570,000 shares of Common Stock and 20,000 shares of the Preferred Stock. See Item 6 for a description of certain provisions of the Warrants and the Preferred Stock. See Item 6 for additional information concerning the terms of the Preferred Stock and the Warrants and certain agreements entered into by the Company in connection therewith. To acquire the Warrants and the Preferred Stock, Imprimis and Wexford made initial payments to the Company of $800,000 and $200,000, respectively, on January 13, 1998, and will make additional payments to the Company of $3,200,000 and $800,000, respectively, on January 27, 1998, net of fees and expense reimbursement payable by the Company to Imprimis and Wexford. Approximately $500,000 of the initial payment of Imprimis was funded by the repayment by the Company of a loan made by Imprimis on December 19, 1997. The funds used by Imprimis and Wexford to make such loan, such initial payments and such additional payments, as the case may be, came from or will come from the working capital of Imprimis and Wexford. Item 4. Purpose of Transaction. The Reporting Persons have acquired the Warrants for investment purposes pursuant to an Investment Agreement, dated as of December 19, 1997 and supplemented as of January 12, 1998, among the Company, Wexford and Imprimis (as supplemented, the "Investment Agreement") and have obtained certain registration rights with respect to the Common Stock issuable upon exercise of the Warrants pursuant to a Registration Rights Agreement, dated as of January 12, 1998 (the "Registration Rights Agreement"). In connection with the transactions described above, the Company agreed that a designee of Wexford and Imprimis will be appointed to the Board of Directors of the Company as soon as practicable. Frank S. Plimpton, an officer of Wexford Management, is expected to be elected pursuant to such agreement. The Company has agreed that, for so long as the Preferred Stock remains outstanding, the Company shall take such action as shall be necessary to ensure that at least one designee of the holders of Preferred Stock shall be duly elected to serve as a director of the Company. See Item 6 for additional information concerning the terms of the Preferred Stock, the Warrants, the Investment Agreement and the Registration Rights Agreement. The Reporting Persons do not have any plans or proposals, other than those described in the preceding paragraph, which relate to or would result in any of the actions or transactions specified in clauses (a) through (j) of Item 4 of Schedule 13D. The Reporting Persons reserve the right to acquire or dispose of Common Stock, the Warrants, or the Preferred Stock or to formulate other purposes, plans or proposals regarding the Company or the Common Stock, the Warrants or the Preferred Stock held by the Reporting Persons to the extent deemed advisable in light of general investment policies, market conditions and other factors. Item 5. Interest in Securities of the Issuer. The Reporting Persons may be deemed to beneficially own the respective percentages and numbers of outstanding shares of Common Stock set forth below. Such percentages have been calculated using information obtained from the Company on the basis of 2,149,286 shares of Common Stock issued and outstanding on January 12, 1998 and 2,850,000 issuable pursuant to the Warrants. Such calculations exclude the 2,079,146 shares of Common Stock that according to information obtained from the Company were issuable pursuant to other warrants and options as of January 12, 1998. A. Imprimis (a) Aggregate number of shares of Common Stock beneficially owned: 2,280,000 (all of which is attributable to the Warrants) Percentage: 45.6% (b) 1. Sole power to vote or to direct to vote: -0- 2. Shared power to vote or to direct to vote: 2,280,000 3. Sole power to dispose or to direct the disposition: -0- 4. Shared power to dispose or to direct the disposition: 2,280,000 (c) Other than the transactions described in Item 4 of this Schedule 13D, there were no transactions by Imprimis during the past 60 days. (d) Not applicable. (e) Not applicable. B. Wexford Spectrum Investors LLC (a) Aggregate number of shares of Common Stock beneficially owned: 570,000 (all of which is attributable to the Warrants) Percentage: 11.4% (b) 1. Sole power to vote or to direct to vote: -0- 2. Shared power to vote or to direct to vote: 570,000 3. Sole power to dispose or to direct the disposition: -0- 4. Shared power to dispose or to direct the disposition: 570,000 (c) Other than the transactions described in Item 4 of this Schedule 13D, there were no transactions by Wexford during the past 60 days. (d) Not applicable. (e) Not applicable. C. Wexford Management (a) Aggregate number of shares of Common Stock beneficially owned: 2,850,000 (all of which are attributable to the Warrants) Percentage: 57.0% (b) 1. Sole power to vote or to direct to vote: -0- 2. Shared power to vote or to direct to vote: 2,850,000 3. Sole power to dispose or to direct the disposition: -0- 4. Shared power to dispose or to direct the disposition: 2,850,000 (c) Other than the transactions described in Item 4 of this Schedule 13D, there were no transactions by Wexford Management during the past 60 days. (d) Not applicable. (e) Not applicable. C. Joseph M. Jacobs (a) Aggregate number of shares of Common Stock beneficially owned: 2,850,000 (all of which are attributable to the Warrants) Percentage: 57.0% (b) 1. Sole power to vote or to direct to vote: -0- 2. Shared power to vote or to direct to vote: 2,850,000 3. Sole power to dispose or to direct the disposition: -0- 4. Shared power to dispose or to direct the disposition: 2,850,000 (c) Other than the transactions described in Item 4 of this Schedule 13D, there were no transactions by Mr. Jacobs during the past 60 days. (d) Not applicable. (e) Not applicable. D. Charles E. Davidson (a) Aggregate number of shares of Common Stock beneficially owned: 2,850,000 (all of which are attributable to the Warrants) Percentage: 57.0% (b) 1. Sole power to vote or to direct to vote: -0- 2. Shared power to vote or to direct to vote: 2,850,000 3. Sole power to dispose or to direct the disposition: -0- 4. Shared power to dispose or to direct the disposition: 2,850,000 (c) Other than the transactions described in Item 4 of this Schedule 13D, there were no transactions by Mr. Davidson during the past 60 days. (d) Not applicable. (e) Not applicable. Wexford Management may, by reason of its status as manager of Imprimis and Wexford, be deemed to own beneficially the Common Stock of which Imprimis and Wexford possess beneficial ownership. Each of Charles E. Davidson and Joseph M. Jacobs may, by reason of his status as a controlling person of Wexford Management, be deemed to own beneficially the Common Stock of which Imprimis and Wexford possesses beneficial ownership. Each of Charles E. Davidson, Joseph M. Jacobs and Wexford Management shares the power to vote and to dispose of the shares of Common Stock Imprimis and Wexford beneficially own. Item 6. Contracts, Arrangements, Understandings or Relationships With Respect to Securities of the Issuer. See Items 2, 3, 4, and 5 above. The Investment Agreement provides for certain standard affirmative covenants and certain standard negative covenants restricting actions that may be taken by the Company for so long as any of the Preferred Stock and Warrants remain outstanding. The Investment Agreement also gives Wexford and Imprimis the right to approve the budget of the Company and requires the Company to maintain a "key man" insurance policy insuring the life of C. Thomas McMillen, the Chairman of the Company. Pursuant to the Investment Agreement, the Company issued $500,000 of senior secured notes on December 19, 1998 to Imprimis, all of which were repaid on January 13, 1998 from the proceeds of Wexford's and Imprimis' investment in the Preferred Stock and Warrants. The Registration Rights Agreement provides that the Company will, at any time after May 31, 1998, and when requested in writing by Imprimis and Wexford, use its best efforts to promptly register with the Securities and Exchange Commission all shares of Common Stock issuable pursuant to the Warrants requested to be registered. Wexford and Imprimis may make two such demands for registration at the expense of the Company, and may make a third demand registration, provided that they pay the expenses. Wexford and Imprimis are also entitled to certain piggyback registration rights. Subject to the limitations described below, the Warrants are exercisable for 2,850,000 shares of Common Stock at an exercise price per Warrant of $1.75 at any time through January 12, 2005, with the number of shares and exercise price subject to customary antidilution adjustments and a $0.25 reduction in the exercise price if the Company fails to register Common Stock for which the Warrants can be exercised pursuant to the Registration Rights Agreement. The Company may redeem Warrants exercisable for 300,000 shares of Common Stock (subject to antidilution adjustment) upon the occurrence of each of the following triggers, in each case at a redemption price of $0.01 per Warrant: (a) prior to January 1, 1999, if all of the Preferred Stock has been redeemed or repurchased by the Company prior to such date; (b) prior to March 31, 2000, if pre-tax earnings per share of the Common Stock for the fiscal year 1999 equals or exceeds $1.25 on a fully diluted basis; (c) prior to March 31, 2000, if pre-tax earnings per share of Common Stock for the combined fiscal years 1998 and 1999 equals or exceeds $1.90 on a fully diluted basis; (d) prior to March 31, 2001, if pre-tax earnings per share of Common Stock for the fiscal year 2000 equals or exceeds $2.00 on a fully diluted basis; and (e) prior to March 31, 2001, if pre-tax earnings per share of Common Stock for the combined fiscal years 1998, 1999 and 2000 equals or exceeds $4.10 on a fully diluted basis. Wexford and Imprimis may not exercise Warrants such that the Warrants available for redemption on any of those dates falls below the requisite number, with the effect that as of the date of this Schedule 13D Wexford and Imprimis together may only exercise Warrants for 1,350,000 of the aggregate of 2,850,000 shares of Common Stock issuable under the Warrants. Wexford and Imprimis have agreed not to exercise Warrants at any time that, after giving effect to such exercise, they would together own in excess of 50% of the then outstanding shares of Common Stock. The rights of holders of the Preferred Stock are set forth in a Certificate of Designation, Preferences and Rights filed with the Secretary of State of Delaware on January 12, 1998 (the "Certificate of Designation"). The Preferred Stock ranks prior to the Common Stock or any other class of stock of the Company, has an initial aggregate liquidation preference of $5,000,000 and provides for the payment of quarterly dividends from January 13, 1998 (in the case of 20% of the shares) or January 27, 1998 (in the case of 80% of the shares). Dividends accruing through December 31, 2000 will be payable at a per annum rate of 8% of the liquidation preference if payable in cash or 10% of the liquidation preference if payable in additional shares of Preferred Stock rate. Dividends accruing after December 31, 2000 will be payable at a per annum rate of 12% of the liquidation preference. The Preferred Stock is mandatorily redeemable at its liquidation preference plus accrued but unpaid dividends to the redemption date on the earlier of December 31, 2000 and the date of completion of any financing greater than $5,000,000 by the Company or any of its subsidiaries after the initial date of issuance of the Preferred Stock (excluding for such purposes up to $3,500,000 in proceeds received upon the exercise of certain warrants of the Company previously issued). The Preferred Stock is also mandatorily redeemable at its liquidation preference plus accrued but unpaid dividends to the redemption date in the event of a breach by the Company of its agreements under the Investment Agreement or the Certificate of Designation. The Certificate of Designation also provides that the Company shall take necessary actions to ensure that a designee of the holders of Preferred Stock is on the Board of Directors of the Company for so long as the Preferred Stock is outstanding. The Investment Agreement, the Registration Rights Agreement, the Warrants and the Certificate of Designation have been filed as exhibits to this Schedule 13D and are hereby incorporated by reference. Except as described above, there are no contracts, arrangements, understandings or relationships (legal or otherwise) among the persons named in Item 2 or between such persons and any other person with respect to any securities of the Company, including but not limited to, transfer or voting of any such securities, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies. Item 7. Material to be Filed as Exhibits. Exhibit I -- Investment Agreement Among Complete Wellness Centers, Inc., Imprimis Investors LLC, and Wexford Spectrum Investors LLC, dated as of December 19, 1997, without Exhibits Exhibit II -- Promissory Note Exhibit III -- Pledge Agreement, dated as of December 19, 1997, between Complete Wellness Centers, Inc. and Imprimis Investors LLC Exhibit IV -- Form of Security Agreement, dated as of December 19, 1997, between subsidiary of Complete Wellness Centers, Inc. and Imprimis Investors LLC Exhibit V -- Supplement to the Investment Agreement, dated January 12, 1998, without Exhibits Exhibit VI -- Warrant, dated January 12, 1998, issued to Imprimis Investors LLC, without Exhibits Exhibit VII -- Warrant, dated January 12, 1998, issued to Wexford Spectrum Investors LLC, without Exhibits Exhibit VIII -- Registration Rights Agreement, dated as of January 12, 1998, By and Among Complete Wellness Centers, Inc., Imprimis Investors LLC and Wexford Spectrum Investors LLC Exhibit IX -- Certificate of Designation, Preferences and Rights of the Senior Redeemable Preferred Stock ($.01 Par Value) of Complete Wellness Centers, Inc., filed with the Secretary of State of Delaware on January 12, 1998 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Date: January 23, 1998 IMPRIMIS INVESTORS LLC By: /s/ Arthur H. Amron --------------------------- Name: Arthur H. Amron Title: Vice President WEXFORD SPECTRUM INVESTORS LLC By: /s/ Arthur H. Amron --------------------------- Name: Arthur H. Amron Title: Vice President WEXFORD MANAGEMENT LLC By: /s/ Arthur H. Amron --------------------------- Name: Arthur H. Amron Title: Senior Vice President /s/ Charles E. Davidson ------------------------------ /s/ Joseph M. Jacobs ------------------------------ /s/ Joseph M. Jacobs EX-99 2 EXHIBIT I - INVESTMENT AGREEMENT EXHIBIT I INVESTMENT AGREEMENT AMONG COMPLETE WELLNESS CENTERS, INC., IMPRIMIS INVESTORS LLC, AND WEXFORD SPECTRUM INVESTORS LLC DATED AS OF DECEMBER 19, 1997 TABLE OF CONTENTS PAGE I. AUTHORIZATION OF NOTES...................................... 1 II. SALE AND PURCHASE OF THE NOTES, THE PREFERRED STOCK AND THE WARRANTS......................... 2 A. OBLIGATION TO INVEST IN THE NOTES.................. 2 B. INVESTMENT DATE.................................... 2 C. INTEREST RATE LIMITATION........................................ 3 D. PROPOSED INVESTMENT IN THE PREFERRED STOCK AND THE WARRANTS.......................... 3 III. CONDITIONS TO THE INVESTMENT................................... 4 A. DOCUMENTS REQUIRED................................ 4 B. OPINIONS OF COUNSEL............................... 11 C. PAYMENT OF ACCRUED FEES AND EXPENSES.............. 11 D. REPRESENTATIONS AND WARRANTIES.................... 12 E. NO DEFAULT........................................ 12 F. INVESTMENT PERMITTED BY APPLICABLE REQUIREMENTS OF LAW, ETC........................ 12 G. NO LITIGATION OR OTHER PROCEEDINGS................ 12 H. NO MATERIAL ADVERSE CHANGE........................ 13 IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............. 13 A. ORGANIZATION; POWER AND AUTHORITY; CAPITALIZATION; WARRANTS........................ 13 B. AUTHORIZATION, ENFORCEABILITY, ETC................ 15 C. DISCLOSURE........................................ 15 D. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES, ETC. .......................... 16 E SEC REPORTS........................................16 F. FINANCIAL STATEMENTS.............................. 17 G. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC...... 18 H. GOVERNMENTAL AUTHORIZATIONS, ETC.................. 19 I. LITIGATION........................................ 20 J. TAXES............................................. 20 K. TITLE TO PROPERTY; LEASES......................... 21 L. SECURITY INTERESTS, ETC........................... 22 M. LICENSES, PERMITS, ETC............................ 22 N. ERISA............................................. 23 O. PRIVATE OFFERING BY THE COMPANY................... 23 P. USE OF PROCEEDS; MARGIN REGULATIONS............... 23 Q. STATUS UNDER CERTAIN STATUTES..................... 24 R. SECURITIES ACT MATTERS............................ 25 S. EMPLOYEE AND LABOR MATTERS........................ 25 T. ENVIRONMENTAL MATTERS............................. 26 U. NO BURDENSOME AGREEMENTS.......................... 27 V. EXISTING INDEBTEDNESS; FUTURE LIENS............... 28 W. SOLVENCY.......................................... 28 X. RELATED PARTY TRANSACTIONS........................ 29 Y. MATERIAL CONTRACTS................................ 29 Z. PARI PASSU OBLIGATIONS............................ 30 AA. NO SIGNIFICANT SUBSIDIARIES....................... 31 AB. NO POWER OF ATTORNEY.............................. 31 V. REPRESENTATIONS AND COVENANTS OF EACH OF THE INVESTORS............................................ 31 A. PURCHASE FOR INVESTMENT........................... 31 B. ACCREDITED INVESTORS.............................. 31 C. POWER AND AUTHORITY............................... 32 VI. PREPAYMENTS AND REDEMPTIONS OF THE NOTES................... 32 A. OPTIONAL PREPAYMENTS OF THE NOTES................. 32 B. OFFER TO REPURCHASE NOTES AND REDUCE COMMITMENTS IN RESPECT OF A CHANGE OF CONTROL......................................... 32 C. MANDATORY REDEMPTIONS OF THE NOTES................ 34 D. ALLOCATION OF PARTIAL PREPAYMENTS................. 36 E. MATURITY; SURRENDER, ETC.......................... 36 F. CANCELLATION OF NOTES............................. 36 G. PAYMENT OF TRANSACTION FEE........................ 36 VII. AFFIRMATIVE COVENANTS...................................... 37 A. SHAREHOLDERS' MEETING; INFORMATION STATEMENT........................................37 B. INFORMATION COVENANTS............................. 38 C. COMPLIANCE WITH LAW............................... 42 D. MAINTENANCE OF INSURANCE.......................... 43 E. MAINTENANCE OF PROPERTIES......................... 43 F. PAYMENT OF TAXES AND CLAIMS; PERFORMANCE OF MATERIAL OBLIGATIONS. ........... 43 G. PRESERVATION OF CORPORATE EXISTENCE, ETC............................................. 44 H. MAINTENANCE OF BOOKS AND RECORDS; INSPECTION; CONFIDENTIALITY..................... 45 I. USE OF PROCEEDS................................... 46 J. SEARCH REPORTS.................................... 46 VIII. NEGATIVE COVENANTS............................................ 47 A. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES..................................... 47 B. LIMITATIONS ON LIENS.............................. 47 C. LIMITATIONS ON INDEBTEDNESS....................... 50 D. LIMITATIONS ON SALE-LEASEBACK TRANSACTIONS.................................... 51 E. LIMITATIONS ON RESTRICTED PAYMENTS................ 52 F. LIMITATIONS ON FUNDAMENTAL CHANGES, ASSET SALES, ACQUISITIONS, ETC.................... 52 G. LIMITATIONS ON INVESTMENTS, ETC................... 55 H. LIMITATION ON ISSUANCE OF CAPITAL STOCK........................................... 56 I. LIMITATION ON MODIFICATIONS OF INDEBTEDNESS; MODIFICATIONS OF CERTIFICATE OF INCORPORATION, BYLAWS AND CERTAIN OTHER AGREEMENTS; ETC. ............... 56 J. LIMITATIONS ON CONDUCT OF BUSINESS................ 57 K. LIMITATIONS ON ACCOUNTING CHANGES AND CHANGES IN FISCAL YEAR. ...................... 58 L. LIMITATIONS ON SPECULATIVE TRANSACTIONS.................................... 58 M. LIMITATIONS ON CAPITAL EXPENDITURES............... 58 IX. EVENTS OF DEFAULT.............................................. 58 A. EVENTS OF DEFAULT................................. 58 B. ACCELERATION...................................... 62 C. OTHER REMEDIES.................................... 63 D. RESCISSION........................................ 63 E. RESTORATION OF RIGHTS AND REMEDIES................ 63 F. NO WAIVERS OR ELECTION OF REMEDIES, ETC............................................. 64 X. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES........................................................ 64 A. REGISTRATION OF NOTES............................. 64 B. TRANSFER AND EXCHANGE OF NOTES.................... 65 C. REPLACEMENT OF NOTES.............................. 67 XI. PAYMENTS ON NOTES.............................................. 67 XII. EXPENSES, INCREASED COSTS AND INDEMNIFICATION, ETC. ....................................... 68 A. TRANSACTION EXPENSES.............................. 68 B. INDEMNITY......................................... 69 C. SURVIVAL.......................................... 72 XIII. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT............................... 72 XIV. AMENDMENT AND WAIVER.......................................... 73 A. REQUIREMENTS...................................... 73 B. SOLICITATION OF HOLDERS OF NOTES.................. 73 C. BINDING EFFECT, ETC............................... 73 D. NOTES HELD BY COMPANY, ETC........................ 74 XV. NOTICES....................................................... 74 A. GENERAL................................................ 74 XVI. REPRODUCTION OF DOCUMENTS..................................... 75 XVII. MISCELLANEOUS................................................. 76 A. SUCCESSORS AND ASSIGNS............................ 76 B. PAYMENTS DUE ON NON-BUSINESS DAYS................. 76 C. SATISFACTION REQUIREMENT.......................... 76 D. SEVERABILITY...................................... 77 E. CONSTRUCTION; ACCOUNTING TERMS, ETC............... 77 F. COMPUTATION OF TIME PERIODS....................... 77 G. EXECUTION IN COUNTERPARTS......................... 78 H. GOVERNING LAW; SUBMISSION TO JURISDICTION, ETC............................... 78 I. WAIVER OF JURY TRIAL.............................. 79 SCHEDULES Schedule IA Information Relating to the Investors Schedule IB Defined Terms Schedule IC Other Obligors Schedule II(D)(2) Use of Proceeds Schedule II(D)(3) Preferred Stock Term Sheet Schedule II(D)(4) Warrant Term Sheet Schedule IV(A) Capitalization Schedule IV(D) Subsidiaries Schedule IV(F) Financial Statements Schedule IV(H) Governmental Authorizations,etc. Schedule IV(I) Litigation Schedule IV(J) Taxes Schedule IV(M) Licenses, Permits, etc. Schedule IV(S) Employee and Labor Matters Schedule IV(T) Environmental Matters Schedule IV(V) Existing Indebtedness Schedule IV(Y) Material Contracts Schedule IV(Z) Pari Passu Obligations Schedule IV(AA) No Significant Subsidiaries Schedule VIII(B) Existing Liens Schedule VIII(E) Management and Consulting Agreements Schedule VIII(G) Existing Investments EXHIBITS Exhibit A Form of Note Exhibit B Form of Security Agreement (Other Obligors) Exhibit C Form of Security Agreement (Company) Exhibit D Form of Solvency Certificate Exhibit E Forms of Opinion of Special Counsel for the Company Exhibit F Form of Compliance Certificate COMPLETE WELLNESS CENTERS, INC. 725 Independence Avenue, SE Washington, D.C. 20003 INVESTMENT AGREEMENT, dated as of December 19, 1997 (this "Agreement"), among Complete Wellness Centers, Inc., a Delaware corporation (the "Company"), Imprimis Investors LLC ("Imprimis") and Wexford Spectrum Investors LLC (together with Imprimis, the "Investors"). WHEREAS, the Company desires to issue and sell to Imprimis, and Imprimis desires to purchase from the Company, $500,000 in aggregate principal amount of the Company's Senior Secured Fixed Rate Bridge Notes due March 31, 1998, the proceeds of which will be used by the Company, among other thinhs, to complete its pending acquisition of the assets of Nutri/System, L.P. (the "Acquisition") through the Company's wholly-owned subsidiary, Complete Weight Management, Inc., a Delaware corporation (the "Acquisition Subsidiary"), which will hold such assets; and WHEREAS, the Company desires to issue and sell to the Investors, and, subject to the satisfactory completion of their due diligence concerning the Company and the Acquisition and the negotiation of satisfactory documentation, the Investors desires to purchase from the Company, (a) 100,000 shares (the "Preferred Stock") of Series B preferred stock, par value $.01 per share, of the Company with a liquidation preference of $50.00 per share, and (b) Common Stock Purchase Warrants (the "Warrants) to purchase 2,850,000 shares (the "Common Stock") of common stock, par value $.0001665 per share,of the Company, in each case upon the terms and conditions set forth in Section II(D). I. AUTHORIZATION OF NOTES. The Company has authorized the issue and sale of $500,000 in aggregate principal amount of Senior Secured Fixed Rate Bridge Notes due March 31, 1998 (such Notes delivered pursuant to Section II and any such Notes issued in substitution therefor pursuant to Section X being, collectively, the "Notes"). Each of the Notes shall be in substantially the form of Exhibit A attached hereto, with such amendments, supplements and other modifications thereto, if any, as shall be approved from time to time by the Investors and the Company. Capitalized terms used in this Agreement, unless otherwise defined in this Agreement, shall have the meanings specified in Schedule II attached hereto; and references in this Agreement to a "Schedule" or an "Exhibit" are, unless otherwise specified herein, references to a Schedule or an Exhibit attached to this Agreement. II. SALE AND PURCHASE OF THE NOTES, THE PREFERRED STOCK AND THE WARRANTS. A. OBLIGATION TO INVEST IN THE NOTES. Subject to the terms and conditions of this Agreement, the Company will issue and sell to Imprimis, and Imprimis will purchase from the Company on the Investment Date, Notes in the aggregate principal amounts of $500,000 at the purchase price of 100% of the aggregate principal amount thereof. The Notes purchased and sold under this Section II(A) and repaid or prepaid may not be repurchased and resold. The Company agrees to record the Notes on the Register referred to in Section X(B). The Company agrees to execute and deliver to Imprimis a promissory note in registered form to evidence its purchase hereunder and registered as provided in Section X(B) (herein, a "Registered Note"), dated the Investment Date, payable to Imprimis and otherwise duly completed. Notes other than Registered Notes shall be null and void and shall be returned to the Company. A Registered Note may not be exchanged for a promissory note that is not a Registered Note. B. INVESTMENT DATE. The sale and purchase of the Notes shall occur at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022, at or before 1:00 P.M. (New York City time) on December 19, 1997 or on such other Business Day thereafter as may be agreed upon among the Company and the Investors (the "Investment Date"). On the Investment Date, subject to the fulfillment of the applicable conditions set forth in Section 3, the Company will deliver to Imprimis the Note to be purchased by it on the Investment Date in the form of a single Note (or such greater number of Notes in denominations of at least $25,000 or integral multiples of $25,000 in excess thereof as it may request), dated such Investment Date and registered in the name of Imprimis (or in the name of its nominee), against delivery by Imprimis to the Company or their order of same day funds in the amount of the aggregate purchase price therefor. C. INTEREST RATE LIMITATION. Notwithstanding any provisions of this Agreement, the Notes or the other Note Documents, in no event shall the amount of interest paid or agreed to be paid by the Company exceed an amount computed at the highest rate of interest permissible under applicable law. If, from any circumstances whatsoever, fulfillment of any provi- sion of this Agreement, the Notes or the other Note Documents at the time performance of such provision shall be due, shall involve exceeding the interest rate limitation validly prescribed by law which a court of competent jurisdiction may deem applicable hereto, then, ipso facto, the obligations to be fulfilled shall be reduced to an amount computed at the highest rate of interest permissible under applicable law, and if for any reason whatsoever any Investor shall ever receive as interest an amount which would be deemed unlawful under such applicable law such interest shall be automatically applied to the payment of principal of the Notes outstanding hereunder (whether or not then due and payable), without prepayment charge, premium or penalty, and not to the payment of interest, or shall be refunded to the Company if such principal and all other obligations of the Company to such Investor have been paid in full. D. PROPOSED INVESTMENT IN THE PREFERRED STOCK AND THE WARRANTS. The Company and the Investors will use reasonable efforts to develop definitive documentation relating to the Investors' proposed investment in the Preferred Stock and the Warrants on or prior to December 31, 1997 and otherwise in accordance with the following terms and conditions: 1. The cash purchase price payable by the Investors for the Preferred Stock and the Warrants shall be $5,000,000, net of a transaction fee of $100,000 payable by the Company to the Investors on the date of issuance of the Preferred Stock and the Warrants; 2. The net proceeds from the issuance and sale of the Preferred Stock and Warrants shall be used as may be agreed between the parties; 3. The Preferred Stock shall be on substantially the terms set forth in Schedule II(D)(3) attached hereto; 4. The Warrants shall be on substantially the terms set forth on Schedule II(D)(4) attached hereto; 5. The Investors will be given customary demand and piggy back registration rights relating to the Common Stock issuable upon exercise of the Warrants, with no demand being permitted prior to May 31, 1997; and 6. The Investors' commitment to purchase the Preferred Stock and the Warrants is subject to satisfactory completion of their due diligence concerning the Company and the Acquisition and the negotiation of satisfactory documentation and to any requisite shareholder approvals for the issuance of the Warrants and the shares of Common Stock issuable pursuant thereto. III. CONDITIONS TO THE INVESTMENT. Imprimis' obligation to purchase and pay for the Notes to be sold on the Investment Date is subject to the fulfillment to Imprimis' satisfaction, on or prior to the Investment Date, of the following conditions: A. DOCUMENTS REQUIRED. Imprimis shall have received the following documents, each dated as of the Investment Date (except as otherwise specified below) and in the form of the respective Exhibit attached hereto, if any, or otherwise in form and substance satisfactory to Imprimis: 1. Investment Agreement. This Agreement duly executed by the Company and each of the Investors. 2. Notes. Notes, registered in the name of Imprimis, in the aggregate principal amounts of $500,000, duly executed by the Company. 3. Security Agreements. a. Security agreements, each in substantially the form of Exhibit B attached hereto (the security agreements delivered pursuant to this subsection, as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof and Section XIV, the "Subsidiary Security Agreements"), duly executed by each of the Other Obligors, together with proper financing statements (Form UCC-1 or a comparable form) or the equivalent thereof under the Uniform Commercial Code (or similar law or statute) of all jurisdictions that may be necessary or that Imprimis may deem desirable in order to perfect and protect the liens and security interests created under the Subsidiary Security Agreements, covering the Collateral described therein, in each case completed in a manner satisfactory to Imprimis and duly executed by each of the Other Obligors, as applicable; b. A security agreement, in substantially the form of Exhibit C attached hereto (the security agreements delivered pursuant to this subsection, as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof and Section XIV, the "Company Security Agreement" and together with the Subsidiary Security Agreements, the "Security Agreements"), duly executed by the Company, together with a stock certificate or certificates for the shares of capital stock of the Acquisition Subsidiary pledged pursuant thereto; and c. evidence that all other actions that may be necessary or that Imprimis may deem desirable in order to perfect and protect the Liens and security interests created under the Security Agreements have been taken or will be taken in accordance with the terms of the Note Documents. 4. Corporate Approvals and Other Similar Documentation. Certified copies of the resolutions of the boards of directors of the Company and the Acquisition Subsidiary approving the Acquisition and each of the Note Documents to which it is a party, the issuance and sale of the Notes and the other transactions contemplated hereby and thereby and all documents evidencing other necessary corporate action, including by the Other Obligors, with respect to each Note Document, the issuance and sale of the Notes and the other transactions contemplated hereby and thereby. 5. Organizational Documents. A copy of the certificate of incorporation and by-laws of each of the Company, the Acquisition Subsidiary and the Other Obligors, and each amendment thereto, certified as of the Investment Date by the Secretary of State of Delaware as being a true and complete copy thereof. 6. Good Standing Certificates. A copy of (a) a certificate of the Secretary of State of Delaware, dated the Investment Date, listing the certificate of incorporation of the Company and the Acquisition Subsidiary and each amendment thereto on file in the office of such Secretary of State and certifying that (i) such amendments are the only amendments to the organizational documents of the Company and the Acquisition Subsidiary, (ii) each of the Company and the Acquisition Subsidiary has paid all franchise taxes (or the equivalent thereof) to the date of such certificate and (iii) each of the Company and the Acquisition Subsidiary is duly incorporated and in good standing under the laws of such State and (b) a certificate of the Secretary of State of Florida, dated the Investment Date, listing the certificate of incorporation of the Other Obligors and each amendment thereto on file in the office of such Secretary of State and certifying that (i) such amendments are the only amendments to the organizational documents of the Other Obligors, (ii) each of the Other Obligors has paid all franchise taxes (or the equivalent thereof) to the date of such certificate and (iii) each of the Other Obligors is duly incorporated and in good standing under the laws of such State . 7. Foreign Qualification Certificates. Copies of certificates of the Secretary of State (or the equivalent Governmental Authority) of each jurisdiction in which any of the Company, the Acquisition Subsidiary or the Other Obligors is qualified as a foreign corporation, dated reasonably near the Investment Date, in each case stating that each of the Company, the Acquisition Subsidiary and the Other Obligors is duly qualified and in good standing as a foreign corporation in such jurisdiction and has filed all annual reports required to be filed, and paid all franchise taxes (or the equivalent thereof) required to be paid, in such jurisdiction to the date of such certificate. 8. Secretary's Certificate. A certifi- cate from the secretary or an assistant secretary each of the Company, the Acquisition Subsidiary and the Other Obligors certifying: a. the absence of any amendments to the certificate of incorporation of such company since the date of the Secretary of State's certificate referred to in subsection (5) of this Section III(A); b. the completeness and accuracy of the resolutions of the board of directors of such company and all documents evidencing other necessary corporate action thereof referred to in subsection (4) of this Section III(A); c. the completeness and accuracy of the bylaws of such company as in effect on the date the resolutions of the board of directors of such company referred to in subsection (4) of this Section III(A) were adopted and on the Investment Date (a copy of which shall be attached to such certificate); d. the names and true signatures of the officers of such company authorized to sign each of the Note Documents to which it is or is to be a party and the other agreements, instruments and other documents to be delivered hereunder or thereunder; and e. such other matters as Imprimis shall specify relating to the existence and good standing of such company and the corporate and other necessary authority for, and the validity of, each of the Note Documents to which it is or is to be a party and any other matters relevant to any of the foregoing. 9. Officer's Certificate. A certificate of each of the Company, the Acquisition Subsidiary, signed and the Other Obligors, signed on behalf of each such company by the Senior Financial Officer thereof (the statements made in which certificate shall be true on and as of the Investment Date), certifying as to: a. the due organization and good standing of such company and each of its Subsidiaries in their respective jurisdictions of organization and the absence of any proceeding for the dissolution or liquidation of such company or any of its Subsidiaries; b. the completeness and accuracy of all of the representations and warranties made by such company in this Agreement and the other Note Documents to which it is or is to be a party, before and after giving effect to the issue and sale of the Notes and to the application of the proceeds therefrom as contemplated by Section IV(O)(1) on the Investment Date; c. the absence of any event occur- ring and continuing, or resulting from the issue and sale of the Notes or the consummation of any of the other transactions contemplated hereby, that constitutes a Default or an Event of Default; d. neither such company nor any of its Subsidiaries having changed its jurisdiction of organization, having been a party to any merger, consolidation or other similar transaction or having issued or sold any shares of its capital stock (or other ownership or profit interests therein), or any warrants, options or other rights therefor, at any time following the date of the most recent unaudited consolidated financial statements of such company and its Subsidiaries referred to in Section IV(E)(1); e. the absence of any existing or, to the best of his knowledge, threatened event or circumstance applicable to such company or any of its Subsidiaries that could reasonably be expected to impair the ability of such Company to repay the Notes; and f. the satisfaction of all condi- tions precedent by such Company to the issuance and sale of the Notes on and as of the Investment Date. 10. Solvency Certificates. A certificate from the chief financial officer of each of the Company and the Acquisition Subsidiary, in substantially the form of Exhibit D attached hereto, attesting to the Solvency of each such company and its Subsidiaries, taken as a whole, immediately before and immediately after giving effect to the Note Documents and all of the transactions contemplated hereby or thereby to occur on or about the Investment Date and assuming the sale and purchase of Notes on such date in an aggregate principal amount of $500,000. 11. Financial Information. Copies of (a) the audited consolidated financial statements of the Company and its Subsidiaries referred to in Section IV(E)(1), accompanied by an unqualified opinion of Ernst & Young LLP, independent accountants of the Company, and (b) the unaudited financial statements of the Company and its Subsidiaries referred to in Section IV(E)(1), together with a certificate of a Senior Financial Officer of the Company with respect thereto. 12. Consents. Certified copies of all Governmental Authorizations, and all consents, approvals and authorizations of, and notices to and other actions by, all Persons with whom the Company, the Acquisition Subsidiary, or any of their respective Subsidiaries has any contractual obligations, as shall be required for the execution, delivery or performance of this Agreement and the other Note Documents or the consummation of the issuance and sale of the Notes or any of the other transactions contemplated hereby or thereby. 13. Existing Indebtedness. Certified copies of all of the agreements, instruments and other documents evidencing or setting forth the terms and conditions of the Indebtedness of the Company, the Acquisition Subsidiary and their respective Subsidiaries existing on the Investment Date and in an aggregate amount of at least $100,000 (all of which Indebtedness is described on Schedule IV(U) attached hereto). 14. UCC Searches. Certified copies of requests for copies or information on Form UCC-11, listing all effective financing statements which name as debtor the Other Obligors, the Company or the Acquisition Subsidiary, tax liens and judgment liens, together with copies of such financing statements, none of which, except as otherwise agreed to in writing by Imprimis, shall cover any of the Collateral. 15. Foreign Qualifications. A certificate, dated as of a date not more than 10 Business Days prior to the Investment Date, of the appropriate official(s) of the states of incorporation and each state of foreign qualification of the Company, the Acquisition Subsidiary and their respective Subsidiaries, certifying as to the subsistence in good standing of, and the payment of taxes by, such Person in such states and listing all charter documents of such Person on file with such official(s); 16. Acquisition. A complete and accurate copy of the agreements pursuant to which the Acquisition is being consummated, together with such evidence of the completion of the Acquisition as Imprimis shall reasonably request; and 17. Additional Documentation. Such other information as Imprimis may reasonably request. B. OPINIONS OF COUNSEL. Imprimis shall have received the favorable opinions, dated the Investment Date, of (a) Epstein Becker & Green, P.C., special counsel for the Company, in substantially the form of Exhibit E-1 attached hereto or otherwise in form and substance satisfactory to Imprimis, and addressing such other matters as Imprimis (or its counsel) may reasonably request (and the Company hereby instructs its special counsel to deliver such opinion to Imprimis), and (b) Jacob & Weingarten, special counsel for the Company, in substantially the form of Exhibit E-2 attached hereto or otherwise in form and substance satis factory to Imprimis, and addressing such other matters as Imprimis (or its counsel) may reasonably request (and the Company hereby instructs its special counsel to deliver such opinion to Imprimis). C. PAYMENT OF ACCRUED FEES AND EXPENSES. Without limiting the provisions of Section XII(A), accrued fees and expenses incurred by the Investors in connection with the transactions contemplated by this Agreement and the other Note Documents (including, without limitation, the accrued fees and expenses of special counsel to the Investors), in an amount up to $75,000, to be paid by the Company on or prior to the Investment Date shall have been paid D. REPRESENTATIONS AND WARRANTIES. The representations and warranties of each of the Obligors contained in this Agreement and each of the other Note Documents shall be complete and correct on the Investment Date, before and after giving effect to the issue and sale of the Notes and to the application of the proceeds therefrom as contemplated by Section IV(O)(1). E. NO DEFAULT. After giving effect to the issue and sale of the Notes and to the application of the proceeds therefrom as contemplated by Section IV(O)(1), no Default or Event of Default shall have occurred and be continuing. F. INVESTMENT PERMITTED BY APPLICABLE REQUIREMENTS OF LAW, ETC. The purchase of and any payment for the Notes to be purchased on the Investment Date (a) shall be permitted by the applicable Requirements of Law of each jurisdiction to which such Investor is subject, (b) shall not violate any applicable Requirements of Law (including, without limitation, Regulation G, T, U or X of the Board of Governors of the Federal Reserve System) and (c) shall not subject such Investor to any tax, penalty or other liability under or pursuant to any applicable Requirements of Law. G. NO LITIGATION OR OTHER PROCEEDINGS. Except as disclosed in the SEC Reports or as described on Schedule IV(H) attached hereto, there shall exist no action, suit, investigation, litigation or proceeding pending or, to the best knowledge of the Company, threatened against or affecting any of the Obligors or any of their respective Subsidiaries or any of the property or assets thereof in any court or before any arbitrator or by or before any other Governmental Authority of any kind that (a) either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or (b) challenges the legality, validity, binding effect or enforceability of this Agreement or any of the other Note Documents or the consummation of the sale and purchase of the Notes or any of the other transactions contemplated hereby or thereby. H. NO MATERIAL ADVERSE CHANGE. Except as disclosed in the SEC Reports or as described on Schedule IV(E)(2) attached hereto, since December 31, 1996, there shall not have occurred (in the judgment of the Investors) a material adverse change in the business, condition (financial or otherwise), operations, results of operations, assets, property, liabilities or prospects of the Company, the Acquisition Subsidiary or their respective Subsidiaries. IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each of the Investors that as of the Investment Date: A. ORGANIZATION; POWER AND AUTHORITY; CAPITALIZATION; WARRANTS. The Company and each of its Subsidiaries are Persons duly organized, validly existing and in good standing under the laws of their respective jurisdictions of organization and are duly qualified as foreign corporations or other entities and are in good standing in each other jurisdiction in which the ownership, lease or operation of their property and assets or the conduct of their businesses requires such qualification, other than any such jurisdiction in which the failure to be so qualified or in good standing, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. The Company and each of its Subsidiaries have all corporate and other necessary power and authority, and the legal right, to own or to hold under lease all of the property and assets they purport to own or hold under lease and to conduct the business they conduct and propose to conduct. Each of the Obligors has all corporate and other necessary power and authority, and the legal right, to execute and deliver this Agreement, the Notes and the other Note Documents to which it is or is to be a party, to perform its Obligations hereunder and thereunder and to consummate all of the transactions contemplated hereby and thereby, including the Acquisition. On the Investment Date after giving effect to the transactions contemplated hereunder to occur on the Investment Date, the authorized Capital Stock of the Company, the Acquisition Subsidiary and the Other Obligors will consist of the securities described in Schedule IV(A) hereto, all of which, in the case of the Capital Stock of the Acquisition Subsidiary and the Other Obligors, is owned beneficially and of record by the Company. Except for the possible issuance of the Preferred Stock and any shares of Common Stock pursuant to the Warrants and as disclosed in the SEC Reports or as set forth on Schedule IV(A) hereto, there are no other shares of Capital Stock of the Company, the Acquisition Subsidiary or the Other Obligors outstanding and no other outstanding options, warrants, convertible or exchangeable securities, subscriptions, rights (including pre-emptive rights), stock appreciation rights, calls or commitments of any character whatsoever to which either the Company, the Acquisition Subsidiary or the Other Obligors is a party or may be bound requiring the issuance or sale of shares of any Capital Stock of the Company, the Acquisition Subsidiary or the Other Obligors, and there are no contracts or other agreements by which any of the Company is or may become bound to issue additional shares of its capital stock or any options, warrants, convertible or exchangeable securities, subscriptions, rights (including preemptive rights), stock appreciation rights, calls or commitments of any character whatsoever relating to such shares. The Company has authorized, subject to requisite shareholder approvals, the issuance of (a) the Preferred Stock, (b) the Warrants, and (c) such number of shares of Common Stock as shall be necessary to permit the Company to comply with its obligations to issue Common Stock upon exercise of the Warrants, and has duly reserved such number of shares of Common Stock solely for such purpose. The Preferred Stock and the Common Stock to be delivered upon exercise of the Warrants, in each case if and when issued, will be duly authorized, issued and outstanding, fully-paid and non-assessable and will be issued free of any preemptive rights. After giving effect to the transactions contemplated hereby and in the Note Documents and the issuance to the Investors of, and payment of consideration for, the Preferred Stock and the Warrants, all of the issued and outstanding Capital Stock of the Company is and will be validly issued, fully paid and non-assessable and free of all liens, pledges and preemptive rights. The Warrants, if and when issued, will evidence the right to purchase a number of shares of Common Stock equal to 40.25% of the outstanding Common Stock on a fully diluted basis as of the date of their issuance, taking into account any and all antidilution adjustments necessitated by the issuance of any securities under this Agreement. B. AUTHORIZATION, ENFORCEABILITY, ETC. This Agreement and each of the other Note Documents have been duly authorized by all necessary corporate action (including, without limitation, all necessary shareholder action) on the part of each of the Obligors intended to be a party thereto. This Agreement has been, and the Notes and each of the other Note Documents, when delivered hereunder, will have been, duly executed and delivered by each of the Obligors intended to be a party thereto. This Agreement constitutes, and the Notes and each of the other Note Documents, when delivered hereunder, will constitute, the legal, valid and binding obligations of each of the Obligors intended to be a party thereto, enforceable against such Obligor in accordance with their respective terms, except as such enforceability may be limited by the effect of applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally. C. DISCLOSURE. All of the information furnished by or on behalf of any of the Obligors or any of their respective Subsidiaries in writing to the Investors pursuant to or in connection with this Agreement or any of the other Note Documents or any other document, certificate or other writing furnished to the Investors in connection with the sale and purchase of the Notes or any of the other transactions contemplated hereby is complete and correct in all material respects as of the date on which such information was so provided; and all such information does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made therein, in light of the circumstances under which any such statements were made, not misleading. All financial projections and forecasts that have been prepared by the Company or any of its Subsidiaries and made available to the Investors have been prepared in good faith based upon reasonable assumptions and represented, at the time each such financial projection or forecast was delivered to the Investors, such company's best estimate of its future financial performance (it being recognized by the Investors that such financial projections or forecasts are not to be viewed as facts and that the actual results during the period or periods covered by any such financial projections or forecasts may differ materially from the projected or forecasted results). D. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES, ETC. Schedule IV(D) attached hereto sets forth all of the Subsidiaries of the Company as of the Investment Date, showing, as to each such Subsidiary, the correct name thereof, the jurisdiction of its organization and the percentage of shares of each class of its capital stock or similar equity interests outstanding that are owned by the applicable company and/or one or more of its Subsidiaries. All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown on Schedule IV(D) attached hereto have been validly issued, are fully paid and nonassessable and are owned by such company and/or one or more of its Subsidiaries, free and clear of all Liens. E. SEC REPORTS The Company has filed, pursuant to the Securities Act or the Exchange Act, as the case may be, all material forms, statements, reports and documents (including all exhibits, amendments and supplements thereto) (the "SEC Reports) required to be filed with respect to the business and operations of the Company under each of the Securities Act and the Exchange Act, and the respective rules and regulations thereunder, and all of the SEC Reports complied in all material respects with all applicable requirements of the Securities Act or the Exchange Act, as the case may be, and the appropriate act and the rules and regulations thereunder in effect on the date each such report was filed. At the respective dates they were filed, none of the SEC Reports contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements, including the schedules and notes thereto, of the Company included in the SEC Reports complied as to form in all material respects with the applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, fairly present the consolidated financial position, results of operations and cash flows of the Company as of the dates or for the periods indicated therein, subject, in the case of the unaudited statements, to normal year-end adjustments and the absence of certain footnote disclosures. All of the consolidated financial statements referred to above in this subsection, including the schedules and notes thereto, have been prepared in accordance with generally accepted accounting principles consistently applied throughout the respective periods covered thereby (except as may be indicated therein or in the notes thereto). F. FINANCIAL STATEMENTS. 1. The audited consolidated balance sheets of the Company and its Subsidiaries as of December 31, 1995 and December 31, 1996 and the related audited consolidated statements of operations, stockholders' equity and cash flows of the Company and their respective Subsidiaries for the Fiscal Years ended December 31, 1995 and December 31, 1996, in each case including the schedules and notes thereto and accompanied by an opinion of Ernst & Young LLP, the independent accountants of the Company, and the consolidated balance sheets of the Company and its Subsidiaries as of September 30, 1997 and the related consolidated statements of operations, stockholders' equity and cash flows of the Company and its Subsidiaries for the nine-month period then ended, duly certified by a Senior Financial Officer of the Company, copies of all of which have been furnished to the Investors, and fairly present (subject, in the case of such balance sheet as of September 30, 1997 and such statements of operations, stockholders' equity and cash flows for the nine month period then ended, to normal year-end audit adjustments and the inclusion of footnotes) the consolidated financial condition of the Company and its Subsidiaries as at such dates and the consolidated results of operations and cash flows of the Company and its Subsidiaries for the respective periods ended on such dates. All of the financial statements referred to above in this subsection, including the schedules and notes thereto, have been prepared in accordance with generally accepted accounting principles applied consistently throughout the respective periods covered thereby (except as may be indicated therein or in the notes thereto). 2. Except as disclosed in the SEC Reports or as set forth on Schedule IV(F)(2) attached hereto, since December 31, 1996, there has been (i) no material adverse change in the business, condition (financial or otherwise), operations, results of operations, assets, property, liabilities or prospects of the Company or its Subsidiaries, and (ii) no development, event or circumstance relating to or affecting the Company or any of its Subsidiaries that, either individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect, provided that no development, event or circumstance set forth on Schedule IV(F)(2) has had or could reasonably be expected to have a Material Adverse Effect of the type described in clauses (b) or (c) of the definition thereof. 3. There are no liabilities or obligations of the Company or any of its Subsidiaries of any nature whatsoever (whether absolute, contingent, accrued or otherwise and whether or not due) that, either individually or in the aggregate, could reasonably be expected to be material to the Company, either individually or together with its Subsidiaries, in each case except for those liabilities and obligations that are fully disclosed in the unaudited consolidated financial statements of the Company referred to in subsection (1) of this Section IV(F) or on Schedule IV(F)(2) or IV(F)(3) attached hereto. G. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The execution, delivery and performance by each of the Obligors of each of the Note Documents to which it is or is to be a party and the consummation of the sale and purchase of the Notes and the other transactions contemplated hereby and thereby do not (a) contravene such Obligor's certificate of incorporation or bylaws (or similar organizational documents), (b) violate any Requirement of Law, (c) conflict with or result in the breach of, or constitute a default under, any loan or purchase agreement, indenture, mortgage, deed of trust, lease, instrument, contract or other agreement binding on or affecting such Obligor, any of its Subsidiaries or any of their respective property or assets the violation or breach of which, either individually or in the aggregate, could reasonable be expected to have a Material Adverse Effect or (d) except for the Liens created under the Collateral Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the property or assets of such Obligor or any of its Subsidiaries. Neither of the Obligors nor any of their respective Subsidiaries is in violation of any of the terms of its certificate of incorporation or bylaws (or similar organizational documents) or any Requirement of Law or in breach of any loan or purchase agreement, indenture, mortgage, deed of trust, lease, instrument, contract or other agreement referred to in the immediately preceding sentence, the violation or breach of which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. H. GOVERNMENTAL AUTHORIZATIONS, ETC. 1. Except as disclosed in the SEC Reports, the Company and, except as set forth on Schedule IV(H)(1), each of its Subsidiaries and employees (i) own or possess all of the Governmental Authorizations that are necessary to own or lease and operate their respective property and assets and to conduct their respective businesses as presently conducted, except where and to the extent that the failure to obtain or maintain in effect any such Governmental Authorization, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, and (ii) have not received any notice relating to or threatening the revocation, termination, cancellation, denial, impairment or modification of any such Governmental Authorization, nor is the Company or any of its Subsidiaries in violation or contravention of, or in default under, any such Governmental Authorization. 2. Except for requisite shareholder approvals and SEC approvals requisite in connection with the filing of documents related thereto, no Governmental Authorization, and no consent, approval or authorization of, or notice to, or other action by, any other Person, is required for the due execution, delivery, recordation, filing or performance by any of the Obligors of this Agreement or any of the other Note Documents to which it is or is to be a party, or for the consummation of the sale and purchase of the Notes or any of the other transactions contemplated hereby and thereby, except for such Governmental Authorizations, and such consents, approvals, authorizations, notices and other actions, as are described on Schedule IV(H)(2) attached hereto, all of which have been obtained or made on or prior to the Investment Date and are in full force and effect or will be obtained or made in accordance with the terms of the Note Documents and, thereafter, will be in full force and effect. I. LITIGATION. Except as described on Schedule IV(I) attached hereto, there is no action, suit, investigation, litigation or proceeding pending or, to the best knowledge of the Company, threatened against or affecting any of the Obligors or any of their respective Subsidiaries or any of the property or assets thereof in any court or before any arbitrator or by or before any other Governmental Authority of any kind that (a) either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or (b) challenges the legality, validity, binding effect or enforceability of this Agreement or any of the other Note Documents or the consummation of the sale and purchase of the Notes or any of the other transactions contemplated hereby or thereby, including the Acquisition. J. TAXES. 1. Each of the Obligors and, except as set forth on Schedule IV(J), each of their respective Subsidiaries, have filed or caused to be filed all tax returns and reports that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all taxes shown to be due and payable on any assessments of which such Obligor or such Subsidiary, as the case may be, has received notice and all other taxes, assessments, levies, fees and other governmental charges imposed upon any of the Obligors or any of their respective Subsidiaries, or their property, assets, income or franchises, to the extent such taxes, assessments, levies, fees and other charges have become due and payable and before they have become delinquent, except for taxes, assessments, levies, fees or other governmental charg- es the amount, applicability or validity of which is being contested in good faith and by appropriate proceedings diligently conducted and with respect to which such Obligor or such Subsidiary, as the case may be, has established reserves in accordance with GAAP in effect from time to time. 2. As of the Investment Date, neither any of the Obligors nor any of their respective Subsidiaries or Affiliates has entered into an agreement or waiver or been requested to enter into an agreement or waiver extending any statute of limitations relating to the payment or collection of taxes of any such Obligor or any such Subsidiary or Affiliate, or is aware of any circumstances that would cause the taxable years or other taxable periods of any of the Obligors or any of their respective Subsidiaries or Affiliates not to be subject to the normally applicable statute of limitations. 3. Neither the Company nor any of its Subsidiaries is or at any time has been a member of an affiliated, consolidated, combined or unitary group other than such group of which the Company is the common parent (within the meaning of Section 1504(a)(1) of the Internal Revenue Code). 4. None of the Obligors is an S corporation with the meaning of Section 1361 of the Internal Revenue Code. K. TITLE TO PROPERTY; LEASES. The Obligors and each of their respective Subsidiaries have good and sufficient title to, or a valid and enforceable leasehold interest in, all of their respective property and assets that, either individually or in the aggregate, are material, in each case free and clear of all Liens other than the Liens expressly permitted under Section VIII(B). All leases under which any of the Obligors or any of their respective Subsidiaries are a lessor or a lessee are valid and subsisting and are in full force and effect in all material respects. L. SECURITY INTERESTS, ETC. Each of the Collateral Documents create valid and perfected first priority Liens on and security interests in the Collateral (subject to Permitted Liens) in favor of Imprimis, securing the payment of the Notes and all of the other Obligations of the Obligors under or in respect of the Note Documents. All filings and other actions necessary to perfect and protect such Liens and security interests have been duly made or taken and are in full force and effect or will be duly made or taken in accordance with the terms of the Note Documents; and all filing and recording fees and taxes have been duly paid. M. LICENSES, PERMITS, ETC. 1. The Company and, except as set forth on Schedule IV(M)(1), each of its Subsidiaries and employees own or possess all of the licenses, permits, franchises, authorizations, consents and approvals, and own or have the legal right to use all of the patents, copyrights, service marks, trademarks and trade names (or other rights thereto), that are necessary to own or lease and operate their respective property and assets and to conduct their respective businesses as presently conducted, without known conflict with the rights of any other Person. Except as described on Part 1 of Schedule IV(M) attached hereto, no action, suit, investigation, litigation or proceeding of any Person is pending or, to the best knowledge of the Company, is threatened challenging the use of any such license, permit, franchise, authorization, consent, approval, patent, copyright, service mark, trademark, trade name or other right, or the validity or effectiveness thereof. 2. No product or service of the Company or, except as set forth on Schedule IV(M)(2), any of its Subsidiaries, materially infringes on any license, permit, franchise, authorization, consent, approval, patent, copyright, service mark, trademark, trade name or other right owned by any other Person. 3. There is no material violation by any Person of any right of the Company or, except as set forth on Schedule IV(M)(3), any of its Subsidiaries, with respect to any license, permit, franchise, authorization, consent, approval, patent, copyright, service mark, trademark, trade name or other right owned or used by the Company or, except as set forth on Schedule IV(M)(3), any such Subsidiary. N. ERISA. 1. The Company has not established, does not maintain or sponsor, and is not required to contribute to any ERISA Plan. O. PRIVATE OFFERING BY THE COMPANY. 1. Neither the Company nor any Person acting on their behalf has taken, or will take, any action that would subject the issuance and sale of the Notes to the registration requirements of Section 5 of the Securities Act. 2. Neither the Company nor any Person acting on their behalf has directly or indirectly offered or sold the Notes by any form of general solicitation or general advertising, including, without limitation, any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or any broadcast over television or radio or any seminar or meeting whose attendees have been invited by any form of general solicitation or general advertising (within the meaning of Rule 502(c) of Regulation D under the Securities Act). P. USE OF PROCEEDS; MARGIN REGULATIONS. 1. The proceeds received from the sale of the Notes will be used by the Company solely (i) to pay the transaction costs and expenses incurred in connection with the sale of the Notes as set forth in Schedule IV(P) hereof, (ii) to complete the Acquisition, (iii) for working capital purposes of the Acquisition Subsidiary and (iv) for general and administrative expenses of the Company. 2. Neither the Company nor any of its Subsidiaries is engaged in the business of extending credit for the purpose of purchasing or carrying any "margin stock" (within the meaning of Regulation G or U of the Board of Governors of the Federal Reserve System (12 CFR 207)). No part of the proceeds from the sale of the Notes will be used, directly or indirectly, for the purpose of purchasing or carrying any margin stock or for the purpose of purchasing, carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of the Board of Governors of the Federal Reserve System (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of the Board of Governors of the Federal Reserve System (12 CFR 220). Margin stock does not constitute more than 25% of the value of the consolidated property and assets of the Company or its Subsidiaries and the Company does not have any present intention that margin stock will constitute more than 25% of the value of such consolidated property and assets. None of the transactions contemplated by this Agreement and the Note Documents (including, without limitation, the direct and indirect use of proceeds of the Notes) will violate or result in a violation of the Securities Act or the Exchange Act or any of the rules and regulations promulgated thereunder or in such Regulation G, T, U or X, as applicable. Q. STATUS UNDER CERTAIN STATUTES. 1. Neither the Company nor any of its Subsidiaries is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Act of 1935, as amended, or the Federal Power Act, as amended. 2. Neither the Company nor any of its Subsidiaries is an "investment company", or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company" (each as defined in the Investment Company Act of 1940, as amended). Neither the sale and purchase of the Notes nor the application of the proceeds therefrom or the repayment thereof by the Company, nor the consummation of any of the other transactions contemplated hereby, will violate any provision of such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder. 3. Neither the Company nor any of its Subsidiaries is a "holding company," or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" (each within the meaning of the Public Utility Holding Company Act of 1935, as amended). 4. Neither the Company nor any of its Subsidiaries is a "personal holding company" (as defined in Section 542 of the Internal Revenue Code). 5. The Company and each of its Subsidiaries are current with all reports and documents, if any, required to be filed with any securities commission or similar agency of any applicable jurisdiction and are in compliance with all applicable rules and regulations of such commissions and agencies. R. SECURITIES ACT MATTERS. Subject to the accuracy of the Investors' representations in V(A) and (V)(B), the offer, sale and issuance of the Notes, the Preferred Stock and the Warrants to the Investors as contemplated by this Agreement and the issuance and delivery of the shares of Common Stock upon exercise of the Warrants are and will be exempt from the registration and prospectus delivery requirements of the Securities Act. S. EMPLOYEE AND LABOR MATTERS. Except as set forth in Schedule IV(S), during the three years preceding the Investment Date, there has been no strike, work stoppage, slowdown or other material labor dispute or grievance involving the Company or any of its Subsidiaries or their respective employees, nor is any such action, dispute or grievance pending or to the knowledge of the Company, after due inquiry, threatened against the Company or any of its Subsidiaries as of the Investment Date. Except as set forth in Schedule IV(S), as of the Investment Date, neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement and has no knowledge after due inquiry of any pending or threatened effort to organize any of their employees. Except as set forth in Schedule IV(S), there are no pending retaliatory or wrongful discharge claims or employment discrimination charges or complaints or administrative or judicial complaints arising therefrom pending against the Company or any of its Subsidiaries or against any of their employees before any Governmental Authority, which have had or could reasonably be expected to have a Material Adverse Effect, nor to the knowledge of the Company after due inquiry are any such charges or complaints threatened against the Company or any of its Subsidiaries. The Company and its Subsidiaries are in compliance with all applicable statutes and orders relating to the employment of labor, including, without limitation, any provision thereof relating to wages, bonuses, collective bargaining agreements, equal pay, occupational safety and health, equal employment opportunity and wrongful or retaliatory termination of employment, except for such noncompliance as in the aggregate would not result in a Material Adverse Effect. T. ENVIRONMENTAL MATTERS. Except as described on Schedule IV(T) attached hereto: 1. The operations and properties (whether owned or eased) of the Company and each of its Subsidiaries comply in all material respects with all Environmental Laws and Environmental Permits, and all necessary Environmental Permits have been obtained and are in full force and effect for all of the operations and properties of the Company and each such Subsidiary. All past noncompliance with any such Environmental Laws or Environmental Permits, if any, has been resolved without ongoing material obligations or costs to the Company or any of its Subsidiaries. To the best knowledge of the Company, no circumstances exist that, either individually or in the aggregate, could reasonably be expected (i) to form the basis of an Environmental Action against the Company or any of its Subsidiaries or any of their properties or (ii) to cause any such property to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law. 2. There is no asbestos or asbestos-containing material On any property owned or operated by the Company or any of its Subsidiaries in violation of applicable Environmental Law that could reasonably be expected to give rise to liability thereunder. 3. Neither the Company nor any of its Subsidiaries is undertaking, nor has any of them completed, either individually or together with other potentially responsible parties, any investigation or assessment or remedial or response action relating to any actual or threatened release, discharge or disposal of Hazardous Materials at any site, location or operation, either voluntarily or pursuant to the order of any Governmental Authority or the requirements of any Environmental Law; and all Hazardous Materials generated, used, treated, handled or stored at, or released, discharged or disposed of on, or transported to or from, any property owned or operated by the Company or any of its Subsidiaries have been disposed of in a manner that does not violate, and could not reasonably be expected to give rise to liability under, any applicable Environmental Law. 4. Neither the Company nor any of its Subsidiaries has received any notice from any Governmental Authority regarding any violation or alleged violation of, noncompliance or alleged noncompliance with, or liability or potential liability under or in respect of, any Environmental Law or Environmental Permit by the Company or any such Subsidiary, nor does the Company or any such Subsidiary have knowledge or have any reason to believe that any such notice will be received or is being threatened. U. NO BURDENSOME AGREEMENTS. Neither the Company nor any of its Subsidiaries is a party to any loan or purchase agreement, indenture, mortgage, deed of trust, lease, instrument, contract or other agreement or subject to any Requirement of Law or any charter or corporate or other similar restriction that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. V. EXISTING INDEBTEDNESS; FUTURE LIENS. 1. The SEC Reports, together with Schedule IV(V) attached hereto, set forth a complete and correct list of all outstanding Indebtedness of the Company and each of its Subsidiaries as of the Investment Date after giving effect to the Acquisition and the maturity dates of all such Indebtedness. Neither the Company nor any of its Subsidiaries is in default, and no waiver of default is currently in effect, in the payment of any principal of or interest on any Indebtedness of the Company or any such Subsidiary, and no event or condition exists with respect to any Indebtedness of the Company or any such Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable, or would require an offer to prepay, redeem, repurchase, purchase or defease such Indebtedness to be made, in each case prior to its stated maturity or its regularly scheduled dates of payment. 2. Neither the Company nor any of its Subsidiaries has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property or assets, whether now owned or hereafter acquired, to be subject to a Lien not expressly permitted under Section VIII(B). W. SOLVENCY. The Company is and the Company and its Subsidiaries, taken as a whole, are, and upon giving effect to the issuance and sale of all of the Notes and the other transactions contemplated hereby, including the Acquisition, will be, Solvent. X. RELATED PARTY TRANSACTIONS. Except as set forth in the SEC Reports: 1. no officer or director of the Company or any of its subsidiaries and no member of the immediate family of any officer or director thereof is indebted to the Company or any of its Subsidiaries in any amount, nor is the Company or any of its Subsidiaries indebted to (or committed to make loans or extend or guarantee credit to or otherwise to make Investments in) any of them; 2. to the best knowledge of the Company, neither any officer or director of any of the Company or any of its Subsidiaries nor any member of the immediate family of any officer or director thereof has any direct or indirect ownership or profit interest in any corporation or other entity with which the Company or any of its Subsidiaries is affiliated or with which the Company or any of its Subsidiaries has an ongoing business relationship, or in any corporation or other entity that competes with the Company or any of its Subsidiaries, that exceeds 1% of the aggregate ownership and profit interests therein; and 3. no officer or director of the Company or any of its Subsidiaries and no member of the immediate family of any officer or director thereof has any direct or indirect financial interest in any material contract of the Company or any of its Subsidiaries. Y. MATERIAL CONTRACTS. 1. Except for the agreements, contracts, plans, leases, arrangements and commitments set forth in the SEC Reports or in Schedule IV(Y) attached hereto, neither the Company nor any of its Subsidiaries is a party or subject to any agreement, contract, plan, lease, arrangement or commitment that (i) is material to the business, condition (financial or otherwise), operations, results of operations, assets, property or liabilities of the Company and its Subsidiaries, taken as a whole, (ii) provides for the purchase in excess of $100,000 of materials, supplies, goods, services, equipment or other property or assets, except in the ordinary course of business, (iii) involves any partnership, joint venture or other similar arrangement or (iv) restricts the Company or any of its Subsidiaries from engaging in or competing in any line of business, with any Person or, except for limitations in standard contracts, forms of which have been furnished to the Investors, in any geographic area. 2. Each agreement, contract, plan, lease, arrangement and commitment disclosed or required to be disclosed pursuant to clause (1) of this Section IV(X) is the legal, valid and binding obligation of the Company or its applicable Subsidiary, enforceable against the Company or such Subsidiary in accordance with its terms, and is in full force and effect; and neither Company nor any of its Subsidiaries or, to the best knowledge of the Company, any other party thereto is in default in any material respect under the terms of any such agreement, contract, plan, lease, arrangement or commitment. Z. PARI PASSU OBLIGATIONS. The Obligations for the payment of money of the Company under this Agreement and the other Note Documents rank senior in right of payment to all other Obligations for the payment of money of the Company other than the outstanding Indebtedness of or to be assumed, in connec- tion with the Acquisition, by the Company described on Schedule IV(Z) attached hereto and any purchase money Indebtedness of the Company incurred pursuant to Section VIII(C)(3). The Obligations for the payment of money of the Company under this Agreement and the other Note Docu- ments rank at least pari passu in right of payment with all outstanding Indebtedness of the Company described on Schedule IV(Z) attached hereto and all purchase money Indebtedness of the Company incurred pursuant to Section VIII(C)(3). AA. NO SIGNIFICANT SUBSIDIARIES. Except as set forth on Schedule IV(AA), none of the Subsidiaries of the Company is a "significant subsidiary" within the meaning of Regulation S-X promulgated by the Securities and Exchange Commission under the Securities Act. AB. NO POWER OF ATTORNEY. Neither the Company nor any of its Subsidiaries has granted a power of attorney to any Person that would allow such Person to sign or file any financing statement, mortgage, indenture, document, agreement or other instrument that grants or creates a Lien on any Collateral or any of the Company' or its Subsidiaries' assets. V. REPRESENTATIONS AND COVENANTS OF THE INVESTORS. A. PURCHASE FOR INVESTMENT. You represent that you are purchasing the Notes for your own account or for one or more separate accounts maintained by you, in each case for investment and not with a view to the distribution thereof or with any present intention of distributing or selling the Notes; provided that the disposition of your property shall at all times be within your control. B. ACCREDITED INVESTORS. You are an "accredited investor" (as defined in Rule 501 of Regulation D under the Securities Act) and by reason of your business and financial experience, and the business and financial experience of those Persons retained to advise you with respect to your investment in the Notes and the Warrants, and you, together with such advisors, have such knowledge, sophistication and experience in financial and business matters as to be capable of evaluating the merits and risks of the prospective investment, and are able to bear the economic risk of such investment and, at the present time, are able to afford a complete loss of such investment. You have had the opportunity to ask questions of and receive answers from the Company concerning the terms and conditions of the Notes and other related matters. You further acknowledge that the Company has made available to you or your representatives all documents and information relating to an investment in the Notes requested by or on behalf of you. C. POWER AND AUTHORITY. You confirm that you have the legal right and power and all authority required to execute and deliver and to carry out the terms of this Agreement and all other documents or instruments required hereby to which you are a party. VI. PREPAYMENTS AND REDEMPTIONS OF THE NOTES. A. OPTIONAL PREPAYMENTS OF THE NOTES. The Company may, at their option, upon not less than five Business Days' prior written notice to the holders of the Notes, prepay all or any part of the Notes, in an aggregate principal amount of $100,000 (or, if less, the remaining aggregate principal amount of all Notes outstanding at such time), at a purchase price in cash equal to 100% of the aggregate principal amount of the Notes so prepaid, plus all accrued and unpaid interest thereon, if any, to the date of such prepayment. Each notice of an optional prepayment of the Notes pursuant to this Section VI(A) shall specify the date fixed for such prepayment, the aggregate principal amount of the Notes to be prepaid on such date, the principal amount of each Note held by such holder to be prepaid (determined in accordance with Section VI(D)) and the interest to be paid on the prepayment date with respect to such principal amount being prepaid, and shall state that such prepayment is to be made pursuant to this Section VI(A). B. OFFER TO REPURCHASE NOTES AND REDUCE COMMITMENTS IN RESPECT OF A CHANGE OF CONTROL. 1. Upon the occurrence of a Change of Control, each holder of the Notes will have the right to require the Company to repurchase all or any portion of the Notes of such holder pursuant to an offer made in the manner described below (each, a "Change of Control Offer"), at a purchase price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, if any, to the date of such repurchase (the "Change of Control Payment"). Within three Business Days following any Change of Control, the Company shall deliver a notice, by facsimile confirmed the same day by overnight courier service, to each holder of the Notes stating: a. that the Change of Control Offer is being made pursuant to this Section VI(B) and that all Notes tendered shall be accepted for repurchase; b. the parties, and the events or circumstances giving rise, to the Change of Control for which such Change of Control Offer is being made, in reasonable detail; c. the repurchase price for the Note or Notes of such holder and the Change of Control Repurchase Date therefor; d. that any Note not tendered for repurchase shall continue to accrue interest in accordance with the terms thereof; e. that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for repurchase pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Repurchase Date; and f. that holders whose Notes are being tendered for repurchase only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. Any holder of the Notes that elects to have all or a portion of its Notes repurchased as part of the Change of Control Offer shall deliver notice to the Company of its election at least five Business Days prior to the scheduled Change of Control Repurchase Date. Any holder of a Note that does not deliver to the Company notice accepting the Change of Control Offer at least three Business Days prior to the Change of Control Repurchase Date shall be deemed to have rejected such Change of Control Offer. Notwithstanding the foregoing provisions of this Section VI(B)(1), the failure of the Company to deliver the notice referred to in the third sentence of this Section VI(B)(1) to any holder of the Notes shall not affect or impair the obligation of the Company to purchase any Note from such holder on the applicable Change of Control Repurchase Date. 2. On a date that is no earlier than 30 days nor later than 60 days from the date that the Company deliver or cause to be delivered notice of the Change of Control to the holders or, if the Company fail to deliver such notice or cause such notice to be delivered, on the date that is 30 days after the occurrence of such Change of Control (the "Change of Control Repurchase Date"), the Company (i) shall, to the extent lawful, accept for repurchase all Notes or portions thereof properly tendered in response to the Change of Control Offer, (ii) shall pay to each of the holders of the Notes so accepted the Change of Control Payment for its Notes and (iii) shall deliver to each holder of Notes that only tendered a portion of its Notes new Notes equal in aggregate principal amount to the unpurchased portion of the Notes surrendered, if any, by such holder. C. MANDATORY REDEMPTIONS OF THE NOTES. 1. Upon receipt by any of the Company or any of its Subsidiaries of the Net Cash Proceeds from (i) the issuance or incurrence by the Company or any of its Subsidiaries of any Indebtedness (other than Indebtedness issued or incurred pursuant to any of Sections VIII(C)(3) through VIII(C)(8) and (ii) the sale or issuance by such Company or any of its Subsidiaries of any shares of its capital stock (or other ownership or profit interests therein) (other than any such sale or issuance arising pursuant to those option and incentive plans as in effect on the Investment Date and set forth on Part 2 of Schedule IV(A) attached hereto), any securities convertible into or exchangeable for shares of its capital stock (or other ownership or profit interests therein) or any warrants, options or other rights for the purchase or acquisition of any shares of its capital stock (or other ownership or profit interests therein), the Company shall redeem outstanding Notes in an amount equal to the lesser of (1) 100% of the aggregate principal amount of all Notes outstanding on the date of such redemption and (2) the amount of such Net Cash Proceeds, in either case plus all accrued and unpaid interest on the principal amount of the Notes so redeemed to the date of such redemption and all fees, expenses and other payments due and payable to the holders of the Notes under the Note Documents on such date, provided, however, that the obligation pursuant to subsection (ii) of this paragraph shall not arise from the sale or issuance by the Company of capital stock pursuant to the exercise of stock options or warrants (the "Existing Rights Securities") issued under the warrant agreements and stock option plans (the "Existing Rights Agreements") disclosed in the SEC Reports for so long as the aggregate Net Cash Proceeds received by the Company as a result of such issuances is less than $500,000 and provided, further, that the terms of the Existing Rights Securities, including the exercise or conversion prices thereof, and the Existing Rights Agreements have not been amended since the date on which they were issued. 2. Upon receipt by the Company or any of its Subsidiaries of Net Cash Proceeds from any Asset Sale (other than Asset Sales effected in the ordinary course of the Company's or the applicable Subsidiary's business consistent with past practice), the Company shall redeem outstanding Notes in an amount equal to the lesser of (i) 100% of the aggregate principal amount of all Notes outstanding on the date of such redemption and (ii) the amount of such Net Cash Proceeds, in either case plus all accrued and unpaid interest on the principal amount of the Notes so redeemed to the date of such redemption and all fees, expenses and other payments due and payable to the holders of the Notes under the Note Documents on such date. D. ALLOCATION OF PARTIAL PREPAYMENTS. In the case of each partial prepayment, repurchase or redemption of the Notes pursuant to Section VI(A), VI(B), or VI(C), the principal amount of the Notes to be prepaid, repurchased or redeemed shall be allocated (in integral multiples of $1,000) among all of the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment, repurchase or redemption, with adjustments to the extent practicable to compensate for any prior prepayments, repurchases or redemptions not made exactly in such proportion. E. MATURITY; SURRENDER, ETC. In the case of each prepayment, repurchase or redemption of the Notes pursuant to Section VI(A), VI(B) or VI(C), the principal amount of each Note to be pre-paid, repurchased or redeemed shall mature and become due and payable on the date fixed for such prepayment, repurchase or redemption, together with accrued and unpaid interest on such principal amount to such date. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the accrued and unpaid interest thereon as aforesaid, interest on such principal amount shall cease to accrue. Any Note prepaid, redeemed or repurchased in full shall be surrendered to an authorized representative of the Company and canceled and shall not be reissued, and no Note shall be issued in lieu of any prepaid, repurchased or redeemed principal amount of any Note. F. CANCELLATION OF NOTES. The Company will promptly cancel all Notes acquired by it pursuant to any payment, prepayment or purchase of Notes in accordance with the terms of this Agreement and the Notes, and no Notes may be issued in substitution or exchange for any such Notes. G. PAYMENT OF TRANSACTION FEE. Simultaneously with the repayment or prepayment in full of the Notes, the Company will pay to Imprimis a transaction fee of $25,000. VII. AFFIRMATIVE COVENANTS. From the date of this Agreement and, thereafter, so long as any of the Notes shall be outstanding, the Company will at all times perform and comply, and will cause each of its Subsidiaries to perform and comply, with each of the following covenants: A. SHAREHOLDER APPROVAL. 1. The Company shall, as soon as possible, but no later than 30 days after the Investment Date and in accordance with its certificate of incorporation, by-laws, the applicable rules of the National Association of Securities Dealers, Inc. and the Nasdaq Stock Market ("NASDAQ"), and any Requirements of Law, seek to obtain any and all requisite shareholder approvals of the issuance of Common Stock of the Company pursuant to the Warrants and provide evidence reasonably satisfactory to the Investors that such approvals have been obtained. The Company shall submit to the Investors for their prior approval copies of the resolutions or written consents under which shareholders pursuant to which the shareholders will evidence such approval and any and all other documents to be sent to shareholders in connection with seeking such approval. 2. In the event that the Company shall fail to receive the shareholder approvals or to provide to the Investors satisfactory evidence thereof as contemplated by Section VII(A)(1), in either case on or prior to January 31, 1998, in addition to Imprimis' right to demand immediate repayment of the principal amount of the Notes, together with accrued but unpaid interest, as provided in Article IX, and in addition to the Preferred Stock and the Warrants to be acquired pursuant to Article II, the Company shall issue on January 31, 1998 to Imprimis pursuant to documentation reasonably acceptable to Imprimis five year nonredeemable warrants to purchase 250,000 shares of Common Stock with (A) an exercise price per share equal to $1 and 11/16 (the closing price for the Common Stock on NASDAQ on December 18, 1997), subject to customary antidilution adjustment for economic or other dilution, and (B) immediate demand registration rights relating to the Common Stock issuable pursuant to such warrants. B. INFORMATION COVENANTS. The Company will furnish to each holder of the Notes: 1. Copies of each SEC Report filed by the Company within three days of such a filing including, if applicable, the consolidated financial statements of the Company and its Subsidiaries filed with any such SEC Report and an opinion of Ernst & Young LLP or such other accountants, as the case may be, (i) to the effect that such consolidated finan- cial statements have been prepared in accordance with generally accepted accounting principles in effect for the Fiscal Year covered thereby and consistently applied and (ii) that is not limited as to the scope of the audit; and 2. Compliance Certificate. At the time of delivery of the consolidated financial statements of the Company and its Subsidiaries provided for in Sections VII(B)(1), a compliance certificate of the Company, in substantially the form of Exhibit E hereto, duly certified by a Senior Financial Officer thereof, (i) stating that, to the best of such Senior Financial Officer's knowledge after due inquiry, no Default or Event of Default has occurred and is continuing or, if a Default or an Event of Default has occurred and is continuing, a statement as to the nature thereof and the action that the Company have taken and propose to take with respect thereto, and (ii) setting forth a description in reasonable detail of all of the changes, if any, from GAAP in the generally accepted accounting principles applied in the preparation of such financial statements. 3. Auditor's Reports. Promptly upon receipt thereof, copies of all "management letters" or other written reports submitted to the Company or any of its Subsidiaries by Ernst & Young LLP or any other independent accountants of the Company or any of its Subsidiaries in connection with each annual, interim or special audit of its financial statements made by such accountants (including, without limitation, any comment letter submitted by such accountants to management of the Company or any such Subsidiary in connection with their annual audit and any reports addressing internal accounting controls of the Company or any such Subsidiary submitted by such accountants), and all responses of the management of the Company or such Subsidiary thereto. 4. SEC and Other Reports. Promptly upon transmission or receipt thereof, (a) copies of any filings and registrations with, and any reports or notices to or from, the Securities and Exchange Commission or any successor agency thereto, and copies of all financial statements, proxy statements, notices and reports that the Company or any of its Subsidiaries shall send to any holder of Indebtedness owed by the Company or any of its Subsidiaries pursuant to the terms of the documentation governing such Indebtedness or to any trustee, agent or other representative therefor and (b) copies of all press releases and other statements made available by the Company or any of its Subsidiaries to the public. 5. Notice of Default, Etc. Promptly, and in any event within three Business Days after a Responsible Officer obtains actual knowledge thereof, notice of the occurrence of (a) each Default or Event of Default, or any event, development or occurrence that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, setting forth in reasonable detail the nature of such Default or Event of Default or event, development or occurrence and the action that the Company have taken and propose to take with respect thereto, (b) any actual or threatened revocation, termination, cancellation, denial or impairment of, or refusal to renew or extend, or modification or other change to, any Governmental Authorization necessary or desirable for the Company or any of its Subsidiaries to own or lease and operate their respective property and assets or to conduct their respective businesses as conducted or as proposed to be conducted and (c) a Change of Control or any change in the members of the board of directors of, or any material change in the management of, the Company or any of its Subsidiaries. 6. Litigation. Promptly after the commencement thereof, notice of all actions, suits, investigations, litigations and proceedings of the types described in Section IV(I) in any court or before any arbitrator or by or before any Governmental Authority of any kind binding upon or affecting the Company or any of the Subsidiaries or any of their respective property or assets. 7. Environmental Matters. Promptly and in any event within three Business Days after a Responsible Officer of the Company obtains knowledge thereof, notice of the occurrence of one or more of the following: a. any pending or threatened Envi- ronmental Action against the Company or any of its Subsidiaries or any of the property owned or operated by the Company or any such Subsid- iary; b. any condition or occurrence on or arising from any property owned or operated by the Company or any of its Subsidiaries that (i) results or is alleged to have resulted in noncompliance by the Company or any such Subsidiary with any applicable Environmental Law or (ii) could reasonably be expected to form the basis of an Environmental Action against the Company or any such Subsidiary or any of their respective property; and c. the taking of any removal or remedial action in response to the actual or alleged presence of any Hazardous Material on any property owned or operated by the Company or any of its Subsidiaries as required by any Environmental Law, any Environmental Permit or any Governmental Authority. All such notices shall describe in reasonable detail the nature of the claim, investigation, condition, occurrence, removal or remedial action and the Company's or such Subsidiary's response thereto. In addition, the Company will provide you with copies of all reports, notices and written information to and from the United States Environmental Protection Agency or any state or local agency responsible for environmental matters, all communications with any Person (other than its attorneys) relating to any Environmental Action of which notice is required to be given pursuant to this subsection (k), and such detailed reports of any such Environmental Action as the Required Holders may from time to time reasonably request. 8. Insurance Compliance Certificate. Within 20 days after the end of each Fiscal Year, the Company shall furnish a compliance certificate by the Company, duly certified by a Senior Financial Officer thereof, stating that the Company and its Subsidiaries have in full force and effect insurance coverage with reputable insurers which, in respect of, amounts, premiums, types and risks insured, constitutes adequate coverage against all risks customarily insured against by companies comparable to the Company and its Subsidiaries. 9. Indebtedness Documents. Promptly after the occurrence thereof or the request therefor, copies of any amendment, waiver or other modification of the terms of any of the Indebtedness of the Company or any of its Subsidiaries and outstanding in an aggregate amount of at least $100,000, or any notice of default delivered thereunder. 10. Acquisitions. Promptly after the occurrence thereof in the case of material acquisitions, or upon request therefor in the case of non-material acquisitions, copies of all documents executed in connection with any such acquisition by the Company or any of its Subsidiaries or prepared by the Company in connection with such acquisition. 11. Requested Information. With reasonable promptness, such other information and documents relating to the condition (financial or otherwise), business, operations, results of operations, performance, property, assets or liabilities of the Company or any of its Subsidiaries as may from time to time be reasonably requested by the Required Holders. C. COMPLIANCE WITH LAW. 1. The Company will and will use its best efforts to cause each of its Subsidiaries to (a) comply with all Requirements of Law to which each of them and their respective property and assets are subject and all applicable restrictions imposed on each of them and their property and assets by any Governmental Authority (including, without limitation, ERISA and all Environmental Laws), and (b) except as provided in Section VII(G), obtain and maintain in effect all Governmental Authorizations that are necessary (i) to own or lease and operate their respective property and assets and to conduct their respective businesses as presently conducted, except where and to the extent that the failure to obtain or maintain in effect any such Governmental Authorization, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, or (ii) for the due execution, delivery, recordation, filing or performance by any of the Obligors of this Agreement or any of the other Note Documents to which it is or is to be a party, or for the consummation of the sale and purchase of the Notes or any of the other transactions contemplated hereby and thereby, including the Acquisition, except for such Governmental Authorizations as are described on Schedule IV(H) attached hereto, all of which will be obtained or made in accordance with the terms of the Note Documents and, thereafter, will be in full force and effect. 2. Neither the Company nor any of its Subsidiaries will generate, use, treat, store, release or dispose of, or permit the generation, use, treatment, storage, release or disposal of Hazardous Materials on any property now or hereafter owned or operated by the Company or any such Subsidiary, or transport or permit the transportation of Hazardous Materials to or from any such property, except for Hazardous Materials used or stored at any such property in compliance with all applicable Environmental Laws and Environmental Permits and reasonably required in connection with the operation, use and maintenance of any such property in the ordinary course of the Company's or any such Subsidiary's business. D. MAINTENANCE OF INSURANCE. The Company will and will cause each of its Subsidiaries to maintain insurance with respect to their respective properties, assets and businesses with insurers that have, or that have directly reinsured such insurance with insurers that have, an A.M. Best Company claims paying ability rating of "A-" (or the then equivalent rating) and against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of companies of established reputations engaged in the same or a similar business and similarly situated, as may otherwise be required by applicable Requirements of Law or by the Collateral Documents or as may otherwise be reasonably required by the Required Holders, including, without limitation, workers' compensation insurance, liability insurance, casualty insurance and business interruption insurance. E. MAINTENANCE OF PROPERTIES. The Company will and will use its best efforts to cause each of its Subsidiaries to maintain and keep their respective properties and assets in good repair, working order and condition (other than as a result of ordinary wear and tear or casualty and condemnation). F. PAYMENT OF TAXES AND CLAIMS; PERFORMANCE OF MATERIAL OBLIGATIONS. 1. The Company will and will cause each of its Subsidiaries to pay and discharge all taxes, assessments, levies, fees and other governmental charges imposed upon them or any of their properties, assets, income or franchises, to the extent such taxes, assessments, levies, fees and other governmental charges have become due and payable and before they have become delinquent, and all claims for which sums have become due and payable that have resulted or could result in a Lien upon any of the property or assets of the Company or any of its Subsidiaries; provided, however, that neither the Company nor any of its Subsidiaries shall be required to pay or to discharge any such tax, assessment, levy, fee, other charge or claim the amount, applicability or validity of which is being contested in good faith and by appropriate proceedings diligently conducted and with respect to which the Company or such Subsidiary, as the case may be, has established reserves in accordance with generally accepted accounting principles in effect from time to time, unless and until any Lien resulting therefrom attaches to its property and assets and becomes enforceable by its other creditors, and only for so long as the failure to pay or to discharge any such tax, assessment, levy, fee, other charge or claim, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 2. The Company will and will cause each of its Subsidiaries to perform all of its obligations under the terms of each loan or purchase agreement, indenture, mortgage, deed of trust, lease, instrument, contract and other agreement binding on or affecting it, except where the failure to so perform, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. G. PRESERVATION OF CORPORATE EXISTENCE, ETC. 1. The Company will preserve and keep in full force and effect its corporate existence, good standing and rights in the state of Delaware. The Company will preserve and keep in full force and effect the corporate existence and good standing of each of its Subsidiaries and all permits, licenses, approvals, rights, privileges and franchises of the Company and its Subsidiaries; provided, however, that the Company or any of its Subsidiaries may consummate any merger, consolidation, liquidation, dissolution or winding up otherwise permitted under Section VIII(F); and provided further, however, that nothing in Section VII(C) or in this sentence of Section VII(G)(1) shall prevent the Company or any of its Subsidiaries from terminating or failing to preserve and keep in full force and effect any such permit, license, approval, right, privilege or franchise if such applicable company has determined in its good faith judgment that such termination or failure to preserve, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 2. The Company will and will cause each of its Subsidiaries to duly qualify and to remain duly qualified as a foreign corporation or other entity, and to be and remain in good standing, in each jurisdiction in which the ownership, lease or operation of its property and assets or the conduct of its businesses requires such qualification, except in any such jurisdiction in which the failure to be so qualified or in good standing, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. H. MAINTENANCE OF BOOKS AND RECORDS; INSPECTION; CONFIDENTIALITY. 1. The Company will and will cause each of its Subsidiaries to keep proper records and books of account in which complete, correct and reasonably detailed entries shall be made of all financial transactions and of all of the property, assets and businesses of the Company and each such Subsidiary (including, without limitation, the establishment and maintenance of adequate and appropriate reserves) in conformity with generally accepted accounting principles in effect from time to time and all Requirements of Law. The Company will mark all of its books and records relating to the Collateral (including, without limitation, its share register) in such a manner as to properly evidence the Collateral Documents and the Liens and security interests created thereunder. 2. The Company shall and shall cause each of its Subsidiaries to permit the Investors and any of the agents or representatives thereof, upon reasonable notice, during normal business hours and at the expense of the Company, at any time and from time to time to visit and inspect any of the offices or properties of, and to examine and make copies of and abstracts from the records and books of account of, the Company and/or any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Company and/or any such Subsidiary, as the case may be, with, and be advised as to the same by, their officers, directors and independent accountants (and, by this Subsection (2), the Company authorizes each such officer, director and independent accountant to discuss the affairs, finances and accounts of the Company and its Subsidiaries with such Person). 3. Except to the extent required by law, the Investors will keep secret and confidential all non-public information concerning the Company and its Subsidiaries and will not, based upon such non-public information, purchase or otherwise acquire (or enter into any agreement or make any proposal to purchase or otherwise acquire) any securities of the Company, any warrant or option to purchase such securities, any security convertible into any such securities or any other right to acquire such securities, or sell or otherwise deal in any such securities (or facilitate or encourage the trading of any such securities by any other person), for so long as such purchase, sale or other dealing would be prohibited under the applicable securities laws. I. USE OF PROCEEDS. The Company will use the proceeds of the sale and purchase of the Notes solely for the purposes set forth in Section IV(P)(1). J. SEARCH REPORTS. The Company will, as promptly as practicable after the Investment Date but not later than 30 days after the Investment Date, deliver to the Investors completed requests for information listing the financing statements referred to in Section III(A)(3)(a) and all other effective financing statements filed in the jurisdictions referred to in Section III(A)(3)(a) that name the Company or any of its Subsidiaries as debtor, together with copies of such other financing statements. VIII. NEGATIVE COVENANTS. From the date of this Agreement and, thereafter, so long as any of the Notes shall be outstanding, the Company will perform and comply, and will cause each of its Subsidiaries to perform and comply, at all times with each of the following covenants: A. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. The Company will not and will not permit any of its Subsidiaries to directly or indirectly enter into, renew, extend or engage in any transaction or series of related transactions (including, without limitation, the purchase, sale, lease, transfer or exchange of property or assets of any kind or the rendering of services of any kind) with any of its Affiliates, except upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would be obtainable in a comparable arm's-length transaction with a Person not an Affiliate thereof; provided that the foregoing restrictions of this Section VIII(A) shall not apply to: 1. any transaction or series of related transactions solely between the Company and one or more of its Subsidiaries or between or among Subsidiaries of the Company, to the extent such transactions or series of related transactions are otherwise permitted under the terms of the Note Documents; 2. transactions otherwise permitted under Section VIII(E); and 3. the payment of reasonable and custom- ary director fees to directors of the Company that are not employees thereof. B. LIMITATIONS ON LIENS. 1. The Company will not and will not permit any of its Subsidiaries to create, incur, assume or suffer to exist any Lien on or with respect to any of its property or assets of any character, whether now owned or hereafter acquired, to file or suffer to exist under the Uniform Commercial Code or any similar law or statute of any jurisdiction, a financing statement (or the equivalent thereof) that names the Company or any of its Subsidiaries as debtor, to sign or suffer to exist any security agreement authorizing any secured party thereunder to file such financing statement (or the equivalent thereof), to sell any of its property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable with recourse to the Company or any of its Subsidiaries), or to assign any accounts or other right to receive income; excluding, however, from the operation of the foregoing restrictions of this Section VIII(B) the following: a. Permitted Liens; b. Liens in favor of Imprimis cre- ated under the Collateral Documents; c. Liens existing on the date of this Agreement and described in Schedule VIII(B) attached hereto; d. purchase money Liens upon or in property or assets acquired or held by the Company or any of its Subsidiaries in the ordinary course of business to secure the purchase price of any such property or asset or to secure Indebtedness incurred solely for the purpose of financing the acquisition, construction or improvement of such property or asset to be subject to such Liens, or Liens existing on any such property or asset at the time of or within 90 days after the date of its acquisition (other than any such Liens created in contemplation of such acquisition that do not secure the purchase price of such property or asset); provided, however, that no such Lien shall extend to or cover any property or assets other than the property or asset being so acquired, constructed or improved; and provided, however, that the aggregate principal amount of Indebtedness secured by Liens permitted under this clause (d) shall not exceed the lesser of (i) the cost to the applicable Company or the applicable Subsidiary of the property or asset to be subject to any such Lien and (ii) the amount otherwise permitted to be incurred therefor under the terms of this Agreement; e. Liens arising in connection with Capitalized Leases otherwise permitted under Section VIII(C)(4); provided that no such Lien shall extend to or cover any property or assets other than the property and assets subject to such Capitalized Leases; f. Liens upon any property and assets (other than any shares of capital stock of, or other ownership or profit interests in, any Person) existing at the time such property or asset is purchased or otherwise acquired by the Company or any of its Subsidiaries; provided that, in each case, any such Lien was not created in contemplation of such purchase or other acquisition and does not extend to or cover any property or assets other than the property or asset being so purchased or otherwise acquired; and provided further that any Indebtedness or other obligations secured by such Liens shall otherwise be permitted under the terms of the Note Documents; g. deposits to secure the performance of leases of property (whether real, personal or mixed) of the Company and its Subsidiaries (excluding Capitalized Leases) in the ordinary course of business; and h. the replacement, extension or renewal of any Lien permitted under clause (d) or (e) of this Section VIII(B)(1) solely upon or in the same property and assets theretofore subject thereto; provided that any Indebtedness secured by such Liens shall otherwise be permitted under the terms of the Note Documents. 2. The Company will not and will not permit any of its Subsidiaries to enter into, assume or suffer to exist any agreement prohibiting, conditioning or otherwise restricting the creation or assumption of any Lien upon any of its property or assets, whether now owned or hereafter acquired, or requiring the grant of any assignment or security for any Obligation if an assignment or security is given for any other Obligation, other than: a. any such agreement with the Investors; b. any such agreement evidencing or setting forth the terms of any Indebtedness described in Schedule IV(V) attached hereto, to the extent such agreement is in effect on the date hereof; c. any such agreement prohibiting other encumbrances on specific property and assets of the Company or of its Subsidiaries, which agreement secures the payment of Indebtedness incurred solely to acquire, construct or improve such property or assets or to finance the purchase price therefor and which Indebtedness is otherwise permitted to be incurred under the terms of this Agreement; d. any agreement setting forth customary restrictions on the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract of similar property or assets; and e. any restriction or encumbrance imposed pursuant to an agreement that has been entered into by the Company or any of its Subsidiaries for any Asset Sale so long as such Asset Sale is otherwise permitted under the terms of the Note Documents. C. LIMITATIONS ON INDEBTEDNESS. The Company will not and will not permit any of its Subsidiaries to directly or indirectly create, incur, assume, guarantee or suffer to exist, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness other than: 1. Indebtedness arising under the Note Documents; 2. Indebtedness existing on the date of this Agreement and described in Schedule IV(V) attached hereto; 3. Indebtedness secured by Liens expressly permitted under Section VIII(B) in an aggregate principal amount that, when aggregate with the principal amount of all Indebtedness incurred under this clause (3) and clause (4) of this Section VIII(C), does not exceed $25,000 at any time outstanding; 4. Indebtedness evidence by Capitalized Lease Obligations entered into in order to finance Capital Expenditures made by the Company or any of its Subsidiaries in accordance with the provisions of Section VIII(M), which Indebtedness, when aggregated with the principal amount of all Indebtedness incurred under this clause (4) and clause (3) of this Section VIII(C) does not exceed $25,000 at any time outstanding; 5. to the extent that is customary and consistent with past practice, advances by the Company to its Subsidiaries, or guaranties by the Company in respect of Indebtedness of the Subsidiaries, which, in the aggregate, do not exceed $200,000 at any time outstanding; and 6. endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business. D. LIMITATIONS ON SALE-LEASEBACK TRANSACTIONS. The Company will not and will not permit any of its Subsidiaries to directly or indirectly become or remain liable as lessee or as a guarantor or surety with respect to any lease (including, without limitation, any Capitalized Lease) of any property (whether real, personal or mixed), whether now owned or hereafter acquired, that the Company or such Subsidiary, as the case may be, (a) has sold or transferred or is to sell or transfer in a transaction with such assumption of liability to any other Person other than the Company or (b) intends to use for substantially the same purpose as any other property that has been sold or transferred or is to be sold or transferred by such Person to any other Person in connection with such lease. E. LIMITATIONS ON RESTRICTED PAYMENTS. The Company will not and will not permit any of its Subsidiaries to directly or indirectly declare, order, make or set apart any sum for or to pay any Restricted Payment, except for: 1. Restricted Payments to the Company; 2. the payment of dividends or the making of other distributions by any Subsidiary of the Company to the Company; and 3. the payment of management fees or other fees and expenses pursuant to the management, consulting and other services agreements set forth on Schedule VIII(E). F. LIMITATIONS ON FUNDAMENTAL CHANGES, ASSET SALES, ACQUISITIONS, ETC. The Company will not and will not permit any of its Subsidiaries to alter the corporate, capital or legal structure of the Company or any such Subsidiary, to wind up, liquidate or dissolve itself (or suffer any liquidation or dissolution), to enter into any transaction of merger or consolidation, or to convey, sell, lease or sublease (as lessor or sublessor), transfer or otherwise dispose of, whether in one transaction or a series of related transactions, all or any part of its business, property or assets, whether now owned or hereafter acquired (or agree to do any of the foregoing at any future time), or to purchase or otherwise acquire, whether in one transaction or a series of related transactions, any part of the property, assets or business of any Person (or agree to do any of the foregoing at any future time), except that: 1. the Company may merge or consolidate with or into any of its Subsidiaries so long as the Company is the surviving corporation; 2. any wholly owned Subsidiary of the Company may merge or consolidate with or into any other Subsidiary of the Company so long as such wholly owned Subsidiary is the surviving corporation; 3. the Company and its Subsidiaries may make Restricted Payments otherwise permitted to be made under Section VIII(E), may make Investments otherwise permitted to be made under Section VIII(G), may sell shares of its capital stock otherwise permitted to be sold under Section VIII(H) and may make Capital Expenditures otherwise permitted to be made under Section VIII(M); 4. the Company and its Subsidiaries may sell, lease, sublease, transfer or otherwise dispose of any obsolete, worn out or surplus property and assets thereof or any other property and assets thereof that are no longer useful in the conduct of the Company's or the applicable Subsidiary's business so long as the aggregate book value of all of the property and assets of the Company and its Subsidiaries that are sold, leased, subleased, transferred or otherwise disposed of pursuant to this subsection (4) does not exceed $50,000 at any time; 5. the Company and its Subsidiaries may sell, lease, sublease, transfer or otherwise dispose of any of its property and assets, to the extent not otherwise permitted under this Section VIII(F), at the fair market value thereof (as determined in good faith by such Company) and for cash; provided that the gross proceeds thereof do not exceed $500,000 in the aggregate in any Fiscal Year; and provided further that the Net Cash Proceeds from each such sale, lease, sublease, transfer or other disposition are applied to the redemption of the outstanding Notes pursuant to this Agreement and in accordance with the terms of Section VI(C); 6. the Company and its Subsidiaries may purchase or otherwise acquire inventory, materials, equipment and intangible assets in the ordinary course of business; and 7. the Company may acquire all (but not less than all) of the capital stock of (or other ownership or profit interests in) any Person and may purchase or otherwise acquire any other property and assets from any Person so long as the aggregate cash and noncash purchase price of all such purchases and acquisitions (including, without limitation, all indemnities to the sellers thereof, all write-downs of property and assets and reserves for liabilities with respect thereto and all assumptions of debt, liabilities and other obligations in connection therewith), combined with Investments permitted under Section VIII(G)(6) do not exceed $100,000 at any time; provided that in the case of any purchase or acquisition made pursuant to this subsection (7): a. any Subsidiary of the Company or any of its Subsidiaries acquired or created as a result thereof or in connection therewith shall be a wholly owned Subsidiary thereof; b. any Subsidiary of the Company or any of its Subsidiaries acquired or created as a result thereof or in connection therewith shall not have any material contingent liabilities other than liabilities acceptable to the Investors in their sole discretion; c. any business acquired or invested in shall be substantially the same line of business as that of the Company and its Subsidiaries conducted at the time of such purchase or acquisition in the ordinary course, or a line of business directly related thereto, thereof or in connection therewith; d. immediately before and after giving pro forma effect to such purchase or acquisition, no Default or Event of Default shall have occurred and be continuing; and e. any Indebtedness of the Company or its Subsidiaries incurred in connection therewith shall be permitted pursuant to Sec- tion VIII(C)(6); and 8. the Company may consummate the Acqui- sition. G. LIMITATIONS ON INVESTMENTS, ETC. The Company will not and will not permit any of its Subsidiaries to directly or indirectly make or commit or agree to make any advance, loan, guarantee of Obligations, other extension of credit or capital contributions to, or hold or invest in or commit or agree to hold or invest in, or purchase or otherwise acquire or commit or agree to purchase or otherwise acquire any shares of capital stock (or other ownership or profit interests), bonds, notes, debentures or other securities of, or make or commit or agree to make any other investment in, any other Person, or purchase or own any futures contract or otherwise become liable for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract (collectively, "Investments"), except that the following shall be permitted: 1. the Company and its Subsidiaries may acquire and hold accounts receivable owing to any of them; 2. the Company and its Subsidiaries may acquire and hold cash and Cash Equivalents; 3. the Company and its Subsidiaries may maintain and continue to own the Investments thereof existing on the date of this Agreement and described on Schedule VIII(G) attached hereto; 4. the Company and its Subsidiaries may make Restricted Payments otherwise permitted to be made under Section VIII(E); 5. the Company and its Subsidiaries may acquire all (but not less than all) of the capital stock of (or other ownership or profit interests in) any Person and, thereafter, may make capital contributions therein; provided that, in each case, such acquisition or capital contribution is otherwise permitted under the terms of the Note Documents; 6. Investments not otherwise permitted under this Section VIII(G) in an aggregate amount, combined with amounts paid in connection with acquisitions under Section VIII(F)(7), not to exceed $100,000 at any time; and 7. Indebtedness of the Company or its Subsidiaries permitted under Section VIII(C)(6). H. LIMITATION ON ISSUANCE OF CAPITAL STOCK. The Company will not issue or sell or enter into any agreement or arrangement for the issuance and sale of any shares of its capital stock (or other ownership or profit interests therein), any securities convertible into or exchangeable for shares of its capital stock (or other ownership or profit interests therein) or any warrants, options or other rights for the purchase or acquisition of any shares of its capital stock (or other ownership or profit interests therein), except for: 1. transfers and replacements of out- standing shares of capital stock of the Company; 2. issuances of shares of the Preferred Stock and issuances of Common Stock pursuant to the Warrants and those stock option and incentive plans as in effect on the Investment Date set forth on Part II of Schedule IV(A) attached hereto; and 3. the issuance and sale of shares of capital stock of the Company (i) so long as the Net Cash Proceeds thereof will be applied to repay or redeem the aggregate outstanding principal amount of the Notes, all accrued and unpaid interest thereon, if any, and all fees, expenses and other amounts owing under or in respect of the Note Documents at such time pursuant to Section VI(C), (ii) or as otherwise permitted pursuant to Section VI(C). I. LIMITATION ON MODIFICATIONS OF INDEBTEDNESS; MODIFI- CATIONS OF CERTIFICATE OF INCORPORATION, BYLAWS AND CERTAIN OTHER AGREEMENTS; ETC. The Company will not and will not permit any of its Subsidiaries (a) without the prior written consent of the Investors, to amend, modify or otherwise change (or permit the amendment, modification or other change in any manner of) any of the provisions of any Indebtedness of the Company or any of its Subsidiaries or of any instru- ment or agreement (including, without limitation, any purchase agreement, indenture, loan agreement or security agreement) relating to any such Indebtedness if such amendment, modification or change would shorten the final maturity or average life to maturity of, or require any payment to be made earlier than the date originally scheduled on, such Indebtedness, would increase the interest rate applicable to such Indebtedness, or would change the subordination provision, if any, of such Indebtedness, or would otherwise be adverse to the issuer of such Indebtedness in any respect, (b) except for the Notes and the other Obligations of the Company and its Subsidiaries under or in respect of the Note Documents, to make any voluntary or optional payment, prepayment, redemption or other acquisition for value of any Indebtedness of the Company or any of its Subsidiaries (including, without limitation, by way of depositing money or securities with the trustee therefor before the date required for the purpose of paying any portion of such Indebtedness when due), or to refund, refinance, replace or exchange any other Indebtedness for any such Indebtedness, or to make any prepayment, redemption or repurchase of any outstanding Indebtedness as a result of any asset sale, change of control, issuance and sale of debt or equity securities or similar event, or give any notice with respect to any of the foregoing, or (c) to amend, modify or otherwise change its certificate of incorporation or bylaws (or other similar organizational documents), including, without limitation, by the filing or modification of any certificate of designation, or any agreement or arrangement entered into by it, with respect to any shares of its capital stock (or other ownership or profit interest therein) (including any shareholders' agreement), or enter into any new agreement with respect to any of its shares of capital stock (or other ownership or profit interest therein). J. LIMITATIONS ON CONDUCT OF BUSINESS. The Company will not and will not permit any of its Subsidiaries to engage in any business or activities other than its current activities and businesses as described in the Company's registration statement on form SB-2 dated February 19, 1997, as expanded by the Acquisition. K. LIMITATIONS ON ACCOUNTING CHANGES AND CHANGES IN FISCAL YEAR. The Company will not and will not permit any of its Subsidiaries to make or permit any change in (1) its accounting policies and reporting practices, except as required by generally accepted accounting principles in effect from time to time, or (2) its Fiscal Year. L. LIMITATIONS ON SPECULATIVE TRANSACTIONS. The Company will not and will not permit any of its Subsidiaries to engage in any transaction involving commodity options or futures contracts or any similar speculative transactions (including, without limitation, take-or-pay contracts). M. LIMITATIONS ON CAPITAL EXPENDITURES. Except for the Acquisition, the Company will not and will not permit any of its Subsidiaries to make any Capital Expenditures (including, without limitation, installment purchases or Capitalized Leases) that would cause the aggregate amount of all such Capital Expenditures made by the Company and its Subsidiaries in any month, commencing with January 1998, to exceed $50,000. IX. EVENTS OF DEFAULT. A. EVENTS OF DEFAULT. An "Event of Default" shall exist if any of the following conditions or events shall occur and be continuing (each, an "Event of Default"): 1. the Company defaults in the payment of any principal of, premium, if any, on or interest on any Note when the same becomes due and payable, whether by scheduled maturity or at a date fixed for prepayment, redemption or repurchase or by declaration, demand or otherwise; or 2. the Company shall fail to receive the shareholder approvals or to provide to the Investors satisfactory evidence thereof as contemplated by Section VII(A)(1), in either case on or prior to January 31, 1998; or 3. the Company defaults in the performance of or compliance with any term, covenant or agreement contained in any of the Note Documents on its part to be performed or complied with and, other than as provided in Sections IX(A)(1) and IX(A)(2), such failure shall continue for ten Business Days; provided, that, such ten Business Day period shall not apply in the case of any failure to observe any such covenant which is not capable of being cured at all or within such ten Business Day period or which has been the subject of a prior failure; or 4. any representation or warranty made or deemed made on the Investment Date by or on behalf of any Obligor or by any officer of any Obligor under or pursuant to the terms of this Agreement or any of the other Note Documents or in any writing furnished to any of the Investors pursuant to the terms of this Agreement or any of the other Note Documents proves to have been false or incorrect in any material respect on the date as of which it was made or deemed to have been made; or 5. (a) the Company or any of its Subsidiaries shall fail to pay (i) any principal of, or premium or interest on, Indebtedness that is outstanding in a principal or notional amount of at least $100,000 (or the equivalent thereof in one or more other currencies), either individually or in the aggregate (but excluding Indebtedness outstanding hereunder), of the Company and its Subsidiaries, taken as a whole, when the same becomes due and payable (whether by scheduled maturity, required pre-payment, redemption or repurchase, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in any agreement or instrument relating to such Indebtedness, or (ii) any other amount of Indebtedness greater than $100,000 (or the equivalent thereof in one or more other currencies), either individually or in the aggregate (but excluding Indebtedness outstanding hereunder), of the Company and its Subsidiaries when the same becomes due and payable (whether by scheduled maturity, required prepayment, redemption or repurchase, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in any agreement or instrument relating to such Indebtedness; or (b) any other event shall occur or condition shall exist under any agreement or instrument evidencing, securing or otherwise relating to any Indebtedness referred to in clause (a) of this Section IX(A)(5) and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness or otherwise to cause, or to permit the holder or holders thereof (or a trustee or agent on behalf of such holders) to cause such Indebtedness to mature; or (c) any Indebtedness referred to in clause (a) of this Section IX(A)(5) shall be declared to be due and payable or required to be prepaid, redeemed or repurchased (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, repurchase, purchase or defease any such Indebtedness shall be required to be made, in each case prior to the stated maturity thereof or any date fixed for pre-payment, redemption or repurchase thereunder; or 6. the Company or any of its Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Company or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its property and assets and, in the case of any such proceeding instituted against it (but not instituted by it) that is being diligently contested by it in good faith, either such proceeding shall remain undismissed or unstayed for a period of 30 consecutive days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or any substantial part of its property and assets) shall occur; or the Company or any of its Subsidiaries shall take any action to authorize any of the actions set forth above in this subsection (6); or 7. one or more judgments or orders for the payment of money aggregating $100,000 (or the equivalent thereof in one or more other currencies) or more are rendered against the Company or any of its Subsidiaries and remain unsatisfied and either (a) enforcement proceedings shall have been commenced by any creditor upon any such judgment or order or (b) there shall be a period of at least 10 consecutive days after entry thereof during which a stay of enforcement of any such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; provided, however, that any such judgment or order shall not give rise to an Event of Default under this subsection (6) if and for so long as (i) the amount of such judgment or order is covered by a valid and binding policy of insurance between the defendant and the insurer covering full payment thereof and (ii) such insurer has been notified, and has not disputed the claim made for payment, of the amount of such judgment or order; or 8. one or more writs or warrants of attachment, garnishment, execution, distraint or similar process with respect to Obligations of the Company or any of its Subsidiaries aggregating $100,000 (or the equivalent thereof in one or more other currencies) or more have been issued against the Company or such Subsidiary or any of its property or assets and remain unsatisfied and there shall be a period of at least 10 consecutive days after the issuance thereof during which a stay of enforcement of any such writ or warrant, by reason of a pending appeal or otherwise, shall not be in effect; or 9. any nonmonetary judgment or order shall be rendered against the Company or any of its Subsidiaries that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect and there shall be any period of 10 consecutive days after entry thereof during which a stay of enforcement of any such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or 10. any provision of any of the Note Documents after delivery thereof shall for any reason (other than pursuant to the express terms thereof) cease to be valid and binding on or enforceable against any of the Obligors intended to be a party to it or shall cease to give the Investors any of the rights, powers or privileges purported to be created thereunder, or any such Obligor shall so state any of the foregoing in writing; or ` 11. any Collateral Document after delivery thereof shall for any reason (other than pursuant to the express terms thereof) cease to create a valid and perfected Lien on and security interest in the Collateral purported to be covered thereby (with the intended priority thereof pursuant to the terms of the Note Documents). B. ACCELERATION. 1. If an Event of Default described in Section IX(A)(5) shall occur with respect to the Company, all of the Notes then outstanding shall become automatically and immediately due and payable. 2. If any other Event of Default shall occur and be continuing (after giving effect to any applicable grace period), the Required Holders may at any time, at their option, by notice or notices to the Company, declare all of the Notes then outstanding to be immediately due and payable. 3. Upon any Note becoming due and payable under this Section IX(B), whether automatically or by declaration, such Note will forthwith mature and the entire unpaid principal amount of such Note, plus all accrued and unpaid interest thereon and all other amounts due and payable to the holder thereof under the Note Documents, shall be immediately due and payable, in each and every case without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Company. C. OTHER REMEDIES. If one or more Defaults or Events of Default shall occur and be continuing (after giving effect to any applicable grace period), and irrespective of whether any of the Notes have become or have been declared immediately due and payable under Section IX(B), the Required Holders may proceed to protect and enforce the rights of the holders of the Notes by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any of the other Note Documents, or for an injunction against a violation of any of the terms hereof or there- of, or in aid of the exercise of any power granted hereby or thereby or by applicable law or otherwise. D. RESCISSION. At any time after any Notes have been declared due and payable pursuant to Section IX(B)(1) or IX(B)(2), as the case may be, the Required Holders, by notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company have paid all overdue interest on the Notes, all principal of and premium, if any, on the Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and (to the fullest extent permitted by applicable law) any overdue interest in respect of the Notes, at the Default Rate, (b) all Defaults and Events of Default, other than non-payment of amounts that have become due solely by reason of such declaration, have been remedied or have been waived pursuant to Section XIV and (c) no judgment or decree has been entered for the payment of any monies due pursuant to the Notes or any of the other Note Documents. No rescission and annulment under this Section IX(D) will extend to or affect any subsequent Default or Event of Default or impair any right, power or remedy consequent thereon. E. RESTORATION OF RIGHTS AND REMEDIES. If any holder of the Notes has instituted any proceeding to enforce any right or remedy under this Agreement or any of the other Note Documents and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to such holder, then, and in each such case, the Obligors and the holders of Notes shall, subject to any determination in such proceeding, be restored severally to its former positions hereunder and under the other Note Documents and, thereafter, all rights and remedies of the holders of the Notes shall continue as though no such proceeding had been instituted. F. NO WAIVERS OR ELECTION OF REMEDIES, ETC. No course of dealing and no delay on the part of any holder of the Notes in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or any of the other Note Documents upon any holder of the Notes shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. X. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES. A. REGISTRATION OF NOTES. The Company shall maintain, or cause to be maintained, a register (the "Register") on which it enters the name of each Investor as the registered owner of each Note held by such Investor. A Registered Note may be assigned or sold in whole or in part only by registration of such assignment or sale on the Register (and each Registered Note shall expressly so provide). Any assignment or sale of all or part of such Registered Note may be effected only by registration of such assignment or sale on the Register, together with the surrender of the Registered Note evidencing the same duly endorsed by (or accompanied by a written instrument of assignment or sale duly executed by) the holder of such Registered Note, whereupon, at the request of the designated assignee(s) or transferee(s), one or more new Registered Notes in the same aggregate principal amount shall be issued to the designated assignee(s) or transferee(s). Prior to the registration of assignment or sale of any Registered Note, the Company shall treat the Person in whose name such Registered Note is registered as the owner thereof for the purpose of receiving all payments thereon and for all other purposes, notwithstanding notice to the contrary. Any foreign Person who purchases or is assigned or participates in any portion of the Notes shall provide the Company with a completed Internal Revenue Service Form W-8 (Certificate of Foreign Status) or a substantially similar form for such purchaser or any other affiliate who is a holder of beneficial interests in the Notes. B. TRANSFER AND EXCHANGE OF NOTES. 1. Upon surrender of any Note at the principal executive office of the Company for registration of transfer or exchange (and, in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or its attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), the Company shall execute and deliver, at the Company's expense (except as provided below), one or more new Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and, subject to subsection (1) of this Section X(B), shall be in substantially the form of Exhibit A attached hereto. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or other governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $50,000, provided that, if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $50,000. 2. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed (a) to have made the representations set forth in Sections V(A), V(B) and V(C) and (b) to confirm to and agree with the trans-feror and the other parties hereto as follows: (1) other than as provided in any written instrument of transfer executed by the transferor and such transferee, such transferor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any of the other Note Documents, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any Lien or security interest created or purported to be created under or in connection with this Agreement or any of the other Note Documents or any other instrument or document furnished pursuant hereto or thereto; and (2) such transferor makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company or any other Obligor or the performance or observance by any Obligor of any of its obligations under this Agreement or any of the other Note Documents or any other instrument or document furnished pursuant thereto; (3) such transferee confirms that it has received a copy of this Agreement, together with copies of the SEC Reports and financial statements referred to in Section VII(A) and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to purchase the Note or Notes being purchased thereby; (4) such transferee will, independently and without reliance upon the transferor or any other holder of the Notes and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; and (5) such transferee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a holder of the Notes. C. REPLACEMENT OF NOTES. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership and the loss, theft, destruction or mutilation of any Note, and 1. in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it; provided that, if the holder of such Note is an original purchaser of any of the Notes, such Person's own unsecured agreement of indemnity shall be deemed to be satisfactory, or 2. in the case of mutilation, upon surrender and cancellation thereof, the Company, at their own expense, shall execute and deliver, in lieu thereof, a new Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon. XI. PAYMENTS ON NOTES. The Company will pay all sums becoming due on each Note for principal, premium, if any, and interest by the method and at the address specified for such purpose below the name of each respective Investor on Schedule IA or by such other method or at such other address located in the United States of America as each such Investor or any subsequent registered owner of a Note shall have from time to time specified to the Company for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon the request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, the holder of such Note shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at their principal executive office or at the place of payment most recently designated by the Company in writing to the holder of such Note. Prior to any permitted sale, transfer or other disposition of any Note held by a Investor or its nominee, such Investor will, at its election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section X(B). XII. EXPENSES, INCREASED COSTS AND INDEMNIFICATION, ETC. A. TRANSACTION EXPENSES. Whether or not any of the transactions contemplated hereby are consummated, the Company will pay, within 5 days of each demand therefor (such demand to be accompanied by supporting documentation in reasonable detail), (1) all of the reasonable costs and expenses incurred by the Investors (including, without limitation, reasonable attorneys' fees of a special counsel for the Investors) in connection with the preparation, execution, delivery and administration of this Agreement, the Notes and the other Note Documents, (2) all of the reasonable costs and expenses incurred by the Investors (including, without limitation, reasonable attorneys' fees of a special counsel for the Investors) in connection with all of the amendments, waivers or consents under or in respect of this Agreement, the Notes or any of the other Note Documents (whether or not such amendment, waiver or consent becomes effective), and (3) all of the reasonable costs and expenses incurred by the Investors and each other holder of a Note (including, without, limitation, reasonable attorneys' fees of a special counsel for the Investors) in connection with the enforcement of this Agreement, the Notes and the other Note Documents, and the custody and preservation of, or the sale or collection from, or other realization upon, any of the Collateral, including, without limitation: (1) the reasonable costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement, the Notes or any of the other Note Documents or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement, the Notes or any of the other Note Documents, or by reason of being a holder of the Notes, and (2) the reasonable costs and expenses (including, without limitation, financial advisors' fees) incurred in connection with the insolvency or bankruptcy of any Obligor or any of its Subsidiaries or in connection with any work-out, renegotiation or restructuring of any of the transactions contemplated hereby, by the Notes or by the other Note Documents. The Company will pay, and will hold the Investors and each holder of the Notes harmless from, any claim, demand or liability in respect of any fees, costs or expenses, if any, alleged to have been incurred by brokers, placement agents and finders in connection with the transactions contemplated by this Agreement or the Note Documents. The Company and the Investors represent and warrant to each other that each has not retained any broker, placement agent or finder with regard to this Agreement, the Notes and the Note Documents other than Credit Research & Trading LLC retained by the Company, whose fees, costs and expenses shall be paid from the proceeds of the sale and purchase of the Notes. The amounts payable by the Company pursuant to this Section XII(A) shall not exceed $75,000. B. INDEMNITY. 1. In addition to the payment of costs and expenses pursuant to Section XII(A), whether or not the transactions contemplated by this Agreement and the Note Documents shall be consummated, the Company agrees to indemnify, pay and hold each Investor, each holder of the Notes and each other Person in whose name or for whose benefit such Person holds or at any time held Notes, and their affiliates and its officers, directors, employees, attorneys, agents and other advisors (each, an "Indemnified Party"), harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits and claims, and all reasonable costs, expenses and disbursements, of any kind or nature whatsoever (including, without limitation, reasonable fees and disbursements of counsel for such Indemnified Parties) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of, or in connection with the preparation for a defense of, any investigation, litigation or proceeding arising out of, related to, or in connection with (i) this Agreement, the Notes, the other Note Documents or any of the transactions contemplated hereby or thereby and in connection with any amendments or waivers (whether or not the same become effective), (ii) any use or intended use of the proceeds of any of the Notes, (iii) any sale or collection from or other realization upon, or any other remedies expressed in re- spect of, any or all of the Collateral, (iv) all taxes (other than taxes determined with respect to income), including any recording fees and filing fees and documentary stamp and similar taxes at any time payable in respect of this Agreement, any other Note Document or the issuance of any of the Notes, or (v) the actual or alleged presence of Hazardous Materials on any property of any of the Company or any of its Subsidiaries or any Environmental Action relating in any way to any of the Company or any of its Subsidiaries, in each case whether or not such investigation, litigation or proceeding is brought by the Company, any of its Subsidiaries, its directors, shareholders or creditors or an Indemnified Party or any Indemnified Party is otherwise a party thereto and whether or not any sale and purchase of the Notes pursuant to this Agreement is effected (collectively, the "Indemnified Liabilities"); provided that the Company shall not have any obligation to any Indemnified Party hereunder with respect to any Indemnified Liabilities arising from the gross negligence, willful misconduct or bad faith of such Indemnified Party as determined in a final, nonappealable judgment by a court of competent jurisdiction. 2. The Company hereby further agrees to indemnify, exonerate and hold each Indemnified Party free and harmless from and against any and all actions, causes of action, suits, losses, liabilities, damages and expenses, including, without limitation, reasonable attorneys' fees and disbursements, incurred in any capacity by any of the Indemnified Parties as a result of or relating to (i) any trans- action financed or to be financed in whole or in part directly or indirectly with proceeds from the sale of any of the Notes, or (ii) the execution, delivery, performance or enforcement of this Agreement (including, without limitation, any failure by either Company to comply with any of its covenants hereunder), the Note Documents, or any instrument contemplated hereby or thereby, except for any such indemnified liabilities arising from any Indemnified Party's gross negligence, willful misconduct or bad faith. 3. The Company will not, without the prior written consent of the applicable Indemnified Party, settle, compromise, consent to the entry of any judgment in or otherwise seek to terminate any action, claim, suit or proceeding in respect of which indemnification of such Indemnified Party may be sought under subsections (1) or (2) of this Section XII(B) (whether or not such Indemnified Party is a party thereto) unless such settlement, compromise, consent or termination includes a full and unconditional release of such Indemnified Party from any and all claims against such Indemnified Party and any and all liabilities thereof arising out of or relating to such action, claim, suit or proceeding. 4. The Company also agrees not to assert any claim against any Investor or any other holder of the Notes or any other Person in whose name or for whose benefit such Person holds or at any time held any Notes, or any of their Affiliates, or any of its officers, directors, employees, attorneys, agents and other advisors, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to (a) this Agreement, the Notes or any of the other Note Documents, or any of the transactions contemplated hereby or thereby, (b) any sale or collection from or other realization upon, or any other remedies exercised in respect of any or all of the Collateral or (c) any use or intended use of the proceeds of any of the Notes. 5. If and to the extent that the undertaking to indemnify, pay and hold harmless the Indemnified Parties set forth in this Section XII(B) is judicially determined to be unavailable to an Indemnified Party in respect of, or is insufficient with respect to, any liabilities, obligations, losses, damages, penalties, actions, judgments, suits or claims referred to herein, then, in lieu of indemnifying such Indemnified Party hereunder, the Company shall contribute to the amount paid or payable by such Indemnified Party as a result of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits or claims (and reasonable costs, expenses and disbursements relating thereto) (a) in such proportion as is appropriate to reflect the relative benefits to the Company and its Subsidiaries, on the one hand, and such Indemnified Party, on the other hand, from this Agreement and the sale and purchase of the Notes or (b) if the allocation provided by clause (a) of this subsection (5) is not available, in such proportion as is appropriate to reflect not only the relative benefits referred to in such clause (a) but also the relative fault of each of the Company and its Subsidiaries, on the one hand, and such Indemnified Party, on the other hand, in connection with such liabilities, obligations, losses, damages, penalties, actions, judgments, suits or claims, as well as any other relevant equitable considerations. C. SURVIVAL. The Obligations of the Company under this Section XII shall survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement, the Notes or any of the other Note Documents, and the termination of this Agreement and any commitment to purchase Notes hereunder and, in respect of any Person who was at any time a Investor or a holder of a Note or in whose name or for whose benefit such Person held any Note, the date on which such Person no longer holds, or no longer holds in the name of or for the benefit of any other Person, any Note. XIII. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein and in the other Note Documents, and in any certificate or other instrument delivered by or on behalf of any Obligor pursuant to this Agreement or any of the other Note Documents, shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by each of Imprimis of any Notes or portion thereof or interest therein and the payment of any Notes, and may be relied upon by any subsequent holder of the Notes as of the date made or deemed made, regardless of any investigation made at any time by or on behalf of any Investor or any other holder of the Notes. This Agreement, the Notes and the other Note Documents embody the entire agreement and understanding between the Investor and the Obligors and supersede all prior agreements and understandings relating to the subject matter hereof. XIV. AMENDMENT AND WAIVER. A. REQUIREMENTS. This Agreement and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with and only with the written consent of the Company and the Required Holders, except that no such amendment or waiver shall, without the written consent of the holder of each Note at the time outstanding (1) change the percentage of the aggregate principal amount of the Notes the holders of which constitute the Required Holders or (2) amend this Section XIV. B. SOLICITATION OF HOLDERS OF NOTES. The Company will provide the Required Holders with sufficient information, reasonably far in advance of the date a decision is required, to enable such holders to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions of this Agreement or any of the other Note Documents. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section XIV to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the Required Holders. C. BINDING EFFECT, ETC. Any amendment or waiver consented to as provided in this Section XIV applies equally to all holders of Notes and is binding upon them, upon each future holder of any Note and upon each Obligor without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right, power or remedy consequent thereon. No course of dealing nor any delay on the part of any holder of any Note in exercising any right, power or remedy hereunder or under any of the other Note Documents shall operate as a waiver of any right, power or remedy of any holder of such Note; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided under this Agreement and the other Note Documents are cumulative and not exclusive of any rights, powers or remedies provided by applicable law. D. NOTES HELD BY COMPANY, ETC. Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or any of the other Note Documents, or have directed the taking of any action provided for herein or in any of the other Note Documents to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by any of the Company or any of their Affiliates shall be deemed not to be outstanding. XV. NOTICES. A. GENERAL. All notices and other communications provided for hereunder shall be in writing and delivered by telecopier or (if expressly permitted under the applicable provisions hereof) by telephone, if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), by registered or certified mail with return receipt requested (postage prepaid) or by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent: 1. if to a Investor or its nominee, to it at the address specified for such communications in Schedule IA attached hereto, or at such other address as it shall have specified to the Company in writing; 2. if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing; or 3. if to the Company, to them at the address set forth on the first page of this Agreement (Telecopier No. (202) 543-5360) to the attention of C. Thomas McMillen, President and Chief Executive Officer, with a copy to David Fleming, Esq., Epstein Becker & Green, P.C.,250 Park Avenue, New York, New York, New York 10177 (Telecopier No. (212) 661-0989) or at such other address as the Company shall have specified to the holder of each Note in writing. All notices and other communications provided for under this Section XV will be deemed given and effective only when actually received. 4. If any notice required under this Agreement or any of the other Note Documents is permitted to be made, and is made, by telephone, actions taken or omitted to be taken in reliance thereon by a Investor or any other holder of any Note shall be binding upon the Company notwithstanding any inconsistency between the notice provided by telephone and any subsequent writing in confirmation thereof provided to a Investor or any other holder of any Note; provided that any such action taken or omitted to be taken by a Investor or any other holder of any Note shall have been in good faith and in accordance with the terms of this Agreement. XVI. REPRODUCTION OF DOCUMENTS. This Agreement, each of the other Note Documents and all other agreements, certificates and other documents relating thereto, including, without limitation, (a) amendments, waivers and consents of or to this Agreement or any other Note Document that may hereafter be executed, (b) documents received on the Investment Date (except the Notes themselves) and (c) financial statements, certificates and other information previously or hereafter furnished to you, may be reproduced by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process. The Company agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section XVI shall not prohibit the Company or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original or from introducing evidence to demonstrate the inaccuracy of any such reproduction. XVII. MISCELLANEOUS. A. SUCCESSORS AND ASSIGNS. All covenants and other agreements contained in this Agreement or any of the other Note Documents by or on behalf of any of the parties hereto bind and inure to the benefit of its successors and assigns (including, without limitation, any subsequent holder of a Note), whether or not so expressed. B. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of, or premium, if any, or interest on, any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the items payable on such next succeeding Business Day. C. SATISFACTION REQUIREMENT. Except as otherwise provided herein or in any of the other Note Documents, if any agreement, certificate or other writing, or any action taken or to be taken, is by the terms of this Agreement or any of the other Note Documents required to be satisfactory to the Required Holders, the determination of such satisfaction shall be made by the Required Holders, in the sole and exclusive judgment (exercised reasonably and in good faith) of the Person or Persons making such determination. D. SEVERABILITY. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by applicable law) not invalidate or render unenforceable such provision in any other jurisdiction. E. CONSTRUCTION; ACCOUNTING TERMS, ETC. 1. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. 2. Except as otherwise expressly provided in this Agreement or any of the other Note Documents, all accounting terms used herein or therein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered hereunder shall be prepared, in accordance with GAAP. F. COMPUTATION OF TIME PERIODS. In this Agreement, in the computation of periods of time from a specific date to a later specified date, the word "from" means "from and including", the word "through" means "through and including", and the words "to" and "until" each mean "to but not excluding". G. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. H. GOVERNING LAW; SUBMISSION TO JURISDICTION, ETC. 1. This Agreement shall be governed by, and construed in accordance with, the law of the State of Delaware. 2. The Company hereby irrevocably and unconditionally submits, for itself and its property and assets, to the nonexclusive jurisdiction of any New York state court or federal court of the United States of America sitting in New York City, New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, the Notes or the other Note Documents, or for recognition or enforcement of any judgment in respect thereof, and the Company hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York state court or, to the fullest extent permitted by applicable law, in such federal court. The Company hereby irrevocably consents to the service of copies of any summons and complaint and any other process which may be served in any such action or proceeding by certified mail, return receipt requested, or by delivering a copy of such process to the Company, at their address specified in Section XV, or by any other method permitted by law. The Company hereby agrees that a final judgment in any such action or proceeding shall be conclusive and forced in other jurisdictions by suit on the judgment or in any other manner provided by applicable law. Nothing in this Agreement shall affect any right that any holder of Notes may otherwise have to bring any action or proceeding relating to this Agreement, the Notes or the other Note Documents in the courts of any jurisdiction. 3. The Company hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Agreement, the Notes or the other Note Documents in any New York state or federal court. The Company hereby irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. I. WAIVER OF JURY TRIAL. THE COMPANY AND THE HOLDERS OF THE NOTES HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES OR ANY OF THE OTHER NOTE DOCUMENTS, ANY DOCUMENT DELIVERED UNDER THE NOTE DOCUMENTS, THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, OR THE ACTIONS OF ANY HOLDER OF THE NOTES IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF. Very truly yours, COMPLETE WELLNESS CENTERS, INC. By /s/ E. Eugene Sharer Name: E. Eugene Sharer Title: President If you are in agreement with the foregoing, please sign in the appropriate space provided below and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. IMPRIMIS INVESTORS LLC By: Wexford Management LLC By /s/ Frank Plimpton Name: Frank Plimpton Title: VP WEXFORD SPECTRUM INVESTORS LLC By: Wexford Management LLC By /s/ Frank Plimpton Name: Frank Plimpton Title: VP SCHEDULE IA INFORMATION RELATING TO THE INVESTORS NAME OF INVESTOR: COMMITMENT NAME(S) FOR REGISTRATION OF NOTES PURCHASED: MAILING ADDRESS: TELEPHONE NO.: TELEPHONE NO.: WIRE INSTRUCTIONS (INCLUDING ABA NO. AND ACCOUNT NO.) FOR PAYMENT OF PRINCIPAL AND INTEREST: To: In favor of: Account #: UNITED STATES TAX IDENTIFICATION NO. (IF ANY): PHYSICAL DELIVERY INSTRUCTIONS: SCHEDULE IB DEFINED TERMS As used in this Agreement, the following terms shall have the respective meanings set forth below (such meanings to be equally applicable to both the singular and plural forms of the term defined): "ACQUISITION" shall mean the pending acquisition by the Company of the assets of Nutri/System, L.P. through the Acquisition Subsidiary. "ACQUISITION SUBSIDIARY" shall mean Complete Weight Management, Inc., a Delaware corporation and a wholly-owned Subsidiary of the Company. "AFFILIATE" means, with respect to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person, or is a director or officer of such Person or, with respect to any individual, has a relationship with such individual by blood, marriage or adoption not more remote than first cousin. For purposes of this definition, the term "control" (including the terms "controlling" "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 5% or more of the Voting Interest of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Interest, by contract or otherwise. "AGREEMENT" means this Note Investment Agreement, as such agreement may be amended, supplemented or otherwise modified from time to time in accordance with the terms of Section XIV. "ASSET SALE" means the conveyance, sale, lease, sublease, transfer or other disposition (other than solely for security purposes) by the Company or any of its Subsidiaries to any Person other than the Company of (a) any of the shares of capital stock of the Company or any of its Subsidiaries, (b) all or substantially all of the property and assets of any division or line of business of the Company or any of its Subsidiaries or (c) any other property or assets (whether tangible or intangible) of the Company or any of its Subsidiaries. "BUSINESS DAY" means any day other than a Saturday, a Sunday or any other day on which commercial banks are required or authorized by law to be closed in New York, New York. "CAPITAL ASSETS" means, with respect to any Person, all equipment, fixed assets and real property or improvements of such Person, or replacements or substitutions therefor or additions thereto, that have been or should be, in accordance with GAAP, reflected as additions to property, plant or equipment on the balance sheet of such Person or that have a useful life of more than one year. "CAPITAL EXPENDITURES" means, with respect to any Person for any period, (a) all expenditures made directly or indirectly by such Person (whether paid in cash or other consideration or accrued as a liability and including, without limitation, all expenditures for maintenance and repairs which are required, in accordance with GAAP, to be capitalized on the books of such Person) during such period for Capital Assets and (b) solely to the extent not otherwise included in clause (a) of this definition, the aggregate principal amount of all Indebtedness (including, without limitation, Capitalized Lease Obligations) assumed or incurred during such period in connection with any such expenditures for Capital Assets (other than Indebtedness permitted by Section VIII(B)(6) of this Agreement). "CAPITALIZED LEASE" means any lease with respect to which the lessee is required to recognize concurrently the acquisition of property or an asset and the incurrence of a liability in accordance with GAAP. "CAPITALIZED LEASE OBLIGATIONS" means, with respect to any Person, all lease obligations of such Person which, in accordance with GAAP, are or will be required to be capitalized on the books of such Person, in each case valued at the amount thereof accounted for as debt in accordance with GAAP. "CAPITAL STOCK" means and includes (i) any and all shares, interests, participations or other equivalents of or interests in (however designated) the capital of a Person, including, without limitation, shares of preferred or preference stock, (ii) all partnership interests (whether general or limited) in any Person which is a partnership, (iii) all membership interests or limited liability company interests in any limited liability company, and (iv) all equity or ownership interests in any Person of any other type. "CASH EQUIVALENTS" means any of the following types of Investments, to the extent owned by the Company or any of its Subsidiaries free and clear of all Liens (other than Liens created under the Collateral Documents): (a) readily marketable obligations issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof having maturities of not more than 360 days from the date of acquisition thereof; provided that the full faith and credit of the United States of America is pledged in support thereof; (b) time deposits with, or insured certificates of deposit or bankers' acceptances of, any commercial bank that (i) is organized under the laws of the United States of America, any state thereof or the District of Columbia or is the principal banking subsidiary of a bank holding company organized under the laws of the United States of America, any state thereof or the District of Columbia and is a member of the Federal Reserve System, (ii) issues (or the parent of which issues) commercial paper rated as described in clause (c) of this definition and (iii) has combined capital and surplus of at least $1,000,000,000, in each case with maturities of not more than 180 days from the date of acquisition thereof; (c) commercial paper issued by any Person organized under the laws of any state of the United States of America and rated at least "Prime-1" (or the then equivalent grade) by Moody's Investors Service, Inc. or at least "A-1" (or the then equivalent grade) by Standard & Poor's Ratings Services, a Division of The McGraw-Hill Company, Inc., in each case with maturities of not more than 270 days from the date of acquisition thereof; (d) Investments, classified in accordance with GAAP as current assets of the Company or any of its Subsidiaries, in money market investment programs registered under the Investment Company Act of 1940, as amended, which are administered by financial institutions that have the highest rating obtainable from either Moody's Investors Service, Inc. or Standard & Poor's Ratings Services, a Division of The McGraw-Hill Company, Inc., and the portfolios of which are limited solely to Investments of the character and quality described in clauses (a), (b) and (c) of this definition; and (e) repurchase agreements entered into by the Company or any such Subsidiary with a bank or trust company or recognized securities dealer having combined capital and surplus of at least $500,000,000 for direct obligations issued by or fully guaranteed by the United States of America in which the Company or such Subsidiary shall have a valid and perfected first priority security interest (subject to no other Liens); provided that each such repurchase agreement shall have a fair market value of at least 100% of the amount of the repurchase obligations thereunder on the date of purchase thereof. "CHANGE OF CONTROL" means at any time any "person" or "group" (within the meaning of Section 13d-3 or 14(d)(2) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 50% of the total Voting Interests of the Company. "CHANGE OF CONTROL OFFER" has the meaning specified in Section VI(B)(1). "CHANGE OF CONTROL PAYMENT" has the meaning specified in Section VI(B)(1). "CHANGE OF CONTROL REPURCHASE DATE" has the meaning specified in Section VI(B)(2). "COLLATERAL" means all of the "Collateral" referred to in the Collateral Documents and all other property and assets of the Obligors and its Subsidiaries that are or are intended under the terms of the Collateral Documents to be subject to Liens in favor of Imprimis and the other holders of the Notes. "COLLATERAL DOCUMENTS" means, collectively, the security agreements, mortgages, charges and other similar documents entered into by any of the Company or any of its Subsidiaries pursuant to this Agreement and all other agreements that create or purport to create Liens in favor of Imprimis and the other holders of the Notes. "COMMON STOCK" has the meaning specified on page 1 of this Agreement. "COMPANY" has the meaning specified on page 1 of this Agreement. "CONTINGENT OBLIGATION" means, as to any Person, any obligation of such Person guaranteeing or intended to guarantee any Indebtedness, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, (a) the direct or indirect guaranty, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of a primary obligor, (b) the obligation to make take-or-pay or similar payments, if required, regardless of nonperformance by any other party or parties to an agreement, (c) any obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (A) for the purchase or payment of any such primary obligation or (B) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solven- cy of the primary obligor, (iii) to purchase property, assets, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof; provided, however, that the term "Contingent Obligation" shall not include any products warranties extended in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder), as determined by such Person in good faith. "CURRENT VALUE" has the meaning specified in Section 3 of ERISA. "DEFAULT" means any Event of Default or any event or condition that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "DEFAULT RATE" means 19% per annum. "EMPLOYEE BENEFIT PLAN" means an "employee benefit plan", within the meaning of Section 3(3) of ERISA, that is subject to the provisions of Title I, Subtitle B, Part 4 of ERISA or to Section 4975 of the Internal Revenue Code. "ENVIRONMENTAL ACTION" means any action, suit, demand, demand letter, claim, notice of noncompliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement, abatement order or other order or directive (conditional or otherwise) relating in any way to any Environmental Law, any Environmental Permit or any Hazardous Materials or arising from alleged injury or threat to health, safety, natural resources or the environment, including, without limitation, (a) by any Governmental Authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any Governmental Authority or other third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief. "ENVIRONMENTAL LAW" means any Requirement of Law, or any judicial or agency interpretation or other requirement of any Governmental Authority, relating to (a) the generation, use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials, (b) pollution or protection of the environment, health, safety or natural resources or (c) occupational safety and health, industrial hygiene, land use or the protection of human, plant or animal health or welfare, including the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution Control Act (33 U. S. C. Section 1251 et seq.) , the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. Section 136 et seq.), the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.), the Oil Pollution Act (33 U.S.C. Section 2701 et seq.) and the Emergency Planning and Community Right-to-Know Act (42 U.S.C. Section 11001 et seq.), in each case as amended from time to time, and including the regulations promulgated and the rulings issued from time to time thereunder. "ENVIRONMENTAL PERMIT" means any permit, approval, license, identification number or other authorization required under any Environmental Law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and the rulings issued from time to time thereunder. "ERISA PLAN" means an "employee benefit plan" (as defined in Section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability. "EVENT OF DEFAULT" has the meaning specified in Section IX(A). "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, and the regulations promulgated and the rulings issued from time to time thereunder. "FISCAL YEAR" means, with respect to the Company or any of its Subsidiaries, the period commencing on January 1 in any calendar year and ending on the next succeeding December 31. "GAAP" means generally accepted accounting principles in effect in the United States of America, consistently applied. "GOVERNMENTAL AUTHORITY" means any nation or government, any state, province, city, municipal entity or other political subdivision thereof, and any governmental, executive, legislative, judicial, administrative or regulatory agency, department, authority, instrumentality, commission, board or similar body, whether federal, state, provincial, territorial, local or foreign. "GOVERNMENTAL AUTHORIZATION" means any authorization, approval, consent, franchise, license, covenant, order, ruling, permit, certification, exemption, notice, declaration or similar right, undertaking or other action of, to or by, or any filing, qualification or registration with, any Governmental Authority. "HAZARDOUS MATERIALS" means: (a) any chemical, material or substance at any time defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous waste", "acutely hazardous waste", "radioactive waste", "biohazardous waste", "pollutant", "toxic pollutant", "contaminant", "restricted hazardous waste", "infectious waste", "toxic substances", or any other term or expression intended to define, list or classify substances by reason of properties harmful to health, safety or the indoor or outdoor environment (including, without limitation, harmful properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, "TCLP toxicity" or "EP toxicity" or words of similar import under any applicable Environmental Laws); (b) any oil, petroleum, petroleum fraction or petroleum derived substance; (c) any drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources; (d) any flammable substances or explosives; (e) any radioactive materials; (f) any asbestos-containing materials; (g) any urea formaldehyde foam insulation; (h) any electrical equipment which contains any oil or dielectric fluid containing polychlorinated biphenyls; (i) any pesticides; (j) any radon gas; and (k) any other chemical, material or substance designated, classified or regulated as hazardous or toxic or as a pollutant or contaminant under any Environmental Law or which could pose a hazard to health, safety or the environment. "HOLDER" means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section X(A). "INDEBTEDNESS" means, with respect to any Person (without duplication): (a) all indebtedness of such Person for borrowed money; (b) all Obligations of such Person for the deferred purchase price of property and assets or services (other than trade payables or other accounts payable incurred in the ordinary course of such Person's business and not past due for more than 180 days after the date on which each such trade payable or account payable was created); (c) all Obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, or upon which interest payments are customarily made; (d) all Obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property or assets acquired by such Person, even though the rights and remedies of the seller or the lender under such agreement in the event of default are limited to repossession or sale of such property or assets; (e) all Capitalized Lease Obligations of such Person; (f) all Obligations, contingent or otherwise, of such Person under acceptance, standby letter of credit or similar facilities; (g) all Obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any shares of capital stock of (or other ownership or profit interest in) such Person or in any other Person, or any warrants, rights or options to acquire such shares (or such other ownership or profit interests); (h) all Obligations of such Person in respect of hedge agreements, take-or-pay agreements or other similar arrangements; (i) all Contingent Obligations; and (j) all Obligations referred to in clauses (a) through (i) of this definition of another Person secured by or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property or assets (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness. The Indebtedness of any Person shall include (i) all Obligations of the types described in clauses (a) through (j) above of any partnership in which such Person is a general partner and (ii) all Obligations of the types described in clauses (a) through (j) above of such Person to the extent such Person remains legally liable in respect thereof notwithstanding that any such Obligation is deemed to be extinguished under generally accepted accounting principles in effect at any date of determination. "INDEMNIFIED LIABILITIES" has the meaning specified in Section XII(B)(1). "INDEMNIFIED PARTY" has the meaning specified in Section XII(B)(1). "INFORMATION STATEMENT" has the meaning specified in Section VII(A). "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and the rulings issued from time to time thereunder. "INVESTMENT DATE" has the meaning specified in Section II(B). "INVESTORS" has the meaning specified on page 1 of this Agreement. "LIEN" means, with respect to any Person, any mortgage, lien (statutory or other), pledge, hypotheca-tion, security interest, charge or other preference or encumbrance of any kind (including, without limitation, any agreement to give any of the foregoing), or any sale of accounts receivable or chattel paper, or any assignment, deposit arrangement or lease intended as, or having the effect of, security, or any other interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or any Capitalized Lease or upon or with respect to any property or asset of such Person (including, in the case of shares of capital stock, stockholder agreements, voting trust agreements and other similar arrangements). "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the business, condition (financial or otherwise), operations, results of operations, assets, property, liabilities or prospects of the Company or any Subsidiary of a Company, (b) the ability of any of the Obligors to perform its Obligations under this Agreement or any of the other Note Documents to which it is or is to be a party or (c) the rights and remedies afforded to or any of the other holders of the Notes under this Agreement or any of the other Note Documents. "MULTIEMPLOYER PLAN" means a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) to which the Company or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "MULTIPLE EMPLOYER PLAN" means a single employer plan (as defined in Section 4001(a)(15) of ERISA) that (a) is maintained for employees of the Company or any ERISA Affiliate and at least one Person other than the Company and the ERISA Affiliates or (b) was so maintained and in respect of which the Company or any ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "NET CASH PROCEEDS" means, with respect to the issuance or incurrence of any Indebtedness by any Person, or the sale or issuance by any Person of any shares of its capital stock (or other ownership or profit interests therein), any securities convertible into or exchangeable for shares of its capital stock (or other ownership or profit interests therein) or any warrants, options or other rights for the purchase or acquisition of any shares of its capital stock (or other ownership or profit interests therein), or any Asset Sale, as the case may be, the aggregate amount of cash received from time to time (whether as initial consideration or through payment or disposition of deferred consideration) by or on behalf of such Person for its own account in connection with any such transaction, after deducting therefrom only: (a) any reasonable brokerage commissions, underwriting fees and discounts, legal fees, finder's fees and other similar fees and commissions incurred as a result of such transaction; (b) the amount of taxes payable in connection with or as a result of such transaction; (c) in the case of any Asset Sale, the outstanding principal amount of, and the premium, if any, and any accrued and unpaid interest on, any Indebtedness (other than the Notes) that is secured by a Lien on the property and assets subject to such Asset Sale and is required to be repaid under the terms thereof as a result of such Asset Sale; and (d) in the case of any Asset Sale, the amount required to be reserved, in accordance with generally accepted accounting principles in effect on the date on which the Net Cash Proceeds from such Asset Sale are calculated, and so reserved against liabilities under indemnification obligations, liabilities related to environmental matters or other similar contingent liabilities associated with the property and assets subject to such Asset Sale that are required to be so provided for under the terms of the documentation for such Asset Sale; in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid to a Person that is not an Affiliate of such Person receiving such Net Cash Proceeds and are properly attributable to such transaction or to the property or asset that is the subject thereof. "NOTE DOCUMENTS" means, collectively, this Agreement, the Notes and the Collateral Documents and all other agreements and instruments evidencing any Obligation of the Company or any of the other Obligors secured by the Collateral Documents, in each case as such agreement, instrument or other document may be amended, supplemented or otherwise modified hereafter from time to time in accordance with the terms thereof and Section XIV. "NOTES" has the meaning specified in Section I. "OBLIGATION" means, with respect to any Person, any payment, performance or other obligation of such Person of any kind, including, without limitation, any liability of such Person on any claim, whether or not the right of any creditor to payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any proceeding referred to in Section IX(A)(5). Without limiting the generality of the foregoing, the Obligations of the Obligors under the Note Documents include the obligation to pay principal, interest, premiums, charges, expenses, fees, attorneys' fees and disbursements, indemnities and other amounts payable by any of the Obligors under any of the Note Documents. "OBLIGORS" means, collectively, the Company, the Acquisition Subsidiary and each of the Other Obligors. "OFFICER'S CERTIFICATE" means,with respect to any Person, a certificate executed on behalf of such Person by its chairman of the board (if an officer), its president or one of its vice presidents or a Senior Financial Officer thereof (or persons performing similar functions to the foregoing); provided that each Officer's Certificate shall include (a) a statement that the officer making or giving such Officer's Certificate has read the provisions of this Agreement or the other Note Document requiring the delivery thereof and any definitions or other provisions contained in this Agreement relating thereto, (b) a statement that, in the opinion of the signer, he has made or has caused to be made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such term or condition has been satisfied or complied with or the certifications required to be made therein are complete and accurate, (c) a statement as to whether, in the opinion of the signer, such term or condition has been satisfied or complied with, and (d) all other statements and determinations required by the related terms and conditions giving rise to the delivery of such Officer's Certificate. "OTHER OBLIGORS" shall mean the wholly owned Subsidiaries of the Company set forth on Schedule IC hereto. "PERMITTED LIENS" means the following types of Liens (excluding any such Lien imposed pursuant to Section 401(a)(29) or ) of the Internal Revenue Code or by ERISA, any such Lien relating to or imposed in connection with any Environmental Action and any such Lien expressly prohibited by the applicable terms of any of the Collateral Documents), in each case as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced: (a) Liens for taxes, assessments and governmental charges or levies the payment of which is not, at the time, required under Section VII(E)(1); (b) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's, storage and repairmen's Liens and other similar Liens arising in the ordinary course of business and securing obligations (other than Indebtedness for borrowed money) (i) that are not overdue for a period of more than 30 days or (ii) the amount, applicability or validity of which are being contested in good faith and by appropriate proceedings diligently conducted and with respect to which the Company or any of its Subsidiaries, as the case may be, has established reserves in accordance with generally accepted accounting principles in effect from time to time; (c) pledges or deposits to secure obligations incurred in the ordinary course of business under workers' compensation laws, unemployment insurance laws or other similar social security legislation (other than in respect of Employee Benefit Plans) or to secure public or statutory obligations; (d) Liens securing the performance of, or payment in respect of, bids, tenders, government contracts (other than for the repayment of borrowed money), surety and appeal bonds and other obligations of a similar nature incurred in the ordinary course of business; (e) Liens arising solely from precautionary filings of financing statements (or the equivalent thereof) under the Uniform Commercial Code (or any similar law or statute) of the applicable jurisdictions relating to operating leases otherwise permitted under the terms of the Note Documents; and (f) easements, rights of way, zoning restrictions and other encumbrances and similar restrictions on title to, or the use of, real property that do not, either individually or in the aggregate, materially and adversely affect either the use of such real property for its intended purposes or the conduct of the business of any of the Company or its Subsidiaries in the ordinary course. "PERSON" means an individual, partnership, corporation (including a business trust or professional corporation), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "PREFERRED STOCK" has the meaning specified on page 1 of this Agreement. "PROPERTY" or "PROPERTIES" means, unless otherwise expressly stated in this Agreement, real or personal property of any kind, tangible or intangible, choate or inchoate. "REQUIRED HOLDERS" means, at any time, the holders of at least 75% of the aggregate principal amount of all of the Notes outstanding at such time (excluding from any calculation thereof any Notes then owned or held by any of the Company or its Subsidiaries or other Affiliates). "REQUIREMENTS OF LAW" means, with respect to any Person, all laws, constitutions, statutes, treaties, ordinances, rules and regulations, all orders, writs, decrees, injunctions, judgments, determinations or awards of an arbitrator, a court or any other Governmental Authority, and all Governmental Authorizations, binding upon or applicable to such Person or to any of its properties, assets or businesses. "RESPONSIBLE OFFICER" means, with respect to the Company or Subsidiary of it, any Senior Financial Officer of the Company or any other officer of the Company or any of its Subsidiaries responsible for overseeing the administration of, or reviewing compliance with, all or any portion of this Agreement or any of the other Note Documents. "RESTRICTED PAYMENT" means (a) any dividend or other distribution, direct or indirect, on account of any shares of any class of capital stock of (or other ownership or profit interests in) the Company or any of its Subsidiaries, now or hereafter outstanding, (b) any repurchase, redemption, retirement, defeasance, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of capital stock of (or other ownership or profit interests in) the Company or any direct or indirect parent of the Company, now or hereafter outstanding, (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights for the purchase or acquisition of shares of any class of capital stock of (or other ownership or profit interests in) the Company or any direct or indirect parent of the Company, now or hereafter outstanding, (d) any return of capital to any shareholders or other equity holders of the Company or any of its Subsidiaries, or any other distribution of property, assets, shares of capital stock (or other ownership or profit interests), warrants, rights, options, obligations or securities thereto as such or (e) the payment of any management fees or any other fees or expenses (including the reimbursement thereof by the Company or any of its Subsidiaries) pursuant to any management, consulting or other services agreement to any Subsidiary of the Company or any Affiliates. "SEC" means the Securities and Exchange Commis sion. "SEC REPORTS" has the meaning specified in section (IV)(E). "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time. "SENIOR FINANCIAL OFFICER" means, with respect to any Person, the chief financial officer, the principal accounting officer, the treasurer or the controller of such Person. "SEPARATE ACCOUNT" has the meaning specified in Section 3 of ERISA. "SINGLE EMPLOYER PLAN" means a single employer plan (as defined in Section 4001(a)(15) of ERISA) that (a) is maintained for employees of the Company or any ERISA Affiliate and no Person other than the Company and the ERISA Affiliates or (b) was so maintained and in respect of which the Company or any ERISA Affiliate could have liability under Section 4069 of ERISA in the event such plan has been or were to he terminated. "SOLVENT" and "SOLVENCY" mean, with respect to any Person on any date of determination, that, on such date: (a) the fair value of the property and assets of such Person is greater than the total amount of liabilities (including, without limitation, contingent liabilities) of such Person; (b) the present fair salable value of the property and assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay such debts and liabilities as they mature; and (d) such Person is not engaged in business or in a transaction, and is not about to engage in business or in a transaction, for which such Person's property and assets would constitute an unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all of the facts and circumstances existing at such time, represents the amount that could reasonably be expected to become an actual or matured liability. "SUBSIDIARY" means, with respect to any Person at any time, any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of: (a) the issued and outstanding shares of capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time shares of capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency); (b) the interest in the capital or profits of such corporation, professional corporation, partnership, joint venture or limited liability company; or (c) the beneficial interest in such trust or estate, is, at such time, directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. "VOTING INTERESTS" means shares of capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. "WARRANTS" has the meaning specified on page 1 of this Agreement. "WITHDRAWAL LIABILITY" has the meaning specified in Part I of Subtitle E of Title IV of ERISA. EX-99 3 EXHIBIT II - PROMISSORY NOTE EXHIBIT II PROMISSORY NOTE THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE. $500,000 December 19, 1997 FOR VALUE RECEIVED, COMPLETE WELLNESS CENTERS, INC., a Delaware corporation (the "Company"), HEREBY PROMISES TO PAY to the order of IMPRIMIS INVESTORS LLC (the "Purchaser") or its registered assigns (i) the principal sum of FIVE HUNDRED THOUSAND DOLLARS and (ii) interest on any and all principal amounts remaining unpaid hereunder from time to time outstanding from the date hereof until such principal amount become due, pursuant to the Investment Agreement dated as of December 19, 1997 (as amended or otherwise modified from time to time, the "Investment Agreement"; capitalized terms not otherwise defined herein have the same meanings as specified in the Investment Agreement), among the Company, the Purchaser and Wexford Spectrum Investors LLC. Interest on the unpaid balance of the principal amount of this Note shall be computed on the basis of a 360-day year of twelve 30-day months and shall accrue quarterly in arrears on the first day of each quarter commencing on January 1, 1998, at a rate per annum equal to thirteen percent (13%) per annum until the unpaid principal balance of this Note shall be paid in full (whether by scheduled maturity or at a date fixed for prepayment, redemption or repurchase or by declaration, demand or otherwise). All such accrued interest shall be capitalized and added to the principal amount of this Note; provided however, that any overdue payment (including without limitation, any overdue prepayment redemption or repurchase) of principal and, to the extent permitted by applicable law, any overdue payment of interest and premium, if any, shall accrue interest at a rate equal at all times to nineteen percent (19%) per annum, payable at the option of the registered holder of this Note, upon demand, until the unpaid principal balance of this Note shall be paid in full. The unpaid principal balance of this Note, together with any accrued but unpaid interest hereunder, shall be payable in full on or before March 31, 1998. Payments of principal of, and interest and premium, if any, on this Note are payable in lawful money of the United States of America at the place designated therefor as set forth in Section XI of the Investment Agreement, or at such other place as the Purchaser shall have designated by written notice to the Company as provided in the Investment Agreement referred to above. Whenever any payment under this Note shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest. Nothing contained in this Promissory Note or the Investment Agreement shall require the Company to pay interest at a rate exceeding the maximum rate permitted by applicable law. If interest payable to the Purchaser on any date would exceed the maximum permissible amount, it shall be automatically reduced to such amount, and interest for any subsequent period, to the extent less than that permitted by applicable law, shall, to that extent, be increased by the amount of such reduction. This Note is one of a series of Senior Secured Fixed Rate Notes due March 31, 1998 (collectively, the "Notes") originally issued or to be issued in an aggregate principal amount of up to $500,000 pursuant to the Investment Agreement. The holder of this Note is entitled to the benefits of the Investment Agreement and may enforce the agreement of the Companies therein in accordance with the terms thereof, and may enforce the rights and remedies provided for thereby or otherwise available in respect thereof in accordance with the respective terms thereof. Each holder of this Note will be deemed, by its acceptance hereof to have made the representations set forth in Sections V(A), V(B) and V(C) of the Investment Agreement. This Note is a registered Note and, as provided in and subject to the terms of the Investment Agreement, is transferable only upon surrender of this Note for registration of transfer or exchange (and, in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer, duly executed by the registered holder of this Note or his attorney duly authorized in writing), at which time a new Note for a like principal amount will be issued to, and registered in the name of, the permitted transferee. Reference in this Note to a "holder" shall mean the person or entity in whose name this Note is at the time registered in the register kept by the Companies as provided in Section X of the Investment Agreement and, prior to the due presentment for registration of transfer, the Company may treat such person or entity as the owner of this Note for the purpose of receiving payment and for all other purposes, and the Companies will not be affected by any notice to the contrary. The holder hereof, by acceptance of this Note, agrees that this Note shall not be transferred, sold or otherwise disposed of except to an Accredited Investor (as that term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended). This Note may be transferred in whole or in part only by registration of such transfer on the register maintained for such purpose by the Companies as provided in Section X of the Investment Agreement. The Company is required to make offers of repurchase upon the occurrence of the events and on the terms specified in Section VI(B) of the Investment Agreement and is required to make redemptions of principal on the dates and in the amounts specified in Section VI(C) of the Investment Agreement. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in Section VI(A) of the Investment Agreement. This Note is secured by, and is entitled to the benefits of the Security Agreements dated as of December 18, 1997 and the UCC-I financing statements made by each of the Persons listed on the signature pages thereof in favor of the Purchaser and shall be further secured from time to time by certain property and assets of the Obligors, pursuant to the terms of the Investment Agreement and the Security Agreements. If an Event of Default shall occur and be continuing, the unpaid balance of principal of this Note and any accrued and unpaid interest and other amounts payable hereon may be declared or otherwise become due and payable in the manner, at the price and with the effect provided in Section IX of the Investment Agreement. This Note shall be governed by, and construed in accordance with, the internal laws of the State of Delaware applicable to contracts made and to be performed therein without consideration as to choice of law. COMPLETE WELLNESS CENTERS, INC. By: /s/ E. Eugene Sharer ---------------------------- Name: Title: IMPRIMIS INVESTORS LLC By: Wexford Management LLC By: /s/ Frank Plimpton ---------------------------- Name: Frank Plimpton Title: Vice President EX-99 4 EXHIBIT III - PLEDGE AGREEMENT EXHIBIT III PLEDGE AGREEMENT PLEDGE AGREEMENT (this "Agreement"), dated as of December 19, 1997, made by Complete Wellness Centers, Inc., a Delaware corporation (the "Grantor"), in favor of Imprimis Investors LLC (Imprimis) and any subsequent holders (together with Imprimis, the "Investors") of Notes (as defined below). W I T N E S S E T H: WHEREAS, Grantor, Imprimis and Wexford Spectrum Investors LLC are parties to that certain Investment Agreement, dated as of the date hereof (such agreement, as amended, restated, supplemented or otherwise modified from time to time, being hereafter referred to as the "Investment Agreement"); WHEREAS, pursuant to the Investment Agreement, Imprimis has agreed to purchase certain debt securities (the "Notes") from the Grantor, the proceeds of which shall be used solely (i) to pay the transaction costs and expenses incurred in connection with the sale of the Notes, (ii) to complete its pending acquisition of the assets of Nutri/System, L.P. (the "Acquisition") through Complete Weight Management, Inc. (the "Subsidiary"), a Delaware corporation, which will hold such assets, (iii) for working capital purposes of the Subsidiary and (iv) for general and administrative purposes of the Grantor. WHEREAS, it is a condition precedent to the effectiveness of the Investment Agreement and Imprimis' purchasing the Notes from the Grantor that the Grantor shall have executed and delivered to the Investors a security agreement providing for the grant to the Investors of a security interest in certain property of the Grantor; NOW, THEREFORE, in consideration of the premises and the agreements herein and in order to induce Imprimis to purchase the Notes from the Grantor pursuant to the Investment Agreement, the Grantor hereby agrees with Imprimis as follows: SECTION 1. Definitions. Reference is hereby made to the Investment Agreement for a statement of the terms thereof. All terms used in this Agreement which are defined in the Investment Agreement or in Article 9 of the Uniform Commercial Code (the "Code") currently in effect in the State of New York, and which are not otherwise defined herein, shall have the same meanings herein as set forth therein. SECTION 2. Grant of Security Interest. As collateral security for all of the Obligations (as defined in Section 3 hereof), the Grantor hereby pledges and assigns to the Investors, and grants to the Investors, a continuing security interest in the collateral set forth below (the "Collateral"): (a) all of the Grantor's right, title and interest in and to all shares (the "Pledged Shares") of capital stock of the Subsidiary, described in Schedule I hereto and the certificates, if any, representing the Pledged Shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; (b) all additional shares (the "Additional Shares") of capital stock of the Subsidiary from time to time acquired by the Grantor in any manner (including, without limitation, any shares of preferred stock issued by the Subsidiary) and the certificates, if any, representing such additional shares), and all dividends, cash instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; (c) all other rights appurtenant to the property described in clauses (a) and (b) above (including, without limitation, voting rights); and (d) all cash and noncash proceeds of any and all of the foregoing Collateral. Certificates representing the Pledged Shares set forth on Schedule I hereto, accompanied by proper instruments of assignment duly executed in blank by the Grantor, are herewith delivered to Imprimis. Promptly upon the Grantor's acquisition of any Additional Shares, the Grantor will (i) deliver proper instruments of assignment duly executed in blank by the Grantor together with any certificates representing such Additional Shares, whereupon such Additional Shares shall be Pledged Shares, and (ii) amend Schedule I to include such Additional Shares. The Investors shall have the right, at any time in their discretion and without notice to the Grantor, to transfer to or register in their names or the name of any of its nominees any or all of the Pledged Shares, subject only to the revocable rights specified in Section 5(f). In addition, the Investors shall have the right at any time to exchange certificates or instruments representing or evidencing the Pledged Shares for certificates or instruments of small or larger denominations. SECTION 3. Security for Obligations. The security interest created hereby in the Collateral constitutes continuing collateral security for all of the following obligations, whether now existing or hereafter incurred (the "Obligations"): (a) The prompt payment by the Grantor, as and when due and payable, of all amounts from time to time owing by the Grantor to the Investors in respect of the Investment Agreement, the Notes and the other Note Documents, including, without limitation, principal of and interest on the Notes (including, without limitation, all interest that accrues after the commencement of any case, proceeding or other action relating to bankruptcy, insolvency or reorganization of the Grantor whether or not the payment of such interest is unenforceable or is not allowable due to the existence of such case, proceeding or other action), all fees, commissions, expense reimbursements, indemnifications and all other amounts due or to become due under the Investment Agreement, the Notes and any other Note Document; and (b) The due performance and observance by the Grantor of all of their other obligations from time to time existing in respect of the Investment Agreement and all other Note Documents. SECTION 4. Representations and Warranties. The Grantor represents and warrants as follows: (a) There is no pending or threatened action, suit, proceeding or claim before any court or other Governmental Authority or any arbitrator, or any order, judgment or award by any court or other Governmental Authority or arbitrator, that may adversely affect the pledge or the grants by the Grantor, or the perfection or priority, of the security interest purported to be created hereby in the Collateral, or the exercise by the Investors of any of their rights or remedies hereunder. (b) All taxes, assessments and other governmental charges imposed upon the Grantor or any property of the Grantor (including, without limitation, all federal income and social security taxes on employees' wages) and which have become due and payable on or prior to the date hereof have been paid, except to the extent contested in good faith by proper proceedings which stay the imposition of any penalty, fine or lien resulting from the non-payment thereof and with respect to which adequate reserves in accordance with GAAP, have been established for the payment thereof. (c) The chief place of business and chief executive office of the Grantor and the place where the Grantor keeps its records concerning the Collateral are located at the addresses specified therefor in Schedule II hereto. (d) The Grantor is and will be at all times the sole and exclusive holder of record and beneficial owner of the Pledged Shares free and clear of any Lien, claim, security interest, charge or other encumbrance of any kind with full authority to sell, transfer and grant a security interest in, the Pledged Shares. No effective financing statement or other instrument similar in effect covering all or any part of the Pledged Shares is on file in any recording or filing office. (e) The Pledged Shares have been duly authorized and validly issued by the Subsidiary, and are fully paid and non-assessable, and the Grantor has the right and all requisite corporate authority to pledge, assign, grant a security interest in, transfer and deliver the Pledged Shares to the Investors as provided herein. (f) Upon the delivery to the Investors of the certificates representing the Pledged Shares, the Investors will have a valid and perfected security interest therein subject to no prior Lien. The authorized, issued and outstanding capital shares of the Subsidiary is set forth on Schedule I, and there are no existing options, warrants, calls or commitments of any character whatsoever relating to any of the unissued capital shares of the Subsidiary, except as set forth on Schedule I hereto. The Pledged Shares constitute the percentage of the issued and outstanding shares of stock of the Subsidiary indicated on Schedule I. (g) The exercise by the Investors of any of their rights and remedies hereunder will not contravene law or any contractual restriction binding on or otherwise affecting the Grantor or any of its properties and will not result in or require the creation of any Lien, claim, security interest, charge or other encumbrance upon or with respect to any of its properties. (h) No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or other regulatory body, or any other Person, is required for (i) the pledge by the Grantor of the Collateral or the perfection or maintenance of the pledge, or the grant by the Grantor, or the perfection, of the security interest purported to be created hereby in the Collateral or (ii) the exercise by the Investors of any of their voting rights or any other rights and remedies hereunder, except as may be required in connection with the disposition of any portion of the Collateral by laws affecting the offer and sale of securities generally. (i) The financing statements described in Schedule III hereto have been or will be duly filed under the Code and are or upon filing will be in full force and effect. (j) There are no conditions precedent to the effectiveness of this Agreement that have not been satisfied or waived. SECTION 5. Covenants as to the Collateral. So long as any of the Obligations shall remain outstanding, unless the Investors shall otherwise consent in writing: (a) The Grantor will at its expense, at any time and from time to time, promptly execute and deliver all further instruments and documents and take all further action that may be necessary or desirable or that the Investors may request in order (i) to perfect and protect the pledge and security interest purported to be created hereby; (ii) to enable the Investors to exercise and enforce their rights and remedies hereunder in respect of the Collateral; or (iii) otherwise to effect the purposes of this Agreement, including, without limitation: (A) marking conspicuously each of its records pertaining to the Collateral with a legend, in form and substance satisfactory to the Investors, indicating that such Collateral is subject to the pledge and security interest created hereby and (B) executing and filing such financing or continuation statements, or amendments thereto, as may be necessary or desirable or that the Investors may request in order to perfect and preserve the pledge and security interest purported to be created hereby. (b) Unless the Grantor shall have given the Investors not less than 30 days' prior notice thereof, the Grantor will not change (i) its name, identity or corporate structure in any manner or (ii) the location of its chief executive office. (c) The Grantor will defend the title to the Collateral and the Lien of the Investors thereon against the claim of any Person claiming against or through the Grantor and will maintain and preserve such Lien as long as this Agreement shall remain in effect. (d) The Grantor will not create or suffer to exist any Lien, claim, security interest, charge or other encumbrance upon or with respect to any Collateral except for the security interests permitted pursuant to the terms of the Investment Agreement. (e) The Grantor shall permit the Investors, or any agents or representatives of the Investors or such professionals or other Persons as the Investors may designate (i) to examine and inspect the books and records of the Grantor and take copies and extracts therefrom, and (ii) to discuss the affairs, finances and accounts of the Grantor, with, and be advised as to the same by, their officers, directors and independent accountants (and, by this subsection (d), the Grantor authorize each such officer, director and independent accountant to discuss the affairs, finances and accounts of the Grantor with such Person), provided that, in the absence of a continuing Event of Default, all such actions described in clauses (i) and (ii) above shall be conducted at reasonable times and during normal business hours. In addition, the Grantor shall forward to the Investors copies of any notices or communications received or made by the Grantor with respect to the Collateral, all in such manner as the Investors may reasonably require. (f) Provisions Relating to the Collateral. (i) So long as no Event of Default or event which, with the giving of notice or the lapse of time, or both, would become an Event of Default shall have occurred and be continuing: (A) The Grantor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Investment Agreement; provided, that the Grantor shall not exercise or refrain from exercising such right if, in the Investors' judgment, such action would have a material adverse effect on the value of the Collateral or any part thereof, and provided, further, that the Grantor shall give the Investors at least five days' prior written notice of the manner in which it intends to exercise, or the reasons for refraining from exercising, any such right. The Grantor shall not exercise or refrain from exercising such right in a manner which would authorize or effect (except as and to the extent expressly permitted by the Investment Agreement) (i) the dissolution or liquidation, in whole or in part, of the Subsidiary, (ii) the consolidation or merger of the Subsidiary with any corporation, (iii) the sale, disposition or encumbrance of all or substantially all of the assets of the Subsidiary, (iv) any change in the authorized number of shares, the stated capital or the authorized share capital of the Subsidiary, or the issuance of any additional capital shares of the Subsidiary, or (v) the alteration of the voting rights with respect to the shares of the Subsidiary. (B) The Grantor shall be entitled, from time to time, to collect and receive for its own use dividends paid, payable or otherwise distributed on the Pledged Shares; provided, that until actually paid, all rights to such dividends shall remain subject to the Lien of this Agreement, provided, further, that (i) all dividends paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Shares, (ii) all dividends and other distributions paid or payable in cash in respect of any Pledged Shares in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (iii) cash paid, payable or otherwise distributed in respect of principal of, or in redemption of, or in exchange for, any Pledged Shares, shall be, and shall be forthwith delivered to the Investors to hold as, Collateral and shall, if received by the Grantor, be received in trust for the benefit of the Investors, be segregated from the other property or funds of the Grantor, and be forthwith delivered to the Investors as Collateral in the same form as so received (with any necessary indorsement or assignment). (ii) Upon the occurrence and during the continuance of an Event of Default or an event which, with the giving of notice or the lapse of time, or both, would become an Event of Default: (A) All rights of the Grantor (x) to exercise or refrain from exercising the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 5(f)(i)(A) shall, upon notice to the Grantor by the Investors, cease and (y) to receive the dividends payments which it would otherwise be authorized to receive and retain pursuant to Section 5(f)(i)(B) shall automatically cease, and all such rights shall thereupon become vested in the Investors who shall thereupon have the sole right to exercise or refrain from exercising such voting and other consensual rights and to receive and hold as Collateral such dividends. (B) All dividends which are received by the Grantor contrary to the provisions of paragraph (A) of this Section 5(f)(ii) shall be received in trust for the benefit of the Investors, shall be segregated from other funds of the Grantor and shall be forthwith paid over to the Investors as Collateral in the same form as so received (with any necessary indorsement). (g) The Grantor agrees that it will (i) cause the Subsidiary not to issue any stock or other securities in addition to or in substitution for the Pledged Shares issued by the Subsidiary, except to the Grantor and (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock or other securities of Subsidiary. SECTION 6. Additional Provisions Concerning the Collateral. (a) The Grantor hereby authorizes the Investors to file, without the signature of the Grantor where permitted by law, one or more financing or continuation statements, and amendments thereto, relating to the Collateral. (b) The Grantor hereby irrevocably appoints the Investors or its designee on behalf of the Investors the Grantor's attorney-in-fact and proxy, with full authority in the place and stead of the Grantor and in the name of the Grantor or otherwise, from time to time in the Investors's discretion, to take any action and to execute any instrument which the Investors may deem necessary or advisable to accomplish the purposes of this Agreement including, without limitation, (i) upon the occurrence of an Event of Default, to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any Collateral, and (ii) to receive, endorse, assign and collect any drafts or other instruments, documents and chattel paper in connection with clause (i) above, and (iii) to file any claims or take any action or institute any proceedings which the Investors may deem necessary or desirable for the collection of any Collateral or otherwise to enforce the rights of the Investors with respect to any Collateral. All acts of said attorney or designee are hereby ratified and approved, and said attorney or designee shall not be liable for any acts of omission or commission (other than acts or omissions constituting gross negligence or willful misconduct as determined by a final judgment or a court of competent jurisdiction), nor for any error of judgment or mistake of fact or law. This power is coupled with an interest and is irrevocable until all of the Obligations are paid in full and the Investment Agreement is terminated. (c) If the Grantor fails to perform any agreement contained herein, the Investors may itself perform, or cause performance of, such agreement or obligation, in the name of the Grantor or the Investors, and the expenses of the Investors incurred in connection therewith shall be payable by the Grantor pursuant to Section 7 and 9. (d) The powers conferred on the Investors hereunder are solely to protect their interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in their possession and the accounting for moneys actually received by it hereunder, the Investors shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. SECTION 7. Remedies Upon Default. If any Event of Default shall have occurred and be continuing: (a) The Investors may exercise in respect of the Collateral, or any part thereof, in addition to other rights and remedies provided for herein, in the Investment Agreement, the Notes or in the Note Documents or otherwise available to it, all of the rights and remedies of a secured party in default under the Code (whether or not the Code applies to the affected Collateral), and are hereby authorized and empowered, at their election, (i) to (if they have not previously done so pursuant to Section 2) transfer and register in their or their nominee's name the whole or any part of the Collateral, (ii) to exercise all voting rights with respect thereto, (iii) to demand, sue for, collect, receive and give acquittance for any and all cash dividends or other distributions or monies due or to become due upon or by virtue thereof, and to settle prosecute or defend any action or proceeding with respect thereto, (iv) to otherwise to act with respect to the Collateral or the proceeds thereof as though the Investors were the outright owners thereof, Grantor hereby irrevocably constituting the Investors as its proxies and attorneys-in-fact, with full power of substitution to do so and (v) without notice, except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Investors's offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Investors may deem commercially reasonable. The Grantor agrees that, to the extent notice of sale shall be required by law, at least 10 days' notice to the Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Investors shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Investors may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. The Grantor hereby waives any claims against the Investors arising by reason of the fact that the price at which the Collateral may have been sold at a private sale was less than the price which might have been obtained at a public sale or was less than the aggregate amount of the Obligations, even if the Investors accept the first offer received and does not offer the Collateral to more than one offeree and waives all rights which the Grantor may have to require that all or any part of the Collateral be marshalled upon any sale (public or private) thereof. (b) Any cash held by the Investors as Collateral and all proceeds received by the Investors in respect of any sale or collection from, or other realization upon, all or any part of the Collateral, after payment from such proceeds of the Investors's out-of-pocket costs and expenses in connection with such sale, including, without limitation reasonable attorneys' fees and expenses, may, in the discretion of the Investors, be held by the Investors as collateral for, and/or then or at any time thereafter applied in whole or in part by the Investors against, all or any part of the Obligations in such manner as the Investors may elect in their sole discretion. (c) Other than the exercise of reasonable care in the custody and preservation of the Collateral, the Investors shall have no duty with respect thereto. the Investors shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which it accords its own property, and shall not be liable or responsible for any loss or damage to any of the Collateral, or for any diminution in the value thereof, by reason of the act or omission of any agent or bailee selected by the Investors in good faith. (d) In the event that the proceeds of any such sale, collection or realization are insufficient to pay all amounts to which the Investors are legally entitled, the Grantor shall be liable for the deficiency, together with interest thereon at the Default Rate or such other rate as shall be fixed by applicable law, together with the costs of collection and the reasonable fees, costs, expenses and other client charges of any attorneys employed by the Investors to collect such deficiency. (e) The Investors may employ and maintain in the premises of the Grantor one or more custodians selected by the Investors who shall have full authority to do all acts necessary or desirable to protect the Investors's interests hereunder. The Grantor hereby agree to cooperate with any such custodian and to do whatever the Investors may reasonably request to preserve the Collateral. All costs and expenses incurred by the Investors, by reason of the employment of the custodian, shall be payable the Grantor pursuant to Section 9. SECTION 8. Registration Rights. If the Investors shall determine to exercise their right to sell all or any of the Pledged Shares pursuant to Section 7, the Grantor agrees that, upon request of the Investors, the Grantor will, at its own expense: (a) Execute and deliver, and cause the Subsidiary and the directors and officers thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of the Agent, advisable to register the Pledged Shares under the provisions of the Securities Act of 1933, as from time to time amended (the "Securities Act"), and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of the Investors, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (b) Use its best efforts to qualify the Pledged Shares under the state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of the Pledged Shares, as requested by the Investors; (c) Cause the Subsidiary to make available to its security holders, as soon as practicable, an earning statement which will satisfy the provisions of Section 11(a) of the Securities Act; and (d) Do or cause to be done all such other acts and things as may be necessary to make such sale of the Pledged Shares or any part thereof valid and binding and in compliance with applicable law. The Grantor further acknowledges the impossibility of ascertaining the amount of damages which would be suffered by the Investors by reason of the failure by the Grantor to perform any of the covenants contained in this Section and, consequently, agrees that, if the Grantor shall fail to perform any of such covenants, it shall pay, as liquidated damages and not as a penalty, an amount equal to the value of the Pledged Shares on the date the Investors shall demand compliance with this Section. SECTION 9. Indemnity and Expenses. (a) The Grantor agrees to indemnify and hold the Investors, its Affiliates and each officer, director and agent of the Investors or any of its Affiliates (the "Indemnitees") harmless from and against any and all claims, damages, losses, liabilities, obligations, penalties, costs or expenses (including, without limitation, reasonable legal fees, costs, expenses and other client charges) to the extent that they arise out of or otherwise result from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses or liabilities resulting solely and directly from an Indemnitee's gross negligence or willful misconduct as determined by a final determination of a court of competent jurisdiction. (b) Without limiting the generality of the foregoing, the Grantor will upon demand pay to each Indemnitee (i) the amount of any and all costs and expenses, including the reasonable fees, costs, expenses and other client charges of counsel for such Indemnitee and of any experts and agents (including, without limitation, any Person which may act as agent of such Indemnitee), which such Indemnitee may incur in connection with (A) the preparation, negotiation, execution, delivery, recordation, administration, amendment, waiver or other modification or termination of this Agreement, or (B) the custody, preservation, use or operation of the Collateral and (ii) the amount of any and all costs and expenses, including the reasonable fees, costs, expenses and other client charges of counsel for such Indemnitee and of any experts and agents (including, without limitation, any Person which may act as agent of such Indemnitee), which such Indemnitee may incur in connection with (A) the sale of, collection from, or other realization upon, any Collateral, (B) the exercise or enforcement of any of the rights of such Indemnitee hereunder, or (C) the failure by the Grantor to perform or observe any of the provisions hereof. SECTION 10. Notices, Etc. All notices and other communications provided for hereunder shall be in writing and shall be mailed, telecopied or delivered, if to the Grantor, to them at the addresses specified in the Investment Agreement; and if to the Investors, to it at its address specified in the Investment Agreement; or as to any such Person at such other address as shall be designated by such Person in a written notice to such other person complying as to delivery with the terms of this Section 10. All such notices and other communications shall be effective (i) if mailed, when received or three Business Days after deposited in the mail, whichever first occurs (ii) if telecopied, when transmitted and a confirmation is received, or (iii) if delivered, upon delivery. SECTION 11. Miscellaneous. (a) No amendment of any provision of this Agreement shall be effective unless it is in writing and signed by the Grantor and the Investors, and no waiver of any provision of this Agreement, and no consent to any departure by the Grantor therefrom, shall be effective unless it is in writing and signed by the Investors, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. (b) No failure on the part of the Investors to exercise, and no delay in exercising, any right hereunder or under any other Note Document shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies of the Investors provided herein and in the other Note Documents are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law. The rights of the Investors under any Note Document against any party thereto are not conditional or contingent on any attempt by the Investors to exercise any of its rights under any other Note Document against such party or against any other Person. (c) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. (d) This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until the payment in full or release of the Obligations and the termination of the Investment Agreement; and (ii) be binding on the Grantor, their successors and assigns, except that the Grantor may not assign or transfer any of their rights hereunder without the prior written consent of the Investors, and shall inure, together with all rights and remedies of the Investors hereunder, to the benefit of the Investors and its permitted successors, transferees and assigns. Without limiting the generality of clause (ii) of the immediately preceding sentence, without notice to the Grantor, the Investors may assign or otherwise transfer its rights under this Agreement and any other Note Document, to any other Person pursuant to the terms of the Investment Agreement and such other Person shall thereupon become vested with all of the benefits in respect thereof granted to the Investors herein or otherwise. Upon any such assignment or transfer, all references in this Agreement to the Investors shall mean the assignee of the Investors. None of the rights or obligations of the Grantor hereunder may be assigned or otherwise transferred without the prior written consent of the Investors, and any such assignment or transfer shall be null and void. (e) Upon the satisfaction in full of the Obligations and the termination of the Investment Agreement, (i) this Agreement and the security interests created hereby shall terminate and all rights to the Collateral shall revert to the Grantor and (ii) the Investors will, upon the Grantor's request and at the requesting Grantor's cost and expense, (A) return to the Grantor(s) such of the Collateral as shall not have been sold or otherwise disposed of or applied pursuant to the terms hereof and (B) execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination, all without any representation, warranty or recourse whatsoever. (f) This Agreement shall be governed by and construed in accordance with the law of the State of New York, except to the extent that the validity and perfection or the perfection and the effect of perfection or non-perfection of the security interest created hereby, or remedies hereunder, in respect of any particular Collateral are governed by the law of a jurisdiction other than the State of New York. (g) This Agreement supersedes all prior understandings and agreements, whether written or oral, among the parties hereto relating to the transactions provided for herein. (h) All representations and warranties of the Grantor contained herein or made in connection herewith shall survive the making of and shall not be waived by the execution and delivery of this Agreement, the Investment Agreement, the Notes or any other Note Document, any investigation by the Investors or the purchasing of the Notes. All covenants and agreements of the Grantor contained herein shall continue in full force and effect from and after the date hereof until the indefeasible payment in full of the Obligations. (i) Section headings in this Agreement are included herein for the convenience of reference only and shall not constitute a part of this Agreement for any other purpose. (j) BY ITS EXECUTION AND DELIVERY OF THIS AGREEMENT, THE GRANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT, THE INVESTMENT AGREEMENT, THE NOTES OR ANY OTHER NOTE DOCUMENT, ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE INVESTORS OR The GRANTOR IN CONNECTION HEREWITH OR THEREWITH. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE INVESTORS TO ENTER INTO THIS AGREEMENT. IN WITNESS WHEREOF, the Grantor has caused this Agreement to be executed and delivered by its officer thereunto duly authorized as of the date first above written. COMPLETE WELLNESS CENTERS, INC. By: /s/ E. Eugene Sharer Name: Title: Accepted and Agreed: IMPRIMIS INVESTORS LLC By: Wexford Management LLC By: /s/ Frank Plimpton Name: Frank Plimpton Title: VP Schedule I PLEDGED SHARES Schedule II ADDRESS OF GRANTOR Chief Place of Business, 725 Independence Avenue, S.E. Chief Executive Office Washington, D.C. 20003 and Location of Records Schedule III UCC-1 FINANCING STATEMENTS EX-99 5 EXHIBIT IV - FORM OF SECURITY AGREEMENT EXHIBIT IV SECURITY AGREEMENT SECURITY AGREEMENT, dated as of December 19, 1997, made by Complete Wellness Medical Center of _______, Inc., Inc., a Florida corporation (the "Grantor"), in favor of Imprimis Investors LLC ("Imprimis") and any subsequent holders (together with Imprimis Investors LLC, the "Investors") of Notes (as defined below). W I T N E S S E T H: WHEREAS, Complete Wellness Centers, Inc., a Delaware corporation (the "Parent"), Imprimis and Wexford Spectrum Investors LLC are parties to that certain Investment Agreement, dated as of the date hereof (such agreement, as amended, restated, supplemented or otherwise modified from time to time, being hereafter referred to as the "Investment Agreement"); WHEREAS, pursuant to the Investment Agreement, Imprimis has agreed to purchase certain debt securities (the "Notes") from the Parent, the proceeds of which shall be used solely (i) to pay the transaction costs and expenses incurred in connection with the sale of the Notes, (ii) to complete the Parent's pending acquisition of the assets of Nutri/System, L.P. (the "Acquisition") through Complete Weight Management, Inc. (the "Subsidiary"), a Delaware corporation, which will hold such assets, (iii) for working capital purposes of the Subsidiary and (iv) for general and administrative purposes of the Parent. WHEREAS, it is a condition precedent to the effectiveness of the Investment Agreement and Imprimis' purchasing the Notes from the Parent that the Grantor shall have executed and delivered to the Investors a security agreement providing for the grant to the Investors of a security interest in certain property of the Grantor; NOW, THEREFORE, in consideration of the premises and the agreements herein and in order to induce Imprimis to purchase the Notes from the Parent pursuant to the Investment Agreement, the Grantor hereby agrees with Imprimis as follows: SECTION 1. Definitions. Reference is hereby made to the Investment Agreement for a statement of the terms thereof. All terms used in this Agreement which are defined in the Investment Agreement or in Article 9 of the Uniform Commercial Code (the "Code") currently in effect in the State of New York, and which are not otherwise defined herein, shall have the same meanings herein as set forth therein. SECTION 2. Grant of Security Interest. As collateral security for all of the Obligations (as defined in Section 3 hereof), the Grantor hereby pledges and assigns to the Investors, and grants to the Investors, a continuing security interest in the collateral set forth below (the "Collateral"): (a) any and all accounts, contract rights, chattel paper, instruments, documents, deposit accounts, general intangibles and other obligations of any kind, whether now or hereafter existing and whether now or hereafter acquired, arising out of or in connection with the sale or lease of goods or the rendering of services or otherwise, including, without limitation all rights relating to the performance by or for the Grantors of management, advisory, medical, consulting or other similar services, and (ii) all rights now or hereafter existing in and to all insurance policies, including any interest or claim in or under any insurance policy or any issuer of the same or claim to insurance coverage or rights to reimbursement for advisory, medical, consulting or other similar services from any private or governmental entity, rights to workers compensation and personal injury or litigation settlements, credit insurance, guaranties, letters of credit, security agreements, leases and other contracts now or hereafter existing and securing or otherwise relating to any such accounts, contract rights, chattel paper, instruments, general intangibles or obligations (including, without limitation, the contracts described in Schedule I hereto) (any and all such accounts, contract rights, chattel paper, instruments, deposit accounts, general intangibles and obligations being hereinafter referred to collectively as the "Receivables," and any and all such insurance policies, including any interest or claim in or under any insurance policy or any issuer of the same or claim to insurance coverage or rights to reimbursement for advisory, medical, consulting or other similar services from any private or governmental entity, rights to workers compensation and personal injury or litigation settlements, credit insurance, guaranties, letters of credit, security agreements, leases and other contracts being hereinafter referred to collectively as the "Related Contracts"); (b) all cash and noncash proceeds of any and all of the foregoing Collateral. SECTION 3. Security for Obligations. The security interest created hereby in the Collateral constitutes continuing collateral security for all of the following obligations, whether now existing or hereafter incurred (the "Obligations"): (a) the payment by the Parent, as and when due and payable, of all amounts from time to time owing by the Parent to the Investors in respect of the Investment Agreement, the Notes and the other Note Documents, including, without limitation, principal of and interest on the Notes (including, without limitation, all interest that accrues after the commencement of any case, proceeding or other action relating to bankruptcy, insolvency or reorganization of the Parent whether or not the payment of such interest is unenforceable or is not allowable due to the existence of such case, proceeding or other action), all fees, commissions, expense reimbursements, indemnifications and all other amounts due or to become due under the Investment Agreement, the Notes and any other Note Document; and (b) the due performance and observance by the Parent and the Grantor of all obligations from time to time existing in respect of the Investment Agreement and all other Note Documents. SECTION 4. Grantor Remains Liable. Anything herein to the contrary notwithstanding, (a) the Grantor shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Investors of any of the rights hereunder shall not release the Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral, and (c) the Investors shall not have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement, nor shall the Investors be obligated to perform any of the obligations or duties of the Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. SECTION 5. Representations and Warranties. The Grantor represents and warrants as follows: (a) There is no pending or threatened action, suit, proceeding or claim before any court or other Governmental Authority or any arbitrator, or any order, judgment or award by any court or other Governmental Authority or arbitrator, that may adversely affect the grants by the Grantor, or the perfection or priority, of the security interest purported to be created hereby in the Collateral, or the exercise by the Investors of any of their rights or remedies hereunder. (b) All taxes, assessments and other governmental charges imposed upon the Grantor or any property of the Grantor (including, without limitation, all federal income and social security taxes on employees' wages) and which have become due and payable on or prior to the date hereof have been paid, except to the extent contested in good faith by proper proceedings which stay the imposition of any penalty, fine or lien resulting from the non-payment thereof and with respect to which adequate reserves in accordance with GAAP, have been established for the payment thereof. (c) The chief place of business and chief executive office of the Grantor, the place where the Grantor keeps its records concerning Receivables, and the all originals of all chattel paper and other documents which constitute Receivables, are located at the addresses specified therefor in Schedule II hereto. None of the Receivables is evidenced by a promissory note or other instrument. (d) The Grantor has delivered to the Investors complete and correct copies of each Related Contract described in Schedule I hereto, including all schedules and exhibits thereto. Each such Related Contract sets forth the entire agreement and understanding of the parties thereto relating to the subject matter thereof, and there are no other agreements, arrangements or understandings, written or oral, relating to the matters covered thereby or the rights of the Grantor in respect thereof. Each Related Contract now existing is, and each other Related Contract will be, the legal, valid and binding obligation of the parties thereto, enforceable against such parties in accordance with its terms. No default thereunder by any such party has occurred, nor does any defense, offset, deduction or counterclaim exist thereunder in favor of any such party. (e) The Grantor is and will be at all times the sole and exclusive owner of the Collateral free and clear of any Lien, claim, security interest, charge or other encumbrance of any kind with full authority to sell, transfer and grant a security interest in, each item of Collateral, except for Liens permitted pursuant to the Investment Agreement. No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording or filing office except such as may have been filed with respect to the Liens permitted pursuant to the Investment Agreement. (f) The exercise by the Investors of any of their rights and remedies hereunder will not contravene law or any contractual restriction binding on or otherwise affecting the Grantor or any of its properties and will not result in or require the creation of any Lien, claim, security interest, charge or other encumbrance upon or with respect to any of its properties. (g) No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or other regulatory body, or any other Person, is required for (i) the grant by the Grantor, or the perfection, of the security interest purported to be created hereby in the Collateral or (ii) the exercise by the Investors of any of the rights and remedies hereunder, except the filing under the Uniform Commercial Code as in effect in the applicable jurisdiction of the financing statements described in Schedule III hereto, all of which financing statements have been or will be duly filed and are or upon filing will be in full force and effect. (h) This Agreement creates valid liens on, and security interests in, the Collateral, in favor of the Investors as security for the Obligations, subject only to the Liens permitted pursuant to the Investment Agreement. The Investors' having possession of all instruments and cash constituting Collateral from time to time, and the filing of the financing statements described in Schedule III hereto result in the perfection of such pledges and security interests. Such security interests are, or in the case of Collateral in which the Grantor obtains rights after the date hereof, will be, perfected, first priority security interests, subject only to (i) the security interests and other encumbrances permitted pursuant to the terms of the Investment Agreement, and (ii) the recording of such instruments of assignment. Such recordings and filings and all other action necessary or desirable to perfect and protect such pledge or security interest have been duly taken, except for the Investors having possession of instruments and cash constituting Collateral after the date hereof and the other filings and recordations described in Section 5(g) hereof. (i) There are no conditions precedent to the effectiveness of this Agreement that have not been satisfied or waived. SECTION 6. Covenants as to the Collateral. So long as any of the Obligations shall remain outstanding, unless the Investors shall otherwise consent in writing: (a) The Grantor will at its expense, at any time and from time to time, promptly execute and deliver all further instruments and documents and take all further action that may be necessary or desirable or that the Investors may request in order (i) to perfect and protect the security interest purported to be created hereby; (ii) to enable the Investors to exercise and enforce their rights and remedies hereunder in respect of the Collateral; or (iii) otherwise to effect the purposes of this Agreement, including, without limitation: (A) marking conspicuously each chattel paper included in the Receivables and each Related Contract and, at the request of the Investors, each of its records pertaining to the Collateral with a legend, in form and substance satisfactory to the Investors, indicating that such chattel paper, Related Contract or Collateral is subject to the pledge and security interest created hereby, (B) if any Receivable shall be evidenced by a promissory note or other instrument or chattel paper, delivering and pledging to the Investors hereunder such note, instrument or chattel paper duly endorsed and accompanied by executed instruments of transfer or assignment, all in form and substance satisfactory to the Investors, (C) executing and filing such financing or continuation statements, or amendments thereto, as may be necessary or desirable or that the Investors may request in order to perfect and preserve the security interest purported to be created hereby, and (D) furnishing to the Investors from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Investors may reasonably request, all in reasonable detail. (b) Unless the Grantor shall have given the Investors not less than 30 days' prior notice thereof, the Grantor will not change (i) its name, identity or corporate structure in any manner or (ii) the location of its chief executive office. (c) Transfers and Other Liens. (i) The Grantor will not sell, assign (by operation of law or otherwise), lease, exchange or otherwise transfer or dispose of any of the Collateral except as provided in Section VIII (F) of the Investment Agreement. (ii) The Grantor will not create or suffer to exist any Lien, claim, security interest, charge or other encumbrance upon or with respect to any Collateral except for the security interests permitted pursuant to the terms of the Investment Agreement. (d) The Grantor shall permit the Investors, or any agents or representatives of the Investors or such professionals or other Persons as the Investors may designate (i) to examine and inspect the books and records of the Grantor and take copies and extracts therefrom, and (ii) to discuss the affairs, finances and accounts of the Grantor, with, and be advised as to the same by, their officers, directors and independent accountants (and, by this subsection (d), the Grantor authorize each such officer, director and independent accountant to discuss the affairs, finances and accounts of the Grantor with such Person), provided that, in the absence of a continuing Event of Default, all such actions described in clauses (i) and (ii) above shall be conducted at reasonable times and during normal business hours. In addition, the Grantor shall forward to the Investors copies of any notices or communications received or made by the Grantor with respect to the Collateral, all in such manner as the Investors may reasonably require. (e) The Grantor will (i) keep its chief place of business and chief executive office and all originals of all chattel paper which constitute its Receivables at the location(s) specified therefor in Schedule II hereto, and (ii) keep adequate records concerning the Receivables and such chattel paper and permit representatives of the Investors at reasonable times and during normal business hours to inspect and make abstracts from such records and chattel paper in accordance with Section VII (G) of the Investment Agreement. (f) The Grantor will duly perform and observe all of its obligations under each Related Contract and, except as otherwise provided in this subsection (f), continue to collect, at its own expense, all amounts due or to become due under the Receivables. In connection with such collections, the Grantor may (and, at the Investors' direction, will) take such action as the Grantor or the Investors may reasonably deem necessary or advisable to enforce collection or performance of the Receivables; provided, however, that the Investors shall have the right at any time, upon the occurrence and during the continuance of an Event of Default to notify the account debtors or obligors under any such Receivables of the assignment of such Receivables to the Investors and to direct such account debtors or obligors to make payment of all amounts due or to become due to the Grantor thereunder directly to the Investors or its designated agent and, upon such notification and at the expense of the Grantor and to the extent permitted by law, to enforce collection of any such Receivables and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as the Grantor might have done. After receipt by the Grantor of a notice from the Investors that the Investors have notified or intend to notify the account debtors or obligors under any Receivables as referred to in the proviso to the immediately preceding sentence, then (i) all amounts and proceeds (including instruments) received by the Grantor in respect of any Receivables shall be received in trust for the benefit of the Investors hereunder, shall be segregated from other funds of the Grantor and shall be forthwith paid over to the Investors in the same form as so received (with any necessary endorsement) to be applied to the Obligations, and (ii) the Grantor will not adjust, settle or compromise the amount or payment of any Receivable or release in whole or in part any account debtor or obligor thereof or allow any credit or discount thereon. In addition, upon the occurrence and during the continuance of an Event of Default, the Investors shall have the right to notify the United States Postal Service authorities to change the address for delivery of mail addressed to the Grantor at such addresses as the Investors may designate and to do all other acts and things necessary or desirable to effect the purposes of this Agreement. (g) Upon the occurrence and during the continuance of any breach or default under any Related Contract referred to in Schedule I hereto by any party thereto other than the Grantor, the Grantor (i) will, promptly after obtaining knowledge of such breach or default, give the Investors written notice of the nature and duration of such breach or default, specifying what action, if any, it has taken and proposes to take with respect thereto, (ii) will not, without the prior written consent of the Investors, declare or waive any such breach or default or affirmatively consent to the cure thereof or exercise any of its remedies in respect thereof, and (iii) will, upon written instructions from the Investors and at the Grantor's expense, take such action as the Investors may deem necessary or advisable in respect thereof. (h) The Grantor will, at its expense, promptly deliver to the Investors a copy of each notice or other communication received by it by which any other party to any Related Contract referred to in Schedule I hereto purports to exercise any of its rights or affect any of its obligations thereunder, together with a copy of any reply by the Grantor thereto. (i) The Grantor will not, without the prior written consent of the Investors, cancel, terminate, amend or otherwise modify in any respect, or waive any provision of, any Related Contract referred to in Schedule I hereto. (j) If any Receivable includes a charge for any tax payable to any Governmental Authority, the Investors are hereby authorized (but in no event obligated) in its discretion to pay the amount thereof to the proper taxing authority for the account of the Grantor and to charge the Grantor therefor. The Grantor shall notify the Investors if any Receivable includes any taxes due to any Governmental Authority and, in the absence of such notice, the Investors shall have the right to retain any proceeds of such Receivable that the Investors receive and shall not be liable for any taxes that may be due from the Grantor by reason of the sale and delivery creating such Receivable. SECTION 7. Additional Provisions Concerning the Collateral. (a) The Grantor hereby authorizes the Investors to file, without the signature of the Grantor where permitted by law, one or more financing or continuation statements, and amendments thereto, relating to the Collateral. (b) The Grantor hereby irrevocably appoints the Investors or their designee on behalf of the Investors the Grantor's attorney-in-fact and proxy, with full authority in the place and stead of the Grantor and in the name of the Grantor or otherwise, from time to time in the Investors' discretion, to take any action and to execute any instrument which the Investors may deem necessary or advisable to accomplish the purposes of this Agreement including, without limitation, (i) upon the occurrence of an Event of Default, to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any Collateral, and (ii) to receive, endorse, assign and collect any drafts or other instruments, documents and chattel paper in connection with clause (i) above, and (iii) to file any claims or take any action or institute any proceedings which the Investors may deem necessary or desirable for the collection of any Collateral or otherwise to enforce the rights of the Investors with respect to any Collateral. All acts of said attorney or designee are hereby ratified and approved, and said attorney or designee shall not be liable for any acts of omission or commission (other than acts or omissions constituting gross negligence or willful misconduct as determined by a final judgment or a court of competent jurisdiction), nor for any error of judgment or mistake of fact or law. This power is coupled with an interest and is irrevocable until all of the Obligations are paid in full and the Investment Agreement is terminated. (c) If the Grantor fails to perform any agreement contained herein, the Investors may themselves perform, or cause performance of, such agreement or obligation, in the name of the Grantor or the Investors, and the expenses of the Investors incurred in connection therewith shall be payable by the Grantor pursuant to Sections 8 and 9. (d) The powers conferred on the Investors hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Investors shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. (e) Anything herein to the contrary notwithstanding (i) the Grantor shall remain liable under the Related Contracts and otherwise with respect to any of the Collateral to the extent set forth therein to perform all of its obligations thereunder to the same extent as if this Agreement had not been executed, (ii) the exercise by the Investors of any of their rights hereunder shall not release the Grantor from their obligations under the Related Contracts or otherwise in respect of the Collateral, and (iii) the Investors shall not have any obligation or liability by reason of this Agreement under the Related Contracts or with respect to any of the other Collateral, nor shall the Investors be obligated to perform any of the obligations or duties of the Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. SECTION 8. Remedies Upon Default. If any Event of Default shall have occurred and be continuing: (a) The Investors may exercise in respect of the Collateral, or any part thereof, in addition to other rights and remedies provided for herein, in the Investment Agreement, the Notes or in the Note Documents or otherwise available to it, all of the rights and remedies of a secured party in default under the Code (whether or not the Code applies to the affected Collateral), and also may (i) take absolute control of the Collateral, including without limitation transfer into the Investors' names or into the names of their nominee or nominees (to the extent the Investors have not theretofore done so) and thereafter receive, for the benefit of the Investors, all payments made thereon, give all consents, waivers and ratifications in respect thereof and otherwise act with respect thereto as though it were the outright owner thereof, (ii) require the Grantor to, and the Grantor hereby agrees that it will at its expense and upon request of the Investors forthwith, assemble all or part of the Collateral as directed by the Investors and make it available to the Investors at a place or places to be designated by the Investors which is reasonably convenient to all parties, and the Investors may enter into and occupy any premises owned or leased by the Grantor where the Collateral of any part thereof is located or assembled for a reasonable period in order to effectuate the Investors' rights and remedies hereunder or under law, without obligation to the Grantor in respect of such occupation, and (iii) without notice, except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Investors' offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Investors may deem commercially reasonable. The Grantor agrees that, to the extent notice of sale shall be required by law, at least 10 days' notice to the Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Investors shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Investors may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. The Grantor hereby waives any claims against the Investors arising by reason of the fact that the price at which the Collateral may have been sold at a private sale was less than the price which might have been obtained at a public sale or was less than the aggregate amount of the Obligations, even if the Investors accepts the first offer received and does not offer the Collateral to more than one offeree and waives all rights which the Grantor may have to require that all or any part of the Collateral be marshalled upon any sale (public or private) thereof. (b) Any cash held by the Investors as Collateral and all proceeds received by the Investors in respect of any sale or collection from, or other realization upon, all or any part of the Collateral, after payment from such proceeds of the Investors's out-of-pocket costs and expenses in connection with such sale, including, without limitation reasonable attorneys' fees and expenses, may, in the discretion of the Investors, be held by the Investors as collateral for, and/or then or at any time thereafter applied in whole or in part by the Investors against, all or any part of the Obligations in such manner as the Investors may elect in its sole discretion. (c) Other than the exercise of reasonable care in the custody and preservation of the Collateral, the Investors shall have no duty with respect thereto. the Investors shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which it accords its own property, and shall not be liable or responsible for any loss or damage to any of the Collateral, or for any diminution in the value thereof, by reason of the act or omission of any agent or bailee selected by the Investors in good faith. (d) In the event that the proceeds of any such sale, collection or realization are insufficient to pay all amounts to which the Investors is legally entitled, the Grantor shall be liable for the deficiency, together with interest thereon at the Default Rate or such other rate as shall be fixed by applicable law, together with the costs of collection and the reasonable fees, costs, expenses and other client charges of any attorneys employed by the Investors to collect such deficiency. (e) The Investors may employ and maintain in the premises of the Grantor one or more custodians selected by the Investors who shall have full authority to do all acts necessary or desirable to protect the Investors's interests hereunder. The Grantor hereby agree to cooperate with any such custodian and to do whatever the Investors may reasonably request to preserve the Collateral. All costs and expenses incurred by the Investors, by reason of the employment of the custodian, shall be payable the Grantor pursuant to Section 9. SECTION 9. Indemnity and Expenses. (a) The Grantor agrees to indemnify and hold the Investors, its Affiliates and each officer, director and agent of the Investors or any of its Affiliates (the "Indemnitees") harmless from and against any and all claims, damages, losses, liabilities, obligations, penalties, costs or expenses (including, without limitation, reasonable legal fees, costs, expenses and other client charges) to the extent that they arise out of or otherwise result from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses or liabilities resulting solely and directly from an Indemnitee's gross negligence or willful misconduct as determined by a final determination of a court of competent jurisdiction. (b) Without limiting the generality of the foregoing, the Grantor will upon demand pay to each Indemnitee (i) the amount of any and all costs and expenses, including the reasonable fees, costs, expenses and other client charges of counsel for such Indemnitee and of any experts and agents (including, without limitation, any Person which may act as agent of such Indemnitee), which such Indemnitee may incur in connection with (A) the preparation, negotiation, execution, delivery, recordation, administration, amendment, waiver or other modification or termination of this Agreement, or (B) the custody, preservation, use or operation of the Collateral and (ii) the amount of any and all costs and expenses, including the reasonable fees, costs, expenses and other client charges of counsel for such Indemnitee and of any experts and agents (including, without limitation, any Person which may act as agent of such Indemnitee), which such Indemnitee may incur in connection with (A) the sale of, collection from, or other realization upon, any Collateral, (B) the exercise or enforcement of any of the rights of such Indemnitee hereunder, or (C) the failure by the Grantor to perform or observe any of the provisions hereof. SECTION 10. Notices, Etc. All notices and other communications provided for hereunder shall be in writing and shall be mailed, telecopied or delivered, if to the Grantor, to them at the addresses specified in the Investment Agreement; and if to the Investors, to it at its address specified in the Investment Agreement; or as to any such Person at such other address as shall be designated by such Person in a written notice to such other person complying as to delivery with the terms of this Section 11. All such notices and other communications shall be effective (i) if mailed, when received or three Business Days after deposited in the mail, whichever first occurs (ii) if telecopied, when transmitted and a confirmation is received, or (iii) if delivered, upon delivery. SECTION 11. Miscellaneous. (a) No amendment of any provision of this Agreement shall be effective unless it is in writing and signed by the Grantor and the Investors, and no waiver of any provision of this Agreement, and no consent to any departure by the Grantor therefrom, shall be effective unless it is in writing and signed by the Investors, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. (b) No failure on the part of the Investors to exercise, and no delay in exercising, any right hereunder or under any other Note Document shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies of the Investors provided herein and in the other Note Documents are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law. The rights of the Investors under any Note Document against any party thereto are not conditional or contingent on any attempt by the Investors to exercise any of its rights under any other Note Document against such party or against any other Person. (c) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. (d) This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until the payment in full or release of the Obligations and the termination of the Investment Agreement; and (ii) be binding on the Grantor, their successors and assigns, except that the Grantor may not assign or transfer any of their rights hereunder without the prior written consent of the Investors, and shall inure, together with all rights and remedies of the Investors hereunder, to the benefit of the Investors and its permitted successors, transferees and assigns. Without limiting the generality of clause (ii) of the immediately preceding sentence, without notice to the Grantor, the Investors may assign or otherwise transfer its rights under this Agreement and any other Note Document, to any other Person pursuant to the terms of the Investment Agreement and such other Person shall thereupon become vested with all of the benefits in respect thereof granted to the Investors herein or otherwise. Upon any such assignment or transfer, all references in this Agreement to the Investors shall mean the assignee of the Investors. None of the rights or obligations of the Grantor hereunder may be assigned or otherwise transferred without the prior written consent of the Investors, and any such assignment or transfer shall be null and void. (e) Upon the satisfaction in full of the Obligations and the termination of the Investment Agreement, (i) this Agreement and the security interests created hereby shall terminate and all rights to the Collateral shall revert to the Grantor and (ii) the Investors will, upon the Grantor's request and at the requesting Grantor's cost and expense, (A) return to the Grantor(s) such of the Collateral as shall not have been sold or otherwise disposed of or applied pursuant to the terms hereof and (B) execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination, all without any representation, warranty or recourse whatsoever. (f) This Agreement shall be governed by and construed in accordance with the law of the State of New York, except to the extent that the validity and perfection or the perfection and the effect of perfection or non-perfection of the security interest created hereby, or remedies hereunder, in respect of any particular Collateral are governed by the law of a jurisdiction other than the State of New York. (g) This Agreement supersedes all prior understandings and agreements, whether written or oral, among the parties hereto relating to the transactions provided for herein. (h) All representations and warranties of the Grantor contained herein or made in connection herewith shall survive the making of and shall not be waived by the execution and delivery of this Agreement, the Investment Agreement, the Notes or any other Note Document, any investigation by the Investors or the purchasing of the Notes. All covenants and agreements of the Grantor contained herein shall continue in full force and effect from and after the date hereof until the indefeasible payment in full of the Obligations. (i) Section headings in this Agreement are included herein for the convenience of reference only and shall not constitute a part of this Agreement for any other purpose. (j) BY ITS EXECUTION AND DELIVERY OF THIS AGREEMENT, THE GRANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT, THE INVESTMENT AGREEMENT, THE NOTES OR ANY OTHER NOTE DOCUMENT, ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE INVESTORS OR THE GRANTOR IN CONNECTION HEREWITH OR THEREWITH. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE INVESTORS TO ENTER INTO THIS AGREEMENT. IN WITNESS WHEREOF, the Grantor has caused this Agreement to be executed and delivered by its officer thereunto duly authorized as of the date first above written. COMPLETE WELLNESS MEDICAL CENTER OF ______________, INC. By: -------------------------------- Name: Title: Accepted and Agreed: IMPRIMIS INVESTORS LLC By:____________________________ Name: Title: Schedule I RELATED CONTRACTS Schedule II ADDRESS OF GRANTOR Chief Place of Business, 725 Independence Avenue, S.E. Chief Executive Office Washington, D.C. 20003 and Location of Records Schedule III UCC-1 FINANCING STATEMENTS EX-99 6 EXHIBIT V - SUPPLEMENT TO INVESTMENT AGREEMENT EXHIBIT V SUPPLEMENT TO INVESTMENT AGREEMENT SUPPLEMENT TO INVESTMENT AGREEMENT, dated as of January 12, 1998, by and among Complete Wellness Centers, Inc., a Delaware corporation (the "Company"), Imprimis Investors LLC ("Imprimis") and Wexford Spectrum Investors LLC ("Wexford" and, together with Imprimis, the "Investors"). Reference is made to the Investment Agreement, dated as of December 19, 1997 (the "Investment Agreement"), by and among the Company and the Investors. Capitalized terms used in this Supplement to Investment Agreement without definition shall have the meanings ascribed to them in the Investment Agreement. In order to implement the provisions of Section II.D of the Investment Agreement, the Company and the Investors hereby agree as follows: 1. The Preferred Stock shall be issued pursuant to a Certificate of Designations, Preferences and Rights in the form of Exhibit A hereto as filed with the Secretary of State of the State of Delaware on the date hereof. Two stock certificates representing all of the Preferred Stock initially outstanding shall be issued by the Company at the Closing (as defined below) as follows: (a) to Imprimis, 80,000 shares; and (b) to Wexford, 20,000 shares. 2. The Warrants shall be issued in the form of Exhibit B hereto. Two Warrants representing all of the Warrants shall be issued by the Company at the Closing as follows: (a) to Imprimis, initially exercisable for 2,280,000 shares of Common Stock; and (b) to Wexford, initially exercisable for 570,000 shares of Common Stock. 3. The registration rights contemplated by Section II(D)(5) of the Investment Agreement shall be provided for in the Registration Rights Agreement in the form of Exhibit C hereto and dated as of the date hereof. 4. Matters relating to the issuance and sale of the Preferred Stock and the Warrants and the execution and delivery by the Company of this Supplement to the Investment Agreement and the Registration Rights Agreement shall be addressed in an opinion from Epstein Becker & Green, P.C., special counsel to the Company, in the form of Exhibit D hereto and dated as of the date hereof. 5. The net proceeds from the issuance and sale of the Preferred Stock and the Warrants shall be used by the Company first to repay in full the principal of and accrued interest on the Notes through the date hereof, the Investors' transaction fees of $125,000 payable in connection with the Notes, the Preferred Stock and the Warrants and any portion of the Investors' $75,000 expense reimbursement allowance not otherwise paid to the Investors, such payment to be made by means of a deduction from the $4,000,000 otherwise payable on January 27, 1998 (after giving effect to such deductions, the "Deferred Payment"). The remaining net proceeds from the issuance and sale of the Preferred Stock and the Warrants, including the balance of the Deferred Payment, shall be used by the Company for the general corporate purposes. 6. The closing of the issuance and sale of the Preferred Stock and the Warrants (the "Closing") shall take place at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, as soon as practicable after execution of this Supplement to Investment Agreement, subject to (a) the execution and delivery by the Company to the Investors of the documents referenced in Sections 1, 2 and 3 above, (b) the delivery to the Investors of the opinion referenced in Section 4 above, (c) the payment by the Investors by wire transfer to the Company of $500,000, (d) the use by the Company of the net proceeds thereof as referenced in the first sentence of Section 5 above and (e) confirmation by the Company, which it hereby makes, that the Company's representations and warranties contained in the Investment Agreement remain true and complete in all material respects as of the date hereof and that Exhibit C to the Warrant Agreement sets forth complete and accurate information as to all warrants, options or other securities or other instruments exercisable for or convertible into shares of Common Stock and the effect, if any, of the issuance and sale of the Warrants and the underlying Common Stock on any antidilition provisions of such securities or other instruments. Assuming that the Closing occurs, the Investors agree to pay to the Company by wire transfer on January 27, 1998 the Deferred Paymenmt in payment of the balance of the purchase price for the Preferred Stock and the Warrants. 7. From and after the Closing and for so long as any Preferred Stock or Warrants remain outstanding, (a) the "Affirmative Covenants" provided for in Sections VII(A) through VII(H) of the Investment Agreement and the "Negative Covenants" provided for in Sections VIII(A), VIII(C), VIII(E), VIII(F), VIII(H), VIII(I) and VIII(J) shall remain in full force and effect, with all other "Affirmative Covenants" and "Negative Covenants" contained in the Investment Agreement to be terminated, (b) the Investors shall have the right to approve the Company's proposed annual budget, which shall be provided to the Investors no later than 30 days before the beginning of the fiscal year for which the budget shall be in effect, and the Investors shall have the right to approve any action or expenditure which, alone or in the aggregate, would result in a deviation of more than five percent from the annual budget previously approved by the Investors, and (c) the Company shall have in full force and effect a "key man" insurance policy in the face amount of not less than $5 million, naming C. Thomas McMillen as the insured and the Company as the sole beneficiary. 8. Except as modified pursuant to this Supplement to Investment Agreement, all terms and provision of the Investment Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above. COMPLETE WELLNESS CENTERS, INC. BY /s/ C. Thomas McMillen Name: Title: IMPRIMIS INVESTORS LLC BY /s/ Frank Plimpton Name: Title: WEXFORD SPECTRUM INVESTORS LLC BY /s/ Frank Plimpton Name: Title: EX-99 7 EXHIBIT VI - WARRANT EXHIBIT VI COMPLETE WELLNESS CENTERS, INC. Common Stock Purchase Warrant Dated as of January 12, 1998 THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. TABLE OF CONTENTS 1. Exercise of Warrant....................................... 1 1.1. Manner of Exercise................................. 1 1.2. When Exercise Effective............................ 2 1.3. Delivery of Stock Certificates, etc................ 2 1.4. Restriction on Exercise............................ 2 2. Adjustment of Common Stock Issuable Upon Exercise................................................ 3 2.1. General; Warrant Quantity.......................... 3 2.2. Adjustment of Warrant Quantity..................... 3 2.3. Treatment of Options and Convertible Securities....................................... 4 2.4. Treatment of Stock Dividends, Stock Splits, etc.............................................. 6 2.5. Computation of Consideration....................... 7 2.6. Adjustments for Combinations, etc.................. 8 2.7. Dilution in Case of Other Securities............... 8 2.8. Minimum Adjustment of Warrant Quantity............. 8 2.9. No Duplication of Adjustments...................... 9 3. Consolidation, Merger, etc................................ 9 3.1. Adjustments for Consolidation, Merger, Sale of Assets, Reorganization, etc................... 9 3.2. Assumption of Obligations.......................... 10 4. Other Dilutive Events..................................... 10 5. No Dilution or Impairment................................. 11 6. Accountants' Report as to Adjustments..................... 11 7. Financial and Business Information........................ 12 7.1. Quarterly Information.............................. 12 7.2. Annual Information................................. 12 7.3. Filings............................................ 13 7.4. Notices of Corporate Action........................ 13 8. Registration of Common Stock.............................. 14 9. Restrictions on Transfer.................................. 14 9.1. Restrictive Legends................................ 14 9.2. Transfer to Comply With the Securities Act......... 15 9.3. Termination of Restrictions........................ 15 10. Reservation of Stock, etc................................. 15 11. Registration and Transfer of Warrants, etc. .............. 16 11.1. Warrant Register; Ownership of Warrants......................................... 16 11.2. Transfer of Warrants............................... 16 11.3. Replacement of Warrants............................ 17 11.4. Adjustments To Warrant Quantity.................... 17 11.5. Fractional Shares.................................. 17 12. Redemption................................................ 17 12.1. Amounts Redeemable.......................... 17 12.2. Redemption Price............................ 18 12.3. Notice of Partial Redemption; Payment....... 18 13. Definitions............................................... 18 14. Remedies; Specific Performance............................ 23 15. No Rights or Liabilities as Shareholder................... 23 16. Notices................................................... 23 17. Amendments................................................ 25 18. Descriptive Headings, Etc................................. 25 19. Governing Law............................................. 25 20. Judicial Proceedings; Waiver of Jury...................... 25 21. Registration Rights Agreement............................. 26 22. Determination of Current Market Price or Market Price............................................................ 26 COMPLETE WELLNESS CENTERS, INC. Common Stock Purchase Warrant Void After January 12, 2005 No. W-2 January 12, 1998 COMPLETE WELLNESS CENTERS, INC. (the "Company"), a Delaware corporation, for value received, hereby certifies that Imprimis Investors LLC ("Imprimis"), or its registered assigns (each, a "Holder"), is entitled to purchase from the Company an aggregate of 2,280,000 duly authorized, validly issued, fully paid and nonassessable shares of common stock, par value $0.0001665 per share, of the Company (the "Common Stock") at the purchase price per share of $1.75, at any time or from time to time prior to 5:30 PM, New York City time, on January 12, 2005 (the "Expiration Date"), all subject to the terms, conditions and adjustments set forth below in this Warrant. This Warrant is one of the Common Stock Purchase Warrants (the "Warrants," such term to include any such warrants issued in substitution therefor) originally issued in connection with the Investment Agreement, dated as of December 19, 1997 and as supplemented as of January 12, 1998, by and among the Company, Wexford Spectrum Investors LLC and Imprimis (as amended or otherwise modified from time to time, the "Investment Agreement"). The Warrants are subject to adjustment as provided herein. Certain capitalized terms used in this Warrant are defined in Section 13; references to an "Exhibit" are, unless otherwise specified, to one of the Exhibits attached to this Warrant and references to a "Section" are, unless otherwise specified, to one of the Sections of this Warrant. 1. Exercise of Warrant. 1.1. Manner of Exercise. Subject to the restrictions set forth in Section 1.4, this Warrant may be exercised by the Holder, in whole or in part, at any time or from time to time, on or after the date hereof, during normal business hours on any Business Day, by surrender of this Warrant to the Company at its principal office, accompanied by the Form of Subscription in substantially the form attached as Exhibit A to this Warrant (or a reasonable facsimile thereof) duly executed by the Holder and accompanied by payment, in cash, by certified or official bank check payable to the order of the Company, or in the manner provided in Section 1.5 or Section 1.6 (or by any combination of such methods), in the amount obtained by multiplying (a) the number of shares of Common Stock designated in such Form of Subscription (adjusted as provided in Sections 2 through 4) by (b) the Warrant Price at the time of the exercise, as determined in accordance with Section 2.1, and the Holder shall thereupon be entitled to receive such number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities as provided below). 1.2. When Exercise Effective. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the Business Day on which this Warrant shall have been surrendered to the Company as provided in Section 1.1. At such time the Person or Persons in whose name or names any certificate or certificates for shares of Common Stock (or Other Securities) shall be issuable upon such exercise, as provided in Section 1.3, shall be deemed to have become the Holder or holders of record thereof. 1.3. Delivery of Stock Certificates, etc. As soon as practicable after each exercise of this Warrant, in whole or in part, and in any event within three Business Days thereafter, the Company at its expense (including the payment by it of any applicable transfer taxes) will cause to be issued in the name of and delivered to the Holder hereof or, subject to Section 11, as the Holder (upon payment by the Holder of any applicable transfer taxes) may direct, (a) a certificate or certificates for the number of duly authorized, validly issued, fully paid and nonassessable shares, including, if the Company so elects, fractional shares, of Common Stock (or Other Securities) to which such Holder shall be entitled upon such exercise plus, at the discretion of the Company, in lieu of any fractional share to which such Holder would otherwise be entitled, cash in an amount equal to the same fraction of the Current Market Price per share on the Business Day next preceding the date of such exercise; and (b) in case such exercise is in part only, a new Warrant or Warrants of like tenor, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock equal (without giving effect to any adjustment thereof) to the number of such shares called for on the face of this Warrant minus the number of such shares designated by the Holder upon such exercise as provided in Section 1.1. 1.4. Restriction on Exercise. This Warrant may not be exercised (a) to the extent that the shares of Common Stock held by any holders of this and any other Warrants then outstanding, in the aggregate after giving effect to such exercise, would exceed 50% of the shares of Common Stock then issued and outstanding; and (b) to the extent that such exercise would reduce the remaining number of shares issuable under this and any other Warrants then outstanding below the Redemption Eligible Amount. The "Redemption Eligible Amount" shall mean, (i) for the period through December 31, 1998, 1,500,000; (ii) for the period from January 1, 1999 through March 31, 2000, 1,200,000; (iii) for the period from April 1, 2000 through March 31, 2001, 600,000; and (iv) at any time after March 31, 2001, 0; provided, however, that the Redemption Eligible Amount will be appropriately adjusted to reflect transactions or other matters giving rise to adjustments to the Warrant Quantity. 2. Adjustment of Common Stock Issuable Upon Exercise. 2.1. General; Warrant Quantity. This Warrant initially evidences the right to purchase a number of shares of Common Stock set forth in the first paragraph of this Warrant (the "Initial Number"), subject to adjustment as provided in this Section 2, and in Sections 3 and 4. The "Warrant Price" shall be fixed at $1.75 per share of Common Stock received upon exercise of this Warrant, provided, however, that if the Company, (a) within 120 days following a request by any Holder of a Warrant other than a Withdrawn Demand Registration, fails to effect or maintain the registration of Registrable Securities pursuant to, and for the period contemplated by, Section 2.1 of the Registration Rights Agreement, or (b) fails to effect or maintain the registration of Registrable Securities pursuant to Section 2.2 of the Registration Rights Agreement, then the Warrant Price shall be reduced by $0.25. The Warrant Price may be so reduced only once. The Warrant Price shall be so reduced notwithstanding that (i) the Company shall have used its best efforts to effect and maintain the registration of Registrable Securities, or (ii) there has been any postponement of registration pursuant to Section 2.7 of the Registration Rights Agreement. 2.2. Adjustment of Warrant Quantity. (a) Issuance of Additional Shares of Common Stock. In case the Company at any time or from time to time after the date hereof shall issue or sell Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 2.3 or 2.4) without consideration or for a consideration per share less than the Current Market Price in effect immediately prior to such issue or sale, then, and in each such case, subject to Section 2.8, the number of shares of Common Stock provided for in the Warrant shall be increased, concurrently with such issue or sale, to an amount determined by multiplying such number by a fraction (a) the numerator of which shall be the number of shares of Common Stock outstanding immediately after such issue or sale, provided that, for the purposes of this Section 2.2(a), (x) immediately after any Additional Shares of Common Stock are deemed to have been issued pursuant to Section 2.3 or 2.4, such Additional Shares shall be deemed to be outstanding, and (y) treasury shares shall not be deemed to be outstanding, and (b) the denominator of which shall be (i) the number of shares of Common Stock outstanding immediately prior to such issue or sale plus (ii) the number of shares of Common Stock which the aggregate consideration received by the Company for the total number of such Additional Shares of Common Stock so issued or sold would purchase at such Current Market Price. (b) Dividends and Distributions. In case the Company at any time or from time to time after the date hereof shall declare, order, pay or make a dividend or other distribution (including, without limitation, any distribution of other or additional stock or other securities or property or Options by way of dividend or spin-off, reclassification, recapitalization or similar corporate rearrangement) on the Common Stock other than a dividend payable in Additional Shares of Common Stock the Holder of this Warrant shall receive the same dividend per share of Common Stock then issuable upon exercise of this Warrant based upon the maximum number of shares of Common Stock at the time issuable to such Holder as the holders of Common Stock. 2.3. Treatment of Options and Convertible Securities. In case the Company at any time or from time to time after the date hereof shall issue, sell, grant or assume, or shall fix a record date for the determination of holders of any class of securities entitled to receive, any Options or Convertible Securities, then, and in each such case, the maximum number of Additional Shares of Common Stock (as set forth in the instrument relating thereto, without regard to any provisions contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue, sale, grant or assumption or, in case such a record date shall have been fixed, as of the close of business on such record date (or, if the Common Stock trades on an ex-dividend basis, on the date prior to the commencement of ex-dividend trading), provided that such Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 2.5) of such shares would be less than the Current Market Price in effect on the date of and immediately prior to such issue, sale, grant or assumption or immediately prior to the close of business on such record date (or, if the Common Stock trades on an ex-dividend basis, on the date prior to the commencement of ex-dividend trading), as the case may be, and provided, further, that in any such case in which Additional Shares of Common Stock are deemed to be issued, (a) whether or not the Additional Shares of Common Stock underlying such Options or Convertible Securities are deemed to be issued, no further adjustment of the Warrant Quantity shall be made upon the subsequent issue or sale of Convertible Securities or shares of Common Stock upon the exercise of such Options or the conversion or exchange of such Convertible Securities, except in the case of any such Options or Convertible Securities which contain provisions requiring an adjustment, subsequent to the date of the issue or sale thereof, of the number of Additional Shares of Common Stock issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities by reason of (x) a change of control of the Company, (y) the acquisition by any Person or group of Persons of any specified number or percentage of the Voting Securities of the Company or (z) any similar event or occurrence, each such case to be deemed hereunder to involve a separate issuance of Additional Shares of Common Stock, Options or Convertible Securities, as the case may be; (b) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Company, or decrease in the number of Additional Shares of Common Stock issuable, upon the exercise, conversion or exchange thereof (by change of rate or otherwise), the Warrant Quantity computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of the record date, or date prior to the commencement of ex-dividend trading, as the case may be, with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase insofar as it affects such Options, or the rights of conversion or exchange under such Convertible Securities, which are outstanding at such time; (c) upon the expiration (or purchase by the Company and cancellation or retirement) of any such Options which shall not have been exercised or the expiration of any rights of conversion or exchange under any such Convertible Securities which (or purchase by the Company and cancellation or retirement of any such Convertible Securities the rights of conversion or exchange under which) shall not have been exercised, the Warrant Quantity computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of the record date, or date prior to the commencement of ex-dividend trading, as the case may be, with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration (or such cancellation or retirement, as the case may be), be recomputed as if: (i) in the case of Options for Common Stock or Convertible Securities, the only Additional Shares of Common Sock issued or sold were the Additional Shares of Common Stock, if any, actually issued or sold upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Company for the issue, sale, grant or assumption of all such Options, whether or not exercised, plus the consideration actually received by the Company upon such exercise, or for the issue or sale of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Company upon such conversion or exchange; and (ii) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued or sold upon the exercise of such Options were issued at the time of the issue or sale, grant or assumption of such Options, and the consideration received by the Company for the Additional Shares of Common Stock deemed to have then been issued was the consideration actually received by the Company for the issue, sale, grant or assumption of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Company (pursuant to Section 2.5) upon the issue or sale of such Convertible Securities with respect to which such Options were actually exercised; (d) no readjustment pursuant to subdivision (b) or (c) above shall have the effect of decreasing the number of shares issuable upon exercise of this Warrant by an amount in excess of the amount of the adjustment thereof originally made in respect of the issue, sale, grant or assumption of such Options or Convertible Securities; and (e) in the case of any such Options which expire by their terms not more than 30 days after the date of issue, sale, grant or assumption thereof, no adjustment of the number of shares issuable upon exercise of this Warrant shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the manner provided in subdivision (c) above. 2.4. Treatment of Stock Dividends, Stock Splits, etc. In case the Company at any time or from time to time after the date hereof shall declare or pay any dividend on the Common Stock payable in Common Stock, or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then, and in each such case, Additional Shares of Common Stock shall be deemed to have been issued (a) in the case of any such dividend, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend, or (b) in the case of any such subdivision, at the close of business on the day immediately prior to the day upon which such corporate action becomes effective. 2.5. Computation of Consideration. For the purposes of this Section 2 (a) the consideration for the issue or sale of any Additional Shares of Common Stock shall, irrespective of the accounting treatment of such consideration, (i) insofar as it consists of cash, be computed at the net amount of cash received by the Company, without deducting any expenses paid or incurred by the Company or any commissions or compensations paid or concessions or discounts allowed to underwriters, dealers or others performing similar services in connection with such issue or sale; (ii) insofar as it consists of property (including securities) other than cash, be computed at the fair value thereof at the time of such issue or sale, as determined in good faith by the Board of Directors of the Company; and (iii) in case Additional Shares of Common Stock are issued or sold together with other stock or securities or other assets of the Company for a consideration which covers both, be the portion of such consideration so received, computed as provided in clauses (i) and (ii) above, allocable to such Additional Shares of Common Stock, all as determined in good faith by the Board of Directors of the Company; (b) Additional Shares of Common Stock deemed to have been issued pursuant to Section 2.3, relating to Options and Convertible Securities, shall be deemed to have been issued for a consideration per share determined by dividing (i) the total amount, if any, received and receivable by the Company as consideration for the issue, sale, grant or assumption of the Options or Convertible Securities in question, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration to protect against dilution) payable to the Company upon the exercise in full of such Options or the conversion or exchange of such Convertible Securities or, in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, in each case computing such consideration as provided in the foregoing subdivision (a), by (ii) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number to protect against dilution) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities; and (c) Additional Shares of Common Stock deemed to have been issued pursuant to Section 2.4, relating to stock dividends, stock splits, etc., shall be deemed to have been issued for no consideration. 2.6. Adjustments for Combinations, etc. In case the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the number of shares issuable upon exercise of this Warrant in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately decreased. 2.7. Dilution in Case of Other Securities. In case any Other Securities shall be issued or sold or shall become subject to issue or sale upon the conversion or exchange of any stock (or Other Securities) of the Company (or any issuer of Other Securities or any other Person referred to in Section 3) or to subscription, purchase or other acquisition pursuant to any Options issued or granted by the Company (or any such other issuer or Person) for a consideration such as to dilute, on a basis consistent with the standards established in the other provisions of this Section 2, the purchase rights granted by this Warrant, then, and in each such case, the computations, adjustments and readjustments provided for in this Section 2 with respect to the number of shares issuable upon exercise of the Warrant shall be made as nearly as possible in the manner so provided and applied to determine the amount of Other Securities from time to time receivable upon the exercise of the Warrant, so as to protect the Holder against the effect of such dilution. 2.8. Minimum Adjustment of Warrant Quantity. If the amount of any adjustment of the Warrant Quantity required pursuant to this Section 2 would be less than one tenth (1/10) of one percent (1%) of the number of shares issuable upon exercise of the Warrant in effect at the time such adjustment is otherwise so required to be made, such amount shall be carried forward and adjustment with respect thereto made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate at least one tenth (1/10) of one percent (1%) of such number of shares issuable upon exercise of the Warrant. All calculations under this Warrant shall be made to the nearest one-hundredth of a share. 2.9. No Duplication of Adjustments. There shall be no adjustment of the number of shares of Common Stock issuable upon exercise of this Warrant in case of the issuance of any stock of the Company in a reorganization, acquisition or other similar transaction except as specifically set forth in this Warrant. If any action or transaction would require adjustment of the number of shares of Common Stock issuable upon exercise of this Warrant pursuant to more than one Section of this Warrant, only one adjustment shall be made and such adjustment shall be the amount of adjustment that has the highest absolute value. 3. Consolidation, Merger, etc. 3.1. Adjustments for Consolidation, Merger, Sale of Assets, Reorganization, etc. In case the Company after the date hereof (a) shall consolidate with or merge into any other Person and shall not be the continuing or surviving corporation of such consolidation or merger, or (b) shall permit any other Person to consolidate with or merge into the Company and the Company shall be the continuing or surviving Person but, in connection with such consolidation or merger, the Common Stock or Other Securities shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (c) shall transfer all or substantially all of its properties or assets to any other Person, or (d) shall effect a capital reorganization or reclassification of the Common Stock or Other Securities (other than a capital reorganization or reclassification resulting in the issue of Additional Shares of Common Stock for which adjustment in the number of shares of Common Stock issuable upon the exercise of this Warrant is provided in Section 2.2(a) or 2.2(b)), then, and in the case of each such transaction, proper provision shall be made so that, upon the basis and the terms and in the manner provided in this Warrant, the Holder, upon the exercise hereof at any time after the consummation of such transaction, shall be entitled to receive (at the aggregate Warrant Price in effect at the time of such consummation for all Common Stock or Other Securities issuable upon such exercise immediately prior to such consummation), in lieu of the Common Stock or Other Securities issuable upon such exercise prior to such consummation, the highest amount of securities, cash or other property to which such Holder would actually have been entitled as a shareholder upon such consummation if such Holder had exercised the rights represented by this Warrant immediately prior thereto, subject to adjustments (subsequent to such consummation) as nearly equivalent as possible to the adjustments provided for in Sections 2 through 4, provided that if a purchase, tender or exchange offer shall have been made to and accepted by the holders of more than 50% of the outstanding shares of Common Stock, and if the Holder so designates in a notice given to the Company on or before the date immediately preceding the date of the consummation of such transaction, the Holder shall be entitled to receive the highest amount of securities, cash or other property to which such Holder would actually have been entitled as a shareholder if the Holder had exercised this Warrant prior to the expiration of such purchase, tender or exchange offer and accepted such offer, subject to adjustments (from and after the consummation of such purchase, tender or exchange offer) as nearly equivalent as possible to the adjustments provided for in Sections 2 through 4. 3.2. Assumption of Obligations. Notwithstanding anything contained in this Warrant to the contrary, the Company will not effect any of the transactions described in clauses (a) through (d) of Section 3.1 unless, prior to the consummation thereof, each Person (other than the Company) which may be required to deliver any stock, securities, cash or property upon the exercise of this Warrant as provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the Holder, (a) the obligations of the Company under this Warrant (and if the Company shall survive the consummation of such transaction, such assumption shall be in addition to, and shall not release the Company from, any continuing obligations of the Company under this Warrant), and (b) the obligation to deliver to such Holder such shares of stock, securities, cash or property as, in accordance with the foregoing provisions of this Section 3, such Holder may be entitled to receive, and such Person shall have similarly delivered to such Holder an opinion of counsel for such Person, which counsel shall be reasonably satisfactory to such Holder, stating that this Warrant shall thereafter continue in full force and effect and the terms hereof (including, without limitation, all of the provisions of this Section 3) shall be applicable to the stock, securities, cash or property which such Person may be required to deliver upon any exercise of this Warrant or the exercise of any rights pursuant hereto. Nothing in this Section 3 shall be deemed to authorize the Company to enter into any transaction not otherwise permitted by this Warrant. 4. Other Dilutive Events. In case any event shall occur as to which the provisions of Section 2 or Section 3 are not strictly applicable but the failure to make any adjustment would not fairly protect the purchase rights represented by this Warrant in accordance with the essential intent and principles of such Sections, then, in each such case, the Company shall appoint a firm of independent certified public accountants of recognized national standing (which may be the regular auditors of the Company), which shall give their opinion upon the adjustment, if any, on a basis consistent with the essential intent and principles established in Sections 2 and 3, necessary to preserve, without dilution, the purchase rights represented by this Warrant. Upon receipt of such opinion, the Company will promptly mail a copy thereof to the Holder and shall make the adjustments described therein. 5. No Dilution or Impairment. The Company will not, by amendment of its certificate of incorporation or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock on the exercise of the Warrants from time to time outstanding, (b) will not take any action which results in any adjustment of the number of shares of Common Stock issuable upon the exercise of this Warrant if the total number of shares of Common Stock (or Other Securities) issuable after the action upon the exercise of all of the Warrants would exceed the total number of shares of Common Stock (or Other Securities) then authorized by the Company's certificate of incorporation and available for the purpose of issue upon such exercise, and (c) except for the Preferred Stock, will not issue any capital stock of any class which is preferred as to dividends or as to the distribution of assets upon voluntary or involuntary dissolution, liquidation or winding-up, unless the rights of the holders thereof shall be limited to a fixed sum or percentage of par value or a sum determined by reference to a formula based on a published index of interest rates, an interest rate publicly announced by a financial institution or a similar indicator of interest rates in respect of participation in dividends and to a fixed sum or percentage of par value in any such distribution of assets. 6. Accountants' Report as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable upon the exercise of this Warrant, the Company at its expense will promptly compute such adjustment or readjustment in accordance with the terms of this Warrant and cause independent certified public accountants of recognized national standing (which may be the regular auditors of the Company) selected by the Company to verify such computation (other than any computation of the fair value of property as determined in good faith by the Board of Directors of the Company) and prepare a report setting forth such adjustment or readjustment and showing in reasonable detail the method of calculation thereof and the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or to be received by the Company for any Additional Shares of Common Stock issued or sold or deemed to have been issued, (b) the number of shares of Common Stock outstanding or deemed to be outstanding, and (c) the Warrant Quantity in effect immediately prior to such issue or sale and as adjusted and readjusted (if required by Section 2) on account thereof. The Company will forthwith mail a copy of each such report to each Holder of a Warrant and will, upon the written request at any time of any Holder of a Warrant, furnish to such Holder a like report setting forth the number of shares of Common Stock issuable upon the exercise of this Warrant at the time in effect and showing in reasonable detail how it was calculated. The Company will also keep copies of all such reports at its principal office and will cause the same to be available for inspection at such office during normal business hours by any Holder of a Warrant or any prospective purchaser of a Warrant designated by the Holder thereof. 7. Financial and Business Information 7.1. Quarterly Information. Except during any period when the Company either (i) is subject to and is in compliance with the reporting requirements of Section 15(d) of the Exchange Act or (ii) has securities registered under Section 12(b) or 12(g) of the Exchange Act and is in compliance with the reporting requirements mandated thereby (such status being referred to as being a "Public Company"), the Company will deliver to the Holder, as soon as practicable after the end of each quarterly fiscal period in each fiscal year of the Company, and in any event within 45 days thereafter, a copy of the unaudited consolidated balance sheet as at the close of such quarter, and the related unaudited consolidated statements of income, shareholders' equity and cash flow of the Company and its subsidiaries for that portion of the fiscal year ending as of the close of such quarter. Such financial statements shall be prepared by the Company in accordance with generally accepted accounting principles, applied on a consistent basis ("GAAP") (except for normal year end adjustments and the inclusion of footnotes) and accompanied by the certification of the Company's chief executive officer or chief financial officer that, to the best of his knowledge, such financial statements are complete and correct in all material respects and fairly present in accordance with GAAP (except for normal year end adjustments and the inclusions of footnotes) the consolidated financial position, the consolidated statements of income, shareholder equity and cash flow of the Company and its subsidiaries as at the end of such quarter and for such year-to-date period, as the case may be. 7.2. Annual Information. Except during any period when the Company is a Public Company, the Company will deliver to the Holder as soon as practicable after the end of each fiscal year of the Company, and in any event within 120 days thereafter, one copy of: (a) an audited consolidated balance sheet of the Company and its subsidiaries as at the end of such year, and (b) audited consolidated statements of income, shareholders' equity and cash flow of the Company and its subsidiaries for such year; setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all prepared in accordance with GAAP, and which audited financial statements shall be accompanied by (i) a certification of the chief executive officer or chief financial officer of the Company that, to the best of his knowledge, all such financial statements are complete and correct in all material respects and present fairly in accordance with GAAP the consolidated financial position of the Company and its subsidiaries as at the end of such fiscal year and for the period then ended, (ii) an opinion thereon of the independent certified public accountants regularly retained by the Company, or any other firm of independent certified public accountants of recognized national standing selected by the Company, and (iii) a report of such independent certified public accountants confirming any adjustment made pursuant to Section 2 during such year. 7.3. Filings. During any period when the Company is a Public Company, the Company will file on or before the required date all required regular or periodic reports (pursuant to the Exchange Act) with the Commission and will deliver to the Holder promptly upon their becoming available one copy of each report, notice or proxy statement sent by the Company to its stockholders generally, and of each regular or periodic report (pursuant to the Exchange Act) and any Registration Statement, prospectus or written communication (other than transmittal letters) (pursuant to the Securities Act), filed by the Company with (i) the Commission or (ii) any securities exchange on which shares of Common Stock are listed. 7.4. Notices of Corporate Action. In the event of (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a regular periodic dividend payable in cash out of earned surplus in an amount not exceeding the amount of the immediately preceding cash dividend for such period) or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger involving the Company and any other Person or any transfer of all or substantially all the assets of the Company to any other Person, or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, the Company will mail to the Holder a notice specifying (i) the date or expected date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right, and (ii) the date or expected date on which any such reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place and the time, if any such time is to be fixed, as of which the holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for the securities or other property deliverable upon such reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation or winding-up, such notice to be mailed to the Holder at least 45 days prior to the date therein specified. 8. Registration of Common Stock. If any shares of Common Stock required to be reserved for purposes of exercise of this Warrant require registration with or approval of any governmental authority under any federal or state law (other than the Securities Act) before such shares may be issued upon exercise, the Company will, at its reasonable expense and as expeditiously as possible, use its best efforts to cause such shares to be duly registered or approved, as the case may be. At any such time as Common Stock is listed on any national securities exchange, the Company will, at its reasonable expense, obtain promptly and maintain the approval for listing on each such exchange, upon official notice of issuance, the shares of Common Stock issuable upon exercise of the then outstanding Warrants and maintain the listing of such shares after their issuance; and the Company will also list on such national securities exchange, will register under the Exchange Act and will maintain such listing of, any Other Securities that at any time are issuable upon exercise of the Warrants, if and at the time that any securities of the same class shall be listed on such national securities exchange by the Company. 9. Restrictions on Transfer. 9.1. Restrictive Legends. Except as otherwise permitted by this Section 9, each Warrant (including each Warrant issued upon the transfer of any Warrant) shall be stamped or otherwise imprinted with a legend in substantially the following form: "THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. Except as otherwise permitted by this Section 9, each certificate for Common Stock (or Other Securities) issued upon the exercise of any Warrant, and each certificate issued upon the transfer of any such Common Stock (or Other Securities), shall be stamped or otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. 9.2. Transfer to Comply With the Securities Act. Restricted Securities may not be sold, assigned, pledged, hypothecated, encumbered or in any manner transferred or disposed of, in whole or in part, except in compliance with the provisions of the Securities Act and state securities or Blue Sky laws and the terms and conditions hereof. 9.3. Termination of Restrictions. The restrictions imposed by this Section 9 on the transferability of Restricted Securities shall cease and terminate as to any particular Restricted Securities (a) when a registration statement with respect to the sale of such securities shall have been declared effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (b) when such securities are sold pursuant to Rule 144 (or any similar provision then in force) under the Securities Act, or (c) when, in the opinion of both counsel for the Holder and counsel for the Company, such restrictions are no longer required or necessary in order to protect the Company against a violation of the Securities Act upon any sale or other disposition of such securities without registration thereunder. Whenever such restrictions shall cease and terminate as to any Restricted Securities, the Holder shall be entitled to receive from the Company, without expense, new securities of like tenor not bearing the applicable legends required by Section 9.1. 10. Reservation of Stock, etc. The Company shall at all times reserve and keep available, solely for issuance and delivery upon exercise of the Warrant, the number of shares of Common Stock (or Other Securities) from time to time issuable upon exercise of all Warrants at the time outstanding. All shares of Common Stock (or Other Securities) issuable upon exercise of any Warrants shall be duly authorized and, when issued upon such exercise, shall be validly issued and, in the case of shares, fully paid and nonassessable with no liability on the part of the holders thereof, and, in the case of all securities, shall be free from all taxes, liens, security interests, encumbrances, preemptive rights and charges. The transfer agent for the Common Stock, which may be the Company ("Transfer Agent"), and every subsequent Transfer Agent for any shares of the Company's capital stock issuable upon the exercise of any of the purchase rights represented by this Warrant, are hereby irrevocably authorized and directed at all times until the Expiration Date to reserve such number of authorized and unissued shares as shall be requisite for such purpose. The Company shall keep copies of this Warrant on file with the Transfer Agent for the Common Stock and with every subsequent Transfer Agent for any shares of the Company's capital stock issuable upon the exercise of the rights of purchase represented by this Warrant. The Company shall supply such Transfer Agent with duly executed stock certificates for such purpose. All Warrant certificates surrendered upon the exercise of the rights thereby evidenced shall be canceled, and such canceled Warrants shall constitute sufficient evidence of the number of shares of stock which have been issued upon the exercise of such Warrants. Subsequent to the Expiration Date, no shares of stock need be reserved in respect of any unexercised Warrant. 11. Registration and Transfer of Warrants, etc. 11.1. Warrant Register; Ownership of Warrants. Each Warrant issued by the Company shall be numbered and shall be registered in a warrant register (the "Warrant Register") as it is issued and transferred, which Warrant Register shall be maintained by the Company at its principal office or, at the Company's election and expense, by a Warrant Agent or the Company's Transfer Agent. The Company shall be entitled to treat the registered Holder of any Warrant on the Warrant Register as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant on the part of any other Person, and shall not be affected by any notice to the contrary, except that, if and when any Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer thereof as the owner of such Warrant for all purposes. Subject to Section 9, a Warrant, if properly assigned, may be exercised by a new holder without a new Warrant first having been issued. 11.2. Transfer of Warrants. Subject to compliance with Section 9, if applicable, this Warrant and all rights hereunder are transferable in whole or in part, without charge to the Holder hereof, upon surrender of this Warrant with a properly executed Form of Assignment attached hereto as Exhibit B at the principal office of the Company. Upon any partial transfer, the Company shall at its expense issue and deliver to the Holder a new Warrant of like tenor, in the name of the Holder, which shall be exercisable for such number of shares of Common Stock with respect to which rights under this Warrant were not so transferred. 11.3. Replacement of Warrants. On receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender of such Warrant to the Company at its principal office and cancellation thereof, the Company at its expense shall execute and deliver, in lieu thereof, a new Warrant of like tenor. 11.4. Adjustments To Warrant Quantity. Notwithstanding any adjustment in the Warrant Quantity or in the number or kind of shares of Common Stock purchasable upon exercise of this Warrant, any Warrant theretofore or thereafter issued may continue to express the same number and kind of shares of Common Stock as are stated in this Warrant, as initially issued. 11.5. Fractional Shares. Notwithstanding any adjustment pursuant to Section 2 in the number of shares of Common Stock covered by this Warrant or any other provision of this Warrant, the Company may, but shall not be required to, issue fractions of shares upon exercise of this Warrant or to distribute certificates which evidence fractional shares. In lieu of fractional shares, the Company shall make payment to the Holder, at the time of exercise of this Warrant as herein provided, in an amount in cash equal to such fractions multiplied by the Current Market Price of a share of Common Stock on the date of Warrant exercise. 12. Redemption. 12.1. Amounts Redeemable. At the option of the Company, this Warrant will be partially redeemable under each of the following circumstances, with each such partial redemption to reduce the aggregate number of shares of Common Stock issuable hereunder and any other Warrants then outstanding by the lesser of 300,000 and the aggregate number of shares then issuable hereunder and thereunder and each such partial redemption to be applied pro rata to the shares issuable hereunder and thereunder: (a) prior to January 1, 1999, if the all of the Preferred Stock has been redeemed or repurchased by the Company prior to such date; (b) prior to March 31, 2000, if pre-tax earnings per share of the Common Stock for the fiscal year 1999 equals or exceeds $1.25 on a Fully Diluted Basis; (c) prior to March 31, 2000, if pre-tax earnings per share of Common Stock for the combined fiscal years 1998 and 1999 equals or exceeds $1.90 on a Fully Diluted Basis; (d) prior to March 31, 2001, if pre-tax earnings per share of Common Stock for the fiscal year 2000 equals or exceeds $2.00 on a Fully Diluted Basis; and (e) prior to March 31, 2001, if pre-tax earnings per share of Common Stock for the combined fiscal years 1998, 1999 and 2000 equals or exceeds $4.10 on a Fully Diluted Basis; provided, however, that the partial redemption amount of 300,000 and the pre-tax earnings per share amounts will be appropriately adjusted to reflect transactions or other matters giving rise to adjustments to the Warrant Quantity. 12.2. Redemption Price. The redemption price in respect of any partial redemption of this Warrant will be payable in cash to the Holder on the Redemption Date (as defined below) in an amount equal to the aggregate reduction in the number of shares of Common Stock issuable pursuant to this Warrant by reason of such partial redemption times $.01. 12.3. Notice of Partial Redemption; Payment; Effect of Notice. (a) The Company may exercise its partial redemption right by giving written notice of such exercise to the Holder not less than five Business Days prior to the date fixed for such redemption (the "Redemption Date"), such notice to specify the Redemption Date and the amount of the reduction in the number of shares of Common Stock issuable hereunder by reason of such partial redemption and to be accompanied by a computation of the pre-tax earnings per share amount or amounts giving rise to such partial redemption as verified by independent certified public accountants of recognized national standing (which may be the regular auditors of the Company) selected by the Company to verify such computation. (b) The Company shall make partial redemption payments by wire transfer to the Holder to an account designated by the Holder at least two business days prior to the Redemption Date. On any Redemption Date, the Company shall make any necessary adjustments in the Warrant Register to reflect the reduction in the number of shares of Common Stock issuable hereunder. 13. Definitions. As used herein, unless the context otherwise requires, the following terms have the following respective meanings: Additional Shares of Common Stock: All shares (including treasury shares) of Common Stock issued or sold (or, pursuant to Section 2.3 or 2.4, deemed to be issued) by the Company after the date hereof, whether or not subsequently reacquired or retired by the Company, other than (a) shares issued upon the exercise of the Warrants, (b) such additional number of shares as may become issuable upon the exercise of the Warrants by reason of adjustments required pursuant to anti-dilution provisions applicable to the Warrants as in effect on the date hereof, (c) shares, warrants, options and other securities issued at any time to the Holder or any Affiliate thereof, and (d) shares issued upon exercise of any options, warrants, rights for, or securities convertible into, Common Stock outstanding as of the date of this Warrant and listed on Exhibit C hereto or granted under the agreements and plans listed on Exhibit C hereto, in each such case only to the extent that such options, warrants, rights, convertible securities, agreements and plans are not amended and only to the extent that the respective numbers of shares so issued do not exceed the respective numbers of shares indicated on Exhibit C. Affiliate: Any person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the applicable person. For purposes of this definition "control" has the meaning specified in Rule 12b-2 under the Exchange Act. Business Day: Any day other than a Saturday or a Sunday or a day on which commercial banking institutions in the City of New York are authorized by law to be closed. Any reference to "days" (unless Business Days are specified) shall mean calendar days. Commission: The Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. Common Stock: As defined in the introduction to this Warrant, such term to include any stock into which such Common Stock shall have been changed or any stock resulting from any reclassification of such Common Stock, and all other stock of any class or classes (however designated) of the Company the holders of which have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference or have the right to vote at elections of directors of the Company, the authorization of any shares of Common Stock or mergers, consolidations or sales of assets of the Company. Company: As defined in the introduction to this Warrant, such term to include any corporation which shall succeed to or assume the obligations of the Company hereunder in compliance with Section 3. Convertible Securities: Any evidences of indebtedness, shares of stock (other than Common Stock) or other securities directly or indirectly convertible into or exchangeable for Additional Shares of Common Stock. Current Market Price: On any date specified herein, the average daily Market Price during the period of the most recent 20 days, ending on such date, on which the national securities exchanges were open for trading, except that if no Common Stock is then listed or admitted to trading on any national securities exchange or quoted in the over-the-counter market, the Current Market Price shall be the Market Price on such date under clause (d) of the definition thereof. Demand Registration Statement: As defined in the Registration Rights Agreement. Exchange Act: The Securities Exchange Act of 1934, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Expiration Date: As defined in the introduction to this Warrant. Fully-Diluted Basis: As of the date of any determination, the outstanding Common Stock plus the maximum number of shares of Common Stock that would be issued upon the exercise, conversion or exchange of any outstanding securities, warrants or options upon the terms thereof, whether or not then exercisable, convertible, exchangeable or subject to any vesting period, plus the maximum number of shares of Common Stock issuable pursuant to any agreement by which the Company is bound whether or not such stock is then required to be issued. Holder: As defined in the introduction to this Warrant. Investment Agreement: As defined in the introduction to this Warrant. Market Price: On any date specified herein, the amount per share of the Common Stock, equal to (a) the last reported sale price of such Common Stock, regular way, on such date or, in case no such sale takes place on such date, the average of the closing bid and asked prices thereof regular way on such date, in either case as officially reported on the principal national securities exchange on which such Common Stock is then listed or admitted for trading, or (b) if such Common Stock is not then listed or admitted for trading on any national securities exchange but is designated as a national market system security by the NASD, including the Nasdaq Small Cap market, the last reported trading price of the Common Stock on such date, or (c) if there shall have been no trading on such date or if the Common Stock is not so designated, the average of the closing bid and asked prices of the Common Stock on such date as shown by the NASD automated quotation system, or (d) if such Common Stock is not then listed or admitted for trading on any national exchange or quoted in the over-the-counter market, the higher of (x) the book value thereof as determined by any firm of independent public accountants of recognized standing selected by the Board of Directors of the Company as of the last day of any month ending within 60 days preceding the date as of which the determination is to be made and (y) the fair value thereof (as of a date which is within 20 days of the date as of which the determination is to be made) determined in good faith by the Board of Directors of the Company, which determination may be challenged by any Holder pursuant to Section 22 within 30 days of receipt of notice thereof. NASD: The National Association of Securities Dealers, Inc. Options: Rights, options or warrants to subscribe for, purchase or otherwise acquire either Additional Shares of Common Stock or Convertible Securities. Other Securities: Any stock (other than Common Stock) and other securities of the Company or any other Person (corporate or otherwise) which the holders of the Warrants at any time shall be entitled to receive, or shall have received, upon the exercise of the Warrants, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 3 or otherwise. Person: A corporation, an association, a partnership, an organization, a business, an individual, a government or political subdivision thereof or a governmental agency. Preferred Stock: The Senior Redeemable Preferred Stock of the Company issued pursuant to the Investment Agreement. Registrable Securities: As defined in the Registration Rights Agreement. Registration Rights Agreement: The Registration Rights Agreement, dated the date hereof, by and among the Company and the Initial Holders specified on the signature page thereof. Restricted Securities: (a) any Warrants bearing the applicable legend set forth in Section 9.1, (b) any shares of Common Stock (or Other Securities) issued or issuable upon the exercise of Warrants which are evidenced by a certificate or certificates bearing the applicable legend set forth in such Section, and (c) any shares of Common Stock (or Other Securities) issued subsequent to the exercise of any of the Warrants as a dividend or other distribution with respect to, or resulting from a subdivision of the outstanding shares of Common Stock (or other Securities) into a greater number of shares by reclassification, stock splits or otherwise, or in exchange for or in replacement of the Common Stock (or Other Securities) issued upon such exercise, which are evidenced by a certificate or certificates bearing the applicable legend set forth in such Section. Securities Act: The Securities Act of 1933, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Subsidiary: with respect to any Person at any time, any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of: (a) the issued and outstanding shares of capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time shares of capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency); (b) the interest in the capital or profits of such corporation, professional corporation, partnership, joint venture or limited liability company; or (c) the beneficial interest in such trust or estate, is, at such time, directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. Voting Securities: Stock of any class or classes (or equivalent interests), if the holders of the stock of such class or classes (or equivalent interests) are ordinarily, in the absence of contingencies, entitled to vote for the election of the directors (or persons performing similar functions) of such business entity, even though the right so to vote has been suspended by the happening of such a contingency. Warrant: As defined in the introduction to this Warrant. Warrant Price: As defined in Section 2.1. Warrant Quantity: At any time, the number of shares of Common Stock into which the Warrant is exercisable. Withdrawn Demand Registration: As defined in the Registration Rights Agreement. 14. Remedies; Specific Performance. The Company stipulates that there would be no adequate remedy at law to the Holder in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant and accordingly, the Company agrees that, in addition to any other remedy to which the Holder may be entitled at law or in equity, the Holder shall be entitled to seek to compel specific performance of the obligations of the Company under this Warrant, without the posting of any bond, in accordance with the terms and conditions of this Warrant in any court of the United States or any State thereof having jurisdiction, and if any action should be brought in equity to enforce any of the provisions of this Warrant, the Company shall not raise the defense that there is an adequate remedy at law. Except as otherwise provided by law, a delay or omission by the Holder hereto in exercising any right or remedy accruing upon any such breach shall not impair the right or remedy or constitute a waiver of or acquiescence in any such breach. No remedy shall be exclusive of any other remedy. All available remedies shall be cumulative. 15. No Rights or Liabilities as Shareholder. Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof any rights as a shareholder of the Company or as imposing any obligation on the Holder to purchase any securities or as imposing any liabilities on the Holder as a shareholder of the Company, whether such obligation or liabilities are asserted by the Company or by creditors of the Company. 16. Notices. (a) All notices and other communications (and deliveries) provided for or permitted hereunder shall be made in writing by hand delivery, telecopier, any courier guaranteeing overnight delivery or first class registered or certified mail, return receipt requested, postage prepaid, addressed (i) if to the Company, to the attention of its President at its principal office located at 725 Independence Avenue, S.E. Washington, D.C. 20003, Telecopy: (202) 543-5360 or such other address or telecopy number as may hereafter be designated in writing by the Company to the Holder in accordance with the provisions of this Section, with a copy to Epstein Becker & Green, P.C., 250 Park Avenue, New York, New York 10177, Attn: David E. Fleming, Esq., Telecopy: (212) 661-0989, (ii) If to the initial Holder, to Wexford Management LLC, 411 West Putnam Avenue, Greenwich, Connecticut 06830, Attn: Frank Plimpton, Telecopy: (203) 862-7490 or such other address or telecopy number as may hereafter be designated in writing by the Holder to the Company in accordance with the provisions of this Section, with a copy to Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022, Attn: Randall H. Doud, Esq., Telecopy: (212) 735-2000, or (iii) if to any subsequent Holder, at its address as it appears in the Warrant Register. All such notices and communications (and deliveries) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; when receipt is acknowledged, if telecopied; on the next Business Day, if timely delivered to a courier guaranteeing overnight delivery; and five days after being deposited in the mail, if sent first class or certified mail, return receipt requested, postage prepaid; provided, that the exercise of any Warrant shall be effective in the manner provided in Section 1. (b) If: (i) the Company shall declare a dividend (or any other distribution) on the Common Stock; or (ii) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of any class or any other rights or warrants; or (iii) there shall be any reclassification of the Common Stock or any consolidation or merger to which the Company is a party and for which approval of any shareholders of the Company is required, or a statutory share exchange, or self tender offer by the Company for all or substantially all of its outstanding shares of Common Stock or the sale or transfer of all or substantially all of the assets of the Company as an entity; or (iv) there shall occur the involuntary or voluntary liquidation, dissolution or winding up of the Company, then the Company shall cause to be mailed to the Holder, at the address as shown on the stock records of the Company, as promptly as possible, but at least 15 Business Days prior to the applicable date hereinafter specified, a notice stating (A) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights or warrants are to be determined or (B) the date on which such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up. (c) Whenever the number of shares of Common Stock issuable upon exercise of this Warrant is adjusted as herein provided, the Company shall prepare a notice of such adjustment setting forth the adjusted number of shares of Common Stock issuable upon exercise of this Warrant, the basis and the computation thereof, and the effective date of such adjustment and shall mail such notice to the Holder at the Holder's last address as shown on the stock records of the Company. 17. Amendments. This Warrant and any term hereof may not be amended, modified, supplemented or terminated, and waivers or consents to departures from the provisions hereof may not be given, except by written instrument duly executed by the Holders of a majority-in-interest of the Warrants. 18. Descriptive Headings, Etc. The headings in this Warrant are for convenience of reference only and shall not limit or otherwise affect the meaning of terms contained herein. Unless the context of this Warrant otherwise requires: (1) words of any gender shall be deemed to include each other gender; (2) words using the singular or plural number shall also include the plural or singular number, respectively; (3) the words "hereof," "herein" and "hereunder" and words of similar import when used in this Warrant shall refer to this Warrant as a whole and not to any particular provision of this Warrant, and Section and paragraph references are to the Sections and paragraphs of this Warrant unless otherwise specified; (4) the word "including" and words of similar import when used in this Warrant shall mean "including, without limitation," unless otherwise specified; (5) "or" is not exclusive; and (6) provisions apply to successive events and transactions. 19. Governing Law. This Warrant shall be governed by, and construed in accordance with, the laws of the State of Delaware (without giving effect to the conflict of laws principles thereof). 20. Judicial Proceedings; Waiver of Jury. Any legal action, suit or proceeding brought against the Company with respect to this Warrant may be brought in any federal court of the Southern District of New York or any state court located in New York County, State of New York, and by execution and delivery of this Warrant, the Company hereby irrevocably and unconditionally waives any claim (by way of motion, as a defense or otherwise) of improper venue, that it is not subject personally to the jurisdiction of such court, that such courts are an inconvenient forum or that this Warrant or the subject matter may not be enforced in or by such court. The Company hereby irrevocably and unconditionally consents to the service of process of any of the aforementioned courts in any such action, suit or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, at its address set forth or provided for in Section 16 (with copies of such process also being sent to the Company's counsel referred to in such section), such service to become effective 30 days after such mailing. Nothing herein contained shall be deemed to affect the right of any party to serve process in any manner permitted by law or commence legal proceedings or otherwise proceed against any other party in any other jurisdiction to enforce judgments obtained in any action, suit or proceeding brought pursuant to this Section. THE COMPANY HEREBY IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING, WHETHER AT LAW OR EQUITY, BROUGHT BY IT OR THE HOLDER IN CONNECTION WITH THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 21. Registration Rights Agreement. The shares of Common Stock (and Other Securities) issuable upon exercise of this Warrant (or upon conversion of any shares of Common Stock issued upon such exercise) shall constitute Registrable Securities (as such term is defined in the Registration Rights Agreement). Each holder of this Warrant shall be entitled to all of the benefits afforded to a holder of any such Registrable Securities under the Registration Rights Agreement and such holder, by its acceptance of this Warrant, agrees to be bound by and to comply with the terms and conditions of the Registration Rights Agreement applicable to such holder as a holder of such Registrable Securities. 22. Determination of Current Market Price or Market Price. (a) The determination by the Board of Directors of the Current Market Price or Market Price shall be final and binding absent manifest error except that the determination of Market Price under clause (d) of the definition thereof may be challenged by the Holders of a majority-in-interest of the Warrants within 30 days after notice of any adjustment in the number of shares of Common Stock issuable upon the exercise of this Warrant utilizing such definition as sent to the Holders. (b) Such notice of objection shall specify an investment banking firm of national reputation to determine the market value of the Common Stock as of the date of determination by the Company's Board of Directors. The Company may reject the firm included in such notice solely based on such firm being an affiliate of one or more Holders. (c) The Company shall enter into a standard agreement with such firm and shall provide full cooperation to such firm with respect to its evaluation of the Market Value of the Common Stock. The Company and the Holders shall each pay one-half of the fees and expenses of such firm; provided, however, that in the event that the determination by such firm is 110% or more of the original determination made by the Company's Board of Directors, the Company shall pay all of the fees and expenses of such firm. (d) In determining the Market Value of the Common Stock, such firm may not take into account that the Common Stock at issue does not control the Company. (e) The determination by such firm shall be final and binding on the Company and the Holders. COMPLETE WELLNESS CENTERS, INC. By:/s/ E. Eugene Sharer Name: Title: Exhibit A FORM OF SUBSCRIPTION [To be executed only upon exercise of Warrant] To: COMPLETE WELLNESS CENTERS, INC. The undersigned registered holder of the within Warrant hereby irrevocably exercises such Warrant for, and purchases thereunder, ____ shares of Common Stock of COMPLETE WELLNESS CENTERS, INC. and herewith makes payment of $ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to whose address is Dated: - --------------------------------------------------- (Signature must conform in all respects to the name of holder as specified on the face of Warrant) - --------------------------------------------------- (Street Address) - --------------------------------------------------- (City) (State) Zip Code) Exhibit B FORM OF ASSIGNMENT [To be executed only upon assignment of Warrant] For value received, the undersigned registered holder of the within Warrant hereby sells, assigns and transfers unto the right represented by such Warrant to purchase shares of Common Stock of COMPLETE WELLNESS CENTERS, INC. to which such Warrant relates, and appoints Attorney to make such transfer on the books of COMPLETE WELLNESS CENTERS, INC., maintained for such purpose, with full power of substitution in the premises. Dated: - --------------------------------------------------- (Signature must conform in all respects to the name of holder as specified on the face of Warrant) - --------------------------------------------------- (Street Address) - --------------------------------------------------- (City) (State) Zip Code) Signed in the presence of: Exhibit C LIST OF STOCK OPTION PLANS, WARRANTS AND SIMILAR AGREEMENTS EX-99 8 EXHIBIT VII - WARRANT EXHIBIT VII COMPLETE WELLNESS CENTERS, INC. Common Stock Purchase Warrant Dated as of January 12, 1998 THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. TABLE OF CONTENTS 1. Exercise of Warrant............................................ 1 1.1. Manner of Exercise....................................... 1 1.2. When Exercise Effective.................................. 2 1.3. Delivery of Stock Certificates, etc...................... 2 1.4. Restriction on Exercise.................................. 2 2. Adjustment of Common Stock Issuable Upon Exercise. ............................................. 3 2.1. General; Warrant Quantity................................ 3 2.2. Adjustment of Warrant Quantity........................... 3 2.3. Treatment of Options and Convertible Securities............................................. 4 2.4. Treatment of Stock Dividends, Stock Splits, etc.................................................... 6 2.5. Computation of Consideration............................. 7 2.6. Adjustments for Combinations, etc........................ 8 2.7. Dilution in Case of Other Securities..................... 8 2.8. Minimum Adjustment of Warrant Quantity................... 8 2.9. No Duplication of Adjustments............................ 9 3. Consolidation, Merger, etc..................................... 9 3.1. Adjustments for Consolidation, Merger, Sale of Assets, Reorganization, etc......................... 9 3.2. Assumption of Obligations................................ 10 4. Other Dilutive Events.......................................... 10 5. No Dilution or Impairment...................................... 11 6. Accountants' Report as to Adjustments.......................... 11 7. Financial and Business Information............................. 12 7.1. Quarterly Information.................................... 12 7.2. Annual Information....................................... 12 7.3. Filings.................................................. 13 7.4. Notices of Corporate Action.............................. 13 8. Registration of Common Stock................................... 14 9. Restrictions on Transfer....................................... 14 9.1. Restrictive Legends...................................... 14 9.2. Transfer to Comply With the Securities Act............... 15 9.3. Termination of Restrictions.............................. 15 10. Reservation of Stock, etc...................................... 15 11. Registration and Transfer of Warrants, etc. ................... 16 11.1. Warrant Register; Ownership of Warrants.................. 16 11.2. Transfer of Warrants..................................... 16 11.3. Replacement of Warrants.................................. 17 11.4. Adjustments To Warrant Quantity.......................... 17 11.5. Fractional Shares........................................ 17 12. Redemption..................................................... 17 12.1. Amounts Redeemable....................................... 17 12.2. Redemption Price......................................... 18 12.3. Notice of Partial Redemption; Payment.................... 18 13. Definitions.................................................... 18 14. Remedies; Specific Performance................................. 23 15. No Rights or Liabilities as Shareholder........................ 23 16. Notices........................................................ 23 17. Amendments..................................................... 25 18. Descriptive Headings, Etc...................................... 25 19. Governing Law.................................................. 25 20. Judicial Proceedings; Waiver of Jury........................... 25 21. Registration Rights Agreement.................................. 26 22. Determination of Current Market Price or Market Price....................................................... 26 COMPLETE WELLNESS CENTERS, INC. Common Stock Purchase Warrant Void After January 12, 2005 No. W-1 January 12, 1998 COMPLETE WELLNESS CENTERS, INC. (the "Company"), a Delaware corporation, for value received, hereby certifies that Wexford Spectrum Investors LLC ("Wexford"), or its registered assigns (each, a "Holder"), is entitled to purchase from the Company an aggregate of 570,000 duly authorized, validly issued, fully paid and nonassessable shares of common stock, par value $0.0001665 per share, of the Company (the "Common Stock") at the purchase price per share of $1.75, at any time or from time to time prior to 5:30 PM, New York City time, on January 12, 2005 (the "Expiration Date"), all subject to the terms, conditions and adjustments set forth below in this Warrant. This Warrant is one of the Common Stock Purchase Warrants (the "Warrants," such term to include any such warrants issued in substitution therefor) originally issued in connection with the Investment Agreement, dated as of December 19, 1997 and as supplemented as of January 12, 1998, by and among the Company, Wexford and Imprimis Investors LLC (as amended or otherwise modified from time to time, the "Investment Agreement"). The Warrants are subject to adjustment as provided herein. Certain capitalized terms used in this Warrant are defined in Section 13; references to an "Exhibit" are, unless otherwise specified, to one of the Exhibits attached to this Warrant and references to a "Section" are, unless otherwise specified, to one of the Sections of this Warrant. 1. Exercise of Warrant. 1.1. Manner of Exercise. Subject to the restrictions set forth in Section 1.4, this Warrant may be exercised by the Holder, in whole or in part, at any time or from time to time, on or after the date hereof, during normal business hours on any Business Day, by surrender of this Warrant to the Company at its principal office, accompanied by the Form of Subscription in substantially the form attached as Exhibit A to this Warrant (or a reasonable facsimile thereof) duly executed by the Holder and accompanied by payment, in cash, by certified or official bank check payable to the order of the Company, or in the manner provided in Section 1.5 or Section 1.6 (or by any combination of such methods), in the amount obtained by multiplying (a) the number of shares of Common Stock designated in such Form of Subscription (adjusted as provided in Sections 2 through 4) by (b) the Warrant Price at the time of the exercise, as determined in accordance with Section 2.1, and the Holder shall thereupon be entitled to receive such number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities as provided below). 1.2. When Exercise Effective. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the Business Day on which this Warrant shall have been surrendered to the Company as provided in Section 1.1. At such time the Person or Persons in whose name or names any certificate or certificates for shares of Common Stock (or Other Securities) shall be issuable upon such exercise, as provided in Section 1.3, shall be deemed to have become the Holder or holders of record thereof. 1.3. Delivery of Stock Certificates, etc. As soon as practicable after each exercise of this Warrant, in whole or in part, and in any event within three Business Days thereafter, the Company at its expense (including the payment by it of any applicable transfer taxes) will cause to be issued in the name of and delivered to the Holder hereof or, subject to Section 11, as the Holder (upon payment by the Holder of any applicable transfer taxes) may direct, (a) a certificate or certificates for the number of duly authorized, validly issued, fully paid and nonassessable shares, including, if the Company so elects, fractional shares, of Common Stock (or Other Securities) to which such Holder shall be entitled upon such exercise plus, at the discretion of the Company, in lieu of any fractional share to which such Holder would otherwise be entitled, cash in an amount equal to the same fraction of the Current Market Price per share on the Business Day next preceding the date of such exercise; and (b) in case such exercise is in part only, a new Warrant or Warrants of like tenor, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock equal (without giving effect to any adjustment thereof) to the number of such shares called for on the face of this Warrant minus the number of such shares designated by the Holder upon such exercise as provided in Section 1.1. 1.4. Restriction on Exercise. This Warrant may not be exercised (a) to the extent that the shares of Common Stock held by any holders of this and any other Warrants then outstanding, in the aggregate after giving effect to such exercise, would exceed 50% of the shares of Common Stock then issued and outstanding; and (b) to the extent that such exercise would reduce the remaining number of shares issuable under this and any other Warrants then outstanding below the Redemption Eligible Amount. The "Redemption Eligible Amount" shall mean, (i) for the period through December 31, 1998, 1,500,000; (ii) for the period from January 1, 1999 through March 31, 2000, 1,200,000; (iii) for the period from April 1, 2000 through March 31, 2001, 600,000; and (iv) at any time after March 31, 2001, 0; provided, however, that the Redemption Eligible Amount will be appropriately adjusted to reflect transactions or other matters giving rise to adjustments to the Warrant Quantity. 2. Adjustment of Common Stock Issuable Upon Exercise. 2.1. General; Warrant Quantity. This Warrant initially evidences the right to purchase a number of shares of Common Stock set forth in the first paragraph of this Warrant (the "Initial Number"), subject to adjustment as provided in this Section 2, and in Sections 3 and 4. The "Warrant Price" shall be fixed at $1.75 per share of Common Stock received upon exercise of this Warrant, provided, however, that if the Company, (a) within 120 days following a request by any Holder of a Warrant other than a Withdrawn Demand Registration, fails to effect or maintain the registration of Registrable Securities pursuant to, and for the period contemplated by, Section 2.1 of the Registration Rights Agreement, or (b) fails to effect or maintain the registration of Registrable Securities pursuant to Section 2.2 of the Registration Rights Agreement, then the Warrant Price shall be reduced by $0.25. The Warrant Price may be so reduced only once. The Warrant Price shall be so reduced notwithstanding that (i) the Company shall have used its best efforts to effect and maintain the registration of Registrable Securities, or (ii) there has been any postponement of registration pursuant to Section 2.7 of the Registration Rights Agreement. 2.2. Adjustment of Warrant Quantity. (a) Issuance of Additional Shares of Common Stock. In case the Company at any time or from time to time after the date hereof shall issue or sell Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 2.3 or 2.4) without consideration or for a consideration per share less than the Current Market Price in effect immediately prior to such issue or sale, then, and in each such case, subject to Section 2.8, the number of shares of Common Stock provided for in the Warrant shall be increased, concurrently with such issue or sale, to an amount determined by multiplying such number by a fraction (a) the numerator of which shall be the number of shares of Common Stock outstanding immediately after such issue or sale, provided that, for the purposes of this Section 2.2(a), (x) immediately after any Additional Shares of Common Stock are deemed to have been issued pursuant to Section 2.3 or 2.4, such Additional Shares shall be deemed to be outstanding, and (y) treasury shares shall not be deemed to be outstanding, and (b) the denominator of which shall be (i) the number of shares of Common Stock outstanding immediately prior to such issue or sale plus (ii) the number of shares of Common Stock which the aggregate consideration received by the Company for the total number of such Additional Shares of Common Stock so issued or sold would purchase at such Current Market Price. (b) Dividends and Distributions. In case the Company at any time or from time to time after the date hereof shall declare, order, pay or make a dividend or other distribution (including, without limitation, any distribution of other or additional stock or other securities or property or Options by way of dividend or spin-off, reclassification, recapitalization or similar corporate rearrangement) on the Common Stock other than a dividend payable in Additional Shares of Common Stock the Holder of this Warrant shall receive the same dividend per share of Common Stock then issuable upon exercise of this Warrant based upon the maximum number of shares of Common Stock at the time issuable to such Holder as the holders of Common Stock. 2.3. Treatment of Options and Convertible Securities. In case the Company at any time or from time to time after the date hereof shall issue, sell, grant or assume, or shall fix a record date for the determination of holders of any class of securities entitled to receive, any Options or Convertible Securities, then, and in each such case, the maximum number of Additional Shares of Common Stock (as set forth in the instrument relating thereto, without regard to any provisions contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue, sale, grant or assumption or, in case such a record date shall have been fixed, as of the close of business on such record date (or, if the Common Stock trades on an ex-dividend basis, on the date prior to the commencement of ex-dividend trading), provided that such Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 2.5) of such shares would be less than the Current Market Price in effect on the date of and immediately prior to such issue, sale, grant or assumption or immediately prior to the close of business on such record date (or, if the Common Stock trades on an ex-dividend basis, on the date prior to the commencement of ex-dividend trading), as the case may be, and provided, further, that in any such case in which Additional Shares of Common Stock are deemed to be issued, (a) whether or not the Additional Shares of Common Stock underlying such Options or Convertible Securities are deemed to be issued, no further adjustment of the Warrant Quantity shall be made upon the subsequent issue or sale of Convertible Securities or shares of Common Stock upon the exercise of such Options or the conversion or exchange of such Convertible Securities, except in the case of any such Options or Convertible Securities which contain provisions requiring an adjustment, subsequent to the date of the issue or sale thereof, of the number of Additional Shares of Common Stock issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities by reason of (x) a change of control of the Company, (y) the acquisition by any Person or group of Persons of any specified number or percentage of the Voting Securities of the Company or (z) any similar event or occurrence, each such case to be deemed hereunder to involve a separate issuance of Additional Shares of Common Stock, Options or Convertible Securities, as the case may be; (b) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Company, or decrease in the number of Additional Shares of Common Stock issuable, upon the exercise, conversion or exchange thereof (by change of rate or otherwise), the Warrant Quantity computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of the record date, or date prior to the commencement of ex-dividend trading, as the case may be, with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase insofar as it affects such Options, or the rights of conversion or exchange under such Convertible Securities, which are outstanding at such time; (c) upon the expiration (or purchase by the Company and cancellation or retirement) of any such Options which shall not have been exercised or the expiration of any rights of conversion or exchange under any such Convertible Securities which (or purchase by the Company and cancellation or retirement of any such Convertible Securities the rights of conversion or exchange under which) shall not have been exercised, the Warrant Quantity computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of the record date, or date prior to the commencement of ex-dividend trading, as the case may be, with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration (or such cancellation or retirement, as the case may be), be recomputed as if: (i) in the case of Options for Common Stock or Convertible Securities, the only Additional Shares of Common Sock issued or sold were the Additional Shares of Common Stock, if any, actually issued or sold upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Company for the issue, sale, grant or assumption of all such Options, whether or not exercised, plus the consideration actually received by the Company upon such exercise, or for the issue or sale of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Company upon such conversion or exchange; and (ii) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued or sold upon the exercise of such Options were issued at the time of the issue or sale, grant or assumption of such Options, and the consideration received by the Company for the Additional Shares of Common Stock deemed to have then been issued was the consideration actually received by the Company for the issue, sale, grant or assumption of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Company (pursuant to Section 2.5) upon the issue or sale of such Convertible Securities with respect to which such Options were actually exercised; (d) no readjustment pursuant to subdivision (b) or (c) above shall have the effect of decreasing the number of shares issuable upon exercise of this Warrant by an amount in excess of the amount of the adjustment thereof originally made in respect of the issue, sale, grant or assumption of such Options or Convertible Securities; and (e) in the case of any such Options which expire by their terms not more than 30 days after the date of issue, sale, grant or assumption thereof, no adjustment of the number of shares issuable upon exercise of this Warrant shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the manner provided in subdivision (c) above. 2.4. Treatment of Stock Dividends, Stock Splits, etc. In case the Company at any time or from time to time after the date hereof shall declare or pay any dividend on the Common Stock payable in Common Stock, or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then, and in each such case, Additional Shares of Common Stock shall be deemed to have been issued (a) in the case of any such dividend, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend, or (b) in the case of any such subdivision, at the close of business on the day immediately prior to the day upon which such corporate action becomes effective. 2.5. Computation of Consideration. For the purposes of this Section 2 (a) the consideration for the issue or sale of any Additional Shares of Common Stock shall, irrespective of the accounting treatment of such consideration, (i) insofar as it consists of cash, be computed at the net amount of cash received by the Company, without deducting any expenses paid or incurred by the Company or any commissions or compensations paid or concessions or discounts allowed to underwriters, dealers or others performing similar services in connection with such issue or sale; (ii) insofar as it consists of property (including securities) other than cash, be computed at the fair value thereof at the time of such issue or sale, as determined in good faith by the Board of Directors of the Company; and (iii) in case Additional Shares of Common Stock are issued or sold together with other stock or securities or other assets of the Company for a consideration which covers both, be the portion of such consideration so received, computed as provided in clauses (i) and (ii) above, allocable to such Additional Shares of Common Stock, all as determined in good faith by the Board of Directors of the Company; (b) Additional Shares of Common Stock deemed to have been issued pursuant to Section 2.3, relating to Options and Convertible Securities, shall be deemed to have been issued for a consideration per share determined by dividing (i) the total amount, if any, received and receivable by the Company as consideration for the issue, sale, grant or assumption of the Options or Convertible Securities in question, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration to protect against dilution) payable to the Company upon the exercise in full of such Options or the conversion or exchange of such Convertible Securities or, in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, in each case computing such consideration as provided in the foregoing subdivision (a), by (ii) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number to protect against dilution) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities; and (c) Additional Shares of Common Stock deemed to have been issued pursuant to Section 2.4, relating to stock dividends, stock splits, etc., shall be deemed to have been issued for no consideration. 2.6. Adjustments for Combinations, etc. In case the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the number of shares issuable upon exercise of this Warrant in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately decreased. 2.7. Dilution in Case of Other Securities. In case any Other Securities shall be issued or sold or shall become subject to issue or sale upon the conversion or exchange of any stock (or Other Securities) of the Company (or any issuer of Other Securities or any other Person referred to in Section 3) or to subscription, purchase or other acquisition pursuant to any Options issued or granted by the Company (or any such other issuer or Person) for a consideration such as to dilute, on a basis consistent with the standards established in the other provisions of this Section 2, the purchase rights granted by this Warrant, then, and in each such case, the computations, adjustments and readjustments provided for in this Section 2 with respect to the number of shares issuable upon exercise of the Warrant shall be made as nearly as possible in the manner so provided and applied to determine the amount of Other Securities from time to time receivable upon the exercise of the Warrant, so as to protect the Holder against the effect of such dilution. 2.8. Minimum Adjustment of Warrant Quantity. If the amount of any adjustment of the Warrant Quantity required pursuant to this Section 2 would be less than one tenth (1/10) of one percent (1%) of the number of shares issuable upon exercise of the Warrant in effect at the time such adjustment is otherwise so required to be made, such amount shall be carried forward and adjustment with respect thereto made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate at least one tenth (1/10) of one percent (1%) of such number of shares issuable upon exercise of the Warrant. All calculations under this Warrant shall be made to the nearest one-hundredth of a share. 2.9. No Duplication of Adjustments. There shall be no adjustment of the number of shares of Common Stock issuable upon exercise of this Warrant in case of the issuance of any stock of the Company in a reorganization, acquisition or other similar transaction except as specifically set forth in this Warrant. If any action or transaction would require adjustment of the number of shares of Common Stock issuable upon exercise of this Warrant pursuant to more than one Section of this Warrant, only one adjustment shall be made and such adjustment shall be the amount of adjustment that has the highest absolute value. 3. Consolidation, Merger, etc. 3.1. Adjustments for Consolidation, Merger, Sale of Assets, Reorganization, etc. In case the Company after the date hereof (a) shall consolidate with or merge into any other Person and shall not be the continuing or surviving corporation of such consolidation or merger, or (b) shall permit any other Person to consolidate with or merge into the Company and the Company shall be the continuing or surviving Person but, in connection with such consolidation or merger, the Common Stock or Other Securities shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (c) shall transfer all or substantially all of its properties or assets to any other Person, or (d) shall effect a capital reorganization or reclassification of the Common Stock or Other Securities (other than a capital reorganization or reclassification resulting in the issue of Additional Shares of Common Stock for which adjustment in the number of shares of Common Stock issuable upon the exercise of this Warrant is provided in Section 2.2(a) or 2.2(b)), then, and in the case of each such transaction, proper provision shall be made so that, upon the basis and the terms and in the manner provided in this Warrant, the Holder, upon the exercise hereof at any time after the consummation of such transaction, shall be entitled to receive (at the aggregate Warrant Price in effect at the time of such consummation for all Common Stock or Other Securities issuable upon such exercise immediately prior to such consummation), in lieu of the Common Stock or Other Securities issuable upon such exercise prior to such consummation, the highest amount of securities, cash or other property to which such Holder would actually have been entitled as a shareholder upon such consummation if such Holder had exercised the rights represented by this Warrant immediately prior thereto, subject to adjustments (subsequent to such consummation) as nearly equivalent as possible to the adjustments provided for in Sections 2 through 4, provided that if a purchase, tender or exchange offer shall have been made to and accepted by the holders of more than 50% of the outstanding shares of Common Stock, and if the Holder so designates in a notice given to the Company on or before the date immediately preceding the date of the consummation of such transaction, the Holder shall be entitled to receive the highest amount of securities, cash or other property to which such Holder would actually have been entitled as a shareholder if the Holder had exercised this Warrant prior to the expiration of such purchase, tender or exchange offer and accepted such offer, subject to adjustments (from and after the consummation of such purchase, tender or exchange offer) as nearly equivalent as possible to the adjustments provided for in Sections 2 through 4. 3.2. Assumption of Obligations. Notwithstanding anything contained in this Warrant to the contrary, the Company will not effect any of the transactions described in clauses (a) through (d) of Section 3.1 unless, prior to the consummation thereof, each Person (other than the Company) which may be required to deliver any stock, securities, cash or property upon the exercise of this Warrant as provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the Holder, (a) the obligations of the Company under this Warrant (and if the Company shall survive the consummation of such transaction, such assumption shall be in addition to, and shall not release the Company from, any continuing obligations of the Company under this Warrant), and (b) the obligation to deliver to such Holder such shares of stock, securities, cash or property as, in accordance with the foregoing provisions of this Section 3, such Holder may be entitled to receive, and such Person shall have similarly delivered to such Holder an opinion of counsel for such Person, which counsel shall be reasonably satisfactory to such Holder, stating that this Warrant shall thereafter continue in full force and effect and the terms hereof (including, without limitation, all of the provisions of this Section 3) shall be applicable to the stock, securities, cash or property which such Person may be required to deliver upon any exercise of this Warrant or the exercise of any rights pursuant hereto. Nothing in this Section 3 shall be deemed to authorize the Company to enter into any transaction not otherwise permitted by this Warrant. 4. Other Dilutive Events. In case any event shall occur as to which the provisions of Section 2 or Section 3 are not strictly applicable but the failure to make any adjustment would not fairly protect the purchase rights represented by this Warrant in accordance with the essential intent and principles of such Sections, then, in each such case, the Company shall appoint a firm of independent certified public accountants of recognized national standing (which may be the regular auditors of the Company), which shall give their opinion upon the adjustment, if any, on a basis consistent with the essential intent and principles established in Sections 2 and 3, necessary to preserve, without dilution, the purchase rights represented by this Warrant. Upon receipt of such opinion, the Company will promptly mail a copy thereof to the Holder and shall make the adjustments described therein. 5. No Dilution or Impairment. The Company will not, by amendment of its certificate of incorporation or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock on the exercise of the Warrants from time to time outstanding, (b) will not take any action which results in any adjustment of the number of shares of Common Stock issuable upon the exercise of this Warrant if the total number of shares of Common Stock (or Other Securities) issuable after the action upon the exercise of all of the Warrants would exceed the total number of shares of Common Stock (or Other Securities) then authorized by the Company's certificate of incorporation and available for the purpose of issue upon such exercise, and (c) except for the Preferred Stock, will not issue any capital stock of any class which is preferred as to dividends or as to the distribution of assets upon voluntary or involuntary dissolution, liquidation or winding-up, unless the rights of the holders thereof shall be limited to a fixed sum or percentage of par value or a sum determined by reference to a formula based on a published index of interest rates, an interest rate publicly announced by a financial institution or a similar indicator of interest rates in respect of participation in dividends and to a fixed sum or percentage of par value in any such distribution of assets. 6. Accountants' Report as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable upon the exercise of this Warrant, the Company at its expense will promptly compute such adjustment or readjustment in accordance with the terms of this Warrant and cause independent certified public accountants of recognized national standing (which may be the regular auditors of the Company) selected by the Company to verify such computation (other than any computation of the fair value of property as determined in good faith by the Board of Directors of the Company) and prepare a report setting forth such adjustment or readjustment and showing in reasonable detail the method of calculation thereof and the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or to be received by the Company for any Additional Shares of Common Stock issued or sold or deemed to have been issued, (b) the number of shares of Common Stock outstanding or deemed to be outstanding, and (c) the Warrant Quantity in effect immediately prior to such issue or sale and as adjusted and readjusted (if required by Section 2) on account thereof. The Company will forthwith mail a copy of each such report to each Holder of a Warrant and will, upon the written request at any time of any Holder of a Warrant, furnish to such Holder a like report setting forth the number of shares of Common Stock issuable upon the exercise of this Warrant at the time in effect and showing in reasonable detail how it was calculated. The Company will also keep copies of all such reports at its principal office and will cause the same to be available for inspection at such office during normal business hours by any Holder of a Warrant or any prospective purchaser of a Warrant designated by the Holder thereof. 7. Financial and Business Information 7.1. Quarterly Information. Except during any period when the Company either (i) is subject to and is in compliance with the reporting requirements of Section 15(d) of the Exchange Act or (ii) has securities registered under Section 12(b) or 12(g) of the Exchange Act and is in compliance with the reporting requirements mandated thereby (such status being referred to as being a "Public Company"), the Company will deliver to the Holder, as soon as practicable after the end of each quarterly fiscal period in each fiscal year of the Company, and in any event within 45 days thereafter, a copy of the unaudited consolidated balance sheet as at the close of such quarter, and the related unaudited consolidated statements of income, shareholders' equity and cash flow of the Company and its subsidiaries for that portion of the fiscal year ending as of the close of such quarter. Such financial statements shall be prepared by the Company in accordance with generally accepted accounting principles, applied on a consistent basis ("GAAP") (except for normal year end adjustments and the inclusion of footnotes) and accompanied by the certification of the Company's chief executive officer or chief financial officer that, to the best of his knowledge, such financial statements are complete and correct in all material respects and fairly present in accordance with GAAP (except for normal year end adjustments and the inclusions of footnotes) the consolidated financial position, the consolidated statements of income, shareholder equity and cash flow of the Company and its subsidiaries as at the end of such quarter and for such year-to-date period, as the case may be. 7.2. Annual Information. Except during any period when the Company is a Public Company, the Company will deliver to the Holder as soon as practicable after the end of each fiscal year of the Company, and in any event within 120 days thereafter, one copy of: (a) an audited consolidated balance sheet of the Company and its subsidiaries as at the end of such year, and (b) audited consolidated statements of income, shareholders' equity and cash flow of the Company and its subsidiaries for such year; setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all prepared in accordance with GAAP, and which audited financial statements shall be accompanied by (i) a certification of the chief executive officer or chief financial officer of the Company that, to the best of his knowledge, all such financial statements are complete and correct in all material respects and present fairly in accordance with GAAP the consolidated financial position of the Company and its subsidiaries as at the end of such fiscal year and for the period then ended, (ii) an opinion thereon of the independent certified public accountants regularly retained by the Company, or any other firm of independent certified public accountants of recognized national standing selected by the Company, and (iii) a report of such independent certified public accountants confirming any adjustment made pursuant to Section 2 during such year. 7.3. Filings. During any period when the Company is a Public Company, the Company will file on or before the required date all required regular or periodic reports (pursuant to the Exchange Act) with the Commission and will deliver to the Holder promptly upon their becoming available one copy of each report, notice or proxy statement sent by the Company to its stockholders generally, and of each regular or periodic report (pursuant to the Exchange Act) and any Registration Statement, prospectus or written communication (other than transmittal letters) (pursuant to the Securities Act), filed by the Company with (i) the Commission or (ii) any securities exchange on which shares of Common Stock are listed. 7.4. Notices of Corporate Action. In the event of (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a regular periodic dividend payable in cash out of earned surplus in an amount not exceeding the amount of the immediately preceding cash dividend for such period) or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger involving the Company and any other Person or any transfer of all or substantially all the assets of the Company to any other Person, or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, the Company will mail to the Holder a notice specifying (i) the date or expected date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right, and (ii) the date or expected date on which any such reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place and the time, if any such time is to be fixed, as of which the holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for the securities or other property deliverable upon such reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation or winding-up, such notice to be mailed to the Holder at least 45 days prior to the date therein specified. 8. Registration of Common Stock. If any shares of Common Stock required to be reserved for purposes of exercise of this Warrant require registration with or approval of any governmental authority under any federal or state law (other than the Securities Act) before such shares may be issued upon exercise, the Company will, at its reasonable expense and as expeditiously as possible, use its best efforts to cause such shares to be duly registered or approved, as the case may be. At any such time as Common Stock is listed on any national securities exchange, the Company will, at its reasonable expense, obtain promptly and maintain the approval for listing on each such exchange, upon official notice of issuance, the shares of Common Stock issuable upon exercise of the then outstanding Warrants and maintain the listing of such shares after their issuance; and the Company will also list on such national securities exchange, will register under the Exchange Act and will maintain such listing of, any Other Securities that at any time are issuable upon exercise of the Warrants, if and at the time that any securities of the same class shall be listed on such national securities exchange by the Company. 9. Restrictions on Transfer. 9.1. Restrictive Legends. Except as otherwise permitted by this Section 9, each Warrant (including each Warrant issued upon the transfer of any Warrant) shall be stamped or otherwise imprinted with a legend in substantially the following form: "THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. Except as otherwise permitted by this Section 9, each certificate for Common Stock (or Other Securities) issued upon the exercise of any Warrant, and each certificate issued upon the transfer of any such Common Stock (or Other Securities), shall be stamped or otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. 9.2. Transfer to Comply With the Securities Act. Restricted Securities may not be sold, assigned, pledged, hypothecated, encumbered or in any manner transferred or disposed of, in whole or in part, except in compliance with the provisions of the Securities Act and state securities or Blue Sky laws and the terms and conditions hereof. 9.3. Termination of Restrictions. The restrictions imposed by this Section 9 on the transferability of Restricted Securities shall cease and terminate as to any particular Restricted Securities (a) when a registration statement with respect to the sale of such securities shall have been declared effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (b) when such securities are sold pursuant to Rule 144 (or any similar provision then in force) under the Securities Act, or (c) when, in the opinion of both counsel for the Holder and counsel for the Company, such restrictions are no longer required or necessary in order to protect the Company against a violation of the Securities Act upon any sale or other disposition of such securities without registration thereunder. Whenever such restrictions shall cease and terminate as to any Restricted Securities, the Holder shall be entitled to receive from the Company, without expense, new securities of like tenor not bearing the applicable legends required by Section 9.1. 10. Reservation of Stock, etc. The Company shall at all times reserve and keep available, solely for issuance and delivery upon exercise of the Warrant, the number of shares of Common Stock (or Other Securities) from time to time issuable upon exercise of all Warrants at the time outstanding. All shares of Common Stock (or Other Securities) issuable upon exercise of any Warrants shall be duly authorized and, when issued upon such exercise, shall be validly issued and, in the case of shares, fully paid and nonassessable with no liability on the part of the holders thereof, and, in the case of all securities, shall be free from all taxes, liens, security interests, encumbrances, preemptive rights and charges. The transfer agent for the Common Stock, which may be the Company ("Transfer Agent"), and every subsequent Transfer Agent for any shares of the Company's capital stock issuable upon the exercise of any of the purchase rights represented by this Warrant, are hereby irrevocably authorized and directed at all times until the Expiration Date to reserve such number of authorized and unissued shares as shall be requisite for such purpose. The Company shall keep copies of this Warrant on file with the Transfer Agent for the Common Stock and with every subsequent Transfer Agent for any shares of the Company's capital stock issuable upon the exercise of the rights of purchase represented by this Warrant. The Company shall supply such Transfer Agent with duly executed stock certificates for such purpose. All Warrant certificates surrendered upon the exercise of the rights thereby evidenced shall be canceled, and such canceled Warrants shall constitute sufficient evidence of the number of shares of stock which have been issued upon the exercise of such Warrants. Subsequent to the Expiration Date, no shares of stock need be reserved in respect of any unexercised Warrant. 11. Registration and Transfer of Warrants, etc. 11.1. Warrant Register; Ownership of Warrants. Each Warrant issued by the Company shall be numbered and shall be registered in a warrant register (the "Warrant Register") as it is issued and transferred, which Warrant Register shall be maintained by the Company at its principal office or, at the Company's election and expense, by a Warrant Agent or the Company's Transfer Agent. The Company shall be entitled to treat the registered Holder of any Warrant on the Warrant Register as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant on the part of any other Person, and shall not be affected by any notice to the contrary, except that, if and when any Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer thereof as the owner of such Warrant for all purposes. Subject to Section 9, a Warrant, if properly assigned, may be exercised by a new holder without a new Warrant first having been issued. 11.2. Transfer of Warrants. Subject to compliance with Section 9, if applicable, this Warrant and all rights hereunder are transferable in whole or in part, without charge to the Holder hereof, upon surrender of this Warrant with a properly executed Form of Assignment attached hereto as Exhibit B at the principal office of the Company. Upon any partial transfer, the Company shall at its expense issue and deliver to the Holder a new Warrant of like tenor, in the name of the Holder, which shall be exercisable for such number of shares of Common Stock with respect to which rights under this Warrant were not so transferred. 11.3. Replacement of Warrants. On receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender of such Warrant to the Company at its principal office and cancellation thereof, the Company at its expense shall execute and deliver, in lieu thereof, a new Warrant of like tenor. 11.4. Adjustments To Warrant Quantity. Notwithstanding any adjustment in the Warrant Quantity or in the number or kind of shares of Common Stock purchasable upon exercise of this Warrant, any Warrant theretofore or thereafter issued may continue to express the same number and kind of shares of Common Stock as are stated in this Warrant, as initially issued. 11.5. Fractional Shares. Notwithstanding any adjustment pursuant to Section 2 in the number of shares of Common Stock covered by this Warrant or any other provision of this Warrant, the Company may, but shall not be required to, issue fractions of shares upon exercise of this Warrant or to distribute certificates which evidence fractional shares. In lieu of fractional shares, the Company shall make payment to the Holder, at the time of exercise of this Warrant as herein provided, in an amount in cash equal to such fractions multiplied by the Current Market Price of a share of Common Stock on the date of Warrant exercise. 12. Redemption. 12.1. Amounts Redeemable. At the option of the Company, this Warrant will be partially redeemable under each of the following circumstances, with each such partial redemption to reduce the aggregate number of shares of Common Stock issuable hereunder and any other Warrants then outstanding by the lesser of 300,000 and the aggregate number of shares then issuable hereunder and thereunder and each such partial redemption to be applied pro rata to the shares issuable hereunder and thereunder: (a) prior to January 1, 1999, if the all of the Preferred Stock has been redeemed or repurchased by the Company prior to such date; (b) prior to March 31, 2000, if pre-tax earnings per share of the Common Stock for the fiscal year 1999 equals or exceeds $1.25 on a Fully Diluted Basis; (c) prior to March 31, 2000, if pre-tax earnings per share of Common Stock for the combined fiscal years 1998 and 1999 equals or exceeds $1.90 on a Fully Diluted Basis; (d) prior to March 31, 2001, if pre-tax earnings per share of Common Stock for the fiscal year 2000 equals or exceeds $2.00 on a Fully Diluted Basis; and (e) prior to March 31, 2001, if pre-tax earnings per share of Common Stock for the combined fiscal years 1998, 1999 and 2000 equals or exceeds $4.10 on a Fully Diluted Basis; provided, however, that the partial redemption amount of 300,000 and the pre-tax earnings per share amounts will be appropriately adjusted to reflect transactions or other matters giving rise to adjustments to the Warrant Quantity. 12.2. Redemption Price. The redemption price in respect of any partial redemption of this Warrant will be payable in cash to the Holder on the Redemption Date (as defined below) in an amount equal to the aggregate reduction in the number of shares of Common Stock issuable pursuant to this Warrant by reason of such partial redemption times $.01. 12.3. Notice of Partial Redemption; Payment; Effect of Notice. (a) The Company may exercise its partial redemption right by giving written notice of such exercise to the Holder not less than five Business Days prior to the date fixed for such redemption (the "Redemption Date"), such notice to specify the Redemption Date and the amount of the reduction in the number of shares of Common Stock issuable hereunder by reason of such partial redemption and to be accompanied by a computation of the pre-tax earnings per share amount or amounts giving rise to such partial redemption as verified by independent certified public accountants of recognized national standing (which may be the regular auditors of the Company) selected by the Company to verify such computation. (b) The Company shall make partial redemption payments by wire transfer to the Holder to an account designated by the Holder at least two business days prior to the Redemption Date. On any Redemption Date, the Company shall make any necessary adjustments in the Warrant Register to reflect the reduction in the number of shares of Common Stock issuable hereunder. 13. Definitions. As used herein, unless the context otherwise requires, the following terms have the following respective meanings: Additional Shares of Common Stock: All shares (including treasury shares) of Common Stock issued or sold (or, pursuant to Section 2.3 or 2.4, deemed to be issued) by the Company after the date hereof, whether or not subsequently reacquired or retired by the Company, other than (a) shares issued upon the exercise of the Warrants, (b) such additional number of shares as may become issuable upon the exercise of the Warrants by reason of adjustments required pursuant to anti-dilution provisions applicable to the Warrants as in effect on the date hereof, (c) shares, warrants, options and other securities issued at any time to the Holder or any Affiliate thereof, and (d) shares issued upon exercise of any options, warrants, rights for, or securities convertible into, Common Stock outstanding as of the date of this Warrant and listed on Exhibit C hereto or granted under the agreements and plans listed on Exhibit C hereto, in each such case only to the extent that such options, warrants, rights, convertible securities, agreements and plans are not amended and only to the extent that the respective numbers of shares so issued do not exceed the respective numbers of shares indicated on Exhibit C. Affiliate: Any person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the applicable person. For purposes of this definition "control" has the meaning specified in Rule 12b-2 under the Exchange Act. Business Day: Any day other than a Saturday or a Sunday or a day on which commercial banking institutions in the City of New York are authorized by law to be closed. Any reference to "days" (unless Business Days are specified) shall mean calendar days. Commission: The Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. Common Stock: As defined in the introduction to this Warrant, such term to include any stock into which such Common Stock shall have been changed or any stock resulting from any reclassification of such Common Stock, and all other stock of any class or classes (however designated) of the Company the holders of which have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference or have the right to vote at elections of directors of the Company, the authorization of any shares of Common Stock or mergers, consolidations or sales of assets of the Company. Company: As defined in the introduction to this Warrant, such term to include any corporation which shall succeed to or assume the obligations of the Company hereunder in compliance with Section 3. Convertible Securities: Any evidences of indebtedness, shares of stock (other than Common Stock) or other securities directly or indirectly convertible into or exchangeable for Additional Shares of Common Stock. Current Market Price: On any date specified herein, the average daily Market Price during the period of the most recent 20 days, ending on such date, on which the national securities exchanges were open for trading, except that if no Common Stock is then listed or admitted to trading on any national securities exchange or quoted in the over-the-counter market, the Current Market Price shall be the Market Price on such date under clause (d) of the definition thereof. Demand Registration Statement: As defined in the Registration Rights Agreement. Exchange Act: The Securities Exchange Act of 1934, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Expiration Date: As defined in the introduction to this Warrant. Fully-Diluted Basis: As of the date of any determination, the outstanding Common Stock plus the maximum number of shares of Common Stock that would be issued upon the exercise, conversion or exchange of any outstanding securities, warrants or options upon the terms thereof, whether or not then exercisable, convertible, exchangeable or subject to any vesting period, plus the maximum number of shares of Common Stock issuable pursuant to any agreement by which the Company is bound whether or not such stock is then required to be issued. Holder: As defined in the introduction to this Warrant. Investment Agreement: As defined in the introduction to this Warrant. Market Price: On any date specified herein, the amount per share of the Common Stock, equal to (a) the last reported sale price of such Common Stock, regular way, on such date or, in case no such sale takes place on such date, the average of the closing bid and asked prices thereof regular way on such date, in either case as officially reported on the principal national securities exchange on which such Common Stock is then listed or admitted for trading, or (b) if such Common Stock is not then listed or admitted for trading on any national securities exchange but is designated as a national market system security by the NASD, including the Nasdaq Small Cap market, the last reported trading price of the Common Stock on such date, or (c) if there shall have been no trading on such date or if the Common Stock is not so designated, the average of the closing bid and asked prices of the Common Stock on such date as shown by the NASD automated quotation system, or (d) if such Common Stock is not then listed or admitted for trading on any national exchange or quoted in the over-the-counter market, the higher of (x) the book value thereof as determined by any firm of independent public accountants of recognized standing selected by the Board of Directors of the Company as of the last day of any month ending within 60 days preceding the date as of which the determination is to be made and (y) the fair value thereof (as of a date which is within 20 days of the date as of which the determination is to be made) determined in good faith by the Board of Directors of the Company, which determination may be challenged by any Holder pursuant to Section 22 within 30 days of receipt of notice thereof. NASD: The National Association of Securities Dealers, Inc. Options: Rights, options or warrants to subscribe for, purchase or otherwise acquire either Additional Shares of Common Stock or Convertible Securities. Other Securities: Any stock (other than Common Stock) and other securities of the Company or any other Person (corporate or otherwise) which the holders of the Warrants at any time shall be entitled to receive, or shall have received, upon the exercise of the Warrants, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 3 or otherwise. Person: A corporation, an association, a partnership, an organization, a business, an individual, a government or political subdivision thereof or a governmental agency. Preferred Stock: The Senior Redeemable Preferred Stock of the Company issued pursuant to the Investment Agreement. Registrable Securities: As defined in the Registration Rights Agreement. Registration Rights Agreement: The Registration Rights Agreement, dated the date hereof, by and among the Company and the Initial Holders specified on the signature page thereof. Restricted Securities: (a) any Warrants bearing the applicable legend set forth in Section 9.1, (b) any shares of Common Stock (or Other Securities) issued or issuable upon the exercise of Warrants which are evidenced by a certificate or certificates bearing the applicable legend set forth in such Section, and (c) any shares of Common Stock (or Other Securities) issued subsequent to the exercise of any of the Warrants as a dividend or other distribution with respect to, or resulting from a subdivision of the outstanding shares of Common Stock (or other Securities) into a greater number of shares by reclassification, stock splits or otherwise, or in exchange for or in replacement of the Common Stock (or Other Securities) issued upon such exercise, which are evidenced by a certificate or certificates bearing the applicable legend set forth in such Section. Securities Act: The Securities Act of 1933, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Subsidiary: with respect to any Person at any time, any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of: (a) the issued and outstanding shares of capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time shares of capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency); (b) the interest in the capital or profits of such corporation, professional corporation, partnership, joint venture or limited liability company; or (c) the beneficial interest in such trust or estate, is, at such time, directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. Voting Securities: Stock of any class or classes (or equivalent interests), if the holders of the stock of such class or classes (or equivalent interests) are ordinarily, in the absence of contingencies, entitled to vote for the election of the directors (or persons performing similar functions) of such business entity, even though the right so to vote has been suspended by the happening of such a contingency. Warrant: As defined in the introduction to this Warrant. Warrant Price: As defined in Section 2.1. Warrant Quantity: At any time, the number of shares of Common Stock into which the Warrant is exercisable. Withdrawn Demand Registration: As defined in the Registration Rights Agreement. 14. Remedies; Specific Performance. The Company stipulates that there would be no adequate remedy at law to the Holder in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant and accordingly, the Company agrees that, in addition to any other remedy to which the Holder may be entitled at law or in equity, the Holder shall be entitled to seek to compel specific performance of the obligations of the Company under this Warrant, without the posting of any bond, in accordance with the terms and conditions of this Warrant in any court of the United States or any State thereof having jurisdiction, and if any action should be brought in equity to enforce any of the provisions of this Warrant, the Company shall not raise the defense that there is an adequate remedy at law. Except as otherwise provided by law, a delay or omission by the Holder hereto in exercising any right or remedy accruing upon any such breach shall not impair the right or remedy or constitute a waiver of or acquiescence in any such breach. No remedy shall be exclusive of any other remedy. All available remedies shall be cumulative. 15. No Rights or Liabilities as Shareholder. Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof any rights as a shareholder of the Company or as imposing any obligation on the Holder to purchase any securities or as imposing any liabilities on the Holder as a shareholder of the Company, whether such obligation or liabilities are asserted by the Company or by creditors of the Company. 16. Notices. (a) All notices and other communications (and deliveries) provided for or permitted hereunder shall be made in writing by hand delivery, telecopier, any courier guaranteeing overnight delivery or first class registered or certified mail, return receipt requested, postage prepaid, addressed (i) if to the Company, to the attention of its President at its principal office located at 725 Independence Avenue, S.E. Washington, D.C. 20003, Telecopy: (202) 543-5360 or such other address or telecopy number as may hereafter be designated in writing by the Company to the Holder in accordance with the provisions of this Section, with a copy to Epstein Becker & Green, P.C., 250 Park Avenue, New York, New York 10177, Attn: David E. Fleming, Esq., Telecopy: (212) 661-0989, (ii) If to the initial Holder, to Wexford Management LLC, 411 West Putnam Avenue, Greenwich, Connecticut 06830, Attn: Frank Plimpton, Telecopy: (203) 862-7490 or such other address or telecopy number as may hereafter be designated in writing by the Holder to the Company in accordance with the provisions of this Section, with a copy to Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022, Attn: Randall H. Doud, Esq., Telecopy: (212) 735-2000, or (iii) if to any subsequent Holder, at its address as it appears in the Warrant Register. All such notices and communications (and deliveries) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; when receipt is acknowledged, if telecopied; on the next Business Day, if timely delivered to a courier guaranteeing overnight delivery; and five days after being deposited in the mail, if sent first class or certified mail, return receipt requested, postage prepaid; provided, that the exercise of any Warrant shall be effective in the manner provided in Section 1. (b) If: (i) the Company shall declare a dividend (or any other distribution) on the Common Stock; or (ii) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of any class or any other rights or warrants; or (iii) there shall be any reclassification of the Common Stock or any consolidation or merger to which the Company is a party and for which approval of any shareholders of the Company is required, or a statutory share exchange, or self tender offer by the Company for all or substantially all of its outstanding shares of Common Stock or the sale or transfer of all or substantially all of the assets of the Company as an entity; or (iv) there shall occur the involuntary or voluntary liquidation, dissolution or winding up of the Company, then the Company shall cause to be mailed to the Holder, at the address as shown on the stock records of the Company, as promptly as possible, but at least 15 Business Days prior to the applicable date hereinafter specified, a notice stating (A) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights or warrants are to be determined or (B) the date on which such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up. (c) Whenever the number of shares of Common Stock issuable upon exercise of this Warrant is adjusted as herein provided, the Company shall prepare a notice of such adjustment setting forth the adjusted number of shares of Common Stock issuable upon exercise of this Warrant, the basis and the computation thereof, and the effective date of such adjustment and shall mail such notice to the Holder at the Holder's last address as shown on the stock records of the Company. 17. Amendments. This Warrant and any term hereof may not be amended, modified, supplemented or terminated, and waivers or consents to departures from the provisions hereof may not be given, except by written instrument duly executed by the Holders of a majority-in-interest of the Warrants. 18. Descriptive Headings, Etc. The headings in this Warrant are for convenience of reference only and shall not limit or otherwise affect the meaning of terms contained herein. Unless the context of this Warrant otherwise requires: (1) words of any gender shall be deemed to include each other gender; (2) words using the singular or plural number shall also include the plural or singular number, respectively; (3) the words "hereof," "herein" and "hereunder" and words of similar import when used in this Warrant shall refer to this Warrant as a whole and not to any particular provision of this Warrant, and Section and paragraph references are to the Sections and paragraphs of this Warrant unless otherwise specified; (4) the word "including" and words of similar import when used in this Warrant shall mean "including, without limitation," unless otherwise specified; (5) "or" is not exclusive; and (6) provisions apply to successive events and transactions. 19. Governing Law. This Warrant shall be governed by, and construed in accordance with, the laws of the State of Delaware (without giving effect to the conflict of laws principles thereof). 20. Judicial Proceedings; Waiver of Jury. Any legal action, suit or proceeding brought against the Company with respect to this Warrant may be brought in any federal court of the Southern District of New York or any state court located in New York County, State of New York, and by execution and delivery of this Warrant, the Company hereby irrevocably and unconditionally waives any claim (by way of motion, as a defense or otherwise) of improper venue, that it is not subject personally to the jurisdiction of such court, that such courts are an inconvenient forum or that this Warrant or the subject matter may not be enforced in or by such court. The Company hereby irrevocably and unconditionally consents to the service of process of any of the aforementioned courts in any such action, suit or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, at its address set forth or provided for in Section 16 (with copies of such process also being sent to the Company's counsel referred to in such section), such service to become effective 30 days after such mailing. Nothing herein contained shall be deemed to affect the right of any party to serve process in any manner permitted by law or commence legal proceedings or otherwise proceed against any other party in any other jurisdiction to enforce judgments obtained in any action, suit or proceeding brought pursuant to this Section. THE COMPANY HEREBY IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING, WHETHER AT LAW OR EQUITY, BROUGHT BY IT OR THE HOLDER IN CONNECTION WITH THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 21. Registration Rights Agreement. The shares of Common Stock (and Other Securities) issuable upon exercise of this Warrant (or upon conversion of any shares of Common Stock issued upon such exercise) shall constitute Registrable Securities (as such term is defined in the Registration Rights Agreement). Each holder of this Warrant shall be entitled to all of the benefits afforded to a holder of any such Registrable Securities under the Registration Rights Agreement and such holder, by its acceptance of this Warrant, agrees to be bound by and to comply with the terms and conditions of the Registration Rights Agreement applicable to such holder as a holder of such Registrable Securities. 22. Determination of Current Market Price or Market Price. (a) The determination by the Board of Directors of the Current Market Price or Market Price shall be final and binding absent manifest error except that the determination of Market Price under clause (d) of the definition thereof may be challenged by the Holders of a majority-in-interest of the Warrants within 30 days after notice of any adjustment in the number of shares of Common Stock issuable upon the exercise of this Warrant utilizing such definition as sent to the Holders. (b) Such notice of objection shall specify an investment banking firm of national reputation to determine the market value of the Common Stock as of the date of determination by the Company's Board of Directors. The Company may reject the firm included in such notice solely based on such firm being an affiliate of one or more Holders. (c) The Company shall enter into a standard agreement with such firm and shall provide full cooperation to such firm with respect to its evaluation of the Market Value of the Common Stock. The Company and the Holders shall each pay one-half of the fees and expenses of such firm; provided, however, that in the event that the determination by such firm is 110% or more of the original determination made by the Company's Board of Directors, the Company shall pay all of the fees and expenses of such firm. (d) In determining the Market Value of the Common Stock, such firm may not take into account that the Common Stock at issue does not control the Company. (e) The determination by such firm shall be final and binding on the Company and the Holders. COMPLETE WELLNESS CENTERS, INC. By: /s/ E. Eugene Sharer ---------------------- Name: Title: Exhibit A FORM OF SUBSCRIPTION [To be executed only upon exercise of Warrant] To: COMPLETE WELLNESS CENTERS, INC. The undersigned registered holder of the within Warrant hereby irrevocably exercises such Warrant for, and purchases thereunder, ____ shares of Common Stock of COMPLETE WELLNESS CENTERS, INC. and herewith makes payment of $ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to whose address is Dated: - --------------------------------------------------- (Signature must conform in all respects to the name of holder as specified on the face of Warrant) - --------------------------------------------------- (Street Address) - --------------------------------------------------- (City) (State) Zip Code) Exhibit B FORM OF ASSIGNMENT [To be executed only upon assignment of Warrant] For value received, the undersigned registered holder of the within Warrant hereby sells, assigns and transfers unto the right represented by such Warrant to purchase shares of Common Stock of COMPLETE WELLNESS CENTERS, INC. to which such Warrant relates, and appoints Attorney to make such transfer on the books of COMPLETE WELLNESS CENTERS, INC., maintained for such purpose, with full power of substitution in the premises. Dated: - --------------------------------------------------- (Signature must conform in all respects to the name of holder as specified on the face of Warrant) - --------------------------------------------------- (Street Address) - --------------------------------------------------- (City) (State) Zip Code) Signed in the presence of: Exhibit C LIST OF STOCK OPTION PLANS, WARRANTS AND SIMILAR AGREEMENTS EX-99 9 EXHIBIT VIII - REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT by and among COMPLETE WELLNESS CENTERS, INC. and THE INITIAL HOLDERS SPECIFIED ON THE SIGNATURE PAGE HEREOF Dated as of January 12, 1998 TABLE OF CONTENTS Page 1. DEFINITIONS................................................... 1 2. REGISTRATION UNDER THE SECURITIES ACT......................... 6 2.1. Demand Registration.................................. 6 2.2. Incidental Registration.............................. 10 2.3. Shelf Registration................................... 12 2.4. Expenses............................................. 13 2.5. Underwritten Offerings............................... 13 2.6. Conversions; Exercises............................... 14 2.7. Postponements........................................ 14 3. HOLDBACK ARRANGEMENTS......................................... 15 3.1. Restrictions on Sale by Holders of Registrable Securities........................................... 15 3.2. Restrictions on Sale by the Company and Others....... 16 4. REGISTRATION PROCEDURES....................................... 16 4.1. Obligations of the Company........................... 16 4.2. Seller Information................................... 22 4.3. Notice to Discontinue................................ 23 5. INDEMNIFICATION; CONTRIBUTION................................. 23 5.1. Indemnification by the Company....................... 23 5.2. Indemnification by Holders........................... 24 5.3. Conduct of Indemnification Proceedings............... 25 5.4. Contribution......................................... 26 5.5. Other Indemnification................................ 27 5.6. Indemnification Payments............................. 27 6. GENERAL....................................................... 27 6.1. Adjustments Affecting Registrable Securities......... 27 6.2. Registration Rights to Others........................ 27 6.3. Availability of Information; Rule 144; Rule 144A; Other Exemptions............................... 27 6.4. Amendments and Waivers............................... 28 6.5. Notices.............................................. 29 6.6. Successors and Assigns............................... 30 6.7. Counterparts......................................... 30 6.8. Descriptive Headings, Etc............................ 30 6.9. Severability......................................... 31 6.10. Governing Law........................................ 31 6.11. Remedies; Specific Performance....................... 31 6.12. Entire Agreement..................................... 31 6.13. Nominees for Beneficial Owners....................... 32 6.14. Consent to Jurisdiction; Waiver of Jury.............. 32 6.15. Further Assurances................................... 32 6.16. No Inconsistent Agreements........................... 33 6.17. Construction......................................... 33 REGISTRATION RIGHTS AGREEMENT (this or the "Agreement") dated as of January 12, 1998, by and among Complete Wellness Centers, Inc., a Delaware corporation (the "Company"), and the Initial Holders specified on the signature pages to this Agreement. W I T N E S S E T H: WHEREAS, simultaneously herewith and pursuant to an Investment Agreement, dated as of December 19, 1997 and as supplemented as of January 12, 1998 (the "Investment Agreement"), among the Company and the Initial Holders, the Company is issuing to the Initial Holders Common Stock Purchase Warrants (together with any additional warrants issued in accordance with the terms thereof, the "Warrants") to purchase common stock, par value $.0001665, of the Company (the "Common Stock"), and shares of Senior Redeemable Preferred Stock of the Company (the "Preferred Stock"); and WHEREAS, in order to induce the Initial Holders to enter into the Investment Agreement and to subscribe for and purchase the Warrants and the Preferred Stock, the Company has agreed to provide certain registration rights on the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the premises and of the mutual agreements contained herein, and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: "Affiliate" shall mean (i) with respect to any Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person, and (ii) with respect to any individual, shall also mean the spouse, sibling, child, step-child, grandchild, niece, nephew or parent of such Person, or the spouse thereof. "Blackout Period" shall have the meaning set forth in Section 2.7. "Common Shares" shall mean shares of Common Stock. "Common Stock" shall have the meaning set forth in the preamble. "Company" shall have the meaning set forth in the preamble. "Demand Registration" shall mean a registration required to be effected by the Company pursuant to Section 2.1. "Demand Registration Statement" shall mean a registration statement of the Company which covers the Registrable Securities requested to be included therein pursuant to the provisions of Section 2.1 and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference (or deemed to be incorporated by reference) therein. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations thereunder, or any similar or successor statute. "Holders" shall mean the Initial Holders for so long as they own any Registrable Securities and such of its respective heirs, successors and permitted assigns (including any permitted transferees of Registrable Securities) who acquire or are otherwise the transferee of Registrable Securities, directly or indirectly, from such Initial Holders (or any subsequent Holder), for so long as such heirs, successors and permitted assigns own any Registrable Securities. For purposes of this Agreement, a Person will be deemed to be a Holder whenever such Person holds an option to purchase, or a security convertible into or exercisable or exchangeable for, Registrable Securities, whether or not such purchase, conversion, exercise or exchange has actually been effected and disregarding any legal restrictions upon the exercise of such rights. Registrable Securities issuable upon exercise of an option or upon conversion, exchange or exercise of another security shall be deemed outstanding for the purposes of this Agreement. "Holders' Counsel" shall mean one firm of counsel (per registration) to the Holders of Registrable Securities participating in such registration, which counsel shall be selected (i) in the case of a Demand Registration, by the Initiating Holders holding a majority of the Registrable Securities for which registration was requested in the Request, and (ii) in all other cases, by the Majority Holders participating in the Registration. "Incidental Registration" shall mean a registration required to be effected by the Company pursuant to Section 2.2. "Incidental Registration Statement" shall mean a registration statement of the Company which covers the Registrable Securities requested to be included therein pursuant to the provisions of Section 2.2 and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference (or deemed to be incorporated by reference) therein. "Initial Holders" shall mean the Persons specified as such on the signature pages to this Agreement on the date hereof. "Initiating Holders" shall mean, with respect to a particular registration, the Holders who initiated the Request for such registration. "Inspectors" shall have the meaning set forth in Section 4.1(g). "Investment Agreement" shall have the meaning set forth in the preamble. "Majority Holders" shall mean one or more Holders of Registrable Securities who at such time hold a majority of the Registrable Securities then outstanding. "Majority Holders of the Registration" shall mean, with respect to a particular registration, one or more Holders of Registrable Securities who would hold a majority of the Registrable Securities to be included in such registration. "NASD" shall mean the National Association of Securities Dealers, Inc. "Person" shall mean any individual, firm, partnership, corporation, trust, joint venture, association, joint stock company, limited liability company, unincorporated organization or any other entity or organization, including a government or agency or political subdivision thereof, and shall include any successor (by merger or otherwise) of such entity. "Preferred Stock" shall have the meaning set forth in the preamble. "Prospectus" shall mean the prospectus included in a Registration Statement (including, without limitation, any preliminary prospectus and any prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), and any such Prospectus as amended or supplemented by any prospectus supplement, and all other amendments and supplements to such Prospectus, including post-effective amendments, and in each case including all material incorporated by reference (or deemed to be incorporated by reference) therein. "Registrable Securities" shall mean (i) any Warrant Shares issued or issuable upon exercise of the Warrants, (ii) securities of the Company acquired by the Initial Holders or their assignees in any transaction contemplated by the Warrants, and (iii) any other securities of the Company (or any successor or assign of the Company, whether by merger, consolidation, sale of assets or otherwise) which may be issued or issuable with respect to, in exchange for, or in substitution of, Registrable Securities referenced in clauses (i) or (ii) above by reason of any dividend or stock split, combination of shares, merger, consolidation, recapitalization, reclassification, reorganization, sale of assets or similar transaction. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (A) a registration statement with respect to the sale of such securities shall have been declared effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (B) such securities are sold pursuant to Rule 144 (or any similar provisions then in force) under the Securities Act, (C) such securities have been otherwise transferred, a new certificate or other evidence of ownership for them not bearing the legend restricting further transfer shall have been delivered by the Company and subsequent public distribution of them shall not require registration under the Securities Act, or (D) such securities shall have ceased to be outstanding; provided, however, that clauses (A) and (C) shall not apply if the Holder may be deemed to be an affiliate of the Company. "Registration Expenses" shall mean any and all expenses incident to performance of or compliance with this Agreement by the Company and its subsidiaries, including, without limitation (i) all SEC, stock exchange, NASD and other registration, listing and filing fees, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws and compliance with the rules of any stock exchange (including fees and disbursements of counsel in connection with such compliance and the preparation of a blue sky memorandum and legal investment survey), (iii) all expenses of any Persons in preparing or assisting in preparing, word processing, printing, distributing, mailing and delivering any Registration Statement, any Prospectus, any underwriting agreements, transmittal letters, securities sales agreements, securities certificates and other documents relating to the performance of or compliance with this Agreement, (iv) the fees and disbursements of counsel for the Company, (v) the fees and disbursements of Holders' Counsel, (vi) the fees and disbursements of all independent public accountants (including the expenses of any audit and/or "cold comfort" letters) and the fees and expenses of other Persons, including experts, retained by the Company, (vii) the expenses incurred in connection with making road show presentations and holding meetings with potential investors to facilitate the distribution and sale of Registrable Securities which are customarily borne by the issuer, (viii) any fees and disbursements of underwriters customarily paid by issuers or sellers of securities, and (ix) premiums and other costs of policies of insurance against liabilities arising out of the public offering of the Registrable Securities being registered; provided, however, Registration Expenses shall not include discounts and commissions payable to underwriters, selling brokers, dealer managers or other similar Persons engaged in the distribution of any of the Registrable Securities; and provided further, that in any case where Registration Expenses are not to be borne by the Company, such expenses shall not include salaries of Company personnel or general overhead expenses of the Company, auditing fees, premiums or other expenses relating to liability insurance required by underwriters of the Company or other expenses for the preparation of financial statements or other data normally prepared by the Company in the ordinary course of its business or which the Company would have incurred in any event; and provided, further, that in the event the Company shall, in accordance with Section 2.2 or Section 2.6 hereof, not register any securities with respect to which it had given written notice of its intention to register to Holders, notwithstanding anything to the contrary in the foregoing, all of the costs incurred by the Holders in connection with such registration shall be deemed to be Registration Expenses. "Registration Statement" shall mean any registration statement of the Company which covers any Registrable Securities and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference (or deemed to be incorporated by reference) therein. "Request" shall have the meaning set forth in Section 2.1(a). "SEC" shall mean the Securities and Exchange Commission, or any successor agency having jurisdiction to enforce the Securities Act. "Securities Act" shall mean the Securities Act of 1933, as amended from time to time, and the rules and regulations thereunder, or any similar or successor statute. "Shelf Registration" shall have the meaning set forth in Section 2.1(a). "Underwriters" shall mean the underwriters, if any, of the offering being registered under the Securities Act. "Underwritten Offering" shall mean a sale of securities of the Company to an Underwriter or Underwriters for reoffering to the public. "Warrants" shall have the meaning set forth in the preamble. "Warrant Shares" shall mean the Common Shares or other equity securities issued or issuable upon the exercise of the Warrants. "Withdrawn Demand Registration" shall have the meaning set forth in Section 2.1(a). "Withdrawn Request" shall have the meaning set forth in Section 2.1(a). 2. REGISTRATION UNDER THE SECURITIES ACT. 2.1. Demand Registration. (a) Right to Demand Registration. Subject to Section 2.1(c), at any time or from time to time the Majority Holders shall have the right to request in writing that the Company register all or part of such Holders' Registrable Securities (a "Request") (which Request shall specify the amount of Registrable Securities intended to be disposed of by such Holders and the intended method of disposition thereof) by filing with the SEC a Demand Registration Statement. As promptly as practicable, but no later than 10 days after receipt of a Request, the Company shall give written notice of such requested registration to all Holders of Registrable Securities. Subject to Section 2.1(b), the Company shall include in a Demand Registration (i) the Registrable Securities intended to be disposed of by the Initiating Holders and (ii) the Registrable Securities intended to be disposed of by any other Holder which shall have made a written request (which request shall specify the amount of Registrable Securities to be registered and the intended method of disposition thereof) to the Company for inclusion thereof in such registration within 20 days after the receipt of such written notice from the Company. The Company shall, as expeditiously as possible following a Request, use its best efforts to cause to be filed with the SEC a Demand Registration Statement providing for the registration under the Securities Act of the Registrable Securities which the Company has been so requested to register by all such Holders, to the extent necessary to permit the disposition of such Registrable Securities so to be registered in accordance with the intended methods of disposition thereof specified in such Request or further requests (including, without limitation, by means of a shelf registration pursuant to Rule 415 under the Securities Act (a "Shelf Registration") if so requested and if the Company is then eligible to use such a registration). The Company shall use its best efforts to have such Demand Registration Statement declared effective by the SEC as soon as practicable thereafter and to keep such Demand Registration Statement continuously effective for the period specified in Section 4.1(b). A Request may be withdrawn prior to the filing of the Demand Registration Statement by the Majority Holders of the Registration (a "Withdrawn Request") and a Demand Registration Statement may be withdrawn prior to the effectiveness thereof by the Majority Holders of the Registration (a "Withdrawn Demand Registration"), and such withdrawals shall be treated as a Demand Registration which shall have been effected pursuant to this Section 2.1, unless the Holders of Registrable Securities to be included in such Registration Statement reimburse the Company for its reasonable out-of-pocket Registration Expenses relating to the preparation and filing of such Demand Registration Statement (to the extent actually incurred); provided; however, that if a Withdrawn Request or Withdrawn Registration Statement is made (A) because of a material adverse change in the business, financial condition or prospects of the Company, or (B) because the sole or lead managing Underwriter advises that the amount of Registrable Securities to be sold in such offering be reduced pursuant to Section 2.1(b) by more than 10% of the Registrable Securities to be included in such Registration Statement, or (C) because of a postponement of such registration pursuant to Section 2.7, then such withdrawal shall not be treated as a Demand Registration effected pursuant to this Section 2.1 (and shall not be counted toward the number of Demand Registrations), and the Company shall pay all Registration Expenses in connection therewith. Any Holder requesting inclusion in a Demand Registration may, at any time prior to the effective date of the Demand Registration Statement (and for any reason) revoke such request by delivering written notice to the Company revoking such requested inclusion. The registration rights granted pursuant to the provisions of this Section 2.1 shall be in addition to the registration rights granted pursuant to the other provisions of Section 2 hereof. (b) Priority in Demand Registrations. If a Demand Registration involves an Underwritten Offering, and the sole or lead managing Underwriter, as the case may be, of such Underwritten Offering shall advise the Company in writing (with a copy to each Holder requesting registration) on or before the date five days prior to the date then scheduled for such offering that, in its opinion, the amount of Registrable Securities requested to be included in such Demand Registration exceeds the number which can be sold in such offering within a price range acceptable to the Majority Holders of the Registration (such writing to state the basis of such opinion and the approximate number of Registrable Securities which may be included in such offering), the Company shall include in such Demand Registration, to the extent of the number which the Company is so advised may be included in such offering, the Registrable Securities requested to be included in the Demand Registration by the Holders allocated pro rata in proportion to the number of Registrable Securities requested to be included in such Demand Registration by each of them. In the event the Company shall not, by virtue of this Section 2.1(b), include in any Demand Registration all of the Registrable Securities of any Holder requesting to be included in such Demand Registration, such Holder may, upon written notice to the Company given within five days of the time such Holder first is notified of such matter, reduce the amount of Registrable Securities it desires to have included in such Demand Registration, whereupon only the Registrable Securities, if any, it desires to have included will be so included and the Holders not so reducing shall be entitled to a corresponding increase in the amount of Registrable Securities to be included in such Demand Registration. (c) Limitations on Registrations. The rights of Holders of Registrable Securities to request Demand Registrations pursuant to Section 2.1(a) are subject to the following limitations: (i) in no event shall the Company be required to effect a Demand Registration before May 31, 1998, and (ii) in no event shall the Company be required to pay Registration Expenses of more than two Demand Registrations; provided, however, that such number shall be increased to the extent the Company does not include in what would otherwise be the final registration for which the Company is required to pay Registration Expenses the number of Registrable Securities requested to be registered by the Holders by reason of Section 2.1(b); and provided, further, that the Registration Expenses in connection with each other Demand Registration shall be allocated pro rata among all Persons on whose behalf securities of the Company are included in such registration, on the basis of the respective amounts of the securities then being registered on their behalf. The Holders may request one Demand Registration in addition to those provided for above, but the Holders must pay the Registration Expenses for such additional Demand Registration. (d) Underwriting; Selection of Underwriters. Notwithstanding anything to the contrary contained in Section 2.1(a), if the Initiating Holders holding a majority of the Registrable Securities for which registration was requested in the Request so elect, the Company shall use its best efforts to ensure that the offering of such Registrable Securities pursuant to such Demand Registration shall be in the form of a firm commitment Underwritten Offering; and such Initiating Holders may require that all Persons (including other Holders) participating in such registration sell their Registrable Securities to the Underwriters at the same price and on the same terms of underwriting applicable to the Initiating Holders. If any Demand Registration involves an Underwritten Offering, the sole or managing Underwriters and any additional investment bankers and managers to be used in connection with such registration shall be selected by the Initiating Holders holding a majority of the Registrable Securities for which registration was requested in the Request, subject to the approval of the Company (such approval not to be unreasonably withheld). (e) Registration of Other Securities. Whenever the Company shall effect a Demand Registration, no securities other than the Registrable Securities shall be covered by such registration unless the Majority Holders of the Registration shall have consented in writing to the inclusion of such other securities, such consent not to be unreasonably withheld. (f) Effective Registration Statement; Suspension. A Demand Registration Statement shall not be deemed to have become effective (and the related registration will not be deemed to have been effected)(i) unless it has been declared effective by the SEC and remains effective in compliance with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such Demand Registration Statement for the time period specified in Section 4.1(b), (ii) if the offering of any Registrable Securities pursuant to such Demand Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, or (iii) if, in the case of an Underwritten Offering, the conditions to closing specified in an underwriting agreement to which the Company is a party are not satisfied other than by the sole reason of any breach or failure by the Holders of Registrable Securities or are not otherwise waived. (g) Other Registrations. During the period (i) beginning on the date of a Request and (ii) ending on the date that is 60 days after the date that a Demand Registration Statement filed pursuant to such Request has been declared effective by the SEC or, if the Holders shall withdraw such Request or such Demand Registration Statement, on the date of such Withdrawn Request or such Withdrawn Registration Statement, the Company shall not, without the consent of the Majority Holders of the Registration, file a registration statement pertaining to any other securities of the Company. (h) Registration Statement Form. Registrations under this Section 2.1 shall be on such appropriate registration form of the SEC (i) as shall be selected by the Initiating Holders holding a majority of the Registrable Securities for which registration was requested in the Request, and (ii) which shall be available for the sale of Registrable Securities in accordance with the intended method or methods of disposition specified in the requests for registration; provided, however, that the Company shall not be required to use a long-form registration statement if the Company is legally permitted to use a short-form registration statement for the requested purpose. The Company agrees to include in any such Registration Statement all information which any selling Holder, upon advice of counsel, shall reasonably request. 2.2. Incidental Registration. (a) Right to Include Registrable Securities. If the Company at any time or from time to time proposes to register any of its securities under the Securities Act (other than in a registration on Form S-4 or S-8 or any successor form to such forms and other than pursuant to Section 2.1 or 2.3) whether or not pursuant to registration rights granted to other holders of its securities and whether or not for sale for its own account, the Company shall deliver prompt written notice (which notice shall be given at least 30 days prior to such proposed registration) to all Holders of Registrable Securities of its intention to undertake such registration, describing in reasonable detail the proposed registration and distribution (including the anticipated range of the proposed offering price, the class and number of securities proposed to be registered and the distribution arrangements) and of such Holders' right to participate in such registration under this Section 2.2 as hereinafter provided. Subject to the other provisions of this paragraph (a) and Section 2.2(b), upon the written request of any Holder made within 20 days after the receipt of such written notice (which request shall specify the amount of Registrable Securities to be registered and the intended method of disposition thereof), the Company shall effect the registration under the Securities Act of all Registrable Securities requested by Holders to be so registered (an "Incidental Registration"), to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered, by inclusion of such Registrable Securities in the Registration Statement which covers the securities which the Company proposes to register and shall cause such Registration Statement to become and remain effective with respect to such Registrable Securities in accordance with the registration procedures set forth in Section 4. If an Incidental Registration involves an Underwritten Offering, immediately upon notification to the Company from the Underwriter of the price at which such securities are to be sold, the Company shall so advise each participating Holder. The Holders requesting inclusion in an Incidental Registration may, at any time prior to the effective date of the Incidental Registration Statement (and for any reason), revoke such request by delivering written notice to the Company revoking such requested inclusion. If at any time after giving written notice of its intention to register any securities and prior to the effective date of the Incidental Registration Statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each Holder of Registrable Securities and, thereupon, (A) in the case of a determination not to register, the Company shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses incurred in connection therewith), without prejudice, however, to the rights of Holders to cause such registration to be effected as a registration under Section 2.1, and (B) in the case of a determination to delay such registration, the Company shall be permitted to delay the registration of such Registrable Securities for the same period as the delay in registering such other securities; provided, however, that if such delay shall extend beyond 120 days from the date the Company received a request to include Registrable Securities in such Incidental Registration, then the Company shall again give all Holders the opportunity to participate therein and shall follow the notification procedures set forth in the preceding paragraph. There is no limitation on the number of such Incidental Registrations pursuant to this Section 2.2 which the Company is obligated to effect. The registration rights granted pursuant to the provisions of this Section 2.2 shall be in addition to the registration rights granted pursuant to the other provisions of Section 2 hereof. (b) Priority in Incidental Registration. If an Incidental Registration involves an Underwritten Offering (on a firm commitment basis), and the sole or the lead managing Underwriter, as the case may be, of such Underwritten Offering shall advise the Company in writing (with a copy to each Holder requesting registration) on or before the date five days prior to the date then scheduled for such offering that, in its opinion, the amount of securities (including Registrable Securities) requested to be included in such registration exceeds the amount which can be sold in such offering without materially interfering with the successful marketing of the securities being offered (such writing to state the basis of such opinion and the approximate number of such securities which may be included in such offering without such effect), the Company shall include in such registration, to the extent of the number which the Company is so advised may be included in such offering without such effect, (i) in the case of a registration initiated by the Company, (A) first, the securities that the Company proposes to register for its own account, (B) second, the Registrable Securities requested to be included in such registration by the Holders and the securities requested to be included in such registration pursuant to an agreement set forth on Schedule 6.2 hereto, allocated pro rata in proportion to the number of securities requested to be included in such registration by each of them, and (C) third, other securities of the Company to be registered on behalf of any other Person, and (ii) in the case of a registration initiated by a Person other than the Company, (A) first, securities of the Company requested to be included by such Persons initiating such registration, (B) second, the Registrable Securities requested to be included in such registration by the Holders and any securities requested to be included in such registration pursuant to an agreement set forth on Schedule 6.2 hereto, allocated pro rata in proportion to the number of securities requested to be included in such registration by each of them, (C) third, the securities that the Company proposes to register for its own account, and (D) fourth, other securities of the Company to be registered on behalf of any other Person; provided, however, that in the event the Company will not, by virtue of this Section 2.2(b), include in any such registration all of the Registrable Securities of any Holder requested to be included in such registration, such Holder may, upon written notice to the Company given within three days of the time such Holder first is notified of such matter, reduce the amount of Registrable Securities it desires to have included in such registration, whereupon only the Registrable Securities, if any, it desires to have included will be so included and the Holders not so reducing shall be entitled to a corresponding increase in the amount of Registrable Securities to be included in such registration. 2.3. Shelf Registration. If a request made pursuant to Section 2.1 is for a Shelf Registration, the Company shall use its best efforts to keep the Shelf Registration continuously effective through the date on which all of the Registrable Securities covered by such Shelf Registration may be sold pursuant to Rule 144(k) under the Securities Act (or any successor provision having similar effect); provided, however, that prior to the termination of such Shelf Registration, the Company shall first furnish to each Holder of Registrable Securities participating in such Shelf Registration (i) an opinion, in form and substance reasonably satisfactory to the Majority Holders of the Registration, of counsel for the Company reasonably satisfactory to the Majority Holders of the Registration stating that such Registrable Securities are freely saleable pursuant to Rule 144(k) under the Securities Act (or any successor provision having similar effect) or (ii) a "No-Action Letter" from the staff of the SEC stating that the SEC would not recommend enforcement action if the Registrable Securities included in such Shelf Registration were sold in a public sale other than pursuant to an effective registration statement. 2.4. Expenses. The Company shall pay all Registration Expenses in connection with any Demand Registration, Incidental Registration or Shelf Registration, whether or not such registration shall become effective and whether or not all Registrable Securities originally requested to be included in such registration are withdrawn or otherwise ultimately not included in such registration, except as otherwise provided with respect to a Withdrawn Request and a Withdrawn Demand Registration in Section 2.1(a). Each Holder shall pay all discounts, commissions and expense allowances payable to underwriters, selling brokers, managers or other similar Persons engaged in the distribution of such Holder's Registrable Securities pursuant to any registration pursuant to this Section 2. 2.5. Underwritten Offerings. (a) Demand Underwritten Offerings. If requested by the sole or lead managing Underwriter for any Underwritten Offering effected pursuant to a Demand Registration, the Company shall enter into a customary underwriting agreement with the Underwriters for such offering, such agreement to be reasonably satisfactory in substance and form to each Holder of Registrable Securities participating in such offering and to contain such representations and warranties by the Company and such other terms as are generally prevailing in agreements of that type, including, without limitation, indemnification and contribution to the effect and to the extent provided in Section 5. (b) Holders of Registrable Securities to be Parties to Underwriting Agreement. The Holders of Registrable Securities to be distributed by Underwriters in an Underwritten Offering contemplated by Section 2 shall be parties to the underwriting agreement between the Company and such Underwriters and may, at such Holders' option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such Underwriters shall also be made to and for the benefit of such Holders of Registrable Securities and that any or all of the conditions precedent to the obligations of such Underwriters under such underwriting agreement be conditions precedent to the obligations of such Holders of Registrable Securities; provided, however, that the Company shall not be required to make any representations or warranties with respect to written information specifically provided by a selling Holder for inclusion in the Registration Statement. No Holder shall be required to make any representations or warranties to, or agreements with, the Company or the Underwriters other than representations, warranties or agreements regarding such Holder, such Holder's Registrable Securities and such Holder's intended method of disposition. (c) Participation in Underwritten Registration. Notwithstanding anything herein to the contrary, no Person may participate in any underwritten registration hereunder unless such Person (i) agrees to sell its securities on the same terms and conditions provided in any underwritten arrangements approved by the Persons entitled hereunder to approve such arrangement and (ii) accurately completes and executes in a timely manner all questionnaires, powers of attorney, indemnities, custody agreements, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 2.6. Conversions; Exercises. Notwithstanding anything to the contrary herein, in order for any Registrable Securities that are issuable upon the exercise of conversion rights, options or warrants to be included in any registration pursuant to Section 2 hereof, the exercise of such conversion rights, options or warrants must be effected no later than immediately prior to the closing of any sales under the Registration Statement pursuant to which such Registrable Securities are to be sold. 2.7. Postponements. The Company shall be entitled to postpone a Demand Registration and to require the Holders of Registrable Securities to discontinue the disposition of their securities covered by a Shelf Registration during any Blackout Period (as defined below) (i) if the Board of Directors of the Company determines in good faith that effecting such a registration or continuing such disposition at such time would have a material adverse effect upon a proposed sale of all (or substantially all) of the assets of the Company or a merger, reorganization, recapitalization or similar current transaction materially affecting the capital structure or equity ownership of the Company, or (ii) if the Company has delivered a notice pursuant to Section 2.2 that it is undertaking an underwritten offering in which the Holders will be entitled to exercise their incidental registration rights; provided, however, that the Company may only delay a Demand Registration pursuant to this Section 2.7 by delivery of a Blackout Notice (as defined below) within 30 days of delivery of the request for such Registration under Section 2.1, as applicable, and may delay a Demand Registration and require the Holders of Registrable Securities to discontinue the disposition of their securities covered by a Shelf Registration only for a reasonable period of time not to exceed 60 days (or such earlier time as such transaction is consummated or no longer proposed or the material information has been made public) (the "Blackout Period"). There shall not be more than one Blackout Period in any 12 month period. The Company shall promptly notify the Holders in writing (a "Blackout Notice") of any decision to postpone a Demand Registration or to discontinue sales of Registrable Securities covered by a Shelf Registration pursuant to this Section 2.7 and shall include a general statement of the reason for such postponement, an approximation of the anticipated delay and an undertaking by the Company promptly to notify the Holders as soon as a Demand Registration may be effected or sales of Registrable Securities covered by a Shelf Registration may resume. In making any such determination to initiate or terminate a Blackout Period, the Company shall not be required to consult with or obtain the consent of any Holder, and any such determination shall be the Company's sole responsibility. Each Holder shall treat all notices received from the Company pursuant to this Section 2.7 in the strictest confidence and shall not disseminate such information. If the Company shall postpone the filing of a Demand Registration Statement, the Majority Holders of Registrable Securities who were to participate therein shall have the right to withdraw the request for registration. Any such withdrawal shall be made by giving written notice to the Company within 30 days after receipt of the Blackout Notice. Such withdrawn registration request shall not be treated as a Demand Registration effected pursuant to Section 2.1 (and shall not be counted towards the number of Demand Registrations effected), and the Company shall pay all Registration Expenses in connection therewith. 3. HOLDBACK ARRANGEMENTS. 3.1. Restrictions on Sale by Holders of Registrable Securities. Each Holder of Registrable Securities agrees, by acquisition of such Registrable Securities, if timely requested in writing by the sole or lead managing Underwriter in an Underwritten Offering of any Registrable Securities, not to make any short sale of, loan, grant any option for the purchase of or effect any public sale or distribution, including a sale pursuant to Rule 144 (or any successor provision having similar effect) under the Securities Act of any Registrable Securities or any other security of the Company (or any security convertible into or exchangeable or exercisable for any security of the Company) (except as part of such underwritten registration), during the nine business days (as such term is used in Rule 10b-6 under the Exchange Act) prior to, and during the time period reasonably requested by the sole or lead managing Underwriter not to exceed 90 days, beginning on the effective date of the applicable Registration Statement. 3.2. Restrictions on Sale by the Company and Others. The Company agrees that (i) if timely requested in writing by the sole or lead managing Underwriter in an Underwritten Offering of any Registrable Securities, not to make any short sale of, loan, grant any option for the purchase of or effect any public sale or distribution of any of the Company's securities (or any security convertible into or exchangeable or exercisable for any of the Company's securities) during the nine business days (as such term is used in Rule 10b-6 under the Exchange Act) prior to, and during the time period reasonably requested by the sole or lead managing Underwriter not to exceed 90 days (or such longer period to the extent such sole or lead managing Underwriter shall so reasonably request), beginning on the effective date of the applicable Registration Statement (except as part of such underwritten registration or pursuant to registrations on Forms S-4 or S-8 or any successor form to such forms), and (ii) it will cause each holder of securities (or any security convertible into or exchangeable or exercisable for any of its securities) of the Company purchased from the Company at any time after the date of this Agreement (other than in a registered public offering) to so agree. 4. REGISTRATION PROCEDURES. 4.1. Obligations of the Company. Whenever the Company is required to effect the registration of Registrable Securities under the Securities Act pursuant to Section 2 of this Agreement, the Company shall, as expeditiously as possible: (a) prepare and file with the SEC (promptly, and in any event within 45 days after receipt of a request to register Registrable Securities) the requisite Registration Statement to effect such registration, which Registration Statement shall comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the SEC to be filed therewith, and the Company shall use its best efforts to cause such Registration Statement to become effective (provided, that the Company may discontinue any registration of its securities that are not Registrable Securities, and, under the circumstances specified in Section 2.2, its securities that are Registrable Securities); provided, however, that before filing a Registration Statement or Prospectus or any amendments or supplements thereto, or comparable statements under securities or blue sky laws of any jurisdiction, the Company shall (i) provide Holders' Counsel and any other Inspector with an adequate and appropriate opportunity to participate in the preparation of such Registration Statement and each Prospectus included therein (and each amendment or supplement thereto or comparable statement) to be filed with the SEC, which documents shall be subject to the review and comment of Holders' Counsel, and (ii) not file any such Registration Statement or Prospectus (or amendment or supplement thereto or comparable statement) with the SEC to which Holder's Counsel, any selling Holder or any other Inspector shall have reasonably objected on the grounds that such filing does not comply in all material respects with the requirements of the Securities Act or of the rules or regulations thereunder; (b) prepare and file with the SEC such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary (i) to keep such Registration Statement effective, and (ii) to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such Registration Statement, in each case until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller(s) thereof set forth in such Registration Statement; provided, that except with respect to any Shelf Registration, such period need not extend beyond nine months after the effective date of the Registration Statement; and provided further, that with respect to any Shelf Registration, such period need not extend beyond the time period provided in Section 2.3, and which periods, in any event, shall terminate when all Registrable Securities covered by such Registration Statement have been sold (but not before the expiration of the 90 day period referred to in Section 4(3) of the Securities Act and Rule 174 thereunder, if applicable); (c) furnish, without charge, to each selling Holder of such Registrable Securities and each Underwriter, if any, of the securities covered by such Registration Statement, such number of copies of such Registration Statement, each amendment and supplement thereto (in each case including all exhibits), and the Prospectus included in such Registration Statement (including each preliminary Prospectus) in conformity with the requirements of the Securities Act, and other documents, as such selling Holder and Underwriter may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities owned by such selling Holder (the Company hereby consenting to the use in accordance with applicable law of each such Registration Statement (or amendment or post-effective amendment thereto) and each such Prospectus (or preliminary prospectus or supplement thereto) by each such selling Holder of Registrable Securities and the Underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such Registration Statement or Prospectus); (d) prior to any public offering of Registrable Securities, use its best efforts to register or qualify all Registrable Securities and other securities covered by such Registration Statement under such other securities or blue sky laws of such jurisdictions as any selling Holder of Registrable Securities covered by such Registration Statement or the sole or lead managing Underwriter, if any, may reasonably request to enable such selling Holder to consummate the disposition in such jurisdictions of the Registrable Securities owned by such selling Holder and to continue such registration or qualification in effect in each such jurisdiction for as long as such Registration Statement remains in effect (including through new filings or amendments or renewals), and do any and all other acts and things which may be necessary or advisable to enable any such selling Holder to consummate the disposition in such jurisdictions of the Registrable Securities owned by such selling Holder; provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 4.1(d), (ii) subject itself to taxation in any such jurisdiction, or (iii) consent to general service of process in any such jurisdiction; (e) use its best efforts to obtain all other approvals, consents, exemptions or authorizations from such governmental agencies or authorities as may be necessary to enable the selling Holders of such Registrable Securities to consummate the disposition of such Registrable Securities; (f) promptly notify Holders' Counsel, each Holder of Registrable Securities covered by such Registration Statement and the sole or lead managing Underwriter, if any: (i) when the Registration Statement, any pre-effective amendment, the Prospectus or any prospectus supplement related thereto or post-effective amendment to the Registration Statement has been filed and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC or any state securities or blue sky authority for amendments or supplements to the Registration Statement or the Prospectus related thereto or for additional information, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or the initiation or threat of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the securities or blue sky laws of any jurisdiction or the initiation of any proceeding for such purpose, (v) of the existence of any fact of which the Company becomes aware or the happening of any event which results in (A) the Registration Statement containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make any statements therein not misleading, or (B) the Prospectus included in such Registration Statement containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make any statements therein, in the light of the circumstances under which they were made, not misleading, (vi) if at any time the representations and warranties contemplated by Section 2.5(b) cease to be true and correct in all material respects, and (vii) of the Company's reasonable determination that a post-effective amendment to a Registration Statement would be appropriate or that there exists circumstances not yet disclosed to the public which make further sales under such Registration Statement inadvisable pending such disclosure and post-effective amendment; and, if the notification relates to an event described in any of the clauses (ii) through (vii) of this Section 4.1(f), the Company shall promptly prepare a supplement or post-effective amendment to such Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that (1) such Registration Statement shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (2) as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein in the light of the circumstances under which they were made not misleading (and shall furnish to each such Holder and each Underwriter, if any, a reasonable number of copies of such Prospectus so supplemented or amended); and if the notification relates to an event described in clause (iii) of this Section 4.1(f), the Company shall take all reasonable action required to prevent the entry of such stop order or to remove it if entered; (g) make available for inspection by any selling Holder of Registrable Securities, any sole or lead managing Underwriter participating in any disposition pursuant to such Registration Statement, Holders' Counsel and any attorney, accountant or other agent retained by any such seller or any Underwriter (each, an "Inspector" and, collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of the Company and any subsidiaries thereof as may be in existence at such time (collectively, the "Records") as shall be necessary, in the opinion of such Holders' and such Underwriters' respective counsel, to enable them to exercise their due diligence responsibility and to conduct a reasonable investigation within the meaning of the Securities Act, and cause the Company's and any subsidiaries' officers, directors and employees, and the independent public accountants of the Company, to supply all information reasonably requested by any such Inspectors in connection with such Registration Statement; (h) obtain an opinion from the Company's counsel and a "cold comfort" letter from the Company's independent public accountants who have certified the Company's financial statements included or incorporated by reference in such Registration Statement, in each case dated the effective date of such Registration Statement (and if such registration involves an Underwritten Offering, dated the date of the closing under the underwriting agreement), in customary form and covering such matters as are customarily covered by such opinions and "cold comfort" letters delivered to underwriters in underwritten public offerings, which opinion and letter shall be reasonably satisfactory to the sole or lead managing Underwriter, if any, and to the Majority Holders of the Registration, and furnish to each Holder participating in the offering and to each Underwriter, if any, a copy of such opinion and letter addressed to such Holder (in the case of the opinion) and Underwriter (in the case of the opinion and the "cold comfort" letter); (i) provide a CUSIP number for all Registrable Securities and provide and cause to be maintained a transfer agent and registrar for all such Registrable Securities covered by such Registration Statement not later than the effectiveness of such Registration Statement; (j) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC and any other governmental agency or authority having jurisdiction over the offering, and make available to its security holders, as soon as reasonably practicable but no later than 90 days after the end of any 12-month period, an earnings statement (i) commencing at the end of any month in which Registrable Securities are sold to Underwriters in an Underwritten Offering and (ii) commencing with the first day of the Company's calendar month next succeeding each sale of Registrable Securities after the effective date of a Registration Statement, which statement shall cover such 12-month periods, in a manner which satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; (k) if so requested by the Majority Holders of the Registration, use its best efforts to cause all such Registrable Securities to be listed (i) on each national securities exchange on which the Company's securities are then listed or (ii) if securities of the Company are not at the time listed on any national securities exchange (or if the listing of Registrable Securities is not permitted under the rules of each national securities exchange on which the Company's securities are then listed), on a national securities exchange designated by the Majority Holders of the Registration; (l) keep each selling Holder of Registrable Securities advised in writing as to the initiation and progress of any registration under Section 2 hereunder; (m) enter into and perform customary agreements (including, if applicable, an underwriting agreement in customary form) and provide officers' certificates and other customary closing documents; (n) cooperate with each selling Holder of Registrable Securities and each Underwriter participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the NASD and make reasonably available its employees and personnel and otherwise provide reasonable assistance to the Underwriters (taking into account the needs of the Company's businesses and the requirements of the marketing process) in the marketing of Registrable Securities in any Underwritten Offering; (o) furnish to each Holder participating in the offering and the sole or lead managing Underwriter, if any, without charge, at least one manually-signed copy of the Registration Statement and any post-effective amendments thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those deemed to be incorporated by reference); (p) cooperate with the selling Holders of Registrable Securities and the sole or lead managing Underwriter, if any, to facilitate the timely preparation and delivery of certificates not bearing any restrictive legends representing the Registrable Securities to be sold, and cause such Registrable Securities to be issued in such denominations and registered in such names in accordance with the underwriting agreement prior to any sale of Registrable Securities to the Underwriters or, if not an Underwritten Offering, in accordance with the instructions of the selling Holders of Registrable Securities at least three business days prior to any sale of Registrable Securities; (q) if requested by the sole or lead managing Underwriter or any selling Holder of Registrable Securities, immediately incorporate in a prospectus supplement or post-effective amendment such information concerning such Holder of Registrable Securities, the Underwriters or the intended method of distribution as the sole or lead managing Underwriter or the selling Holder of Registrable Securities reasonably requests to be included therein and as is appropriate in the reasonable judgment of the Company, including, without limitation, information with respect to the number of shares of the Registrable Securities being sold to the Underwriters, the purchase price being paid therefor by such Underwriters and with respect to any other terms of the Underwritten Offering of the Registrable Securities to be sold in such offering; make all required filings of such Prospectus supplement or post-effective amendment as soon as notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment; and supplement or make amendments to any Registration Statement if requested by the sole or lead managing Underwriter of such Registrable Securities; and (r) use its best efforts to take all other steps necessary to expedite or facilitate the registration and disposition of the Registrable Securities contemplated hereby. 4.2. Seller Information. The Company may require each selling Holder of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding such Holder, such Holder's Registrable Securities and such Holder's intended method of disposition as the Company may from time to time reasonably request in writing; provided that such information shall be used only in connection with such registration. If any Registration Statement or comparable statement under "blue sky" laws refers to any Holder by name or otherwise as the Holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance satisfactory to such Holder and the Company, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, and (ii) in the event that such reference to such Holder by name or otherwise is not in the judgment of the Company, as advised by counsel, required by the Securities Act or any similar federal statute or any state "blue sky" or securities law then in force, the deletion of the reference to such Holder. 4.3. Notice to Discontinue. Each Holder of Registrable Securities agrees by acquisition of such Registrable Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4.1(f)(ii) through (vii), such Holder shall forthwith discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 4.1(f) and, if so directed by the Company, such Holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the Prospectus covering such Registrable Securities which is current at the time of receipt of such notice. If the Company shall give any such notice, the Company shall extend the period during which such Registration Statement shall be maintained effective pursuant to this Agreement (including, without limitation, the period referred to in Section 4.1(b)) by the number of days during the period from and including the date of the giving of such notice pursuant to Section 4.1(f) to and including the date when the Holder shall have received the copies of the supplemented or amended prospectus contemplated by and meeting the requirements of Section 4.1(f). 5. INDEMNIFICATION; CONTRIBUTION. 5.1. Indemnification by the Company. The Company agrees to indemnify and hold harmless, to the fullest extent permitted by law, each Holder of Registrable Securities, its officers, directors, partners, members, shareholders, employees, Affiliates and agents (collectively, "Agents") and each Person who controls such Holder (within the meaning of the Securities Act) and its Agents with respect to each registration which has been effected pursuant to this Agreement, against any and all losses, claims, damages or liabilities, joint or several, actions or proceedings (whether commenced or threatened) in respect thereof, and expenses (as incurred or suffered and including, but not limited to, any and all expenses incurred in investigating, preparing or defending any litigation or proceeding, whether commenced or threatened, and the reasonable fees, disbursements and other charges of legal counsel) in respect thereof (collectively, "Claims"), insofar as such Claims arise out of or are based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus (including any preliminary, final or summary prospectus and any amendment or supplement thereto) related to any such registration or any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Securities Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, or any qualification or compliance incident thereto; provided, however, that the Company will not be liable in any such case to the extent that any such Claims arise out of or are based upon any untrue statement or alleged untrue statement of a material fact or omission or alleged omission of a material fact so made in reliance upon and in conformity with written information furnished to the Company specifically for use therein. The Company shall also indemnify any Underwriters of the Registrable Securities, their Agents and each Person who controls any such Underwriter (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the Holders of Registrable Securities. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any Person who may be entitled to indemnification pursuant to this Section 5 and shall survive the transfer of securities by such Holder or Underwriter. 5.2. Indemnification by Holders. Each Holder, if Registrable Securities held by it are included in the securities as to which a registration is being effected, agrees to, severally and not jointly, indemnify and hold harmless, to the fullest extent permitted by law, the Company, its directors and officers, each other Person who participates as an Underwriter in the offering or sale of such securities and its Agents and each Person who controls the Company or any such Underwriter (within the meaning of the Securities Act) and its Agents against any and all Claims, insofar as such Claims arise out of or are based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus (including any preliminary, final or summary prospectus and any amendment or supplement thereto) related to such registration, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company specifically for use therein; provided, however, that the aggregate amount which any such Holder shall be required to pay pursuant to this Section 5.2 shall in no event be greater than the amount of the net proceeds received by such Holder upon the sale of the Registrable Securities pursuant to the Registration Statement giving rise to such Claims less all amounts previously paid by such Holder with respect to any such Claims. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such indemnified party and shall survive the transfer of such securities by such Holder or Underwriter. 5.3. Conduct of Indemnification Proceedings. Promptly after receipt by an indemnified party of notice of any Claim or the commencement of any action or proceeding involving a Claim under this Section 5, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party pursuant to Section 5, (i) notify the indemnifying party in writing of the Claim or the commencement of such action or proceeding; provided, that the failure of any indemnified party to provide such notice shall not relieve the indemnifying party of its obligations under this Section 5, except to the extent the indemnifying party is materially and actually prejudiced thereby and shall not relieve the indemnifying party from any liability which it may have to any indemnified party otherwise than under this Section 5, and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided, however, that any indemnified party shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (A) the indemnifying party has agreed in writing to pay such fees and expenses, (B) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such indemnified party within 10 days after receiving notice from such indemnified party that the indemnified party believes it has failed to do so, (C) in the reasonable judgment of any such indemnified party, based upon advice of counsel, a conflict of interest may exist between such indemnified party and the indemnifying party with respect to such claims (in which case, if the indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such indemnified party) or (D) such indemnified party is a defendant in an action or proceeding which is also brought against the indemnifying party and reasonably shall have concluded that there may be one or more legal defenses available to such indemnified party which are not available to the indemnifying party. No indemnifying party shall be liable for any settlement of any such claim or action effected without its written consent, which consent shall not be unreasonably withheld. In addition, without the consent of the indemnified party (which consent shall not be unreasonably withheld), no indemnifying party shall be permitted to consent to entry of any judgment with respect to, or to effect the settlement or compromise of any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim), unless such settlement, compromise or judgment (1) includes an unconditional release of the indemnified party from all liability arising out of such action or claim, (2) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party, and (3) does not provide for any action on the part of any party other than the payment of money damages which is to be paid in full by the indemnifying party. 5.4. Contribution. If the indemnification provided for in Section 5.1 or 5.2 from the indemnifying party for any reason is unavailable to (other than by reason of exceptions provided therein), or is insufficient to hold harmless, an indemnified party hereunder in respect of any Claim, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Claim in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and the indemnified party, on the other hand, in connection with the actions which resulted in such Claim, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. If, however, the foregoing allocation is not permitted by applicable law, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative faults but also the relative benefits of the indemnifying party and the indemnified party as well as any other relevant equitable considerations. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5.4 were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by a party as a result of any Claim referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth in Section 5.3, any legal or other fees, costs or expenses reasonably incurred by such party in connection with any investigation or proceeding. Notwithstanding anything in this Section 5.4 to the contrary, no indemnifying party (other than the Company) shall be required pursuant to this Section 5.4 to contribute any amount in excess of the net proceeds received by such indemnifying party from the sale of the Registrable Securities pursuant to the Registration Statement giving rise to such Claims, less all amounts previously paid by such indemnifying party with respect to such Claims. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 5.5. Other Indemnification. Indemnification similar to that specified in the preceding Sections 5.1 and 5.2 (with appropriate modifications) shall be given by the Company and each selling Holder of Registrable Securities with respect to any required registration or other qualification of securities under any Federal or state law or regulation of any governmental authority, other than the Securities Act. The indemnity agreements contained herein shall be in addition to any other rights to indemnification or contribution which any indemnified party may have pursuant to law or contract. 5.6. Indemnification Payments. The indemnification and contribution required by this Section 5 shall be made by periodic payments of the amount thereof during the course of any investigation or defense, as and when bills are received or any expense, loss, damage or liability is incurred. 6. GENERAL. 6.1. Adjustments Affecting Registrable Securities. The Company agrees that it shall not effect or permit to occur any combination or subdivision of shares which would adversely affect the ability of the Holder of any Registrable Securities to include such Registrable Securities in any registration contemplated by this Agreement or the marketability of such Registrable Securities in any such registration. 6.2. Registration Rights to Others. Other than pursuant to the Subscription Agreements listed on Schedule 6.2 hereto, the Company has not previously entered into an agreement with respect to its securities granting any registration rights to any Person. If the Company shall at any time hereafter provide to any holder of any securities of the Company rights with respect to the registration of such securities under the Securities Act, (i) such rights shall not be in conflict with or adversely affect any of the rights provided in this Agreement to the Holders and (ii) if such rights are provided on terms or conditions more favorable to such holder than the terms and conditions provided in this Agreement, the Company shall provide (by way of amendment to this Agreement or otherwise) such more favorable terms or conditions to the Holders. 6.3. Availability of Information; Rule 144; Rule 144A; Other Exemptions. Quarterly Information. Except during any period when the Company either (i) is subject to and is in compliance with the reporting requirements of Section 15(d) of the Exchange Act or (ii) has securities registered under Section 12(b) or 12(g) of the Exchange Act and is in compliance with the reporting requirements mandated thereby (such status being referred to as being a "Public Company"), the Company covenants that it shall timely file any reports required to be filed by it under the Securities Act or the Exchange Act (including, but not limited to, the reports under Sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c) of Rule 144 under the Securities Act), and that it shall take such further action as any Holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 and Rule 144A under the Securities Act, as such rules may be amended from time to time, or (ii) any other rule or regulation now existing or hereafter adopted by the SEC. Upon the request of any Holder of Registrable Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. If the Company is no longer a Public Company, the Company shall, at any time and from time to time, upon the request of any Holder of Registrable Securities and upon the request of any Person designated by such Holder as a prospective purchaser of any Registrable Securities, furnish in writing to such Holder or such prospective purchaser, as the case may be, a statement as of a date not earlier than 12 months prior to the date of such request of the nature of the business of the Company and the products and services it offers and copies of the Company's most recent balance sheet and profit and loss and retained earnings statements, together with similar financial statements for such part of the two preceding fiscal years as the Company shall have been in operation, all such financial statements to be audited to the extent audited statements are reasonable available, provided that, in any event the most recent financial statements so furnished shall include a balance sheet as of a date less than 16 months prior to the date of such request, statements of profit and loss and retained earnings for the 12 months preceding the date of such balance sheet, and, if such balance sheet is not as of a date less than 6 months prior to the date of such request, additional statements of profit and loss and retained earnings for the period from the date of such balance sheet to a date less than 6 months prior to the date of such request. 6.4. Amendments and Waivers. The provisions of this Agreement may not be amended, modified, supplemented or terminated, and waivers or consents to departures from the provisions hereof may not be given, without the written consent of the Company and the Holders of not less than 50% of the Registrable Securities then outstanding; provided, however, that no such amendment, modification, supplement, waiver or consent to departure shall reduce the aforesaid percentage of Registrable Securities without the written consent of all of the Holders of Registrable Securities; and provided further, that nothing herein shall prohibit any amendment, modification, supplement, termination, waiver or consent to departure the effect of which is limited only to those Holders who have agreed to such amendment, modification, supplement, termination, waiver or consent to departure. 6.5. Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, telecopier, any courier guaranteeing overnight delivery or first class registered or certified mail, return receipt requested, postage prepaid, addressed to the applicable party at the address set forth below or such other address as may hereafter be designated in writing by such party to the other parties in accordance with the provisions of this Section: (i) If to the Company, to: Complete Wellness Centers, Inc. 725 Independence Avenue, S.E. Washington, D.C. 20003 Attn: President Telecopy: (202) 543-5360 Telephone: (202) 543-6800 With a copy to: Epstein Becker & Green, P.C. 250 Park Avenue New York, New York 10177 Attn: David E. Fleming, Esq. Telecopy: (212) 661-0989 Telephone: (212) 351-4500 (ii) If to the Initial Holders, to: Wexford Management LLC 411 West Putnam Avenue Greenwich, Connecticut 06830 Attn: Frank Plimpton Telecopy: (203) 862-7490 Telephone: (203) 862-7400 With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, New York 10022 Attn: Randall H. Doud, Esq. Telecopy: (212) 735-2000 Telephone: (212) 735-3000 (iii) If to any subsequent Holder, to the address of such Person set forth in the records of the Company. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; when receipt is acknowledged, if telecopied; on the next business day, if timely delivered to a courier guaranteeing overnight delivery; and five days after being deposited in the mail, if sent first class or certified mail, return receipt requested, postage prepaid. 6.6. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors and permitted assigns (including any permitted transferee of Registrable Securities). Any Holder may assign to any permitted (as determined under the Warrants) transferee of its Registrable Securities (other than a transferee that acquires such Registrable Securities in a registered public offering or pursuant to a sale under Rule 144 of the Securities Act (or any successor rule)), its rights and obligations under this Agreement; provided, however, if any permitted transferee shall take and hold Registrable Securities, such transferee shall promptly notify the Company and by taking and holding such Registrable Securities such permitted transferee shall automatically be entitled to receive the benefits of and be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement as if it were a party hereto (and shall, for all purposes, be deemed a Holder under this Agreement). If the Company shall so request, any heir, successor or permitted assign (including any permitted transferee) shall agree in writing to acquire and hold the Registrable Securities subject to all of the terms hereof. For purposes of this Agreement, "successor" for any entity other than a natural person shall mean a successor to such entity as a result of such entity's merger, consolidation, liquidation, dissolution, sale of substantially all of its assets, or similar transaction. Except as provided above or otherwise permitted by this Agreement, neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by any Holder or by the Company without the consent of the other parties hereto. 6.7. Counterparts. This Agreement may be executed in two or more counterparts, each of which, when so executed and delivered, shall be deemed to be an original, but all of which counterparts, taken together, shall constitute one and the same instrument. 6.8. Descriptive Headings, Etc. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning of terms contained herein. Unless the context of this Agreement otherwise requires: (1) words of any gender shall be deemed to include each other gender; (2) words using the singular or plural number shall also include the plural or singular number, respectively; (3) the words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section and paragraph references are to the Sections and paragraphs of this Agreement unless otherwise specified; (4) the word "including" and words of similar import when used in this Agreement shall mean "including, without limitation," unless otherwise specified; (5) "or" is not exclusive; and (6) provisions apply to successive events and transactions. 6.9. Severability. In the event that any one or more of the provisions, paragraphs, words, clauses, phrases or sentences contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision, paragraph, word, clause, phrase or sentence in every other respect and of the other remaining provisions, paragraphs, words, clauses, phrases or sentences hereof shall not be in any way impaired, it being intended that all rights, powers and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law. 6.10. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware (without giving effect to the conflict of laws principles thereof). 6.11. Remedies; Specific Performance. The parties hereto acknowledge that money damages would not be an adequate remedy at law if any party fails to perform in any material respect any of its obligations hereunder, and accordingly agree that each party, in addition to any other remedy to which it may be entitled at law or in equity, shall be entitled to seek to compel specific performance of the obligations of any other party under this Agreement, without the posting of any bond, in accordance with the terms and conditions of this Agreement in any court of the United States or any State thereof having jurisdiction, and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law. Except as otherwise provided by law, a delay or omission by a party hereto in exercising any right or remedy accruing upon any such breach shall not impair the right or remedy or constitute a waiver of or acquiescence in any such breach. No remedy shall be exclusive of any other remedy, including those provided for in the Warrants. All available remedies shall be cumulative. 6.12. Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises or undertakings, other than those set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the Company and the other parties to this Agreement with respect to such subject matter. 6.13. Nominees for Beneficial Owners. In the event that any Registrable Securities are held by a nominee for the beneficial owner thereof, the beneficial owner thereof may, at its election in writing delivered to the Company, be treated as the holder of such Registrable Securities for purposes of any request or other action by any holder or holders of Registrable Securities pursuant to this Agreement or any determination of any number or percentage of shares of Registrable Securities held by any holder or holders of Registrable Securities contemplated by this Agreement. If the beneficial owner of any Registrable Securities so elects, the Company may require assurances reasonably satisfactory to it of such owner's beneficial ownership of such Registrable Securities. 6.14. Consent to Jurisdiction; Waiver of Jury. Each party to this Agreement hereby irrevocably and unconditionally agrees that any legal action, suit or proceeding arising out of or relating to this Agreement or any agreements or transactions contemplated hereby may be brought in any federal court of the Southern District of New York or any state court located in New York County, State of New York, and hereby irrevocably and unconditionally expressly submits to the personal jurisdiction and venue of such courts for the purposes thereof and hereby irrevocably and unconditionally waives any claim (by way of motion, as a defense or otherwise) of improper venue, that it is not subject personally to the jurisdiction of such court, that such courts are an inconvenient forum or that this Agreement or the subject matter may not be enforced in or by such court. Each party hereby irrevocably and unconditionally consents to the service of process of any of the aforementioned courts in any such action, suit or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the address set forth or provided for in Section 6.5 of this Agreement, such service to become effective 10 days after such mailing. Nothing herein contained shall be deemed to affect the right of any party to serve process in any manner permitted by law or commence legal proceedings or otherwise proceed against any other party in any other jurisdiction to enforce judgments obtained in any action, suit or proceeding brought pursuant to this Section. EACH OF THE PARTIES HEREBY IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING, WHETHER AT LAW OR EQUITY, BROUGHT BY ANY OF THEM IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 6.15. Further Assurances. Each party hereto shall do and perform or cause to be done and performed all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments and documents as any other party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. 6.16. No Inconsistent Agreements. The Company will not hereafter enter into any agreement which is inconsistent with the rights granted to the Holders in this Agreement. 6.17. Construction. The Company and the Initial Holders acknowledge that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement with its legal counsel and that this Agreement shall be construed as if jointly drafted by the Company and the Holders. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above. COMPLETE WELLNESS CENTERS, INC. BY /s/ E. Eugene Sharer Name: Title: INITIAL HOLDERS: IMPRIMIS INVESTORS LLC BY /s/ Frank Plimpton Name: Title: WEXFORD SPECTRUM INVESTORS LLC BY /s/ Frank Plimpton Name: Title: EX-99 10 EXHIBIT IX - CERTIFICATE OF DESIGNATION EXHIBIT IX FORM OF CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF THE SENIOR REDEEMABLE PREFERRED STOCK ($.01 Par Value) OF COMPLETE WELLNESS CENTERS, INC. -------------------------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware -------------------------------------------- The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted on January 9, 1998, by the Board of Directors (the "Board") of Complete Wellness Centers, Inc., a Delaware corporation (hereinafter called the "Corporation"), in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware: RESOLVED that pursuant to authority expressly granted to and vested in the Board by provisions of the Certificate of Incorporation of the Corporation (the "Certificate of Incorporation"), the issuance of a series of Preferred Stock, par value $.01 per share (the "Preferred Stock"), which shall consist of up to 134,500 of the 2,000,000 shares of Preferred Stock which the Corporation now has authority to issue, be, and the same hereby is, authorized, and the powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the shares of such series (in addition to the powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, set forth in the Certificate of Incorporation which may be applicable to the Preferred Stock) are fixed as follows: (i) The designation of such series of the Preferred Stock authorized by this resolution shall be the Senior Redeemable Preferred Stock (the "Senior Preferred Stock"). The total number of shares of the Senior Preferred Stock shall be 134,500. (ii) Holders of shares of Senior Preferred Stock will be entitled to receive, when and as declared by the Board out of assets of the Corporation legally available for payment, an annual cash dividend per share equal to (A) in the case of dividends accruing on or prior to December 31, 2000, 8% of the Liquidation Preference (as defined below) thereof on the relevant dividend payment date payable in cash or, if such payment in cash is not then made, 10% of the Liquidation Preference thereof on the relevant dividend payment date payable in additional shares of Senior Preferred Stock (which may include fractional shares) and (B) in the case of dividends accruing after December 31, 2000, 12% of the Liquidation Preference thereof on the relevant payment date payable in cash, in each case accruing, with respect to 20,000 shares of Senior Preferred Stock outstanding, from January 12, 1998, and with respect to 80,000 of Senior Preferred Stock outstanding, from January 27, 1998, and payable in quarterly installments on March 31, June 30, September 30 and December 31, commencing March 31, 1998 (each a "dividend payment date"). Unless full dividends on the Senior Preferred Stock have been paid, no dividends (other than in Common Stock of the Corporation) may be paid or declared and set aside for payment or other distribution made upon the Common Stock or on any other stock of the Corporation, nor may any Common Stock or any other stock of the Corporation be redeemed, purchased or otherwise acquired for any consideration (or any payment made to or available for a sinking fund for the redemption of any shares of such stock). Dividends payable on the Senior Preferred Stock for any period less than the full dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. For purposes of this paragraph (ii), "Liquidation Preference" shall have the meaning set forth in paragraph (iii) below with the relevant dividend payment date being deemed to be the date of final distribution. (iii) The shares of Senior Preferred Stock shall rank prior to the shares of Common Stock and of any other class of stock of the Corporation, so that in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the Senior Preferred Stock shall be entitled to receive out of the assets of the Corporation available for distribution to its stockholders, whether from capital, surplus or earnings, before any distribution is made to holders of shares of Common Stock or any other such stock, an amount equal to the stated amount thereof of $50 per share (or proportionate amount thereof in the case of any fractional shares of Senior Preferred Stock) plus an amount equal to all dividends (whether or not earned or declared) accumulated and unpaid on the shares of Senior Preferred Stock to the date of final distribution, such determination to be made, in the even that dividends remain unpaid as to one or more dividend payment dates, by deeming the amount of any dividend not paid on the relevant dividend payment date as having been added to the stated amount of the underlying share as of such dividend payment date (the amount as so determined, the "Liquidation Preference" of a share of Senior Preferred Stock). After payment of the full amount of the Liquidation Preference, the holders of shares of Senior Preferred Stock will not be entitled to any further participation in any distribution of assets by the Corporation. If, upon any liquidation, dissolution or winding up of the Corporation, the assets of the Corporation, or proceeds thereof, distributable among the holders of shares of Senior Preferred Stock shall be insufficient to pay in full the preferential amount aforesaid, then such assets, or the proceeds thereof, shall be distributable among such holders ratably in accordance with the respective amounts which would be payable on such shares if all amounts payable thereon were payable in full. For the purposes hereof, neither a consolidation or merger of the Corporation with or into any other corporation, nor a merger of any other corporation with or into the Corporation, nor a sale or transfer of all or any part of the Corporation's assets for cash or securities shall be considered a liquidation, dissolution or winding up of the Corporation. (iv) The shares of Senior Preferred Stock will be mandatorily redeemable by the Corporation as provided in this paragraph (iv): (A) All shares of Senior Preferred Stock shall be mandatorily redeemable on the earlier of (1) December 31, 2000 and (2) the date of completion of any financing by the Corporation or any of its subsidiaries after the initial date of issuance of the Senior Preferred Stock, the gross proceeds of which taken together with the gross proceeds of any and all other financings by the Corporation or any of its subsidiaries aggregates in excess of $5,000,000, provided, however, that the Corporation may exclude from such aggregate gross proceeds up to $3,500,000 of gross proceeds that the Corporation receives upon the exercise of the Corporation's Redeemable Common Stock Purchase Warrants issued pursuant to the Warrant Agreement, dated as of February 24, 1997, between the Corporation and American Stock Transfer and Trust Company, provided that all such exercises are in accordance with the terms thereof as in effect as of the date of issuance of the Senior Preferred Stock. (B) In the event of any breach of the agreements in paragraph (v) below, or any breach by the Corporation of the Supplement to the Investment Agreement, dated as of January 12, 1998, among Imprimis Investors LLC, Wexford Spectrum Investors LLC and the Corporation, the Corporation shall redeem such number of shares of Senior Preferred Stock as shall be requested by the holders thereof upon at least five days' notice to the Corporation. (C) The redemption price for shares of Senior Preferred Stock being redeemed shall be the Liquidation Preference for the shares being redeemed determined as if the date of final distribution were the date on which the payment of the redemption price is made. (v) (A) For so long as any shares of Senior Preferred Stock remain outstanding, the Corporation will not, either directly or indirectly or through merger or consolidation with any other corporation, without the affirmative vote at a meeting or the written consent with or without a meeting of the holders of at least 66-2/3 percent in number of shares of the Senior Preferred Stock then outstanding, amend, alter or repeal any of the provisions of the Certificate of Incorporation (including this resolution) so as to affect adversely the preferences, special rights or powers of the Senior Preferred Stock or of the holders thereof. (B) As soon as practicable after the filing of this Certificate of Designation, Preferences and Rights, the Board of Directors of the Corporation shall take any action necessary, including calling a special meeting, to elect a designee of the holders of Senior Preferred Stock to the Board of Directors. Thereafter, for so long as any shares of Senior Preferred Stock remain outstanding, the Corporation shall take such action as shall be necessary to ensure that at least one designee of the holders of Senior Preferred Stock shall be duly elected to serve as a director of the Corporation. IN WITNESS WHEREOF, Complete Wellness Centers, Inc. has caused this Certificate to be made under the seal of the Corporation and signed by C. Thomas McMillen, Chairman, and attested by E. Eugene Sharer, President, this 12th day of January, 1998. COMPLETE WELLNESS CENTERS, INC. Attest: /s/ E. Eugene Sharer By: /s/ C. Thomas McMillen --------------------------- ---------------------------- E. Eugene Sharer, President C. Thomas McMillen & Assistant Secretary Chairman & CEO -----END PRIVACY-ENHANCED MESSAGE-----