1
EXHIBIT 10.1
SECOND SUPPLEMENT TO INVESTMENT AGREEMENT
SECOND SUPPLEMENT TO INVESTMENT AGREEMENT, dated as of July 2, 1998
(this "Second Supplement"), among Complete Wellness Centers, Inc., a Delaware
corporation (the "Company"), Imprimis Investors LLC ("Imprimis") and Wexford
Spectrum Investors LLC (together with Imprimis, the "Investors").
WHEREAS, the Company and the Investors are parties to the Investment
Agreement, dated as of December 19, 1997, as previously supplemented by the
Supplement to Investment Agreement, dated as of January 12, 1998 (such
Supplement, the "First Supplement" and such Investment Agreement, as
supplemented by the First Supplement, the "Investment Agreement"). Capitalized
terms used in this Second Supplement without definition shall have the meanings
ascribed to them in the Investment Agreement; and
WHEREAS, in order to permit the Company to meet certain requirements for
the continued listing of the Common Stock on the NASDAQ SmallCap Market, the
Company and the Investors desire to restructure the Investors' investment in the
Company in the manner provided in this Second Supplement.
1. The Certificate of Designations, Preferences and Rights providing
for the terms of a new series of Senior Convertible Preferred Stock (the "New
Preferred Stock") in the form of Exhibit A hereto shall be filed with the
Secretary of State of the State of Delaware on the date hereof (the "New
Certificate"), the New Certificate having been approved by the Board of
Directors of the Company and by the Investors as the holders of all outstanding
shares of the Senior Preferred Stock of the Company (the "Old Preferred Stock").
New certificates representing validly issued, fully paid and nonassessable
shares of New Preferred Stock with accrued dividends as provided in the New
Certificate are being issued to the Investors, with a certificate representing
80,000 shares of the New Preferred Stock being issued to Imprimis and a
certificate representing 20,000 shares of New Preferred Stock being issued to
Wexford. The Investors shall return to the Company the certificates representing
the
2
Old Preferred Stock as originally issued and the Company shall file with the
Secretary of State of the State of Delaware a Certificate of Decrease to
evidence the decrease to zero the number of authorized shares of the Old
Preferred Stock.
2. The Warrants shall be cancelled and returned to the Company by the
Investors.
3. In consideration of the Investors' agreement to exchange the Old
Preferred Stock for the New Preferred Stock as provided for in Section 1 and to
cancel the Warrants as provided for in Section 2, an aggregate of 100,000
validly issued, fully paid and nonassessable shares of Common Stock (the "Issued
Common Stock") are being issued to the Investors, with a certificate
representing 80,000 shares of the Issued Common Stock being issued to Imprimis
and a certificate representing 20,000 shares of Issued Common Stock being issued
to Wexford.
4. The Issued Common Stock and the Common Stock issuable upon
conversion of the New Preferred Stock as amended by Section 1 (the "Issuable
Common Stock"), together with any securities that may be issued in respect
thereof, shall constitute "Registrable Securities" for purposes of the
Registration Rights Agreement and the Registration Rights Agreement shall be
modified to increase the number of "Demand Registrations" for which the Company
pays the expenses of the holders of Registrable Securities from two to five.
5. Matters relating to the issuance and sale of the Issued Common
Stock, the exchange of the Old Preferred Stock for the New Preferred Stock and
the issuance of the Issuable Common Stock upon conversion thereof and the
execution and delivery by the Company of this Second Supplement shall be
addressed in an opinion from Xxxxxxx Xxxxxx & Green, P.C., special counsel to
the Company, dated the date hereof and substantially in the form of the opinion
of such firm previously provided under the Investment Agreement and otherwise
acceptable to the Investors.
6. The issuance and sale of the Issued Common Stock, the exchange of
the Old Preferred Stock for the New Preferred Stock and cancellation of the
Warrants
2
3
shall take place as soon as practicable after execution of this Second
Supplement, subject to (a) the delivery by the Company to the Investors of a
copy of the New Certificate certified by the Secretary of State of the State of
Delaware, (b) the execution and delivery by the Company to the Investors of the
certificates representing the Issued Common Stock and the New Preferred Stock,
(c) the payment by the Company to the Investors of $25,000 in partial
satisfaction of its obligation to reimburse the Investors for the reasonable
fees and expenses of their legal counsel under Section 9, (d) the delivery to
the Investors of the opinion referenced in Section 5, (e) the delivery by the
Investors to the Company of the certificates representing the Old Preferred
Stock and the Warrants, and (f) confirmation by the Company, which it hereby
makes, that the Company's representations and warranties contained in the
Investment Agreement were true and complete in all material respects when given
and that, apart from information contained in SEC Reports filed prior to the
date hereof or other written information that has been provided by the Company
to the Investors prior to the date hereof, there are no matters that would
require any material changes to such representations and warranties were they
being deemed to be given as of the date hereof, with such representations and
warranties deemed to cover as Capital Stock the New Preferred Stock, the Issued
Common Stock and the Issuable Common Stock and all information provided by the
Company to the Investors since January 12, 1998, including without limitation
all SEC Reports, all historical or projected financial information and all
information relating to any governmental investigation of or affecting the
Company, its practices or its employees. Although the transactions contemplated
by this Second Supplement shall be deemed to have occurred as of the date
hereof, the delivery by the Company of the certificates pursuant to clause (b),
the payment pursuant to clause (c) and the opinion pursuant to clause (d) shall
occur not later than July 6, 1998 and the delivery by the Investors of the
certificates pursuant to clause (e) shall occur promptly following such delivery
by the Company.
7. Notwithstanding the provision in Section 7 of the First Supplement
to the contrary, from and after the date hereof and for so long as any New
Preferred Stock remains outstanding, all of the "Negative Covenants" provided
for in Section VIII of the Investment
3
4
Agreement shall be reinstated and remain in full force and effect, except that
the exercise of the Company's optional redemption right under the New Preferred
Stock shall not be prohibited under Section VIII (E).
8. The Company shall, as soon as possible, but no later than 30 days
after the date hereof and in accordance with its certificate of incorporation
and by-laws and any applicable laws or rules, seek to obtain any and all
requisite shareholder approval (the "Shareholder Approval") of the increase in
its authorized shares of Common Stock to 50,000,000 and the issuance of the
Issued Common Stock and the Issuable Common Stock and provide evidence
reasonably satisfactory to the Investors that the Shareholder Approval shall
have been obtained. The Company shall submit to the Investors for their prior
approval copies of the resolutions or written consents pursuant to which the
shareholders will evidence the Shareholder Approval and any and all other
documents to be sent to shareholders in connection with seeking the Shareholder
Approval. Receipt of the Shareholder Approval is not a condition to the
transactions contemplated by this Second Supplement and, other than as
specifically contemplated by this Second Supplement or by the Amended
Certificate, a failure to obtain the Shareholder Approval shall have no effect
on the transactions contemplated hereby or the obligations of the Company
hereunder.
9. The Company confirms that it will promptly reimburse the Investors
for the reasonable fees and expenses of their legal counsel in connection with
this Second Supplement, the transactions contemplated hereby and the discussions
between the Company and the Investors through the date hereof arising out of the
Investment Agreement.
10. The Investors agree that, during the period prior to January 3,
1999, the Investors shall take no action with respect to the Company or its
affiliates, directors or employees based upon the Investors' allegations of
breach of the Investment Agreement or misrepresentations by the Company prior to
the date hereof. The Investors hereby agree to waive any claims based on such
alleged breaches and misrepresentations in the event that all of the New
Preferred Stock is redeemed by the Company within the time frame contemplated by
the New Certifi-
4
5
cate. The Company acknowledges that, by entering into this Second Supplement,
the Investors have not waived any rights or claims that they may have relating
to any such alleged breaches or misrepresentations other than under the
circumstances contemplated by the immediately preceding sentence.
11. The Investors have acquired and shall hold the New Preferred Stock
for their own account for investment only and not with a view to, or for resale
in connection with, the public sale or distribution thereof except pursuant to
sales registered under the Securities Act of 1933, as amended, or pursuant to an
exemption from registration provided thereunder. The Investors and their
affiliates agree not to short sell or to write any type of put options against
shares of the Common Stock and the Investors and their affiliates represent and
warrant that they will not use, directly or indirectly, any use shares of
Issuable Common Stock to cover any short sale position or put position in the
Common Stock that existed prior to or from the date hereof.
12. Except as modified pursuant to this Second Supplement, all terms
and provision of the Investment Agreement shall remain in full force and effect.
5
6
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplement to be duly executed as of the date first written above.
COMPLETE WELLNESS
CENTERS, INC.
BY /s/ C. XXXXXX XXXXXXXX
----------------------------------------
Name: C. Xxxxxx XxXxxxxx
Title: Chairman & CEO
IMPRIMIS INVESTORS LLC
BY /s/ XXXXXXXXX XXXXX
----------------------------------------
Name: Xxxxxxxxx Xxxxx
Title: SVP
WEXFORD SPECTRUM
INVESTORS LLC
BY /s/ XXXXXXXXX XXXXX
----------------------------------------
Name: Xxxxxxxxx Xxxxx
Title: SVP
6
7
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS
OF THE
SENIOR CONVERTIBLE PREFERRED STOCK
($.01 Par Value)
OF
COMPLETE WELLNESS CENTERS, INC.
------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------------------
The undersigned DOES HEREBY CERTIFY that the following resolution was
duly adopted on July 2, 1998 by the Board of Directors (the "Board") of Complete
Wellness Centers, Inc., a Delaware corporation (hereinafter called the
"Corporation"), in accordance with the provisions of Section 151 of the General
Corporation Law of the State of Delaware:
RESOLVED that pursuant to authority expressly granted to and
vested in the Board by provisions of the Certificate of Incorporation of
the Corporation (the "Certificate of Incorporation"), the issuance of a
series of Preferred Stock, par value $.01 per share (the "Preferred
Stock"), which shall consist of up to 134,500 of the 2,000,000 shares of
Preferred Stock which the Corporation now has authority to issue, be,
and the same hereby is, authorized, and the powers, designations,
preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, of
the shares of such series (in addition to the powers, designations,
preferences and relative, participating, optional or other
8
special rights, and the qualifications, limitations or restrictions
thereof, set forth in the Certificate of Incorporation which may be
applicable to the Preferred Stock) are fixed as follows:
(i) The designation of such series of the Preferred Stock
authorized by this resolution shall be the Senior Convertible Preferred Stock
(the "Senior Convertible Preferred Stock"). The total number of shares of the
Senior Convertible Preferred Stock shall be 134,500.
(ii) Holders of shares of Senior Convertible Preferred Stock
will be entitled to receive, when and as declared by the Board out of assets of
the Corporation legally available for payment, an annual cash dividend per share
equal to (A) in the case of dividends accruing on or prior to December 31, 2000,
8% of the Liquidation Preference (as defined below) thereof on the relevant
dividend payment date payable in cash or, if such payment in cash is not then
made, 10% of the Liquidation Preference thereof on the relevant dividend payment
date payable in additional shares of Senior Convertible Preferred Stock (which
may include fractional shares) and (B) in the case of dividends accruing after
December 31, 2000, 12% of the Liquidation Preference thereof on the relevant
payment date payable in cash, in each case accruing, with respect to 20,000
shares of Senior Convertible Preferred Stock outstanding, from January 12, 1998,
and with respect to 80,000 of Senior Convertible Preferred Stock outstanding,
from January 27, 1998, and payable in quarterly installments on March 31, June
30, September 30 and December 31, commencing March 31, 1998 (each a "dividend
payment date"). Unless full dividends on the Senior Convertible Preferred Stock
have been paid, no dividends (other than in Common Stock of the Corporation) may
be paid or declared and set aside for payment or other distribution made upon
the Common Stock or on any other stock of the Corporation, nor may any Common
Stock or any other stock of the Corporation be redeemed, purchased or otherwise
acquired for any consideration (or any payment made to or available for a
sinking fund for the redemption of any shares of such stock). Dividends payable
on the Senior Convertible Preferred Stock for any period less than the full
dividend period will be computed on the basis of a 360-day year consisting of
twelve 30-day months. For purposes of this paragraph (ii), "Liquidation
Preference" shall have the meaning set forth in
2
9
paragraph (iii) below with the relevant dividend payment date being deemed to be
the date of final distribution.
(iii) The shares of Senior Convertible Preferred Stock shall
rank prior to the shares of Common Stock and of any other class of stock of the
Corporation, so that in the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the holders of the Senior
Convertible Preferred Stock shall be entitled to receive out of the assets of
the Corporation available for distribution to its stockholders, whether from
capital, surplus or earnings, before any distribution is made to holders of
shares of Common Stock or any other such stock, an amount equal to the stated
amount thereof of $50 per share (or proportionate amount thereof in the case of
any fractional shares of Senior Convertible Preferred Stock) plus an amount
equal to all dividends (whether or not earned or declared) accumulated and
unpaid on the shares of Senior Convertible Preferred Stock to the date of final
distribution, such determination to be made, in the event that dividends remain
unpaid as to one or more dividend payment dates, by deeming the amount of any
dividend not paid on the relevant dividend payment date as having been added to
the stated amount of the underlying share as of such dividend payment date (the
amount as so determined, the "Liquidation Preference" of a share of Senior
Convertible Preferred Stock). After payment of the full amount of the
Liquidation Preference, the holders of shares of Senior Convertible Preferred
Stock will not be entitled to any further participation in any distribution of
assets by the Corporation. If, upon any liquidation, dissolution or winding up
of the Corporation, the assets of the Corporation, or proceeds thereof,
distributable among the holders of shares of Senior Convertible Preferred Stock
shall be insufficient to pay in full the preferential amount aforesaid, then
such assets, or the proceeds thereof, shall be distributable among such holders
ratably in accordance with the respective amounts which would be payable on such
shares if all amounts payable thereon were payable in full. For the purposes
hereof, neither a consolidation or merger of the Corporation with or into any
other corporation, nor a merger of any other corporation with or into the
Corporation, nor a sale or transfer of all or any part of the Corporation's
assets for cash or securities shall be considered a
3
10
liquidation, dissolution or winding up of the Corporation.
(iv) The shares of Senior Convertible Preferred Stock will be
optionally redeemable by the Corporation as provided in this paragraph (iv):
(A) The shares of Senior Convertible Preferred Stock
shall be optionally redeemable in whole but not in part during
the period from July 2, 1998 through January 3, 1999.
(B) The redemption price for shares of Senior
Convertible Preferred Stock being redeemed shall be the
Liquidation Preference for the shares being redeemed determined
as if the date of final distribution were the date on which the
payment of the redemption price is made and as if the dividends
thereon shall have accrued thereon at a rate of 12% per annum,
with respect to 20,000 shares of Senior Convertible Preferred
Stock outstanding, from January 12, 1998, and with respect to
80,000 of Senior Convertible Preferred Stock outstanding, from
January 27, 1998.
(v) At the option of the holder thereof and upon surrender
thereof for conversion to the Corporation at its corporate headquarters at any
time on or after January 3, 1999 or, should the Corporation fail to receive the
Shareholder Approval (as defined below) on or prior to August 31, 1998, on or
after August 31, 1998, each share of Senior Convertible Preferred Stock will be
convertible into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing the (x) the Liquidation Preference of such
share determined as of the date of conversion by (y) the lower of $1.75 and 75%
of the Current Market Price Per Share determined as of the trading day
immediately prior to the date of conversion, the Conversion Rate being subject
to adjustment as hereinafter provided:
(A) In case the Corporation shall on or after January
12, 1998 (1) pay a dividend in shares of its capital stock, (2)
subdivide its outstanding shares of Common Stock into a greater
number of shares, (3) combine its outstanding shares of Common
Stock into a smaller
4
11
number of shares, or (4) issue by reclassification of its shares
of Common Stock any shares of its capital stock, the Conversion
Rate in effect immediately prior thereto shall be adjusted so
that the holder of a share of Senior Convertible Preferred Stock
surrendered for conversion after the record date fixing
stockholders to be affected by such event, shall be entitled to
receive upon conversion the number of such shares of Common
Stock which such holder would have been entitled to receive
after the happening of such event had such share of Senior
Convertible Preferred Stock been converted immediately prior to
such record date. Such adjustment shall be made whenever any of
such events shall happen, but shall also be effective
retroactively as to shares of Senior Convertible Preferred Stock
converted between such record date and the date of the happening
of any such event.
(B) In case the Corporation shall on or after January
12, 1998 issue rights or warrants to all holders of its Common
Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Current Market
Price Per Share of Common Stock at the record date mentioned
below, the number of shares of Common Stock into which each
share of Senior Convertible Preferred Stock shall thereafter be
convertible shall be determined by multiplying the number of
shares of Common Stock into which such share of Senior
Convertible Preferred Stock was theretofore convertible by a
fraction, the numerator of which shall be the number of shares
of Common Stock outstanding on the date of issuance of such
rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and the
denominator of which shall be the number of the shares of Common
Stock outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering
price of the total number of shares so offered would purchase at
such Current Market Price Per Share. Such adjustment shall be
made whenever
5
12
such rights or warrants are issued, but shall also be effected
retroactively as to shares of Senior Convertible Preferred Stock
converted between the record date for the determination of
stockholders entitled to receive such rights or warrants and the
date such rights or warrants are issued.
(C) In case the Corporation shall on or after January
12, 1998 distribute to all holders of its Common Stock evidences
of its indebtedness or assets (excluding any cash dividend or
distribution made out of current or retained earnings) or rights
to subscribe other than as set forth in subparagraph (B) above,
then in each such case the number of shares of Common Stock into
which each share of Senior Convertible Preferred Stock shall
thereafter be convertible shall be determined by multiplying the
number of shares of Common Stock into which such share was
theretofore convertible by a fraction, the numerator of which
shall be the Current Market Price Per Share of the Common Stock
on the record date fixed by the Board for such distribution, and
the denominator of which shall be such Current Market Price Per
Share of the Common Stock less the then fair market value (as
determined by the Board, whose determination shall be
conclusive) of the portion of the assets, evidences of
indebtedness or subscription rights so distributed applicable to
one share of the Common Stock. Such adjustment shall be made
whenever any such distribution is made, but shall also be
effective retroactively as to shares of Senior Convertible
Preferred Stock converted between the record date for the
determination of stockholders entitled to receive such
distribution and the date such distribution is made.
(D) For the purpose of any computation under this
paragraph (v), the "Current Market Price Per Share" of Common
Stock at any date shall be deemed to be the average of the
closing sale prices for the 20 consecutive trading days before
the day in question. The closing sale price for each day shall
be reported by
6
13
the NASDAQ Stock Market or as reported by any successor central
market system.
(E) No adjustment in the conversion rate shall be
required unless such adjustment would require an increase or
decrease of at least 1% in such rate; provided, however, that
any adjustments which by reason of this subparagraph (E) are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under
this paragraph (v) shall be made to the nearest one-hundredth of
a share.
(F) No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon the
conversion of any share of Senior Convertible Preferred Stock.
If the conversion thereof results in a fraction, an amount equal
to such fraction multiplied by the Current Market Price Per
Share of Common Stock as of the conversion date shall he paid to
such holder in cash by the Corporation.
(G) In case the Corporation shall on or after January
12, 1998 enter into any consolidation, merger or other
transaction in which the shares of Common Stock are exchanged
for or changed into other stock or securities, cash and/or any
other property, then in each such case each share of Senior
Convertible Preferred Stock remaining outstanding at the time of
consummation of such transaction shall thereafter be convertible
into the kind and amount of such stock or securities, cash
and/or other property receivable upon consummation of such
transaction by a holder of the number of shares of Common Stock
into which such shares of Senior Convertible Preferred Stock
might have been converted immediately prior to consummation of
such transaction, assuming in each case that such holder of
Common Stock failed to exercise rights of election, if any, as
to the kind or amount of securities, cash or other property
receivable upon consummation of such transaction (provided that
if the kind or amount of securities, cash or other property
7
14
receivable upon consummation of such transaction is not the same
for each non-electing share, then the kind and amount of
securities, cash or other property receivable upon consummation
of such transaction for each non-electing share shall be deemed
to be the kind and amount as receivable per share by a plurality
of the non-electing shares).
(H) As used in this Certificate, "Shareholder Approval"
means any and all requisite approval of the shareholders of the
Corporation of the increase in its authorized shares of Common
Stock to 50,000,000 and the issuance of the Common Stock upon
conversion of the Senior Convertible Preferred Stock or as
contemplated by the Second Supplement to Investment Agreement,
dated as of July 2, 1998, among the Corporation, Imprimis
Investors LLC and Wexford Spectrum Investors LLC.
(vi) For so long as any shares of Senior Convertible Preferred
Stock remain outstanding, the Corporation will not, either directly or
indirectly or through merger or consolidation with any other
corporation, without the affirmative vote at a meeting or the written
consent with or without a meeting of the holders of at least 66-2/3
percent in number of shares of the Senior Convertible Preferred Stock
then outstanding, amend, alter or repeal any of the provisions of the
Certificate of Incorporation (including this resolution) so as to affect
adversely the preferences, special rights or powers of the Senior
Convertible Preferred Stock or of the holders thereof.
(vii) To convert any Senior Convertible Preferred Stock into
Common Stock, the holder shall give written notice to the Company (which
notice may be given by facsimile transmission) that the holder elects to
convert the same. Promptly thereafter such holder shall surrender the
Senior Convertible Preferred Stock at the office of the Company or of
any transfer agent for such stock. The Company shall, as soon as
practicable after receipt of such notice, issue and deliver to or upon
the order of such holder a certificate or certificates for the number of
shares of Common Stock to which the holder shall be entitled, and a new
stock certificate represent-
8
15
ing the remaining shares of Senior Convertible Preferred Stock (if any)
not converted. The Company shall use its reasonable best efforts to
effectuate any such issuance within 72 hours and to transmit the shares
of Common Stock by messenger or overnight delivery service to the
address designated by such holder. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date
such notice of conversion is received by the Company. The person or
persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder
or holders of such shares at the close of business on such date.
(viii) The holders of shares of Senior Convertible Preferred
Stock will be entitled to representation on the Corporation's Board of
Directors as provided in this paragraph (viii):
(A) For so long as any shares of Senior Convertible
Preferred Stock remain outstanding, the Corporation shall take
such action as shall be necessary to ensure that at least one
designee of the holders of Senior Convertible Preferred Stock
shall be duly elected to serve as a director of the Corporation.
Thereafter, such holders shall no longer be entitled for a
designee to serve as a director of the Corporation.
(B) In the event that the Corporation shall fail either
to (a) receive the Shareholder Approval on or prior to August
31, 1998, or (b) redeem all of the Senior Convertible Preferred
Stock pursuant to paragraph (iv) hereof on or prior to January
3, 1999, the Corporation shall, if and when requested by the
holders of a majority of the outstanding shares of the Senior
Convertible Preferred Stock to do so, take any action necessary,
including calling a special meeting, to elect designees of the
holders of a majority of the outstanding shares of the Senior
Convertible Preferred Stock to the Board of Directors such that
such designees shall constitute a majority of such Board of
Directors. Thereafter, for so long as any shares of Senior
Convertible Preferred
9
16
Stock remain outstanding, the Corporation shall take such action
as shall be necessary to ensure that such designees or successor
designees shall be duly elected to serve as directors of the
Corporation.
IN WITNESS WHEREOF, Complete Wellness Centers, Inc. has caused
this Certificate to be made under the seal of the Corporation and signed
by C. Xxxxxx XxXxxxxx, Chairman, and attested by E. Xxxxxx Xxxxxx,
President, this 2nd day of July, 1998.
COMPLETE WELLNESS CENTERS,
INC.
Attest: By: /s/ C. XXXXXX XXXXXXXX
-----------------------------
/s/ X.X. XXXXXX
-------------------------------
10
